InvenSense Inc. Wants to Help Samsung's Competition

Smartphones, particularly in the mid-to-low-end, are becoming increasingly commoditized.

Samsung (NASDAQOTH: SSNLF  ) is feeling the pressure as smaller "white box" OEMs manufacture generic Google (NASDAQ: GOOG  ) (NASDAQ: GOOGL  ) Android phones. InvenSense (NYSE: INVN  ) CEO Behrooz Abdi has one idea on how these generic phones can differentiate themselves from the competition -- buy his company's products.

Android phones aren't necessarily smartphones
Many of the low-end Android phones sold in developing countries aren't very smart. The units have phone and WiFi antennae, so they can make calls and browse the web, but they're missing the additional features that many high-end smartphone owners take for granted.


For example, this phone costs about $50, but lacks GPS and motion sensing capabilities. It's great for what it is, a feature phone upgrade, but it lacks the full capabilities of many smartphones.

Upgrading the motion sensing capabilities would allow the phone to sell for a much higher price. That's because many Android games require a gyroscope to get their full functionality. As a result, one small upgrade adds a ton of entertainment value to the device.

This is InvenSense's opportunity
InvenSense CEO Behrooz Abdi estimates that the mobile phone market is about 2 billion units, and smartphones made up about half of that last year. Additionally, only about half of smartphones have a gyroscope, so total gyroscope penetration is only about 25% of mobile phones.

But even in that 25% penetration, InvenSense had just a 20% market share last year, according to Abdi. In other words, only 5% of phones had an InvenSense sensor inside. Considering Samsung, InvenSense's biggest customer, took over 30% of the smartphone market in 2013, and has neglected to use InvenSense's top-notch gyroscopes in all of its products.

Of course, Samsung has relied on other companies for motion sensors, particularly for the low-end, but InvenSense management estimates its share of Samsung's designs are now well above 50%. As Samsung looks to differentiate its products, it's tapping InvenSense more and more.

How Samsung plans to stay ahead
Aside from offering better motion sensing capabilities than other low-end smartphones, Samsung is finally starting to take advantage of its investment in Tizen. Tizen is a mobile OS based on Google's open source Android.

After more than two years of development behind the scenes, Samsung is finally ready to release its first Tizen phone. Instead of opting for a low-end phone to launch Tizen on, however, Samsung is releasing a power-packed smartphone. The catch: it's launching in Russia first.

It's a clever move to get more developers working on Tizen apps. Developers already have enough limitations on the smartphone platform, adding more by restricting hardware capabilities would surely discourage some app makers. And if Samsung wants to succeed with Tizen, it needs apps.

I suspect Samsung will eventually roll out Tizen phones at all price ranges and all markets. When it does, it could take the Google approach of selling hardware near cost and making up margins on the backend with app downloads. This strategy, coupled with Samsung's scale, will allow the company to offer better hardware than its white box competitors while matching prices.

If successful, Samsung's Tizen could be a thorn in the side of Google. Samsung is the biggest Android phone manufacturer, especially on the high-end, and any distance put between Android and Samsung by Tizen could impact app sales while opening the door for competing search, email, and mapping services on smartphones. Not to mention the lost revenue from app downloads, which are naturally more prevalent on high-end phones.

Never get rid of generics though
Try as it might, however, Samsung will likely never get rid of the generic smartphones it competes with on the low-end. For InvenSense, though, the generic phones are simply getting better. That means better penetration of the market as we see wider adoption of gyroscopes and other motion sensors.

You can't afford to miss this
"Made in China" -- an all too familiar phrase. But not for much longer: There's a radical new technology out there, one that's already being employed by the U.S. Air Force, BMW and even Nike. Respected publications like The Economist have compared this disruptive invention to the steam engine and the printing press; Business Insider calls it "the next trillion dollar industry." Watch The Motley Fool's shocking video presentation to learn about the next great wave of technological innovation, one that will bring an end to "Made In China" for good. Click here!

Read/Post Comments (0) | Recommend This Article (3)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2984443, ~/Articles/ArticleHandler.aspx, 9/4/2015 10:48:33 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Adam Levy

Adam has been writing for The Motley Fool since 2012 covering consumer goods and technology companies. He spends about as much time thinking about Facebook and Twitter's businesses as he does using their products. For some lighthearted stock commentary and occasional St. Louis Cardinal mania

Today's Market

updated Moments ago Sponsored by:
DOW 16,175.80 -198.96 -1.22%
S&P 500 1,929.42 -21.71 -1.11%
NASD 4,710.21 -23.29 -0.49%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

9/4/2015 10:32 AM
INVN $9.97 Down -0.09 -0.89%
InvenSense CAPS Rating: *****
GOOG $603.30 Down -2.96 -0.49%
Google (C shares) CAPS Rating: ****
GOOGL $634.07 Down -2.98 -0.47%
Google (A shares) CAPS Rating: ****
SSNLF $932.51 Down +0.00 +0.00%
Samsung CAPS Rating: ***