##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended October 31, 2005
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission file number: 0-29939
 
 OMNIVISION TECHNOLOGIES, INC.
 (Exact name of registrant as specified in its charter)
 Delaware
    
    77-0401990(State or other jurisdiction
    
    (I.R.S. Employerof incorporation or organization)
    
    Identification Number)
 1341 Orleans Drive, Sunnyvale, California 94089-1136
(Address of Principal Executive Offices) (Zip Code)
 Registrants telephone number, including area code: (408) 542-3000
 
 þ o
 þ o
 o þ




---



##### Table of Contents



OMNIVISION TECHNOLOGIES, INC.
 INDEX
 PagePART I. FINANCIAL INFORMATIONItem 1.Financial Statements:Condensed Consolidated Balance Sheets (unaudited)  October 31, 2005 and April 30, 2005
    
    
    3Condensed Consolidated Statements of Income (unaudited)  Three and Six Months Ended October 31, 2005 and 2004
    
    
    4Condensed Consolidated Statements of Cash Flows (unaudited)  Six Months Ended October 31, 2005 and 2004
    
    
    5Notes to Condensed Consolidated Financial Statements (unaudited)
    
    
    6Item 2.Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    21Item 3.Quantitative and Qualitative Disclosures About Market Risk
    
    
    54Item 4.Controls and Procedures
    
    
    54PART II. OTHER INFORMATIONItem 1.Legal Proceedings
    
    
    55Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    56Item 4.Submission of Matters to a Vote of Security Holders
    
    
    56Item 5.Other Information
    
    
    56Item 6.Exhibits
    
    
    57Signatures
    
    
    58Exhibit IndexEXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32
 2




---



##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 OMNIVISION TECHNOLOGIES, INC.
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 (in thousands, except share and per share amounts) 
(unaudited)
 October 31,
    
    
    April 30,2005
    
    
    2005ASSETSCurrent assets:Cash and cash equivalents
    
    $
    172,365
    
    
    $
    204,057Short-term investments
    
    
    93,711
    
    
    
    90,658Accounts receivable, net
    
    
    73,548
    
    
    
    59,740Inventories
    
    
    71,056
    
    
    
    58,429Refundable and deferred income taxes
    
    
    5,390
    
    
    
    5,402Prepaid expenses and other assets
    
    
    5,333
    
    
    
    2,542Total current assets
    
    
    421,403
    
    
    
    420,828Property, plant and equipment, net
    
    
    18,978
    
    
    
    19,342Long-term investments
    
    
    16,543
    
    
    
    6,814Goodwill
    
    
    4,892
    
    
    
    4,892Intangibles, net
    
    
    25,626
    
    
    
    26,414Other non-current assets
    
    
    2,249
    
    
    
    1,543Total assets
    
    $
    489,691
    
    
    $
    479,833LIABILITIES, MINORITY INTEREST AND STOCKHOLDERS EQUITYCurrent liabilities:Short-term borrowings of consolidated affiliate
    
    $
    894
    
    
    $
    Accounts payable
    
    
    48,680
    
    
    
    26,081Accrued expenses and other current liabilities
    
    
    14,416
    
    
    
    14,196Accrued income taxes payable
    
    
    41,816
    
    
    
    32,313Deferred income
    
    
    8,272
    
    
    
    5,483Total current liabilities
    
    
    114,078
    
    
    
    78,073Long-term liabilities:Deferred tax liabilities
    
    
    8,392
    
    
    
    9,347Total long-term liabilities
    
    
    8,392
    
    
    
    9,347Total liabilities
    
    
    122,470
    
    
    
    87,420Commitments and contingencies (Note 14)Minority interest
    
    
    16,926
    
    
    
    2,315Stockholders equity:Common stock, $0.001 par value; 100,000,000 shares authorized;
58,073,831 issued and 52,203,831 outstanding at October 31, 2005
and 57,634,341 shares issued and outstanding at April 30, 2005,
respectively
    
    
    58
    
    
    
    58Additional paid-in capital
    
    
    266,326
    
    
    
    263,102Accumulated other comprehensive loss
    
    
    (463
    )
    
    
    (25
    )Treasury stock, 5,870,000 shares at October 31, 2005 and zero
shares at April 30, 2005
    
    
    (79,568
    )
    
    
    Retained earnings
    
    
    163,942
    
    
    
    126,963Total stockholders equity
    
    
    350,295
    
    
    
    390,098Total liabilities, minority interest and stockholders equity
    
    $
    489,691
    
    
    $
    479,833
  3




---



##### Table of Contents



OMNIVISION TECHNOLOGIES, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts)
(unaudited)
 Three Months Ended
    
    
    Six Months EndedOctober 31,
    
    
    October 31,2005
    
    
    2004
    
    
    2005
    
    
    2004Revenues
    
    $
    126,820
    
    
    $
    84,436
    
    
    $
    222,814
    
    
    $
    183,243Cost of revenues
    
    
    80,997
    
    
    
    46,213
    
    
    
    145,062
    
    
    
    105,281Gross profit
    
    
    45,823
    
    
    
    38,223
    
    
    
    77,752
    
    
    
    77,962Operating expenses:Research and development
    
    
    9,935
    
    
    
    6,680
    
    
    
    18,412
    
    
    
    11,844Selling, general and administrative
    
    
    9,059
    
    
    
    7,052
    
    
    
    15,835
    
    
    
    14,174Stock-based compensation (1)
    
    
    
    
    
    
    352
    
    
    
    2
    
    
    
    555Total operating expenses
    
    
    18,994
    
    
    
    14,084
    
    
    
    34,249
    
    
    
    26,573Income from operations
    
    
    26,829
    
    
    
    24,139
    
    
    
    43,503
    
    
    
    51,389Interest income, net
    
    
    2,094
    
    
    
    899
    
    
    
    4,053
    
    
    
    1,559Other income (loss), net
    
    
    36
    
    
    
    (323
    )
    
    
    59
    
    
    
    (661
    )Income before income taxes and minority interest
    
    
    28,959
    
    
    
    24,715
    
    
    
    47,615
    
    
    
    52,287Provision for income taxes
    
    
    5,791
    
    
    
    6,921
    
    
    
    9,523
    
    
    
    14,641Minority interest
    
    
    571
    
    
    
    
    
    
    
    1,113
    
    
    
    Net income
    
    $
    22,597
    
    
    $
    17,794
    
    
    $
    36,979
    
    
    $
    37,646Net income per share:Basic
    
    $
    0.42
    
    
    $
    0.32
    
    
    $
    0.67
    
    
    $
    0.67Diluted
    
    $
    0.41
    
    
    $
    0.28
    
    
    $
    0.65
    
    
    $
    0.60Shares used in computing net income per share:Basic
    
    
    53,807
    
    
    
    56,485
    
    
    
    55,493
    
    
    
    56,396Diluted
    
    
    55,486
    
    
    
