There is only one reason to invest in stocks, and that's to make money. By that standard, the past two months have been very tough on skeptics of specialty semiconductor company OmniVision Technologies
But before moving on to the details of OmniVision's quarter, I'd like to make a somewhat generalized point on investing. Even with its recent results, I don't trust this company, and I still don't consider it to be a high-quality idea. But quite frankly, who cares? A dollar made from investing in Apple
Now, on with the show.
On the surface, this was an exceptionally strong quarter. Revenue rose 50% to beat the mean analyst estimate by almost 12%. Quite simply, the company shipped a whole lot more of its image sensor products, helped in part by ongoing strength in the mobile-handset business.
Margins, though, were a different story. Gross margins slid pretty significantly, as average selling prices fell by more than 15% from the first quarter. Though the company partially recouped some of this loss with lower sales, general, and administrative spending (as a percentage of sales), operating margins still skidded by about 740 basis points, and operating profits climbed just 11%.
OmniVision bulls are going to hate this, but I think I need to also dissect the earnings story a bit more. See, while the company reported a gaudy figure for earnings per share -- $0.41 versus $0.28 last year and an estimate of $0.31 -- it's not all quite as good as it seems. Two pennies of that figure came from higher interest income and another four cents was from a lower tax rate. Add that together, and about half of the year-on-year increase came from non-operating items. Still, even subtracting those pennies, the company topped the estimate by 10%, and that's nothing to sneeze at.
Can OmniVision continue to reward faithful shareholders? So long as revenue growth can outstrip profit erosion, the answer is a tentative yes. Sure, companies such as Micron
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Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).