Digital imaging sensor expert OmniVision (NASDAQ:OVTI) is reporting Q2 earnings for fiscal 2007 tonight, and this Fool is setting up your mise-en-scene to give you some context.

What analysts say:

  • Buy, sell, or waffle? Wall Street keeps close tabs on this small cap, with 14 analyst firms following the company. Four of them have a buy rating on the stock, and the other 10 are holding. In the Motley Fool CAPS community, OmniVision is a solid four-star stock, with 101 top performers arguing in its favor and only two of their peers disagreeing.
  • Revenues. The average estimate calls for 10.3% revenue growth, parking at $140 million this time around.
  • Earnings. The analysts are expecting EPS to come in at $0.30, quite a bit below last year's $0.41.

What management says:
CEO Shaw Hong characterized the quarter as a success, based on volume shipments of two-megapixel sensors for mobile phones and "robust" growth in products meant for toys and games. The company is also nosing its way into security and surveillance systems, so there's a healthy spread of channels to fill.

What management does:
An aging product lineup has led to declining gross margins, and the rest of the income statement has simply followed suit. These trends should come to an end soon -- but not right now. Read on for the full explanation.

Margins %

4/05

7/05

10/05

1/06

4/06

7/06

Gross

40.0

38.2

36.6

36.5

36.9

37.6

Op.

25.9

23.4

22.3

22.1

21.7

21.9

Net

19.7

18.4

17.7

18.2

18.1

17.0


All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
OmniVision has been on my radar screen since I ran across an earnings miss from the company back in September. It looked cheap then, and even cheaper now -- despite a massive 34% of the float being sold short.

What I said about revolutionary products then still holds true. A brand-new chip promises to replace mechanical lens adjustments in digital cameras with all-digital image processing. If customers latch onto that product the way the company expected three months ago, we should see something good in a couple of quarters.

Not just yet, though. The engineering team is still working out some bugs in the accompanying software, and it looks like we'll have to wait for OmniFocus for a while longer. I'd expect another quarter of declining margins but rising revenue, based on volume shipments of low-margin toy-grade camera chips.

Competitors:

  • Matsushita Electric (NYSE:MC)
  • Koninklijke Philips (NYSE:PHG)
  • Eastman Kodak (NYSE:EK)
  • Micron Technology (NYSE:MU)

How can the Fool boost your prospects for the new year? Visit our new Motley Fool CAPS investment community for stock ideas.

Fool contributor Anders Bylund holds no position in any of the companies discussed here. You can check out Anders' holdings if you like, and Foolishdisclosurekeeps your view of the market crystal clear.