2 Small Companies Competing for Control in Wearables

One problem with wearables is that the small screen -- or lack of a screen -- requires a different input solution. The most elegant solution is a simple voice control. Google (NASDAQ: GOOGL  ) implements this in its Glass headset, and Samsung (NASDAQOTH: SSNLF  ) implements it less effectively in the first iteration of its Gear.

Google's solution is nicer because the microphone is always on, waiting for you to command it with the preface "OK, Glass." Comparatively, Samsung requires you to double tap a button to turn the microphone on and use voice commands. Samsung's design certainly saves battery, but it's less convenient.

There are two companies leading the way in developing always-on voice solutions for wearables. They're poised to capitalize on the trend of smaller devices with tiny screens where touch interfaces become awkward or impossible. They are Cirrus Logic (NASDAQ: CRUS  ) and InvenSense (NYSE: INVN  ) .

Cirrus Logic
Cirrus is best known as the company behind the audio-processing chips in Apple's (NASDAQ: AAPL  ) iPhone. As Apple's iPhone and iPad unit sales growth slows, however, the company is looking for ways to diversify beyond one company's core products. Even Apple's business isn't necessarily a sure thing, as many were surprised when a teardown of the iPad Air revealed Maxim Integrated Products took the audio amplifier socket from Cirrus.

Cirrus, however, is better suited for smaller devices, where the design challenge is harder. With less battery power and air to amplify sound, Cirrus should be able to capture design wins in small devices like wearables with its leading audio processing technology. That includes a potential entry from Apple.

As for voice activation, Cirrus is taking steps to improve its position there, too. The company acquired Acoustic Technologies last fall. As a result, Cirrus is able to add noise-reduction, echo-cancellation, and voice-enhancement technologies to its portfolio. Although current applications of the technology are mostly limited to speakerphones, it's easy to see it being useful for any application that requires long-range microphone input.

Last month, Cirrus released a set of ultra-low-power voice processors that utilize Acoustic Technologies strengths. With the release, the company maintains its position with the lowest power implementation of voice wake-up technology.

InvenSense
InvenSense, best known for designing MEMS motion sensors like accelerometers and gyroscopes, is also diving into microphones after acquiring the segment from ADI last year. The company was key in the advancement of motion control -- see WiiMote -- and could be just as instrumental in voice control.

Last month, the company released a new MEMS microphone design. The top-port microphone design offers the same performance as its bottom-port designs. Most important, it supports AlwaysOn mode. As a result, OEMs looking for more flexibility in their designs will look to InvenSense.

InvenSense's strong relationships with Google and Samsung should give it a leg up, as both companies lead the charge into wearables. Samsung accounted for about one-third of the chipmaker's revenue last quarter, and its motion sensors are present in its first-generation Galaxy Gear.

Moreover, as OEMs outside of Samsung and Apple rely on Google's Android OS, InvenSense's strong integration with the OS ought to help it continue gaining design wins. The company's designs are essentially plug-and-play, making them a high value proposition for OEMs with short lead times or low budgets. InvenSense can optimize its hardware for optimal battery life by integrating its firmware with Android OS.

Similar product, different investments
InvenSense is still in growth mode, while Cirrus is acting more like a value stock after years of robust growth through Apple. That's why InvenSense trades around 28 times forward earnings, while Cirrus trades for less than 12 times forward earnings. More telling may be that Cirrus is expected to see declining revenue in the near future, while InvenSense continues racking up new design wins leading to robust revenue growth.

Cirrus' reliance on Apple is a big risk, and with rumors that Apple may release a large-form iPhone, it's no guarantee that Cirrus chips will be present in the upcoming device. Winning designs for always-on audio processing chips in wearables could diversify the company's revenue sufficiently.

Meanwhile, it could provide InvenSense another avenue to continue growing revenue at its historically rapid pace.

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