Q3 2020 Earnings Call
Our one on your telephone please be advised that today's conference is being recorded if you require any further assistance. Please press star zero I would now like to hand, the conference over to your speaker today Louise Gherardi corporate development. Thank you. Please go ahead Sir.
Thank you Judy.
Good afternoon, and thank you for joining our third quarter fiscal 2020 financial results Conference call.
Our speakers will be Dr., Fermi, Wang President and CEO Casey Eichler CFO .
The primary purpose for today's call is to provide you with information regarding the results for the third quarter of our fiscal 2020.
A discussion today and the responses to your questions will contain forward looking statements regarding our projected financial results.
Natural prospects market growth and demand for our solutions among other things.
These statements are subject to risks uncertainties and assumptions should any of these risks or uncertainties materialize, where should our assumptions prove to be incorrect or actual results could differ materially from these forward looking statements. We're under no obligation to update these statements. These risks uncertainties assumptions as.
Well as other information on potential risk factors that could affect our financial results are more fully described in the documents we file with the FCC, including annual report on Form 10-K filed on March 29, 2019 for fiscal 2019, ending January 31st 2019.
And the Form 10-Q 's filed on June 7th 2019, and on September six 2019 for the fiscal year 2020, ending January 31st 2020 access to our third quarter fiscal 2020 results press release historical results assay.
See filings and a replay of today's call can be found on the Investor relations portion of our website.
Now turn the call over to Dr. Fermi Wang thank.
Thank you, ladies and the Grafton where everyone.
Before I discuss all results I will provide an update on geopolitical factors by May continue to impact our business.
During the quarter, we provided an update only impact show business a falling into the Louis publish on October nine.
Well it is broke bought clarity to sunscreen issues, we continue to see a wide variety of geopolitical risk outstanding, including foreign policy trade and IP matters.
Of course, it potentially disruptive to our business include changes to Paris, and all the isn't Telus Maki share shifts between all customers supply chain issues potential xplore regulations on advanced technologies and the potential for customers in China to take actions to reduce their dependency of yours.
Yes.
On the other had a largest competitor in the security camera licensee market, hi, silicon or units hallway is facing challenges by the helping us good shares outside of China.
As you can see multiple factors, both positive and negative outcomes contributing to a wide range or potential outcomes for us.
We told you can demonstrate strong progress toward our strategy to transform from a pure video processing company to eight <unk> the computer vision company.
During Q2, Oh, well see the family contributed to the early read you know CV revenue.
Mass production shipments continuing in the automotive and security camera markets.
TV designing activity remains strong in Q3, we generated preproduction CV revenue, including engineering parts evaluation kits and or would you rather than boards for more than 50 customers across all applications have a geography.
Our Q3 fiscal year told you can see revenue of $67.9 million was above the high end of all guidance range and the revenue increased 20% found a $56.4 million in the prior quarter.
Strength for our traditional media processing, all markets that about automotive business.
Security camera revenue was driven by strong underlying consumption has recently reported by several I'll watch customers.
As well as inventory restocking at all customers in China and the share gains.
I will now talk about upon closing all party markets starting with security.
Other China public security export held in October we demonstrated a number of advanced imaging and or your technologies and add enabling the next relation IP security and the group and the robot robotics applications.
These included using a single RGB ounces or was it sensor fusion. So for two anyway to mechanical I do feel there's and the preserve a call information under new argues in Malaysia.
Also demonstrated rapid person to actually using <unk>, who is running all see me 25, so season, three neutral sexism boot and reduce power consumption battery powered applications.
We also demonstrate our new robotics, SDK wont be multiple new awards and sterile processing concurrently.
Singles see between Sophie.
To provide the full freight rates object detection classification tracking we stepped measurement and the segmentation.
We believe the new STK will enable customers to develop solutions for wide range over new machine learning Acacia is spending logistics industry 4.0, you retail and the both consumer and the industrial robots.
Our the T. as 2019 security show held in September .
Well take when a leading supplier IP video security solution allows isn't new piano, Sears or what your camera based on Ambarellas Cdtwenty two boys. So sees the new camera is wrong, you and I won't base Eliquis is to become nice different types of vehicles faces license blaze and Alta objects.
Operating greatly enhanced video analytics.
Accuracy versus the previous generations. The cameras available you both okay and then finally got pixel resolution models.
Also as of the T. ethic show.
