Tuesday, January 16, 2007

Calls of Note Part 3

One of the last sell-side OmniVision (NASDAQ:OVTI) bulls is capitulating this morning as JP Morgan is taking their rating down to Neutral from Buy. After a two-year round-trip, firm says they are getting off the OVTI roller-coaster at what appears to be an inopportune time for the company. OVTI is locked in price-based competition in the low-margin VGA segment of the CMOS sensor space, and absent differentiation from WFC, margins will likely be under pressure for at least two quarters.

Firm doesn't like the way OVTI's F2H07 is shaping up. OVTI is locked into the VGA segment of the CMOS sensor space and is unable to differentiate, absent the introduction of WFC or a lower-cost nextgen chipset. Meanwhile, Tier 1 handset OEMs are seeing tremendous threats at the high-end of the market (RIM and Apple) and need to move to MPx quickly. With OVTI capacity-constrained and competitors emerging (e.g., Samsung) there is risk of share loss in a segment that really matters.

Firm are troubled too by insider sales, higher levels of capital expenditure, and higher inventory in F2Q07. With $6.29 cash p/share, firm sees no immediate risks, but they believe investors could easily see $1.00 cash p/share whittled away before FY08, if inventory levels don't decline.

Notablecalls: Frequent readers should know I've been negative on OVTI for some time now. Maybe, just maybe I'm starting to warm up to the name as I'm having tough time imagining what else negative could be there to come. Won't be trying to catch the falling knife, though, so sitting back and waiting for some positive datapoints before taking a more positive stance.

No comments: