My latest RealMoney column is up, on Omnivision (OVTI). You can get the full story at their site, but in summary:

OmniVision derives 70%-80% of sales are derived from the camera cell phone market. Recent trends in the handset market suggest there could be some bumps in the road ahead. Handsets have been selling like hotcakes, but recent cooling signs have emerged.

In a tougher handset market, I’d also expect a tougher pricing environment for OmniVision and its peers. Competitors in the market for CMOS image sensors include MagnaChip, Micron (MU - Annual Report) , Samsung, Sony (SNE - Annual Report) , ST Microelectronics (STM) and Toshiba. The company also faces competition from the makers of CCD chips, which have typically represented the higher-end products.

Still, I like the recent trend in OmniVision and the potential for expanded interest among value investors in coming months. With appropriate protection (such as tight trading stops), it might be worth taking a risk in the name.

Alternatively, the April $17.50 puts are $0.80 as I write this. Writing the puts would offer either a 4.5% five-week yield on the money risked, or a more attractive entry point of $16.70 should the options be exercised.

Disclosure: At time of publication, William Trent has no financial position in the companies mentioned.

ITP.net {News: Global handset sales figures up 14% year-on-year}

Global mobile handset sales reached 257.4 million units in 1Q07, representing a 14% annual increase according to results published by business analyst firm Gartner.

According to the report, market share was as follows:

• Nokia (NOK) 35.7%
• Motorola (MOT - Annual Report) 18.5%
• Samsung 12.5%
• Sony Ericsson (SNE - Annual Report) (ERICY) 8.4%
• LG 6.2%

It has been a while since we looked into handset market share. It is always worth keeping an eye on.

iSuppli raises 2007 LCD TV panel shipment forecast | Reuters.com

Research firm iSuppli Corp. said on Wednesday it had raised its shipment forecast on panels for LCD televisions by 3 percent to 75.2 million units globally this year, as falling prices boosted fresh demand. The unit shipment would be up 42.7 percent from 52.7 million liquid crystal display (LCD) panels shipped last year, iSuppli said in a statement. That was also higher than 72.9 million units it forecast in the fourth quarter of 2006.The price of a 32-inch LCD-TV panel is expected to fall 17 percent in the first half of 2007 from the fourth quarter of 2006, iSuppli said.

The sales forecast is probably as good as any, but the key question for investors is whether the supply growth will be in line with demand growth. Too much supply means lower pricing even with strong demand. The fact that prices are expected to fall 17% in the first half (typically tech prices decline about 20% per year) suggests the supply/demand balance remains out of whack.

Speaking of semiconductor overcapacity, it seems at least one major consumer electronics firm is starting to get the picture. Sony to Reduce Semiconductor Investments: Financial News - Yahoo! Finance

Sony Corp. (SNE - Annual Report) plans to cut capital expenditures at its semiconductor operations by a “large amount,” a company executive said Tuesday, weeks after the electronics giant reported a drop in profits for the latest quarter.The Tokyo-based company’s capital expenditures in its semiconductor business will be much less than the 460 billion yen (US$3.79 billion; euro2.93 billion) it spent over the last three fiscal years, said Executive Deputy President Yutaka Nakagawa, who heads the company’s semiconductor and component device business.

Sony also indicated that their next generation chips (when production shifts to 45 nanometer geometries) may be produced at foundries rather than company-owned fabs. Given that the foundries have space to fill, doing so would make tons of sense.

Disclosure: William Trent has a long position in SMH.

Paul Kedrosky’s Infectious Greed reports: LCD Panel Prices Continue Freefall

Slow seasonal sales and oversupply in the first quarter of 2007 will push prices to less than the $300 level for 32-inch LCD TV panels in March, which is below the manufacturing cost level, iSuppli believes. Many suppliers are continuing to cut their utilization rates at fabs that are producing these types of panels in order to stave off any further rapid price declines. Prices for 37-inch television panels are experiencing a stronger rate of reduction than the 40/42-inch television panels. Suppliers are cutting 37-inch pricing in a bid to boost demand. This may bring the 37-inch price closer to that of the 32-inch panels in the coming months….While iSuppli expects mainstream monitor and notebook panel prices to fall in the first quarter of 2007, pricing should stabilize by the end of the second quarter. This is because panel suppliers appear to be more cautious about capacity expansions and cutting utilization rates to control inventories. Most buyers have very low inventories, so any rise in demand may lead to increased panel purchases.

Where have we heard that before? Perhaps we are thinking of June 28, 2006 when DigiTimes reported:

Nevertheless, the ASP for 37-inch TV panels will stabilize once it reaches US$520-550 at the end of July or beginning of the August, said the sources.

Or possibly it was June 15:

Novatek indicated that present inventory levels are at 40-50 days, which is a reasonable level for the company. Although admitting the inventory value is higher than the first quarter’s NT$3 billion, Novatek anticipates that once panel demand resumes, inventory concerns will ease immediately. Source: DigiTimes.

As for iSupply’s estimates, on June 1 and June 9 they said:

Swelling inventories and disappointing demand from all applications caused prices for large-size panels to plunge in the first half of 2006, with no relief expected until the second half, according to iSuppli.

