OmniVision Technologies, Inc.’s (OVTI) earnings for the third quarter of fiscal 2010 (ending January 2010) beat the Zacks Consensus Estimate by 2 cents. Shares were up more than 1.5% in response.
Total Revenue
Revenue of $156.9 million was down 14.4% sequentially and up 96.1% year over year. Revenue was within management’s guidance range of $145-160 million (down 20.1%-12.7% sequentially). The sequential decline was due to seasonality in the handsets business, as both North America and Europe witnessed seasonal declines, while Asia was more or less stable. The year-over-year increase was driven by strength across all end markets and the result of more favorable comps, as the third quarter of fiscal 2009 was severely impacted by the recession.
Total unit sales were down 10.3% sequentially to 130 million, while the blended ASP fell 4.5% to $1.21. The 2 megapixel and higher resolution sensors comprised around 25% of total units shipped, up from 20% in the second quarter. However, VGA and below remained strong with a 70% revenue share. The 1.3 megapixel category fell from 10% to 5%, the main reason for the ASP decline.
Revenue by End Market
The camera phone, notebook and other emerging products (security, auto, video game consoles, toys, medical, etc) generated 60%, 25% and 15% of total revenue, respectively. The notebook market was the only one that saw a sequential increase (up 7.0%). Camera phones and other emerging markets declined 14.4% and 35.8%, respectively. The camera phone, notebook and other emerging product markets were up 68.0%, 145.1% and 194.1%, respectively, from the year-ago quarter.
The year-over-year increase in all segments was driven by the company’s newer technologies and the large number of design wins indicates that this strength will continue. While lower-end VGA products were strong in the last quarter, the higher resolution sensors are picking up.
Pro forma gross margin (excluding stock based compensation) was 25.0%, up 72 basis points (bps) from the previous quarter’s 24.3%. The increase in gross margin was on account of lower inventory provisions, partially offset by a lower ASP and lower volumes.
The operating expenses of $30.7 million were higher than the previous quarter’s $29.7 million. The operating margin was 5.5%, down 273 bps sequentially from 8.2%. The increase was mainly driven by higher R&D expenses as a percentage of sales as new designs drove up mask costs in the last quarter. SG&A as a percentage of sales also increased slightly, although this was almost totally offset by the lower COGS.
Net Profit/Loss
Pro forma net income was $10.7 million, or a 6.8% net income margin, compared to $14.2 million, or 7.7% in the preceding quarter and loss of $9.6 million, or 11.9% of sales in the same quarter last year. Pro forma earnings per share came in at 20 cents, compared to a loss of 27 cents in the Oct quarter and a loss of 19 cents in the year-ago quarter.
Our pro forma estimate excludes deferred stock compensation and tax adjustments in the last quarter. Our pro forma calculations may differ from management’s presentation due to the inclusion/exclusion of some items that were not considered by management.
On a GAAP basis, the company recorded a net income of $4.9 million (9 cents per share), compared to income of $8.1 million (16 cents per share) in the previous quarter and loss of $18.2 million (36 cents per share) in the year-ago quarter.
Balance Sheet
Inventories increased 19.1% to $109.8 million, yielding annualized inventory turns of 4.3X (compared to 6.0X in the previous quarter). Management stated that turns of 4.0X to 5.0X was more reasonable, given the turns business and short lead times.
The company ended with cash and investments balance of $342.8 million, down $11.1 million from the end of the previous quarter. The lower cash balance was attributed to the investment in a higher level of inventories. OmniVision has $39.0 million in long-term debt and $90.9 million in long-term liabilities.
Guidance
Management’s guidance for the third quarter of fiscal 2010 is as follows—revenue in the range of $145-160 million (down 7.6% to up 2.0% sequentially). The consensus revenue estimate is $154.2 million, within the guided range. The lack-luster guidance is in-line with normal seasonal patterns. Management expects strength thereafter, driven by the increasing adoption of the company’s BSI technology.
Non-GAAP net earnings (excluding stock based compensation and related tax effects) are expected to be 11 cents to 21 cents per share. The Zacks Consensus estimate is currently pegged at 5 cents per share.
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