OmniVision’s (OVTI) fourth quarter results exceeded the consensus on both the top and bottom lines. Cell phone and notebook inventories are lean and demand is looking up.

However, demand for low-end products has the potential to outpace demand for high-end products, with a corresponding negative impact on the gross margin. OmniVision is an OEM of CMOS image sensors and support circuitry used within handsets and applications in other mass markets.

Continued innovation has helped OVTI secure a leading market position

OmniVision is one of the largest suppliers of CMOS sensors for multiple end markets, with a 30% share of the total image sensor market. The company has consistently delivered new, technologically advanced products.

The OmniPixel platform has been expanded to include a range of different array-sized products from VGA to the newest 5.17 megapixel camera chip. Products with greater pixel densities generate higher ASPs, higher revenue and better margins for OVTI. These higher-array chips have been challenging the incumbent CCD technology used in high-end still cameras, thus driving market share gains.

The recently introduced CameraCube module is of strategic importance. The CameraCube integrates the functionalities of an image sensor, embedded image processor and wafer level optics in one compact small-footprint package. The surface mountable CameraCube devices can be directly soldered to the PCB, and no additional socket or insertion is required. The high functionality, small size, simplified supply chain and resultant decline in BOM costs make it the ideal solution for the latest generation ultra slim handset market.

Additionally, given its thermal tolerance levels (up to 260 C), the product is expected to have broader application in other areas, including notebooks, automotive electronics, surveillance and medical. The new CameraCube devices, which include the OVM6680 (400 x 400 SGA) and OVM7690 (VGA), are immediately available in volume production.

Management reported first revenue from the CameraCube product line in Q4. Both large OEMs and mass markets in Asia are showing increasing interest in the product line, according to management.

In 2008, management introduced back side illumination (BSI) technology, which has several architectural advantages. Image sensors today use front side illumination (FSI), which means that the side used to capture light is shared by other metal circuits required for the operation of the chip. This reduces the available area for capturing light. With pixel densities increasing every day, pixel sizes, are of necessity, shrinking. This further reduces the available area.

Management stated that BSI has the potential to double the photosensitive area, with corresponding improvements to image quality and sensitivity in low light conditions. It also enables superior color reproduction and lowers noise. The result is sharper images across broader lighting conditions and better color quality. The better space utilization enables shrinkage in the size of the camera module, facilitating the manufacture of sleeker devices.

Management stated that all the tier 1 cell phone manufacturers have expressed interest in the product. The company has introduced the first 5 and 8 megapixel products based on BSI technology. Management stated that despite the recession, the company continued to see a growing number of design wins for its 1.4 and 1.75 megapixel BSI products. The first 8 megapixel BSI solution will soon be shipping to a tier-1 OEM for a digital video camcorder.

It is expected that many of the company’s customers will gradually shift to BSI solutions. The margin impact is yet uncertain, since the product is very early in its lifecycle. However, we do expect margin enhancement as the manufacturing process matures.

The first two-chip TrueFocus product incorporating the Wavefront coding technology was launched in the first quarter of fiscal 2008, and management has announced several design wins. This technology increases the depth of the image, enabling correct image focus from 20 cm to infinity. Wavefront increases the functionality of the handset and raises the dollar content per phone.

The company recently introduced the OV3640, a ¼-inch single-chip 3 megapixel product based on its Truefocus technology. The product is currently in volume production. Management also described a single chip integrating DSP functionality with Wavefront coding, and stated that the chip is currently under development. In the last quarter, the company introduced a 5 megapixel chip incorporating both TrueFocus and BSI technologies targeted at next generation cell phones.

The company has also introduced a 5 megapixel camerachip sensor, the OV5630, incorporating the new OmniPixel3-HS architecture that doubles the sensitivity of its 1.75 micron pixel, enabling superior image capture in low-light conditions. A slightly modified version, the OV5633 was also introduced, targeting the digital still camera and digital video markets.

The next generation OmniPixel chip, the OmniPixel2 is currently in volume production. The company has also started shipping the OV2640, which is the first 2-meg product incorporating auto-focus control on a single chip.

Sejuti Banerjea contributed to this post.
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