InvenSense (NYSE:INVN) reported its fourth-quarter earnings last week, beating analysts estimates on the top line and meeting them on the bottom line. The company earned $0.12 per share on a non-GAAP basis with revenue of $99.3 million. Shares fell, however, as the company's gross margin remains under pressure since it became a supplier to Apple

After the earnings release, CEO Behrooz Abdi and CFO Mark Dentinger spoke with analysts about its results and what it's looking forward to in fiscal 2016.

Source: InvenSense.

Significant operating leverage ahead

While we grew substantially in 2015, we also invested aggressively in securing new customer wins, ramping our manufacturing capabilities, and introducing new products both organically and through acquisitions. As we enter fiscal 2016, our view is that we have most of the resources in place to continue to grow, and our expectation is that improved operating expense leverage will translate into earnings improvement.
-- Dentinger 

InvenSense spent heavily on research and development during 2015. R&D expense nearly doubled from 2014, but a large portion of that expenditure was on qualifying its product for Apple's iPhone 6 and iPhone 6 Plus. Last quarter, R&D expenses increased just 58% and fell as a percentage of revenue.

Analysts are currently forecasting a 28.8% increase in non-GAAP earnings per share, with a 20.8% increase in revenue, so they see operating leverage as well.

Optical image stabilization is starting to take off

We believe OIS [optical image stabilization] attach rates in mobile platforms are likely to double in 2016 to approximately 20% ... We expect that over time, device manufacturers will expand the number of integrated cameras that offer OIS imaging capabilities, and we are well positioned to support this application in a variety of imaging architectures.
-- Abdi

OIS chips accounted for 18% of InvenSense's revenue in the fourth quarter, bringing in approximately $17.9 million in revenue. That's a significant increase from the previous quarter, when OIS accounted for approximately $11.6 million in revenue. As OIS attach rates increase, InvenSense is well positioned to win a large share of the market through both its gyroscope chips and its software solutions.

Increased revenue from the OIS division provides two benefits. First, more chips and software make InvenSense's other socket wins in a device stickier. With a large share of design wins, InvenSense needs to protect its current sockets from the competition. Second, OIS chips and software carry a gross margin higher than the corporate average, which means outsized growth in OIS could provide some relief to InvenSense's gross margin pressure.

Future growth may come from China

Anytime [Chinese manufacturers] want to get to market with new features around sensors, which is really one of the very few places you can differentiate anymore, we believe that we've got a very strong position. They're not looking for just a raw sensor. They're looking for a suite of software and integration, and new features such as OIS imaging and navigation and other features that they can drive into the market faster than the Tier 1s.
-- Abdi

InvenSense invested heavily in software during 2015, acquiring two companies that provide location-awareness and navigation software in Movea and Trusted Positioning. On top of its own software developments to improve the functionality of its motion sensors and OIS chips, InvenSense has a suite of software that differentiates its products from the competition, and makes it easy for a manufacturer to get to market quickly.

As more Chinese buy smartphones in the mid-tier to high-end range, and more of those phones connect to LTE networks, InvenSense stands to gain significant share. It already has a strong position with Xiaomi, the leading Chinese OEM. Getting into more designs with smaller manufacturers looking to compete with Xiaomi and other top-tier OEMS is a big opportunity for InvenSense.

The Apple Watch is still an opportunity

Our product shines in the wearables that need to be very, very power conscious and need to be recharged maybe once a week or once every two weeks. So as long as you're not doing something like that, as long as you have to charge it every day, there's different sets of values. ... There are a lot of factors that come into play when the customer makes a buying decision, and we do see it as an opportunity for us. So it's a growth opportunity going forward.
-- Abdi

While many expected InvenSense to win the socket in the Apple Watch after Apple tapped it for the new iPhone designs, teardowns revealed rival MEMS maker STMicroelectronics won the design. InvenSense still has an excellent position with other wearable OEMs, but the Apple Watch is expected to take the lion's share of the wearable market this year, and it represented a significant revenue opportunity.

InvenSense put a positive spin on its inability to win the design, saying it's an opportunity going forward. InvenSense has consistently provided more powerful and lower-power designs than STMicroelectronics over the last couple of years, and if the motion-sensing capabilities of the Apple Watch take off, as Apple expects them to, the socket could still switch to InvenSense.

Expanding beyond mobile devices

While we expect mobile to remain the predominant contributor to our revenue in fiscal 2016, we are actively building partnerships and channels and engaging with customers in adjacent markets in order to drive our growth and development. ... We believe that many of these opportunities bring the potential to be the meaningful revenue and profit growth contributors in the years to come.
-- Abdi

During the conference call, Abdi talked about opportunities in the Internet of Things, including things like microphones on TVs (for things like video conferencing) or opportunities in automobiles and drones. As more devices rely on motion sensing, Abdi believes InvenSense has an excellent opportunity with its Firefly platform, which eschews the need for a sensor hub by integrating all of the architecture on one chip. In that way, devices will consume less power while still seeing improved processing performance.

The opportunity in the Internet of Things isn't, in all likelihood, going to have a huge impact on InvenSense in 2016. However, it's laying the groundwork now to ensure that it's part of the growth in the industry over the next several years.