It's been an odd year for chip maker OmniVisionTechnologies (NASDAQ:OVTI). Bedeviled by worries of competition, accusations of accounting manipulations, and an SEC investigation, the stock spent much of 2004 in free fall before doubling off its lows in the fourth quarter of the year. To top it off, the CFO position seems to have about as much longevity as the drummer for Spinal Tap, with four different people filling the seat in the past four years.

Unfortunately for those hoping for a little stability, the company's fiscal third-quarter results won't do much to ease this tug-of-war between bulls and bears.

Sales were up 9% for the quarter and ended a brief slide in sequential comparisons, but the reported figure of $102 million missed the Wall Street "whisper number." Likewise, while earnings per share were up about 14% and ahead of estimates, bears will growl about the company's lower sequential gross margins and lower year-over-year operating margins.

What's going to really stir up emotions again is the company's inventory. Inventory levels shot up 170% from the prior quarter and were more than 60% higher than the year-ago level. Of course, the company has its own explanation for this -- suggesting that it experiences long lead times from its foundries and that it must have inventory on hand to satisfy customer demand.

Bulls will view this inventory buildup as plowing the field for future growth; bears will see it as plowing money into inventory that may quickly go obsolete and be written off to the detriment of shareholders' equity. Bears will also note that despite this large inventory buildup, management did not boost revenue guidance, and so whatever future growth this inventory is meant to support is still at least more than one quarter away.

Along a similar vein, concerns about pricing and competition aren't going away. Bears decry the increasing commoditization of sensor chips, the low per-chip prices (about $4), and the competitive threat of the likes of Micron (NYSE:MU), STMicroelectronics (NYSE:STM), Agilent (NYSE:A), and ESS Technology (NASDAQ:ESST).

Bulls counter by arguing that the company's new OmniPixel technology will give it a competitive edge and that the company has considerable potential to expand into new markets like automobiles, medical devices, and security/surveillance. Bulls will also point to the fact that the company may be poised to add Nokia (NYSE:NOK) as a customer -- giving the company the run of all top cell-phone makers.

Are the shares cheap? By most normal metrics, yes. The stock has a trailing P/E of less than 16 and (depending upon your calculations) a near single-digit EV-to-FCF ratio. All of this and a return on equity in excess of 20% looks tantalizing. Of course, you also have a company with high inventory levels, gigantic competitors, a poor record of shareholder communication, and a revolving door on the CFO's office.

Anyone considering these shares must be fully cognizant of the risks of commoditization, high inventory levels, and possibly aggressive accounting and excessive related party transactions. In other words, due diligence is even more critical here than in normal cases. By the same token, this company's end-markets are growing rapidly, and if the company's posted results are real (and poised to continue) and accusations about management unfounded, the shares are very likely a bargain.

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Fool contributor Stephen Simpson, CFA, has no ownership interest in any stocks mentioned. That means he doesn't own OmniVision, nor is he short OmniVision. He isn't part of a conspiracy to pump up the stock, nor part of some nefarious plot to kill the stock via short-selling. He's just a man with an opinion.