    63,031
    
    
    
    57,193
    
    
    
    62,305(1) Stock-based compensation by functional
area:Research and development
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    9Selling, general and administrative
    
    
    
    
    
    
    352
    
    
    
    2
    
    
    
    546$
    
    
    
    $
    352
    
    
    $
    2
    
    
    $
    555
  4




---



##### Table of Contents



OMNIVISION TECHNOLOGIES, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
 Six Months EndedOctober 31,2005
    
    
    2004Cash flows from operating activities:Net income
    
    $
    36,979
    
    
    $
    37,646Adjustments to reconcile net income to net cash provided by operating
activities:Depreciation and amortization
    
    
    4,712
    
    
    
    1,442Stock-based compensation
    
    
    2
    
    
    
    555Tax benefits from stock option exercises
    
    
    955
    
    
    
    271Minority interest in net income of consolidated affiliates
    
    
    1,113
    
    
    
    Equity investment loss, net
    
    
    125
    
    
    
    632Changes in assets and liabilities, net of acquisition of business:Accounts receivable, net
    
    
    (13,679
    )
    
    
    (2,146
    )Inventories
    
    
    (12,823
    )
    
    
    14,005Refundable and deferred income taxes
    
    
    54
    
    
    
    133Prepaid expenses and other assets
    
    
    (2,170
    )
    
    
    (936
    )Accounts payable
    
    
    20,717
    
    
    
    5,320Accrued expenses and other current liabilities
    
    
    (392
    )
    
    
    1,482Accrued income taxes payable
    
    
    9,179
    
    
    
    14,118Deferred income
    
    
    2,789
    
    
    
    (3,884
    )Deferred tax liabilities
    
    
    (955
    )
    
    
    Net cash provided by operating activities
    
    
    46,606
    
    
    
    68,638Cash flows from investing activities:Restricted cash
    
    
    
    
    
    
    (6
    )Purchases of short-term investments
    
    
    (48,164
    )
    
    
    (77,296
    )Proceeds from sales or maturities of short-term investments
    
    
    45,000
    
    
    
    82,479Purchases of property, plant and equipment
    
    
    (984
    )
    
    
    (1,158
    )Proceeds from consolidation of VisEra, net of cash payments
    
    
    13,792
    
    
    
    Purchases of long-term investments
    
    
    (11,847
    )
    
    
    (1,462
    )Purchases of intangible property
    
    
    
    
    
    
    (1,460
    )Net cash provided by (used in) investing activities
    
    
    (2,203
    )
    
    
    1,097Cash flows from financing activities:Proceeds from short-term borrowings of consolidated affiliate
    
    
    3,981
    
    
    
    Repayment of short-term borrowings of consolidated affiliate
    
    
    (3,038
    )
    
    
    Proceeds from exercise of stock options
    
    
    2,267
    
    
    
    1,624Payment for repurchase of common stock
    
    
    (79,568
    )
    
    
    Net cash provided by (used in) financing activities
    
    
    (76,358
    )
    
    
    1,624Effect of exchange rate changes on cash and cash equivalents
    
    
    263
    
    
    
    7Net increase (decrease) in cash and cash equivalents
    
    
    (31,692
    )
    
    
    71,366Cash and cash equivalents at beginning of period
    
    
    204,057
    
    
    
    124,653Cash and cash equivalents at end of period
    
    $
    172,365
    
    
    $
    196,019Supplemental cash flow information:Taxes paid
    
    $
    228
    
    
    $
    250
  5




---



##### Table of Contents



OMNIVISION TECHNOLOGIES, INC.
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Three and Six Months Ended October 31, 2005 and 2004
(unaudited)
 Note 1  Basis of Presentation
 Overview
    Reclassifications
  Cash and
    
    
    Short-termCash Equivalents
    
    
    InvestmentsAs Reported
    
    
    As Reclassified
    
    
    As Reported
    
    
    As ReclassifiedOctober 31, 2004
    
    $
    230,569
    
    
    $
    196,019
    
    
    $
    50,759
    
    
    $
    85,309
  Cash Flow ActivityAs Reported
    
    
    As ReclassifiedSix months ended October 31, 2004:(Purchases of) proceeds from short-term investments, net
    
    $
    (33,667
    )
    
    $
    5,183Net increase in cash and cash equivalents
    
    $
    32,516
    
    
    $
    71,366Cash and cash equivalents at end of period
    
    $
    230,569
    
    
    $
    196,019
 6




---



##### Table of Contents



OMNIVISION TECHNOLOGIES, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
For the Three and Six Months Ended October 31, 2005 and 2004
(unaudited)
 Note 2  Summary of Significant Accounting Policies
 Principles of Consolidation
  Revenue Recognition
    Cash and Cash Equivalents
   Short-Term Investments
  7




---



##### Table of Contents



OMNIVISION TECHNOLOGIES, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
For the Three and Six Months Ended October 31, 2005 and 2004
(unaudited)
 Inventories
   Goodwill
  Intangible Assets Other than Goodwill
  Treasury Stock
  Research and Development
 Accounting for Research and Development Costs,
 Warranty Reserve for Defective Products
  Stock-Based Compensation
 Accounting for Stock Issued to Employees Accounting for Certain Transactions Involving Stock
Compensation Accounting
for Stock-Based Compensation
 8




---



##### Table of Contents



OMNIVISION TECHNOLOGIES, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
For the Three and Six Months Ended October 31, 2005 and 2004
(unaudited)
 Accounting for Stock-Based
CompensationTransition and DisclosureAn Amendment of FASB Statement No. 123
 Three Months Ended
    
    
    Six Months EndedOctober 31,
    
    
    October 31,2005
    
    
    2004
    
    
    2005
    
    
    2004Net income, as reported
    
    $
    22,597
    
    
    $
    17,794
    
    
    $
    36,979
    
    
    $
    37,646Add: Stock-based employee
compensation expense included
in reported net income, net of
related tax effects
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    14Deduct: Total stock-based
employee compensation
determined under fair value
based method for all awards,
net of related tax effects
    
    
    5,808
    
    
    
    5,772
    
    
    
    11,348
    
    
    
    11,978As adjusted net income
    
    $
    16,789
    
    
    $
    12,023
    
    
    $
    25,631
    
    
    $
    25,682Net income
per share  Basic:As reported
    
    $
    0.42
    
    
    $
    0.32
    
    
    $
    0.67
    
    
    $
    0.67As adjusted
    
    $
    0.31
    
    
    $
    0.21
    
    
    $
    0.46
    
    
    $
    0.46Net income
per share  Diluted:As reported
    
    $
    0.41
    
    
    $
    0.28
    
    
    $
    0.65
    
    
    $
    0.60As adjusted
    
    $
    0.31
    
    
    $
    0.21
    
    
    $
    0.46
    
    
    $
    0.46Shares used in computing net
income per share Basic:As reported
    
    
    53,807
    
    
    
