What's happening: Shares of InvenSense (NYSE:INVN) briefly plummeted more than 19% early Wednesday, then quickly recovered to trade down around 1.5% as of 10:30 a.m., but were down 6.5% at noon as investors reacted to the motion sensor specialist issuing light guidance along with its strong fiscal-first-quarter results.
Quarterly revenue climbed 59% year over year to $106.3 million, while adjusted net income rose 10.5% to $12.6 million, or $0.14 per diluted share. Analysts, on average, were expecting revenue of just $102.4 million and earnings of $0.12 per share.
InvenSense CEO Behrooz Abdi called it a "solid quarter," then elaborated, "Our performance reflects strong market position in our core motion products across the majority of OEMS as well as the continued adoption of gyro-enabled optical image stabilization technology by major OEMs worldwide."
Why it's happening: During the subsequent conference call, however, InvenSense CFO Mark Dentinger told investors to expect current-quarter revenue of $106 million to $114 million, and adjusted net income per share of $0.13 to $0.15. Wall Street's models called for revenue of $115.5 million, and earnings of $0.17 per share.
Dentinger explained that in large part, the guidance reflects InvenSense's concerns over potential macro issues with consumer sentiment in both China and the United States. Most notably, he later suggested there's nothing indicating "major macro problems coming out of China yet, but we're trying to be cautious about how strong the consumer sentiment is going to be there."
Finally, Dentinger added "Our success with large customers ... comes with a price, and that is that they do get volume discounts, and that's certainly a factor creeping into the guidance." To be sure, InvenSense disclosed three large customers this quarter who each individually accounted for at least 10% of total revenue, up from two such clients in the previous quarter. The first two are almost certainly Apple and Samsung, at 38% and 23%, respectively, while the third is an unnamed OEM accounting for exactly 10% of total sales during the quarter.
In any case, it remains to be seen whether InvenSense's caution is merited for the coming quarter, so it's hard to blame investors for taking a small step back today. But in the end -- if not for the sake of maintaining rapport with investors -- it's arguably better to under-promise and over-deliver than the other way around.