Spoiler alert: I'm holding on to my own OmniVision Technologies (Nasdaq: OVTI) shares into 2012. The camera-chip maker has been ousted from its seemingly secure throne. Sony (NYSE: SNE) is obviously able to supply high-quality backside illumination sensors at a price acceptable to Apple (Nasdaq: AAPL), so the technological moat was a few quarters narrower than I thought possible.

This stock took a lava bath in 2011. Is this just the start of an even steeper fall, or are OmniVision shares just too cheap to ignore at these levels? I'll walk you through the arguments.

Buy:

  • Cheap, cheap, cheap: OmniVision shares are currently trading for just 5.5 times trailing earnings. The company is also sitting on nearly $8 of almost debt-free cash per share, which leads to an EV/EBITDA ratio of just 1.98. To put that number into perspective, value paragon Apple's EV/EBITDA stands at a hearty 10. Google and eBay both have enterprise values of more than 12 times EBITDA. OmniVision isn't just cheap -- it's a steal.
  • BSI-2: Though Sony and others have caught up to the BSI product line, the next-generation BSI-2 technology promises to give cell phone cameras image quality comparable to digital cameras not stuffed into a phone. That means resetting the clock on the technology race for a while longer.
  • Exploding markets: The company shipped 153 million units in the second quarter. If you thought that was impressive, IHS iSuppli predicts the smartphone market to grow to 1 billion units a year in 2015. Many smartphones use two cameras to facilitate Facetime-type video chats, so the camera-chip market doubles to about 2 billion units. Sure, Sony, Toshiba, and friends will put up their dukes along the way, but OmniVision should still be able to capture a large enough market over the next few years.

Sell:

  • The good times stopped rolling: What if BSI-2 doesn't impress phone builders? Instead of an extended lead, OmniVision could face a scratch-and-bite battle for every inch of field position -- and the other guys are bigger and richer. If the growth story has come to an abrupt end, the ultra-low share price would be more than justified.
  • One-trick pony: So what does OmniVision do when others catch up to the BSI-2 as well? Pull an even better BSI-3, and 4, and 5 out of its hat? Move into smartphone speakers and microphones? Chop up office furniture for firewood? BSI is a great trick, but it can't last forever.

Hold:

  • Situation normal: Camera-chip competition is fierce for sure, but other industries have been through periods like this before. Take the graphics processor industry: one day NVIDIA runs leaps and bounds ahead of the best that Advanced Micro Devices can produce and the next week it's the other way around. Sony and OmniVision could run a race like that for years to come. At worst, maybe Sony or Samsung would just buy out OmniVision rather than battling against it every day. That wouldn't be a terrible outcome, now would it?

And in the end...
I keep coming back to that ridiculously low valuation. If I didn't already own OmniVision today, I'd probably buy some. These prices just can't last, unless BSI-2 is an unqualified dud and the company can't even hold on to the accounts it already owns.

Anything is possible, but I find that doomsday scenario highly unlikely. Hence, OmniVision remains a screaming buy today.

There are plenty of other great smartphone plays if OmniVision scares you -- here are three mobile computing ideas for your portfolio, courtesy of our top analysts.