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Smartphone slowdown hits OmniVision shares

NEW YORK (AP) -- Shares of OmniVision Technologies slumped Friday after the company cautioned that smartphone sales have slowed down and competition has increased.

THE SPARK: OmniVision said its net income and revenue improved, but said smartphone sales slowed down in the latter part of the first quarter. As the market weakened, competition got more intense, and that hurt OmniVision's profit margins. The company said it expects better sales in the second quarter, but its guidance was mostly below Wall Street estimates.

OmniVision said it expects net income of 36 to 53 cents per share in the second quarter if one-time costs are excluded. It said revenue should be between $375 million and $410 million. Analysts were expecting net income of 50 cents per share on revenue of $407.7 million, according to FactSet.

THE BIG PICTURE: OmniVision Technologies Inc. makes image sensors used in mobile phones, webcams, surveillance systems, as well as automotive and medical imaging systems. The Santa Clara, Calif., company said it plans to counteract some of the smartphone slowdown with cost cuts and growth in its automotive business.

OmniVision said its adjusted net income grew to 55 cents per share and revenue climbed 34 percent to $373.7 million.

According to FactSet, analysts expected adjusted net income of 43 cents per share on revenue of $376.8 million.

THE ANALYSIS: Wedbush analyst Betsy Van Hess kept a "Neutral" rating on OmniVision shares and lowered her price target to $16 per share from $18. She said OmniVision's average sales prices were flat in the first quarter after six straight quarters of growth.

"OmniVision Technologies noted it expects both the slowdown in the smartphone market that began in the second half of the fiscal first quarter and the intensifying pricing competition, particularly in the China handset market, to continue into the fiscal second quarter," she said.

SHARE ACTION: OmniVision shares lost $2.85, or 15.5 percent, to $15.56 in midday trading. The stock reached an annual low on April 22 and was up 53 percent through Thursday's close.