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OmniVision's Image Sensors Can Take the Stock to New Highs

May 12, 2014 | About:
Vinay Singh

Vinay Singh

5 followers

OmniVision Technologies (OVTI) manufactures image sensors for smartphones, tablets and other smart devices. The very fact that smartphones with cameras have a 13:1 lead over stand alone cameras means that OmniVision operates in a big industry. Let's take a look at the industry landscape and how OmniVision is positioned.

The Industry's Landscape

As per IDC, worldwide smartphone shipments are forecast to grow 40% year over year to more than 1 billion units this year. Total smartphone shipments are forecast to reach 1.7 billion units in 2017. The market for smart devices worldwide is estimated to be worth $622.4 billion in 2013, of which $423.1 billion is projected to come from entry-level and mid-range smartphones and tablets with a price tag under $300-$350.

With sub-$200 phones driving the future of smartphone sales, it is imperative that the bill of materials will have to be brought down by vendors in order to stay competitive in the smartphone market. The other players in the smartphone camera sensors market are Sony (SNE) and Samsung.

The global CMOS (complementary metal oxide semiconductor) image sensors industry has witnessed strong growth during the last five years. The industry's revenue is forecast to reach about $7.7 billion in 2017 at a CAGR of 5.1% over five years (2012-2017). CMOS sensors find use in smartphones, tablets and other devices where embedded cameras are used.

Where OmniVision Stands

OmniVision was a key supplier to Apple, but has been diversifying since Sony started supplying camera sensors to Cupertino from the iPhone 4S onward. This diversification initiative seems to be working well as OmniVision's revenue has been growing consistently.

OmniVision has an upper hand when it comes to pricing as the average selling price of OmniVision's camera sensors is $1.79. This is a very important factor when we consider that sub-$200 devices won't opt for the more expensive camera sensors worth $7.30 from Sony and $1.93 from Samsung. In terms of market share, as per Bloomberg, Sony has 32% of the image sensor market while OmniVision has 14.4% and Samsung has 12.9%. But OmniVision's price advantage should help it gain more share in the future.

OmniVision has been doing well and it recently declared its first quarter results. The company reported revenue of $373.7 million, up an impressive 44.5% over the prior year quarter. It reported earnings of $0.42 per share, comfortably beating consensus estimates. The company saw good demand for 8 megapixel and 12 megapixel sensors from the Asian markets.

OmniVision's CameraCube chip technology for low resolution cameras should open up new opportunities going forward. These low resolution sensors are normally used in the front-facing camera in smart devices. In the reported quarter, 2 megapixel and higher camera sensors comprised 47% of total units shipped.

Also, automobile manufacturers are now using rearview and surround view cameras. OmniVision has gained significant market share with OEM's in Europe and the U.S. Going forward, this can be a strategic win and help the company increase its market share in the automotive camera market.

OmniVision holds 23% market share in this segment as per the company's data and growing car sales should further assist in the growth of this business.

Challenges

In the Chinese market, OmniVision is facing stiff competition. China and India are going to be the epicenter of the smartphone boom in Asia. All major smartphone manufacturers will be vying for a major share of market. As already stated above, low and mid range phones will be the major growth drivers. These low cost devices would probably consider OmniVision's low cost sensors.

This also means that there will be strong demand for camera sensors for smartphones and tablets. OmniVision also has to be wary of SK Hynix that is eyeing the Chinese market for CMOS sensors and has already kicked off road shows to win over customers.

OmniVision has to be watchful of progress that Samsung makes with its camera sensors for the mass market. Samsung has been making waves in CMOS sensor production recently. Samsung and Toshiba will now be manufacturing 13 megapixel CMOS image sensors on a mass scale.

Samsung Electronics had already received an order for producing 80 million to 90 million of these sensors earlier this year and it won't be out of place to expect the Korean giant to focus on the low end of the market as well, moving into OmniVision's space.

Sony is another big threat to OmniVision's growth as the Japanese company has already tapped into Apple and it is seeing significant demand for image sensors. Sony has put in considerable money to maintain its lead in image sensors and has invested 220 billion yen since 2010 to boost production capacity.

Sony might have to cut the price of its sensors, according to UBS analyst Ryosuke Katsura, and if it decides to pursue this market even more aggressively, then OmniVision would face further difficulty.

Conclusion

OmniVision's revenue has been improving at a good pace and the cost advantage that the company enjoys presently over peers should help it benefit from the low-cost smartphone market. But investors should also keep an eye on the moves of its rivals since OmniVision is a much smaller player and runs the risk of being elbowed out by the likes of Samsung and Sony.


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