Will OmniVision Become a Lucrative Apple Play Again?
Harsh is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
It seems like OmniVision Technologies (NASDAQ: OVTI) is back in action. The stock was in dire straits in the second half of last year after there was speculation that Sony will replace OmniVision’s image sensors in the iPhone 4S. The speculation turned into reality when a teardown of the iPhone revealed that Sony had found its way inside the device, throwing a wrench into OmniVision’s monopoly in this department.
However, things have just turned rosier for the company. A teardown of the latest iPad revealed that Apple (NASDAQ: AAPL) used an image sensor like the one used in the iPhone 4, which was supplied by OmniVision. So now we come to know that why the company had projected an upbeat outlook in its last earnings despite facing a shrinking top line and falling prices which hurt its margins.
In its last quarterly report, OmniVision said it expected revenue in the range of $195 million to $215 million for the current quarter. This was way ahead of what the analysts were projecting at $170 million. Probably the analysts had discounted OmniVision after it lost the plot to Sony in the iPhone 4S. But now it seems things have turned around for the good and OmniVision had their feet firmly on the ground while issuing the guidance.
Needham & Company, who had expressed their doubts that OmniVision’s sensor won’t find a spot in the new iPad, have just upgraded the stock to a buy from hold. Needham analyst Rajvindra Gill expects that OmniVision will see its revenue and earnings go north after getting inside the iPad. Moreover, Mr. Gill is of the opinion that the average selling price of OmniVision’s sensors would be around $3.28, a significant jump from the $1.29 in the previous quarter. He also says that the company is a candidate for the imaging sensors in the iPhone 5, though the certainty of that matter is still not known.
Well, it seems Needham is going to get it right this time. The Apple iPad commands the largest market share among tablets. The iPad 2 was the quickest selling gadget in the world. And now it seems its successor has taken it to the next level, selling three million units in its inaugural weekend. Thus, one can expect OmniVision to bring the shine back to its top line and also improve margins on the back of higher prices when it comes out with its next earnings update.
The latest development drops us a slight hint that OmniVision is back in favor at Cupertino. However, its presence in the next iPhone will be crucial and tell us whether it is really back in favor or not. The next earnings release would probably see OmniVision scale new heights but it would make sense to regularly track the stock and check whether this bounce back is here to stay.
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