Apple Teardown and Invensense

Quick note on one of our favorite chip stocks

By Travis Johnson, Stock Gumshoe, September 19, 2014

It looks like our longtime favorite MEMS company, Invensense (INVN), which I continually wish I had bought on the many times it has dipped to $20 or below, is indeed finally an Apple iPhone supplier. Business has otherwise not been fantastic for INVN as some of their big customers, notably Nintendo, have scaled back in recent years, but they now apparently have their accelerometer/gyroscope combo chips in the key products from both major smartphone makers (Apple and Samsung)… at the expense of the continually weak STMicroelectronics (STM), which was the first big force behind MEMS chips and holds many patents (INVN and STM have a patent detente after their last lawsuit was settled).

The question is, what will that be worth? The chip is the Invensense MP67B, which is not otherwise something that exists so it must have been built for Apple. My guess is that it’s just a customized version of their MPU-6500, their current top model of six axis gyroscope plus accelerometer. If you were to buy 1,000 of them from Invensense direct on their website now they would cost you $4 apiece, my presumption is that Apple would pay less than half that so let’s just guess that they got it for $1.50 (I suspect that’s conservative). If Apple sells 50 million iPhone 6 and 6 Plus devices over the next year (that’s above the consensus guess, INVN is in both 6’s but not in earlier generations that are still sold), then that’s $75 million in revenue. Analysts usually claim that unkonwn design wins are not priced in either to their estimates or to the company’s guidance, which seems unlikely, but that would be a substantial jump in Invensense revenue — they had sales of just over $260 million over the last four quarters.

Invensense has probably been stockpiling wafer inventory and investing for this large-scale rollout of their chips for a while, these design wins don’t happen overnight (though it seems that way, since Apple is so secretive), so they’ve been depressing returns as they invest in capacity. It seems likely to me that we will see their earnings bump up nicely this Fall and in the first quarter next year thanks to large sell-through of those chips to Apple as well as, presumably, continuing design wins in other products, particularly fitness-type products for their more expensive 9-axis motion-sensor chips. Analysts expect a pretty good runup ...

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