InvenSense (INVN) Sell-Off on Apple Concerns Overdone - Ascendiant Capital

Ascendiant Capital analyst Cody Acree is the latest out to defend InvenSense (NYSE: INVN) amid worries about the company's participation in the iPhone 6 and 6 Plus.

Acree notes shares came under pressure after a tear down suggested that the 6-axis accelerometer/gyro combo could have been lost. "We believe this speculation is significantly overdone and would recommend investors take advantage of the current share weakness as an opportunity to either initiate or add to positions," he said.

The analyst said the initial concerns appeared to stem from Apple’s decision to add an architectural oddity with the usage of a second 3-axis accelerometer from Bosch. "Some have speculated that this added sensor was included at the last minute to help offset a technical problem or instability with Invensense's combo, and that if a problem existed it would lead to INVN being replaced," he said. After looking closer at the specs of each part, what makes most sense is that Apple chose this approach to reduce power consumption and improve performance. In its normal mode, the Bosch accelerometer consumes 130 µA to INVN’s 450 µA. The Bosch accelerometer also starts up from sleep mode in 1.3 ms versus INVN at 20 ms. Therefore, for rudimentary tasks such as screen orientation or a pedometer, the Bosch part is cheaper and better suited, while INVN solution is then tasked to higher performance functions such as gaming, where the power tradeoff is necessary."

Other than a major technical issue, it does not make sense that Apple would go through the time and expense of designing in INVN only to pull them almost immediately upon launch, he said.

What they do believe is likely is that STMicro (NYSE: STM), who had been Apple’s primary gyro supplier in the past, has been qualified as a second source to INVN. "While this is incrementally encouraging for STM, the question is a matter of volume and how Apple decides to split suppliers, if at all. Remember, INVN was a second source for the prior iPhone but ended up with little-to-no volume. We believe Apple is prudently taking out second-source insurance, but given both Apple and Samsung have decided to work primarily with INVN, we believe STM’s performance lags INVN, at least modestly."

The firm has spoken recently with their contacts at STM who continue to be optimistic regarding their participation at Apple. However, they are also fairly quick to note that they never expected to maintain full market share and that there are plenty of other sensor opportunities outside the gyro/accelerometer, he said.

"In summary, we believe INVN continues to be the largest share gainer in smartphone MEMS sensors, a trend which we expect likely continues at least for the near- to intermediate-term," Acree said. " We believe noise and uncertainty regarding Apple has created an opportunity at a time when INVN is poised to put up record quarters in both September and December."

The firm maintained a Buy rating and price target of $29.

For an analyst ratings summary and ratings history on InvenSense click here. For more ratings news on InvenSense click here.

Shares of InvenSense closed at $19.07 yesterday.

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