Introduce multiple new IP camera based on Broadway. So see solutions. This included intelligent ice Sears, Karen Ross, including New Flexi Dawn and opinion camera models with beauty in video analytics extended.
End of the new totaled almost all like to 7000, I cameras by including television video analytics ability to track and as you in moving objects folky resolutions and this age Twosix why video compression.
The ideal location Central city and the highway solutions.
During our last earning call we discuss multiple Motorola originals introduction over the age a hair care and Robert line based on our seasonal for agencies.
During the current quarter original further extended its portfolio with the introduction over some new each by Israel Caroline based on Ambarellas. He's probably also sees.
Focusing all simplicity flexibility and of course effectiveness, the new cameras call me multiple resolutions and the incorporate originals on mutual motion detection and advanced technology and multiple operators on future events by might otherwise have be missed.
In November Securities product for Tata analysis of new boom serious come from pricing eight new Kinross.
Including both indoor and outdoor models within a range of resin resolution is up to four okay.
The ambarella based dorm Sears is eight times more powerful than the previous generation, enabling industry, leading h. bass analytics, including the Vince vehicle and the person detection.
You know home monitoring segment module either renewed introduce these indoor camera a competitive clogging design that you see here speak to people and the pass for your phone tablet or equal equity device.
Based on the Bras issue, if you will see and the price at over $60. The cameras provides location split ever Moshe is detected based on customize motion zones.
Multiple ingo came off can be connect of Europe , although ring a path to provide complete homepage.
And in China hike lesions comes from what you really easy these introduce.
Out DP, one HD video smart home door viewers based on gross Athree M&A so see.
Replacing with the people in the door the battery powered the camera allow the home owner to view visitors remotely I'll touch screen display and the communicates the using to able to you.
And that you police camera category, well to our solutions announced its new watch God, we 300 body worn camera the first either loan EMA law enforcement the industry.
Men operational beyond the 12 hour shift featuring Ebrace low power is fine. So see the camera includes psyche sensor and the full HD recording. It can also be integrated was watchguard in car video systems.
Now I will update you on our progress in automotive markets.
Andrew I was looking was mostly the Vince Vince to develop its age platform Calgary condition and the pricing system called course.
The new needs evolve accrual assistant actually supports parcel delivery drivers was cannot base object tracking as a machine learning silver.
Okay losses that cargo space automatically become nice as registered registers parcels using bottles and the symbols on outside the parcels.
This is long infractions on second replacing menu time consuming scanning and assaulting of each shipment.
And <unk> Birla CV too was chosen due to its actually imaging follicular and the stereo vision processing options and the powerful eight I processing platforms.
Well I think strong interesting you broadly before you actually had some companies that provide aftermarket fluid management solutions for commercial vehicles.
So this is only video solutions on the commercial vehicle comprised although camera was limited or no active driver assistance on long term features.
With a broad portfolio to see before at chips fleet management solution providers can now deployed AI based applications such as a from eight as active driver monitoring systems and blind spot detection.
Let's see full solution have being chosen by multiple providers in Asia, and USAID and are expected to go into production in 2020.
During the although says brought those 2019 automotive conference held in September and parallel partner with all semi and so for start up company Iris to demonstrate a fully integrated in kv monitoring system, including post driver in occupancy monitoring functions.
Multi camera system utilize and broad CV to eight you see for easy to process real kind of high quality RGB I'll review and the on semi global shutter and RGB image sensors.
The Iris I, so pretty performed the complex Barbie and Fisher analytics.
And your active with Martin Currie, an object detection old running concurrently on the CV to execute.
The demonstration won awards for the past automotive safety system and most in Dolby.
In cutting application.
And doing a Tokyo model show held in September and brought partner with a leading Japanese car manufacturer and the Sony sensor group to demonstrate electric Neil system based on a broad cdtwenty. Two so you flow a so see and Sony's IMAX for 90 image sensor electronic Miro demonstrated outstanding huge quality.
On the number of challenging low light and how high contrast, snacking competitions.
In automotive OEM.
Chinese auto maker Cherry introduce is a 2.88, you'll be featuring a integrated digital video recorder.
Supplied by Chinese tier one supplier skyward. The record is based on Raws April a automotive AOCI and support which the video recording.
In consumer market, we also enjoy.
Couple of interesting product introductions during the quarter.
In October two market either E G introduce it like this and the smallest model ever the magic meaning.
