Can InvenSense Accelerate Revenue Growth With OIS and a New Customer?

Last year, InvenSense (NYSE: INVN  ) CFO Alan Krock has this to say to investors:

Should either the big two in mobile adopt [optical image stabilization], obviously, that would would potentially accelerate the revenue opportunity for us.

Last week, Pacific Crest reported that many of the issues holding back Samsung's (NASDAQOTH: SSNLF  ) adoption of optical image stabilization, or OIS, have been resolved. Additionally, Pacific Crest believes InvenSense is on track to win business with Apple (NASDAQ: AAPL  ) .

OIS represents a relatively small, but growing portion of InvenSense's revenue. In fiscal 2014, the segment accounted for 14% of revenue, growing 61.4%, year over year. If Samsung adopts OIS in more of its phones, that kind of growth will likely accelerate, bolstering expected gains in the mobile market while offsetting losses in the gaming segment.

Typical customer, atypical purchase
Samsung is, by far, InvenSense's largest customer. Last quarter, the Korean electronics maker accounted for 47% of sales, and it accounted for 35% of sales for fiscal 2014.

Samsung is typically a purchaser of InvenSense's 6-axis products. The company does feature some 2-axis OIS gyroscopes in a few products, but those are typically exceptions like the Galaxy S4 Zoom. Should Samsung start adding OIS chips to more of its phones, it could become an even bigger customer for InvenSense.

That's a double-edged sword for InvenSense. On the one hand, it will accelerate its revenue growth. On the other, it could push the percentage of its revenue from Samsung above 50%.

InvenSense mentions this risk in its 10-K. "We currently depend on a limited number of customers for a material portion of our net revenue, and the loss of, or a substantial reduction in orders from these customers would significantly reduce our net revenue and adversely impact our operating results."

Samsung could also put pricing pressure on InvenSense, which would result in slower-than-expected revenue growth.

An Apple a day
Winning a design at Apple would certainly help. Apple is about the only customer that can balance the huge weight of Samsung. Last year, Apple accounted for 15.5% of smartphone shipments in 2013, just about half of Samsung's share.

InvenSense has hinted at a "near-term opportunity at a large mobile OEM customer" for months. That language was missing from the last earnings call, but the company hinted that it has an incremental opportunity in the second half of the calendar year. Apple's typical product release cycle is in the fall.

What's more, InvenSense took the opportunity to build its inventory significantly last quarter while increasing R&D spending. The inventory is in silicon wafer form that supports its 6-axis products, not OIS. On the conference call, CEO Behrooz Abdi noted some of the R&D spending went to new customer qualification.

All signs point to a big, new 6-axis customer later this year, and Apple fits the bill perfectly.

While it wouldn't be a surprise if InvenSense chips made it into the next iPhone, it's also worth noting the company's growth outlook is not dependent on new design wins.

Accelerating revenue growth
Last year, revenue grew just 21%. After growing revenue 58% and 36% in 2012 and 2013, respectively, 21% is a bit disappointing. This year, InvenSense expects to return to 25%-35% revenue growth. The adoption of OIS by Samsung or the addition of Apple as a customer would certainly put it closer to the high end of that range.

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