InvenSense (NYSE:INVN) investors have endured quite the roller-coaster ride over the past few months, and it seems safe to say things will only get more interesting with the motion chip specialist's fiscal third-quarter 2016 report next Wednesday.
For perspective, InvenSense stock last skyrocketed nearly 20% in a single day following its strong fiscal second-quarter report in October. At the time, the market rejoiced as the company's previously disappointing guidance proved too conservative. In addition to its successful ramp of high-volume production of a new 6-axis MotionTracking device for a major North American customer, results were driven by continued expansion of InvenSense's differentiated software-enabled sensor platform, which in turn allowed the company to drive more content to its customer base and solidify other 6-axis design wins.
But with shares down around 15% so far in 2016 as of this writing, you can bet InvenSense would like to prove the naysayers wrong with another great report next week. Here are four things I'll be watching closely when it hits the wires:
The headline numbers
The first thing the market will hone in on are the usual headline numbers. InvenSense, for its part, told investors during last quarter's call to expect fiscal third-quarter revenue in the range of $115 million to $120 million (compared to $115.9 million in the same year-ago period) and adjusted earnings per share of $0.17 to $0.19 (down from $0.21 per share).
This might not seem particularly impressive at first glance. But keep in mind when these expectations were issued, CEO Behrooz Abdi explained that while the company has a "pretty good" understanding of anticipated volumes from its current largest customers, it also has enjoyed significant traction in what management calls the "other bucket," comprised primarily of products targeting the burgeoning Internet of Things market.
"If that were to go well," Abdi teased, "that would probably give us a little bit of upside."
The Apple effect
Speaking of large clients, just two companies individually accounted for at least 10% of InvenSense's sales last quarter, and they were almost certainly Apple (NASDAQ:AAPL) and Samsung (NASDAQOTH:SSNLF) at 34% and 19% of total revenue, respectively.
It should be unsurprising, then, that InvenSense stock plunged between mid-December and early January not only due to the broader market pullback but also amid reports that Apple was cutting back component orders for its latest iPhone lineup.
To InvenSense's credit, Abdi did suggest last quarter that thanks to its success proving out real use cases in mobile, the company is "poised to expand meaningfully to applications spanning a number of vertical markets that offer significant new opportunity for growth and diversification."
What's more, he noted while 70% of InvenSense's revenue currently comes from the mobile segment, 80% of its new design win pipeline is outside of mobile.
However, that doesn't change the fact InvenSense still bears an outsized reliance on mobile. And if Apple is pulling back component orders due to light demand, InvenSense will almost certainly suffer as a result.
On a broader scale, investors should also listen for comments from management on the extent to which the current macroeconomic environment could hamper growth in the near term. Recall, for example, that InvenSense shares plunged two quarters ago after the company turned in better-than-expected results, but opted to issue conservative guidance given concerns over "macro issues" involving fledgling growth in China and consumer sentiment in the United States.
To be fair, that guidance ultimately proved to be too conservative. But given the current state of global economic uncertainty, I won't be shocked if InvenSense once again chooses to play it safe with guidance for the coming quarter.
For perspective, Wall Street's consensus estimates call for revenue in the fiscal fourth quarter to rise a modest 3.7% year over year to $103 million, while earnings are expected to be flat at roughly $0.12 per share. While it certainly shouldn't be a huge concern for long-term investors if InvenSense chooses to exercise caution looking forward, our fickle market may not take kindly to such prudence.
Steve Symington owns shares of Apple and InvenSense. The Motley Fool owns shares of and recommends 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.