We would just 249 grams for $399 dropped does not require if there is a registration and achieved over 30 minute flying time.
It's camera based on Ambarellas age 22, and you'll see providing 2.0 <unk> 0.2, 0.7, K video at 34 and per second and 12 megapixel photos higher than a full HD video over the previous a magnet spark model.
Also during the quarter Incstar Threesixty introduce the school camera, but how meaningful effect, a wearable model wearing only 20 grants and offering for HD video recording.
Yes, I brought US eight told me. So we'll see the camera include includes Vito stabilization to give footage of steady use AI power. The flash Cox two file your best shot at the then automatic.
In summary, despite the June geopolitical and economic headwinds, we remain highly confident well, making the right decision was more than $350 million invested to date into video based AI.
We remain fully committed to driving LCV solution into expanding case of age endpoint devices.
We are leveraging our video processing expertise as well as all established base of customers to sort of not only the traditional human viewing market, but also the machine based market a large incremental opportunity.
The multibillion dollar expensing, all said originates not only from the new product cycles in existing markets like security camera, but also by the new machine vision.
Vision markets, including vehicle smart cities industrial portfolio logistic robots animal.
Well as we approach at the end of year, well looking forward to the consumer electronics show.
January .
During this event, we won't be demonstrating our fully autonomous vehicle Eva shortfall embed a vehicle autonomy driving a variety of a challenging conditions.
We will also be demonstrating our latest solution for eight as cyber monitors.
Electronic heroes and income Inc. heavy manufacturing in collaboration with our software partners.
And we will show new solutions for robotics home monitoring access control and logistics, all averaging AI based applications and the performance LCV for a so sees.
And we hope to see many of you there.
And he and I will just Sac and Brock said 156 strong team for their focus and execution. During this very exciting phase of development and thanks to all other shareholders, including customers vendors and shareholders for your continued support.
So I will turn the call over to Casey for the third quarter financial details and the guidance for our fourth quarter over fiscal 2020 .
Thank you for a few good afternoon everyone.
Today I'll review the financial highlights for the third quarter fiscal 2000, and provide a financial outlook for the.
This quarter.
During the call discuss non-GAAP results and ask that you referred for today's press release for a detailed reconciliation.
non-GAAP results.
non-GAAP reporting we have a limited stock based compensation expense adjusted for the impact of taxes.
Our Q3 revenue of 67.9 million exceeded the high end of our guidance of 63 to 67 million.
These results represent an increase of 20% from Q2, and an increase of 90% when compared to the same quarter over prior year.
In Q3, all markets increased sequentially led by strength in the automotive OEM and aftermarket.
non-GAAP gross margin for Q3 was 58.1% similar to the preceding quarter.
Gross margin was slightly above the high end of our guidance of 56% to 58% due in part to a richer mix of automotive business in both OEM and aftermarket business.
non-GAAP operating expenses for third quarter was 29.3 million compared to 29.7 million in Q2 after backing out R&D grants related to prior periods.
This was below our guidance range of 30 to 32 million as engineering hardware expenses were below budget.
Other income of 1.9 million.
I'm going to primarily represented interest income on our cash and marketable securities.
non-GAAP net income for Q3 was 11.3 million or 32 cents per share compared to 7.3 million or 21 cents per share in the second quarter.
non-GAAP effective tax rate in Q3 was 6.6% slightly better than our guidance of 10% due to a higher than expected benefit from employee stock option exercises.
In the third quarter non-GAAP earnings per share were based on 34.8 million shares as compared to 33.9 million shares in the prior quarter.
Total headcount at the end of third quarter was 756 with about 81% the employees dedicated to engineering.
Most of whom we're focused on software.
Approximately 70% of our total head count is located in Asia.
In Q3, we generated pop stem cash operating cash flow of 21.9 million.
Cash and marketable securities were 448 million up from 30 375.8 million at the end of second quarter.
We did not repurchase stock during the quarter under $50 million repurchase program authorized through June Thirtyth 2020.
Total accounts receivable at the end of Q3 were 21.6 million or 29 days sales outstanding.
This compares to accounts receivable of 27.9 million or 46 days outstanding at the end of the prior quarter.
Net inventory at the end during the third quarter was 19.8 million compared to 17.4 million at the end of the previous quarter.
Days of inventory decreased to 59 days in Q3 from 67 days in Q2.
