InvenSense (INVN) and its chief competitor STMicroelectronics (STM 0.46%) are done fighting. The two motion sensor companies have been locked in a legal battle since May of 2012. On Monday, however, both companies announced that the two had settled, and agreed to cross-license their patents.

The termination of the litigation risk is a huge weight lifted off of InvenSense, which only expects to generate around $8.5 million in non-GAAP net income this quarter. ST, on the other hand, is a much larger company, so the effect isn't nearly as strong.

Both companies make sensors for Samsung (NASDAQOTH: SSNLF), and now, unencumbered by legal fees or STMicroelectronics 900-plus MEMS patents, InvenSense is poised to continue gaining share in Samsung devices as well as more low-end devices.

The impact of legal fees
On InvenSense's fiscal third quarter conference call, CFO Alan Krock estimated legal expenses during the fourth quarter would be between $3 million and $5 million, or $0.03 to $0.06 per share. For a company that expected to be around break-even for its GAAP earnings in the fourth quarter this is a huge boost.

InvenSense, like many small tech companies, is typically is evaluated based on non-GAAP earnings, but that doesn't mean its GAAP earnings don't matter. After all, legal fees are a very real business expense. The $3 million to $5 million InvenSense saves each quarter can now be reinvested in the company's growth -- either through acquisitions like it did with ADI's microphone segment, or its own R&D.

After rising around 10% on Tuesday, InvenSense is valued at about 28 times its fiscal 2015 earnings estimate. Comparatively, STMicroelectronics shares are trading at more than 31 times its expected earnings for fiscal 2014 (which ends just three months earlier).

Interestingly, I think InvenSense deserves a higher valuation than ST because the company is growing its revenue at a 20% clip. Earnings are expected to follow suit. Conversely, ST is expected to see a slight decline in revenue during 2014, although improved operations and fewer legal expenses will see it increase profit. As a result, InvenSense's PEG ratio is much more attractive at 1.4 versus 6.0 for ST.

Without legal fees, InvenSense may be able grow its revenue even faster, and now that it has the option of licensing ST's patents, the company can continue operations without fear of complications arising around intellectual property.

So, where does the next wave of revenue come from?
One source InvenSense will look to increase revenue is with its biggest customer, Samsung. In the past two years, the company has successfully expanded its share of Samsung design wins from 30% to 50%.

With Samsung's next generation flagship phone, the Galaxy S5, set to launch in early 2014, InvenSense is poised to win the design in that device as well. STMicroelectronics made the combination gyro and accelerometer chip in the Galaxy S4, so InvenSense's share should continue to rise past the 50% mark.

The percentage of revenue coming from Samsung may, however, put pressure on the company's margins as larger customers get better pricing. Last quarter, Samsung accounted for nearly one-third of InvenSense's sales.

Another one of InvenSense's disclosable customers may help the company grow revenue. Xiaomi, the Chinese smartphone manufacturer, accounted for 16% of InvenSense's third-quarter sales. Xiaomi is a rapidly growing company with plans to expand outside of China into other emerging markets such as Brazil. If it can repeat the success it had in China, InvenSense may see that 16% number continue to rise.

InvenSense also provides value to low-end smartphone manufacturers looking to differentiate their devices as the company's SoCs are essentially plug and play. Manufacturers without the resources to invest in software and integration costs of other sensors can pay a little bit more to have an InvenSense chip that takes care of the problem.

Lifting the burden
Investors rewarded InvenSense after the announcement on Monday, lifting the shares significantly after hours. Despite the jump in price, InvenSense still appears to be within a reasonable price range. Considering the growth opportunities ahead of the company, the extra $3 million to $5 million the company will save can be invested back into the company's growth. Not to mention, there's no longer the risk of a big payout to ST.