##### 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 January 31, 2006
 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
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##### Table of Contents



OMNIVISION TECHNOLOGIES, INC.
 INDEX
 PagePART I. FINANCIAL INFORMATIONItem 1.
    
    Financial Statements:Condensed Consolidated Balance Sheets (unaudited)  January 31, 2006 and April 30, 2005
    
    
    3Condensed Consolidated Statements of Income (unaudited)  Three and Nine Months Ended
January 31, 2006 and 2005
    
    
    4Condensed Consolidated Statements of Cash Flows (unaudited)  Nine Months Ended
January 31, 2006 and 2005
    
    
    5Notes to Condensed Consolidated Financial Statements (unaudited)
    
    
    6Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    23Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    56Item 4.
    
    Controls and Procedures
    
    
    56PART II. OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    
    57Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    58Item 5.
    
    Other Information
    
    
    58Item 6.
    
    Exhibits
    
    
    58Signatures
    
    
    59Exhibit Index
    
    
    60EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32
 2




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##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 OMNIVISION TECHNOLOGIES, INC.
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 (in thousands, except per share amounts)
(unaudited)
 January 31,
    
    
    April 30,2006
    
    
    2005ASSETSCurrent assets:Cash and cash equivalents
    
    $
    190,461
    
    
    $
    170,457Short-term investments
    
    
    126,491
    
    
    
    124,258Accounts receivable, net
    
    
    76,462
    
    
    
    59,740Inventories
    
    
    62,542
    
    
    
    58,429Refundable and deferred income taxes
    
    
    5,373
    
    
    
    5,402Prepaid expenses and other current assets
    
    
    7,509
    
    
    
    2,542Total current assets
    
    
    468,838
    
    
    
    420,828Property, plant and equipment, net
    
    
    35,437
    
    
    
    19,342Long-term investments
    
    
    17,738
    
    
    
    6,814Goodwill
    
    
    4,892
    
    
    
    4,892Intangibles, net
    
    
    28,161
    
    
    
    26,414Other non-current assets
    
    
    3,027
    
    
    
    1,543Total assets
    
    $
    558,093
    
    
    $
    479,833LIABILITIES, MINORITY INTEREST AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    53,724
    
    
    $
    26,081Accrued expenses and other current liabilities
    
    
    18,444
    
    
    
    14,196Accrued income taxes payable
    
    
    46,373
    
    
    
    32,313Deferred income
    
    
    14,810
    
    
    
    5,483Total current liabilities
    
    
    133,351
    
    
    
    78,073Long-term liabilities:Deferred tax liabilities
    
    
    7,932
    
    
    
    9,347Total long-term liabilities
    
    
    7,932
    
    
    
    9,347Total liabilities
    
    
    141,283
    
    
    
    87,420Commitments and contingencies (Note 14)Minority interest
    
    
    28,096
    
    
    
    2,315Stockholders equity:Common stock, $0.001 par value; 100,000 shares authorized; 58,743
issued and 52,873 outstanding at January 31, 2006 and 57,634
shares issued and outstanding at April 30, 2005, respectively
    
    
    59
    
    
    
    58Additional paid-in capital
    
    
    273,750
    
    
    
    263,102Accumulated other comprehensive income (loss)
    
    
    895
    
    
    
    (25
    )Treasury stock, 5,870 shares at January 31, 2006 and zero shares
at April 30, 2005
    
    
    (79,568
    )
    
    
    Retained earnings
    
    
    193,578
    
    
    
    126,963Total stockholders equity
    
    
    388,714
    
    
    
    390,098Total liabilities, minority interest and stockholders equity
    
    $
    558,093
    
    
    $
    479,833
  3




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OMNIVISION TECHNOLOGIES, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF INCOME
 (in thousands, except per share amounts)
(unaudited)
 Three Months Ended
    
    
    Nine Months EndedJanuary 31,
    
    
    January 31,2006
    
    
    2005
    
    
    2006
    
    
    2005Revenues
    
    $
    137,283
    
    
    $
    101,833
    
    
    $
    360,097
    
    
    $
    285,076Cost of revenues
    
    
    81,922
    
    
    
    60,370
    
    
    
    226,984
    
    
    
    165,651Gross profit
    
    
    55,361
    
    
    
    41,463
    
    
    
    133,113
    
    
    
    119,425Operating expenses:Research and development
    
    
    10,481
    
    
    
    6,316
    
    
    
    28,893
    
    
    
    18,169Selling, general and administrative
    
    
    9,238
    
    
    
    7,100
    
    
    
    25,075
    
    
    
    21,820Total operating expenses
    
    
    19,719
    
    
    
