Motley Fool Rule Breakers analyst Simon Erickson got a chance to interview InvenSense (NYSE:INVN) CEO Behrooz Abdi at the International Consumer Electronics Show in Las Vegas recently.

In the following video, Abdi gives his take on the following topics, to name just a few:

  • Which markets are InvenSense's largest opportunities
  • How to balance innovating new products with selling existing ones
  • A few things investors should pay attention to in this industry

Also, see why Abdi says "the Internet of Things is really the Internet of Sensors."

Transcript

SIMON ERICKSON:

Hey, Breakers. Simon Erickson here at the Consumer Electronics Show in Las Vegas. I'm joined by the CEO of InvenSense, Behrooz Abdi. Behrooz, thanks again for the time with us this afternoon.

BEHROOZ ABDI:

Thank you.

SIMON ERICKSON:

Everyone at the CES is talking about your company. InvenSense keeps coming up in panels and seminars, and it seems like you've got a zillion different applications out there. We've been following the trend and the growth in sensors and smartphones, but tell me. Are smartphones really going to continue to get large in the future, and are there other applications outside of smartphones that you think are even bigger opportunities?

BEHROOZ ABDI:

Well, a great question. In terms of the smartphone, it will continue to grow. The adoption today — we're only serving 25% of the smartphone [market] with our technology. If you look at the total market — about 2.2 billion — we're only serving 500-600 million. The adoption of the sensors continues to increase, so that growth is there for us. We obviously have been lucky to get a fairly significant market share in that market.

But I'm really excited about the diversification beyond smartphones. The theme for the company, the tag line, is now, "Sensing everything." I sometimes joke and say just about anything that moves will need one of our sensors. And that really is holding true.

I'm really stoked about immersive gaming. It's going to come in and you'll see companies like Virtrex. Drones. Platform stabilization. Automotive. Smart home with motion remote. These are all significant markets that have a myriad of sensors — not just motion — but also audio and other sensors. So, we really have a technology platform that includes sensors and software that really is proliferating into all those markets for us. We're very excited about that.

SIMON ERICKSON:

Let's follow up on that software piece like you just mentioned. We saw some acquisitions from InvenSense earlier this year. Trusted Positioning. Movea. As I understand it, those are software companies that are getting you a little closer to customers. Can you tell me a little bit about the importance of software for a sensor company?

BEHROOZ ABDI:

Sensors are about technology — the underlying process technology (MEMs) itself — but also more importantly about what you do with a sensor. What decisions are you making with those sensors? That really comes down to the software.

We, today, [sell more of our products] to software engineers. The decision at the OEMs are made by the software engineers [and] not as much by the hardware engineers, because they're the ones who are looking at use cases.

For example, in health and fitness, and in wearables where we have a reference design, if the sensor is moving in this direction, and doing this and that, what does that mean in terms of calories or in terms of activity? Well, we want to help them with that. We want to take all the math and science out of the sensors and let these software companies and software engineers innovate with what they know best, which is their software expertise.

So, we decided to pick up two key leaders in software. One [is] Movea, which is a leader in sports and fitness, sensor fusion, and sensor calibration ... as well as in smart TV and mobile. They've really been a phenomenal addition to the company.

The other significant addition is Trusted Positioning. These guys have over a decade of experience in navigation — in technology called "dead reckoning" — GPS plus sensors. And not just in-car navigation, but pedestrian navigation. Outdoor and indoor navigation.

Location-based activities and decisions are going to be very important. The Internet of Things is really about the Internet of Sensors. It's all about where [you are], what [you are] doing, and how it [feels]. Location and context. We really are very excited and happy to have these two companies [as] part of our company now.

SIMON ERICKSON:

So, it makes it much easier for new applications to use InvenSense's sensors.

BEHROOZ ABDI:

Oh, very much so.

SIMON ERICKSON:

And we see those applications taking off. I just read — if I'm saying this correctly — the one billionth InvenSense sensor will have been shipped at the end of this quarter, so it's definitely becoming more ubiquitous.

On that note, though, it seems like the tech curve continues to go higher. We saw 3-axis sensors. Six-axis sensors. Nine-axis sensors. And we know that you work very closely with customers to develop solutions that are sometimes several years out. How do you balance developing the next big thing with what's available for applications in the market today?

