Usually, when I see a tech company with solid products and a bulletproof balance sheet getting its share price absolutely creamed, I salivate. That's often a ticket to huge returns. But in the case of OmniVision Technologies (Nasdaq: OVTI), I'm making an exception to that rule of thumb.
Revenue for the maker of digital camera chips fell 30% year over year to $164 million for the second quarter. Add in a $7.5 million goodwill impairment charge, and last year's $0.36 of earnings per share evaporated in a cloud of red ink -- $0.10 per share, to be exact. Great parlor trick, but it doesn't look good in an earnings report.
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Management urged analysts not to panic, because the balance sheet is still strong, with $283 million in liquid assets and only $38 million in debt. And while OmniVision's customers "are being conservative, people are watching their own channels and inventories," according to sales Vice President Ray Cisneros, and the company's top-of-the-line chips with all-digital autofocus seem to be gaining traction in the market.
That's important, because it's a nifty feature that other camera sensor makers apparently haven't quite figured out yet. Not Kodak (NYSE: EK), nor Micron Technology (NYSE: MU), or even Texas Instruments (NYSE: TXN). That's what we call a competitive advantage here at the Fool.
Of course, you can have all the technology advantages you want and still lose money if nobody is buying camera phones. If I ran Nokia (NYSE: NOK) or Motorola (NYSE: MOT) these days, I'd certainly slow down my production lines until the recession is over. Given that OmniVision still bought back $13 million of its own shares last quarter and has that solid cash balance to fall back on, it seems like the company can survive a couple of lean years.
The buyback sort of makes sense. OmniVision's stock hasn't been this affordable since 2002, in the wake of the dot-com bubble. But, that doesn't mean you should buy it right now. Management gave guidance for a loss next quarter on slower sales. Add in a recession affecting the entire food chain -- consumer, phone producer, chip maker -- and investors buying today could be in for a bumpy, drawn-out ride. Ideal buying opportunity, this is not. (Did I just channel Yoda?)
Copyright © 2008 Universal Press Syndicate.
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