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InvenSense: Is Augmented Reality A Real Opportunity?

Summary

Augmented reality could increase the market opportunity in the mid-tier smartphone segment.

Questions abound whether the opportunity will play out for the premium gyroscopes produced by InvenSense.

The stock offers an intriguing valuation, but the company still needs to prove the business model will work out in a generally price conscious market.

The InvenSense (NYSE:INVN) promise is a world of connected devices that utilize motion sensors and image stabilization solutions. The company is still struggling to make this reality a financial success due to a mobile world where premium devices are still dominated by margin, pressuring customers.

The stock recently hit an all-time low following weak results pressured by the loss of business from one customer and the margins from another customer. The recent rally is ironically related to a new and expanded opportunity in the mobile world. The question is whether the opportunity is real.

Mid-Tier Smartphones

The premium smartphone segment has long been dominated by Samsung (OTC:SSNLF) and Apple (NASDAQ:AAPL). InvenSense successfully parlayed these into top customers, but the lack of diversity among the customers demanding premium sensors led to extreme pricing pressure.

As well, the cost of the premium smartphones prices the majority of the developing world in Asia into mid-tier and low-tier options that either went for low-cost solutions from competitors or nothing at all.

Interestingly, the augmented reality success of Pokemon Go has brought the need for gyroscopes back into focus. Apparently, the...


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