Second half of Barron's article on GoPro.
A few years back, Apple accounted for 45% of OmniVision sales, Gill says. But that began to fade when Apple dropped OmnVision sensors, starting with the iPhone 4S in 2011. The stock is since down 40%. The 4S incorporated a new image sensor from Sony (SNE), which quickly created its own smartphone component business. Apple has used Sony ever since, though it still buys OmniVision's lower-end sensors for iPads.
The good news for OmniVision is that Apple no longer controls its destiny. "The Apple question has been de-risked for OmniVision," Gills says. No one, Gill included, is expecting Apple to use OmniVision's image sensor in the iPhone 6 when it comes out this fall. Any surprise would create huge upside for the stock.
More likely, OmniVision's future is tied up in the limitless desire to document our lives. Some 70% of OmniVision sales are currently for smartphone sensors. Most of the Apple business has now been replaced by Chinese smartphones, but a wave of GoPro-like cameras would surely create new opportunity for OmniVision. (The latest GoPro model, it's worth noting, uses a Sony image sensor.)
Investors seem in the dark on that front. As GoPro shares have surged in the past two weeks, OmniVision is flat. The stock closed the week at $22.
LONG-TERM, OMNIVISION'S biggest opportunity could be from the automotive market, a booming area for tech firms, as my colleague Tiernan Ray wrote last week. Starting in 2018, federal regulators have required that all new cars be equipped with rear-view backup cameras. That could be just the start.
In higher-end cars, image sensors are increasingly being used for safety features like lane departure monitoring. And Gill says that car makers will eventually replace side mirrors with cameras, reducing weight and wind drag.
The chip industry surely sees the opportunity, which could make OmniVision a takeout play in the coming years. Last month, ON Semiconductor (ONNN) bought Aptina Imaging for $400 million in cash. Aptina is the leading maker of image sensors for car companies, with OmniVision in second place, Gill says.
Gill, one of the few OmniVision bulls on Wall Street, has a Buy rating and $27 price target on the stock.
For now, the market is braced for the worst. Analysts expect OmniVision sales to fall 4% this year to $1.39 billion. Earnings could tumble 29%, in what amounts to a reset year. With Apple finally in the rear-view mirror, the numbers should start to improve.
OmniVision has a market value of $1.2 billion, but $450 million of that is in cash. Subtract that out and the company trades at 8.7 times this year's earnings.
In the world of hot technology, valuations tend to get forgotten. OmniVision won't be branding its own adventure videos, but it could very well power the devices that make them.
Investors should consider that vantage point.
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