I covered the first virtual reality pick hyped by Ray Blanco a few weeks ago, but I forgot to follow up and dig into the second and third picks he was teasing in that ad… so when I saw a new version of the ad circulating over the weekend, with the attention-getting “hook” changed from “Dinner with Shakespeare” and “Explore King Tut’s tomb” to the more prosaic (and perhaps more profitable) “Virtual Reality Pornography”, well, my memory was sparked and I dug back into the meat of the ad.
So… some more solutions for you today as we look at the continuing push to make you believe that virtual reality will be the next bit thing… and that there are a select few (top secret, naturally) companies who will profit the most from this next technological revolution.
Here’s how Ray Blanco pitches his second stock idea in the ad:
“The second virtual reality company I want you to know about today has best in class motion sensing technology that helps make moving through a virtual space smooth and lifelike.
“If experiencing virtual reality was like watching a DVD that kept skipping, for example, no one would ever use virtual reality a second time.
“That’s why Samsung and Facebook simply must rely on the first company I told you about for visual content rendering, and this second company for gyroscopic motion sensing.
“This company, based in California, is the leader in what’s called “sensor on a chip” technology – small, lightweight, powerful sensors that can pick up motion, images, and sound.
“Deloitte ranked this company as one of the fastest growing computing companies in the country…
“And Investor’s Business Daily reported in September that if you tear apart an iPhone 6s, you’ll find guts from this company.
“Right now, shares of this company trade for less than $14.00 each. That could be a distant memory when the virtual reality rocket really takes off in the weeks ahead.”
So… who’s that? Here we’re almost certainly being told to buy Invensense (INVN), which is indeed an analog chip company specializing in “sensor on a chip” designs that combine things like gyroscopes and accelerometers to provide position and movement awareness. They also make other analog chips for helping small devices understand the physical world, like microphones, but it’s their 6-way and 8-way sensor chips that get most of the attention and are their leading products.
And so far, that hasn’t been enough to really make them stand out. They have gotten designed into the latest versions of the iPhone, but there’s not much certainty that they’re the sole supplier for iPhone sensors of that kind… and from what I can tell, their products are not differentiated enough that they can charge higher prices than folks like Bosch, STMicroelectronics (STM), NXP (NXPI) or the many other companies who make the “MEMS” and sensor chips that help mobile devices track motion.
I’ve suggested Invensense in the past, when it was beaten down because of the lull between their profits from selling Nintendo Wii controller chips and the expected boost from wearables and mobile phones that were going to increase sensor demand, and sold out to take profits after a little while… but Invensense has also been a cautionary tale about the semiconductor business. Their big victory in building on their sales to Samsung by getting designed into the iPhone 6 was short-lived in 2014, because even though it generated huge volume increases it became increasingly clear that Apple and Samsung were using their huge purchasing power to drive down prices, which, of course, drove down INVN’s margins and profits relative to what investors had been expecting. That’s largely why the stock was indeed at $14 last year, and was over $20 back in 2014 when they “won” some of that Apple business, and is now down to around $8… partly because Invensense didn’t “win” a slot in the Apple Watch, and because it’s not in the latest Samsung phone, either.
Technology in general is a hard sector in which to maintain dominance, because change can take away the advantages of even a large and powerful company quite quickly, but the semiconductor segment is perhaps the toughest neighborhood in a tough city — chip companies rarely have any brand power with consumers (which is why Intel worked so hard to promote their monopoly with Microsoft, and to turn themselves into a brand with their “Intel Inside” marketing), and they’re expected to both dramatically improve their products and slash their prices each year. And it is not necessarily easy for even those who work in the field to determine who has the