InvenSense, Inc. Bets Big on Software

InvenSense (NYSE: INVN  ) took two more steps toward its strategic goal this week with the acquisitions of Movea and Trusted Positioning.

On the company's fourth quarter earnings call, CEO Behrooz Abdi noted, "Our strategy [is] to transition from a MEMS motion sensor company to a MotionTracking solutions company offering a full suite of motion and audio system on chip, or SoC, and embedded software."

As InvenSense adds more software solutions to its arsenal it can help mid-to-high end Android OEMs compete with Apple (NASDAQ: AAPL  ) and its dedicated M7 motion processor.

What did InvenSense just buy?
Although neither of InvenSense's acquisitions this week represent anything that might be immediately accretive, they both offer valuable intellectual property that InvenSense can integrate into its products.

Movea specializes in algorithms that interpret signals from motion sensors as well as audio sensors. The company's sensor hubs, developed in conjunction with some of InvenSense's competitors, provide low-power, highly accurate contextual awareness.

InvenSense can integrate Movea's technology into its SoC designs, moving away from the dedicated sensor hub. This will help OEMs improve battery life and provide even better "AlwaysOn" capabilities.

InvenSense's other purchase, Trusted Positioning, works to improve indoor positioning data by integrating multiple sensors such as GPS, motion sensors, and magnetometers (compasses). The company's software is also able to account for data from multiple devices carried by the same person to improve accuracy. This feature, once properly integrated into InvenSense's products, could lead to multiple design wins for InvenSense at OEMs producing both smartphones and wearables.

Overall, InvenSense is spending $81 million on the two acquisitions: $6 million in stock, $75 million in cash. That's a pretty hefty amount of cash for InvenSense, which had just over $117 million in cash and short term investments on its balance sheet at the end of last quarter.

Why motion tracking is a big deal
As Movea says on its website, "the quantified-self era has begun." People are more interested in using technology to help track their activities, and they're more data hungry than ever before.

Apple unveiled it's Health app at its WWDC event last month. The new iOS 8 feature integrates data from all your health related apps, allowing them to work with each other. Apple's app will also feature the ability to collect certain data itself, such as steps, for which Apple will use its M7 motion processor.

Of course, Apple isn't the only consumer technology company working on health and motion tracking. There are dozens of fitness bands, and smartphone OEMs are integrating more fitness related features, like heart rate monitors, into their designs.

Movea and Trusted Positioning will improve InvenSense's ability to market an all-in-one chip that allows for tracking information like activity detection, distance, speed, sport-specific information (e.g. tennis or golf swings), step count, calories burned, sleep analysis, and dozens of other possibilities.

Apple is able to produce its own chip and software to act as a hub for all its sensors, which allows for more customization and specialization. Smaller OEMs may opt for a more integrated approach offered by InvenSense (and its competitors) in order to save time and money. These acquisitions put InvenSense in a good position to win more designs from those OEMs.

The next phase for InvenSense
InvenSense has decidedly invested in its MotionTracking strategy with nearly two-thirds of its cash position in these two purchases. Considering the success the company's had with its MPU-6500 and the increased demand in health-related motion tracking, it seems like a good strategic goal for InvenSense to integrate more software capabilities with its chips. It fits in with its strategy of helping mid-tier OEMs differentiate their products.

Investors should watch for how these acquisitions affect InvenSense's balance sheet. Note that the impact won't show up until it's second quarter report, after the deals close. Management will provide more color on the acquisitions in the upcoming quarterly report.

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