OmniVision Technologies: Cash-Rich Apple Supplier Delivers

It has been quite a while since the last time I wrote anything about sensor maker OmniVision Technologies (NASDAQ:OVTI). The supplier to Apple (NASDAQ:AAPL) and other mobile manufacturers delivered terrific quarterly results this morning, which was the sixth straight quarter the company has easily beat earnings estimates. The company is worthy of another look at its investment case.

Company Overview:

OmniVision Technologies designs and manufacturers semiconductor image-sensor devices worldwide. The company primarily offers camera chip image sensors. Its products are found in mobile phones, notebooks, netbooks and webcams, security and surveillance, entertainment, digital still and video cameras, automotive and medical imaging systems.

Earnings Highlights:

The company reported the following results before trading on Friday

  • OmniVision posted earnings of 69 cents a share, a whopping 34 cents a share over consensus.
  • The company also reported revenues of $352mm, $25mm above expectations.
  • Earnings gains were driven by gross margins that rose 270 bps Y/Y in quarter to 19.6%.
  • Inventories were down 12.3% to $342.2 million, from $390.3 million in the previous quarter
  • Management also issued guidance calling for sales of $275M-$305M and EPS of $0.19-$0.35 next quarter, in line with a consensus of $284.3M and $0.22. Given how many mobile suppliers have lowered guidance this earnings season, this was welcomed by the market.

Valuation & Outlook:

One of the first things that stands out about OmniVision Technologies is its balance sheet. The company has over $200mm in net cash on the balance sheet. This equates to just under 25% of the company's overall market capitalization. Given the amount of activism in the tech space, I would not be surprised if OmniVision starts to hear calls to share some of this excess cash with shareholders via a dividend or enhanced share repurchase program.

The shares sell for just over book value, and OVTI sells for 12x forward earnings. This is a discount to market multiple (~15x) as well as to the five-year average for the company (13.7). The stock has five-year PEG of under 1 (.47). I would look for several upward revisions to earnings estimates next week by analysts as they digest these stellar results.

Disclosure: I am long OVTI. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.