Oftentimes I wonder whether the portmanteau "frenemy" was created to describe the complex nature of business relationships in the world of tech.
Take Apple (Nasdaq: AAPL) and Sony (NYSE: SNE). The Mac maker has a long history of backing away from or replacing Sony technology with its own innovations. Most recently, Apple said it won't include DVD drives in its newest MacBook Pro machines. (Sony and Philips helped create the DVD in the 1990s.) Sony, meanwhile, has partnered with Google to bring an interactive television to market in the United Kingdom.
Still, this is the tech business we're talking about. Just because Apple and Sony don't always play well together doesn't mean they won't find ways to partner.
Look at smartphones. Sony is investing heavily to take advantage of rising demand for handsets with sharp cameras -- the iPhone, notably. Computerworld reports that the company is planning on investing $1 billion to increase production of its camera image sensors. Apple could become one of Sony's biggest customers. Analysts tearing down the iPhone 4S In October found Sony image sensor chips present.
And that's bad news for OmniVision (Nasdaq: OVTI) investors. While it's true that OmniVision's backside illuminated (BSI) approach to image sensing carries substantial benefits, the bullish thesis for the stock has been predicated on having Sony and others lagging in producing a BSI alternative. That's less of a concern now that Apple has given its frenemy space in one of its handsets.
What we don't know is why Sony is pumping $1 billion into CMOS production after just one endorsement. Management must have more commitments from others, perhaps even for the "new" iPhone expected this fall. Android handset deals are probably also in the works.
Either way, it seems OmniVision -- once in the catbird seat -- is sitting in a far less comfy perch today. I've ended my outperform CAPScall on the stock as a result and plan to sell my real-money position in the stock as soon as disclosure rules permit.
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