OmniVision Shoots Up

OmniVision’s (OVTI - Analyst Report) earnings for the first quarter of fiscal 2010 (ending July 2009) beat consensus estimates by 11 cents. The share price jumped 12.3% on Friday in response to the news.

Total Revenue

Revenue of $105.6 million was up 18.5% sequentially and down 39.4% year over year. Revenue exceeded the high-end of management’s guidance range of $90-100 million (up 1.1%-12.3% sequentially). Total unit sales were up 15.4% to 75 million, while the blended average selling price (ASP) increased 2.7% to $1.41. The 2 megapixel and higher resolution sensors comprised around 20% of total units shipped compared to 15% in the third quarter.

Revenue by End Market

Around 60% of total sales came from the camera phone market, with the total contribution growing 18.5% sequentially. Management stated that the increase was related to the smartphone market, as a number of new models were introduced last quarter. The remaining 40% was sold into the emerging products market, of which notebooks alone contributed 20%.

Unit sales of the emerging products group were up also up 18.5% sequentially. The strength in the notebook area was attributed to stronger demand from notebooks and netbooks. Both the mobile phone and emerging products segments continued to strengthen in the last quarter and management stated that the outlook appeared to be improving.
 

 
Margins

The pro forma gross margin for the quarter was 26.7%, up 383 basis points (bps) from the previous quarter’s 22.9%. The increase in gross margin was primarily on account of a more favorable mix of business, as higher resolution sensors grew strong double-digits, while VGA and below saw relatively slower growth. This also has a positive impact on the ASP, which increased from $1.37 to $1.41.

Our pro forma gross margin estimate for the first quarter excludes stock-based compensation expenses and inventory charges. The operating expenses of $27.3 million were slightly higher than the previous quarter’s $29.5 million. The operating margin was 0.8%, up 1,106 bps sequentially from -10.2%, primarily on account of lower R&D spending, helped by lower COGS and lower SG&A (as a percentage of sales).

Net Profit/Loss

On a pro forma basis, OVTI generated a net loss of $0.13 million, or a 0.1% net loss margin compared to a loss of $10.6 million, or 11.9% in the previous quarter and income of $15.2 million or 8.7% net income margin in the same quarter last year. Fully diluted pro forma loss per share (LPS) was $0.00, compared to loss of $0.21 in the April quarter and earnings of $0.29 in the prior-year quarter. Our pro forma estimate excludes inventory charges and deferred stock compensation in the last quarter.

Our pro forma calculations may differ from management’s presentation due to the inclusion/exclusion of some items that were not considered by management. On a fully diluted GAAP basis, the company recorded a net loss of $9.7 million ($0.19 per share) compared to loss of $20.1 million ($0.40 per share) in the previous quarter and income of $6.2 million ($0.12 per share) in the prior-year quarter.
 

 
Balance Sheet

Inventories were down 5.6% to $99.2 million, yielding annualized inventory turns of 3.1x. The company ended with a cash and investments balance of $309.0 million, an increase of $34.2 million from the end of the previous quarter. DSOs were around 42 days. OmniVision has $32.0 million in long-term debt and $88.7 million in long-term liabilities.

Guidance

Management’s guidance for the fourth quarter of 2009 is as follows—revenue in the range of $155-170 million (up 46.8%-61.0% sequentially). The consensus revenue estimate is $163.3 million, within the guided range. The non-GAAP net earnings (excluding stock based compensation and related tax effects) are expected to be 10 to 20 cents a share. The GAAP earnings are expected to be 0 to 10 cents. Consensus estimates (pro forma) are for earnings of $0.16, also within the guided range.

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