OmniVision Technologies (OVTI) reported second-quarter fiscal 2015 (ended Oct 2014) earnings per share of 47 cents, which comfortably beat the Zacks Consensus Estimate of 37 cents.
Following the earnings announcement, stock plunged 3.8% in after-hours trading due to disappointing earnings outlook.
Revenues
OmniVision reported revenues of $394.0 million, down 3.1% sequentially and 0.8% from the year-ago quarter. However, revenues surpassed management’s guidance range of $360.0–$390.0 million as well as the Zacks Consensus Estimate of $376.0 million, driven by strength in mobile phone and automotive businesses.
Margins
OmniVision reported gross margin of 22%, up 30 basis points (bps) from the previous quarter’s 21.7% and 320 bps from 18.8% in the year-ago quarter. The increase in gross margin was due to a favorable product mix shift toward the company’s newer and higher resolution products.
Operating expenses of $56.7 million were higher than $49.9 million incurred in the year-ago quarter. As a percentage of sales, both research & development and selling, general & administrative expenses increased from the year-ago quarter. The net result was an operating margin of 7.6%, up 410 bps sequentially and 130 bps year over year.
Net Profit/Loss
Total net income for the second quarter of fiscal 2015 was $28.0 million or 47 cents per share compared with $26.3 million or 47 cents in the year-ago quarter.
There were no one-time items. Consequently, pro-forma net income was the same as GAAP net income of $28.0 million (7.1% of sales) compared with $26.3 million (6.6% of sales) in the year-earlier quarter.
Balance Sheet
Inventories were up 18% to $340.0 million from $288.1 million in the previous quarter.
OmniVision ended the quarter with cash and investments balance of $525.2 million, up from $524.2 million during the last quarter. The company has $31.8 million in long-term debt and $112.3 million in total long-term liabilities.
Guidance
For the third uarter of fiscal 2015, OmniVision expects revenues in the range of $275.0–$305.0 million. GAAP earnings per share are expected in the range of 9–25 cents and non-GAAP earnings, excluding share-based compensation and the associated tax impact, in the range of 22–38 cents. The Zacks Consensus Estimate for earnings is pegged at 19 cents.
Conclusion
OmniVision has solidified its position in the handset market and expanded into other areas leveraging its superior technology. The company reported decent second-quarter results with both the top and bottom-line figures beating the Zacks Consensus Estimate.
We commend the company’s product roadmap, growth prospects, cost structure improvement, market diversification and management execution. Further, we are positive about OmniVision's pixel technology and camera-cube chip technology for low-resolution cameras, which normally forms the front-facing camera in smart devices.
Automobile OEMs are rapidly deploying camera sensors in vehicles such as rearview and surround view. OmniVision has gained significant market share in the Chinese market — a major positive. Also, the company is seeing growth at major OEMs in India, expecting the country to become a major growth driver for OmniVision over the next few years.
However, increased competition, North American challenges and price pressures remain concerns.
OmniVision has a Zacks Rank #3 (Hold). Other better-ranked stocks that are performing well at the current levels include Ambarella, Inc. (AMBA) and AXT Inc. (AXTI) sporting a Zacks Rank #1 (Strong Buy), and Advanced Semiconductor Engineering Inc. (ASX), with a Zacks Rank #2 (Buy).
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