##### 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 July 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
 Yes
o þ




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##### 



OMNIVISION TECHNOLOGIES, INC.
 INDEX
 PagePART I. FINANCIAL INFORMATIONItem 1.Financial Statements:Condensed Consolidated Balance Sheets (unaudited)  July 31, 2006 and April 30, 2006
    
    
    3Condensed Consolidated Statements of Income (unaudited)  Three Months Ended July 31, 2006 and 2005
    
    
    4Condensed Consolidated Statements of Cash Flows (unaudited)  Three Months Ended July 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
    
    
    25Item 3.Quantitative and Qualitative Disclosures About Market Risk
    
    
    40Item 4.Controls and Procedures
    
    
    41PART II. OTHER INFORMATIONItem 1.Legal Proceedings
    
    
    42Item 1A.Risk Factors
    
    
    43Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    57Item 6.Exhibits
    
    
    57Signatures
    
    
    58Exhibit IndexEXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32
  2




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PART I  FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 OMNIVISION TECHNOLOGIES, INC.
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 (in thousands, except per share amounts)
 (unaudited)
 July 31,
    
    
    April 30,2006
    
    
    2006ASSETSCurrent assets:Cash and cash equivalents
    
    $
    256,718
    
    
    $
    240,227Short-term investments
    
    
    120,754
    
    
    
    114,278Accounts receivable, net
    
    
    72,026
    
    
    
    65,916Inventories
    
    
    68,466
    
    
    
    54,973Refundable and deferred income taxes
    
    
    1,695
    
    
    
    1,708Prepaid expenses and other current assets
    
    
    10,401
    
    
    
    9,158Total current assets
    
    
    530,060
    
    
    
    486,260Property, plant and equipment, net
    
    
    42,450
    
    
    
    38,010Long-term investments
    
    
    19,549
    
    
    
    18,673Goodwill
    
    
    4,892
    
    
    
    4,892Intangibles, net
    
    
    27,285
    
    
    
    26,245Other non-current assets
    
    
    2,819
    
    
    
    3,189Total assets
    
    $
    627,055
    
    
    $
    577,269LIABILITIES, MINORITY INTEREST AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    49,788
    
    
    $
    42,770Accrued expenses and other current liabilities
    
    
    21,414
    
    
    
    21,351Accrued income taxes payable
    
    
    58,657
    
    
    
    52,406Deferred income
    
    
    7,268
    
    
    
    6,329Current portion of capital lease obligations
    
    
    106
    
    
    
    152Total current liabilities
    
    
    137,233
    
    
    
    123,008Long-term liabilities:Capital lease obligations, less current portion
    
    
    277
    
    
    
    308Deferred tax liabilities
    
    
    3,548
    
    
    
    4,033Total long-term liabilities
    
    
    3,825
    
    
    
    4,341Total liabilities
    
    
    141,058
    
    
    
    127,349Commitments and contingencies (Note 13)Minority interest
    
    
    32,690
    
    
    
    27,113Stockholders equity:Common stock, $0.001 par value; 100,000 shares authorized; 60,368
issued and 54,498 outstanding at July 31, 2006 and 59,744 shares
issued and 53,874 outstanding at April 30, 2006, respectively
    
    
    60
    
    
    
    60Additional paid-in capital
    
    
    299,544
    
    
    
    285,112Accumulated other comprehensive income
    
    
    1,279
    
    
    
    1,092Treasury stock, 5,870 shares at July 31, 2006 and April 30, 2006
    
    
    (79,568
    )
    
    
    (79,568
    )Retained earnings
    
    
    231,992
    
    
    
    216,111Total stockholders equity
    
    
    453,307
    
    
    
    422,807Total liabilities, minority interest and stockholders equity
    
    $
    627,055
    
    
    $
    577,269
  3




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OMNIVISION TECHNOLOGIES, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF INCOME
 (in thousands, except per share amounts)
 (unaudited)
 Three Months EndedJuly 31,2006
    
    
    2005Revenues
    
    $
    136,875
    
    
    $
    95,994Cost of revenues
    
    
    87,155
    
    
    
    64,065Gross profit
    
    
    49,720
    
    
    
    31,929Operating expenses:Research, development and related
    
    
    16,842
    
    
    
    8,477Selling, general and administrative
    
    
    12,451
    
    
    
    6,778Total operating expenses
    
    
    29,293
    
    
    
    15,255Income from operations
    
    
    20,427
    
    
    
    16,674Interest income, net
    
    
    3,403
    
    
    
    1,959Other income, net
    
    
    977
    
    
    
    23Income before income taxes and minority interest
    
    
    24,807
    
    
    
    18,656Provision for income taxes
    
    
    6,624
    
    
    
    3,732Minority interest
    
    
    2,302
    
    
    
