OmniVision Shares Got Crushed: What You Need to Know

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of OmniVision Technologies (Nasdaq: OVTI  ) , which supplies illumination products for smartphones, crashed a staggering 30% on Friday after its second-quarter forecast came in well below Wall Street expectations.

So what: OmniVision's current-quarter revenue outlook missed estimates so badly -- $255 million to $275 million versus the analyst consensus of $306 million -- that investors can't help but assume a big market share loss on the smartphone side. The stock has been under pressure in recent months on fears that Apple (Nasdaq: AAPL  ) would instead go with Sony (NYSE: SNE  ) as its image sensor supplier for the next iPhone, and management's dismal forecast only adds validity to those concerns.

Now what: Expect the pain to continue in the short term. Some Wall Street analysts estimate that OmniVision has likely already lost half of its business from Apple, so don't expect the stock to see an earnings growth-fueled bounce anytime soon. Of course, with the shares now down more than 50% over the past three months alone, OmniVision could be a long-term opportunity worth looking into.

Interested in more info on OmniVision? Add it to your watchlist.

Fool contributor Brian Pacampara owns no position in any of the companies mentioned. Motley Fool newsletter services have recommended buying shares of and creating a bull call spread position in Apple. The Fool owns shares of Apple. Try any of our Foolish newsletter services free for 30 days.

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Read/Post Comments (2) | Recommend This Article (6)

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  • Report this Comment On August 26, 2011, at 2:26 PM, ginger4778 wrote:

    The rumors about OVTI losing business to competitors are completely false. All indications from the earnings webcast are that OVTI has taken market share away from its competitors—rather than losing any business to them.

    The reason that OVTI’s percentage of sales related to smart phones was lower was because its sales related to tablets was so much higher this quarter than last.

    In fact, the earnings webcast talks about new design wins for smart phones and tablets and says that the growth in those markets is huge. OVTI is expanding its marketing and sales in India, China, Japan, Taiwan, and Korea.

    The potential weakness for next quarter is due to the weakness seen in PC and notebook sales. And is not due to any decline in sales for mobile devices.

    OVTI purchased Tessera’s camera department to streamline production, thereby reducing production time and costs, which we’ll start to see over the next two quarters as new products are ramped up.

    This 15-year-old company that has weathered the dotcom bust and several recessions is a takeover target, because it has $500 billion in cash on hand (i.e., >$8/share); a CEO that's 74 years old and likely won't object to the company being bought; ridiculously low P/E; new product designs for mass marketing (particularly emerging markets); and two new product design wins for smart phones.

    OVTI's cameras are in everything from mobile devices to security to autos to medical devices.

    In the webcast, the managers said that, if you look at historical charts, OVTI has always lowered guidance when they're ramping up new designs.

    Ultimately those new designs--as well as the ones that'll be for mass production for emerging markets--will mean more market share and more revenue for OVTI--which makes this stock a screaming buy as well as a prime takeover target.

  • Report this Comment On August 26, 2011, at 5:55 PM, AllyTheCat wrote:

    I think "$500 billion in cash" is over-stating the truth a bit. ???

    500 million is the figure, I believe. Anyway, hope to make lots of money off of my September 18 calls bought today.

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