GuruFocus Premium Membership

Serving Intelligent Investors since 2004. Only 96 cents a day.

Free Trial

Free 7-day Trial
All Articles and Columns »

OmniVision Technologies Is a Value Play That Investors Should Consider

June 24, 2014 | About:
Rustic Nomad

rusticnomad

0 followers

Image-sensor company, OmniVision Technologies (OVTI) reported impressive results for its recent quarter. The company also demonstrated a solid outlook for the current quarter, that led its stock shoot up nearly 13% to $22.67. But, can OmniVision continue to outperform in the future? Let’s find out.

Productive shift

OmniVision has established itself well in Asia, especially in China. It has witnessed tremendous improvements in its financial metrics during the last quarter that includes high gross margins, strong cash balance, and lower inventories, displaying a solid execution of its corporate strategy.

OmniVision looks very strong, particularly on its long-term goal of driving and optimizing profitable growth from diversified markets and applications. Moreover, it continues to focus on technology leadership, and is expanding its market opportunity through diversification, apart from improving its cost structure. These strategic moves should help the company enhance its long-term growth.

In addition, the company is expected to benefit largely from its imaging technology that continues to boost its sales across various markets such as smartphones and tablets, from consumer to industry and automotive. Also, it’s world-class product development, such as a seamless image processing technology and management, imaging solutions, are perceived to be providing its customers and partners with system-level solutions.

Besides, the company is aggressively working on developing and improving its pixel technology beyond 1.1 microns.

Reaching out to different markets

Also, it’s interesting to see that the company is making sound progress on the technological front, which is creating unmatched opportunity for the company as a result of expansion of product design and applications for diversified targeted markets, while leveraging the latest pixel technology. Also, its wafer level camera technology has the potential to address the low-cost smartphone sector’s demand.

Apart from this, it has developed a RGB IR technology that will be utilized to create new applications in machine vision, automotive, and mobile product. These should accelerate its growth going forward. Besides, its low cost structure should help the company reinforce its technology leadership in the coming years.

The semiconductor image-sensor company is diversifying its business on fronts such as hardware diversification, marketed diversification, geographic diversification, and supply chain diversification that should allow the company to pursue profitable growth in the coming years.

In addition, the company is expected to benefit in a big way with the roll out of 4G LTE in China, as both the mainstream and performance markets will be shifting to a high resolution cameras. Besides, its advanced entry level portfolio is expected to gear-up its growth as developing countries like Africa, Asia, and Latin America are transitioning to 3G technology from feature phones.

With smartphones and tablets penetrating the markets, OmniVision’s business is expected to become significantly more diversified geographically, thus expanding its customer base and product reach. The company sees significant interest among customers for its sensors and applications such as eye tracking, machine vision, and mandate reality.

Also, with a variety of wearable devices such as eyewear and watches coming into vogue, OmniVision is looking at growth in this sector as well. The new technology offering of LCOS is significantly popular among customers in new industries and automotive markets.

The automotive business is highly attractive as high entry barriers and non-product cycles should provide a stronghold for OmniVision and high margins going forward. In addition, security is another productive market for CMOS image sensors.

OmniVision has developed unique, high speed, low resolution global standard sensors that are ideal for developing fully integrated human interface solutions in wearable products. There is strong demand from the entertainment market as well as others to use gesture recognition imaging solutions as a human interface tool to support daily activities or work-driven applications.

Also, 3D mapping is an emerging field where OmniVision seeks to grow profitably by developing an imaging solution that utilizes sensors in conjunction with the system architecture on mobile devices that can be used to generate 3D maps of the surrounding environment. So, we can see that the company is seeing opportunities in a number of areas, making it a good long-term bet.

Solid positioning

The shares of the company has been pretty volatile as tough competition from Sony is making it hard for the company to progress. Yet, the company’s numerous design wins in Google’s Project Tango with the growing use of camera sensors in automotive, medical, and wearable tech should drive growth going forward.

In addition, the company is also expected to benefit from Tesla’s foray into the European and Chinese market, since it is a supplier to the electric car maker. What's more, the company has nearly $410 million in cash and may initiate a dividend or a buyback program to reward investors. The company can also spend this cash to facilitate R&D in order to gain back the lost market share.

Conclusion

OmniVision looks solid and can be a potential investment for the future as it has diversified its business opportunities. And while doing so, it has reduced its reliance on Apple, which is a good sign. Also, at a trailing P/E ratio of just under 11, OmniVision could be a value play that investors shouldn’t miss.


Rating: 0.0/5 (0 votes)

Comments

Please leave your comment:


Get WordPress Plugins for easy affiliate links on Stock Tickers and Guru Names | Earn affiliate commissions by embedding GuruFocus Charts
GuruFocus Affiliate Program: Earn up to $400 per referral. ( Learn More)
Free 7-day Trial
FEEDBACK