As film cameras slip quietly into obsolescence, MSN Money's John Markman finds that the big growth story in the digitial photography industry is not happening with manufacturers like Kodak (EK) or Canon (NYSE:CAJ), but rather with the technology behind the end product - particularly, the chip makers. Two companies that Markman believes can really ride this new digital tsunami are Micron Technology (NASDAQ:MU) and OmniVision (NASDAQ:OVTI).
Markman asserts that buying into the industry now is "like buying into the PC industry in the early 1990s, when Dell Computer was still a pup, and Intel and Microsoft were large but not gigantic." Here's an excerpt from Markman's article about why Micron and OmniVision are his two top picks:
OmniVision slid almost 30% in a week and a half in the middle of May... over that time its business prospects actually improved. OmniVision's main product is an image-sensing device called the CameraChip. The formal name for the baseline technology is "complementary metal oxide semiconductor," or CMOS... OmniVision sells these to a long list of customers, who put them in everything from low-cost plastic cell phones, video games and surveillance systems to chic titanium-body cameras...
The biggest impediment to OmniVision's growth is Micron, which is the industry's 800-pound gorilla with about 35% of the market... Micron a few years ago branched out into more profitable products such as image sensors. By the middle of next year, Micron will have four new fabrication plants making both image sensors and flash memory. As the mix tilts toward image sensors, Micron's gross margins will get a huge boost, as RAM chips bring margins into the mid-teens while image sensors garner upwards of 40%. Although an increase in product would appear on the surface to threaten the profitability of the industry, it is only expected to meet demand from all the cameras, mobile handsets, cars, video consoles and security devices that are creepily keeping an eye on us. Micron does not just make cheap sensors. It recently rolled out the world's smallest 8-megapixel image sensor, a very high-quality device that is expected to revolutionize the business due to its low cost.