Will This Apple Inc. Supplier Continue To Grow Earnings?

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 (AAPL -0.35%), 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 (SONY -0.13%). 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 :

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. 

Conclusion
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.