Oppenheimer Bracing for Turbulence Ahead in OmniVision Technologies

In a note out this morning, analyst Martin Yang of Oppenheimer reiterated a Perform rating on shares of OmniVision Technologies

without providing a price target. Mr. Yang states: "OVTI reported better-than-expected F2Q15 revenues/EPS of $394M/$0.60, beating the Street's $378M/$0.51E and our $374M/$0.49E. F3Q15 guidance is below consensus. Management gave no update regarding HCM's proposed acquisition. Our caution toward a weak F2H15 deepens as smartphone products are negatively affected by margin headwind, high inventory in China, and OVTI's phasing out of Apple. Despite multiple near-term headwinds, OVTI progressed steadily in nonmobile high growth markets such as auto and security, which we believe now contribute a combined 10% of total revenues. We choose to stay sidelined due to near-term weakness and volatility from China. Reiterate Perform." KEY POINTS ■ Results: Total revenues declined 3% Q/Q and 1% Y/Y. OVTI shipped 246M units, down 1% Q/Q and up 4% Y/Y; ASP dropped 4% Y/Y to $1.60 due to competition. Gross margin stayed strong, up 30 bps Q/Q to 22%. Obsolete inventory had a net impact of $4.9M. Mobile phone sales were 68% of total. ■ Positives: CMOS sensors for auto market kept showing strong momentum y/y, now accounting for 6% of total sales. Security product also saw robust growth supported by transition from VGA to HD. OVTI's own stacked die CMOS line "PureCel-S" was launched in F2Q15 to compete on the high-end. ■ Negatives: a few headwinds will keep negatively impacting seasonally weaker F2H15: 1) shrinking revenues from Apple, 2) inventory issues in China due to 4G transition, and 3) margin headwinds due to new product launch. ■ Guidance and Model Changes: F3Q15 revenues/non-GAAP EPS are guided at $275-305M and $0.22-0.38. We lower our FY15 and FY16 revenues/EPS from $1,419M/$1.88 and $1,420/$1.45 to $1,359/$1.88 and $1,320/$1.12 based on more intensive competition and margin pressure. Mr.Yang will stay sidelined until multiple headwinds play out in F2H15, seeing increased volatility given OVTI's exposure to Chinese customers. He reiterated his near-term negative bias on the entire smartphone supply chain.