Monday, January 29, 2007

OmniVision Tech (NASDAQ:OVTI) - bounce play

Morgan Stanley is out with a gutsy call saying the 14% sell-off in Omnivision (NASDAQ:OVTI) shares since early December appears overdone as they do not believe conditions in the image sensor market have gotten incrementally worse over the past two months. Firm spoke with three of the top five image sensor vendors last week and they believe Omnivision's prior guidance largely incorporates the current weakness in the market.

Omnivision's October quarter results and January quarter guidance already reflected the negative impact of a mix shift to low end handsets in the broader market that caused problems in C4Q06 for many wireless semiconductor vendors, notably Texas Instruments and STMicro. Mix is the key value driver for Omnivision and the firm continues to believe that Omnivision's mix of low-end and high-end image sensors stabilized in the January quarter, should improve modestly in the April quarter, and could become a meaningful tailwind as the company moves through 2007 and its customers ramp models with higher resolution cameras.

They do not expect Omnivision to suffer meaningfully from the reduction of pockets of excess inventory in the handset supply chain as they believe inventory at Omnivision's customers is relatively manageable, particularly as the company has little Motorola exposure.

Morgan Stanley believes there is minimal downside left in Omnivision shares as expectations are low, the stock is down nearly 70% from its highs, valuation is at an all-time low, and more than 40% of outstanding shares have been sold short. Their target is $18.

Reits Overweight.

Notablecalls: Actionable call alert. While I have been negative on OVTI for some time I think MSCO-s defense here makes sense at least in s-t. I expect the stock to move aggressively upward. Suspect it will hit at least $12.50 today.


capitalfin said...

I am surprised that no mention was made of the $6 per share in cash on the balance sheet.

John said...

This stock is done for.

Both Samsung and Micron can, and will, bury it. RIP.