    542Net income
    
    $
    15,881
    
    
    $
    14,382Net income per share:Basic
    
    $
    0.29
    
    
    $
    0.25Diluted
    
    $
    0.28
    
    
    $
    0.25Shares used in computing net income per share:Basic
    
    
    54,401
    
    
    
    57,178Diluted
    
    
    56,704
    
    
    
    58,194
  4




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OMNIVISION TECHNOLOGIES, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (in thousands)
 (unaudited)
 Three Months EndedJuly 31,2006
    
    
    2005Cash flows from operating activities:Net income
    
    $
    15,881
    
    
    $
    14,382Adjustments to reconcile net income to net cash provided by operating
activities:Depreciation and amortization
    
    
    3,788
    
    
    
    2,331Stock-based compensation
    
    
    6,455
    
    
    
    2Affiliates stock grants
    
    
    179
    
    
    
    Tax benefits from stock option exercises
    
    
    
    
    
    
    563Minority interest in net income of consolidated affiliates
    
    
    2,302
    
    
    
    542Equity investments gain, net
    
    
    (876
    )
    
    
    (16
    )Loss on disposal of property, plant and equipment
    
    
    8
    
    
    
    Changes in assets and liabilities:Accounts receivable, net
    
    
    (6,117
    )
    
    
    5,154Inventories
    
    
    (13,568
    )
    
    
    (2,980
    )Refundable and deferred income taxes
    
    
    
    
    
    
    77Prepaid expenses and other current assets
    
    
    (3,108
    )
    
    
    (1,312
    )Accounts payable
    
    
    7,047
    
    
    
    8,293Accrued expenses and other current liabilities
    
    
    106
    
    
    
    (1,231
    )Accrued income taxes payable
    
    
    6,252
    
    
    
    3,537Deferred income
    
    
    939
    
    
    
    4,132Deferred tax liabilities
    
    
    (485
    )
    
    
    (477
    )Net cash provided by operating activities
    
    
    18,803
    
    
    
    32,997Cash flows from investing activities:Purchases of short-term investments
    
    
    (58,122
    )
    
    
    (78,249
    )Proceeds from sales or maturities of short-term investments
    
    
    51,528
    
    
    
    63,300Purchases of property, plant and equipment, net of sales
    
    
    (6,137
    )
    
    
    (248
    )Purchases of intangible assets
    
    
    (548
    )
    
    
    Net cash used in investing activities
    
    
    (13,279
    )
    
    
    (15,197
    )Cash flows from financing activities:Payment of capital lease obligations
    
    
    (39
    )
    
    
    Cash contribution by minority shareholder
    
    
    4,290
    
    
    
    Proceeds from exercise of stock options and employee stock purchase plan
    
    
    6,748
    
    
    
    1,635Payment for repurchases of common stock
    
    
    
    
    
    
    (17,159
    )Net cash provided by (used in) financing activities
    
    
    10,999
    
    
    
    (15,524
    )Effect of exchange rate changes on cash and cash equivalents
    
    
    (32
    )
    
    
    (73
    )Net increase in cash and cash equivalents
    
    
    16,491
    
    
    
    2,203Cash and cash equivalents at beginning of period
    
    
    240,227
    
    
    
    170,457Cash and cash equivalents at end of period
    
    $
    256,718
    
    
    $
    172,660Supplemental cash flow information:Taxes paid
    
    $
    1,580
    
    
    $
    Interest paid
    
    $
    7
    
    
    $
    Supplemental schedule of non-cash investing and financing activities:Capital lease obligation to finance capital equipment
    
    $
    44
    
    
    $
    Affiliate shares issued to affiliate employees
    
    $
    459
    
    
    $
    Affiliate cash dividend payable to minority shareholder
    
    $
    245
    
    
    $
    Change-of-interest benefit from minority shareholder cash contribution
    
    $
    1,229
    
    
    $
    
  5




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OMNIVISION TECHNOLOGIES, INC.
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 For the Three Months Ended July 31, 2006 and 2005
 (unaudited)
 Note 1  Basis of Presentation
 Overview
   Use of Estimates
  Reclassifications
  Cash and
    
    Short-termCash Equivalents
    
    InvestmentsAs Reported
    
    Revised
    
    As Reported
    
    RevisedJuly 31, 2005
    
    $
    193,560
    
    
    $
    172,660
    
    
    $
    118,395
    
    
    $
    139,295
  Cash Flow ActivityAs Reported
    
    RevisedPurchases of short-term investments
    
    $
    (35,149
    )
    
    $
    (78,249
    )Proceeds from sales or maturities of short-term investments
    
    
    7,500
    
    
    
    63,300Net increase (decrease) in cash and cash equivalents
    
    
    (10,497
    )
    
    
    2,203Cash and cash equivalents at beginning of period
    
    
    204,057
    
    
    
