"Oh, I wish I wish I hadn't killed that fish!" exclaimed Homer Simpson in the classic time-traveling episode, "Treehouse of Horror 5."
That's how I feel about my bullish CAPScall and real-money position in OmniVision Technologies
Yeah, you heard me. I don't really mind that the stock's dropping like a rock here, because I'm certain that it will bounce back strong. My lament is all about a missed investment opportunity. Maybe it's time to shake down the couch cushions for spare change.
Why this bare-faced optimism in the face of market panic? Elementary, my dear Simpson: OmniVision just did exactly what I was hoping it would do, and the average investor is reading the signs all backwards.
Here's how I laid out the argument earlier this week: "Keep a close eye on OmniVision's guidance this time. Big revenue targets could mean that the company is back to riding Apple's
And what did the company do? OmniVision's fourth-quarter sales of $218.5 million topped the analyst view by nearly 7%, and the midpoint of camera-chip designer's first-quarter guidance points 11% above the Street target. The undeniably great news was lost behind the ghosts of disappointing earnings, present and future.
Back to Cupertino
Read my lips: OmniVision is back in the iPhone.
In fact, I'm pretty sure that Apple has tapped a second-generation backside illumination chip, or BSI-2, for the task. Management noted that the advanced BSI-2 chips are expensive to make until the kinks are worked out of the manufacturing process. Hence, large orders of this product line will boost revenue but hurt gross margins, explaining both the sales upside and profit downside of the guidance at hand.
Some of the margin pain will go away as OmniVision works with chief chip supplier Taiwan Semiconductor Manufacturing
Word on the Street
Don't think I reached the iPhone conclusion lightly. OmniVision has burned me before, and I make sure to double-check my assumptions on the company nowadays. This time, I have a veritable Greek chorus of analysts behind me:
- Omnivision's "prospect of winning the main camera socket in the next-gen iPhone seems promising," says Needham analyst Rajvindra Gill.
- RW Baird is less bullish, but still optimistic. The firm thinks that OmniVision snagged the second-string contract for the next iPhone's main camera, not a coveted exclusive contract or even the first and biggest slice of the contract. Still, that should be enough to act as a "key driver for the shares."
- Canaccord Genuity's Bobby Burleson takes a more general view. He sticks to a "buy" rating on OmniVision, "ahead of what we expect will be a strong ramp for revenue on new customer programs" in the second half of the year.
Analysts don't have any Magic 8-Balls or crystal Palantirs to unveil the future with 100% certainty. Still, it's reassuring to make a prediction, see it come true, and then have the backing of several smart people who study the same issues very closely.
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