InvenSense Inc. (NYSE:INVN) is set to release fiscal first-quarter 2017 results this Thursday, July 28, after the market close. With shares having largely recovered after disappointing guidance overshadowed the motion-sensor chip specialist's solid Q1 results three months ago -- but still down more than 30% year to date as of this writing -- InvenSense would love for a strong report to help sustain its recent momentum.
So what should we be watching when InvenSense's fiscal Q1 release hits the wires?
InvenSense's latest guidance calls for quarterly revenue of $58 million to $62 million, representing a 43.6% year-over-year decline at the midpoint thanks to the recent softening of the overall mobile market. As such, InvenSense told investors to expect adjusted gross margin in the range of 45% to 46%, which should translate to an adjusted net loss per share between $0.05 and $0.06.
That's fair enough, as orders related to the smartphone and tablet industries comprised around 54% of InvenSense's total revenue last quarter. What's more, InvenSense had two customers that individually accounted for 39% and 14% of total sales, respectively.
Though InvenSense doesn't typically name names, it does usually break down its revenue on a geographic basis. And with clients in the U.S. and South Korea comprising around 43% and 11% of total sales last quarter, respectively, those big customers were almost certainly Apple (NASDAQ:AAPL) and Samsung (NASDAQOTH:SSNLF). Either way, considering Apple just told investors earlier this week that iPhone unit sales dropped 15% year over year in its most recent quarter, it seems fair to say InvenSense's caution surrounding the mobile space was merited.
To InvenSense's credit, it should also continue to demonstrate progress diversifying its business away from smartphones and toward other industries, including optical image stabilization (14% of last quarter's sales), and its so-called "other bucket" (32% of sales). In particular, the "other bucket" segment includes chip platforms related to the Internet of Things to support products such as drones, virtual and augmented reality, wearables, smart homes, and industrial applications. What's more, around 80% of InvenSense's design-win pipeline is outside the mobile industry.
As InvenSense CEO Behrooz Abdi stated during last quarter's call, "On a fundamental level, we have taken significant steps in our transformation from a mobile-concentrated single product company toward a broad-based multi-sensor solution company."
Because we're still in the early stages of growth for many of these applications, however, it's difficult to predict how significant of a tailwind they can provide in any given quarter. So while any outperformance from its supplemental market verticals will probably offer InvenSense's best chance at posting upbeat results, in the meantime InvenSense investors can only assume their company will be left to endure today's mobile weakness until it eventually abates.
Relatedly, listen for InvenSense to give investors a peek at what's to come, including its outlook for revenue, gross margin, operating expenses, and earnings per share in the current quarter. For perspective -- and though we don't usually pay close attention to Wall Street's near-term demands -- analysts' consensus estimates predict that InvenSense will swing back to an adjusted quarterly profit of $0.03 per share for its fiscal second quarter of 2017, with revenue down roughly 30% year over year, to $78.6 million.
In the end, whether InvenSense lives up to that guidance remains to be seen. But arguably more important to long-term investors will be whether the company demonstrates that the worst is now behind it.
Steve Symington owns shares of Apple. The Motley Fool owns shares of and recommends Apple and InvenSense. The Motley Fool has the following options: long January 2018 $90 calls on Apple and short January 2018 $95 calls on Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.