    170,457Cash and cash equivalents at end of period
    
    $
    193,560
    
    
    $
    172,660
 6




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##### Table of Contents



OMNIVISION TECHNOLOGIES, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
For the Three Months Ended July 31, 2006 and 2005
(unaudited)
 Note 2  Summary of Significant Accounting Policies
 Principles of Consolidation
  Revenue Recognition
    Foreign Currency Translation
   7




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OMNIVISION TECHNOLOGIES, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
For the Three Months Ended July 31, 2006 and 2005
(unaudited)
 Cash and Cash Equivalents
   Inventories
   Stock-Based Compensation
 Share-Based Payment, Accounting
for Stock Issued to Employees Accounting for Stock-Based Compensation Share-Based Payment
   Transition Election Related to Accounting for Tax Effects of Share-based
Payment Awards
 8




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OMNIVISION TECHNOLOGIES, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
For the Three Months Ended July 31, 2006 and 2005
(unaudited)
  Accounting for Stock Appreciation Rights and Other Variable Stock Option or Award Plans.
 Comprehensive Income (loss)
  Recent Accounting Pronouncements
 Accounting for Uncertainty in Income Taxesan Interpretation of
FASB Statement No. 109.
 9




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OMNIVISION TECHNOLOGIES, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
For the Three Months Ended July 31, 2006 and 2005
(unaudited)
 Note 3  Short-Term Investments
  July 31,
    
    
    April 30,2006
    
    
    2006Certificates of deposit
    
    $
    3,084
    
    
    $
    Available-for-sale securities
    
    
    117,670
    
    
    
    114,278Total
    
    $
    120,754
    
    
    $
    114,278
  As of July 31, 2006Amortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gain
    
    
    Loss
    
    
    ValueForeign government bonds
    
    $
    1,985
    
    
    $
    
    
    
    $
    
    
    
    $
    1,985Municipal bonds and notes
    
    
    112,717
    
    
    
    2
    
    
    
    (34
    )
    
    
    112,685Commercial paper
    
    
    3,000
    
    
    
    
    
    
    
    
    
    
    
    3,000$
    117,702
    
    
    $
    2
    
    
    $
    (34
    )
    
    $
    117,670Contractual maturity dates, less than one year
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    42,791Contractual maturity dates, one year to 35 years(1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    74,879$
    117,670
 As of April 30, 2006Amortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gain
    
    
    Loss
    
    
    ValueMunicipal bonds and notes
    
    $
    95,445
    
    
    $
    
    
    
    $
    (39
    )
    
    $
    95,406Commercial paper
    
    
    18,900
    
    
    
    
    
    
    
    (28
    )
    
    
    18,872$
    114,345
    
    
    $
    
    
    
    $
    (67
    )
    
    $
    114,278Contractual maturity dates, less than one year
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    36,648Contractual maturity dates, one year to 34 years(1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    77,630$
    114,278
 
 (1)
    
    Represents auction rate securities, which have a maturity date of up to 30 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 35 years but whose interest rate
is reset at varying intervals typically between one and seven days. 10




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OMNIVISION TECHNOLOGIES, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
For the Three Months Ended July 31, 2006 and 2005
(unaudited)
 Note 4  Balance Sheet Accounts (in thousands)
 July 31,
    
    
    April 30,2006
    
    
    2006Cash and cash equivalents:Cash
    
    $
    11,643
    
    
    $
    8,597Money market funds and certificates of deposit
    
    
    204,047
    
    
    
    197,030Commercial paper and government bonds
    
    
    41,028
    
    
    
    34,600$
    256,718
    
    
    $
    240,227Accounts receivable, net:Accounts receivable
    
    $
    79,235
    
    
    $
    73,412Less: Allowance for doubtful accounts
    
    
    (1,051
    )
    
    
    (1,067
    )Allowance for sales returns
    
    
    (6,158
    )
    
    
    (6,429
    )$
    72,026
    
    
    $
    65,916Inventories:Work in progress
    
    $
    43,960
    
    
    $
    34,310Finished goods
    
    
    24,506
    
    
    
    20,663$
    68,466
    
    
    $
    54,973Prepaid expenses and other current assets:Prepaid expenses
    
    $
    2,798
    
    
    $
    2,758Deposits and other
    
    
    6,075
    
    
    
    4,556Interest receivable
    
    
    1,528
    
    
    
    1,844$
    10,401
    
    
    $
    9,158Property, plant and equipment, net:Building and land use right
    
    $
    7,281
    
    
    $
    7,163Buildings/leasehold improvements
    
    
    3,132
    
    
    
    2,702Machinery and equipment
    
    
    40,008
    
    
    
    34,185Furniture and fixtures
    
    
    762
    
    
    
    713Software
    
    
    2,479
    
    
    
    2,280Construction in progress
    
    
    3,112
    
    
    
    3,24856,774
    
    
    
    50,291Less: Accumulated depreciation and amortization
    
    
    (14,324
    )
    
