After market close, motion processor vendor InvenSense (INVN) reported its earnings results for the third quarter of its fiscal year 2016 and provided its outlook for the fourth quarter. The outlook, which calls for revenue of between $77 million and $83 million, fell significantly short of analyst consensus of $102.36 million.

One fairly major driver of this shortfall is that the company is forecasting some fairly significant share loss in an upcoming flagship from South Korean consumer electronics giant, Samsung (NASDAQOTH: SSNLF).

Let's take a closer look at what's going on here.

Significant share loss at Samsung
During the question-and-answer session, InvenSense CFO Mark Dentinger said that he expects that the revenue from its second largest customer -- widely believed to be Samsung -- will drop to a single-digit percentage portion of the company's revenue.

Dentinger also said that he expects that this "circumstance" will likely be the case for "the next couple of quarters at least."

This strongly points to InvenSense losing some fairly significant share at Samsung.

Digging deeper into the call, another analyst probed management as to its thoughts of the company's competitive positioning at Samsung.

According to InvenSense CEO Behrooz Abdi indicated that the management team "made the decision in the last few months" that the company isn't "going to participate in that" -- suggesting that Samsung's next flagship won't use an InvenSense-made 6-axis motion processor.

Abdi indicated that the company will be providing an optical image stabilization, or OIS module, to Samsung, but that it will be sharing this spot with a competitor (my bet would be on ST Micro (STM 5.71%)).

Abdi also told investors that, for the company's own financial modeling purposes, it isn't expecting to be "very aggressive in terms of the market share assumption there."

Why the share loss?
Part of the story that InvenSense management has tried to sell to investors for a while is that its chips offer more performance/features and are ultimately differentiated relative to parts from the competition.

InvenSense management seems to be sticking to that story, but notes that Samsung is seemingly more interested in bringing costs down than in trying to differentiate using InvenSense's purportedly more advanced technology.

Abdi's explanation for this is as follows:

This particular customer is going through their own competitive dynamics in the market right now. And, quite frankly, their focus strategically has been on just a severe cost reduction at the expense of performance.

Indeed, if we look at what Samsung had to say about the smartphone market in its most recent earnings release, we see that the company is projecting that the smartphone and tablet market overall will grow at a single-digit pace.

Further, the company says that "despite difficulties of strong competition amid weak demand growth, [Samsung will] strive to maintain solid earnings through reinforcing product competitiveness and efficiently managing line ups."

It's no surprise, then, that optimizing its product lineup for cost, rather than absolute maximum performance in areas where the customers may not appreciate it, is Samsung's current modus operandi. 

InvenSense management gives hope for tomorrow
As is typical when things are looking bad in the near-term, Abdi tried to give investors some reassurance that things look better over the longer-term.

In particular, he notes that the company's strategy over the last few years has been to try to integrate as much functionality into its platforms, which should help costs and increase the amount of value per platform that InvenSense can deliver.

To that end, Abdi says that InvenSense is planning to deliver a "fully integrated" solution that combines Electronic Image Stabilization, Optical Image Stabilization, and the six-axis (gyroscope + accelerometer) sensors into one.

We'll see if things get better for InvenSense over the longer-term, but right now the loss of share at Samsung is certainly going to sting.