2 Reasons InvenSense Might Be an Acquisition Target

By Chris Neiger Markets Fool.com

Image source: Getty Images.

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Back in October, InvenSense (NYSE: INVN) hired a financial firm to explore putting itself up for sale, and since then there's reportedly been interest from at least one company: Japan-based TDK Corporation. But with InvenSense's revenues falling 29% year over year in the quarter ended Oct. 2, and the company and its margins consistently getting squeezed, what might TDK, or any other company, want from InvenSense?

To better understand that question, let's take a look at two reasons InvenSense might be a tempting acquisition target.

TDK could beef up its sensor lineup

Reuters reported last week that TDK is in talks to buy InvenSense at a price of $12 per share. The report said that TDK and InvenSense were hoping to come to an agreement by the end of the month.

InvenSense might look like a good buy to TDK because of its high-end microelectromechanical systems (MEMS). The sensors track movement, and they've become an increasingly important part of mobile devices.

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The company's gyroscopes used to be primarily for high-end devices but that's starting to change; many mid-range and low-end devices are now adding them as well. The company made most of its revenue by selling these sensors to Apple -- which accounted for a whopping 58% of InvenSense's revenue in the third quarter.

But TDK could benefit by adding InvenSense's sensors to its long list of mobile components. TDK already makes everything from batteries to GPS modules, and has been expanding its sensor lineup through two major acquisitions over the past year. InvenSense's high-end motion sensors would give TDK even more space in iPhones and other smartphones.

InvenSense's tech could boost virtual reality exposure

If the TDK deal doesn't happen, InvenSense's virtual reality (VR) and augmented reality (AR) prospects might attract some attention from other companies.

Barron's wrote this week that Summit Redstone Partners' Jagadish Iyer thinks that companies looking for motion-tracking sensors for AR and VR headsets might be interested in making a bid for InvenSense.

InvenSense's ICM-20603 6-axis motion sensor is already found in HTC's Vive VR headset and gives the device quick video refresh rates and fast head-tracking -- both of which are must-haves for a high-end virtual reality experience.

Iyer estimates that InvenSense's AR and VR revenue opportunity will jump from about $3 million last year to $50 million in 2019. Virtual reality may still be in its nascent stages, but Touchstone Research expects there will be 171 million users worldwide by 2018.

InvenSense's already won a spot in the HTC Vive, and there's no reason the company shouldn't expect to win more spots in the VR market in the near future, as more headsets hit the shelves.

This is still up in the air

TDK might be bidding for InvenSense, but Iyer thinks GoPro's primary chipmaker, Ambarella, should throw its hat into the ring as well. No matter what happens, it's clear both that InvenSense is looking to make a deal, and that it has at least a few technologies to offer. Investors who've been waiting for an InvenSense turnaround aren't likely to see it at this point, so any respectable deal should be welcome news for shareholders.

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Chris Neiger has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Ambarella, AAPL, and GPRO. The Motley Fool owns shares of InvenSense and has the following options: long January 2018 $90 calls on AAPL, short January 2018 $95 calls on AAPL, short January 2019 $12 calls on GPRO, and long January 2019 $12 puts on GPRO.

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