The iPhone Camera Mystery -- Solved!

When a butterfly flutters its wings, it might unleash a hurricane three continents away, years later. But when Apple (Nasdaq: AAPL  ) picks a component supplier for the next iPhone, the market cyclones are both swift and ferocious.

That's why OmniVision Technologies (Nasdaq: OVTI  ) dropped so dramatically today, as the analysts of Chipworks ripped apart a couple of iPhone 4S units to see exactly what's inside. Most of the contents were already known, which is why big winner TriQuint Semiconductor (Nasdaq: TQNT  ) jumped so high earlier in the week. But the camera module was still shrouded in mystery behind inscrutable chip markings.

So when Chipworks' infrared microscope clearly unveiled a Sony (NYSE: SNE  ) logo behind the image-sensor chip, it became abundantly clear that OmniVision isn't the sole supplier of iPhone camera chips anymore. Read 'em and weep:

Image taken from Chipworks, clearly showing Sony's fingerprints on the camera chip.

Chipworks bends over backwards to point out that this is just one unit and that Apple probably dual-source these chips from both Sony and OmniVision. But the fact remains that OmniVision's former stranglehold on this product line has been broken. Say hello to Sony, the second company to figure out how to make backside illumination camera chips with performance and costs acceptable to Apple.

This shoots large holes in my own investment thesis for OmniVision, which assumes that the company stands alone in the BSI market. But the salad days are over. Time to share the playground with the other kids. My real-money synthetic long on OmniVision is suffering right now.

In other iPhone 4S news, IHS iSuppli confirmed (and Chipworks also believes) that Cirrus Logic (Nasdaq: CRUS  ) still makes the audio chip; this information was missing from earlier reports. But the camera info was far and away the biggest iPhone news of the day. For OmniVision bulls like me and fellow Fool Evan Niu, it's back to the lab again.

Unless further reports show that Sony kicked OmniVision out of the iPhone entirely, which I think is about as likely as the Dolphins winning the Stanley Cup next year, I still think that the stock is ridiculously cheap at just 6 times trailing earnings before backing out nearly $8 a share of net cash. An earnings announcement in late November should sort that mispricing out before my options expire. The keyword here is should, of course. Stay tuned. 

Follow the OmniVision drama without putting cash on the line! Just add the ticker to your Foolish Watchlist, and you'll have all the news and analysis you can handle.

Fool contributor Anders Bylund has created a synthetic long position in OmniVision, but he holds no other position in any of the companies discussed here. With his luck, the hockey playoffs will be conducted with pigskins on Astroturf in 2012. The Motley Fool owns shares of TriQuint Semiconductor, Cirrus Logic, and Apple. Motley Fool newsletter services have recommended buying shares of and creating a bull call spread position in Apple. Try any of our Foolish newsletter servicesfree for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. You can check out Anders' holdings and a concise bio, follow him on Twitter or Google+, or peruse our Foolish disclosure policy.

Read/Post Comments (7) | Recommend This Article (5)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On October 14, 2011, at 5:15 PM, TMFNewCow wrote:

    Argh! I was wrong!

    -- Evan

  • Report this Comment On October 14, 2011, at 5:52 PM, gtthomas4 wrote:

    why OVTI, why?!?!

  • Report this Comment On October 14, 2011, at 6:05 PM, TMFNewCow wrote:

    why AAPL, why?!?!

  • Report this Comment On October 14, 2011, at 8:05 PM, teryakisauce wrote:

    I don't believe the dual source image sensor rumor. You just can't duplicate image quality with two different image sensors with the same specs like the performance of two similarly spec'd cpu's.

    Besides, who in their right mind would buy the Omnivision version with the Sony Exmor R camera with a phone is sitting next to it?

  • Report this Comment On October 15, 2011, at 6:53 AM, LeslieWNV wrote:

    ChipWorks said that one camera in one Apple IPhone 4S is Sony’s. But what about the second camera?

    I'm betting that the other camera in the IPhone 4S is OVTI's. And after OVTI ramps its 8 megapixel HD camera by the end of October, I’m betting that both cameras in the IPhone 4S and the future IPhone 5 will be OVTI's.

    That's a safe bet, because OVTI's CameraCube technology is the industry's smallest camera solution, requiring only two parts versus the usual five (cf. OVTI presentation, Sep. 29, 2011)--thereby reducing production time and costs.

    OVTI's CameraCube is reflowable, requring no socket and no insertion.

    BTW, Sony reported its earnings on Friday, October 14, 2011, and neither management nor the analysts even vaguely referred to Sony's having any parts in Apple's smart phones.

    In fact, Sony management said that their "Android-based Xperia™ smartphone sales now account for more than 80 percent of sales and we have shipped 22 million Xperia smartphones to date. We will continue to invest in the smartphone market, shifting the entire portfolio to smartphones during 2012."

    I think Apple will stick with OVTI, a company that wants Apple to succeed--unlike Sony, which wants to take market share from Apple.

  • Report this Comment On October 20, 2011, at 8:40 PM, H3D wrote:

    Forget the chip. Who makes the lens?

  • Report this Comment On October 25, 2011, at 11:28 AM, Mathp wrote:

    What is a "real-money synthetic long"? And why did you point to this article even after it was clear that OVTI is confirmed as the second camera in the iphone?

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