InvenSense (INVN) is set to report quarterly earnings after-hours on Monday. Analysts expect revenue of $97.21 million and eps of $0.12. The revenue estimate is down 16% sequentially. Below are the company's historical financial results:
Below are three areas investors should focus on this quarter:
Profit Margins
InvenSense is a supplier for both Apple's (AAPL) iPhone 6 and Samsung (OTCPK:SSNLF) smartphones. That supplier relationship practically guarantees robust top line growth. However, the company may have made a Faustian bargain by sacrificing margins for revenue:
The company's gross margins declined from 47% in FQ3 2014 to 43% in FQ3 2015. The margin erosion came after Apple and Samsung became the company's two largest customers, representing a combined 69% of total revenue. In fact, InvenSense is currently the target of an investor lawsuit which accuses the company of providing overly generous deals to Apple and Samsung at the detriment of shareholders. If margins continue to decline it could hurt the stock.
Potential Loss Of Some Samsung Business
InvenSense's stock was the subject of some extreme put buying in early April. A Chipworks teardown of Samsung's S6 later revealed a touch screen controller from STMicroelectronics (STM) - stoking fears that InvenSense's supplier share of the S6 would decline vis-a-vis the Galaxy S5. The S6 is rumored to have garnered 20 million pre-orders, making it one of the mostly successful smartphone launches ever. The Galaxy S6 has not been launched yet, so any impact on Invensense's top line could not materialize until next quarter.
Over the past year INVN has lost about 25% versus a 15% gain for the S&P 500 (SPY). It begs the question, if winning supplier arrangements with the two largest mobile phone vendors cannot spur the stock, then what can? A potential loss of share within the S6 probably will not help matters.
Guidance
In my opinion, the biggest driver of the stock will be forward guidance. The story is more than Apple and Samsung. InvenSense provides chips to Xiaomi and LG, amongst others. The growth in its portfolio of customers, and the profit margin on that portfolio will determine forward earnings. The following chart shows global smartphone share for the top vendors:
Sales for Samsung and Apple both fell sequentially. Samsung's sales will ramp up next quarter, but who will it take share from? If Samsung steals share away from InvenSense's higher margin clients, it could impact the company's forward earnings.
Conclusion
Profit margins, Samsung share and forward guidance will drive shares of InvenSense post-earnings.
