So what if I called the earnings release

So I called the earnings release.....Yea..Wow....Great....
But, the most important thing is can I repeat that call. It was a mixture of knowing the sentiment and knowing what to ignore. [ or maybe ignorant of what I was suppose to know] Anyways, coming from a left-brained analytical background, I usually want to know everything about a stock before I jump in.

What others' don't know
My approach has always been to figure out what other traders don't know about a stock or special situation. But the lesson here is that traders, at all levels of experience, were watching what they were suppose to be watching. They were following the rules of prudent day/swing trading like they were suppose to.

Don't get me wrong. I'm not advocating that you don't use safe guidelines or rules. But there are different levels of how deeply a trader gets engaged in data and facts. Each level has a self-interest and motivation. Each level has a standard set of best practices learned through experience and knowledge.

Invert the Process
I will paraphrase the adage made famous by Howard Marks, What do I know that other trader don't?
Invert the thinking process into the following. What knowledge do others have that they should be ignoring?

At a different level, what knowledge exists that other trader's are totally ignorant of?

Regardless of experience, the other half of the world that is right-brained and guided by intuition may be looking at something from a completely different point of view.

OmniVision action today

I think OmniVision (OVTI) is going to pop today, after Apple reports its quarterly earnings report.

I will write more after tonight's market close.

OmniVision OV5650 & OV297AA - $OVTI $AAPL confirmed on new iPad

It was confirmed on two teardown assessments sites that the camera used on the new iPad (iPad 3) is OmniVision's.

On the  www.chipworks.com site:

"....says that the 5 Mp back illuminated CMOS image sensor in the new iPad is the same, it is the Omnivision OV5650 (die markings OV290BF). Yet again, Apple is recycling as many devices as they can to produce this new iPad."

"The secondary CMOS image sensor inside the new iPad is also a design win for Omnivision. This camera, the OV297AA, is a 0.3 Mp, 3.0 µm pixel pitch CMOS image sensor. Chipworks has seen this on the iPod Nano and the iPad 2."

On the iSuppli teardown site:

"The new iPad camera module design and cost is the same as in the iPhone 4 camera module. The two camera modules cost a combined $12.35, representing 3.4 percent of the BOM."

OmniVision and OV8830

From the latest 10Q from OmniVision (OVTI)

In February 2011, we also introduced the OV8830, our most advanced 8-megapixel image sensor to date, and the first to use our second generation OmniBSI-2 pixel architecture. Implementing the latest developments in BSI pixel technology, the OV8830 combines low power consumption, small die size and best-in-class pixel performance with advanced image processing features. This combination allows the OV8830 to support enhanced, fast frame rate image capture and 1080p or 720p HD video recording, making it highly suitable for feature rich smart phones. OmniBSI-2 technology is our first pixel architecture built on 300 mm wafers using a copper process with 65 nm design rules, which enables a number of improvements over OmniBSI technology’s performance, including improved pixel layout, better isolation, and reduced crosstalk.

It continues with the following:

We also experienced a recent and unanticipated extension in the product development cycle of our OV8830 product. This delayed the production ramp up of this new sensor. Towards the end of our second quarter of fiscal 2012, we started to ship this product in very limited quantities. 

I feel the OV8830 is a perfect match for the iPhone 5. It would set the tone for the next generation of better quality video in the next couple of product introductions from Apple (AAPL). The iPhone 5 is rumored to be released in September. Even if it is released at the end of the year, with a 5 to 6 month ramp-up, production of the 0V830 line could begin as soon as May.

It could even have been squeezed into the iPad 3 production, rumored due on March 7th.

OmniVision Notes

Feb 28th, 2012 Notes

OmniVision products are used in HTC Corp's (2498.TW) EVO and Motorola Mobility Holdings Inc's (MMI.N) Droid X reported strong third-quarter sales.

At least two brokerages raised their price targets on OmniVision's stock, saying the company was on track to recapture lost market share in the smartphone segment.

OmniVision's 8-mega pixel camera sensors should be a major revenue and earnings drivers, said Canaccord Genuity, which rates the stock "buy."

NeedHam reports that OmniVision has lost the iPad 3 slot.

The following is an alphabetical listing of Apple suppliers in 2011. These suppliers represent 97 percent of Apple’s procurement expenditures for materials, manufacturing, and assembly of Apple’s products worldwide. OmniVision is not included as a supplier. This precludes their presents in the Apple products releasing this year. Maybe they will be in the 2012 list, just in time for the iPhone 5.

