While most tech followers are fanatically drawn to the hardware devices that will comprise the Internet of Things, many overlook the existing potential for companies that analyze data these devices compile every second of every day. With this in mind, Internet of Things specialist InvenSense (NYSE:INVN) tapped its coffers for $81 million in 2014 and acquired two software companies -- Movea and Trusted Positioning

Motley Fool Rule Breaker analyst Simon Erickson spoke with InvenSense CEO Behrooz Abdi at International CES 2015 to understand why the company is spending such a large portion of its cash on what would be perceived by some as secondary to its core hardware business.

For a full video of the interview click here.



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?


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.

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.