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Now I will begin my formal comments which will focus on OmniVision’s ability to maintain our leadership role in extensive technologies. A rapidly grown market and we currently sell with our high performance imaging products and our focus in executing our strategies. For OmniVision we have had years of considerable success based on our exciting technical innovations. OmniVision’s heritage has been of an R&D company and our focus has always been on innovations that were placed at the forefront of image technology and solutions. I will now highlight a few of them. Our proprietary backside illumination technology or BSI continues to provide the industry leading imaging solution. We were earlier to commercialize this technology for mobile phones and we continue to improve upon our knowledge to maintain our competitive advantage.
From design to fabrication, our BSI architecture is a complicated technology that can be easily or quickly replicated by new entrants. This creates a significant barrier to (inaudible) particularly with respect to the high resolution sector business. We believe it will be challenging for many user platforms to catch up to BSI technology architecture that we currently design into our most advanced products.
While the market remains competitive among the incumbents, we do believe this proprietary technology (inaudible) to new competitors. With that said, we announced several exciting products within the last three months. In April we announced the OV-12825, a 20 megapixel image sensor for advanced mobile applications. This sensor is based on our Omni BSI pixel architecture.
We also introduced our most advanced 80 megapixel image sensor to date; the OV 8830. And a few weeks ago we announced the OV5690, the best in class eight megapixel sensor. Most of these products use our second generation Omni BSI-2 architecture. As planned, we expect to begin shipping the OV-8830 in volume in the second half of the calendar year 2011. The OV-5690 is scheduled to begin mass production later this calendar year.
In addition to these announcements we have multiple BSI and BSI-2 sensors in the design stage for a broad range of the market saturation as is our (inaudible). We will announce these products when we believe the devices can be produced reliably.
Our camera2 technology is another area where we believe we can extend on market leadership while increasing the dollar content that we sell into teach consumer device.
Historically sensor and (inaudible) have been separate endeavors and these components come together at the nodule of (inaudible). With our camera2 technology we’re able to design our sensors in a complete dense element as an incomplete unit that creates a referral goal image sensor device.
Operationally our camera2 technology delivers many benefits to us. As we see an increase in customer demand for our camera2 products we can streamline the production process by consolidating the supply chain, further expanding capacity and reduce the cost to lead customers in.
Our goal remains to improve sensor performance and increase customer acceptance of our camera2 products. Over the years we closed more than 800 patents and patent application to strengthen our strategy in image sensor development.
In March of this year we were pleased to nearly double the size of our single space image center patent portfolio. That was accomplished with the purchase of approximately 900 patents and applications from Eastman Kodak. This unique opportunity establishes OmniVision with the most comprehensive image center IP position in the market. This supports our ability to innovate.
Turning to the markets we serve, I’d like to highlight our key focus on our working relationship with our customers and then discuss gross projections as well as our achievement during the quarter to address this opportunity. For the specific markets my comments will cover our three key markets, mobile phones, notebooks and the rapidly evolving entertainment market. I will also comment on emerging markets where I believe we have significant opportunity over the next several years.
Our objective is to serve our customers needs to meet today’s consumers’ expectations for more and more novelty functions and technological advanced devices. So ideally our focus is a collaborated relationship with our customers. This relationship allows us to work hand in hand sharing ideas with one another from product concept inception to product design and production and finally delivering of products to customers. We work closely with our customers at every stage of this product cycle.
Now let me discuss the specific markets. First, the mobile phone market remains one of our key markets. The smart phone is the fastest growing segment within this market and the content opportunities continues to increase. Phone market research forecasts smart phone shipments to increase in 2011 by 49% when compared with 2010. The smart phone is our number one priority given the size of the market. Our platforms raw competing power and its premium device status lends itself well to the incorporation of the high resolution, high performance image sensors. We believe we have a major share of the smart phone market because of our ability to deliver to this product category.
Meanwhile our content opportunity continues to increase. Today consumers increasingly expect smart phones to have two cameras. The main camera for digital still image capture and the secondary capture facing the user for video conferences. The revolution of the main camera is also increasing. In 2010 the predominating resolution was 5 megapixel. In 2011 we believe the 80 megapixel will become the standard.
Next is a noble market which includes webcams. We continue to see stable demands for our targeted global and PC markets which are expanding beyond the traditional desktop option. Now there are touch screen monitors and the fully integrated all in one PC to name a few of the changes in this market.
The level of innovation is exciting and entails a range of sensors with varying resolution including some of our latest 720p HD options. We believe there is increasing opportunity in this market with the event of video conferencing needs. Some of the leading providers are publishing more video conferencing standards. And our high performance products are poised to take advantage of these things.