    56,485
    
    
    
    55,493
    
    
    
    56,396As adjusted
    
    
    53,807
    
    
    
    56,485
    
    
    
    55,493
    
    
    
    56,396Shares used in computing net
income per share Diluted:As reported
    
    
    55,486
    
    
    
    63,031
    
    
    
    57,193
    
    
    
    62,305As adjusted
    
    
    53,807
    
    
    
    56,485
    
    
    
    55,493
    
    
    
    56,396
 Accounting for Equity Instruments
that are Offered to Other than Employees for Acquiring or in Conjunction with Selling Goods or
Services
 Recent Accounting Pronouncements
 Share-Based Payment,
 9




---



##### Table of Contents



OMNIVISION TECHNOLOGIES, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
For the Three and Six Months Ended October 31, 2005 and 2004
(unaudited)
  Shared-Based Payment,
 Note 3  Short-Term Investments
  As of October 31, 2005Amortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gain
    
    
    Loss
    
    
    ValueU.S. government debt securities
    
    $
    9,982
    
    
    $
    
    
    
    $
    (30
    )
    
    $
    9,952Municipal bonds and notes
    
    
    49,626
    
    
    
    
    
    
    
    (12
    )
    
    
    49,614Commercial paper
    
    
    34,247
    
    
    
    
    
    
    
    (102
    )
    
    
    34,145$
    93,855
    
    
    $
    
    
    
    $
    (144
    )
    
    $
    93,711Contractual maturity dates, less than one year
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    44,097Contractual maturity dates, one year to 30 years(1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    49,614$
    93,711
 As of April 30, 2005Amortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gain
    
    
    Loss
    
    
    ValueU.S. government debt securities
    
    $
    34,662
    
    
    $
    
    
    
    $
    (20
    )
    
    $
    34,642Municipal bonds and notes
    
    
    41,550
    
    
    
    
    
    
    
    
    
    
    
    41,550Commercial paper
    
    
    14,482
    
    
    
    
    
    
    
    (16
    )
    
    
    14,466$
    90,694
    
    
    $
    
    
    
    $
    (36
    )
    
    $
    90,658Contractual maturity dates, less than one year
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    49,108Contractual maturity dates, one year to 30 years(1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    41,550$
    90,658
 
 (1)
    
    Represents auction rate securities, which have a maturity date of up to thirty
years with the interest rate being reset every 35 days. 10




---



##### Table of Contents



OMNIVISION TECHNOLOGIES, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
For the Three and Six Months Ended October 31, 2005 and 2004
(unaudited)
 Note 4  Balance Sheet Accounts (in thousands)
 October 31,
    
    
    April 30,2005
    
    
    2005Cash and cash equivalents:Cash
    
    $
    10,616
    
    
    $
    31,564Money market funds
    
    
    150,777
    
    
    
    157,576Commercial paper
    
    
    10,972
    
    
    
    14,917$
    172,365
    
    
    $
    204,057Accounts receivable:Accounts receivable
    
    $
    80,680
    
    
    $
    66,270Less: Allowance for doubtful accounts
    
    
    (1,607
    )
    
    
    (1,237
    )Sales returns reserve
    
    
    (5,525
    )
    
    
    (5,293
    )$
    73,548
    
    
    $
    59,740Inventories:Work in progress
    
    $
    40,263
    
    
    $
    26,957Finished goods
    
    
    30,793
    
    
    
    31,472$
    71,056
    
    
    $
    58,429Prepaid expenses and other assets:Prepaid expenses
    
    $
    2,731
    
    
    $
    1,971Other receivables
    
    
    2,602
    
    
    
    571$
    5,333
    
    
    $
    2,542Property, plant and equipment, net:Building and land use right
    
    $
    7,209
    
    
    $
    7,013Building improvements
    
    
    2,358
    
    
    
    1,909Machinery and equipment
    
    
    16,329
    
    
    
    15,654Furniture and fixtures
    
    
    209
    
    
    
    250Software
    
    
    2,083
    
    
    
    1,866Construction in progress
    
    
    57
    
    
    
    1828,245
    
    
    
    26,710Less: Accumulated depreciation and amortization
    
    
    (9,267
    )
    
    
    (7,368
    )$
    18,978
    
    
    $
    19,342Accrued expenses and other current liabilities:Employee compensation
    
    $
    3,419
    
    
    $
    2,937Accrued third party commissions
    
    
    2,195
    
    
    
    2,555Accrued acquisition costs
    
    
    2,095
    
    
    
    2,095Accrued professional services
    
    
    1,833
    
    
    
    1,359Accrued other
    
    
    4,874
    
    
    
    5,250$
    14,416
    
    
    $
    14,196
 Note 5  Long-term Investments
 ImPac Technology Co., Ltd.
  11




---



##### Table of Contents



OMNIVISION TECHNOLOGIES, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
For the Three and Six Months Ended October 31, 2005 and 2004
(unaudited)
  VisEra Technologies Company, Ltd.
    XinTec, Inc.
  12




---



##### Table of Contents



OMNIVISION TECHNOLOGIES, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
For the Three and Six Months Ended October 31, 2005 and 2004
(unaudited)
 Silicon Optronics, Inc.
  Note 6  Acquisition of CDM Optics, Inc.
    Note 7  Goodwill
  13




---



##### Table of Contents



OMNIVISION TECHNOLOGIES, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
For the Three and Six Months Ended October 31, 2005 and 2004
(unaudited)
 Note 8  Intangible Assets
  AccumulatedCost
    
    
    Amortization
    
    
    Net Book ValueCore technology
    
    $
    17,800
    
    
    $
    1,780
    
    
    $
    16,020Patent
    
    
    7,260
    
    
    
    872
    
    
    
    6,388Other intangible assets
    
    
    3,040
    
    
    
    1,165
    
    
    
    1,875Trademarks and tradenames
    
    
    1,400
    
    
    
    140
    
    
    
    1,260Customer relationships
    
    
    100
    
    
    
    17
    
    
    
    83Intangible assets, net
    
    $
    29,600
    
    
    $
    3,974
    
    
    $
    25,626
  AccumulatedCost
    
    
    Amortization
    
    
    Net Book ValueCore technology
    
    $
    17,800
    
    
    $
    
    
    
    $
    17,800Patent
    
    
    7,260
    
    
    
    146
    
    
    
    7,114Trademarks and tradenames
    
    
    1,400
    
    
    
    
    
    
    
    1,400Customer relationships
    
    
    100
    
    
    
    
    
    
    
    100Intangible assets, net
    
    $
    26,560
    
    
    $
    146
    
    
    $
    26,414
  Years Ended April 30,2006
    
    $
    2,9682007
    
    
    5,9372008
    
    
    5,9372009
    
    
    5,6382010
    
    
    5,146Thereafter
    
    
    Total
    
    $
    25,626
 Note 9  Short-term Borrowings of Consolidated Affiliate
   Note 10  Net Income Per Share
  14




