OmniVision
Technologies (OVTI) reported third-quarter fiscal 2014
(ended Jan 2014) earnings of 54 cents a share, which comfortably
beat the Zacks Consensus Estimate of 21 cents. Following the
earnings results, stock surged 15.1% in afterhours trading.
Revenues
OmniVision reported revenues of
$352.0 million, down 11.4% sequentially and 16.9% over the year-ago
quarter. However, revenues were above management’s guidance range
of $310.0–$340.0 million and the Zacks Consensus Estimate of $327.0
million.
Total unit sales were down 9.7%
sequentially to $214.0 million and the blended average selling
price (ASP) decreased 1.8% sequentially and came in at $1.64. The
decrease in ASP was due to quarterly price erosion across product
lines in all regional markets.
Overall, 2-megapixel and higher
resolution sensors comprised around 44.0% of total units versus
36.0% in the prior quarter. The sequential increase in this
category was driven by increased shipment of 5-megapixel sensors.
The 1.3-megapixel category constituted 44.0% of total shipments
versus 50.0% in the prior quarter. The VGA category constituted 12%
of total shipments versus 14.0% in the prior quarter.
Revenues by End
Market
The mobile phone
market remains OmniVision’s largest, with a revenue
contribution of 52.0% compared with 60.0% in the prior quarter. The
decrease in mobile sales was due to lower volumes in smartphones
and tablet platforms in North America, partially offset by growth
in China.
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
saw steady shipment volume for 8-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 original
equipment manufacturers (OEMs) are using VGA with HD sensors for
the front-facing camera in smart devices. The company has also
secured design wins for the PureCel OV13850 and OV8858 with major
OEMs in China and Taiwan.
The entertainment end
market contributed 31.0% of revenues, up from 25.0% in the
prior quarter, due to strength in the tablet segment. The ramp up
of OmniVision’s 5-megapixel BSI and BSI-2 sensors and increased
shipments of gaming consoles helped drive the demand in this
segment.
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 increased to 7.0% of
revenues in the third quarter from 5% in the second quarter. 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
productscontributed 10.0% of revenues in the third
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, 1080p 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 of IP digital camera products.
Margins
OmniVision reported gross margin of
19.6%, up 80 basis points (bps) from the previous quarter’s 18.8%
and 270 bps from 16.9% in the year-ago quarter. The increase in
gross margin was due to continued reduction in the company's
overall production costs.
Operating expenses of $51.3 million
were higher than $47.9 million incurred in the year-ago quarter.
OmniVision reported operating margin of 5.1% in the quarter, down
120 bps sequentially and 50 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 third
quarter of fiscal 2014 was $30.6 million or 54 cents per share
compared with $26.3 million or 47 cents in the previous quarter and
$21.3 million or 40 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 $30.6 million (8.6% of sales) compared to $26.3
million or a 6.6% net income margin in the preceding quarter and
$21.3 million or 5.0% of sales in the same quarter last year.
Balance Sheet
Inventories were down 12.3% to
$342.2 million from $390.3 million in the previous quarter. DSOs
were 35 days, down from 40 days at the end of the previous
quarter.
The company ended the quarter with
cash and investments balance of $393.0 million, up from $265.6
million during the previous quarter. OmniVision has $32.2 million
in long-term debt and $122.6 million in total long-term
liabilities.
Guidance
For the fourth quarter of 2014,
OmniVision expects revenues in the range of $275.0–$305.0 million.
Analysts polled by Zacks expect revenues of $288.0 million, below
the mid-point of the guided range.
GAAP earnings per share are
expected in the range of 5–21 cents and non-GAAP earnings,
excluding share-based compensation and the associated tax impact,
in the range of 19–35 cents per share.
Conclusion
OmniVision has leveraged its
superior technology to solidify its position in the handset market
and also expanded into other areas. The company reported strong
third-quarter results with both the top and bottom lines exceeding
the Zacks Consensus Estimate.
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 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 at major OEMs
in Europe and North America, which may boost its revenues. The
company is also seeing growth returning in the Chinese market,
which is a big positive for the company.
OmniVision’s shares sport a Zacks
Rank #1 (Strong Buy). Other stocks that are performing well at
current levels include Ambarella, Inc. (AMBA),
FormFactor Inc. (FORM) and Himax
Technologies (HIMX). All these stocks carry a Zacks Rank
#2 (Buy).
AMBARELLA INC (AMBA): Free Stock Analysis Report
FORMFACTOR INC (FORM): Free Stock Analysis Report
HIMAX TECH-ADR (HIMX): Free Stock Analysis Report
OMNIVISION TECH (OVTI): Free Stock Analysis Report
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