    13,416
    
    
    
    53,968
    
    
    
    39,989Income from operations
    
    
    35,642
    
    
    
    28,047
    
    
    
    79,145
    
    
    
    79,436Interest income, net
    
    
    2,292
    
    
    
    1,190
    
    
    
    6,345
    
    
    
    2,749Other income (loss), net
    
    
    1,197
    
    
    
    44
    
    
    
    1,256
    
    
    
    (617
    )Income before income taxes and minority interest
    
    
    39,131
    
    
    
    29,281
    
    
    
    86,746
    
    
    
    81,568Provision for income taxes
    
    
    7,826
    
    
    
    8,198
    
    
    
    17,349
    
    
    
    22,839Minority interest
    
    
    1,669
    
    
    
    
    
    
    
    2,782
    
    
    
    Net income
    
    $
    29,636
    
    
    $
    21,083
    
    
    $
    66,615
    
    
    $
    58,729Net income per share:Basic
    
    $
    0.56
    
    
    $
    0.37
    
    
    $
    1.22
    
    
    $
    1.04Diluted
    
    $
    0.53
    
    
    $
    0.33
    
    
    $
    1.18
    
    
    $
    0.94Shares used in computing net income per share:Basic
    
    
    52,576
    
    
    
    56,710
    
    
    
    54,515
    
    
    
    56,501Diluted
    
    
    55,547
    
    
    
    63,457
    
    
    
    56,643
    
    
    
    62,556
  4




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OMNIVISION TECHNOLOGIES, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (in thousands)
(unaudited)
 Nine Months EndedJanuary 31,2006
    
    
    2005Cash flows from operating activities:Net income
    
    $
    66,615
    
    
    $
    58,729Adjustments to reconcile net income to net cash provided by operating
activities:Depreciation and amortization
    
    
    7,487
    
    
    
    2,294Stock-based compensation
    
    
    2
    
    
    
    876Tax benefits from stock option exercises
    
    
    2,623
    
    
    
    1,055Minority interest in net income of consolidated affiliates
    
    
    2,783
    
    
    
    Equity investments (gain) loss, net
    
    
    (1,070
    )
    
    
    755Changes in assets and liabilities, net of acquisition of business:Accounts receivable, net
    
    
    (16,596
    )
    
    
    769Inventories
    
    
    (4,160
    )
    
    
    (28,062
    )Refundable and deferred income taxes
    
    
    52
    
    
    
    133Prepaid expenses and other current assets
    
    
    (5,007
    )
    
    
    (1,159
    )Accounts payable
    
    
    14,446
    
    
    
    43,061Accrued expenses and other current liabilities
    
    
    3,664
    
    
    
    1,302Accrued income taxes payable
    
    
    13,752
    
    
    
    21,532Deferred income
    
    
    9,327
    
    
    
    (1,468
    )Deferred tax liabilities
    
    
    (1,415
    )
    
    
    Net cash provided by operating activities
    
    
    92,503
    
    
    
    99,817Cash flows from investing activities:Restricted cash
    
    
    
    
    
    
    1,072Purchases of short-term investments
    
    
    (156,246
    )
    
    
    (138,667
    )Proceeds from sales or maturities of short-term investments
    
    
    153,955
    
    
    
    112,899Purchases of property, plant and equipment
    
    
    (6,771
    )
    
    
    (1,346
    )Proceeds from consolidation of VisEra, net of cash payments
    
    
    13,792
    
    
    
    Purchases of long-term investments
    
    
    (11,847
    )
    
    
    (2,078
    )Purchases of intangible property
    
    
    (4,000
    )
    
    
    (1,460
    )Net cash used in investing activities
    
    
    (11,117
    )
    
    
    (29,580
    )Cash flows from financing activities:Proceeds from short-term borrowings of consolidated affiliate
    
    
    3,981
    
    
    
    Repayment of short-term borrowings of consolidated affiliate
    
    
    (3,981
    )
    
    
    Cash contribution by minority shareholder
    
    
    9,500
    
    
    
    Proceeds from exercise of stock options
    
    
    8,024
    
    
    
    3,295Payment for repurchase of common stock
    
    
    (79,568
    )
    
    
    Net cash provided by (used in) financing activities
    
    
    (62,044
    )
    
    
    3,295Effect of exchange rate changes on cash and cash equivalents
    
    
    662
    
    
    
    96Net increase in cash and cash equivalents
    
    
    20,004
    
    
    
    73,628Cash and cash equivalents at beginning of period
    
    
    170,457
    
    
    
