InvenSense (NYSE:INVN), which provides motion-sensing solutions for many of today's top mobile devices, is scheduled to report quarterly earnings after market close on Tuesday. The company had long been expected to supply chips into Apple's (NASDAQ:AAPL) iconic iPhone products, and after much speculation finally landed spots in both new iPhones.

After this hard-won victory, though, it wasn't long before reports cropped up that InvenSense's chips weren't working quite right inside of Apple's devices. Rosenblatt Securities (via Seeking Alpha) reported that there was risk that InvenSense would lose most, if not all, of its iPhone 6 sales as a result of "technical issues."

Against this backdrop, here's what investors should look for when the company issues its quarterly numbers.

What's going on with the iPhone 6?
Apple is well known for forcing its suppliers to keep quiet about their relationships with the Mac maker. As a result, it is unlikely InvenSense will be allowed to give too many specifics about what's going on with the iPhone 6. However, according to Rosenblatt's Brian Blair, any potential order cuts associated with Apple giving InvenSense the boot would begin in November, and by December the company would lose all the orders.

InvenSense guidance for the next quarter, due in Tuesday's report, should be telling. If the company projects a very strong sequential revenue increase, it might be safe to assume Apple didn't design InvenSense out. If not, then analysts on the earnings conference call will need to ask the right questions to figure out exactly what is driving that weakness.

Looking at second-quarter estimates
InvenSense reportedly guided to revenue of $86 million-$91 million for the current quarter on its last earnings call. Analyst consensus (per Yahoo! Finance) sits at $90.48 million. The company guided to between $0.15 and $0.16 in earnings per share for the third quarter, with analyst consensus sitting at $0.16.

It seems the analyst community expects InvenSense to deliver better than guided revenue and earnings per share results. This makes sense given how strong iPhone 6 and iPhone 6 Plus sales seem to be, but one thing to watch out for is that Apple's phones could be taking share from Android phones (such as Samsung's Galaxy S5, according to Baird's Tristan Gerra) that also use InvenSense chips.

Such cannibalization could dilute the effect of the addition of the Apple business. 

However, while the second quarter results will be important, the third quarter and full-year guidance are what will make or break the story.

What should investors be looking for here?
Analysts expect InvenSense to guide to $116.32 million in revenue for the coming quarter and approximately $0.30 per share in earnings. More importantly, the analyst community expects InvenSense to generate $0.78 per share in earnings and $374.92 million during fiscal 2015.

If InvenSense can reaffirm its full-year EPS guidance of $0.80, then this should ease some of the pressure that has been applied to the stock as a result of iPhone 6 design-out fears. If InvenSense actually revises guidance upward, it could push shares back to their 52-week high of $26.78.

However, if the company guides down, particularly in light of extremely strong iPhone demand, then the stock might sell off, as this could signal the much-feared loss of the Apple business.


 
 

Ashraf Eassa is short Oct. 2014 $18 puts on INVN. The Motley Fool recommends Apple and InvenSense. The Motley Fool owns shares of Apple and InvenSense. 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.