---



##### Table of Contents



OMNIVISION TECHNOLOGIES, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
For the Three and Six Months Ended October 31, 2005 and 2004
(unaudited)
  Earnings
Per Share,
  Three Months Ended
    
    
    Six Months EndedOctober 31,
    
    
    October 31,2005
    
    
    2004
    
    
    2005
    
    
    2004Numerator:Net income
    
    $
    22,597
    
    
    $
    17,794
    
    
    $
    36,979
    
    
    $
    37,646Denominator:Weighted average shares
    
    
    53,807
    
    
    
    56,485
    
    
    
    55,493
    
    
    
    56,403Weighted average unvested common stock subject
to repurchase
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7
    )Denominator for basic net income per share
    
    
    53,807
    
    
    
    56,485
    
    
    
    55,493
    
    
    
    56,396Weighted average effect of dilutive securities:Common stock options
    
    
    1,679
    
    
    
    6,546
    
    
    
    1,700
    
    
    
    5,902Unvested common stock subject to repurchase
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7Denominator for dilutive net income per
share
    
    
    55,486
    
    
    
    63,031
    
    
    
    57,193
    
    
    
    62,305Basic net income per share
    
    $
    0.42
    
    
    $
    0.32
    
    
    $
    0.67
    
    
    $
    0.67Diluted net income per share
    
    $
    0.41
    
    
    $
    0.28
    
    
    $
    0.65
    
    
    $
    0.60
 Note 11  Segment, Product Line and Geographic Information
  15




---



##### Table of Contents



OMNIVISION TECHNOLOGIES, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
For the Three and Six Months Ended October 31, 2005 and 2004
(unaudited)
  Three Months Ended
    
    
    Six Months EndedOctober 31,
    
    
    October 31,2005
    
    
    2004
    
    
    2005
    
    
    2004Digital applications
    
    $
    118,172
    
    
    $
    75,027
    
    
    $
    200,128
    
    
    $
    163,162Analog applications
    
    
    8,648
    
    
    
    9,409
    
    
    
    22,686
    
    
    
    20,081Total
    
    $
    126,820
    
    
    $
    84,436
    
    
    $
    222,814
    
    
    $
    183,243
  Three Months Ended
    
    
    Six Months EndedOctober 31,
    
    
    October 31,2005
    
    
    2004
    
    
    2005
    
    
    2004OEMs and VARs
    
    
    69.2
    %
    
    
    80.4
    %
    
    
    71.2
    %
    
    
    81.4
    %Distributors
    
    
    30.8
    
    
    
    19.6
    
    
    
    28.8
    
    
    
    18.6Total
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
  Three Months Ended
    
    
    Six Months EndedOctober 31,
    
    
    October 31,2005
    
    
    2004
    
    
    2005
    
    
    2004Hong Kong
    
    $
    57,300
    
    
    $
    44,737
    
    
    $
    101,592
    
    
    $
    82,660Taiwan
    
    
    25,011
    
    
    
    15,761
    
    
    
    43,690
    
    
    
    28,075China
    
    
    20,197
    
    
    
    13,871
    
    
    
    34,029
    
    
    
    31,743Japan
    
    
    11,203
    
    
    
    1,122
    
    
    
    22,430
    
    
    
    12,832South Korea
    
    
    11,476
    
    
    
    6,162
    
    
    
    17,188
    
    
    
    20,632United States
    
    
    1,463
    
    
    
    919
    
    
    
    2,420
    
    
    
    2,446All other
    
    
    170
    
    
    
    1,864
    
    
    
    1,465
    
    
    
    4,855Total
    
    $
    126,820
    
    
    $
    84,436
    
    
    $
    222,814
    
    
    $
    183,243
  October 31,
    
    
    April 30,2005
    
    
    2005Taiwan
    
    $
    17,260
    
    
    $
    8,401China
    
    
    16,551
    
    
    
    16,640United States
    
    
    3,597
    
    
    
    2,277All other
    
    
    362
    
    
    
    352Total
    
    $
    37,770
    
    
    $
    27,670
 16




---



##### Table of Contents



OMNIVISION TECHNOLOGIES, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
For the Three and Six Months Ended October 31, 2005 and 2004
(unaudited)
 Note 12  Employee Stock Option and Stock Purchase Plans
 Employee Stock Option Grants
  2000 Employee Stock Purchase Plan
  Fair Value Disclosures
   Employee Stock Option PlansThree Months Ended
    
    
    Six Months EndedOctober 31,
    
    
    October 31,2005
    
    
    2004
    
    
    2005
    
    
    2004Risk-free interest rate
    
    
    4.00
    %
    
    
    2.85
    %
    
    
    3.72
    %
    
    
    3.00
    %Expected term of options (in years)
    
    
    3.5
    
    
    
    3.5
    
    
    
    3.5
    
    
    
    3.5Expected volatility
    
    
    80.9
    %
    
    
    123.9
    %
    
    
    84.1
    %
    
    
    125.6
    %Expected dividend yield
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %
  17




---



##### Table of Contents



OMNIVISION TECHNOLOGIES, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
For the Three and Six Months Ended October 31, 2005 and 2004
(unaudited)
  Employee Stock Purchase PlanThree Months Ended
    
    
    Six Months EndedOctober 31,
    
    
    October 31,2005
    
    
    2004
    
    
    2005
    
    
    2004Risk-free interest rate
    
    
    3.65
    %
    
    
    2.06
    %
    
    
    3.47
    %
    
    
    1.85
    %Expected term of options (in years)
    
    
    0.5
    
    
    
    0.5
    
    
    
    0.5
    
    
    
    0.5Expected volatility
    
    
    36.4
    %
    
    
    80.8
    %
    
    
    39.6
    %
    
    
    79.9
    %Expected dividend yield
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %
 Note 13  Treasury Stock
  Note 14  Commitments and Contingencies
 Commitments
   Litigation
  McKee v. OmniVision Technologies, Inc., et. al.,
Civil Action No. 01CV 10775 In re Initial Public Offering Securities Litigation, 21 MC 92
 18




---



##### Table of Contents



OMNIVISION TECHNOLOGIES, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
For the Three and Six Months Ended October 31, 2005 and 2004
(unaudited)
  In
re OmniVision Technologies, Inc.,
 Gantt
v. Winn Torriani v. Hong
 Hackl v.
Hong
 Note 15  Related Party Transactions
  19




---



##### Table of Contents



OMNIVISION TECHNOLOGIES, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
For the Three and Six Months Ended October 31, 2005 and 2004
(unaudited)
 Note 16  Subsequent Event
   20