We had to 10% plus revenue customers in Q3.
WT microelectronics, the fulfillment partner in Taiwan, who ships from multiple customers in Asia came in at 63.2% of revenue and Jacoby Taiwanese OEM manufacturers from multiple customers primarily based on US came in at 15.7%.
I will now discuss the outlook for the fourth quarter fiscal 2000.
Our fourth quarter fiscal 2000 guidance is consistent with the current street consensus estimate.
We expect total revenue for the fourth quarter typically in the 55 to 59 million dollar range.
Q4 is typically a seasonally slow quarter, and we anticipate automotive and security to be down sequentially with other revenue flat to slightly up sequentially.
We continue to expect other revenue comprised primarily of consumer electronics products to remain volatile and decline as a percentage of revenue over the next two to three years.
The geopolitical economic environment continues to generate a significant amount of uncertainty with our customers outlooks and supply chain.
Needless to say forecasting is difficult.
We estimate.
Dahua and Hikvision combined by the end of fiscal 2008 will have pulled in approximately $10 million of revenue from fiscal 2001.
As a reminder, we typically experienced a sequential decline in the first quarter ending in April and a rebound in our second fiscal quarter.
We estimate Q4, non-GAAP gross margin to be between 56.5% and 58.5% compared to 58.1% in the third quarter.
We expect non-GAAP opex in the fourth quarter to be between 29.5 and $31.5 million.
Before the Q4 non-GAAP tax rate should be modeled at 10% versus 6.6 in Q3 and 9.1 in Q2.
The tax rate has normalized from Q1 levels as our increased level of profitability enables tax losses in certain jurisdictions to be utilized.
We estimate our diluted share count in Q4 to be approximately 35.2 million shares.
Several will be participating in the 41st NASDAQ Investor Conference on December 3rd in London.
With Deutsche Bank Autotech Conference on December 10th in San Francisco.
The new moral one on one conference at CES on January six and the Needham Conference in New York on January 14.
Please contact Lewis for more details on these events.
Thank you for joining our call today and with that I'll turn the call over to the operator for questions.
As a reminder to ask a question you want me to press Star one on your telephone towards the draw. Your question press the pound key please standby well we've compiled the culinary roster.
And our first questions from Matt Ramsey from Cowen. Your line is now fan.
Thank you very much guys good afternoon, everyone.
I wanted to ask a couple of longer term questions for me.
And I know there.
I'm focused on the pull ins from the Chinese customers, but.
And your other market.
Talked a little bit more in the script today about robotics.
Do you guys talk about in the past and we've known it's been a long term opportunity for the company but.
Now that you're calling it out more.
Thanks.
Maybe you could talk a little bit about the types of engagement Brett.
Maybe the time to revenue from the engagement that you have in the robotics market and then I've a follow up thanks.
Yes, thank you for putting though because you are right. This is a first time we highlighted.
Our robotic application ill conference call. The reason for that is this is a first time, we disclosed so we have a robotic ace teekay available for all customers as you know during the past you know we never claim that we have we are performing platform that a customer can buy all python and the token itself.
Our strategy is always to understand what customer needs and we provide the.
The embedded video and the AI.
Costs, all the the functions require to TD before the function for customers occasion.
Therefore that what that means that we really need to provide a complete so for SDK and today's call. We highlighted that we are we have the first generation of STK available in there.
We not only provides multiple you will networks that are required for most majority of the old robotic application, but also we have a mono and stereo processing, we have low like integrated and although that has run concurrently on let's see each way Sofia, which I think is great.
She met Pega technology achievement, So foam technology point of view, making clear that we are ready to support our customer and also you can see that this SDK.
It become a showed after working with multiple.
Evocative a customer's 40 publications, although I think you'll see that.
We targeted on the small manufacturing smart CD and also logistical locations you look at you mentioned that if you look at the old details our SDK you can see that.
This kind of robotic can be applied to both the commercial as well as consumer applications. So I just in terms of revenue I think we are at the beginning of Lucky that we activity and the we're probably we hope that we get close on these I will soon so we are saying probably this is a 12 months away revenue opportunity for spot.
Unless it's a very important for us to highlight that we have a robotic STK target for the robotic applications. Most all customer well find out that equity we view our SDK. They will find all that Oh instigate majority of the function features they require that can quickly put the old pulled application over and stuff.
Seeing the performance power consumption and Allah benefit while offering.
