InvenSense (NYSE:INVN), which develops motion-processing semiconductors, posted a strong gain on its IPO on Wednesday, with the stock moving up 18.6% — that booming number came despite the markets’ nearly 2% plunge late in the day.
But the path to the IPO was far from easy. Back in August, InvenSense had to postpone its deal because of market volatility. Even when things turned around in October and early this month, the company still had to discount the offering. Initially, InvenSense set the terms at 10.5 million shares at a range of $8.50-$10.50. Then the company lowered it to 10 million shares at a range of $7-$8.50. In the end, InvenSense priced the transaction at $8.50.
Despite this turbulence, InvenSense still is a solid company, evidenced by its ability to attract Goldman Sachs (NYSE:GS) and Morgan Stanley (NYSE:MS) as underwriters.
InvenSense builds next-generation technologies that can sense movement in a three-dimensional space. This is done using motion sensors like accelerometers and gyroscopes. For the most part, the company has been able to develop cost-effective systems that are relatively small and are reliable.
Nintendo‘s (PINK:NTDOY) Wii video game console uses InvenSense technology to power its Wii Motion Plus, which improves the console’s motion-sensing “Wiimote” controllers’ ability to capture movement. Rather than pushing buttons, gamers can use the console’s controller as a tennis racket or a golf club, for example.
As of October, InvenSense has shipped more than 157 million of its semiconductors. And the company’s growth rate has been torrid. For fiscal years 2009 to 2011, revenues went from $29 million to $96.5 million. During the first six months of this year, net income came to $20.5 million.
InvenSense’s market opportunity is huge. Keep in mind that its chips could become key components in a wide number of devices. Consider these markets:
And more opportunities could follow, such as through toys, cameras, health care monitoring devices and fitness equipment.
However, the big issue for InvenSense is that 73% of its revenues come from Nintendo. This dependence is certainly risky as the gaming business is volatile. And Nintendo itself is struggling — the video game giant in October forecast its first-ever net loss this fiscal year. At the same time, InvenSense must deal with tough competition, including companies like Sony (NYSE:SNE), STMicroelectronics (NYSE:STM) and Freescale Semiconductor (NYSE:FSL).
So for investors, it might be best to wait a quarter or two before taking a piece of InvenSense — that is, until the company can show it can get more traction outside of Nintendo.
Tom Taulli runs the InvestorPlace blog “IPOPlaybook,” a site dedicated to the hottest news and rumors about initial public offerings. He is also the author of “All About Short Selling” and “All About Commodities.” Follow him on Twitter at @ttaulli. As of this writing, he did not own a position in any of the aforementioned stocks.