---



##### Table of Contents



ITEM 2.
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 You should read the following discussion in conjunction with our unaudited condensed interim
financial statements and the notes thereto included in Item 1 of this Quarterly Report on Form
10-Q. The following discussion contains forward-looking statements, within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, which
involve risks and uncertainties. Forward-looking statements generally include words such as may,
will, plans, seeks, expects, anticipates, outlook, intends, believes and words of
similar import as well as the negative of those terms. In addition, any statements that refer to
expectations, projections or other characterizations of future events or circumstances, including
any underlying assumptions, are forward-looking statements. All forward-looking statements
included in this Quarterly Report on Form 10-Q, including, but not limited to, statements regarding
the expansion of our testing capabilities and possible manufacturing issues we may encounter, the
future funding of our joint ventures and one of our subsidiaries and the future capabilities of
such joint ventures, the demand for camera cell phones and future trends within the camera cell
phone market, the future production of our products, problems related to building inventories for
our products, pricing pressures and average selling prices of image sensor products, the timing of
the introduction of toys and game consoles containing cameras, our competitors ability to more
quickly adapt to new technologies and requirements or devote greater resources to certain matters
than us, our future expenses, the effect of the American Jobs Creation Act on our future financial
results, and sufficiency of our available cash, cash equivalents and short-term investments are
based on current expectations and are subject to important factors that could cause actual results
to differ materially from those projected in the forward-looking statements. Such important factors
include, but are not limited to, those discussed below under Factors Affecting Future Results and
elsewhere in this Quarterly Report and in other documents we file with the U.S. Securities and
Exchange Commission.
 Overview
   21




---



##### Table of Contents



ITEM 2.
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS      (Continued)
        22




---



##### Table of Contents



ITEM 2.
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS      (Continued)
      The Current Economic Environment
  23




---



##### Table of Contents



ITEM 2.
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS      (Continued)
        24




---



##### Table of Contents



ITEM 2.
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS      (Continued)
     Sources of Revenues
   25




---



##### Table of Contents



ITEM 2.
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS      (Continued)
    Critical Accounting Policies
  Results of Operations
  Three Months Ended
    
    Six Months EndedOctober 31,
    
    October 31,2005
    
    2004
    
    2005
    
    2004Revenues
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of revenues
    
    
    63.9
    
    
    
    54.7
    
    
    
    65.1
    
    
    
    57.5Gross profit
    
    
    36.1
    
    
    
    45.3
    
    
    
    34.9
    
    
    
    42.5Operating expenses:Research and development
    
    
    7.8
    
    
    
    7.9
    
    
    
    8.3
    
    
    
    6.5Selling, general and administrative
    
    
    7.1
    
    
    
    8.4
    
    
    
    7.1
    
    
    
    7.7Stock-based compensation
    
    
    
    
    
    
    0.4
    
    
    
    
    
    
    
    0.3Total operating expenses
    
    
    14.9
    
    
    
    16.7
    
    
    
    15.4
    
    
    
    14.5Income from operations
    
    
    21.2
    
    
    
    28.6
    
    
    
    19.5
    
    
    
    28.0Interest income, net
    
    
    1.6
    
    
    
    1.1
    
    
    
    1.9
    
    
    
    0.9Other income (loss), net
    
    
    
    
    
    
    (0.4
    )
    
    
    
    
    
    
    (0.4
    )Income before income taxes and minority interests
    
    
    22.8
    
    
    
    29.3
    
    
    
    21.4
    
    
    
    28.5Provision for income taxes
    
    
    4.6
    
    
    
    8.2
    
    
    
    4.3
    
    
    
    8.0Minority interest
    
    
    0.4
    
    
    
    
    
    
    
    0.5
    
    
    
    Net income
    
    
    17.8
    %
    
    
    21.1
    %
    
    
    16.6
    %
    
    
    20.5
    %
 Three Months Ended October 31, 2005 as Compared to Three Months Ended October 31, 2004
 Revenues
  26




---



##### Table of Contents



ITEM 2.
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS      (Continued)
  Revenues from Sales of Image-Sensor products for Digital as Compared to Analog Applications
  Three Months EndedOctober 31,2005
    
    
    2004Digital applications
    
    $
    118,172
    
    
    $
    75,027Analog applications
    
    
    8,648
    
    
    
    9,409Total
    
    $
    126,820
    
    
    $
    84,436
 Digital Revenues.
 Analog Revenues.
 27




---



##### Table of Contents



ITEM 2.
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS      (Continued)
 Revenues from Sales to OEMs and VARs as Compared to Distributors
  Three Months EndedOctober 31,2005
    
    
    2004OEMs and VARs
    
    
    69.2
    %
    
    
    80.4
    %Distributors
    
    
    30.8
    
    
    
    19.6Total
    
    
    100.0
    %
    
    
    100.0
    %
 OEMs and VARs.
 Distributors.
 Revenues from Domestic Sales as Compared to Foreign Sales
  Three Months EndedOctober 31,2005
    
    
    2004Domestic sales
    
    
    1.2
    %
    
    
    1.1
    %Foreign sales
    
    
    98.8
    
    
    
    98.9Total
    
    
    100.0
    %
    
    
    100.0
    %
  Gross Profit
   28




---



##### Table of Contents



ITEM 2.
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS      (Continued)
   Research and Development
   Selling, General and Administrative
   Stock-based compensation
  29




---



##### Table of Contents



ITEM 2.
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS      (Continued)
 Interest Income, Net
  Other Income (Loss), Net
  Provision for Income Taxes
   Minority Interest
  30




---



##### Table of Contents



ITEM 2.
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS      (Continued)
 Six Months Ended October 31, 2005 as Compared to Six Months Ended October 31, 2004
 Revenues
  Revenues from Sales of Image-Sensor products for Digital as Compared to Analog Applications
  Six Months EndedOctober 31,2005
    
    
    2004Digital applications
    
    $
    200,128
    
    
    $
    163,162Analog applications
    
    
    22,686
    
    
    
    20,081Total
    
    $
    222,814
    
    
    $
    183,243
 Digital Revenues.
 Analog Revenues.
 31




---



##### Table of Contents



ITEM 2.
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS      (Continued)
 Revenues from Sales to OEMs and VARs as Compared to Distributors
  Six Months EndedOctober 31,2005
    
    
    2004OEMs and VARs
    
    
    71.2
    %
    
    
    81.4
    %Distributors
    
    
    28.8
    
    
    
    18.6Total
    
    
    100.0
    %
    
    
    100.0
    %
 OEMs and VARs.
 Distributors.
 Revenues from Domestic Sales as Compared to Foreign Sales
  Six Months EndedOctober 31,2005
    
    
    2004Domestic sales
    
    
    1.1
    %
    
    
    1.3
    %Foreign sales
    
    
    98.9
    
    
    
    98.7Total
    
    
    100.0
    %
    
    
    100.0
    %
  Gross Profit
   32




---



##### Table of Contents



ITEM 2.
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS      (Continued)
  Research and Development
   Selling, General and Administrative
   Stock-based compensation
  Interest Income, Net
  Other Income (Loss), Net
  33




