Shares of motion-processing specialist InvenSense have shed about 37% of their value year to date and about 58% over the last year.
InvenSense has dramatically underperformed the iShares PHLX Semiconductor ETF. Source: YCharts.
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Although the company enjoyed robust revenue growth in its last fiscal year and, according to analyst consensus, is set to see revenue growth of nearly 20% this year, investors don't seem to be buying the long-term story.
In order to get a better handle on how the business is faring and its long-term prospects, it's worth tuning in to what the top brass had to say on the company's most recent earnings call. Here are three things mentioned that I found particularly interesting.
1. Any margin recovery in sight? One factor that has certainly pressured the InvenSense story has been that the company's gross profit margins (on a non-generally accepted accounting principles basis) have been in the mid-40% range over the last several quarters, well below its long-term target of gross margins in the mid-50% range.
On the call, analyst Krishna Shankar asked management about whether InvenSense would be able to "lift" its gross profit margins "out of this current range to a higher plateau."
CEO Behrooz Abdi indicated that he believes that "there is a path in terms of margin improvement," and that although it will take both effort and time, the company is "on that path."
CFO Mark Dentinger added some additional color to the discussion, saying that the company has seen "very good signals" that it will "get margin improvement either toward the end of this [fiscal] year or as [InvenSense] turn[s] the corner into [its] fiscal 2017."
2. Moving away from devices where performance isn't a selling pointIn Abdi's prepared remarks, the InvenSense chief said that device vendors in Korea "continue to aggressively drive cost reduction." Analyst Suji De Silva asked Abdi to clarify the potential impact that will have on InvenSense's business.
"The impact is that they are going to more heavily drive multi-sourcing and we have seen that," Abdi said. He did, however, seem to indicate that the company is "well positioned" in platforms where "performance matters."
Abdi also talked about platforms where gyroscopes are "just a checkmark" (i.e., as long as the feature is there, the actual performance/quality of the solution isn't as important).
"We are going to be more disciplined about going after those sockets because the only thing they care about is pricing, and we are going to be moving away from some of those sockets, quite frankly," he said.
3. Let's talk use of cashOne analyst noted on the call that InvenSense has built its net cash position up over the last several quarters and asked if the company has any plans for that cash.
Dentinger ruled out the idea of returning cash to shareholders (via a buyback or a dividend) and indicated that it would be "building [cash] up" as "dry powder."
With respect to mergers and acquisitions, Abdi said that it has "plenty of cash" and that if an attractive opportunity presented itself, it is in a position to "take action." He did, however, indicate that it is "not shopping" and that it has "a lot of work" on its plate and that it has the resources in-house to be able to get that work done.
Investment takeawayDespite its strong growth over the last several years, InvenSense still has plenty to prove to shareholders. It needs to show that it can successfully maintain strong market segment share in the high end of the smartphone market, even as its major customers look to multi-source components.
Furthermore, in addition to retaining market segment share, it needs to prove that it can deliver gross profit margin expansion in order to bring the business closer to its long-term financial model.
The article 3 Things InvenSense, Inc. Management Wants You to Know originally appeared on Fool.com.
Ashraf Eassa has no position in any stocks mentioned. The Motley Fool recommends and owns shares of 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.
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