Why did OVTI emphasize the entertainment division?

First, let me crunch the financial numbers.
OmniVision (Nasdaq:OVTI) is a good value right now. It has been on a 60+ day run. After the 3rd quarter earnings came out Friday, the stock price close for the day at 17.13 yielding the following highlights:

• p/e ~ 10
• book value ~ 14.31
• p/b value ~ 1.20.
• Z-score ~3.67
• fair value price $39.04, a potential of 127% upwards swing [using 14.8 p/e and 1.5 bv]

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
In OmniVision's 2nd quarter 10Q filing it was mentioned that prior guidance was revised down when the company's key customers unexpectedly cutback their orders. This action reduced unit sales of the OmniBSI and OmniPixel3-HS based products and adversely affected their revenues for the 2nd quarter of fiscal 2012.

Apple (Nasdaq:AAPL) is suspected of being one of OmniVision's largest customers. They usually try to get two sources for their manufactured parts. For the iPhone-4/iPhone-4S CMOS image sensors they used Sony (NYSE:SNE) and Omnivision. The Apple  iPhone-4/iPhone-4S  uses the OmniVision's 8-megapixel image sensor based on the new OmniBSI™ technology. There is a rumor that OmniVision lost the deal with Apple on the  iPhone-4S . The iPhone-5 is also rumored to be using Sony and Samsung as CMOS image sensors vendors, replacing OmniVision.

In OmniVision's 2nd quarter 10Q filing I found another sentence which stated the following:

"We also experienced a recent and unanticipated extension in the product development cycle of our OV8830 product. This delayed the production ramp up of this new sensor. Towards the end of our second quarter of fiscal 2012, we started to ship this product in very limited quantities."

The OmniVision OV8830 CMOS Image Sensor  (CIS Technology) is based on their new stacked Back-sided Illumination OmniBSI-2 Technology.
Wait! Extension of product cycle?  I'll explain in the Hard Facts section....

Rumors, rumors, rumors
There is a rumor that OmniVision lost the CIS technology deal with Apple on the iPhone-4S. The iPad-3 is coming out in March and there is no OmniVision production ramp-up for that.

[Edit: I could be wrong. - Robert W. Baird & Co, said Apple's iPad could boost OmniVision revenue by 30 percent over the revenue from iPhone last year. ]

The iTV successor may be release soon and could possibly use OmniVision; However, there seems to be no production ramp-up for that either. The iPhone-5, which is to be released later, is a possibility and the new OmniBSI-2 Technology 4mm width would fit into the new slimmer design. However, that is all speculation. But in the short run, where could the decreasing revenues be generated?


This quarter's earnings
Ok, back to last night's 3rd quarter earnings conference call from OmniVision. Everybody was asking or trying to confirm who the large customer that cancelled their orders was. Everybody was trying to confirm if the rumor about Apple was true. I don't think that is the take-away from the call. When asked what division will increase the most in the near future, the answer was the "entertainment business".

Ray Cisneros, VP of Worldwide Sales explained the product mix as follows:

"In terms of product markets, our mobile phone sales represented approximately 52% of our revenues in the third quarter as compared to 60% in our prior quarter. Our entertainment segment represented 28% of sales as compared to 20% in the prior quarter. Our sales of sensors into the notebook and webcam segment were approximately 8% of sales as compared to 9% in our prior quarter."

Hard Facts
OmniVision has signed a deal with Nintendo (NTDOY.PK) on their new Wii successor, Wii U. It is to be released after March 31, 2012.
OmniVision started mass production of the 0V10630/OV10635 based on  OmniPixel3-HS technology for the auto industry.
OmniVision is in mass production of the best-in-class 720p HD video performance chip.
OmniVision is in a deal with ASUS Transformer Prime Tablet which uses the OV8830 OmniBSI-2 Technology and is considered the most advanced Tablet out in the market at this time.
OmniVision and Sony signed a deal for a Video Camera using the CameraCubeChip design.

Conclusion
OmniVision seems to have other deals which will lessen the risk of revenue declines if Apple changes its mind. It has a very broad range of products. I haven't even scratched the surface of all their competitive advantages.

I have no stake in OVTI.

OVTI is under appreciated

Watch OVTI today, its earnings are released after the market closes today.

I'll give you the results & more on the next blogger post.
More to come...