---



##### Table of Contents



ITEM 2.
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS      (Continued)
  Provision for Income Taxes
  Minority interests
  Liquidity and Capital Resources
  Liquidity
  
 Cash Flows from Operating Activities
  34




---



##### Table of Contents



ITEM 2.
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS      (Continued)
   Cash Flows From Investing Activities
   Cash and
    
    Short-termCash Equivalents
    
    InvestmentsAs Reported
    
    As Reclassified
    
    As Reported
    
    As ReclassifiedOctober 31, 2004
    
    $
    230,569
    
    
    $
    196,019
    
    
    $
    50,759
    
    
    $
    85,309
 35




---



##### Table of Contents



ITEM 2.
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS      (Continued)
  Cash Flow ActivityAs Reported
    
    
    As ReclassifiedSix months ended October 31, 2004:(Purchases of) proceeds from short-term investments, net
    
    $
    (33,667
    )
    
    $
    5,183Net increase in cash and cash equivalents
    
    $
    32,516
    
    
    $
    71,366Cash and cash equivalents at end of period
    
    $
    230,569
    
    
    $
    196,019
 Cash Flows From Financing Activities
  Capital Resources
    Factors Affecting Future Results.
 36




---



##### Table of Contents



ITEM 2.
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS      (Continued)
 Contractual Obligations and Commercial Commitments
  Less than
    
    
    
    
    
    
    
    
    
    
    AfterTotal
    
    
    1 Year
    
    
    1 - 3 Years
    
    
    3 - 5 Years
    
    
    5 YearsContractual Obligations:Operating leases
    
    $
    4,907
    
    
    $
    2,671
    
    
    $
    1,991
    
    
    $
    245
    
    
    $
    Noncancelable orders
    
    
    78,892
    
    
    
    78,892
    
    
    
    
    
    
    
    
    
    
    
    Total contractual obligations
    
    
    83,799
    
    
    
    81,563
    
    
    
    1,991
    
    
    
    245
    
    
    
    Other Commercial Commitments:Investment in China
    
    
    15,300
    1
    
    
    15,300
    
    
    
    
    
    
    
    
    
    
    
    Joint Venture with TSMC
    
    
    16,000
    2
    
    
    9,500
    
    
    
    6,500
    
    
    
    
    
    
    
    Total commercial commitments.
    
    
    31,300
    
    
    
    24,800
    
    
    
    6,500
    
    
    
    
    
    
    
    Total contractual
obligations and commercial
commitments
    
    $
    115,099
    
    
    $
    106,363
    
    
    $
    8,491
    
    
    $
    245
    
    
    $
    
 
 1
    
    Represents the remaining $15.3 million of registered capital for our subsidiary HWSC. We established
this subsidiary as part of our efforts to increase capacity and reduce costs for testing our
image-sensor products. Under an agreement with the Chinese government, the date by which the
remaining $15.3 million of registered capital must be funded is now January 22, 2006. In December 2005, we contributed an additional $5.0 million to HWSC.2
    
    In August 2005, through our wholly-owned subsidiary OmniVision International
Holding Ltd., we entered into an Amended and Restated Shareholders Agreement, or the Amended
VisEra Agreement, with Taiwan Semiconductor Manufacturing Co., Ltd., or TSMC, VisEra
Technologies Company, Ltd., or VisEra, and VisEra Holding Company, or VisEra Cayman. In order to provide greater financial and fiscal flexibility to VisEra, in connection with the
Amended VisEra Agreement, the parties  formed VisEra Cayman, a company incorporated in the
Cayman Islands. VisEra
will become a wholly-owned subsidiary of VisEra Cayman and VisEra Cayman will complete the
transactions contemplated by the Amended VisEra Agreement. The
Amended VisEra Agreement amended and restated the original Shareholders Agreement that the
parties entered into on October 29, 2003, pursuant to which the Company and TSMC agreed to
form VisEra, a joint venture in Taiwan, for the purposes of providing manufacturing services
and automated final testing services related to CMOS image sensors. In November 2003,
pursuant to the terms of the original Shareholders Agreement, we contributed $1.5 million in
cash to VisEra and granted a non-exclusive license to certain of its manufacturing and
automated final testing technologies and patents. In September 2005, we contributed a further
$7.5 million to VisEra Cayman. In November 2005, pursuant to the Amended VisEra Agreement, we
contributed an additional $9.5 million in cash to VisEra Cayman. (See Note 16  Subsequent
Event of the Notes to Condensed Consolidated Financial Statements.)Under the terms of the Amended VisEra Agreement, the parties reaffirmed their respective
commitments to VisEra, and expanded the scope of and made certain modifications to the original
Shareholders Agreement. In particular, the parties agreed to raise the total capital committed
to the joint venture from $50 million to $68 million, which commitments may be made in the form
of cash or asset contributions. The parties have equal interests in
VisEra and VisEra Cayman. To date we have
contributed $9.0 million to VisEra and VisEra Cayman. A minimum of an additional $16 million in
cash and asset contributions will be made by each of the parties, with the remaining $15
million to be made by additional investors, additional contributions by the parties, or a
combination thereof, provided that the parties have and will maintain equal interests in
VisEra Cayman. At a future date yet to be determined, the Company expects to contribute approximately
$20.5 million of assets to the joint venture, including technology, plant and equipment
currently owned by it or to be purchased with funds for existing commercial commitments. To
the extent, if any, that the value of the assets contributed exceeds the value of the Companys
commitment, the Company will receive cash from VisEra Cayman. 37




---



##### Table of Contents



ITEM 2.
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS      (Continued)
   Factors Affecting Future Results
 This Quarterly Report on Form 10-Q , including Managements Discussion and Analysis of
Financial Condition and Results of Operations, contains forward-looking statements. These
forward-looking statements are subject to substantial risks and uncertainties that could cause our
future business, financial condition or results of operations to differ materially from our
historical results or currently anticipated results, including those set forth below.
 Risks Related to Our Business
 We face intense competition in our markets from more established CMOS and CCD image sensor
manufacturers, and if we are unable to compete successfully we may not be able to maintain or grow
our business.
     38




---



##### Table of Contents



ITEM 2.
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS      (Continued)
  Our success depends on the timely development, introduction, marketing and selling of new CMOS
image sensors, which we might not be able to achieve.
  
    
    accurate prediction of market requirements and evolving standards, including
pixel resolution, output interface standards, power requirements, optical lens size, input
standards and operating systems for personal computers and other platforms;
    
    development of advanced technologies and capabilities;
    
    definition, timely completion and introduction of new CMOS image sensors that
satisfy customer requirements;
    
    development of products that maintain a technological advantage over the
products of our competitors, including our advantages with respect to the functionality and
pixel capability of our image-sensor products and our proprietary testing processes; and
    
    market acceptance of the new products.
  Failure to obtain design wins could cause our market share and revenues to decline and could
impair our ability to grow our business.
  39




