Again this quarter, gross margins, which declined by almost 2% year over year, reminded analysts of just how competitive OmniVision's market has become. Not to mention, management didn't help matters by issuing guidance that was more than 7% below estimates, effectively confirming reasons for the panic.
Now, I do understand that management didn't want to set expectations too high and set the company up to fail. But it's worth asking if OmniVision's relationship with Apple is as strong as previously perceived?
To be fair, I don't have sufficient data to model how much revenue growth OmniVision should generate from Apple's recent launch of the iPhone 5S and the 5C. But looking back at OminiVision's fiscal second-quarter of 2013 (November quarter 2012), the company posted an almost 80% jump in revenue, helped (in part) by a 62% increase in device shipments. What I also know is that, OmniVision's second-quarter performance followed Apple's launch of the original iPhone 5 and the iPad mini last September.
But understand, I'm not suggesting that OmniVision is guaranteed to have a blowout quarter. Nor am I suggesting that management has no clue what it's doing. But I do see several catalysts to suspect that management may be low-balling guidance just a bit, especially if Apple announces a deal with China Mobile (CHL).The other thing to consider is that, Avago (AVGO), which is another Apple supplier, recently raised guidance -- presumably, in anticipation of better-than-expected demand from the iPhone launch. So far, both the iPhone 5S and 5C have received better-than-expected reviews, relative to the initial downbeat response by the Street. What this means is that there is no clear answer as to what OminiVision's management might be thinking. However, from a pure valuation play, I do see a possible bounce in the stock from the 17% decline. And if Apple does contribute to a recovery in ASPs, which would then dispel fears of high-end device saturation, OminiVision stock can head back toward the $18 to $20 range. But let me remind you of the volatile nature of this company. I would suggest you look both ways before crossing that bridge.
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