Court Allows Action Against OmniVision Technologies To Proceed

3/29/2013 - The Honorable Ronald M. Whyte of the United States District Court for the Northern District of California has denied the defendants’ motion to dismiss claims in In re Omnivision Technologies, Inc., Securities Litigation, C-11-5235 RMW, alleging violations of section 10(b) of the Securities Exchange Act of 1934. Barrack Rodos & Bacine serves as co-lead counsel in the action, representing an institutional investor lead plaintiff group.

The consolidated complaint alleges that OmniVision, its CEO, Shaw Hong, its CFO, Anson Chan, and its Vice President of Worldwide Sales, Ray Cisneros, issued a series of false or misleading public statements relating to the development and adoption of OmniVision’s 8 megapixel complementary metal oxide semiconductor (CMOS) sensor in the Apple iPhone 4S and other Tier 1 smartphones. OmniVision had previously been Apple’s primary supplier for CMOS sensors used in the iPhone 3GS and the iPhone 4. Due to the success of those phones, OmniVision had grown highly dependent on revenue from its sales to Apple. The complaint alleges that during the period from August 27, 2010 through November 6, 2011, the defendants were aware that OmniVision would not be the sole supplier of CMOS sensors for the highly anticipated iPhone 4S. The complaint also alleges that before the market opened on November 7, 2011, OmniVision announced that it was drastically lowering its second quarter revenue guidance, citing “an unexpected cutback in orders for key projects.” Analysts reporting on the company’s announcement tied the decline to loss of the CMOS sensor slot in the newly released iPhone 4S and challenged the company’s credibility in light of OmniVision’s previous assurances that it had not lost design wins to Sony.

In denying the defendants’ motion to dismiss, Judge Whyte noted that insider trading by CEO Hong and vice president of Worldwide Sales Cisneros gave rise to an inference that they were aware of problems with OmniVision’s Apple iPhone business by at least June 2011, many months before the release of the iPhone 4S in October 2011. While determining that some of the alleged false statements were not actionable or had not been shown to be sufficiently attributable to defendants, Judge Whyte held that CFO Chan’s September 2011 statements discounting the potential for competition from Sony and suggesting that OmniVision had beaten out Sony for the contract to produce CMOS sensors for the iPhone 4S were misleading and shown to have been made with the requisite state of mind (scienter) as required by the heightened pleading standards of the Private Securities Litigation Reform Act. Thus, the court to denied defendants’ motion to dismiss the action.

Judge Whyte’s ruling allows investors to move forward with the prosecution of the action against OmniVision, Hong, Chan and Cisneros.

If you have any questions about the court’s March 29, 2013, decision, or the litigation against OmniVision, please contact BR&B partners Stephen R. Basser at sbasser@barrack.com or Samuel M. Ward at sward@barrack.com.