I've already made my prediction that OmniVision Technologies (Nasdaq: OVTI) will be the sole supplier of Apple's (Nasdaq: AAPL) new iPhone 4S camera on numerous occasions.
OmniVision rattled investors last quarter, when the company's soft guidance sparked fears that Apple would be dual-sourcing the 8-megapixel shooter and OmniVision would have to share the spot with Sony (NYSE: SNE).
Apple doesn't provide every nitty-gritty detail of the camera, but it did give us some major highlights during the keynote. Let's look at the iPhone 4's camera and what we know about the iPhone 4S's camera and see whether we can glean any insights.
The iPhone 4 used an OmniVision 5MP backside illuminated, or BSI, CMOS sensor with a 1.75 micron pixel size. Only one model matches these specifications, the OV5650, which is designed to deliver digital still-camera quality in smartphones. The company offers other similar sensors, but they either don't match the pixel size, use different technology, or are designed for point-and-shoot cameras. I'm going to operate on the assumption that the OV5650 was used in the iPhone 4.
The evidence
Here's what we know about the iPhone 4S camera. It boasts 3264 x 2448 resolution, uses a "next-generation" and "state-of-the-art" backside-illuminated sensor, and is capable of 1080p HD video recording at 30 frames per second. Some of the other specs mentioned, like the f/2.4 aperture and five Apple-designed lenses, aren't specifically related to the sensor itself, so those won't come into my analysis.
When comparing OmniVision and Sony sensors that possibly fit the bill, two in particular seem like possible candidates: OmniVision's OV8830 and Sony's IMX105PQ. The OV8830, which uses OmniVision's second-generation BSI technology, conveniently sports the exact same resolution of 3264 x 2448, while the IMX105PQ has a slightly higher resolution of 3288 x 2472, which is technically 8.13MP. Both are capable of 1080p HD video at 30 frames per second and have 1.4 micron pixels, so those are pushes.
Apple Senior Vice President of Marketing Phil Schiller continuously emphasized low-light performance over pixel count and boasted gathering 73% more light per pixel in the 4S. OmniVision has always focused its efforts on low-light performance, while Sony has typically gone for brightness and pixel count. The OV8830 also delivers a significant reduction in power consumption, and we all know how much Apple prioritizes battery life.
The OV8830 is one of OmniVision's latest and greatest BSI sensors; it was announced in February 2011 and scheduled for mass production during the second half of the year. Sony announced its IMX105PQ almost a full year ago and was due to hit the market in January 2011.
OmniVision outsources its fabrication to Taiwan Semiconductor Manufacturing (NYSE: TSM), which is based in, you guessed it, Taiwan, while Sony's are produced in Japan. Japan's devastating earthquake adversely affected Sony's operations while Taiwan Semi went unscathed.
Fashionably late
Why did Apple delay this year's iPhone announcement and break the summer tradition? There are a couple of possible reasons that may have contributed. The Verizon (NYSE: VZ) iPhone 4 was announced in January, and launching the 4S in June may have alienated Verizon customers who snapped up the January model.
From a supply-chain perspective, the two major hardware upgrades in the 4S are the ARM Holdings (Nasdaq: ARMH)–based A5 chip and the aforementioned 8MP camera. The Samsung-produced A5 has been in the iPad 2 for most of the year and so would be unlikely to see any production delays, while A6 and A7 are rumored to be moving to Taiwan.
The new world-mode really isn't new, since Qualcomm's (Nasdaq: QCOM) baseband chip found in the Verizon model also had that capability, even if it wasn't used, so it's unlikely to be the cause of delays.
The delayed announcement just so happens to coincide perfectly with the mass production of the OV8830, although, in fairness, if Apple was getting Sony sensors, the earthquake could have caused delays. My money's literally on the former.
The verdict
I think I've built a pretty compelling case here for the OV8830. Dual-sourcing a component this important just doesn't fit Apple's modus operandi.
What's the bottom line for current or prospective OmniVision shareholders, in my opinion? Buy this stock like there's no tomorrow. Heck, if I didn't already own it, I'd be buying it like this Fool. The bears had run this stock all the way down to $12.71 a few short days ago, which is below book value. Current book value sits at $13.66 per share, with tangible book value of $12.52 per share.
Trading below book value is almost like having the market saying it expects negative growth. Last quarter's revenue jumped a whopping 43% from the prior year. Last time I checked -- please correct me if I'm wrong -- 43% is a lot better than negative.
At that recent low, more than half of the stock's value could be attributed to cash alone, since the company is sitting on $7.73 per share in cash and short-term investments net of long-term debt. Over the past 12 months, the company has generated $147 million in free cash flow.
Analysts are estimating roughly $1.14 in earnings per share just in the next two quarters alone, and OmniVision has beat consensus earnings estimates for at least the past five consecutive quarters.
OmniVision has been rallying over the past couple of days on iPhone 4S optimism; yesterday's $17.05 close is a 34% gain from the recent low. I don't think it's too late to buy more, and if you don't take advantage of the dip, this bargain really won't be here tomorrow.
- Add OmniVision Technologies to My Watchlist.
- Add Apple to My Watchlist.
- Add Taiwan Semiconductor Manufacturing to My Watchlist.
- Add Sony to My Watchlist.
- Add Qualcomm to My Watchlist.
- Add ARM Holdings to My Watchlist.
- Add Verizon Communications to My Watchlist.