    
    (12,281
    )$
    42,450
    
    
    $
    38,010Accrued expenses and other current liabilities:Employee compensation
    
    $
    6,051
    
    
    $
    5,301Third party commissions
    
    
    1,634
    
    
    
    1,876Acquisition costs
    
    
    2,095
    
    
    
    2,095Professional services
    
    
    1,628
    
    
    
    2,494Noncancelable purchase commitments
    
    
    2,415
    
    
    
    2,627Pricing adjustments
    
    
    5,818
    
    
    
    3,968Other
    
    
    1,773
    
    
    
    2,990$
    21,414
    
    
    $
    21,351
 11




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OMNIVISION TECHNOLOGIES, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
For the Three Months Ended July 31, 2006 and 2005
(unaudited)
 Note 5  Long-term Investments
  July 31,
    
    
    April 30,2006
    
    
    2006ImPac
    
    $
    2,253
    
    
    $
    2,130XinTec
    
    
    17,296
    
    
    
    16,543Total
    
    $
    19,549
    
    
    $
    18,673
 ImPac Technology Co., Ltd.
  XinTec, Inc.
  Silicon Optronics, Inc.
   VisEra Technologies Company, Ltd.
  12




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OMNIVISION TECHNOLOGIES, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
For the Three Months Ended July 31, 2006 and 2005
(unaudited)
   Consolidation of Variable Interest Entities
    13




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OMNIVISION TECHNOLOGIES, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
For the Three Months Ended July 31, 2006 and 2005
(unaudited)
 Note 6  Intangible Assets
  AccumulatedCost
    
    
    Amortization
    
    
    Net Book ValueCore technology
    
    $
    17,800
    
    
    $
    4,450
    
    
    $
    13,350Patents and licenses
    
    
    13,460
    
    
    
    2,501
    
    
    
    10,959Other intangible assets
    
    
    2,073
    
    
    
    205
    
    
    
    1,868Trademarks and tradenames
    
    
    1,400
    
    
    
    350
    
    
    
    1,050Customer relationships
    
    
    100
    
    
    
    42
    
    
    
    58Intangible assets, net
    
    $
    34,833
    
    
    $
    7,548
    
    
    $
    27,285
  AccumulatedCost
    
    
    Amortization
    
    
    Net Book ValueCore technology
    
    $
    17,800
    
    
    $
    3,560
    
    
    $
    14,240Patents and licenses
    
    
    11,260
    
    
    
    1,865
    
    
    
    9,395Other intangible assets
    
    
    1,525
    
    
    
    102
    
    
    
    1,423Trademarks and tradenames
    
    
    1,400
    
    
    
    280
    
    
    
    1,120Customer relationships
    
    
    100
    
    
    
    33
    
    
    
    67Intangible assets, net
    
    $
    32,085
    
    
    $
    5,840
    
    
    $
    26,245
  Years Ended April 30,2007
    
    $
    5,2352008
    
    
    6,9802009
    
    
    6,9472010
    
    
    6,8002011
    
    
    1,286Thereafter
    
    
    37Total
    
    $
    27,285
 Note 7  Credit Facilities of Consolidated Affiliates
  Note 8  Capital Lease Obligations
  14




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OMNIVISION TECHNOLOGIES, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
For the Three Months Ended July 31, 2006 and 2005
(unaudited)
 Note 9  Net Income Per Share
   Earnings Per Share,
  Three Months EndedJuly 31,2006
    
    
    2005Basic:Numerator:Net income
    
    $
    15,881
    
    
    $
    14,382Denominator:Weighted average common shares for net income per share
    
    
    54,401
    
    
    
    57,178Basic net income per share
    
    $
    0.29
    
    
    $
    0.25Diluted:Numerator:Net income
    
    $
    15,881
    
    
    $
    14,382Dilutive effect of SOI consolidation
    
    
    (1
    )
    
    
    (9
    )Net income for diluted computation
    
    $
    15,880
    
    
    $
    14,373Denominator:Denominator for basic net income per share
    
    
    54,401
    
    
    
    57,178Weighted average effect of dilutive securities:Common stock options
    
    
    2,303
    
    
    
    1,016Weighted average common shares for diluted net income per share
    
    
    56,704
    
    
    
    58,194Diluted net income per share
    
    $
    0.28
    
    
    $
    0.25
 15




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OMNIVISION TECHNOLOGIES, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
For the Three Months Ended July 31, 2006 and 2005
(unaudited)
 Note 10  Segment and Geographic Information
   Three Months EndedJuly 31,2006
    
    2005OEMs and VARs
    
    
    68.1
    %
    
    
    73.8
    %Distributors
    
    
    31.9
    
    
    
    26.2Total
    
    
    100.0
    %
    
    
    100.0
    %
  Three Months EndedJuly 31,2006
    
    
    2005Hong Kong
    
    $
    50,082
    
    
    $
    44,292Taiwan
    
    
    27,970
    
    
    