Got it thanks, Thank you for me that.
It was helpful.
As my follow up I wanted to ask a question on the automotive business.
Often I hear focus on what you guys are shipping today in towards the data recorders, and then sort of the really long term.
On on 8000 autonomy.
I wanted to ask about yield that I think you announce justice on this call with with Mercedes Benz.
In cabin application, maybe you could talk a little bit about what that engagement.
That opportunity represent thank you.
Right so.
This is really more of a commercial vehicle and as a function is really that.
You know event.
You never even situation you can imagine that when the parcels being brought into the cabin and the into they use manual.
Process to two local at the parcels and also managing the positives.
With our robotic as Teekay you can imagine that they can the camera in so in the event can quickly scandals kept those boxes determining the size as well as we saw a barcode we can't understand the information over the.
Reverse as it was a content over the box and the UK quickly managing and putting the right place where the driver need to put all that box that can be quickly to the cook we quickly down by just looking at.
Skin that data so I think thats just a short one way to show you that a lot of a manual processing with delivery industry in the past wont be.
Open minds to bye bye.
Cameras and the can be done purely by one chip CV to running multiple cameras into asset. So this is really a commercial base to impacting application and we work with.
The Oems directly to put a solution together full and in fact, what we did is just like you said you know we provide SDK, but they have worked with us.
Closely to reports of their application onto CV too and the reason. We won this is really that would put we sell the solution over lowlights Inc., having said that like the lighting conditions is limited and we have a scenario we have with mono we have a video processing all and also have CPQ Ole integrating one.
Chip.
To to finish to two pullback all a function they need to keep before that they do a truck so.
We are excited about this opportunity and we believe that this is just a one the first well the several of these on we will talk about in the future.
Thanks for me just one little quick follow up on on that and then I'll jump back in the queue, So you're saying that.
Application with Mercedes Benz you working directly with that OEM that developed software on your CB flow architectures.
That's correct.
Hi, guys.
Yeah.
Thank you. Our next question is from Adam Gonzales from Bank of America airline is now fan.
Hi, guys congrats on the strong quarter and thanks for taking my question.
I think I just wanted to clarify that you had called out of 10 million number for the pull ins from 2021 and security.
I just doing some quick math it seems like Thats.
Pretty much a big chunk of the upside from but you've seen the last couple of quarters in terms of your revenue performance relative to three expectation.
Am I thinking about that right or is as the market share a factor been.
More of a factor in fiscal 2000 <unk>.
Relative to the inventory point thanks.
Yes, what we've tried to do.
Is characterized obviously lump you have asked question, we don't have perfect visibility into procured guys over the last few quarters, what we think that the potential amount, but but we have shifted by the end of this year from from fiscal 20.
For fiscal 2001 for fiscal 20.
And so we actually have mix and assumptions and try to get an understanding from our customers, where we are but what we're trying to say is forever.
For two years combined.
If you had not had ended the situation I think we've seen about $10 million pulled in from fiscal 2021 to fiscal 2020.
Okay got it and is that still a risk moving forward or the update you provided on October 15 to do customers have some degree of comfort around.
Need to build inventory in future periods or is that does that thing of the past. Thanks.
Well I think of that ill.
Press releasing October 9th we'd be stated that though we are comfortable there's no up materially financial impact for Q3 in Q4. So we still think Thats a case the uncertainty is in the fiscal year 21, how does this Bob will consume the by the customer and whatnot ecolink I'll be able to consumer that helpful.
I'll take on how the company like on the impact our fiscal year, 20 watts, which is not clear to us.
Okay, great and if I get a slip in one more question I'm. Just wondering if you had an update from any of your top security camera customers on what their.
Hey, I based camera target will be over the next couple of years.
Oh.
You are talking about professional security camera professional security up yes. In fact that you know we pretty much fish think that the the best we kind of done we won majority of them that is that when we talk about in the last several calls and the we are.
On track to TD versus the mass production with many of them this year and though the at the Palace will follow next year. So from that point of view, we think that that we just need to continue to help all customer to go into production in fact, we mentioned several customer today.
In the past, we talk about visual what's headwind by on and today, because ER and.
In the future will talk about the ones that get ready to move forward, but I assume I believe that.
A majority over the course professional security camera customer well use or AI solution.
And the while.
Most of the while being production by the end of next year.
