Wedbush Securities downgraded its rating on shares of OmniVision Technologies Inc. (NASDAQ: OVTI) to neutral from outperform and lowered its price target to $14 from $25.

We downgrade OmniVision to a NEUTRAL rating and reduce our price target to $14 as we believe the story has hit more than just a speed bump, said Betsy Van Hees, an analyst at Wedbush Securities.

OmniVision issued a press release Nov. 7 lowering its fiscal second quarter revenue guidance to range of $212 million to $217 million (down 23 percent to down 21 percent sequential growth), below the prior guidance range of $255 million to $275 million (down 8 percent to 0 percent sequential growth) primarily due to unexpected cutback in orders for OmniBSI and OmniPixel3-HS products. The company noted that it also has a more cautionary outlook for fiscal third quarter.

OmniVision announced that its board of directors has authorized a $100 million stock buyback program. The exact amount, method, and timing of shares repurchased will depend on market conditions, legal requirements, management judgment, and other factors.

OmniVision noted in the press release that towards the end of fiscal second quarter it began to ship in very limited quantities its OV8830 (8MP BSI-2) and that it will continue to promote this product to key customers, and successful engagement in new projects may in the longer term provide growth opportunities.

Betsy Van Hees said that while his recent industry checks indicate that yields for BSI-2 have improved, they remain well below his forecast assumptions that as the company exited second quarter, BSI-2 yields would be close to 80 percent to support the ramp of Apple Inc.'s iPhone 4S.

He believes given the significantly slower-than-expected ramp of 8MP BSI-2, OmniVision's share at Apple for the iPhone 4S has likely dropped to 20 percent from 50 percent. He is also concerned that the delayed ramp has likely impacted the company's position at other leading Tier 1 handset original equipment manufacturers and overall pro forma gross margin.

While we are encouraged with the board of directors' approval of a $100 million stock buyback program, we were very disappointed by the big cut to fiscal second quarter guidance ranges after already providing a disappointing outlook and the ramp of 8MP BSI-2, said Betsy Van Hees.

Hees said he is moving to the sidelines and recommends investors avoid shares. To improve his view, he looks for better visibility on 8MP BSI-2 ramp, market share at Tier 1 original equipment manufacturers, and consumer demand trends in the first half of 2012.

The brokerage lowered its second quarter EPS estimate for OmniVision to $0.27 on revenue of $212.3 million from $0.57 on revenue of $265.8 million, its 2012 estimate to $1.30 on revenue of $862.2 million from $2.14 on revenue of $1.02 billion, and its 2013 estimate to $0.92 on revenue of $831.2 million from $1.82 on revenue of $1.0 billion.

OmniVision stock is trading up 0.56 percent at $14.34 in the pre-market trading on the NASDAQ Stock Market.