    18,679China
    
    
    25,992
    
    
    
    13,832South Korea
    
    
    14,242
    
    
    
    5,712Japan
    
    
    13,088
    
    
    
    11,227United States
    
    
    2,493
    
    
    
    957All other
    
    
    3,008
    
    
    
    1,295Total
    
    $
    136,875
    
    
    $
    95,994
  July 31,
    
    
    April 30,2006
    
    
    2006Taiwan
    
    $
    44,092
    
    
    $
    40,637China
    
    
    16,694
    
    
    
    17,146United States
    
    
    1,542
    
    
    
    1,633All other
    
    
    524
    
    
    
    456Total
    
    $
    62,852
    
    
    $
    59,872
 Note 11  Employee Stock Purchase and Stock Option Plans
 2000 Employee Stock Purchase Plan
  16




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##### Table of Contents



OMNIVISION TECHNOLOGIES, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
For the Three Months Ended July 31, 2006 and 2005
(unaudited)
  1995 Stock Option Plan
   2000 Stock Plan
   17




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##### Table of Contents



OMNIVISION TECHNOLOGIES, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
For the Three Months Ended July 31, 2006 and 2005
(unaudited)
 2000 Director Option Plan
  Stock-Based Compensation Award Activity
  Options outstandingWeightedOptions
    
    
    
    
    
    
    AverageAvailable For
    
    
    Number of
    
    
    Price PerGrant
    
    
    Shares
    
    
    Share(in thousands)
    
    
    (in thousands)Balance at April 30, 2006
    
    
    3,041
    
    
    
    8,963
    
    
    $
    16.22Replenished
    
    
    3,135
    
    
    
    
    
    
    
    Granted
    
    
    (2,782
    )
    
    
    2,782
    
    
    
    25.44Exercised
    
    
    
    
    
    
    (526
    )
    
    
    10.26Expired or forfeited
    
    
    61
    
    
    
    (61
    )
    
    
    24.25Balance at July 31, 2006
    
    
    3,455
    
    
    
    11,158
    
    
    
    18.76Vested and expected to vest at July 31, 2006
    
    
    
    
    
    
    10,247
    
    
    $
    18.36
  18




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##### Table of Contents



OMNIVISION TECHNOLOGIES, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
For the Three Months Ended July 31, 2006 and 2005
(unaudited)
 Options Outstanding
    
    
    Options ExercisableWeightedAverage
    
    
    Weighted
    
    
    
    
    
    
    
    
    
    
    Weighted
    
    
    WeightedRemaining
    
    
    Average
    
    
    Aggregate
    
    
    Options
    
    
    Average
    
    
    Average
    
    
    AggregateRange of Exercise
    
    Options
    
    
    Contractual
    
    
    Exercise
    
    
    Intrinsic
    
    
    Vested and
    
    
    Remaining
    
    
    Exercise
    
    
    IntrinsicPrices
    
    Outstanding
    
    
    Life
    
    
    Price
    
    
    Value
    
    
    Exercisable
    
    
    Contractual Life
    
    
    Price
    
    
    Value(in thousands)
    
    
    (in years)
    
    
    
    
    
    
    (in thousands)
    
    
    (in thousands)
    
    
    (in years)
    
    
    
    
    
    
    (in thousands)$0.15$8.27
    
    
    1,353
    
    
    
    5.20
    
    
    $
    4.91
    
    
    
    
    
    
    
    1,325
    
    
    
    
    
    
    $
    4.85$8.28$15.76
    
    
    1,793
    
    
    
    8.53
    
    
    
    13.60
    
    
    
    
    
    
    
    985
    
    
    
    
    
    
    
    13.71$15.77$18.77
    
    
    2,712
    
    
    
    7.49
    
    
    
    17.04
    
    
    
    
    
    
    
    1,473
    
    
    
    
    
    
    
    16.67$18.78$25.50
    
    
    2,561
    
    
    
    8.22
    
    
    
    23.93
    
    
    
    
    
    
    
    948
    
    
    
    
    
    
    
    23.47$25.51$30.05
    
    
    2,739
    
    
    
    9.77
    
    
    
    25.84
    
    
    
    
    
    
    
    68
    
    
    
    
    
    
    
    27.72$0.15$30.05
    
    
    11,158
    
    
    
    8.11
    
    
    $
    18.76
    
    
    $
    34,067
    
    
    
    4,799
    
    
    
    7.01
    
    
    $
    14.30
    
    
    $
    27,390
    Impact of the Adoption of SFAS No. 123(R)
  Three MonthsEndedJuly 31, 2006Stock-based compensation expense by type of award:Employee stock options
    
