) reported first-quarter fiscal 2014 (ended Jul 2013) earnings of
42 cents a share, beating the Zacks Consensus Estimate of 29
OmniVision reported revenues of $373.7 million, up 11.2%
sequentially and 44.8% over the prior-year period. Revenues were
above the midpoint of management's guidance range of $355
million-$390 million but missed the Zacks Consensus Estimate of
$376.6 million due to the weak smartphone market.
Total unit sales were up 10.6% sequentially to 208 million
while the blended average selling price (ASP) was flat
sequentially at $1.79. ASP did not increase in the quarter due to
the combined effects of higher HD shipments as well as
competitive pricing in China.
Overall, 2 megapixel and higher resolution sensors comprised
around 47% of total units versus 50% in the prior quarter. The 8
megapixel and 12 megapixel categories, particularly for
smartphones and tablets, saw strong shipment from the emerging
The 1.3 megapixel category constituted 39% of total shipments
versus 33% in the prior quarter. The VGA category constituted 14%
of total shipments versus 17% in the prior quarter. The
sequential declines in the lower-resolution categories were due
to the ongoing transition to higher-resolution sensors.
Revenues by End Market
camera phone market
remains OmniVision's largest, with a revenue contribution of 63%
compared with 65% in the prior quarter. Currently, China has
become the largest mobile market worldwide but the company
witnessed some reduction in demand, which it expects to continue
in the fiscal second quarter. However, OmniVision witnessed
strong demand for 8 megapixel and 12 megapixel sensors for
smartphones in Asian markets.
We believe that full HD format sensors will witness a rise in
demand as all major handset OEMs are replacing VGA with HD
sensors for the front-facing camera in smart devices. This is a
positive for OmniVision.
OmniVision is likely to benefit as it supplies camera sensors
to Chinese OEMs, which are expanding in both developing and
developed international markets.
entertainment end market
contributed 22% of total revenue, up from 17% in the prior
quarter, due to strength in the tablet segment.
We believe that tablet sales will pick up as all the major
OEMs are planning to launch latest models, which may boost
demand. Further, the rise in demand of smart TVs, which come with
built-in cameras, is likely to boost demand for OmniVision's 5
megapixel BSI-2 sensors.
Also, wearable computers or smartphone devices are the next
step in mobile electronics. The tech companies are also blending
the fashion quotient to market their new unique devices and we
believe OmniVision is well-positioned to capture the growth
Contribution of the
notebook and webcam segment
decreased to 7% of total revenue in the first quarter from 8% in
the fourth quarter. Though the tablets have cannibalized the
notebook market, the company was able to maintain consistent
shipments during the quarter. The company is poised to benefit
from design wins in the PC and notebook platforms. Many of the
OEMs are using sensors to develop human interface solutions like
gesture and eye tracking control for PC users.
Other emerging products
contributed 8% of revenues in the first quarter. Revenues from
the emerging products group are now being driven primarily by the
automotive end market. High-performance 720-P HD and VGA sensors
are the primary products in this market. During the quarter, the
company saw good growth in its security business due to the
continuing increase of IP digital camera products.
OmniVision reported gross margin of 17.4%, down 10 basis
points (bps) from the previous quarter's 17.5% and 170 bps from
19.1% in the year-ago quarter. The decrease in gross margin was
due to an increase in provision for access in obsolete
inventories, partially offset by some cost reduction in
Operating expenses of $48.2 million were lower than $49.9
million incurred in the year-ago quarter. OmniVision reported
operating margin of 4.5% in the quarter versus 3.5% in the prior
quarter and (0.3%) in the year-ago quarter. Both R&D and
SG&A were down as a percentage of sales from the year-ago
Total net income for the first quarter of 2014 was $23.1
million or 42 cents per share compared with $8.9 million or 17
cents a share in the previous quarter and $2.3 million or 4 cents
a share in the year-ago quarter.
There were no one-time items in the quarter. Consequently,
pro-forma net income was the same as GAAP net income of $23.1
million (6.2% of sales) compared to $8.9 million or a 2.7% net
income margin in the preceding quarter and $2.3 million or 9.0%
of sales in the same quarter last year.
Inventories were down 0.9% to $426.6 million from $430.3
million in the previous quarter. DSOs were 43 days, down from 44
days at the end of the previous quarter.
The company ended the quarter with cash and investments
balance of $240.5 million, up from $212.3 million during the
previous quarter. OmniVision has $35.7 million in long-term debt
and $122.2 million in total long-term liabilities.
For the second quarter of 2014, OmniVision expects revenues in
the range of $375 million-$410 million, GAAP earnings per share
in the range of 21cents-38 cents and non-GAAP earnings, excluding
share-based compensation and the associated tax impact, in the
range of 36 cents-53 cents a share.
OmniVision has leveraged its superior technology to solidify
its position in the handset market and also expanded into other
areas. The company reported strong first-quarter results with
both the top and bottom lines exceeding the prior-year
We like its product roadmap, growth prospects, cost structure
improvement, market diversification and management execution and
believe that it will be able to deal with the short product life
cycles and temporary slowdown in the computing and smartphone
Further, we are positive about OmniVision's camera-cube chip
technology for low resolution cameras, which normally forms the
front-facing camera in smart devices.
Automobile OEMs are rapidly deploying camera sensors in
vehicles such as rearview and surround view. OmniVision has
gained significant market share at major OEMs in Europe and North
America, which may boost its revenues in the future.
OmniVision's shares carry a Zacks Rank #3 (Hold). Other stocks
that are performing well at current levels include
). All these stocks carry a Zacks Rank #1 (Strong Buy).
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