BEHROOZ ABDI:

That's really a great challenge and a great question. What we have to do [is] innovate ahead of our customers. When you look at the OEMs — whether it's a mobile phone or a wearable — their field of vision is about nine months to a year. They're on a cadence which is usually either Christmas or some holiday [where they have to] put out a product — whereas, a chip development is at least eighteen years if not two years. [This] means, by definition, there's a six-month to a year disconnect, so you have to be innovative. You have to really guess where the trend is going.

The best way to do that is really understand the megatrends in the market. When you understand the sensors like we do [and] when you understand the software — then we start thinking about what [problems] can [be solved] with this.

[This] is a conclusion that we reached, for example, with motion plus sound. We reached the conclusion that at some point, you really want to listen to the background and understand what decision you want to make with the motion [and] what the device [is] doing. Where is it? What's the context? So, we have to go and innovate on the sound. We have to acquire a microphone business or microphone technology.

So, we have to be really looking at the megatrend. We have to go to the customer, to the OEM and lead them. We can't just go in there, like the old days in the chip business, and say, "I've got a bunch of chips. Which one do you like and what do you want to do?" We have to wow them. That's the most exciting feeling — when we go to the OEMs and they [say], "You know what? I hadn't thought of that, but that's what I want to do. Get that to me as soon as you can."

SIMON ERICKSON:

It sounds great. Our audience is individual investors [who are] really interested in innovation. Are there things in the industry, or with InvenSense, that you think that investors who are interested in this space should really be paying attention to?

BEHROOZ ABDI:

I think if you're looking at a company like InvenSense, you have to look at the big megatrend — not look at just mobile or this socket or that socket in the OEM. Either you believe or don't believe that [the] Internet of Things is happening, number one. Number two, the Internet of Things is the Internet of Sensors, and InvenSense innovates in those areas [with] software algorithms and new sensors.

Obviously, as you've said, we've done 3-axis, 6-axis, 9-axis, [and] 7-axis. So, the number of axes and other sensors that we have not disclosed publicly are definitely in the works. Once you believe that we're really building a sensor technology company, end to end from the process technology all the way to the software and algorithm, hopefully you'll be just as excited as we are.

SIMON ERICKSON:

We definitely are. And then, my last question. Can you tell us about a few things that you're showcasing here at the CES show in Vegas, today?

BEHROOZ ABDI:

We have a number of stands. What we decided to do this year is build our stands around verticals. Rather than around products and components, we [asked ourselves what some of our verticals are].

Well, we know that we're in mobile, and in mobile what's important is navigation. Location-based services. So, we have a stand around location-based services and navigation with the TPI acquisition.

We have a stand that showcases the precision of our sensors in industrial applications for platform stabilization.

We have a stand around health and fitness, which is wearables. We have a partner company called Babolat which is a top brand in tennis rackets. We have a sensor inside the tennis racket where it can help you determine how you are hitting the ball and coach you over [time].

Then we have a vertical around smart home — smart home meaning that with the wearable devices or with the motion and audio remote, you can control the cursor. You can have a much more seamless and intuitive interaction with a TV and also you can connect and manage appliances with motion, with gestures, and with things like that.

Some of the other technologies. I'm really stoked about immersive gaming. I think immersive gaming is going to come in. We're all used to gaming with the joysticks. I think the next thing with head-mount displays like Oculus — you're going to have a head-mounted display. There's a company called Virtrex. You can immerse yourself in the game. You can be running around and [really be] in a cyber environment.

Then, of course, optical image stabilization. That's a market that is growing today. The camera-imaging experience is a significant differentiator in mobile phones and that's a demo that we have here. So, lots of great stuff going on. I wish that I could have drones and robots and all the other applications that we're in, but I just didn't have the booth space to do all that.

SIMON ERICKSON:

A very exciting time for InvenSense. Thanks again for the time this afternoon.

BEHROOZ ABDI:

My pleasure, Simon.

SIMON ERICKSON:

Fool on!

the_motley_fool has no position in any stocks mentioned. Simon Erickson owns shares of InvenSense. Simon Erickson has the following options: short June 2015 $15 puts on InvenSense. The Motley Fool recommends InvenSense. The Motley Fool owns shares of InvenSense. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.