Of course, the second half came and went, with no relief found and still none on the horizon. Nonetheless, when we dared predict the industry was facing a supply crisis we got comments like:

LCD demand will have its ups and downs. The general trend though is up. There was this glass oversupply “Glut” last year and it did not stop the panel makers from expansion. Also China has not be tapped yet. Near term demand might be flat to slightly higher but as long as they keep finding ways to cut cost, lower ASP wont impact them as much.

For (and on) the record, we were negative going back to April 6, 2006. And unlike iSuppli, we are not expecting prices to stabilize by the end of the second quarter 2007.

Samsung posts strong Q4, drops 2007 capex - 1/12/2007 - Electronic News

Samsung has dropped its capex for the coming year. The company said that it has earmarked $8.6 billion (8.1 trillion Korean won) in capital expenditure for 2007, down from the $10.67 billion it laid out for 2006. Samsung was quick to note that though there is a decline, the capex is actually relatively similar to 2006 levels considering advanced spending at the end of 2006, foreign exchange effects, and the spending of $1.7 billion (1.6 trillion Korean won) at Samsung Austin Semiconductor and S-LCD, its joint venture with Sony, in 2007.Samsung further offered a cautious Q1 outlook. “Samsung Electronics anticipates challenges in key product areas in the quarter, a seasonally weak period,” Chu said.

“Key product areas” for Samsung include cel phones, LCD panels and semiconductors - all of which we have warned are in danger of facing inventory gluts. By cutting back the money they will spend on equipment, Samsung is doing the right thing to ease those gluts.

We already heard from Best Buy (BBY) and Circuit City (CC) that price competition on flat-panel television sets was hurting profit margins.

Holidaysales Blog - WSJ.com : ‘The Year of the LCD TV’

Consumers spent $8.75 billion on TVs, gadgets and other technology items from the week of Black Friday through the week ending Dec. 23, according to the NPD research group. “This was the year of the LCD TV,” NPD declared in a press release, reporting that $924 million of that total was spent on such TVs and that unit growth doubled from last year. The top-selling size of flat screen was 32-inch LCD and the average price of such models dropped to $796 from $1,354 during the 2005 season. The No. 2 spot went to 42-inch plasma.

So twice as many units at $796 equals total revenue of $1,592 compared with $1,354 last year. 18% growth doesn’t sound too shabby. The problem is, with gross margins of 23% over the last year it doesn’t take much of a drop in margins to wipe out 18% revenue growth. In fact, all it would take is for margins to drop just below 20% (three percentage points) for the profitability to show no growth at all.

Readers surprised by our general bearish stance on LCD panel makers generally point out how much demand for the monitors (both as computer monitors and flat panel TV sets) is rising. Indeed, Large-size LCD panel shipments dropped 4% in November, says WitsView

Worldwide large-size LCD panel shipments dropped to 26.3 million units in November, a 4% on-month decrease but 29% on-year increase, said research firm WitsView.

Ignoring the bearishness of the headline, 29% year/year unit growth is rather respectable. But with prices dropping 35% it means sales are lower this year than they were last.

Simple math.

We have commented before on how Sony’s (SNE - Annual Report) tried to bite off more than they could chew with the PS3 gaming system. Now, a bizarre statement from one of their executives leads us to wonder what, exactly, they are thinking. According to ArsTechnica:

In an interview with MTV, Sony executive Phil Harrison talked about the PlayStation 3 and where his company was planning on taking their latest game console.Harrison saved his most interesting comment for last. In discussing the future of the PS3, he stressed that developers are not currently using the machine to its full capacity. In fact, he stated that the current crop of games are using “less than half” of the machine’s power, and that “nobody will ever use 100 percent of its capability.” Of course, it is common at the beginning of a new console’s life for games to not make full use of the power of the hardware: it takes some time for developers to learn the best tricks and techniques for squeezing every last bit of calculating power from any new platform. But to claim that nobody could ever make full use of the system’s power, ever, seems a bit hyperbolic. Some developers, at least, will be wanting to tap the full power of the Cell, such as IBM’s high-end customers in the HPC market. Some of this knowledge is bound to leak over to the game development world.

If Sony doesn’t think developers will use the machine’s capability, then why on earth did they put all of the capability in the machine? All they have done, apparently, is make it later to arrive and more expensive.

We were the first to point out that the price-fixing investigation aimed at LCD panel makers seemed a bit silly. And at least one firm is using our point as a defense, even at the expense of looking a bit inept. Plummeting prices all but prove the industry has not gotten together to reap excess profit. If anything, the industry needs to cut back production to get supply back in balance with demand. However, Goldman Sachs points out that the investigation may hinder them from doing so.
Investment firm doubts in feasibility of production cut plans for panel makers, report says

Panel makers may hesitate over their production cut plans in the first half of next year, as they will face a long-term investigation from justice departments in various countries, according to investment firm Goldman Sachs, as quoted by the Chinese-language Commercial Times. The hesitations may negatively impact the possibility for panel prices to rebound, the investment firm added, according to the paper.

An excellent point.