When a butterfly flutters its wings, it might unleash a hurricane three continents away, years later. But when Apple (Nasdaq: AAPL) picks a component supplier for the next iPhone, the market cyclones are both swift and ferocious.
That's why OmniVision Technologies (Nasdaq: OVTI) dropped so dramatically today, as the analysts of Chipworks ripped apart a couple of iPhone 4S units to see exactly what's inside. Most of the contents were already known, which is why big winner TriQuint Semiconductor (Nasdaq: TQNT) jumped so high earlier in the week. But the camera module was still shrouded in mystery behind inscrutable chip markings.
So when Chipworks' infrared microscope clearly unveiled a Sony (NYSE: SNE) logo behind the image-sensor chip, it became abundantly clear that OmniVision isn't the sole supplier of iPhone camera chips anymore. Read 'em and weep:
Image taken from Chipworks, clearly showing Sony's fingerprints on the camera chip.
Chipworks bends over backwards to point out that this is just one unit and that Apple probably dual-source these chips from both Sony and OmniVision. But the fact remains that OmniVision's former stranglehold on this product line has been broken. Say hello to Sony, the second company to figure out how to make backside illumination camera chips with performance and costs acceptable to Apple.
This shoots large holes in my own investment thesis for OmniVision, which assumes that the company stands alone in the BSI market. But the salad days are over. Time to share the playground with the other kids. My real-money synthetic long on OmniVision is suffering right now.
In other iPhone 4S news, IHS iSuppli confirmed (and Chipworks also believes) that Cirrus Logic (Nasdaq: CRUS) still makes the audio chip; this information was missing from earlier reports. But the camera info was far and away the biggest iPhone news of the day. For OmniVision bulls like me and fellow Fool Evan Niu, it's back to the lab again.
Unless further reports show that Sony kicked OmniVision out of the iPhone entirely, which I think is about as likely as the Dolphins winning the Stanley Cup next year, I still think that the stock is ridiculously cheap at just 6 times trailing earnings before backing out nearly $8 a share of net cash. An earnings announcement in late November should sort that mispricing out before my options expire. The keyword here is should, of course. Stay tuned.
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