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InvenSense (INVN) Incurs Greater Loss Than Expected in Q4

InvenSense, Inc. INVN reported fourth-quarter fiscal 2016 loss per share of 8 cents, greater than the Zacks Consensus Estimate loss of 7 cents per share.

Revenues

InvenSense reported revenues of $79.5 million, down 33.7% sequentially and 19.9% year over year.

In the fiscal fourth quarter, smartphones and tablets represented 54% of the company’s market, while optical image stabilization and other segments, including Internet of Things (IoT), accounted for 14% and 32%, respectively.

Margins

Reported gross margin for the fiscal fourth quarter was 41.4%, down 10 basis points (bps) sequentially and 190 bps year over year.

InvenSense reported total operating expenses (SG&A and R&D) of $43.3 million, 6.7% higher than $40.6 million incurred in the year-ago quarter. Both SG&A and R&D expenses increased year over year as a percentage of sales. The net result was a GAAP operating margin of (13.0%) against 2.4% a year ago.

The quarter’s GAAP net loss was $22.9 million or loss of 25 cents against net income of $1.89 million or earnings of 2 cents in the prior-year quarter. Excluding all the special items but including stock-based compensation expenses, the company reported adjusted loss of 8 cents against earnings of 9 cents per share in the prior quarter.

Balance Sheet

InvenSense ended the fiscal fourth quarter with cash and short-term investments balance of $284.9 million, down from $297.2 million in the prior quarter. Trade receivables were $41.4 million, down 2% sequentially. Days Sales Outstanding (DSO) were 48 versus 32 in the fiscal third quarter.

During the reported quarter, cash flow from operations was ($3.86) million and capex was $1.5 million.

Guidance

For fiscal first quarter of 2017, InvenSense expects total revenue in the range of $58–$62 million, representing a sequential decrease of 24.0% at the midpoint. On a non-GAAP basis, gross margin is likely to be 45–46%.
Non-GAAP loss per share is projected in the range of 5 cents to 7 cents, while GAAP loss per share is expected in the range of 13 cents to 15 cents. The Zacks Consensus Estimate for the upcoming quarter stands at loss of 3 cents.

Conclusion

InvenSense, the leading provider of MotionTracking(TM) devices, reported a weak fiscal fourth quarter. Also, management issued a weak fiscal first-quarter guidance, which indicates poor demand.

However, we believe that the company’s growth initiatives including increased solution content, market diversification and new sensors built are the positives. Additionally, with technological advancements, demand for console and portable video gaming devices, digital still and video cameras, smart televisions, 3D mice and navigation devices is growing. InvenSense’s chips target all these categories and hence should experience demand growth, in our opinion.

However, increasing competition and uncertain demand patterns remain headwinds.

Currently, InvenSense has a Zacks Rank #4 (Sell). Some better-ranked stocks at the current levels are Fabrinet FN, Rogers Corporation ROG and TDK Corporation TTDKY, each sporting a Zacks Rank #1 (Strong Buy).

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