Is This Apple Supplier Finally Worth Buying?

This semiconductor company is finally becoming consistent, but is this a buy signal?

Jun 19, 2014 at 7:14PM

Apple (NASDAQ:AAPL) supplier OmniVision Technologies (NASDAQ:OVTI) sprang a surprise when it reported its fourth-quarter results, and shares soared 14%. Given the company's history of inconsistent performances, investors would be relieved to see OmniVision put up a couple of strong quarterly performances on the trot. But, will OmniVision be able to continue its outstanding run? Or will it disappoint once again like it has done in the past? With improving financial results and growth in emerging markets, OmniVision looks to be a buy.

Improvements worth noting
OmniVision's improvements in the previous quarter cannot be ignored. Although the company's revenue declined slightly from the year-ago quarter, its net income shot up 70%. Additionally, its gross margin improved an impressive 260 basis points from last year, and now stands at 20.1%.

Moreover, OmniVision issued a fantastic outlook for the second time in two quarters. It expects revenue in the range of $360 million-$400 million, miles ahead of the $305 million consensus. More importantly, if the company manages to achieve the mid-point of its guidance, it will report a year-over-year growth in revenue in the current quarter.

It expects adjusted earnings to range between $0.43 and $0.63 per share in the first quarter, putting the consensus estimate of $0.29 per share to shame. So, it is clearly evident that OmniVision has turned the corner. It was lacking consistency, but that seems to have changed now.

Emerging markets driving growth
The growing adoption of smartphones in Asian markets such as China and Taiwan is the key driver behind OmniVision's outperformance. The company has launched low-cost products aimed specifically at this market to profit from growing LTE adoption and smartphone growth.

For example, its PureCel image sensors have been optimized for budget smartphones and tablets. But, at the same time, they are equipped to deliver a cutting-edge performance and consume less power, allowing OmniVision to expand its customer base. Going forward, the company believes that its technology advantage will allow it to penetrate more markets and benefit from the 4G roll out in China.

The China Mobile catalyst
The LTE roll-out by China Mobile (NYSE:CHL), along with the transition to 3G smartphones, is proving to be a boon for OmniVision. According to CCS Insights, shipments of LTE-enabled smartphones are expected to hit 500 million units, driven by LTE deployments in China. This will be a massive jump from shipments of 250 million LTE smartphones last year.

In fact, China Mobile alone plans to ship 100 million LTE smartphones this year. The carrier is aggressively building out its network, planning to deploy 500,000 base stations by the end of the year and covering 350 cities with the LTE network. Moreover, China Mobile is expected to heavily subsidize smartphones this year to push LTE smartphone adoption. Its cost of subsidies is slated to rise a significant 29% in 2014 to $5.5 billion, and this is good news for OmniVision. 

In addition, China Mobile aims to sell 120 million non-4G handsets this year. This means that there is opportunity for OmniVision to tap growth in other low-cost devices.

Asia takes precedence over Apple
Taking a look at these growth prospects, it isn't surprising to see that Asia has become OmniVision's largest market. The company expects shipments to China and other emerging markets such as India, Africa, and Latin America to rise once again in the ongoing quarter. The shift in the company's focus to the emerging markets with its low-cost products has allowed it to alleviate the ill-effect of its decreasing share at Apple.

Three years ago, Sony (NYSE:SNE) started supplying its image sensors to Apple for the iPhone 4s. Since then, OmniVision has gradually lost its clout at Cupertino. In 2011, OmniVision was said to be supplying 90% of the 8-megapixel camera sensors to Apple, but it was relegated to the facetime camera spot in the iPhone 5. Now, earlier this year, MacRumors reported that Sony might supply both the front- and rear-facing camera sensors to Apple from next year. 

Sony recently purchased a new manufacturing plant to boost production of CMOS image sensors, and it might double its shipments to Apple from next year. As a result, OmniVision will feel the pinch if it loses its Apple account.

Diversification counts
However, OmniVision's focus on diversification with focus on automotive applications, game consoles, notebooks, and security cameras should help it tide over the loss of Apple. In addition, the company has hit gold in the Asian market, and it should be able to sustain its growth on the back of rapid growth in shipments of low-cost smartphones.

As such, at just 14 times last year's earnings and an expected annual earnings growth rate of 12% for the next five years, OmniVision looks like a solid pick.

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!

Harsh Chauhan has no position in any stocks mentioned. The Motley Fool recommends Apple and China Mobile. 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.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

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.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

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. It's also featured on several dozen 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 ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.

Compare Brokers