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Image sensor maker OmniVision Technologies (NASDAQ: OVTI) is expected to release its second-quarter results on November 29. While Fool analyst Seth Jayson has already done the number crunching and told us about the benchmarks OmniVision needs to satisfy, I will try to determine if it has the necessary firepower to meet, or even beat, them.

OmniVision’s last quarterly report was a mixed one, with the company missing on earnings. However, that report came with a really bright outlook and OmniVision’s revenue projection between $355 and $390 million for the second-quarter blew past the $270 million that the Street was expecting.

The Good

The top line consensus estimate has moved up sharply since then and now stands at $374.3 million, which is the highest benchmark set before OmniVision over the past six quarters but is near the mid-point of its own expectations. Now the question is, will OmniVision be able to satisfy this escalated target or will it pay the price for being overly ambitious with its revenue expectations?

History suggests that the company should not have a problem at meeting, or beating, the top line estimate as it has not disappointed on this front in the last five quarters. Moreover, considering the fact that OmniVision landed the image sensor spots inside Apple’s (NASDAQ: AAPL) iPad Mini and the fourth-generation iPad, both of which opened to stupendous sales, I would expect it to beat on the top line.

The iPad Mini has found great acceptance and Apple is finding it difficult to meet demand for the 16 GB version. In addition, OmniVision also landed the front-facing camera spot in the iPhone 5, which is again a catalyst. Many had expected that OmniVision would land the primary camera spot in the iPhone 5, but it again lost out to Sony (NYSE: SNE) this time. While this seems to have weighed on OmniVision’s stock over the last three months, it wasn’t entirely unexpected.

Sony had the primary camera sensor in the iPhone 4S and the company had already showed off what looked like a camera sensor for the latest iPhone earlier this year. Hence, OmniVision’s outlook was sans the primary image sensor spot in the iPhone 5 as it counted on the two new iPads to drive its top line.

Moreover, the company’s foray into camera sensors for budget smartphones should also help it park its revenue ahead of the Street. OmniVision’s BSI-2 sensor is in great demand and its low end offerings are also the sensor of choice for many budget phones. Moreover, OmniVision is intent on pioneering the image sensors in low-end phones and recently released a sensor which should address imaging issues on the budget devices.

The Doubtful

It is OmniVision’s bottom line performance which might play spoilsport in the next quarterly report, although that probability looks lower than the last time it reported earnings. The company missed by a penny last quarter and its track record over the last five quarters is mixed, with two beats, two misses and once at par.

The reason why OmniVision’s bottom line is constrained is its BSI-2 sensor. The sensor is eliciting huge demand, but the company was initially handicapped by the high production costs. This has led to bottom line misses in the last two quarters but the trend might change this time. OmniVision expects earnings between 21 cents and 37 cents, which is just about near the consensus estimate of 30 cents at the mid-point.

Another positive indicator that OmniVision might meet EPS expectations is that the outlook for the second-quarter captures the consensus estimate of 30 cents, while the forecast for the first-quarter was way behind estimates. As the BSI-2 sensor is maturing, it is nearing its optimum production cost and OmniVision’s EPS woes seem to be easing gradually.

The Bottom Line

OmniVision has exhibited solid top line growth of late and looks set to beat the revenue estimate once again. Its bottom line is gradually getting better and I won’t be surprised to see it meet the target on this front as well.

OmniVision’s product portfolio satisfies the needs of both high-end and low-end smartphones and tablets along with notebooks and cameras. In addition, the company’s sensor was recently selected by Tesla Motors for the rear-view camera system in Model S.

The company’s long-term direction should be clearer after the earnings call, but I have strong reasons to believe that OmniVision can once again treat investors to a solid outlook based on the wide range of applications of its sensors. Tune into this space again post OmniVision’s earnings to get more insight on where the company is headed in the long run.

TechJunk13 has no positions in the stocks mentioned above. The Motley Fool owns shares of Apple and is short Sony (ADR) and has the following options: long JAN 2013 $22.00 calls on Sony (ADR). Motley Fool newsletter services recommend Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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