    $
    6,030Employee stock purchase plan
    
    
    425Total stock-based compensation
    
    
    6,455Tax effect
    
    
    792Net effect on net income
    
    $
    5,663
 19




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##### Table of Contents



OMNIVISION TECHNOLOGIES, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
For the Three Months Ended July 31, 2006 and 2005
(unaudited)
 Valuation Assumptions
    Employee Stock Option PlansThree Months EndedJuly 31,2006
    
    2005Risk-free interest rate
    
    
    5.05
    %
    
    
    3.70
    %Expected term of options (in years)
    
    
    4.0
    
    
    
    3.5Expected volatility
    
    
    66.8
    %
    
    
    84.3
    %Expected dividend yield
    
    
    0
    %
    
    
    0
    %
   Employee Stock Purchase PlanThree Months EndedJuly 31,2006
    
    2005Risk-free interest rate
    
    
    5.11
    %
    
    
    3.28
    %Expected term of options (in years)
    
    
    0.5
    
    
    
    0.5Expected volatility
    
    
    57.2
    %
    
    
    43.0
    %Expected dividend yield
    
    
    0
    %
    
    
    0
    %
  
    
    Expected term:The expected term represents the period that the Companys stock-based
awards are expected to be outstanding and is estimated based on historical experience.
    
    Risk-free interest rate:The risk-free interest rate assumption is based upon observed
interest rates appropriate for the expected term of the Companys stock-based awards.
 20




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##### Table of Contents



OMNIVISION TECHNOLOGIES, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
For the Three Months Ended July 31, 2006 and 2005
(unaudited)
 
    
    Expected volatility:The Company determines expected volatility based on an average
between the historical volatility of the Companys common stock and the implied volatility
based on the Companys traded options.
    
    Dividend yield:The dividend yield assumption reflects the Companys intention not to
issue a dividend under its dividend policy.
    
    Estimated pre-vesting forfeitures:When estimating pre-vesting forfeitures, the Company
considers forfeiture behavior based on actual historical information.
 Periods Prior to Adoption of SFAS No. 123(R)
 Accounting for Stock-Based Compensation  Transition and Disclosures.
 Three Months EndedJuly 31, 2005Net income, as reported
    
    $
    14,382Add: Stock-based employee compensation expense included
in reported net income, net of related tax effects
    
    
    Deduct: Total stock-based employee compensation
determined under fair value based method for all
awards, net of related tax effects
    
    
    5,540As adjusted net income
    
    $
    8,842Net income per share  Basic:As reported
    
    $
    0.25As adjusted
    
    $
    0.15Net income per share  Diluted:As reported
    
    $
    0.25As adjusted
    
    $
    0.15Shares used in computing net income per share  Basic:As reported
    
    
    57,178As adjusted
    
    
    57,178Shares used in computing net income per share  Diluted:As reported
    
    
    58,194As adjusted
    
    
    57,178
 Note 12  Treasury Stock
  21




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##### Table of Contents



OMNIVISION TECHNOLOGIES, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
For the Three Months Ended July 31, 2006 and 2005
(unaudited)
 Note 13  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
 22




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##### Table of Contents



OMNIVISION TECHNOLOGIES, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
For the Three Months Ended July 31, 2006 and 2005
(unaudited)
  In
re OmniVision Technologies, Inc.,
 Hackl v.
Hong
 Note 14  Related Party Transactions
   23
    Table of Contents   OMNIVISION TECHNOLOGIES, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
For the Three Months Ended July 31, 2006 and 2005
(unaudited)
  Note
15 Subsequent Events
    24    Table of Contents  ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 The following information should be read 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 Annual Report on Form 10-K, including, but not limited to, statements regarding the
expansion of our testing capabilities and packaging capacity, manufacturing services to be provided
by VisEra, future trends and opportunities in certain markets, the development, introduction and
capabilities of new products, the establishment of partnerships with other companies, the extent of
future sales outside of the United States, the increase of competition in our industry, the
continued importance of the camera cell phone market to our business, continued price competition
and reduction of average selling prices with respect to our products, the quarterly variation in
customers orders, the extent of certain future expenses, our effective tax rate for fiscal 2007,
our future investments, our working capital requirements in fiscal 2007, and the 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 set forth under the caption Item 1A. Risk
Factors, beginning on page 43 of this
Quarterly Report and elsewhere in this Quarterly Report and in other documents we file with the
U.S. Securities and Exchange Commission. All subsequent written and oral forward-looking statements
by or attributable to us or persons acting on our behalf are expressly qualified in their entirety
by such factors.
 OmniVision is a registered trademark of OmniVision Technologies, Inc. CameraChip, OmniPixel,
OmniPixel2, OmniQSP, VarioPixel and VarioPixel2 are trademarks of OmniVision Technologies, Inc.
Wavefront Coded is a registered trademark of CDM Optics, Inc., a wholly-owned subsidiary of
OmniVision Technologies, Inc. Wavefront Coding is a trademark of CDM Optics, Inc.
 Overview
  Products and Technology
   25
    Table of Contents  ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS  (Continued)
 1 4
   Joint Venture with TSMC
    26
    Table of Contents  ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS  (Continued)
   Joint Venture with PSC
  Acquisition of CDM
  Capital Resources
   The Current Economic and Market Environment
  27
    Table of Contents  ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS  (Continued)
        28
    Table of Contents  ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS  (Continued)
       29
    Table of Contents   ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS  (Continued)
     Sources of Revenues
    30
    Table of Contents   ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS  (Continued)
   Critical Accounting Policies
 Share-Based Payment,
 Stock-Based Compensation Expense
   Results of Operations
  31
    Table of Contents  ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS  (Continued)
 Three Months EndedJuly 31,2006
    
