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OmniVision Beats on Q4 Earnings by a Penny - Analyst Blog

OmniVision Technologies ( OVTI ) reported fourth-quarter fiscal 2014 (ended Apr 2014) earnings of 26 cents a share, which beat the Zacks Consensus Estimate by a penny. Following the earnings results, the stock surged 17.4% in after-hours trading.

Revenues

OmniVision reported revenues of $331.0 million, down 6.0% sequentially and 1.6% from the year-ago quarter. However, revenues were above management's guidance range of $275.0-$305.0 million as well as the Zacks Consensus Estimate of $289.0 million.

Total unit sales were down 6.1% sequentially to $201.0 million, while the blended average selling price (ASP) remained flat sequentially at $1.64.

Overall, 2-megapixel and higher resolution sensors comprised around 52.0% of total units versus 44.0% in the prior quarter. The sequential increase in this category was driven by increased shipment of 13, 8, and 4-megapixel sensors. The 1.3-megapixel category constituted 37.0% of total shipments versus 44.0% in the prior quarter. The VGA category constituted 11% of total shipments versus 12.0% in the prior quarter.

Revenues by End Market

The mobile phone market remains OmniVision's largest, contributing 69.0% of revenues compared with 52.0% in the prior quarter. The increase in mobile sales was due to significant growth in Asian regional business, particularly smartphone original equipment manufacturers (OEMs) in China and Taiwan.

Currently, China has become the largest mobile market worldwide and the company witnessed strong demand for 5-megapixel, 4-megapixel and 2-megapixel sensor shipments for smartphones in the Chinese market. The company also witnessed steady shipment volume for 13, 8, 5 and 2-megapixel products in China and Taiwan. Additionally, the company expects strong demand for its 4-megapixel sensor in the Asian markets.

We believe the full-HD format sensors will witness a rise in demand as all major handset OEMs are using VGA with HD sensors for the front-facing camera in smart devices.

The entertainment end market contributed 15.0% to revenues, down from 31.0% in the prior quarter due to decline in the tablet segment, post-holiday season, particularly in North America.

We believe that tablet sales will pick up as all the major OEMs are planning to launch the 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.

Wearable computers or smart devices are the next step in mobile electronics. The tech companies are blending the fashion quotient to market their new unique devices better and we believe OmniVision is well-positioned to capitalize on this trend.

Contribution of the notebook and webcam segment decreased to 5.0% of revenues in the fourth quarter from 7% in the third due to tablet cannibalization.

Though the tablets have cannibalized the notebook market, OmniVision is trying to develop cost-friendly products with improved performance. Many of the OEMs are using sensors to develop human interface solutions like gesture and eye tracking control for PC users. Also, the company is working on various imaging-based technologies with OEMs in order to drive growth in this segment.

Other emerging products contributed 11.0% to revenues in the reported quarter. Revenues from the emerging products group are now being driven primarily by the automotive end market and the security market. High-performance 720-P HD, 1-megapixel product and VGA sensors are the primary products in this market. During the quarter, the company witnessed strong growth in its security business due to the continuing increase in IP digital camera products.

Margins

OmniVision reported gross margin of 20.1%, up 50 basis points (bps) from the previous quarter's 19.6% and 260 bps from 17.5% in the year-ago quarter. The increase in gross margin was due to continued reduction in the company's overall production costs and favorable mix.

Operating expenses of $52.4 million were higher than $46.8 million incurred in the year-ago quarter. The company reported operating margin of 4.3% in the quarter, down 80 bps sequentially but up 80 bps from the year-ago quarter. As a percentage of sales, both research & development and selling, general & administrative expenses increased from the year-ago quarter.

Net Profit/Loss

Total net income for the fourth quarter of fiscal 2014 was $15.1 million or 26 cents per share compared with $30.6 million or 54 cents in the previous quarter and $8.9 million or 17 cents 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 $15.1 million (4.6% of sales) compared with $30.6 million or 8.6% net income margin in the preceding quarter and $8.9 million or 2.7% of sales in the same quarter last year.

Balance Sheet

Inventories were down 20.8% to $270.9 million from $342.2 million in the previous quarter. DSOs were 46 days, up from 35 days at the end of the previous quarter.

OmniVision ended the quarter with cash and investments balance of $450.9 million, up from $393.0 million during the previous quarter. The company has $32.0 million in long-term debt and $130.3 million in total long-term liabilities.

Guidance

For the first quarter of fiscal 2015, OmniVision expects revenues in the range of $360.0-$400.0 million. GAAP earnings per share are expected in the range of 29-49 cents and non-GAAP earnings, excluding share-based compensation and the associated tax impact, in the range of 43-63 cents per share.

Conclusion

OmniVision has solidified its position in the handset market and expanded into other areas leveraging its superior technology. The company reported strong fourth-quarter results with both the top and bottom lines exceeding the Zacks Consensus Estimate.

We commend 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 notebook and entertainment end markets.

Further, we are positive about OmniVision's pixel technology and 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 in the Chinese market, which is a big positive. Also, the company is seeing growth at major OEMs in Europe and North America, which may boost its revenues.

OmniVision's shares sport a Zacks Rank #1 (Strong Buy). Other stocks that are performing well at current levels include Applied Micro Circuits ( AMCC ), Exar Corp. ( EXAR ) and PLX Technology Inc ( PLXT ). All these stocks have the same Zacks Rank as OmniVision.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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