    114,653Cash and cash equivalents at end of period
    
    $
    190,461
    
    
    $
    188,281Supplemental cash flow information:Taxes paid
    
    $
    244
    
    
    $
    250Interest paid
    
    $
    17
    
    
    $
    Supplemental schedule of non-cash investing and financing activities:Current
obligation for purchases of equipment
    
    $
    11,863
    
    
    $
    
  5




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OMNIVISION TECHNOLOGIES, INC.
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Three and Nine Months Ended January 31, 2006 and 2005
(unaudited)
 Note 1  Basis of Presentation
 Overview
    Reclassifications
  Cash and
    
    Short-termCash Equivalents
    
    InvestmentsAs Reported
    
    Revised
    
    As Reported
    
    RevisedJanuary 31, 2006
    
    $
    220,501
    
    
    $
    190,461
    
    
    $
    96,451
    
    
    $
    126,491April 30, 2005
    
    $
    204,057
    
    
    $
    170,457
    
    
    $
    90,658
    
    
    $
    124,258
  Cash Flow ActivityAs Reported
    
    RevisedNine months ended January 31, 2005:Purchases of short-term investments, net
    
    $
    (9,288
    )
    
    $
    (25,768
    )Net increase in cash and cash equivalents
    
    $
    90,108
    
    
    $
    73,628Cash and
cash equivalents at beginning of period
    
    $
    124,653
    
    
    $
    114,653Cash and cash equivalents at end of period
    
    $
    214,761
    
    
    $
    188,281
 6




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OMNIVISION TECHNOLOGIES, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
For the Three and Nine Months Ended January 31, 2006 and 2005
(unaudited)
 Note 2  Summary of Significant Accounting Policies
 Principles of Consolidation
  Revenue Recognition
    Cash and Cash Equivalents
   Short-Term Investments
  7




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OMNIVISION TECHNOLOGIES, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)  For the Three and Nine Months Ended January 31, 2006 and 2005  (unaudited)
   Inventories
   Goodwill
  Intangible Assets Other than Goodwill
  Treasury Stock
  Research and Development
 Accounting for Research and Development Costs,
 8




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OMNIVISION TECHNOLOGIES, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)  For the Three and Nine Months Ended January 31, 2006 and 2005  (unaudited)
 Warranty Reserve for Defective Products
  9




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OMNIVISION TECHNOLOGIES, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)  For the Three and Nine Months Ended January 31, 2006 and 2005  (unaudited)
 Stock-Based Compensation
 Accounting for Stock Issued to Employees Accounting for Certain Transactions Involving Stock
Compensation Accounting
for Stock-Based Compensation Accounting for Stock-Based
CompensationTransition and DisclosureAn Amendment of FASB Statement No. 123
 Three Months Ended
    
    
    Nine Months EndedJanuary 31,
    
    
    January 31,2006
    
    
    2005
    
    
    2006
    
    
    2005Net income, as reported
    
    $
    29,636
    
    
    $
    21,083
    
    
    $
    66,615
    
    
    $
    58,729Add: Stock-based employee
compensation expense included
in reported net income, net of
related tax effects
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14Deduct: Total stock-based
employee compensation
determined under the fair
value based method for all
awards, net of related tax
effects
    
    
    5,440
    
    
    
    6,499
    
    
    
    16,788
    
    
    
    18,477As adjusted net income
    
    $
    24,196
    
    
    $
    14,584
    
    
    $
    49,827
    
    
    $
    40,266Net income per share  Basic:As reported
    
    $
    0.56
    
    
    $
    0.37
    
    
    $
    1.22
    
    
    $
    1.04As adjusted
    
    $
    0.46
    
    
    $
    0.26
    
    
    $
    0.91
    
    
    $
    0.71Net income per share  Diluted:As reported
    
    $
    0.53
    
    
    $
    0.33
    
    
    $
    1.18
    
    
    $
    0.94As adjusted
    
    $
    0.46
    
    
    $
    0.26
    
    
    $
    0.91
    
    
    $
    0.71Shares used in computing net
income per share  Basic:As reported
    
    
    52,576
    
    
    
    56,710
    
    
    
    54,515
    
    
    
    56,501As adjusted
    
    
    52,576
    
    
    
    56,710
    
    
    
    54,515
    
    
    
    56,501Shares used in computing net
income per share  Diluted:As reported
    
    
    55,547
    
    
    
    63,457
    
    
    
    56,643
    
    
    
    62,556As adjusted
    
    
    53,060
    
    
    
    56,710
    
    
    
    54,515
    
    
    
