What to Look for in OmniVision's Report

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"Twenty-four hours ago, man, I was hot! Now... I'm a cautionary tale."

That's Tom Cruise, straight out of Jerry Maguire. We investors in OmniVision Technologies (NAS: OVTI) can change out the "24 hours" bit for "52 weeks," and the mini-tirade rings just as true.

Shares of the camera-chip designer have plunged more than 50% over the last year, chiefly because Apple (NAS: AAPL) picked a Sony (NYS: SNE) chip over OmniVision when it designed the iPhone 4S. That's a lot like losing the No. 1 draft pick on the night before the draft.


Apple slapped OmniVision cameras into the new iPad, but the lower volume of that product line makes it less of a boost than the much larger iPhone opportunity. Not only does OmniVision get paid per camera chip and not as a percentage of gadget sales, but the iPhone sports a better, more expensive, and higher-margin chip. That's where OmniVision really wants to be.

But hey, it could be worse: OmniVision shares have bounced about 50% off their 52-week lows from when the iPhone pain was fresh. The company is gearing up for a fourth-quarter report on Thursday night. What should we expect this time?

Analysts don't like what they see. Earnings are expected to plunge 66% year over year to just $0.22 per share on 20% lower sales, or $206 million. That would be roughly in line with the last two quarters, and not far from the midpoint of management's own guidance.

The company is working off somewhat bloated inventories at the moment, while also introducing a plethora of brand new high-end camera sensors. In this earnings report, I want to hear something about the expected market for the new chips. Is OmniVision simply throwing new products against the wall to see what sticks, or does the company have smartphone and tablet design wins to go with them?

Keep a close eye on OmniVision's guidance this time. Big revenue targets could mean that the company is back to riding Apple's iPhone coattails again. Hey, Jerry Maguire did all right in the end, didn't he? Smartphones and tablets drive massive volumes of component sales, which is why investors are so excited about this exploding trillion-dollar revolution.

At the time this article was published Fool contributorAnders Bylundowns shares of and has created a written straddle on OmniVision, but he holds no other position in any of the companies mentioned. Check outAnders' holdings and bio, or follow him onTwitterandGoogle+. The Motley Fool owns shares of Apple.Motley Fool newsletter serviceshave recommended buying shares of Apple.Motley Fool newsletter serviceshave also recommended creating a bull call spread position in Apple. The Motley Fool has adisclosure policy.We Fools may not all hold the same opinion, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter servicesfree for 30 days.

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