Shares of motion processor vendor InvenSense (NYSE:INVN) have performed pretty poorly year-to-date, shedding nearly 25% of their value as PHLX Semiconductor Sector Index ETF (NASDAQ:SOXX) has dropped a far less painful 4.14% during that time.
Following the company's most recent earnings report, investor confidence in the stock seems to have perked up somewhat, likely helped by the fact that the company delivered in-line results for its fiscal second quarter and offered guidance that was also in-line with analyst expectations.
During the conference call following the release of the company's financial results, management offered quite a lot of insight that should be valuable to current and potential InvenSense investors. Here are three items that really stood out to me.
InvenSense is getting into the fingerprint sensor game
A good way for a chip company to try to grow its revenues is to try to capture more of the bill of materials of the key devices that it sells its products into. During the call, InvenSense management highlighted a particularly interesting new technology that could serve to grow the company's content share in top smartphones -- a fingerprint sensor.
Fingerprint sensors have been done and there are already several vendors of such devices, so if InvenSense were simply advertising a "me too" solution it wouldn't be all that interesting from an investment perspective.
However, what InvenSense is promising here is that its fingerprint sensors can generate "detailed fingerprint images" through substances such as glass or metal. These sensors, according to InvenSense CEO Behrooz Abdi, can be "placed anywhere under the display glass," potentially enabling far more flexible fingerprint scanners than what is currently available in the market.
Unfortunately, although InvenSense announced the technology in late October of 2015, the company says that the product won't begin its production ramp until calendar 2017, meaning that any potential revenue contribution from such products is still a ways out.
InvenSense is apparently very excited about IoT applications
During the call, Abdi claimed that InvenSense is "fast emerging as a strong [Internet of Things] company." Although he conceded that more than 70% of the company's revenue base today comes from mobile applications, Abdi claimed that "more than 80%" of the products in the company's design win pipeline are "outside of mobile."
It's worth keeping in mind, though, that this number alone is not all that meaningful. After all, InvenSense could be designed into thousands of IoT products that each only sell a few hundred units each.
That said, Abdi did seem confident that opportunities abound in this market and that the company's total addressable market in the Internet of Things market is in the neighborhood of $4 billion, which is about as large as what he thinks the mobile market opportunity is for InvenSense.
It will be interesting to see how much of this market InvenSense can ultimately capture in the coming years.
An update on the margin story
One issue that has dogged InvenSense ever since it won the Apple iPhone 6/6 Plus designs is the company's gross profit margin profile. Although revenues and raw gross margin dollars were way up as a result of this new Apple business (so don't listen to anybody who claims that winning Apple was "bad" for InvenSense), overall company margins were lower than what many investors had hoped for.
InvenSense management made it clear that the margins in its non-smartphone businesses (i.e. IoT) should be quite a bit higher than its smartphone margins since the various IoT markets are quite fragmented (meaning less customer concentration).
As far as the timing of the improvement in InvenSense's overall gross profit margins, CFO Mark Dentinger thinks that margin improvement should happen in the next fiscal year, indicating that the improvement may come as early as the first quarter.
He did warn, though, not to expect a "big move" in gross margins during the third or fourth quarters of the current fiscal year as the company deals with the ramp of a new product introduction "with the North American OEM" (i.e. Apple iPhone 6s/6s Plus ramp).
Ashraf Eassa has no position in any stocks mentioned. The Motley Fool owns shares of and recommends 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.