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Projected InvenSense earnings & dynamics ?5

Currently, I think the market is displaying a lot of trepidation going into earnings, after having gotten each of the last two reports wrong.  This is especially true with declining volume, but that is simply a consequence of the end of the overhang that I identified towards the end of last year.  INVN being towards the low end of the range could also have to do with all the problems Apple is having in getting its Watch out the door.  However, those problems have everything to do with LG, and probably little to do with InvenSense.  In fact, ChipWorks has just given new evidence indicating that InvenSense is probably in the Watch as well as the iPhones.  I've predicted that all along, but I've also been saying that this first iteration of the Watch is of minimal financial impact to InvenSense (or Apple). 

The media has been coming around on that last point recently, but what hasn't been getting much attention is that InvenSense has TWO parts in Samsung's Galaxy S6.  I've been running some #s for InvenSense in light of that, and what we know about Apple iPhone sales, and the results are pretty significant.  Current analyst estimates are for InvenSense to report earnings of 12 cents per share on revenue of 96.7M.  Based 20M S6 pre-orders, 45M in iPhone sales, I calculate that even if Samsung's increased volume has resulted in highly preferential pricing to go along with Apple's, InvenSense should beat the EPS estimate handily.

device parts price rev margin profit EPS
total 110
96.75 14% 13.91 0.151
S6 40 0.80 32 12% 3.84 0.042
iphone6 45 0.80 36 12% 4.32 0.047
other 25 1.15 28.75 20% 5.75 0.062

Note that I view this as a fairly conservative projection, as it uses the bottom of the pricing range that I previously established.  If we don't quibble about individual customer margins, which are data points we will probably never know for sure, and simply apply last quarter's net profit margin across the board, the results are even more positive:

device parts price rev margin profit EPS
total 110
101 17% 17.17 0.186
S6 40 0.85 34 17% 5.78 0.063
iphone6 45 0.85 38.25 17% 6.50 0.070
other 25 1.15 28.75 17% 4.89 0.053

I regard this projection as more reasonable, in that it uses the mid-point, rather than the bottom of my part price range.  Furthermore, margins typically improve over the lifetime of part manufacturing.  Barring some surprise in that area, about the only caveat that I see to these projections is the usual concern about shipping and revenue recognition dates.  That shouldn't be a problem for the iPhone sales, and anything for the Watch .  Anything that doesn't make it into the current quarter for Samsung, will simply show up in future quarters which are looking equally bright based on the S6 reviews.

When I consider these calculations together with low volume, and the rebate rate, which is still high, but has halved from the 25% level documented before the last earnings report, it leads me to predict an end to the $15-17 range trading that has dominated INVN in recent months.  Management delivered on projections for a margin rebound last quarter.  If that trend continues negative sentiment could slingshot, creating a short squeeze.  My Top Idea article reiterated a long-term price target of $24 for the stock.  This earnings report alone probably won't be enough to put INVN at that level, but I still suspect that patient investors who have remained focused on the long-term business are about to start seeing some rewards