    56,552
 Accounting for Equity Instruments
that are Offered to Other than Employees for Acquiring or in Conjunction with Selling Goods or
Services
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OMNIVISION TECHNOLOGIES, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)  For the Three and Nine Months Ended January 31, 2006 and 2005  (unaudited)
  Recent Accounting Pronouncements
 Share-Based Payment, Accounting for Stock Appreciation Rights and Other Variable Stock Option
or Award Plans an interpretation of APB Opinions No. 15 and 25,
 Shared-Based Payment,
 Accounting Changes and Error Corrections. Accounting Changes Reporting Accounting
Changes in Interim Financial Statements.
 Practical Accommodation to the Application
of Grant Date as Defined in FAS 123(R)
 Transition Election Related to Accounting
for the Tax Effects of Share-Based Payment Awards
 11




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OMNIVISION TECHNOLOGIES, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)  For the Three and Nine Months Ended January 31, 2006 and 2005  (unaudited)
  The Meaning of
Other-Than-Temporary Impairment and Its Application to Certain Investments
 Note 3  Short-Term Investments
  As of January 31, 2006Amortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gain
    
    
    Loss
    
    
    ValueU.S. government debt securities
    
    $
    9,994
    
    
    $
    
    
    
    $
    (6
    )
    
    $
    9,988Municipal bonds and notes
    
    
    89,898
    
    
    
    
    
    
    
    (14
    )
    
    
    89,884Commercial paper
    
    
    26,692
    
    
    
    
    
    
    
    (73
    )
    
    
    26,619$
    126,584
    
    
    $
    
    
    
    $
    (93
    )
    
    $
    126,491Contractual maturity dates, less than one year
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    55,696Contractual maturity dates, one year to 30 years(1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    70,795$
    126,491
 As of April 30, 2005Amortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gain
    
    
    Loss
    
    
    ValueU.S. government debt securities
    
    $
    34,662
    
    
    $
    
    
    
    $
    (20
    )
    
    $
    34,642Municipal bonds and notes
    
    
    75,150
    
    
    
    
    
    
    
    
    
    
    
    75,150Commercial paper
    
    
    14,482
    
    
    
    
    
    
    
    (16
    )
    
    
    14,466$
    124,294
    
    
    $
    
    
    
    $
    (36
    )
    
    $
    124,258Contractual maturity dates, less than one year
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    49,108Contractual maturity dates, one year to 30 years(1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    75,150$
    124,258
 
 (1)
    
    Represents auction rate securities, which have a maturity date of up to thirty
years with the interest rate being reset principally up to every 35 days and variable rate
demand notes, which have a final maturity date of up to thirty years but whose interest
rate is reset at varying intervals typically between 1 and 7 days. 12




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OMNIVISION TECHNOLOGIES, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
For the Three and Nine Months Ended January 31, 2006 and 2005
(unaudited)
 Note 4  Balance Sheet Accounts (in thousands)
 January 31,
    
    
    April 30,2006
    
    
    2005Cash and cash equivalents:Cash
    
    $
    20,503
    
    
    $
    31,564Money market funds
    
    
    140,460
    
    
    
    123,976Commercial paper
    
    
    29,498
    
    
    
    14,917$
    190,461
    
    
    $
    170,457Accounts receivable:Accounts receivable
    
    $
    84,209
    
    
    $
    66,270Less: Allowance for doubtful accounts
    
    
    (1,470
    )
    
    
    (1,237
    )Allowance for sales returns
    
    
    (6,277
    )
    
    
    (5,293
    )$
    76,462
    
    
    $
    59,740Inventories:Work in progress
    
    $
    30,800
    
    
    $
    26,957Finished goods
    
    
    31,742
    
    
    
    31,472$
    62,542
    
    
    $
    58,429Prepaid expenses and other current assets:Prepaid expenses
    
    $
    4,556
    
    
    $
    1,971Other current assets
    
    
    2,953
    
    
    
    571$
    7,509
    
    
    $
    2,542Property, plant and equipment, net:Building and land use right
    
    $
    7,169
    
    
    $
    7,013Building improvements
    
    
    2,420
    
    
    
    1,909Machinery and equipment
    
    
    32,386
    
    
    
    15,654Furniture and fixtures
    
    
    285
    
    
    
    250Software
    
    
    2,191
    
    
    
    1,866Construction in progress
    
    
    1,438
    
    
    
    1845,889
    
    
    
    26,710Less: Accumulated depreciation and amortization
    
    
    (10,452
    )
    
    
    (7,368
    )$
    35,437
    
    
    $
    19,342Accrued expenses and other current liabilities:Employee compensation
    
    $
    3,569
    
    
    $
    2,937Third party commissions
    
    
    1,696
    
    
    
    2,555Acquisition costs
    
    
    2,095
    
    
    
