Chipworks had previously predicted that InvenSense (NYSE:INVN) would supply the motion sensor inside the Apple Watch (NASDAQ:AAPL). However, Chipworks' teardown reveals that ST Microelectronics (NYSE:STM) has won the motion sensor spot inside Apple's new devices.
What does this mean for InvenSense?
InvenSense CEO Behrooz Abdi said in an interview with fellow Fool Nathan Hamilton back in January that his company was in 100% of the smartwatches available in the market at the time. Given that InvenSense has been able to win all of those smartwatches, coupled with its success at the high end of the smartphone market, it seemed pretty reasonable that it would win the Apple Watch.
Alas, that does not appear to be the case.
This is going to raise a number of questions among investors. I can tell you that as an InvenSense shareholder myself, I'm wondering why InvenSense didn't win the spot, a question that raises a whole bunch of other questions, such as: Was ST Micro's motion sensor better than InvenSense's? Was ST Micro's solution cheaper? Is Apple simply trying to diversify its supply chain by keeping ST Micro in the loop?
Those questions lead to a new set of questions. For example, if ST Micro now has a superior solution, what does that mean for InvenSense's spot inside the next-generation flagship phones, such as the next iPhone? Or, if ST Micro's sensor is "good enough," but it can be produced and sold for less than the InvenSense solution, will that impact InvenSense's market share and/or pricing (margins)?
Wait! It's not all bad
Fellow Fool Sean Williams recently gave his take on a research note from Rosenblatt Securities. In particular, the company had actually claimed earlier this month that InvenSense was not inside the Apple Watch.
However, despite the loss of the Apple Watch socket, InvenSense is said to continue to see strong demand from the iPhone 6/6 Plus, and -- thanks to Qualcomm (NASDAQ:QCOM) losing the Galaxy S6 split -- is even strengthening its position at Samsung. InvenSense is reportedly also strengthening its position at fast-growing Xiaomi.
So, InvenSense may see its position in wearables crumble in the near term, but if Rosenblatt Securities' research is to be believed, InvenSense is still gaining traction in its core business. And, given that the smartphone market is likely to remain substantially larger than the smartwatch market, success in smartphones is far more important than success in wearables.
InvenSense, you've got some 'splainin' to do!
Although I like that InvenSense is reportedly still doing well in smartphones, I wonder how much investors are baking in a big wearable computing story. To be clear, InvenSense isn't shut out of Apple forever -- suppliers can change from product to product.
However, the Apple Watch is arguably the first wearable computer that actually matters, and InvenSense wasn't inside.
Further, even though Apple is doing well in the flagship smartphones today, I'm much more cautious about future design wins -- particularly at Apple -- given that ST Micro win.
I have no doubt analysts will ask InvenSense's management about this design loss on its earnings call scheduled for May 4. While InvenSense most likely won't comment on the Apple Watch in particular, management may speak in broader terms as to why it might win/lose a particular design, helping to clue investors in on what might have gone on with that particular design.