Apple (Nasdaq: AAPL ) surely started ordering parts for the soon-to-be-unveiled iPad 2 a long time ago, and that bad boy is expected to ship with dual cameras. Likewise, the iPhone 5 must be far along in the design process, and OmniVision should know whether it's the exclusive camera-chip supplier, just as it was in last year's iPhone 4. In short, OmniVision would have both weak recent sales and a bleak outlook on 2011 if anything were amiss with the Apple account.
And that's simply not the case.
OmniVision's shares jumped sky high on the release of its third-quarter results, with the gain magnified by a sharp drop the day before the release. Non-GAAP earnings more than quadrupled year-over-year to $0.84 per share, putting analyst targets of $0.58 per share to shame. Furthermore, the company set the bar for 2011 results far above Street levels.
When asked specifically about the impact of Sony, Samsung, and other industry giants stealing slices of OmniVision's camera-chip pie, sales VP Ray Cisneros brushed the concerns off like dandruff on a Prada-suited shoulder:
Competition is going to be natural when these markets start expanding. These markets are huge. [...] On the other hand, what differentiates our position is our ability to deliver products on time, our technology, and our ability to work with our supply chains. All combined, we feel very, very comfortable in the marketplace in whatever competitive landscape we come across.
Indeed, Apple is not the only superphone maker singing OmniVision's praises: The customer list also includes Android champions HTC and Motorola Mobility (NYSE: MMI ) , not to mention BlackBerry designer Research In Motion (Nasdaq: RIMM ) . Thus, buying OmniVision is an industrywide play on smartphones of every stripe and color.
Preach it, brother!
I can't blame Ray for that comfy groove. OmniVision's backside illumination, or BSI, chip technology is years ahead of the competition for the simple reason that the company stuck to its guns while others discarded that technology for being tricky and expensive. The manufacturing lead alone is enough to ensure at least a couple of years of top-dog status -- and high-end mobile devices that want to use cameras as a selling point must take a serious look at these chips.
If Sony or Samsung -- or anybody else -- really wants to own this market, they'd have to either buy OmniVision outright or start sending gravy-drenched license checks for the right to use OmniVision's BSI-related inventions. The third option, of course, is that OmniVision simply soldiers on alone and unchallenged in the BSI field until its rivals catch up. This quarter's outperformance shows how high demand is for these chips, and any of those three outcomes will reward OmniVision investors handsomely.
Who else works like that?
Pure-play dominators of a tightly focused market are hard to come by:
- Intuitive Surgical (Nasdaq: ISRG ) nailed down its peerlessness by building a patent-protected fort and then buying its only serious rival.
- Middleby (Nasdaq: MIDD ) did the same thing in restaurant-grade cooking equipment, as it purged itself of distractions to focus on ovens and cooktops with market-crushing results.
- And now we have OmniVision turning its sights on BSI chips in a beautifully myopic manner. Now that the hard work is done, an average hamster of mediocre talents could run this company and still give shareholders a serious return on their investment.
Of course, hamsters aren't running the company, and a management team bold enough to create this opportunity in the first place should be in great shape for taking OmniVision to the next level. It's a textbook case of how Jim Collins sees companies move from merely good to truly great, which tends to reward early bird investors.
This is OmniVision's time to shine, and the company is delivering on that promise.
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