---



##### Table of Contents



ITEM 2.
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS      (Continued)
  Sales of our image-sensor products for camera cell phones account for a large portion of our
revenues from digital applications on an annual basis, and any decline in sales to the camera cell
phone market or failure of this market to continue to grow as expected could adversely affect our
results of operations.
  We depend on a limited number of third party wafer foundries, which reduces our ability to control
our manufacturing process.
   
    
    reduced control over qualification of a fab for the production
of our products, delivery schedules, quality assurance, manufacturing yields and production costs;
    
    lack of guaranteed production capacity or product supply;
    
    unavailability of, or delayed access to, next generation or key process technologies; and
    
    financial difficulties or disruptions in the operations of third party
foundries due to causes beyond our control.
  40




---



##### Table of Contents



ITEM 2.
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS      (Continued)
 We rely on third party service providers for color filter application and packaging services,
which reduces our control over delivery schedules, product quality and cost, and could adversely
affect our ability to deliver products to customers.
   Declines in our average selling prices may result in declines in our revenues and gross margin.
  Problems with wafer manufacturing and/or back-end processing yields could result in higher product
costs and could impair our ability to meet customer demand for our products.
  41




---



##### Table of Contents



ITEM 2.
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS      (Continued)
  If we do not forecast customer demand correctly, our business could be impaired and our stock
price may decline.
  We depend on the increased acceptance of mass-market image sensor applications to grow our
business and increase our revenues.
  42




---



##### Table of Contents



ITEM 2.
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS      (Continued)
  Our lengthy manufacturing, packaging and assembly cycle, in addition to our customers design
cycle, may result in uncertainty and delays in generating revenues.
  Our ability to deliver products that meet customer demand is dependent upon our ability to meet
new and changing requirements for color filter application and sensor packaging.
  The high level of complexity and integration of our products increases the risk of latent defects,
which could damage customer relationships and increase our costs.
  Historically, our revenues have been dependent upon a few key customers, the loss of one or more
of which could significantly reduce our revenues.
  43




---



##### Table of Contents



ITEM 2.
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS      (Continued)
  Our customers experience fluctuating product cycles and seasonality, which could cause our results
of operations to fluctuate from period to period.
  Fluctuations in our quarterly operating results make it difficult to predict our future
performance and may result in volatility in the market price of our common stock.
  
    
    our ability to accurately forecast demand for our products;
    
    our ability to achieve acceptable wafer manufacturing or back-end processing yields;
    
    our gain or loss of a large customer;
    
    competitive pricing pressures;
    
    our ability to manage our product transitions;
    
    the availability of production capacities at the semiconductor foundries that
manufacture our products or components of our products;
    
    the growth of the market for products and applications using CMOS image sensors;
    
    the timing and size of orders from our customers;
    
    the volume of our product returns;
    
    the seasonal nature of customer demand for our products;
    
    the deferral of customer orders in anticipation of new products, product designs or enhancements;
    
    the announcement and introduction of products and technologies by our competitors; and
    
    the level of our operating expenses.
  44




---



##### Table of Contents



ITEM 2.
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS      (Continued)
  Changes in accounting rules for stock-based compensation will adversely affect our reported
operating results, and may adversely affect our stock price and our competitiveness in the
employee marketplace.
 Share-Based Payment,
 We may be required to record a significant charge to earnings if our goodwill or amortizable
intangible assets become impaired.
  We maintain a backlog of customer orders that is subject to cancellation or delay in delivery
schedules, and any cancellation or delay may result in lower than anticipated revenues.
  If we are unable to maintain processes and procedures to sustain effective internal control over
our financial reporting, our ability to provide reliable and timely financial reports could be
harmed and this could have a material adverse effect on our stock price.
   45




---



##### Table of Contents



ITEM 2.
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS      (Continued)
  Corporate governance regulations have recently increased our compliance costs and could further
increase our expenses if changes occur within our business.
  There are risks associated with our operations in China.
  
    
    difficulties in staffing and managing foreign operations, particularly in
attracting and retaining personnel qualified to design, sell and support CMOS image
sensors;
    
    difficulties in coordinating our operations in China with those in California;
    
    diversion of management attention;
    
    difficulties in maintaining uniform standards, controls, procedures and
policies across our global operations, including inventory management and financial
consolidation;
    
    political and economic instability, which could have an adverse impact on
foreign exchange rates in Asia and could impair our ability to conduct our business in
China; and
    
    inadequacy of the local infrastructure to support our needs.
 We may experience integration or other problems with the recent or potential future acquisitions,
which could have an adverse effect on our business or results of operations. New acquisitions
could dilute the interests of existing stockholders, and the announcement of new acquisitions
could result in a decline in the price of our common stock.
  
    
    difficulty in realizing the potential technological benefits of the
transaction;
    
    difficulty in integrating the technology, operations or work force of the
acquired business with our existing business;
 46




---



##### Table of Contents



ITEM 2.
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS      (Continued)
 
    
    unanticipated expenses related to technology integration;
    
    disruption of our ongoing business;
    
    difficulty in realizing the potential financial or strategic benefits of the transaction;
    
    difficulty in maintaining uniform standards, controls, procedures and policies;
    
    possible impairment of relationships with employees, customers, suppliers and
strategic partners as a result of integration of new businesses and management personnel;
    
    impairment of assets related to resulting goodwill, and reductions in our
future operating results from amortization of intangible assets; and
    
    potential unknown or unexpected liabilities associated with acquired
businesses.
  We may never achieve the anticipated benefits from our joint venture with TSMC.
  We may not achieve the anticipated benefits of our alliances with, and strategic investments in,
third parties.
    47




---



##### Table of Contents



ITEM 2.
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS      (Continued)
  We may be unable to adequately protect our intellectual property, and therefore we may lose some
of our competitive advantage.
  Litigation regarding intellectual property could divert management attention, be costly to defend
and prevent us from using or selling the challenged technology.
 Legal Proceedings
 
    
    ceasing the sale or use of products or services that incorporate the infringed
intellectual property;
    
    obtaining from the holder of the infringed intellectual property a license to
sell or use the relevant technology, which license may not be available on acceptable
terms, if at all; or
    
    redesigning those products or services that incorporate the disputed
intellectual property, which could result in substantial unanticipated development expenses
and prevent us from selling the products until the redesign is completed, if at all.
 48




---



##### Table of Contents



ITEM 2.
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS      (Continued)
  We have been named as a defendant in certain litigation that could have a material adverse impact
on our operating results and financial condition.
 Legal Proceedings
 If we do not effectively manage our growth, our ability to increase our revenues and improve our
earnings could be adversely affected.
  
    
    significantly improve our operational, financial and accounting systems;
    
    train and manage our existing employee base;
    
    attract and retain qualified personnel with relevant experience; and
    
    effectively manage accounts receivable and inventory.
   Our future tax rates could be higher than we anticipate if the proportion of future operating
income generated outside the U.S. by our foreign subsidiaries is less than we expect.
   49