    2,095Professional services
    
    
    1,877
    
    
    
    1,359Noncancelable purchase commitments
    
    
    4,170
    
    
    
    Other
    
    
    5,037
    
    
    
    5,250$
    18,444
    
    
    $
    14,196
 Note 5  Long-term Investments
 ImPac Technology Co., Ltd.
  13




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OMNIVISION TECHNOLOGIES, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)  For the Three and Nine Months Ended January 31, 2006 and 2005  (unaudited)
  VisEra Technologies Company, Ltd.
    14




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OMNIVISION TECHNOLOGIES, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
For the Three and Nine Months Ended January 31, 2006 and 2005
(unaudited)
   XinTec, Inc.
  Silicon Optronics, Inc.
  Note 6  Acquisition of CDM Optics, Inc.
   15




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OMNIVISION TECHNOLOGIES, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
For the Three and Nine Months Ended January 31, 2006 and 2005
(unaudited)
  Note 7  Goodwill
  Note 8  Intangible Assets
  Accumulated
    
    
    Net BookCost
    
    
    Amortization
    
    
    ValueCore technology
    
    $
    17,800
    
    
    $
    2,670
    
    
    $
    15,130Patents and licenses
    
    
    11,260
    
    
    
    1,302
    
    
    
    9,958Other intangible assets
    
    
    3,190
    
    
    
    1,382
    
    
    
    1,808Trademarks and tradenames
    
    
    1,400
    
    
    
    210
    
    
    
    1,190Customer relationships
    
    
    100
    
    
    
    25
    
    
    
    75Intangible assets, net
    
    $
    33,750
    
    
    $
    5,589
    
    
    $
    28,161
  Accumulated
    
    
    Net BookCost
    
    
    Amortization
    
    
    ValueCore technology
    
    $
    17,800
    
    
    $
    
    
    
    $
    17,800Patents and licenses
    
    
    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
    
    $
    1,6892007
    
    
    6,7582008
    
    
    6,7582009
    
    
    6,4772010
    
    
    5,946Thereafter
    
    
    533Total
    
    $
    28,161
 Note 9  Credit Facilities of Consolidated Affiliate
  16




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##### Table of Contents



OMNIVISION TECHNOLOGIES, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
For the Three and Nine Months Ended January 31, 2006 and 2005
(unaudited)
  Note 10  Net Income Per Share
   Earnings Per Share,
 17




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##### Table of Contents



OMNIVISION TECHNOLOGIES, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
For the Three and Nine Months Ended January 31, 2006 and 2005
(unaudited)
  Three Months Ended
    
    
    Nine Months EndedJanuary 31,
    
    
    January 31,2006
    
    
    2005
    
    
    2006
    
    
    2005Numerator:Net income
    
    $
    29,636
    
    
    $
    21,083
    
    
    $
    66,615
    
    
    $
    58,729Denominator:Weighted average shares
    
    
    52,576
    
    
    
    56,710
    
    
    
    54,515
    
    
    
    56,505Weighted average unvested common stock subject
to repurchase
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4
    )Denominator for basic net income per share
    
    
    52,576
    
    
    
    56,710
    
    
    
    54,515
    
    
    
    56,501Weighted average effect of dilutive securities:Common stock options
    
    
    2,971
    
    
    
    6,747
    
    
    
    2,128
    
    
    
    6,051Unvested common stock subject to repurchase
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4Denominator for dilutive net income per
share
    
    
    55,547
    
    
    
    63,457
    
    
    
    56,643
    
    
    
    62,556Basic net income per share
    
    $
    0.56
    
    
    $
    0.37
    
    
    $
    1.22
    
    
    $
    1.04Diluted net income per share
    
    $
    0.53
    
    
    $
    0.33
    
    
    $
    1.18
    
    
    $
    0.94
 Note 11  Segment, Product Line and Geographic Information
   Three Months Ended
    
    
    Nine Months EndedJanuary 31,
    
    
    January 31,2006
    
    
    2005
    
    
    2006
    
    
    2005Digital applications
    
    $
    130,123
    
    
    $
    95,415
    
    
    $
    330,251
    
    
    $
    258,577Analog applications
    
    
    7,160
    
    
    
    6,418
    
    
    
    29,846
    
    
    
    26,499Total
    
    $
    137,283
    
    
    $
    101,833
    
    
    $
    360,097
    
    
    $
    285,076
  Three Months Ended
    
    
    Nine Months EndedJanuary 31,
    
    
    January 31,2006
    
    
    2005
    
    
    2006
    
    
    2005OEMs and VARs
    
    
    76.2
    %
    
    
    79.6
    %
    
    
    73.1
    %
    
    
    80.8
    %Distributors
    
    
    23.8
    
    
    
