InvenSense Faces Investor Lawsuit for Not Disclosing 'Sweetheart' Sensor Deal With Apple

Apple sensor supplier InvenSense is facing a class-action lawsuit filed by investors accusing the company of defrauding investors by not revealing the true terms of its deals with Apple and Samsung, reports Silicon Beat. InvenSense recently joined Apple's supply chain, producing gyroscopes and accelerometers for the iPhone 6 and 6 Plus.

In the lawsuit, investors accuse InvenSense CEO Alan Krock of providing misleading guidance when he discussed a large new customer during the company's earnings conference call in July 2014.

"Instead of revealing the true condition of the company and its prospects, defendants hid those facts from investors and chose to issue strong guidance and paint a picture of a bright future with a new mega-customer," the complaint states.

Investors believed the new customer to be Apple and increased their stock holdings based on this assumption. During this buying frenzy, InvenSense insiders reportedly sold off their shares, making more than $5.3 million at a time when the price of InvenSense's stock was climbing.

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Investors were surprised when InvenSense's gross margins dropped 11 percentage points in the following quarter despite this supposed lucrative Apple contract, and the company's share price quickly fell 20 percent. Plaintiffs in the case assert this decline in the company's financial state was the result of overly generous supplier deals with Apple and Samsung, as well as manufacturing problems that delayed component shipments. The company's failure to disclose these "sweetheart deals" is the basis for the class-action lawsuit.

InvenSense isn't the first supplier to face financial troubles after inking a deal with Apple. Materials manufacturer GT Advanced last year filed for bankruptcy following a failed manufacturer agreement with Apple to supply sapphire for future Apple devices.

Related Forum: iPhone

Top Rated Comments

Analog Kid Avatar
121 months ago
Ah, investor logic is such simple logic...

If I beat the market, I'm a genius that saw something no one else did!

If the market beats me, I must have been lied to: sue!!
Score: 5 Votes (Like | Disagree)
IJ Reilly Avatar
121 months ago
Due to Apple’s insistence on secrecy, InvenSense was not allowed to announce that its sensors would be included in the iPhone 6 and 6 Plus before the gadgets’ release. But plaintiffs claim that savvy investors read between the lines when former InvenSense Chief Financial Officer Alan Krock alluded to a new customer who would account for 10 percent of the company’s revenue during a July earnings call.
http://www.siliconbeat.com/2015/01/12/invensense-sued-by-investors-over-sweetheart-deal-with-apple/

So investors who tried to "read between the lines" are suing because they failed to guess right? Good luck with that one.

The comparison to GTAT seems inevitable, but off base. InvenSense is selling product to Apple. GTAT never did.
Score: 5 Votes (Like | Disagree)
IJ Reilly Avatar
121 months ago
I'm not market savvy so be gentle. Did they actually fail to guess right? They guessed the customer was Apple. It was Apple. CEO issued strong guidance based on that customer. Investors bought, insiders sold, margins dropped, stock dropped. I'm probably over simplifying. I still don't think this is worthy of a lawsuit. Stock market is a calculated risk.

Related but unrelated. Wouldn't a smart investor naturally assume if a company is in business with Apple: 1. The margins will be thin. 2. The company is betting on volume to counter the thin margins.

Again, not savvy enough to know what's what.

I think you are getting it right. The plaintiffs have to show that the company provided investors with deliberately misleading or inaccurate information. The insider trading claim is also difficult to prove without evidence that insiders traded outside of the trading plans they are required to file with the SEC. The problem with most insider trading claims is that this evidence is generally absent. Insiders are always trading so it's easy to make strictly circumstantial claims like these but they don't count for a hill of beans.
Score: 3 Votes (Like | Disagree)
nzalog Avatar
121 months ago
We're only 13 days into 2015 but I feel like this is the most bland story I have read this year, quite possibly ever, even the GTAT story was more riveting.

Worst comment of 2015?
Score: 3 Votes (Like | Disagree)
ArtOfWarfare Avatar
121 months ago
Is the margin dropping 11% really all that important, though? I feel like the profit is more important. Are they making more or less than last year?

----------

http://www.siliconbeat.com/2015/01/12/invensense-sued-by-investors-over-sweetheart-deal-with-apple/

This article also fails to mention what their profit was.

Also, their margin fell from 47% to 36%. This really doesn't sound like the sky falling to me. So long as they're selling at least 31% more product, they've increased their profit.
Score: 2 Votes (Like | Disagree)
saving107 Avatar
121 months ago
We're only 13 days into 2015 but I feel like this is the most bland story I have read this year, quite possibly ever, even the GTAT story was more riveting.
Score: 2 Votes (Like | Disagree)

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