---



##### Table of Contents



ITEM 2.
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS      (Continued)
 Our sales through distributors increase the complexity of our business, which may increase our
operating costs and may reduce our ability to forecast revenues.
  
    
    manage a more complex supply chain;
    
    manage the level of inventory at each distributor;
    
    provide for credits, return rights and price protection;
    
    estimate the impact of credits, return rights, price protection and unsold inventory at distributors; and
    
    monitor the financial condition and creditworthiness of our distributors.
  We face foreign business, political and economic risks, because a majority of our products and
those of our customers are manufactured and sold outside of the United States.
   
    
    longer payment cycles;
    
    the adverse effects of tariffs, duties, price controls or other restrictions that impair trade;
    
    decreased visibility as to future demand;
    
    difficulties in accounts receivable collections; and
    
    burdens of complying with a wide variety of foreign laws and labor practices.
  Our business could be harmed if we lose the services of one or more members of our senior
management team, or if we are unable to attract and retain qualified personnel.
   50




---



##### Table of Contents



ITEM 2.
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS      (Continued)
  We may not be able to integrate CDMs business operations into our company successfully.
Therefore, we may not achieve the anticipated benefits of the acquisition, which could adversely
affect the price of our common stock.
  We need to upgrade our enterprise resource planning system.
  Our operations may be impaired as a result of disasters, business interruptions or similar events.
  Acts of war and terrorist acts may seriously harm our business and revenue, costs and expenses and
financial condition.
  51




---



##### Table of Contents



ITEM 2.
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS      (Continued)
 Risks Related to the Securities Markets and Ownership of Our Common Stock
 Provisions in our charter documents and Delaware law, as well as our stockholders rights plan,
could prevent or delay a change in control of our company and may reduce the market price of our
common stock.
  
    
    adjusting the price, rights, preferences, privileges and restrictions of
preferred stock without stockholder approval;
    
    providing for a classified board of directors with staggered, three year terms;
    
    requiring supermajority voting to amend some provisions in our certificate of incorporation and bylaws;
    
    limiting the persons who may call special meetings of stockholders; and
    
    prohibiting stockholder actions by written consent.
  Our stock has been and will likely continue to be subject to substantial price and volume
fluctuations due to a number of factors, many of which are beyond our control, that may prevent
our stockholders from selling our common stock at a profit.
  
    
    actual or anticipated fluctuations in our operating results;
    
    changes in expectations as to our future financial performance;
    
    changes in financial estimates of securities analysts;
    
    release of lock-up or other transfer restrictions on our outstanding shares of
common stock or sales of additional shares of common stock;
    
    sales or the perception in the market of possible sales of shares of our common
stock by our directors, officers, employees or principal stockholders;
    
    changes in market valuations of other technology companies; and
    
    announcements by us or our competitors of significant technical innovations,
design wins, contracts, standards or acquisitions.
  52




---



##### Table of Contents



ITEM 2.
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS      (Continued)
 Recent Accounting Pronouncements
 Share-Based Payment,
 Shared-Based Payment,
 53




---



##### Table of Contents



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 Foreign Currency Exchange Risk
    Quantitative and Qualitative Discussion of Market Interest Rate Risk
  
 ITEM 4. CONTROLS AND PROCEDURES
 (a) Evaluation of Disclosure Controls and Procedures.
  (b) Changes in Internal Controls.
  54




---



##### Table of Contents



PART II  OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
  McKee v. OmniVision Technologies, Inc., et. al.,
Civil Action No. 01CV 10775 In re Initial Public Offering
Securities Litigation, 21 MC 92
 In re OmniVision
Technologies, Inc.,
 Gantt
v. Winn Torriani v. Hong
 Hackl v.
Hong
 55




---



##### Table of Contents



ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  Total Number ofShares
    
    
    ApproximatePurchased as
    
    
    Dollar Value ofTotal Number
    
    
    Average Price
    
    
    Part of a
    
    
    Shares that Mayof Shares
    
    
    Paid per
    
    
    Publicly
    
    
    Yet Be PurchasedPeriod
    
    Purchased
    
    
    Share
    
    
    Announced Plan
    
    
    Under the Plan(1)August 1, 2005  August 31, 2005
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    82,841September 1, 2005  September 30,
2005
    
    
    4,285
    
    
    $
    13.53
    
    
    
    4,285
    
    
    $
    24,859October 1, 2005  October 31, 2005
    
    
    335
    
    
    $
    13.22
    
    
    
    335
    
    
    $
    20,432Total
    
    
    4,620
    
    
    $
    13.51
    
    
    
    4,620
 
 (1)
    
    On June 21, 2005, our Board of Directors authorized the repurchase in an open market
program of up to an aggregate of $100 million of our common stock. Repurchases under the open
market program were authorized for a twelve-month period ending June 21, 2006. See the section
entitled Capital Resources in Item 2 of this Quarterly Report on Form 10-Q for further
information on this program. 
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  1.
    
    To elect two Class II directors to serve until the expiration of their
three-year term or until their successors are duly elected and qualified.
 VoteFor
    
    
    WithheldRaymond Wu
    
    
    48,783,926
    
    
    
    2,733,660Andrew Wang
    
    
    49,783,791
    
    
    
    1,733,795
  2.
    
    To ratify the appointment of PricewaterhouseCoopers LLP as our independent
registered public accounting firm for the fiscal year ending April 30, 2006.
 For
    
    Against
    
    Abstained51,222,856
    
    
    278,829
    
    
    
    15,901
 
 ITEM 5. OTHER INFORMATION
  56




---



##### Table of Contents



ITEM 6. EXHIBITS
 Exhibit Number
    
    Description31.1
    
    Certification of Chief Executive Officer pursuant to
Section 302 of Sarbanes-Oxley Act of 2002.31.2
    
    Certification of Chief Financial Officer pursuant to
Section 302 of Sarbanes-Oxley Act of 2002.32
    
    Certification of Chief Executive Officer and Chief
Financial Officer pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of Sarbanes-Oxley
Act of 2002.
 57




---



##### Table of Contents



SIGNATURES
  OmniVision Technologies, Inc.(Registrant)
  By:
    
    /s/Shaw HongShaw HongChief Executive Officer, President and Director(Principal Executive Officer)
  By:
    
    /s/Peter V. LeighPeter V. LeighVice President of Finance and Chief FinancialOfficer (Principal Financialand Accounting Officer)
 58




---



##### Table of Contents



Exhibit Index
 Exhibit Number
    
    Description31.1
    
    Certification of Chief Executive Officer pursuant to
Section 302 of Sarbanes-Oxley Act of 2002.31.2
    
    Certification of Chief Financial Officer pursuant to
Section 302 of Sarbanes-Oxley Act of 2002.32
    
    Certification of Chief Executive Officer and Chief
Financial Officer pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of Sarbanes-Oxley
Act of 2002.