Is Apple Supplier OmniVision Technologies, Inc. Still a Buy?

OmniVision scooted to multi-year highs after its latest report, and it looks likely to improve.

Jul 25, 2014 at 11:00AM

OmniVision Technologies (NASDAQ:OVTI) ended fiscal 2014 on a solid note. The company beat analysts' estimates handsomely, while the outlook also blew past expectations. As a supplier of image sensors to Apple (NASDAQ:AAPL), OmniVision has soared to multi-year highs this year. A look at its prospects and product innovation will make it clear that OmniVision can still scale greater heights.

Mobile prospects
The mobile devices market presents a significant opportunity for OmniVision. Increasing sales of low-cost 3G smartphones, as well as the transition to 4G LTE in China, are driving growth in the smartphone category. In addition, the upcoming iPhone 6 is another catalyst that's expected to result in stronger demand for the company's image sensors, although OmniVision's place in the yet to be released handset is unknown.

This is expected to be a blockbuster year for Apple, with analysts expecting the company to ship 180 million iPhone units. The iPhone maker is expected to deliver two devices this year, one with a 4.7-inch screen and another with a 5.5-inch screen. Bigger-screen devices are expected to help Apple improve its position in the smartphone market, as sales of larger devices have been on the rise.

China is one of the most important markets for big-screen phones, as 20% of all smartphones sold in China in 2013 were five inches or more, according to IDC. This share is estimated to grow to 50% in the next three years. Apple has entered into a deal with China Mobile, which will be an advantage for the smartphone maker, and will also expand OmniVision's addressable market.

OmniVision is focusing on innovation to tap the smartphone, tablet, and PC markets. It is working on new technology, such as 3-D depth information, using photography to get better image quality and transition to higher resolution. OmniVision is also developing new human interface applications, such as gesture control recognition and eye tracking. 

The company's new flagship, PureCel technology, is also gaining adoption. PureCel is expected to drive performance in smartphones and tablets with its light sensitivity, low power, and cost optimization. The company shipped about 200 million sensors in the fourth quarter, and is preparing to aggressively ramp up its PureCel sensor volume to address expanded market opportunities.

Prospects in the automotive market
Beyond mobile, the company expects the adoption of its technology in new products and applications to enhance its addressable market. OmniVision has been able to diversify its revenue base by moving into the automotive and security markets. For example, its OV10630 solution was selected by Tesla Motors (NASDAQ:TSLA) to enable advanced rearview camera applications a year-and-a-half ago. This is an important design win for OmniVision, as Tesla is the pioneer in the electric car industry.

The electric vehicle market in the U.S. grew 33% year over year in the first six months of 2014, with the Tesla Model S the fourth-highest selling vehicle. Going forward, Tesla is looking to add more models to its lineup. It recently idled its California plant to equip it with robots in order to boost production. Tesla is preparing to launch the Model X SUV, and it will also speed up the manufacturing of the existing Model S, according to Bloomberg.  This is good news for OmniVision, as it should see an increase in the addressable opportunity due to Tesla's expanding production.

Regulations should also drive OmniVision's prospects in the automotive market, apart from the fact that automotive OEMs continue to drive a significant increase in the number of cameras per car. The National Highway and Traffic Safety Administration recently released a federal mandate that requires all new cars less than 10,000 pounds, starting May 2016, to have a rearview camera installed. 

In addition, OmniVision has added distortion correction and light sensitivity to its automotive sensors. On the back of such product development moves, OmniVision can continue benefiting from the automotive market going forward.

Takeaway
OmniVision Technologies is focusing on key growth opportunities such as automotive and mobile devices. These markets are growing rapidly, and OmniVision is looking to tap both with its product innovation. Moreover, the stock is cheap at a trailing P/E ratio of 13, way below the 35 times industry average,which makes it an excellent long-term pick at current levels.

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!

Sharda Sharma has no position in any stocks mentioned. The Motley Fool recommends Apple, China Mobile, and Tesla Motors. The Motley Fool owns shares of Apple and Tesla Motors. 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 fool.com.

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 www.fool.com/beginners, 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 www.fool.com/podcasts.

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