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It was a crippling blow that left fellow Fool and shareholder Anders Bylund and myself scratching our heads, pondering if we had made a critical misstep when evaluating OmniVision's prospects. The company's second-generation BSI-2 sensor has just now finally made it to market, and while I'm still trying to retain optimism that the chip may be able to regain favor in Cupertino, there are potential signs that OVT is falling further out of favor with the Mac maker.
Needham & Company was recently out with a research note saying that it believes OmniVision has lost yet another critical design win with Apple: the iPad 3. Needham's analyst has now trimmed estimates for OmniVision on this assumption, believing that Apple arch-frenemy Samsung has claimed the spot.
The iPad 3 is expected to feature a 5-megapixel rear camera, and since 5-megapixel shooters are far from state-of-the-art, rival offerings are increasingly price-competitive. Needham thinks Samsung was able to win the primary sensor slot based on price, as opposed to having better technology or a superior quality sensor.
Needham contends that Sony is the sole supplier of the iPhone 4S primary camera, which plays nicely with the fact that Chipworks found Sony sensors in four out of four iPhones torn asunder, and the single model that IHS iSuppli operated on similarly contained a Sony main shooter, although both Chipworks and iSuppli believe Apple may be dual-sourcing. That puts OmniVision in zero out of five primary camera spots that have thus undergone the painstaking process of identification, questioning the dual-sourcing theory.
While I had previously said, "dual-sourcing a component this important just doesn't fit Apple's modus operandi," it's rather poignant to enjoy that victory since Sony seems to be Apple's monogamous choice for the iPhone 4S, and Samsung may be Apple's flame for the iPad 3.
As OVT continues to ramp up its BSI-2 yields, which depends critically on manufacturing partner Taiwan Semiconductor Manufacturing (NYSE: TSM ) , OmniVision may become "qualified as the second source" for the iPhone, according to Needham. The reports last year that TSMC's yield rates for BSI-2 were too low for Apple look prescient now.
With a potential loss to Samsung in the iPad 3, OmniVision keeps looking dimmer and dimmer. Shares are still too cheap for this Fool to sell, with cash and short-term investments net of long-term debt alone comprising over half of its current price, but I'd be lying if I said I weren't considering selling once shares recover.
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