InvenSense (NYSE:INVN) may have won the motion sensor spot inside of the recently announced Apple (NASDAQ:AAPL) Watch, according to Chipworks' Dick James in an article dated April 10. James bases this on a hint from a business contact, coupled with his analysis of an image that Apple showed at its September 2014 event.
It's reportedly the same chip as found in the iPhone 6/6 Plus
According to James' post, the motion sensing chip that he thinks is inside of the Apple Watch is the same six-axis InvenSense MPU-6700 chip found inside of the iPhone. The MPU-6700, according to Chipworks, is similar to the MPU-6500 that InvenSense advertises on its website.
This chip, per the InvenSense page, is made up of a three-axis accelerometer, a three-axis gyroscope, and an "onboard Digital Motion Processor." It makes sense that Apple would want to use a relative high-end, six-axis motion sensor given that a significant part of the Apple Watch's advertised functionality -- such as health and fitness tracking -- is dependent on the quality of the gyroscope and accelerometer.
What does this mean for InvenSense?
If it turns out that InvenSense is, in fact, inside of the Apple Watch, then that's clearly good for InvenSense's top and bottom lines. From InvenSense's perspective, each Apple Watch sale is likely financially similar to each iPhone 6/6 Plus sale.
That said, there are two questions worth asking. First, what kinds of Apple Watch unit sales are investors expecting? Next, to what extent are those expectations baked into InvenSense's shares?
If the expectations were/are modest, and strong Apple Watch sales drive upside revenue/profit surprises for InvenSense, then this win could help push the stock up considerably. If expectations were already great, then there's -- ironically enough -- risk to the stock at current levels if Apple Watch sales aren't as robust as people were expecting.
Taking a Foolish view
Forgetting the short term and taking more Foolish long-term view, I think that this potential Apple Watch win -- if it's true -- would be yet another win among what seems to be large portfolio of wins. Foolish colleague Nathan Hamilton actually went to the International Consumer Electronics Show, and there he was told that InvenSense "has 100% of the design wins in current smartwatches on the market."
At the time, the Apple Watch was not yet in the market, but the fact that InvenSense had been able to secure all of those designs was probably the validation of InvenSense's technology for wearables. However, none of those designs is likely going to have the impact on InvenSense's top and bottom lines like the Apple Watch could.
In other words, winning the Apple Watch wouldn't necessarily serve as validation of the quality of InvenSense's wearable-oriented technology -- the other smartwatch wins have arguably established that. What winning the Apple Watch could mean, though, is that InvenSense's smartwatch-oriented chip sales could see a dramatic boost.
Whether smartwatches like the Apple Watch will truly be the "next big thing" as some people hope remains to be seen. If that turns out to be the case, though, InvenSense seems to be well positioned to capitalize on that trend over the long term.
Ashraf Eassa owns shares of InvenSense. The Motley Fool recommends Apple and InvenSense. The Motley Fool owns shares of Apple and 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.