Will This Apple Inc. Supplier Continue To Grow Earnings?

OmniVision Technologies has a series of growth opportunities accompanied by an already strong competitive position.

Jun 11, 2014 at 7:02PM

As the smartphone and tablet industries continue to grow and the competition becomes more and more fierce, companies are looking for differentiating factors. For Apple (NASDAQ:AAPL), one of the sources of differentiation was through a high quality image sensor. Its supplier for this sensor is OmniVision Technologies (NASDAQ:OVTI). As indicated by the chart below, both of these companies sustained impressive growth rates for most of the past few years, although things have cooled down a bit. OmniVision even recently saw a year over year decline, but the future looks bright for numerous reasons. 


The booming success of the iPhone and iPad have driven growth for Apple, while a series of factors have improved OmniVision's business. The question, though, is whether or not OmniVision will be able to sustain its growth. To answer this question, it is necessary for us to examine its competitive position and its growth factors. 

Competitive positioning
Overall, OmniVision is in a place that should allow it to grow at an exceptional rate in coming years. One of the company's main competitors is Sony (NYSE:SNE). Both companies are continually battling it out for a greater share of Apple's image senor demands. The current state of affairs is that that the front camera for the iPhone 5 is driven by OmniVision, while Sony is responsible for the main camera . If Sony is able to impress Apple enough to continue to take share from OmniVision, it could be a very bad sign. At this moment, though, it doesn't look like that will happen as both companies profited from Apple's iPhone 5. Let's compare the two companies :

Revenue 1.45B 75.71B
EBITDA 105.56M 4.85B
Profit Margin 6.53% -1.66%
Debt to Equity 0.04 0.47
Return on Equity 10.37% -2.52%

Sony is undoubtedly much larger, but OmniVision stands out because of its exceptional profit margins, financial health, and efficiency. Despite the large sums of cash Sony is bringing in, this doesn't mean much if it can't bring any of it to the bottom line. If OmniVision is able to maintain strong margins and productivity, it will be a good hedge against the risk of Sony stealing additional market share. 

Growth opportunities 
There are a series of angles from which we can expect growth for OmniVision, as indicated by the chart below :


By 2017, the overall market opportunity for OmniVision could total 4.5 billion units, with mobile comprising the largest share. One of the most exciting developments is the Asian smartphone market. As LTE is brought to China, a new round of upgrades will be ready for people eager to use LTE phones, and OmniVision will profit yet again.

Also, the Indian smartphone market is expected to grow quite rapidly . As both the Chinese and Indian middle classes continue to rise, smartphones will become much more popular in both of these countries, and the manufacturers will rely on companies such as OmniVision to help them differentiate. Since OmniVision controls about 67% of the worldwide tablet market, prospects for the company are favorable . 

Beyond this, there are extensive applications of image sensors in the automotive market. This market could potentially drive huge amounts of revenue in the future if OmniVision is able to capture growth in all of these applications : 

In a recent earnings call , CEO Shaw Hong said, "we believe that we are among the top suppliers of image sensors for the automotive market." This is a very exciting fact when you consider that the automotive market is high growth, has a number of different applications, and a series of regulatory barriers to entry.

Other exciting markets include security and wearables. OmniVision hopes to capture much of the growth as the security market moves from CCD sensors to CMOS sensors. 

OmniVision shareholders currently have a few reasons to be happy. Competition is not as fierce as it might appear to be, the core markets have been performing well, and emerging market applications have shown very encouraging signs. The combination of these factors could indicate that OmniVision has a bright future.

Leaked: Apple's next smart device (warning, it may shock you)
Apple recently recruited a secret-development "dream team" to guarantee its newest smart device was kept hidden from the public for as long as possible. But the secret is out, and some early viewers are claiming its everyday impact could trump the iPod, iPhone, and the iPad. In fact, ABI Research predicts 485 million of this type of device will be sold per year. But one small company makes Apple's gadget possible. And its stock price has nearly unlimited room to run for early-in-the-know investors. To be one of them, and see Apple's newest smart gizmo, just click here!

Bryan Wagman owns shares of Apple. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not 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.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.


Compare Brokers