Got it I think I was just asking more on just the penetration of AI based cameras overall when you look at the end Oh, I see annual unit shipments but.
That's a little difficult to say.
You know base on the.
Current data we saw is really the only that the customer who already have the ad.
In production, so but from that point of view I think.
This is up I think they are doing well better than they are forecast. So I think I think definitely the AI has momentum, but I think was only very early stage of AG Chem awful professional security, but particularly outside China. So I would like to see couple more quarters of the run rate before we talk about penetration.
But however, one thing I can say is at all customer are very eager to appeal to the Prada out.
And introduce they add based cameras.
Okay. Thanks, Thanks, Thanks, guys I'll get back in the Q.
Yep.
Thank you our next questions from Ross Seymore from Deutsche Bank. Your line is now fan.
Hi, guys. Thanks for me ask question Congrats on the results.
10 million, Poland that you talked about Casey just not to get too granular on it but any clue of when you expect that unwind to occur is that inclusive of your January quarter guidance or do you think it's more of a fiscal 21 dynamic any sort of clues on that sort of linear and it'd be great.
Yes, no I think it's a fiscal 2001.
A situation I think that going into next year is impossible to go and we're going to hold it if they're going to.
Burn it off in a quarter or over the year, but my assumption is that over the course of fiscal 21, we'll probably get back to more normalized inventory level.
But again Thats, that's not exact science, but but I don't I, just see it kind of getting burned off over over fiscal 21.
Got it and then did you see any change in those customers behavior. When they got added to the entity list Pacific Ambarella of course and then.
Once you guys put out the AK that you could continue shipping was there volatility around that or do that happened in such a short period of time that you really got notice.
Well I think that of course, they feel relieved that when they when they realized that we can come to you the ship.
But I think that one thing.
Also is become clear that although we cannot although we can continue to ship the product. So that they are definitely putting a plan to that to get together to focus on long way space.
For the suppliers. So I think that's a trend that we need to continue to watch.
And then my final question on this topic then I'll go away as you guys also been targeting customers outside of China for the all the reasons, we've already discussed any sort of metrics on the success in gaining design wins, there and have you seen those customers themselves start to gain market share.
You know based on our data we believe that.
Our other non Chinese customer definitely gained market share Ngls and but it's not clear it will kick in market share.
Outside U.S. So that's our current the data we have that we can we can talk about but.
I think thats definitely reflect that in us.
More people have a concerns about the hi, silica solution than other areas. Yes, just just to add to that a clear example is and what tetlin, which shift from you've talked about over the last couple of quarters.
Thats a customer that in this whole as is always played out has moved.
From a high silicon to two Ambarella is also moving forward with our TV products and so there's a clear example carrier.
I think we picked up some market share and I think they're going to be a good customer and good player in the market.
Thanks for all those details like sneak one housekeeping, one and maybe for you Casey in the as you talked about normal seasonality I think on your last quarterly call for the January quarter is there is such a thing is normal seasonal for your April quarter.
Yes, I think they're both.
The quarter that we're in and the April quarter are down.
Roughly 12% to 15%.
We guided to too.
What we thought we were going to see in January and then and then I think we'll probably see the normal.
12 to 15, there as well.
We then tend to have a stronger Q2 in Q3, obviously, we're not guiding out that far today bye.
We looked at historically those few quarters continue you to rebound.
Pretty substantially from from the kind of the low in April if you will but but that's what I'm talking about what I, what I, what I talked about that.
Perfect. Thanks, guys.
Thank you know our next question is from Joe Moore from Morgan Stanley . Your line is now fan.
Great. Thank you.
In terms of the in cabin monitoring and I guess is probably similar to Mercedes you guys seem to be getting quite a lot of wins, there and I guess with some of the European in cap standards that stuff comes into production.
Fairly quickly.
Can you talk about when you might see actual revenue coming from those wins and it seems to be predominantly CV tusa more expensive products. There that seems like a fairly sophisticated sale for you. If so can you just talk a little bit more about that.
Right, we haven't given the revenue guidance on the of CMS. So CMS, yet however, I want to highlight the full commercial vehicle see mutually is more suitable because of the requirement for multiple cameras, but I think that it'll consumer cars I think cdtwenty two might be a benefits because most of the.
Comes from a vehicle does not require stereo enter the portfolios requirement on the camera side also isn't or limited. So I think of that such as the difference between commercial and commercial vehicles, but I'd. Like you said, we have time very hard to when does that get these out when it's almost areas.
