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Company: OmniVision (OVTI)
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  Few reasons to be bearish.

Robert W. Baird downgraded OmniVision Technologies Inc saying the maker of semiconductor image sensor devices should lose a near-entire share at a key tier-one mobile phone original equipment manufacturer starting from the second half of 2008. The brokerage said the China-based mobile phone market has further slowed down in July and August following initial weakness in the second quarter, hurting Omnivision's video graphics array (VGA) sensor demand. OmniVision's strength in ultra low-cost notebooks, where it has been performing well, is not expected to offset the mobile phone weakness given the low unit base, Baird said. Robert W. Baird analyst Tristan Gerra also notes that Micron’s (MU) Aptina unit is regaining share in both mobile phones and notebooks.

J.P. Morgan’s Paul Coster cut his rating on the stock The trouble: weakness in the handset business, to which the company sells its digital imaging sensors. “Subsets of the handset industry have slowed relative to expectations,” he writes. Coster also says that competition has increased, and that OVTI has cut back production. He anticipates “incremental pressure on margins.”

Coster says the China-based handset market has “slowed significant” since the beginning of the July quarter due to the recent earthquake and some government restrictions on domestic handset sales ahead of the Olympics. Seti, a Korea-based CMOS image sensor maker, recently cut its average selling price (ASP) for VGA-resolution CMOS image sensors to below US$1 (US$0.7-0.8), posing a potential threat to market leaders such as OmniVision, according to industry sources.

The sources indicated that Seti has been aggressive in its deployment in the China handset market, cutting its VGA-resolution CMOS image sensor ASPs sharply. With customer feedback being good, leading players such as OmniVision have been affected, as most VGA-resolution CMOS image sensors in the market are still quoted above US$1, at US$1.3-1.4.

The ties between Seti and Korean foundry Dongbu HiTek is a major reason to support such a price reduction, the sources said. Given that Dongbu's 8-inch wafer fabrication equipment has completely depreciated, the foundry is thus able to offer more competitive pricing to Seti, they explained. In addition to the partnership with Dongbu, the sources added that Seti will partner with Hynix Semiconductor on CMOS image sensor deployment.

The previous quarter was terrible also. Omnivision Technologies (OVTI), which makes camera chips for cell phones, this afternoon reported sales and profit for its fourth fiscal quarter ending April 30 that missed analysts’ estimates on both counts. Sales fell 25% to $169 million from the immediately prior quarter, while rising from $119 million a year earlier, and were well below analysts’ $176 million estimate, while profit per share, excluding some costs, came in at 27 cents, trailing an average estimate of 32 cents.

Chief executive Shaw Hong sought to put the best face on the fall in sales, stating that “”Although revenues for our fourth quarter were somewhat weaker during our seasonally slow period of the year than we had expected, we finished off a stellar year in which our revenues grew by more than 50%.” He vowed to spend the new fiscal year focusing “on developing new technology, strong marketing, delivery of volume production and the highest quality of service to our customers.”

Well, not from the looks of its forecast. The company says it expects to have sales in the first fiscal quarter of $170 million to $190 million, with the average estimate being exactly $190 million. Profit could also be light, with EPS expected in a range of 27 cents to 40 cents, the midpoint of which range would be below the 36-cent average estimate of analysts.

Current estimates fall far short of earlier estimates. OmniVision Technologies Inc: Consensus EPS Trend

 Consensus EPS Trend	Qtr(7/08) 	Qtr(10/08) 	FY(4/09) 	FY(4/10)

Current Estimate 0.16 0.24 0.80 0.86 7 Days Ago 0.16 0.24 0.80 0.86 30 Days Ago 0.19 0.28 0.96 0.99 60 Days Ago 0.20 0.30 0.99 0.97 90 Days Ago 0.23 0.32 1.09 1.03

I hope you did not mean only one reason, I could write a book.

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