    2005Revenues
    
    
    100.0
    %
    
    
    100.0
    %Cost of revenues
    
    
    63.7
    
    
    
    66.7Gross margin
    
    
    36.3
    
    
    
    33.3Operating expenses:Research, development and related
    
    
    12.3
    
    
    
    8.8Selling, general and administrative
    
    
    9.1
    
    
    
    7.1Total operating expenses
    
    
    21.4
    
    
    
    15.9Income from operations
    
    
    14.9
    
    
    
    17.4Interest income, net
    
    
    2.5
    
    
    
    2.0Other income, net
    
    
    0.7
    
    
    
    Income before income taxes and minority interest
    
    
    18.1
    
    
    
    19.4Provision for income taxes
    
    
    4.8
    
    
    
    3.9Minority interest
    
    
    1.7
    
    
    
    0.5Net income
    
    
    11.6
    %
    
    
    15.0
    %
 Three Months Ended July 31, 2006 as Compared to Three Months Ended July 31, 2005
 Revenues
  Revenues from Sales to OEMs and VARs as Compared to Distributors
  Three Months EndedJuly 31,2006
    
    2005OEMs and VARs
    
    
    68.1
    %
    
    
    73.8
    %Distributors
    
    
    31.9
    
    
    
    26.2Total
    
    
    100.0
    %
    
    
    100.0
    %
 OEMs and VARs.
 Distributors.
 32
    Table of Contents  ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS  (Continued)
 Revenues from Domestic Sales as Compared to Foreign Sales
  Three Months EndedJuly 31,2006
    
    2005Domestic sales
    
    
    1.8
    %
    
    
    1.0
    %Foreign sales
    
    
    98.2
    
    
    
    99.0Total
    
    
    100.0
    %
    
    
    100.0
    %
  Gross Profit
   Research, Development and Related
   33
    Table of Contents  ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS  (Continued)
  Selling, General and Administrative
   Interest Income, Net
  Other Income, Net
 Note 5 
Long-term Investments
 Provision for Income Taxes
  34
    Table of Contents  ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS  (Continued)
 Minority Interest
  Liquidity and Capital Resources
  Liquidity
   Cash Flows from Operating Activities
  35
    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
    
    Revised
    
    As Reported
    
    RevisedJuly 31, 2005
    
    $
    193,560
    
    
    $
    172,660
    
    
    $
    118,395
    
    
    $
    139,295
  Cash Flow ActivityAs Reported
    
    RevisedPurchases of short-term investments
    
    $
    (35,149
    )
    
    $
    (78,249
    )Proceeds from sales or maturities of short-term investments
    
    
    7,500
    
    
    
    63,300Net increase (decrease) in cash and cash equivalents
    
    
    (10,497
    )
    
    
    2,203Cash and cash equivalents at beginning of period
    
    
    204,057
    
    
    
    170,457Cash and cash equivalents at end of period
    
    $
    193,560
    
    
    $
    172,660
 Cash Flows From Financing Activities
  36
    Table of Contents  ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS  (Continued)
 Capital Resources
     Risk Factors.
 Contractual Obligations and Commercial Commitments
  Payments Due by PeriodLess than
    
    
    
    
    
    
    
    
    
    
    More thanTotal
    
    
    1 Year
    
    
    1 - 3 Years
    
    
    3 - 5 Years
    
    
    5 YearsContractual Obligations:Operating leases
    
    $
    30,917
    
    
    $
    8,167
    
    
    $
    13,512
    
    
    $
    3,689
    
    
    $
    5,549Noncancelable orders
    
    
    100,048
    
    
    
    100,048
    
    
    
    
    
    
    
    
    
    
    
    Total contractual obligations
    
    
    130,965
    
    
    
    108,215
    
    
    
    13,512
    
    
    
    3,689
    
    
    
    5,549Other Commercial Commitments:Investment in HWSC
    
    
    10,300
    1
    
    
    10,300
    
    
    
    
    
    
    
    
    
    
    
    Joint Venture with TSMC
    
    
    6,500
    2
    
    
    6,500
    
    
    
    
    
    
    
    
    
