Several firms commenting Omnivision (NASDAQ:OVTI) following disappointing qtr and guidance.
- ThinkEquity notes that while units grew 12% sequentially in the October quarter, ASPs saw a roughly 10% decline. ASPs and gross margins were impacted by a combination of mix shift to low-end VGA and pricing pressure. VGA represented nearly two-thirds of camera phone units for OVTI in the October quarter, up from less than half in the prior quarter.
Firm says there was some notice of shortfall, but commentary on pricing pressure was somewhat worse than expected. GM slide to continue as pricing pressure accelerates near term. ASPs are likely to continue to fall faster than what OVTI deems as "normal" (20%-25% per year). Even with a shift to a higher mix of MP in the January quarter, firm believes pricing pressure in the MP segment is strong enough to drive ASP and gross margins lower.
- Baird downgrading OVTI to Underperform and cutting price target to $10 on the basis of very poor gross margin guidance, which firm believes could continue to deteriorate in outer quarters. Competition from Samsung and MediaTek in mainland China is driving very aggressive ASP declines, leading them to question OmniVision's long-term business model given the company's cost disadvantage (fabless) and lack of product breadth (no PSRAM/NAND flash).
Firm notes inventories up 51% amid weak guidance, creating inventory write-down risk. ASPs down 10% sequentially represent the third consecutive double-digit decline. Fabless model is creating a 20% gross margin disadvantage for OmniVision, per firm's checks. Also, per their checks, Wavefront Coding technology is facing significant image quality issues.
- Piper notes that despite a 12.1% Q/Q increase in unit shipment (from 58MM to 65MM units), 2QF07 results were light due to falling CIS prices and unfavorable product mix. Product mix in F2Q was dominated by VGA sensors for low-end mobile handsets, which grew to represent two-thirds of total shipment, up from 50%+ in prior quarters. Sales of mobile phones also grew to represent ~85% of the quarter's total revenue. Sales of digital camera products declined to represent just ~5% of revenue, down from ~10% in the prior quarter.
Notablecalls: Let's do some math: non-VGA units actually DECREASED to 65MM * 1/3 = ~22MM units from 58MM * 1/2 = 29MM units. Digital camera products also declined. So it's basically VGA that kept up the revenue, which makes me wonder if even this guidance is too aggressive given the pricing pressure. Longer-term, don't see anything too compelling either. Doing business in a sector that's turning into to commodity with disadvantageous fabless model doesn't look very promising. Expecting the stock see lower levels than the $15.10-$15.15 close in the A-H.