    20.4
    
    
    
    26.9
    
    
    
    19.2Total
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
 18




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##### Table of Contents



OMNIVISION TECHNOLOGIES, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
For the Three and Nine Months Ended January 31, 2006 and 2005
(unaudited)
  Three Months Ended
    
    
    Nine Months EndedJanuary 31,
    
    
    January 31,2006
    
    
    2005
    
    
    2006
    
    
    2005Hong Kong
    
    $
    55,622
    
    
    $
    35,119
    
    
    $
    157,214
    
    
    $
    117,779Taiwan
    
    
    18,716
    
    
    
    21,822
    
    
    
    62,406
    
    
    
    49,897China
    
    
    28,450
    
    
    
    14,897
    
    
    
    62,478
    
    
    
    46,641Japan
    
    
    23,060
    
    
    
    25,604
    
    
    
    45,490
    
    
    
    38,435South Korea
    
    
    8,540
    
    
    
    3,632
    
    
    
    25,728
    
    
    
    24,264United States
    
    
    2,164
    
    
    
    256
    
    
    
    4,584
    
    
    
    2,702All other
    
    
    731
    
    
    
    503
    
    
    
    2,197
    
    
    
    5,358Total
    
    $
    137,283
    
    
    $
    101,833
    
    
    $
    360,097
    
    
    $
    285,076
  January 31,
    
    
    April 30,2006
    
    
    2005Taiwan
    
    $
    37,620
    
    
    $
    8,401China
    
    
    17,233
    
    
    
    16,640United States
    
    
    792
    
    
    
    2,277All other
    
    
    380
    
    
    
    352Total
    
    $
    56,025
    
    
    $
    27,670
 Note 12  Employee Stock Option and Stock Purchase Plans
 Employee Stock Option Grants
  2000 Employee Stock Purchase Plan
  Fair Value Disclosures
  19




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##### Table of Contents



OMNIVISION TECHNOLOGIES, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
For the Three and Nine Months Ended January 31, 2006 and 2005
(unaudited)
   Employee Stock Option PlansThree Months Ended
    
    Nine Months EndedJanuary 31,
    
    January 31,2006
    
    2005
    
    2006
    
    2005Risk-free interest rate
    
    
    4.40
    %
    
    
    3.23
    %
    
    
    3.85
    %
    
    
    3.05
    %Expected term of options (in years)
    
    
    3.5
    
    
    
    3.5
    
    
    
    3.5
    
    
    
    3.5Expected volatility
    
    
    75.0
    %
    
    
    112.8
    %
    
    
    82.3
    %
    
    
    125.7
    %Expected dividend yield
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %
   Employee Stock Purchase PlanThree Months Ended
    
    Nine Months EndedJanuary 31,
    
    January 31,2006
    
    2005
    
    2006
    
    2005Risk-free interest rate
    
    
    4.34
    %
    
    
    2.4
    %
    
    
    3.82
    %
    
    
    2.1
    %Expected term of options (in years)
    
    
    0.5
    
    
    
    0.5
    
    
    
    0.5
    
    
    
    0.5Expected volatility
    
    
    51.8
    %
    
    
    51.7
    %
    
    
    44.5
    %
    
    
    70.5
    %Expected dividend yield
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %
 Note 13  Treasury Stock
  Note 14  Commitments and Contingencies
 Commitments
  20




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##### Table of Contents



OMNIVISION TECHNOLOGIES, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
For the Three and Nine Months Ended January 31, 2000 and 2005
(unaudited)
   Litigation
  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
 21




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##### Table of Contents



OMNIVISION TECHNOLOGIES, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
For the Three and Nine Months Ended January 31, 2006 and 2005
(unaudited)
  Hackl v.
Hong
 Note 15  Related Party Transactions
   22




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##### 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
   23




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##### Table of Contents



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




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##### Table of Contents



ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS  (Continued)
       The Current Economic Environment
  25




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##### Table of Contents



ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS  (Continued)
        26




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##### Table of Contents



ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS  (Continued)
       27




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##### Table of Contents



ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS  (Continued)
  Sources of Revenues
       Critical Accounting Policies
  28




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##### Table of Contents



ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS  (Continued)
 Results of Operations
  Three Months Ended
    
    
    Nine Months EndedJanuary 31,
    
    
    January 31,2006
    
    
    2005
    
    
    2006
    
    
    2005Revenues
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of revenues
    
    
    59.7
    
    
    
    59.3
    
    
    
    63.0
    
    
    
    58.1Gross profit
    
    
    40.3
    
    
    
