With the Apple (NASDAQ:AAPL) Watch set to hit shelves in 2015, smartwatch sales are likely to spike significantly. In fact, from 2012 to 2013, smartwatch unit sales jumped nearly 10 times to 3 million, according to Strategy Analytics.

For Internet of Things companies such as InvenSense (NYSE:INVN) that supply accelerometer and gyroscope sensors for numerous mobile devices, including the iPhone 6, a growth opportunity clearly exists.

In the following video, Motley Fool analyst Sean O'Reilly talks with tech analyst Nathan Hamilton about his recent trip to International CES. The Motley Fool interviewed InvenSenses'  team and discussed what the company is showcasing at the event. One surprising quote stood out and it makes you wonder what it means for a yet unconfirmed position for InvenSense in the Apple Watch.

For a full video of the interview click here.

TRANSCRIPT

SEAN O'REILLY:

Greetings, Fools. Sean O'Reilly, here, with the one and only Nathan Hamilton, who recently visited CES in beautiful and sunny Las Vegas, Nevada. How was your trip?

NATHAN HAMILTON:

It was good. It was definitely a sunny one. I know from the text messages I got from my wife [that] it was snowing a bunch, here, in D.C. So, I was glad to be there.

SEAN O'REILLY:

Yes, we were a little jealous.

NATHAN HAMILTON:

We brought the on-map to nice weather. There was some really cool tech out there and we'll talk about it some.

SEAN O'REILLY:

Yes, for sure. So, first and foremost, I understand that you and a few of the other Fools that went on the trip got to talk with the CEO of InvenSense.

NATHAN HAMILTON:

Yes, Simon Erickson, one of our Rule Breakers analysts, was able to interview Behrooz Abdi, the CEO of InvenSense, and a few of us also pulled aside the PR exec who was there and talked a little bit about InvenSense … what they're doing with their accelerometers and gyroscopes within [smartwatches]. We talked a little bit about that.

SEAN O'REILLY:

Obviously, their biggest market, right now, is being in smartphones. They're responsible for my phone screen flipping when I turn it and all that stuff. What do they have in store for the future? What do they see down the road? What's going on with the smartwatches? We're all, of course, hoping to buy an Apple Watch, here, this year. What's going on?

NATHAN HAMILTON:

Taking what they've done in mobile — obviously they have their gyroscopes. The accelerometers, of course, helps when you're playing a driving game, and so forth, all over the place…

SEAN O'REILLY:

How'd you know? No…

NATHAN HAMILTON:

Exactly. That's what we use it for. Also involved with the compass and image stabilization, as well. They're taking that technology and essentially leveraging it into smartwatches, which really is another mobile device of some sort.

If we look at it specifically, the PR exec that we talked to when we were at InvenSense's booth at CES said to us… And it was kind of surprising, because I hadn't been aware of this previously. He said, "InvenSense has 100% of the design wins in current smartwatches on the market." This includes your LG watch. Samsung smartwatches. Moto 360.

SEAN O'REILLY:

So, saying that they're best of breed for these gyroscopes [isn't even using] strong enough words.

NATHAN HAMILTON:

Yes. A hundred percent share in current existing smartwatches. Certainly a good position. You have to question what this means for the Apple Watch. It hasn't come out yet. InvenSense is a supplier to Apple in the iPhone in different iterations over time, but will they get into the Apple Watch? Seeing 100% market share — or not so much market share — but in 100% of the existing smartwatches, you have to [ask whether there could be] a position…

SEAN O'REILLY:

One has to assume.

NATHAN HAMILTON:

But a word of caution. Absolutely a word of caution. It's purely speculative. You have to look at it this way. I don't think this would be the case — that Apple would make their own accelerometers and gyroscopes — but who knows? Apple could surprise us. There's no rumors that they've been doing that. You have to look at where they go from there to get these products into the Apple Watch.

InvenSense is a clear frontrunner and you've also got companies like STMicroelectronics, another competitor. I would say, looking at the comments from the CEO and what's happening with InvenSense as a whole, there's a good chance that they make it into the Apple Watch.

SEAN O'REILLY:

So, if I'm an InvenSense shareholder possibly considering taking a stake, how big a potential market are all these smartwatches compared to last year's entire market? How many little gyroscopes has InvenSense sold [that] wound up in cell phones?

NATHAN HAMILTON:

Yes, it's not a huge moneymaker at this point, but look at it this way. In 2012, there was about 300,000 smartwatches shipped. In 2013, that number increased to 3 million plus. So, pretty much…

SEAN O'REILLY:

Pretty solid growth.

NATHAN HAMILTON:

…exponential growth. And 2014 we don't have the numbers yet, but we know a bunch of watches were introduced. The Moto 360. Various Samsung iterations. Then 2015 is, I guess, the epitome of the year for the launch of smartwatches when Apple Watch comes to market. So, you can kind of see the unit growth of smartwatches shipped…

SEAN O'REILLY:

Yeah...

NATHAN HAMILTON:

Ultimately, we'll have to see if InvenSense is in the Apple Watch. There is a high probability that they are.

SEAN O'REILLY:

Okay. So, if I'm an InvenSense shareholder, what should I be paying attention to, here, involving not only their potential results, but also the products that you're talking about?

NATHAN HAMILTON:

I think the clearest one is to wait until the Apple Watch comes out. IFixit always does their teardowns. They'll pick the watch apart and say [that] these are the exact suppliers that they know of that are in the watch. That's obviously the clearest sign.

Now, reading the tea leaves and seeing if Apple is in there, it is hard to say because Apple is a current supplier and there are companies that dominate InvenSense's revenues.

SEAN O'REILLY:

This is not a huge company, I don't think.

NATHAN HAMILTON:

Yes. You have to look at it. Their gross margins — there's going to be pressure from some of the large companies out there because if they're going to buy 30 million…

SEAN O'REILLY:

They want a discount…

NATHAN HAMILTON:

…gyroscopes, they definitely want a discount. That will affect gross margins, but it's not a telltale sign. There's a lot of things to watch, though.

SEAN O'REILLY:

If you just had to give one sentence to our listeners, what's the investing takeaway for InvenSense shareholders?

NATHAN HAMILTON:

It's very positive for the Apple Watch — put it that way — but absolutely purely speculative at this point.

SEAN O'REILLY:

Very good. Well, thanks for sharing, Nathan.

NATHAN HAMILTON:

Absolutely.

SEAN O'REILLY:

Thanks for listening Fools, and Fool on!

[End]

Nathan Hamilton owns shares of Apple. Sean O'Reilly has no position in any stocks mentioned. 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.