Three months back, when OmniVision Technologies (Nasdaq: OVTI) came out with its second-quarter earnings, I had expressed my reservations. Well, it seems that my misgivings actually have come true, with the company's shares shedding 11% of their value when OmniVision came out with its latest outlook. Let's take a look at what's next for OmniVision.

Losing out on the pie
OmniVision once again beat estimates in its most recent quarter, but then again issued a depressing guidance, which fell below the Street's expectations. Apple (Nasdaq: AAPL) is among the major customers of the company, apart from HTC and Motorola (NYSE: MMI), to whom it supplies image sensors. Rumors were flying that OmniVision may lose out on the next iPhone. And these rumors turned into reality when a dissection of the iPhone 4S revealed that the image sensors manufactured by Sony (NYSE: SNE) were being used apart from OmniVision's. So the company lost its monopoly in the lucrative iPhone play and also seems to be losing its share to Samsung, Toshiba, and STMicroelectronics (NYSE: STM) in the non-Apple market.

Inventory issues
In its most recently reported quarter, OmniVision saw its inventories more than double from the year-ago period, possibly bearing testament to the fact that the company is indeed losing its dominance. Furthermore, manufacturing issues at Taiwan Semiconductor (NYSE: TSM), which supplies wafers for the sensors to OmniVision, are taking a toll on the company and this fact seems to have further contributed to Apple's apprehensions whether OmniVision would be able to meet future requirements.

The Foolish takeaway
A number of issues are plaguing OmniVision at the moment. The very fact that Apple is sending feelers to Sony must be giving OmniVision nightmares. However, the company still carries some weight in the market and has strong technology offerings compared to its rivals. It needs to steer itself out of trouble and address its issues fast if it wants to get back into the good graces of both its customers and investors.

Till then, watch OmniVision from the sidelines -- add it to your Watchlist by clicking here.