    40.7
    
    
    
    37.0
    
    
    
    41.9Operating expenses:Research and development
    
    
    7.6
    
    
    
    6.2
    
    
    
    8.0
    
    
    
    6.4Selling, general and administrative
    
    
    6.7
    
    
    
    7.0
    
    
    
    7.0
    
    
    
    7.6Total operating expenses
    
    
    14.3
    
    
    
    13.2
    
    
    
    15.0
    
    
    
    14.0Income from operations
    
    
    26.0
    
    
    
    27.5
    
    
    
    22.0
    
    
    
    27.9Interest income, net
    
    
    1.7
    
    
    
    1.2
    
    
    
    1.8
    
    
    
    0.9Other income (loss), net
    
    
    0.8
    
    
    
    0.1
    
    
    
    0.3
    
    
    
    (0.2
    )Income before income taxes and minority interests
    
    
    28.5
    
    
    
    28.8
    
    
    
    24.1
    
    
    
    28.6Provision for income taxes
    
    
    5.7
    
    
    
    8.1
    
    
    
    4.8
    
    
    
    8.0Minority interest
    
    
    1.2
    
    
    
    
    
    
    
    0.8
    
    
    
    Net income
    
    
    21.6
    %
    
    
    20.7
    %
    
    
    18.5
    %
    
    
    20.6
    %
 Three Months Ended January 31, 2006 as Compared to Three Months Ended January 31, 2005
 Revenues
  29




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##### 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 EndedJanuary 31,2006
    
    
    2005Digital applications
    
    $
    130,123
    
    
    $
    95,415Analog applications
    
    
    7,160
    
    
    
    6,418Total
    
    $
    137,283
    
    
    $
    101,833
 Digital Revenues.
 Analog Revenues.
 30




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##### 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 EndedJanuary 31,2006
    
    
    2005OEMs and VARs
    
    
    76.2
    %
    
    
    79.6
    %Distributors
    
    
    23.8
    
    
    
    20.4Total
    
    
    100.0
    %
    
    
    100.0
    %
 OEMs and VARs.
 Distributors.
 Revenues from Domestic Sales as Compared to Foreign Sales
  Three Months EndedJanuary 31,2006
    
    
    2005Domestic sales
    
    
    1.6
    %
    
    
    0.3
    %Foreign sales
    
    
    98.4
    
    
    
    99.7Total
    
    
    100.0
    %
    
    
    100.0
    %
  Gross Profit
   31




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##### 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
   Interest Income, Net
  32




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##### Table of Contents



ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS  (Continued)
  Other Income (Loss), Net
  Provision for Income Taxes
  Minority Interest
  Nine Months Ended January 31, 2006 as Compared to Nine Months Ended January 31, 2005
 Revenues
  Revenues from Sales of Image-Sensor products for Digital as Compared to Analog Applications
  Nine Months EndedJanuary 31,2006
    
    
    2005Digital applications
    
    $
    330,251
    
    
    $
    258,577Analog applications
    
    
    29,846
    
    
    
    26,499Total
    
    $
    360,097
    
    
    $
    285,076
 33




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##### Table of Contents



ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS  (Continued)
 Digital Revenues.
 Analog Revenues.
 Revenues from Sales to OEMs and VARs as Compared to Distributors
  Nine Months EndedJanuary 31,2006
    
    
    2005OEMs and VARs
    
    
    73.1
    %
    
    
    80.8
    %Distributors
    
    
    26.9
    
    
    
    19.2Total
    
    
    100.0
    %
    
    
    100.0
    %
 OEMs and VARs.
 Distributors.
 Revenues from Domestic Sales as Compared to Foreign Sales
  Nine Months EndedJanuary 31,2006
    
    
    2005Domestic sales
    
    
    1.3
    %
    
    
    0.9
    %Foreign sales
    
    
    98.7
    
    
    
    99.1Total
    
    
    100.0
    %
    
    
    100.0
    %
 34




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##### Table of Contents



ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS  (Continued)
  Gross Profit
    Research and Development
   Selling, General and Administrative
   35




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##### 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 interests
  Liquidity and Capital Resources
  Liquidity
   36




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##### Table of Contents



ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS  (Continued)
   Cash Flows from Operating Activities
   Cash Flows From Investing Activities
  37




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##### Table of Contents



ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS  (Continued)
 Cash Flows From Financing Activities
  Capital Resources
    Factors Affecting Future Results.
 Contractual Obligations and Commercial Commitments
  Less than
    
    
    
    
    
    
    
    
    
