Wednesday, May 31, 2006


Aright, I should put this in writing, so I can brag about it (or be ridiculed) in a few months.

Over the past couple of years, I have been investing in and following the vicissitudes of a company called Omnivision Technologies (NASDAQ: OVTI) , which makes image sensors - camera chips - for a whole host of consumer products.

The company first came to my attention as it plummeted from a high of about $35 to a low of $9 in the span of a few months in the summer of 2004. This occurred as the company, due to an accounting error, was forced to restate earnings -- upward. One of the distributors of the company's products was not booking revenue correctly, which was causing a lag in the company's revenue reporting. The company was actually earning more money than it had reported. Yet, Wall Street, led by a number of sky-is-falling/something-here-smells reporters like Herb Greenberg, sold the stock into oblivion. When it sold for $9/share, the company had about $6/share in cash, no debt, and a business growing at a fantastic rate. Needless to say, it was a screaming buy.

Over the subsequent two years, the stock has been volatile, to say the least. After running up to $20 or so, it was shorted back down to $12, amidst ever more pessimistic reporting by Herb Greenberg and others. But then, about 8 months ago, the stock took off once again. Aided by the company's upbeat earnings, future guidance, and $100 million stock repurchase plan, the stock went on an extended tear, reaching as high as nearly $35 in early May. Over the last few weeks, the stock has cooled off, shedding nearly 20% of its market cap and hovering in the $25-30 range.

Ok. OVTI is reporting earnings in a couple of weeks, on June 15th. I predict that the company's earnings will modestly exceed estimates for the quarter just completed and that guidance for the current quarter will be well above average analyst estimates. Furthermore, the company will have very positive things to say about the roll-out of its sensors in the automobile and notebook PC markets, and about its potentially disruptive auto-focus technology (called Wavefront coding or Omnifocus).

Earnings and guidance will be terrific. The one downside risk factor I see is the general weakness of the overall market. If the market recovers or stabilizes, OVTI may never again see a share price south of $30.

Prediction: Absent a total market collapse, OVTI will be above $40 by the end of 2006. Kiddush will ensue.

(Prediction #2: If he runs, John McCain will be the next US President)


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