Great. Thank you and then on the consumer surveillance side.
Is it reasonable to think about CV.
Sort of announcements over the course of 2020, and then revenue 2021 is that kind of the right timeframe or just maybe an update on what you see on consumer surveillance.
No I think thats right timeframe and the also.
Multiple design wins, beating on inside of will close two weeks all that and so I think the schedule doesn't change.
Great. Thank you congratulations.
Thank you fixture.
Thank you. Our next question from Quinn Bolton from Needham and company. Your line is now fan.
Hi, guys. Thanks for taking my question just wanted to start first on the CV ramped, especially in the professional security camera. It sounds like it's still probably a fairly low percentage of your security camera revenue, but you've talked now for a few quarters since some of the design wins going to production now over the next 12 months can you give us any.
Help a shape what you think CV might represent is your as a total of your professional security business say exiting 2019, and where it might go exiting 2020 is that yes, so low single digits going at 25% of revenue just just any help with with what you think that ramp might look like as a percent of your sales would be.
Would be great.
Yes, so obviously the ramp is forming up in the last two.
Quarter, so the year in so it will be single digits coming into next year, but next year I think to.
We can see what we've talked about is material revenue from the CV and that certainly is more than 10% of revenue for next year and depending on how the consumer ramp comes in next year in the second half as you said that's going to starting the second half of next year that will kind of define the size of that but I think you'll probably see us.
Sometime over the course of next year, starting to talk a little bit more it's got some specifics about CB as it becomes material.
Great then shifting to trying to think in your script you had mentioned you're you're definitely seeing.
Share gains outside of China, among that the customer base. Just wondering if you could come back and say within the China market, how that competitive dynamic is shaping up for you in any.
Any any sense you have your strength within the China customer base for domestic cameras versus export cameras.
All right. So I think in a pass we didn't play much enough there Chinese domestic market because that basically high take a market and the full the export business I think that.
Right now the thing or is the most is about the is the most of which had all Chinese customers, especially Chinese system companies.
Sourcing phone the non China, non U.S. components and so our advantage has to be that we can provide differentiated technology that very few people Chinese come company can pump.
That's basically play to our stress on CV and also video quality in the past, but definitely on the lowest side, we're going to see allow more competitive because.
Not only high so they kind of their mania.
Low and complements supplier come to the space, but however, I do believe.
Middle and high end, especially on the AI and also as well as of either processing technology that where we can differentiated and we should be continue to have a position for the export business.
Great and interest I see you guys mentioned that fleet management opportunity, the aftermarket fleet management, but but potentially ramping cure in calendar 20 that that seems like thats, a pretty quick ramp.
Just wondering if you could give us more detail because again at that feels like that that could ramp to revenue fairly quickly.
So in fact to that.
Usually because most of the management does not require auto great chip and the they don't.
Quite auto qualification, so that funky design starts with up to the revenue usually is a 12 18 months.
Which is longer than comes from above definitely shorter than most of the OE auto OEM business and we have been working was a several both us and Chinese comp companies.
Looking on the solution portfolio manager my basically in providing not only just recording but also AI for the Trevor monitoring Ada Es blind spot detection and the combination of everything especially for the.
Multiple cameras in the wrong the truck.
So I think thats definitely play to our stress, but the consistent definitely is a lot more complicated than the consumer vehicles. So.
The tradeoff timelines I will say design tonight's roughly 12 to 18 months and we think that we believe the first wave of revenue will come in second half of next year.
Great. Thank you for me.
Thank you.
Thank you as a reminder to ask a question you only need to press star one on your telephone.
Next question is from tore Svanberg from Stifel. Your line is now fan.
Yes, Thank you and congratulations on managing through this volatile environment.
First of all I.
I guess for Casey inventory days 57, I know that's.
Relatively normal forward for this particular quarter, but how are you thinking about managing your own inventories over the next few quarters given all the uncertainty that's that's out there.
Yes, I think.
Reported out over the last four to four to six quarters quite a bit I think we were in kind of low thirtys.
And you know came down to around 17 last quarter.
When we are looking at making sure that we meet our customers' needs.
Particularly when you look at Chinese new year renewal earlier, this year and that we picked inventory up a little bit saw that we'd be able to to meet the needs for the quarter, but we're going to try to continue we've got good cash management, we had a great quarter this quarter and.