    
    AfterTotal
    
    
    1 Year
    
    
    1 - 3 Years
    
    
    3 - 5 Years
    
    
    5 YearsContractual Obligations:Operating leases
    
    $
    15,813
    
    
    $
    6,373
    
    
    $
    9,100
    
    
    $
    340
    
    
    $
    Noncancelable orders
    
    
    72,936
    
    
    
    72,936
    
    
    
    
    
    
    
    
    
    
    
    Total contractual obligations
    
    
    88,749
    
    
    
    79,309
    
    
    
    9,100
    
    
    
    340
    
    
    
    Other Commercial Commitments:Investment in China
    
    
    10,300
    1
    
    
    10,300
    
    
    
    
    
    
    
    
    
    
    
    Joint Venture with TSMC
    
    
    6,500
    2
    
    
    
    
    
    
    6,500
    
    
    
    
    
    
    
    Total commercial commitments
    
    
    16,800
    
    
    
    10,300
    
    
    
    6,500
    
    
    
    
    
    
    
    Total contractual
obligations and commercial
commitments
    
    $
    105,549
    
    
    $
    89,609
    
    
    $
    15,600
    
    
    $
    340
    
    
    $
    
 
 1
    
    Represents the remaining $10.3 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. 38




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##### Table of Contents



ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS  (Continued)
 Under an agreement with the Chinese government, the date by which the remaining $10.3 million
of registered capital must be funded is now January 17, 2007.2
    
    On August 12, 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.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 $18.5 million to VisEra and VisEra Cayman. A minimum of an
additional $6.5 million in cash and asset contributions will be made by each of the parties,
with the remaining $15.0 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.Pursuant to the terms of the Amended VisEra Agreement, VisEra Cayman used approximately $11.8
million of the $18.0 million increase in the total capital commitment for the acquisition of
approximately 29.7% of the issued shares of XinTec, of which we own separately and directly
approximately 8%. In accordance with the provisions of FIN 46, we consolidated the results of
VisEra beginning in the fiscal quarter ended October 31, 2005. See Note 5 in our consolidated
financial statements.All other material terms of the original Shareholders Agreement remain in effect.
 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.
  39




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##### 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;
 40




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ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS  (Continued)
 
 
    
    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.
  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.
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ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS  (Continued)
   
    
    reduced control over 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.
  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.
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ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS  (Continued)
 Declines in our average selling prices may result in declines in our revenues and gross margins.
  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.
  If we do not forecast customer demand correctly, our business could be impaired and our stock
price may decline.
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ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS  (Continued)
  We depend on the increased acceptance of mass-market image sensor applications to grow our
business and increase our revenues.
   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.
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ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS  (Continued)
  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.
  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.
  
    
    the mix of our product sales;
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ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS  (Continued)
 
 
    
    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.
   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.
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ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS  (Continued)
  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.
    Corporate governance regulations have recently increased our compliance costs and could further
increase our expenses if changes occur within our business.
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ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS  (Continued)
 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 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;
    
    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.
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ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS  (Continued)
 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.
    Changes in our relationships with our joint ventures and/or companies in which we hold less than a majority interest could change the way we account for such interests in the future.
  We may be unable to adequately protect our intellectual property, and therefore we may lose some
of our competitive advantage.
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ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS  (Continued)
  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.
  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
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ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS  (Continued)
 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.
   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.
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ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS  (Continued)
 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.
   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.
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ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS  (Continued)
 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.
  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.
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ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS  (Continued)
  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.
  Recent Accounting Pronouncements
 Share-Based Payment, Accounting for Stock Appreciation Rights and Other Variable Stock Option or Award Plans an
interpretation of APB Opinions No. 15 and 25,
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ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS  (Continued)
  Shared-Based Payment,
 Accounting Changes and Error Corrections. Accounting Changes Reporting Accounting
Changes in Interim Financial Statements.
 Practical Accommodation to the Application
of Grant Date as Defined in FAS 123(R)
 Transition Election Related to Accounting
for the Tax Effects of Share-Based Payment Awards
 The Meaning of
Other-Than-Temporary Impairment and Its Application to Certain Investments
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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.
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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
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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  
 ITEM 5. OTHER INFORMATION
  
 ITEM 6. EXHIBITS
 ExhibitNumber
    
    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.
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SIGNATURES
  OmniVision Technologies, Inc.(Registrant)Dated: March 13, 2006
 By:
    
    /s/Shaw HongShaw HongChief Executive Officer, President and Director(Principal Executive Officer)Dated: March 13, 2006By:
    
    /s/Peter V. LeighPeter V. LeighVice President of Finance and Chief FinancialOfficer (Principal Financialand Accounting Officer)
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Exhibit Index
 ExhibitNumber
    
    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.
 60