Now let me touch on the entertainment market. This is a rapidly evolving category. It is driven by new product introductions and the customers’ demand for the exceptional performance in our component business.
In Q4 entertainment was 11% of revenue. With this category we include the portable multimedia players, TV applications as well as tablets and the interactive gaming systems. The Tablet, which we also include in entertainment, saw numerous product introductions earlier this year. A variety of our products are shipping into this segment including our high definition video sensor, the OV9726.
Finally I want to briefly comment on our automotive business. We expect automotive to become a meaningful contributor to revenue over the next several years. We have participated in this market for some time and we have a number of design wins in luxury brand cars. In Q4 we won additional designs for image sensors in the Korean and Japanese automotive market with initial shipments expecting in 2013.
As many of you may know, the US Department of Transportation is proposing safety measures for rear view visibility in cars. When this proposal becomes law, we believe we will see sales opportunities in the broader mainstream car market.
I will now turn to a comment on our strategies as a key to our success. Our financial results for FQ4 and in the full fiscal year are testimony to our ability to follow through with our strategies and plans.
First I would like to make a few comments on the earthquake in Japan and its impact on OmniVision. Let me say that the disaster of Santiga island of Japan were tragic on so many levels. The loss of lives and homes of the Japanese people is a sadness still around the world. OmniVision does have a sales occupancy in Japan and we are pleased to say that our employees there are all safe.
Looking strictly at the potential economic impact on OmniVision operations, I can say that we have experienced no near term effects on our supply chain. OmniVision is fortunate to have its manufacturing operations in Taiwan and China, however, like so many other companies we continue to monitor the situation for disruptions that may affect the (inaudible) in the market place over time. I’m a firm believer that in order to have a successful year like we had in fiscal 2011 we must focus on executing and implementing our stated strategies and plans accordingly. A successful execution requires seamless team work from our employees and between our employees and our supply chain vendors and other partners. On that note, I would like to take this moment to recognize our employees around the world. Now expertise and above all the focus in collaborating with one another globally has enabled OmniVision to maintain its position in the forefront of advanced digital imaging innovation and a well managed operation world wide.
With the recent addition of Hasan to our senior staff, I’m also pleased with the focus on our executive management team. For OmniVision it has to be a year of dynamic market changes. While this created uncertainties we remain focused in executing our plans and schedules with our supply chain vendors and other partners. To illustrate, with the announcement of our initial BSI process in 2008 we are viewed as a highly effective supply chain. Since then we’ve collaborated with core functional team to prepare for the ramp of BSI-2 sensor introduction later this year. This launch will deliver a higher performance center to compete in the marketplace. This also represents our first product migration to the (inaudible) manufacturing process which adds to our overall sense of production capacity.
Before I turn the call over to Ray, I would like to remind investors of the manufactures contributing to OmniVision’s success over the last few years. Specifically we have a leadership position in the advanced image sensor technology that helps drive all our target markets. We have a diverse customer base comprised of the right customers. Our addressable market is rapidly expanding. We also have a long term strategic supply chain relationship ready as we expand in 2011 with our move to BSI-2. All of these factors along with the seamless execution enable us to deliver the financial performance that we seek and that our stockholders expect.
With that I will turn the call over to Ray who will provide and update on the quarter’s sales activity, Ray-
Ray Cisneros
Thank you Shaw. We are extremely pleased to report revenues on the high end of our guidance that was backed by a strong business mix. We shipped solid numbers into the smart phone and Notebook markets as well as to the growing entertainment market that was driven by tablet devices. Our 5 megapixel product line continued its growth path and our HD sensors are ramping up to another level of volume fueled by its global (inaudible) in Notebook computers and entertainment devices. Customers in all regions continue to release new products based on our Omni BSI technology. Continuing to demonstrate the benefits and values our BSI products bring to the markets.
Our new Omni BSI-2 technology for our new 8 megapixel sensor is being driven by demand from key customers primarily in the smart phone market at the onset of the product launch.
In our FQ4 we shipped 169 million units as compared to 194 million in our prior quarter. The average selling price in our FQ4 was $1.53 as compared to $1.37 in the prior quarter. As in the previous quarter, the upward ASP trend is due to a shift in product mix to higher resolution sensors fueled by our industry leading BSI sensors.
In Q4 unit sales of sensors two megapixel and above represented approximately 37% of total shipments as compared to 33% in the prior fiscal quarter. In this category our BSI based five megapixel sensor product lines remained strong and branched out to higher volume in the quarter inch five megapixel category. Likewise our two megapixel category remains strong and our eight megapixel products are transitioning from a first generation OmniBSI to our second DOV8820 as well as to our new eight megapixel OB8830 based on OmniBSI-2. OV8820 will ship in volume this first fiscal quarter and 8830 will begin initial volumes.
