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OmniVision (OVTI) Beats Q4 Earnings & Revenue Estimates

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OmniVision Technologies reported fourth-quarter fiscal 2015 (ended Apr 2015) earnings per share of 10 cents, which comfortably beat the Zacks Consensus Estimate of 6 cents. However, earnings plunged 57.4% sequentially and 62.5% year over year, primarily due to lower revenues.

Revenues

OmniVision reported revenues of $285.9 million, down 2.2% sequentially and 13.6% from the year-ago quarter. However, revenues were within the guided range of $265.0–$295.0 million. The top line also surpassed the Zacks Consensus Estimate of $279.0 million.

The mobile phone market is very important for OmniVision (contributing 69% to fourth-quarter sales). Segment sales were flat sequentially. Overall, prospects in China, India and Korea are good and the company gained an important customer in Korea.

Revenues in the company’s notebook PC segment were flat sequentially. In the quarter, the company scored major design wins with significant Tier 1 OEM brands.

The company’s automotive business continued its strong growth momentum and accounted for 9% of fourth-quarter sales. The company witnessed steady revenue growth in Europe, Japan and North America.

Margins

OmniVision reported gross margin of 22.4%, up 28 basis points (bps) from the previous quarter figure of 22.1%. The reported figure also improved 226 bps from 20.1% in the year-ago quarter. The expansion was driven by a favorable product mix shift toward the company’s newer and higher resolution products, as well as productivity improvements, which reduced the cost of production.

Operating expenses of $59.3 million were 8% lower than the prior quarter but 13.2% higher than the year-ago quarter. Both research & development and selling, and general & administrative expenses increased from the year-ago quarter. The net result was an operating margin of 1.6%, down 168 bps sequentially and 266 bps year over year.

Net Profit/Loss

Total net income for the fourth quarter was $6.0 million or 10 cents per share compared with $14.0 million or 23 cents in the previous quarter and $15.0 million or 26 cents in the year-ago quarter.

There were no one-time items.

Balance Sheet

OmniVision ended the quarter with cash and investments balance of $524.2 million, up $11.4 million from $512.8 million during the last quarter. Inventories were down 6.1% to $344.0 million from $366.4 million in the previous quarter. The company has $25.0 million in long-term debt and $104.0 million in total long-term liabilities.

Guidance

For the first quarter of fiscal 2016, OmniVision expects revenues in the range of $310.0–$340.0 million. The Zacks Consensus Estimate for revenues is pegged at $308 million. GAAP earnings per share are expected in the range of 17–33 cents. Non-GAAP earnings, excluding share-based compensation and the associated tax impact, are likely to range between 32 cents and 48 cents. The Zacks Consensus Estimate for earnings is pegged at 16 cents.

Conclusion

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

We commend OmniVision's product roadmap, growth prospects, cost structure improvement, market diversification and management execution. Further, we are positive about the company’s pixel technology and camera-cube chip technology for low-resolution cameras, generally used in the front-facing camera in smart devices.

The mobile market, especially in emerging economies like China, India and Korea, continues to show strong growth trends. The company already has a strong position in China, the manufacturing destination for many phone-makers across the world. The Indian market is also looking up and the company has increased investments in the region.

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 major positive. Also, the company expects India to be a major growth driver over the next few years considering the improvement at major OEMs in the country.

As OmniVision continues its growth momentum in Asia and other emerging economies, it may lead to volatility in the company’s results, at least in the near term. However, we expect it to witness long-term growth.

Nevertheless, increased competition, North American challenges and price pressures remain the concerns.

At the end of April this year, the company signed a definitive agreement to be acquired by a consortium of Hua Capital Management, CITIC Capital and GoldStone Investment. Under the agreement, the consortium will acquire all the outstanding shares of the company in a cash transaction worth $29.75 per share or a total of approximately $1.9 billion. However, all the necessary approvals are yet to be obtained.

Currently, OmniVision carries a Zacks Rank #3 (Hold). Better-ranked stocks in the same industry are CEVA Inc. (CEVA - Free Report) , Cirrus Logic Inc. (CRUS - Free Report) and eMagin Corp. (EMAN - Free Report) . All these stocks sport a Zacks Rank #1 (Strong Buy).

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