Ironically, InvenSense (INVN) has lost 20% of its value since Apple's (AAPL -0.81%) iPhone 6 was launched and teardowns confirmed that the sensor maker had scored crucial design wins in the new models. However, future prospects are being called into question by numerous Street analysts, which could be shaking investor confidence.
Baird downgraded InvenSense last week on concerns that one of the company's major smartphone OEM customers (likely Apple or Samsung) could be pursuing a dual-sourcing strategy for components like gyroscopes that InvenSense currently supplies. The analyst believes that rival STMicroelectronics (STM) is preparing to ramp production of 6-axis sensors for tier-one OEMs.
Today, Rosenblatt similarly downgraded the stock, fearing that InvenSense may be about to lose some or all of its iWin, triggering today's sell-off.
Is Apple about to have a change of heart?
Rosenblatt analyst Brian Blair believes that InvenSense could soon lose 50% to 100% of its newly acquired business from Apple due to technical problems with its MPU-6700 part, and how it performs in the iPhone 6. Apple could then go back to STMicro, which had previously supplied accelerometers and gyroscopes in iPhones until this year's models.
STMicro had long held down that spot, but InvenSense took home the design win with a combo sensor in both the iPhone 6 and 6 Plus, according to teardowns from iFixit and Chipworks. Interestingly enough, Apple also moved to a 2-sensor solution this year, adding a Bosch 3-axis accelerometer into the mix.
Chipworks believes that Apple added another accelerometer to minimize power consumption, since the Bosch part can operate at lower power when lower sensitivity will suffice. It would be analogous to Apple's recent adoption of motion co-processors (starting with the M7 last year and continuing with the M8 this year), which can sip power while getting the job done without having to bust out the big guns. Chipworks didn't notice any possible technical issues related to the InvenSense component.
It's too early to call
While it would be discouraging if InvenSense does lose this lucrative spot, it's a bit premature to know for sure. Apple does dual-source many components, so it's not unreasonable to think that it could buy sensors fro STMicro also. Additionally, teardowns only offer a limited glimpse inside a handful of units, hardly an adequate sample size to gauge if Apple is splitting its orders.
Investors have priced in hefty growth expectations, mostly related to Apple business. Shares currently trade at 6.7 times sales, representing a significant premium compared to STMicro, which is trading at 0.9 times sales. InvenSense's biggest customers are currently Samsung (30% of last quarter's revenue), LG (12%), and Xiaomi (10%), so the company's relationship with Apple is relatively smaller.
Still, another unknown is whether or not InvenSense will win a spot in the upcoming Apple Watch, but it definitely has a good shot at it. Apple's first wearable will feature similar sensors, even as it likely won't compare to the iPhone in terms of unit volumes.
InvenSense remains well positioned in the MEMS market, which is still set to explode in the coming years as the Internet of Things and wearables trends continue. Mobile devices continue to account for 80% of revenue, but InvenSense has plenty of opportunities in the pipeline. The sell-off could potentially offer a good entry point for investors in it for the long haul.