    
    
    Investment in Shanghai Design
Center
    
    
    5,300
    3
    
    
    5,300
    
    
    
    
    
    
    
    
    
    
    
    Total commercial commitments
    
    
    22,100
    
    
    
    22,100
    
    
    
    
    
    
    
    
    
    
    
    Total contractual
obligations and commercial
commitments
    
    $
    153,065
    
    
    $
    130,315
    
    
    $
    13,512
    
    
    $
    3,689
    
    
    $
    5,549
 37
    Table of Contents  ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS  (Continued)
 
 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. 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, our wholly-owned subsidiary, OmniVision International Holding
Ltd., 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,
and VisEra became a subsidiary of VisEra Cayman. 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 our 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. As a result of our step acquisition, and 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 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 $18.5 million to VisEra and VisEra Cayman. A minimum of an
additional $6.5 million in cash or 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, we expect to
contribute approximately
$20.5 million of assets to the joint venture, including technology, plant and equipment
currently owned by us 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 our commitment,
we will receive cash from VisEra Cayman.Pursuant to the terms of the Amended VisEra Agreement, VisEra Cayman used approximately $12.3
million of the $18.0 million increase in the total capital commitment for the acquisition of
approximately 29.6% of the issued shares of XinTec, of which we own separately and directly
approximately 7.8%. See Note 5 in our condensed consolidated financial statements.All other material terms of the original Shareholders Agreement remain in effect.3
    
    The Company intends to increase its investment in the Shanghai Design Center by $5.3
million before March 7, 2009. The investment will provide additional design capacity. See
Note 13 in our condensed consolidated financial statements. Recent Accounting Pronouncements
 Accounting for Uncertainty in Income Taxesan Interpretation of
FASB Statement No. 109.
 38
    Table of Contents  ITEM 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS  (Continued)
  39
    Table of Contents  ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 Foreign Currency Exchange Risk
      Market Interest Rate Risk
  40
    Table of Contents  ITEM 4. CONTROLS AND PROCEDURES
 (a) Evaluation of Disclosure Controls and Procedures.
  (b) Changes in Internal Controls.
  41
    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.,
 Hackl v.
Hong
 42
    Table of Contents  ITEM 1A. RISK FACTORS
 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.
 The following description of these risk factors includes any material changes to and
supersedes the description of the risk factors associated with our business previously disclosed in
Item 1A of our 2006 Annual Report on Form 10-K filed with the SEC on July 14, 2006. As a result of
the following risk factors, as well as of other variables affecting our operating results, past
financial performance may not be a reliable indicator of future performance, and historical trends
should not be used to anticipate results or trends in future periods.
 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.
    Declines in our average selling prices may result in declines in our revenues and gross margins.
  43
    Table of Contents  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.
  Our future 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;
 44
    Table of Contents  
    
    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.
  We depend on a limited number of third party wafer foundries, which reduces our ability to
control our manufacturing process.
   
    
    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.
  45
    Table of Contents  We rely on a joint venture company for color filter application and on third party service
providers for packaging services, which reduces our control over delivery schedules, product
quality and cost, and could adversely affect our ability to deliver products to customers.
   Changes in accounting rules for stock-based compensation adversely affect our reported operating
results, and may adversely affect our stock price and our competitiveness in the employee
marketplace.
 Share-Based Payment.
 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.
  46
    Table of Contents  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.
   47
    Table of Contents  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.
  48
    Table of Contents  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 volume and mix of our product sales;
    
    competitive pricing pressures;
    
    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;
    
    our ability to manage our product transitions;
    
    the availability of production capacity at the suppliers 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.
   49
    Table of Contents  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.
    Corporate governance regulations have recently increased our compliance costs and could further
increase our expenses if changes occur within our business.
  50
    Table of Contents  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;
    
    reductions in our future operating results from amortization
of intangible assets;
    
    impairment of resulting goodwill; and
    
    potential unknown or unexpected liabilities associated with acquired businesses.
  51
    Table of Contents  We may never achieve all of the anticipated benefits from our joint venture with TSMC.
  We may not achieve all of 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.
  52
    Table of Contents  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.
  
    
    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 delay and prevent us from selling the products until the redesign is
completed, if at all.
  53
    Table of Contents  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.
   Our sales through distributors increase the complexity of our business and may reduce our ability
to forecast revenues.
  54
    Table of Contents  
    
    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.
   We need to continue to upgrade our enterprise resource planning and other management information
systems.
  55
    Table of Contents  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.
  56
    Table of Contents  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.
  
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
 Capital Resources
 
 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.
 57
    Table of Contents  SIGNATURES
  OmniVision Technologies, Inc.(Registrant)Dated: September 8, 2006By:
    
    /s/Shaw HongShaw HongChief Executive Officer, President and Director(Principal Executive Officer)Dated: September 8, 2006By:
    
    /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.