Omnivision Technology
Where is OVTI at Now?

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By mysterycreek
October 25, 2004

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The second quarter earnings call will be in about 4 weeks time. I have been going through some previous posts to get a clearer picture on what has been happening. Since the last call, after which OVTI slipped down to around $10.50 after lower EPS forward guidance, the share price has now risen to around $15.50 (47% in 7 weeks.)

There was a mild run up in price leading into the first quarter announcement, so perhaps the price will continue to rise on positive expectations regarding the new product ramp leading into next months call. But it's very hard to predict what could happen at the call, when sales and future growth depend on a whole new product line. There could well be a large movement in share price, up or down, after the announcement, depending on the speed of adoption of the Omnipixel line.

This is some of what OVTI announced at the last earnings call:

2) Got contract for new upcoming high-end camera phone chip.

4) Results of new product introductions will be seen by Jan qtr.

5) Gross margins are stable in regards to competition due to new better products being introduced.

9) 3.0 Megapixal 320, and 5.0 megapixal camera phone chips coming out.

10) 3.0 Megapixal will be large volume by end of year, and will be the "best of class". 13) Premium pricing for new technology. Not walking away from any markets, they want to keep inventory lean.

14) Jan 2005 market, will 1.3 & 2 pixal, plus 3 megapixal.

15) Supply relationships in place. 3620 has been accepted by supplies, and will be full vol production.

16) 1.3 still solid pricing since competitors not producing quality with vol, and OVTI wants to migrate to higher end products.

21) 3 - 5 megapixal products will be out by Jan qtr for camera market.

How have they gone in moving towards meeting these statements?

These are OVTI press releases after that call: August 24 - First new generation omni pixel sensor announced � 3.2MP announced the introduction of the OV3620, the first product in OmniVision's new OmniPixel� generation of image sensors. The OV3620 is a 3.2-megapixel, 1/2-inch system-on-a-chip that sets new milestones for imaging performance by achieving light sensitivity that is 100 percent better than traditional CMOS image sensors, while virtually eliminating image effects such as fixed pattern noise and dark current. The power of OmniPixel technology enables the OV3620 to take crystal-clear photographs with true, brilliant colors even in low-light conditions and hostile environments. OmniVision has begun delivering production volumes of the OV3620 to leading manufacturers of digital still cameras and video cameras.

September 13 Shipping production volumes of 1.3MP to Siemens: SUNNYVALE, CA - September 13, 2004 - OmniVision Technologies, Inc. (Nasdaq: OVTI) is shipping production volumes of its 1.3-megapixel OV9640 CameraChipTM to Siemens Information and Communication Mobile (Siemens mobile). Siemens has selected the OV9640 as the imaging system for its new S65 handset, Siemens' first mobile phone designed for high-performance still and video imaging. In addition to providing high-resolution still images, the OV9640 enables the S65 to generate MPEG4-format video images at up to 120 frames per second.

September 28 Announce Introduction of 5MP sensor: COLOGNE, Germany - September 28, 2004 - At the opening day of Photokina in Cologne, Germany, OmniVision Technologies introduced the world's first small-scale, CMOS image sensor with 5 megapixels, the OV5610. The OV5610 delivers the image quality of more expensive charge coupled devices (CCDs), and is expected to measurably reduce the cost of high-resolution digital still cameras (DSCs).

The OV5610's new architecture is based on OmniVision's recently launched OmniPixelTM technology. The sensor's 2.775-micron pixels allowed OmniVision to design its 5-megapixel device with an optical format (footprint) of just 1/1.8 inches, making the OV5610 small enough to meet the increasing demand for smaller, low-cost cameras with high performance.

September 28: The OV5610 is currently in engineering samples with key customers. Production volumes are expected to be available in November 2004, with the first 5-megapixel cameras expected in stores as early as December.

Analyst opinions:

Morgan Keegan note - around late August:

Yesterday we had a chance to meet with the management of OVTI and we walked away impressed with the new product launch schedule. More specifically, we were impressed with number of products that the company has under sampling, which in our view is the key to a successful product transition. Overall, our confidence level in the company's ability to successfully navigate the product transition has increased dramatically. Further, we feel that the company is well positioned to offset a large part pf pricing pressure through a general migration to high MP count products starting early part of the January quarter.

In our view, the company's product transition revolves around two key strategies a) revenue and ASP growth through the launch of new product and b) maintaining healthy margins by burning off the low margin SIF or non- OmniPixel VGA inventory before the new products hit the market. We feel that the current quarter dip in revenues is a result of execution on the latter part of the strategy and a time gap in the launch of new products. Given the aggressive launch of new products underway, our confidence level for revenue up-tick in the January quarter has increased dramatically. We are reiterating our Outperform rating on OVTI and believe that the stock represents a compelling valuation and risk reward ratio at current prices

Analysts Harsh Kumar 901-579-4534 Daniel J. Meehan 901-579-3501

JP Morgan �late September, re OVTI and MU:

"Based on last night's 4Q04 earnings call, we believe Micron is seeing strong growth in its CMOS sensor business (single digit percentage share of wafer starts, trending toward mid-teens), fueled by camera cell phones. MU believes 40% gross margins are attainable for the segment (Omnivision 2Q est. 38%) and that cost-leadership will permit aggressive pricing in the VGA segment, though prices are currently stable. � MU's CMOS sensor inventory levels are very low (outside of the DSC category). VGA inventory stands at 1- 2 weeks, and there is no inventory for MPx and reducedformat VGA. With a flow of 1MPx handset introductions this holiday season, we believe Omnivision and Micron have under-estimated demand at that resolution in the current quarter. Though not ideal, this bodes well for 1MPx pricing and gross margins. � The introduction of the OV5610 5MPx Omnipixel product provided us with more confidence that the company can restore sequential top-line growth in the second half of 2005. The OV5610 CMOS sensor is positioned to win market share from CCD by presenting Asia-based OEMs and ODMs with a reduced bill-of-material opportunity. Pent-up demand is there, in our view, owing to tight margins in subsets of the DSC space.

