The OmniVision Fever Is Spreading

It looks like Mr. Market has picked up on my enthusiasm for camera-chip specialist OmniVision Technologies (Nasdaq: OVTI  ) . In fact, I think he got a little too fired up about this stock lately.

OmniVision just reported fourth-quarter earnings, and it was a fine quarter indeed:

  • Sales jumped 64% year-over-year to $258 million. That's at the top end of management guidance and $4 million better than the analyst consensus.
  • $0.66 of non-GAAP earnings per share was an astronomical leap from $0.18 seen a year ago, and it was also a penny ahead of Street expectations.
  • The outlook for next quarter places a revenue midpoint slightly below analyst estimates, but as we saw this quarter, Omnivision tends to land at the high end of its guidance.
  • Management expected gross margins to stay steady at about 29.8% in GAAP terms. The final tally was 30.7%, which is a significant improvement on the back of a richer product mix.

In short, the company beat every target it had set up. The Backside Illumination, or BSI, sensor chip structure is every bit the cash-cow selling point I expected it to be.

While the rest of the industry shrugged BSI off as impossibly expensive, OmniVision forged ahead and created a competitive advantage by making the technology not only better than traditional chips but also cost-effective to manufacture. OmniVision is still many moons ahead of Sony (NYSE: SNE  ) , STMicroelectronics (NYSE: STM  ) , former Micron (Nasdaq: MU  ) division Aptina, and other camera chip makers who are no doubt playing catch-up as we speak.

Now, OmniVision shares swooned after this report hit the wires, like a Hollywood diva angling for her close-up shot. The only reasonable explanation for that move is that investors had expected even more. I guess you can't get a 44% earnings surprise every quarter.

Even so, an 11% three-month price jump is nothing to sneeze at and works out to a market-bashing 52% or so if sustained through four quarters. The stock has beaten fellow Apple (Nasdaq: AAPL  ) coattail-rider Cirrus Logic (Nasdaq: CRUS  ) in both the one-quarter and full-year perspectives, not to mention crushing Apple itself.

The only company I can think of that can match OmniVision's technological moat today is robotic surgery specialist Intuitive Surgical (Nasdaq: ISRG  ) , which locked down its market with patents and FDA approvals to the point of being bulletproof. There's one other consumer-oriented technology that comes close, as detailed in this free report.

Can you come up with another unassailable lead like that? Feel free to share your insight in the comments box below. If not, you'll understand why OmniVision excites me. Buy on the dips, my friend.

Fool contributor Anders Bylund owns shares of Intuitive Surgical, but he holds no other position in any company mentioned. Click here to see his holdings and a short bio. The Motley Fool owns shares of Cirrus Logic and Apple. Motley Fool newsletter services have recommended buying shares of Intuitive Surgical and Apple, as well as creating a bull call spread position in 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.


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  • Report this Comment On May 27, 2011, at 4:39 PM, russfischer1013 wrote:

    BTW, Aptina is no longer a division of Micron.

    You are right, the BSI technology is an incredible gotcha. I wonder why the company can only manage 30% gross margins with such a gotcha. Virtually all other semiconductor companies generate a higher gross margin.

    I have been a big advocate for Omnivision, but I an now concerned that they may be less than truthful about their business.

    The 10 K and 10 Q reports indicate that their largest customer is in the mid teen as a percentage of the total. The fact is that Apple has to make up nearly 50% of the sales. Why are they hiding that fact? Is this an important piece of information for investors to know when committing money to this issue? Is that information important in valuing the stock? If Omnivision suddenly lost 50% of their business because Apple went away AND I thought Apple was only 16% of the business...I would be anxious to be the lead plaintiff in a class actions lawsuit.

  • Report this Comment On May 28, 2011, at 4:16 PM, WilldaFool wrote:

    For @russfischer1013, Byland's article did say "former Micron division Aptina".

    Regarding the percentage of sales mystery, I wonder if they are obscuring the sales to Apple by nominally selling to Apple's fabrication contractors and such.

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