During yesterday's first-quarter earnings report, semiconductor company OmniVision Technology (NASDAQ:OVTI) found itself in the same situation as many other tech companies recently -- excellent earnings but weak guidance. OmniVision reported year-over-year tripling of profits, but its earnings forecast of $0.20 to $0.25 per share for the next quarter was below analyst estimates of $0.32 a share. The share price behaved predictably, plunging 10% in after-hours trading.

The reason for the weak guidance is the transition the company will be undertaking from its current CameraChip technology to the new OmniPixel technology announced yesterday. The second quarter's earnings will be affected as OmniVision ramps down production of older chips and begins the volume production ramp for its new line.

With the earlier accounting anxiety settled, bears have found new areas to attack OmniVision, citing decreasing margins, excess inventory worries, and loss of market share. The company addressed these concerns in yesterday's conference call. Gross margins were 40.2%, up 3.1% year over year and down only 0.1% sequentially. Excess inventory is a nonissue -- inventories declined as OmniVision began making the transition to its new product. Lastly, 80% of OmniVision's revenue came from the camera phone market, alleviating fears of competition eroding its market share.

For some, the company's reliance on one market may be worrying, no matter how hot that market is. OmniVision did experience a decline in percentage of revenue in digital cameras because it did not release any new products for that sector for a year. However, with the new 3-megapixel OV3620, the first from the OmniPixel line, in volume production and a 5-megapixel chip due by the end of the year, OmniVision is in a good position to be competitive in digital cameras again.

OmniVision's share price is still being punished despite its market leader status because of the uncertainty surrounding the transition. Traders and shorts are having a ball with OmniVision right now. Short interest in August is up to nearly 25%, and the stock has dropped by 44% in the past 52 weeks. Oft-quoted advice from Warren Buffett comes to mind here: "Be greedy when others are fearful, but be very fearful when others are greedy." The results of new product introductions will only be reflected in January 2005, so if your attention span for stocks is longer than six months, sheer avarice with regards to OmniVision can prove to be very rewarding.

Fool contributor Tim Goh does not own any stake in the companies mentioned.