Pacific Growth:

09/28/04 03:28 pm EDT... OMNIVISION TECHNOLOGIES (OVTI 13.09) UP 1.04, UNVEILS 5-MEGAPIXEL CMOS SENSOR. PACIFIC GROWTH REITERATES EQUAL-WEIGHT... Analyst Brian Alger tells salesforce OVTI attacking high-end DSC (digital still camera) market with new OV5610 5-megapixel CMOS (complementary metal oxide semiconductor) sensor... Views this as right direction for co.; achieving good yields, superior light sensitivity that matches performance of charge coupled devices will be determining factor... Notes over past year DSC market's "sweet spot" has been shifting from 2-3 megapixels (mp) to 4-5mp... Sees limited number of these new DSC products in market for '04 Christmas season, with material impact in '05. /BEgli

Wells Fargo around early September:

2Q PROGRESSING WELL, IN OUR VIEW We continue to believe that OmniVision is executing on the planned time tables for launching new products for the cell phone and digital camera markets. We also believe that OmniVision should be helped in 2Q by the launch of Siemens cell phones, which utilize OmniVision's image sensors. Pricing for image sensors above 1 megapixel also appears to be firmed in 2Q, which we see helping overall OmniVision ASPs as product mix shifts to higher resolutions for the cell phone market. We believe that OmniVision will maintain a leading market share position (30�35%) in the 1.3- and 2.0-megapixel sensor market for cell phones.

Needham note-around mid September:

� As we have heard encouraging comments about the image quality and low light sensitivity of OVTI's new 4T OmniPixel technology and as we believe pricing for the company's products, especially its 1.3 MP imagers for cell phones, is not as aggressive as some bears have quoted, we believe the company's prospects are improving.

(Re Rossi step down) -While there is often an air of uncertainty surrounding changes in senior management, which may pressure OVTI shares in the near-term, we do not believe Mr. Rossi's resignation is a harbinger of negative news. Rather, we believe Mr. Rossi has chosen this time to step down having navigated the company through a year of rapid growth, the restatement of results for the first nine months of FY04, the strengthening of financial controls and internal infrastructure and the introduction of the company's new OmniPixel architecture.

Estimate of market growth:

The total image-sensor market will grow more than 30 percent annually in unit terms through 2008," said Brian O'Rourke, senior analyst at high-tech market research firm In-Stat/MDR. "With increased performance and a lower cost point, CMOS image sensors are expected to grow at roughly seven times the rate of CCD sensors through 2008, enabling CMOS sensors to surpass CCDs for the first time in 2005. This growth is largely driven by camera phones and low-end DSCs."

Announcements of new OVTI sourced 5MP camera phone:

Samsung Electronics to Market 5-Million Pixel Camera Phone - 2004-10-10

Samsung Electronics expects to market its 5-million pixel camera phone sometime at the end of this month (October)

Omnipixel is now in products on the market, including production volumes of 3MP to DSC manufacturers. No indication of what the actual volumes are or what level production yields are at, but no indication of any problems there. Only Ovti and Mu are shipping 1.3MP+ sensors in volume. Higher ASP's are stable for these.

Previous analysts notes and the Agilent conference call confirmed Agilent has lost market share to Omnivision and Micron. Analysts seem convinced by management that the new product ramp is going successfully. OVTI still seems able to produce new generation first and faster than their competitors, and so still appear be the market leader, if not in total volume sales, as VGA phases out of the market, then at least in revenue/potential future revenue of higher market share of first to market, higher priced MP products. But will they be producing/selling enough volume to meet and exceed expectations as in the past, in say the next quarter or 2?

Pacific Growth and JPM suggest the "material impact" will be seen more in 2005. If the new products are ramping as smoothly as indicated, then forward guidance in the November call could be markedly more positive than back in August. Perhaps the market, looking forward, will be more impressed by this? More so than if Co. meets or exceeds earnings?

Predicitions are that the camera phone market will grow at a high rate (30%) for the next 3-4 years.  Camera phone adoption seems to continually exceed market analysts expectations. Will Cameras ultimately become a standard feature on all cell phones from the practicality and convenience of always having a camera at hand? CMOS seems likely to challenge CCD in the DSC market from 3 MP up. Nascent markets for CMOS, such as Automotive applications are likely to grow over time.

If Omnipixel is in fact being successfully adopted then OVTI is underpriced at a PEG of .5. A PEG of 1 ($30) might still be low, given OVTI's current apparent technology lead in a 30% pa. growth market. Either way, it seems a good bet that it is just a matter of time to profit from holding OVTI.

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