OmniVision Dresses Its Belle for the Ball -- Will It Be a Winner?

My relationship with image-sensor specialist OmniVision Technologies (Nasdaq: OVTI  ) has been a love-hate ordeal for most of its existence. Sadly, there's been more hate than love in recent times, and I've questioned aloud whether our matrimony could withstand the tests of time.

As a pioneer in backside illuminated (BSI) technology, it rode its technological lead high for a while, enjoying its cushy spot in two generations of Apple's (Nasdaq: AAPL  ) iPhone. The company beat former Micron division Aptina, which supplied the 2-megapixel camera found in the iPhone 3G, and its sensors revved up sales in the iPhone 3GS and subsequent iPhone 4.

OmniVision: The Next Generation
The second-generation BSI-2 sensors promised to revitalize its lead, and I had specifically predicted that the OV8830 BSI-2 shooter would win the iPhone 4S spot. Not only was a Sony shooter found inside, but OmniVision even said the OV8830 had just recently begun shipping in "limited quantities" when it updated its guidance, far too late and scarce to be included in the newest iPhone.

After the dismal showing in 2011, I'm still hoping to party with OVT this year.

A lot of the festivities will hinge on whether this generation of BSI-2 sensors can regain a lead over image-sensor rivals. So it's with justified anxiety that I uncover that the OV8830 has scored its first design win observed in a mobile device.

More than meets the eye
The gadget in question is none other than the important Asus Transformer Prime tablet, running Google (Nasdaq: GOOG  ) Android. Why is the Transformer Prime so important? Let's count the ways. NVIDIA (Nasdaq: NVDA  ) recently launched the world's first quad-core mobile processor, its Tegra 3 chip, and the Transformer Prime is the first device among smartphones and tablets to sport the CPU.

Source: Asus.com. Transformer Prime's rear-facing 8-megapixel camera with flash.

This year will also see other chipmakers migrating from dual-core to quad-core offerings, including Qualcomm and Apple, so the Transformer Prime is a hardware milestone as the harbinger of the mobile quad-core era.

On the software front, it is the first tablet to carry Android 4.0 Ice Cream Sandwich (ICS), beating out the Motorola Mobility Xoom for that title. The software update is now available for the Prime, and Ice Cream Sandwich is Android's first fully fleshed-out tablet experience. The prior Android Honeycomb tablet OS was rough around the edges and, even Google considered it an "emergency landing" just to get tablet support out there.

As the trailblazer for quad-core tablets running ICS, a lot of eyes will be watching how the Prime does, including its 8-megapixel BSI-2 primary camera.

Anyone else?
Also found inside was Atmel's (Nasdaq: ATML  ) new flagship touchscreen microcontroller. Atmel is king among non-Apple tablets, and its own recent softness is largely attributed to the overall underwhelming performance of Android tablets combined thus far.

If this new push of Android tablets running ICS can find legs, Atmel will also ride the tide higher. Atmel is also rumored to have won the spot in Amazon.com's Kindle Fire 2, and the first Kindle Fire is one of the few Android tablets actually selling well.

Don't sell, don't buy
With OmniVision still absurdly cheap, shareholders like me have no choice but to sit tight and hope that the BSI-2 sensors can reposition the company ahead of rival sensor makers. BSI-2 technology is the first in the world to offer 1.1-micron pixels, and it also substantially improves low-light sensitivity. Compared with OVT's first-generation BSI sensors, the new ones have enhanced color reproduction, image quality, and overall camera performance packed into tiny form factors -- ideal for smartphones and tablets.

That being said, rivals are clearly starting to catch up, evidenced by Sony's design win with Apple, so OmniVision's prospects are far from certain and carry a little too much risk to feel confident buying shares. The company expects third-quarter revenue between $160 million and $180 million, the midpoint of which represents a 36% fall from the prior year's $265.7 million in third quarter sales -- hardly confidence-inspiring.

Hopefully winning the Prime's camera slot will be the first of many in the coming year. Ideally, the Transformer Prime can be the Optimus Prime of Android tablets and lead them to victory, although it should avoid such associations because of Hasbro's trademark infringement suit against Asus. If the sensor can help the tablet jump-start Android tablet sales and wow mobile photographers, it may regain favor among mobile-device makers with BSI-2, the most important of which being Apple.

I'll be holding on to my shares and hoping this year will be better than the last.

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Fool contributor Evan Niu has sold bullish put spreads on NVIDIA and Qualcomm. He owns shares of Apple, OmniVision Technologies, Atmel, and Amazon.com, but he holds no other position in any company mentioned. Check out his holdings and a short bio. The Motley Fool owns shares of Qualcomm, Apple, Amazon.com, and Google. Motley Fool newsletter services have recommended buying shares of Amazon.com, Apple, NVIDIA, Hasbro, and Google, writing puts in NVIDIA, and creating a bull call spread position in Apple. Try any of our Foolish newsletter services free 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. The Motley Fool has a disclosure policy.


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