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Apple Review, InvenSense Preview +5

00:01 28-Jan-15


I think we got two important pieces of info from tonight's Apple report, that will help us with Thursday night's InvenSense report.  The first, of course, is that Apple sold 74.5M iPhones.  That's a bigger number than even the most optimistic estimates discussed in my articles.  Using the price per part range derived in InvenSense in the Short & Long Terms, we can calculate that InvenSense will have sales of between $45 and $67 million to Apple.  If margins recover as expected, that means INVN EPS of between 7.5 and 11 cents from iPhone sales alone. 

I'd guess that sales to Samsung may continue to decline a little, but that should be made up for by Xiaomi, which more than tripled its own YoY sales in 2014.  The Chinese upstart plans to launch at least 7 new devices in 2015, including the already introduced Mi Note flagship devices.  If Samsung and other suppliers do cancel out, leaving non-Apple sales roughly the same, we could expect InvenSense to earn anywhere between 18 and 22 cents per share on total sales of $111 to $135M.  On average, analysts are expecting EPS 20 cents on revenue of $112M.  Market reaction to a revenue beat with roughly in-line EPS is anyone's guess at this point.  Guidance may be most important, and I'm mildly optimistic about that, given emerging market growth and greater diversity due to wearables and maturation of the smartphone market.

What's more important to me than a short-term market reaction is that, once InvenSense reports customer percentages, we'll finally be able to pin down a fairly exact price per part for the iPhones.  This is because of the second thing we learned from Apple's report: that the Watch won't ship until April.  That indicates that the current quarter's Apple sales are all iPhone, which makes the math simple.  For the record, I still believe that InvenSense will be in the watch too, and that it will be minor in terms of revenue.

It's pretty hard to predict market reactions in situations like this. Shorted float for INVN has been decreasing.  New data for the first half of January should be available some time tomorrow, but I doubt it will be important enough to send an update.  The rebate rate is still very high at 25% and has been rising gradually in recent days; so a beat could generate a very big upward move.  I'd guess that as long as we get the expected recovery in margins, there will be no sustained downside to speak of; even with a little more inventory write off or EPS misses within the range mentioned above, I'd expect the longer trend will be upward again.  You can expect me to publish optimistically before, and possibly after earnings based on this outlook.