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Why InvenSense Fell 11% Today

By Anders Bylund - Updated Feb 1, 2017 at 4:25PM

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Rumor has it that the sensor specialist's Apple contract might be in dire straits, and TDK could cancel its $1.3 billion buyout offer if that's true. How seriously should investors take this report?

What happened

Shares of InvenSense (INVN) took a sudden dive on Wednesday, plunging as much as 11.4% with little warning.

So what

Unconfirmed chatter that InvenSense might lose a component supply contract with Apple (AAPL 4.08%) cast a shadow over the company's pending merger with Japanese electronics veteran TDK (TTDKY 0.91%). Apple accounted for 40% of InvenSense's revenue in fiscal 2016, so any weakening of that crucial business relationship would clearly undermine InvenSense's value to TDK as well.

Spinning gyroscope on wire, representing InvenSense's smaller, electronic equivalents.

Image source: Getty Images.

Now what

TDK wants to establish itself as a major supplier of sensor solutions, and picking up InvenSense for $1.3 billion in cash would go a long way toward that goal. It's unclear how the rumors of a fallout between Apple and InvenSense got started, and the whispers could very well turn out to be mere hearsay and gossip.

I see no reason for InvenSense investors to take this report too seriously, because the pending merger provides a comfortable buffer for any newfound risks. If nothing else, having TDK back out would probably trigger a $46.7 million termination fee, addressed straight to InvenSense. TDK owners, on the other hand, may want to keep an eye on the InvenSense/Apple connection.

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Stocks Mentioned

InvenSense, Inc. Stock Quote
InvenSense, Inc.
INVN
Apple Inc. Stock Quote
Apple Inc.
AAPL
$149.64 (4.08%) $5.86
TDK Corporation Stock Quote
TDK Corporation
TTDKY
$34.53 (0.91%) $0.31

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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