Omnivision F4Q2008 Earnings Call Transcript

Seeking Alpha: Omnivision presents rather weak results of the last quarter and tells few interesting bits on the state of its technlogy and business.

Shaw Hong, CEO:

"We were honored as one of the 500 fastest growing companies in the United States, and more importantly, we are one of the only 10 companies in the entire United States to be on this list for seven consecutive years.<...>

One of our latest architectures, OmniPixel3-HS or high sensitivity has increased our pixel sensitivity deep over our competitors and ensures what we can do to distinguish our products from a technology standpoint."

Ray Cisneros, VP Sales:

"Shipments of our 3-megapixel sensors have already begun in small volumes and we expect these products will ramp higher through the October and January quarters. We have secured an impressive array of 3 megapixel design wins over the last several months that we believe will result in a relative product mix shifting more towards higher resolutions. In the fourth quarter, just over 60% of our revenues came from mobile phones and just under 40% from emerging products. As for the unit mix in the quarter, VGA and below was just over 65%, 1.3 megapixel was just below 15% and 2 megapixel and above was just below 20%."

Bruce Weyer, VP Marketing:

"Over the past month, we have been demonstrating our initial products – an 8-megapixel sensor based on our 1.4-micron OmniBSI architecture to key customers and partners. We plan to begin sampling this product before the end of June, which should enable our customers to introduce products in the marketplace in 2009.

Going forward, we will also apply this groundbreaking technology to larger pixel sizes, 1.75 micron and above, bringing the improvements to our entire product line."

Peter V. Leigh, CFO:

"Gross margins of the fourth quarter were 27.2% compared to 27.1% last quarter. Excluding stock-based compensation expense of $697,000 included in cost of goods sold, gross margin was 27.7%, up slightly from the 27.5% we reported in the third quarter.

Excluding stock-based compensation expense, R&D in the quarter was $18.9 million compared to $16.5 million in the prior quarter." <...>

"The 5-megapixel solution is currently being evaluated by key customers – I would say that the way it’s really driven is by the 1.75 OmniPixel3-HS. <...> Obviously, it is going to take a little bit of time to develop the actual design sockets engagement that could generate some revenue."

Yair Reiner – Oppenheimer:

"A quick question on the BSI technology you spoke about earlier. Can you give us a sense of the cost relative to FSI and whether this is going to be used exclusively with the high-end 8 megapixel or is it just technology that over time you want to also migrate down to five, three, two, and maybe even VGA?"

Bruce Weyer:

"The BSI technology is first being deployed at 1.4 micron and that technology node is an area where due to the size of the wavelength of light being 550 nanometers, to get that technology into 1.4 pixel technology, even competitors using front light illumination are going to have to go to a more aggressive technique to allow their products to actually absorb that light. And even though they go to aggressive techniques we believe the performance of their silicon will be much worse than BSI. So, the comparative price points should be very similar. The real benefit of the BSI technology is that whatever node we put the technology on we’ll get better performance at that technology node. So, we believe, as the market is now looking at higher resolutions which will require the shrink to 1.4 micron and beyond or those customers that are getting off the resolution path and getting into the higher image quality pack that this technology barely squarely puts us in a leadership position to deliver image quality leadership at all those points and also to deliver higher resolutions."

Yair Reiner – Oppenheimer:

"When do you expect to get the first feedback from some of your customers on the samples?"

Bruce Weyer:

"We mentioned the fact that we’ve been demonstrating with an 8-megapixel product for the past month. We’ve actually been engaged with our customers for the last 6 months with earlier development for the technology and all the customers we engage with are very excited about the technology. So we’ll need to sample them – the 8-megapixel products – next month and move forward from there. 8-megapixel is an important note for them for their planning for 2009. We see a lot of interest in the product."

Hans Mosesmann – Raymond James:

"What are the technical barriers for the competition to do this? What kind of IP is involved here or what kind of a timeline do you have versus the competition to come out with something like this – I am assuming that they are working on this as well."

Bruce Weyer:

"Our assumption as well will be that the competition is working on BSI. This technology has been around for about 20 years, but it has only been deployed on very large pixels for military and aerospace type applications in a few [cities base]. The real revolution here is the fact that we’ve dramatically shrunk the technology down to 1.4 micron and beyond and that we’re planning on making it in hundreds of millions of units, and to mass produce that takes a lot of wherewithal and architectural expertise around that pixel to do that with great color reproduction and very low noise. We’ve been working on this technology for over 2 years with TSMC very closely and there has been a joint effort by us, and we think that has put us in a good leadership position versus the competition. There are a couple of competitors that talked a little bit about development of BSI. One competitor talked about demonstrating it earlier this year and the only demonstration was in black and white, which is much more common technology than trying to put it into color. So, we think that we’ve got a good leadership position in that we can leverage that into product leadership over the next 1 to 2 years."

Tristan Gerra - Robert W. Baird & Co., Inc.:

"Okay, and then the R&D on the backside illumination technology, is that all internal or is that the result of research cost agreements with the TSMC in terms of spending?"

Peter V. Leigh:

"There are no cross agreements. If what you mean – are there any contracts by which we fund any portion of that R&D – the answer is no. We cover our expenses and they cover their own."