Immersion (IMMR) is a leading provider of haptic technologies that allow people to use their sense of touch more fully when operating a wide variety of digital devices. The Company has more than 700 issued and pending patents. Immersion Corporation was incorporated in 1993 and had its IPO in 1999, at $12. The stock had a nice run up in 2000, and is now trading well below its starting value. The Company has two operating and reportable segments: the Touch Line of Business and the Medical Line of Business.

Immersion initially licensed its intellectual property for touch-enabling technologies for consumer gaming peripherals in 1996 and extended to other applications, beyond gaming, at a later stage.

In 2002, Sony and Microsoft were sued by Immersion for patent infringement for the use of vibration functions in their gaming controllers. The Company settled out of court with Microsoft (with Microsoft purchasing a 10% share in Immersion), and Sony lost in court with the jury awarding Immersion $82 million plus interests for the seven years that the DualShock controller had been on the market. Later on, Sony Computer Entertainment and Immersion Corporation announced that both companies had agreed to end their patent litigation.

Today, the Touch line of business targets the mobile phone market, where the wide adoption of touch screens is helping increasing the awareness of haptics, as well as the automotive and casino/bar-top amusement markets, among other applications (ATMs, cameras, etc.).

While there is no doubt that the technology has a great potential, it is still unclear how (if) the Company will be able to turn the adoption of haptic into actual revenues. Most segments (automotive, casino gaming, etc.) have been very slow to implement Immersions technologies, and the mobile phone market seems to carry very low royalties attached to each phone sold, in spite of licensing agreements made with the most most players (Nokia, LG, Samsung).

An interesting recent strategic move has been to sign new licensing agreements with semi conductor producers, like Cypress, Synaptics, Atmel, Imagis and Leadis, an attempt that might provide a valuable channel to extend Immersion's reach and accelerate adoption of its proprietary touch feedback technology. Again, it is unknown what this may represent in terms of per-unit revenues.

On July 01, 2009, Immersion announced that the Audit Committee of the BoD is conducting an internal investigation into certain previous revenue transactions in its Medical line of business. For this reason, the Company is not current with its 10Q filings.

Ramius, a hedge fund, now owns approximately 15% of the common stock of Immersion, and has recently delivered a letter to Victor A. Viegas, Interim CEO, and the Board of Directors of Immersion Corporation highlighting the challenges facing the Company and voluntarily offering to join the Board as a shareholder representative. This offer has been rejected so far.

For more information about the Company, you may read our article "Immersion Q1 Forecast: Can It Bring Great Potential into Actual Revenues?", which dates back to May 2009 and is obviously missing the latest developments.

(click to enlarge).

Right now a bet, more than an investment. With both the CEO and the CFO acting on an interim basis, and a business model that probably needs to be re-written (and then properly explained to the investing community), Immersion has a great potential, that needs to be translated into a decent story for its shareholders.

You may follow our daily diligence on Immersion at this link.

Our recent articles on Seeking Alpha are listed here.

Interesting sources:

Immersion web site, IR.

Updated on December 2009