I see that OmniVision Technologies (Nasdaq: OVTI) has come full circle -- nearing the $18 mark -- since last August, when I first covered it. Just three months down the line in December, OmniVision was languishing around $12 as its business was hit by order cutbacks from one of its largest customers. The stock has gained an impressive 48% since then.

The rebound might lead you to think that OmniVision is back on track. But does the stock price really reflect what's actually going on at the company? OmniVision beat the Street's estimates in the just-concluded quarter, yet it also saw its profits almost wiped out and it barely broke even.

Why you should be cautious
OmniVision's smartphone business has declined, even as most smartphone component manufacturers are seeing their revenues rise. Shipments fell, prices have fallen, and this division's contribution toward the company's revenue plunged by 8%. The fall was triggered by the loss of its contract with smartphone giant Apple (Nasdaq: AAPL), which chose to use Sony's imaging sensors in the iPhone 4S, thus destroying OmniVision's monopoly in that area.

The company's quarterly revenue dropped 30% from last year, while inventories grew by a mammoth 164%. That's a clear sign that OmniVision isn't able to move enough units, and the effects of an inventory writedown are taking a toll on margins. Shipments fell to 143 million units from 153 million in the preceding quarter. The average selling price also dropped from last quarter, to $1.29 from $1.42.

Yet although these factors have left OmniVision in a tough spot, investors are giving the company a thumbs-up, with shares having spiked 7% after the earnings report came out. Let's see why.

More beat-the-Street action
OmniVision has beaten the Street for three straight quarters. It looks to do the same in the ongoing one as well, projecting revenue in the range of $195 million to $215 million compared with the expectation of $170 million. This upbeat outlook comes on the back of rumors regarding OmniVision's potential success in finding a slot in the much-anticipated iPad 3 -- a move that, if true, could probably trigger a recovery of its relationship with the Cupertino tech giant.

The company is now also supplying imaging sensors to Asus for the Transformer Prime tablet -- but I'm not reading too much into that move. The Apple iPad is the mover and shaker in the tablet market, and other Android tablets have failed to even get near it. Shareholders will be waiting with bated breath when the iPad 3 is released to see whether OmniVision found its way inside.

The Foolish takeaway
Going by OmniVision's history of trumping the Street but faltering on outlook, the recent upbeat outlook comes as a whiff of fresh air. But I'm skeptical, because if its Apple relationship had really turned around, OmniVision would be the first one screaming it to the public. I'm content to wait and see.

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