I posted this on the INVN RB board on 2/26/2014. I thought I’d cross post it here. INVN is still my largest position at 8.1% of my portfolio.
Chris
INVN has made several recent announcements that should be a clue to us that INVN sensors and chips will enable and unleash a surge of devices, products, and sensors capable of very wide range applications, many of which most of us haven’t yet imagined.
INVN is adding senses to its chips. It started with accelerometers and gyroscopes to detect changes in position, motion, and direction. These senses alone have allowed application developers to add thousands of functions/applications into smartphones. There are compasses, levels, games, mapping programs, fitness applications, etc, etc, etc. My point is that when a new sense is added the capabilities do not merely increase linearly, but exponentially. By combining the information from the different senses, new applications can combine the information to enhance and enable more and more functions. I argue that with each new sense, you can add at least an order of magnitude of potential functionally. Recently, INVN announced two new senses which can be combined with existing senses. The microphone will allow the chip to detect sound. The other new sensor will measure pressure. These new senses, when combined the existing senses, are probably at least 100x more powerful then individually. To extract the combinatorial benefit, applications will be developed to utilize the data in the sensors. It is not too much of a leap to think that INVN will continue to add senses to its chips; some that come to mind include light, pH, vibration (although this may already be possible with the microphone), and who knows what else. Devices and applications will not be limited to the wearables market which is being focused on by most people now. There will be many other markets that can be addressed.
Speaking of applications, INVN is investing in making application development easier and faster for companies that will integrate their chips into their devices. This is important because it will increase the proportion of device makers that choose INVN chips. Second, it will also shorten the development time of new devices and applications so that INVN will benefit from their adoption earlier. Third, it will make it less costly to develop new functions and applications for INVN chips. Now that the chips are available in an open source manner, an explosion of development should follow just as it did with the applications that are available on the smartphones. In short, INVN is placing an emphasis on making it easier, faster, and cheaper to develop applications and integrate its chips into devices.
The other announcement is the patent settlement and cross licensing agreement with STMicroelectronics. Obviously, it removes a risk to INVN’s freedom to operate. While INVN has previously indemnified its customers, that will not be necessary as the cross licensing assures INVN and its customers’ freedom to operate (from INVN financial filings: The Company indemnifies certain customers, distributors, suppliers and subcontractors for attorney fees and damages and costs awarded against such parties in certain circumstances in which the Company’s products are alleged to infringe third-party intellectual property rights, including patents, registered trademarks or copyrights. Indemnification costs are charged to operations as incurred.). Second, it limits their competition to one other company. Third, in the tech space, companies like Apple, Google, Microsoft, and Samsung have demonstrated an appetite to acquire intellectual property for billions of dollars. Just look at Google’s acquisition of Motorola Mobility. The purchase was motivated by the acquisition of the patents, not the hardware business (which is being spun off now). Another example is the Nortel Network patents. Hopefully, INVN won’t get gobbled up for its IP anytime soon because there is so much more value to be created in the coming years. However, I think INVN’s IP puts a floor on the value of INVN and that floor is probably higher than its $1.7B market cap.
I believe that most people haven’t recognized what will be possible and what will be coming from these sensors. I also think most people haven’t yet recognized the combinatorial benefits of adding more and more sensors on a single chip. The company announcements are the signal for where INVN is moving and what it is enabling devices and their customers to develop. Personally, I doubled my position in INVN today to about 8% which now my largest position.
Chris