FBR Capital Market's Semiconductors team is out with a call on Omnivision (NASDAQ:OVTI) that I suspect could be a game-changer for the stock in the n-t.
- First I would note that FBR doesn't officially cover OVTI (yet!) but seems they stumbled upon the info while doing their Apple supply chain checks.
The firm discusses their iPhone/iPad estimates going up etc.. until it reads this buried in page 2:
We still expect the iPhone 4S (codenamed N94), to have an 8 mega-pixel camera though we hear reports that OmniVision may be having technical difficulties with its new CMOS sensor, possibly risking its iPhone socket supplier status. As reported previously, Apple’s iPhone 4S refresh has replaced Infinieon’s baseband processor with Qualcomm’s processor. Also of note, with 72.5M iPhones set for production through the first three quarters of 2011, 100M iPhone builds again seems reasonable for Apple this year. Given our new iPhone build estimates, for 2Q11 we now estimate Apple can sell a maximum of 21M units, and for 3Q11 we now estimate Apple can sell a maximum of 27M units (though actual sales will likely be lower as Apple builds more internal and channel iPhone inventory before holiday sales ramp in 4Q11.
Omnivision possibly out, Sony may pick up the slack. Our contacts tell us that Omnivision may have missed Apple’s commercial production deadline for products utilizing their BSI-2 architecture, and thus may have lost the lead supplier status for the image sensor socket to Sony. Omnivision’s BSI-2 technology is the world’s first 1.1-micron pixel architecture allowing for low-light sensitivity and accurate color reproduction for better overall image quality. Manufactured through Taiwan Semiconductor, it is built using a 300 mm copper process at the 65 nm node. However, we understand that yield rates at TSM have thus far been unacceptably low for commercial viability, and that the deadline for inclusion into the next iPhone has passed. Therefore, Sony could become Apple’s primary supplier of 8 mega-pixel CMOS image sensors for the next iPhone, with OmniVision possibly being a backup supplier. Many believed that Omivision would capture as much as 90% share of iPhone production, which may turn out to not be the case.
Notablecalls: FLASHBACK: February 23, 2011 - Sony could win all of initial iPhone 5 procurement orders - Baird
Baird's Tristan Gerra made a bold call just 2 days ahead of earnings saying Apple could potentially single source iPhone 5 sensors from Sony. This resulted in a 3 pt (15%) drop for the stock. OVTI was a 26 dollar stock back then.
The analyst was proven seemingly wrong as OVTI guided July qtr tad above guidance, implying all was good at Apple. The stock surged 10 pts as disgraced shorts fled the scene.
The consensus view became that OVTI's OmniBSI-2 technology would be in the iPhone 5 & Sony would at best be a me-too supplier.
That's until today.
FBR's ever-wonderful Semi team is saying OVTI is having real problems with the BSI-2 architecture as yields are way lower than expected. Low yields is the key to this call. You see, OVTI is converting its sensors to BSI technology because of better yields and lower defect densities.
I can't stress this enough but if OVTI cannot mass produce BSI-2 architecture, it means they can't get their stuff in the high end devices like the iPhones & iPads. That would mean consensus #'s are way too high.
Someone call the homicide unit because that would mean murder for the stock.
FBR could have it wrong with their checks. Maybe it was just a patch of BSI-2's that had bad yields & TSM being best in the business can turn it around for them. But with the stock 10 pts higher from where the concerns first surfaced, one can expect a rather painful reaction.
I would not be surprised to see the stock down 10% or more today after the FBR call makes the rounds.
That would be $31.50 or lower in the n-t.
Actionable Call Alert!