$400 million and cash we're proud of that but we also need to make sure that we're dealing with 14 to 16 week lead times, and we need to make sure to reveal to react to our customers needs and so I think the inventories are generally at about the right spot, but we're going to have to look out into our forecast and understand how to balance that going forward.
Sounds good then yeah go ahead.
Our Oh, that's at you know since it will start working with a sense also foundry partners.
I told us that they have a tight.
A wafer location and the this is the first time, they told us that because I think my speculation is.
The solve the.
Customer who cannot get enough application for other foundries move their products with Samsung and the weakness a first time without seeing that.
Sense also have a very tight I location, although that on the other wafer total wafers. So our strategy is definitely in trying to make sure that we have inventory to supply of customer.
In case, there some urgent demand.
Very good and for me a question for you on CV. It it sounds based on your rhetoric that you're going to see some material relatively immaterial consumers CV revenue second half of next year.
Could you maybe singled out a few of the applications that you think will be ramping at that time.
I think just consumer I became ill follow all current customer list. If it goes from that you can see we have a very strong customers in consumer IP security camera space basically for home monitoring and I believe that the trend will continue and.
And well continue there and most of that are having our cues. All therefore, the AI based to camera requirement for the second half of next year.
Yeah. Good would just one last question back to case it Casey I know you didn't guide the April quarter per se, but based on on your answer she would that imply that some of this sort of 10 million pull then already starts happening that that that that quarter.
It's possible as I said the reason I stated that I think it'll probably be burn off during the full fiscal year, It's really hard for me to just the timing on that in so it's difficult to pick that I do think when I did guide fewer or talk about a little bit for that quarter. If we will see the normal.
Moving down 12, or so percent that we've seen over the last few years I think that I think that will definitely be there what the impact for inventory will be in that one specific quarters, just recall for me to say right now.
Sounds good very helpful. Thank you guys.
Thank you. Our next question is from Charlie Anderson from Dougherty and company. Your line is now fan.
Yeah. Thanks for taking my questions and congrats on a strong quarter and guide I wanted to start with.
In light of the $10 million coming just maybe if you could touch on that so the underlying growth rate with an IP security it sounds like the number of Ah.
And uses its expanding years approaching a pickup marketshare, you've got to product cycle. That's ramping so just a real time, if we exclude up about 10 million <unk>, what do we think of the growth rate going forward.
Hello.
Well first of all I think that's for the market point of view of the professional security contino grows on a single digit percentage and the consumers probably higher than that.
And the we probably follow the market by send tight you know, it's very hard to us to put a finger on the this 10 million dollar number that's really our estimation based on the feedback on the customers. So is there a lot of gas working there, we'll just want to give a clear guidance as much as we cancel the customers about how we think and the for the making sure that people.
Ill just fenestration.
Great and then for my follow up on the R&D credit side I Wonder if maybe case you could just update us on sort of what we would expect for the total for the year and then I mean any view on that are going forward in terms of impact. Thanks.
Are you talking about the Italian Craig we've talked about correct.
Yes, so that's sort of run about a half million a quarter.
And so.
Last quarter had a catch up in and that's what I called out in my discussion, but what we said last quarter and I think it still is going to be a pretty good estimate is that it's probably about a half a million dollar benefit per quarter.
And that's factored in our guidance okay perfect. Thanks, so much guys.
You got.
Thank you. Our next question from tours of anger from Stifel. Your line is now fan.
Just a quick follow up for cases, they see a as it comes to gross margin.
You talked about obviously you know the mix eventually helping the gross margin through fiscal 2001, just just wondering if you had any update on that.
Well I do think yes, we get a more and more CV revenue and more and more in the auto space that that will continue to help us stay in the guidance or get us back into the guidance of 59 to 62 that we have been him.
Obviously.
In the consumer and in particular in China the margin.
Pressure there is probably most significant the customers, they're the largest in the industry and thats, a fairly tough market to start with and so depending on the mix from quarter to quarter. That's what you see and for example, we've talked about the last few quarters.
Having a little higher mix, there and Thats why the margins have been down a little there.
Sounds good thank you.
Thank you at this time I'm showing no further questions I would like to turn the call back over to Dr. Fermi Wang for closing remarks.
And the everyone I'd like to thank you for joining us today and I'm looking forward, we seeing you a functional next time. Thank you bye bye.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
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