CameraChips: Smile!

05/14/2004 12:00 am EST


Vahan Janjigian

Editor, Bottom Line's Money Masters Stock Report

The Forbes Growth Investor, edited by Vahan Janjigian , maintains a list of Top 50 recommended stocks. From these, it creates a core model portfolio of the top ten picks. The latest addition to the core list is OmniVision, a maker of the CameraChip.

‘With revenues of just under $250 million over the past four quarters, OmniVision Technologies (OVTI NASDAQ) is a rather small player in the semiconductor industry. It makes integrated high-performance image sensors and its success is due to one key chip. The CameraChip is used in a wide range of consumer and commercial image display devices including digital cameras, PDAs, video game consoles, surveillance equipment, and mobile phones. Its low-cost all-in-one design allows images to be displayed on both analog and digital equipment. It also enables clients to build smaller and more portable products that require less power than multi-chip counterparts.

"The significance of this product should not be dismissed. The CameraChip is an integral component in mobile camera phones, one of the most popular new electronic devices. Indeed, OVTI’s explosive growth in recent periods is primarily due to the rising demand for camera phones. To appreciate just how impressive OVTI’s recent growth has been, consider that as of the end of its last fiscal year (April 2003) the company had shipped 30 million CameraChips since its inception in 1995. But the company shipped more than 17 million units in the third quarter of 2004 alone. Thanks to strong demand, sales in the third quarter more than tripled from a year ago. Net income almost quadrupled.

"Of course, being a one-trick pony does pose significant risks. This company’s fortunes could be short lived if a competitor comes along with a superior technology. No doubt, OVTI’s rapid growth alone will attract competitors. Yet we believe OVTI enjoys certain advantages that others will find difficult to overcome. It has the early market lead, it has significant expertise, and it has a low-cost proprietary CMOS production method. With no debt and almost $200 million in cash, the balance sheet is strong and the company has the financial flexibility to enhance its chipsets to accommodate future consumer demand for higher-resolution images and increased popularity. This is evident in the recent introductions of the smallest image sensor to date and the first 2.0 megapixel sensor. The stock is a featured addition to our portfolio.

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