Unit sales of 1.3 megapixel sensors increases significantly to approximately 18% of total shipments in Q4 as compared to 11% in the prior quarter. In this category we include our industry leading BSI based 720p HD sensor, OV9726 as well as other HD sensors based on traditional SSI technology.
The OV9726 shipped in significantly higher volumes into various notebook and entertainment devices reflecting the requirement of consumer products to employ HD video format. The upward trend will continue and will migrate to a wealth of more markets and applications.
Finally unit sales of sensors that were VGA and below represented approximately 45% of total shipments in FQ4 as compared to 56% of unit shipments in our prior quarter. This decline was attributed to strategic targeting of markets and applications. Our high performance VGA sensors with a specialized large 3 by 3 micron pixel continued to ship in significant volumes as the leading choice for video conference camera in a premier smart phone product. The same type of VGA sensor ships to best in class notebook models. Mainstream VGA sensor products also continue to ship into the entry level feature handset category all though at lower volumes then previously shipped on a quarterly basis.
In terms of product markets our mobile phone sales represented approximately 65% of revenues in FQ4 as compared to 72% in our prior quarter. This decline was attributed to the customer seasonality softness after the holiday period. Our sales of sensors into the notebook and webcam segment were approximately 15% of sales compared to 10% reported for our prior quarter. This was a strong upward swing on an absolute dollar basis as well as on a proportional business mix in light of the mobile phone seasonality effect.
Our entertainment category represented 11% of sales as compared to 10% last quarter. We anticipate this category to continue to climb upwards as it represents the extremely high growth of table market segment.
The balance of our sales backed into our other market categories mainly in security, DSEDVC and automotive. Although on a relative scale the automotive segment is still small on a quarter-on-quarter dollar basis we were pleased to see a strong increase this quarter.
Our mobile phone revenue continues to be driven by the smart phone market. This trend will not change anytime soon as competing operating systems continue to fuel the overall growth of smart phone products. Our industry leading 1/3 inch 5 megapixel BSI product continues to ship as the highest run rate to various smart phone OEM. In addition we saw growth in our ¼ inch 5 megapixel BSI product lines also shipping through smart phone products. This trend was predominantly seen in the Asian market and represents a movement to a mid-level cost (inaudible) for smart phone products, bringing in alternative solutions for better consumer value.
Our 8-megapixel BSI sensor also continues to ship to smart phone customers while some key customers began to transition to our latest OmniBSI 8-megapixel sensor, the OV8820. The OV8820 offers advanced features and enhanced performance over its predecessor. This product will continue to ramp up to higher volumes as more customers adapt it.
In addition we continue to set the stage and prepare for mass production of our 8-megapixel based on our latest BSI technology, OmniBSI-2. This product, the OV8830 is also targeted to premier brand name smart phone OEM and is scheduled to ramp in the second half of calendar 2011.
In the notebook and web cam segment we saw a strong resurgence in growth on absolute dollar terms in this market. This growth was driven by a surge in sales of our OmniBSI based HD 720p product, the OV9726. It ramped to various brand name Notebook OEMs in all geographic regions putting OmniVision in the leadership position. The drive to use a 16 by 9 video HD format is prevalent and will fuel growth from our brand line up of HD sensors.
Also shipping to our Notebook customers are a variety of specialized VGA products. As previously mentioned, our best in class 3 by 3 micron pixel VGA products were shipped to customers seeking to use the best combination of image performance and costs. Similarly even an OmniBSI based VGA product shipped into the Notebook market were the smallest form factor camera without a compromise on image quality with desire.
In our entertainment market we covered a tablet segment. In this category we continued to pick up design wins in all geographic regions and our customers have adopted anywhere from an HD sensor up to a 5 or 8-megapixel resolution sensor. We believe the tablet market will segment into various levels of performance and feature set offerings which in turn will drive a broad range of image capture solutions from us. Our going forward outlook in the tablet space is strong from all regions at various resolutions and will continue to add material growth to our overall business.
In the gaming segment of the entertainment category we have a solid position in the marketplace today and within the next several months we will begin shipping in mass production for a significant design win previously secured.
The DSC market ship study 5-megapixel products in our security business was very stable. In other segments we continued to see stead increase in the automotive market with a highly specialized VGA digital product seeing strong growth. These products are used in novel 360 degree imaging solutions for brand name OEM and are driving volume growth. As this particular application requires multiple cameras per individual car. Additionally our latest HD wide dynamic range digital chip in our newly released analog VGA product continues to pick up design wins with premiered global brand names. These are significant results coming back to the long investment cycle required in this market.
In summary we remain confident in our ability to continue gaining market share, key customers and expand our regional coverage. We anticipate continued growth due to our product innovation and technology leadership.
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