Q1 2021 Ambarella Inc Earnings Call
I shouldn't during this session you'll need to press star one on your telephone as a reminder, threes program is being recorded I would now like to introduce your host for todays program to scare Hardy corporate development. Please go ahead Sir.
[music]. Thank you Jonathan good afternoon, and thank you for joining our first quarter fiscal year 2021 financial results Conference call. Our speakers will be Dr. Party long President and CEO Casey Eichler CFO.
The primary purpose of today's call is to provide me with information regarding our results for the first quarter of our fiscal year 2021. The discussion today kind of responses to your questions will contain forward looking statements regarding our projected financial results financial 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 or 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 and assumptions as well as other information about potential risk factors could affect our financial results are more fully described the documents that we filed with the FCC, including the annual report on form 10-K volatile filed on March 27, 2020 for fiscal year.
Your 2020 and be January 31st 2020 access to our first quarter fiscal year 2021 results press release historical results FCC filings in a replay of today's call can be found on the Investor relations portion of our website.
I will now turn the call over to Dr. front of warm.
That concludes and the good afternoon.
First and foremost ensuring the safety in the world being about global workforce has a welcome TPPL harvest perjury.
I'm very proud of our 760 employees around the war and I think that for their dedication and efforts to ensure their own safety and that salaried employees their families and communities where we operate.
And borough too quickly implemented robots safety majors, maybe probably wouldn't process and upgrade because one team to execute all business plan.
Plant that benefits, all stakeholders, including employees, so partners customers and shareholders.
I'm confident we will emerge from this coming fiscal period, more resilient and im a strong position to seize the opportunities, but we believe remain firmly in place.
Well I'm really even mr. <unk> unprecedented pure the uncertainty and the ball appeal.
Geopolitical risk remains high we slipped disputes between China and of yours moving into the second tier and the each wrong. The foreign policy change in the or IP mothers can bring new rigs risks.
The global health pandemic Koby lighting, we seem a matter of a mouse swept award and brings another set of the risks to consider.
This combination will derisks geopolitical epidemic.
Yes, the duration severity and the impact of soup associated coming from time to be or I know.
The spread of who environment and a few quarter over challenges in Q1 would be the weather results slightly above the midpoint of guidance, we operate three months ago.
Q1 revenue over $54.6 million was down 2% sequentially and up 16% worse, what has been period a year ago.
Oh operations team and the supply chain performed admirably and turning the safety of employees, yes quickly adapting to volatile older presence and the sustaining a high level of on kind of deliveries for our customers.
Cbds activity in February March remains a high level all activity slowed the slope in April as the me Oh to customers that what's her what happens for the pin dynamic.
See me revenue momentum was strong in Q1, although small base and the CV represented a mid single digit percent open portal revenue.
Despite the many of about development side or what have you looked at home. The hybrid remained highly effective you know continued development of chips and software.
During the quarter, we successfully brought up and the verified our new automotive function as a functional safety so season.
The CV two S. S M. A C b 22 events, which we'll announce it do we see yes.
The initial hardware Barb keeps working I will hop in Taiwan and yours. The majority over the war Hi, speaking so quick involvement and Oh silver engineer has become highly effective working for new homes.
Yes, 40 on schedule two simple they still see into their corresponding so pretty well the kids to customers and partners in the second half will be here.
Not to be about Oh, we are exciting.
Also being very active during the quarter. We people don't always 610 millimeter wave so see a new member I'll see you for it so see family, but we look forward to discussing with you later this year.
And the we also paid bode well test chip.
Vince the final will need a process not technology.
The pets true walk enable us to pay ball future. So season or these are the best process node, along a little bit until our performance and Paul advantages.
Future generational chips.
I will now talk about all markets on the customer, including addressing the impact of koby liking bars.
[noise], even for personal security camera market, we're seeing some reduction in demand as a result, you put all the koby liking bars.
A significant percentage will personal care must also be integrators and east older sweep.
Who is the ability to access beauty inc. has being restricted.
And this in turn has impacted the demand of the cameras.
Once the industry has recovered from the exactly the virus. However, we see upside opportunity for camera medical educational retail is access control applications as well you care about design, but in people formal and a video sensors combined with this AI processing.
The retail came up cases.
Include the people counting as it is because monitoring walking public has actually come true solutions had libido monetary and the phase three coalition, who come kind of those excess.
Oh, he's only pipeline remains extremely strong was camera makers competing to people care about these events, yeah capability and this quarter. So a number was significant customer product introduction based on our Q4, so see solutions.
During the quarter Panasonic.
Panasonic, Japan's leading provider of a security. So what are some interest introducing 10, new camera models beans and draw a so Cds.
Extensive a new product lineup includes seven I pools serious models based on our ATRIO eight to six right you still see and the three eight I will caremark space, all CV tricky to see before I suppose.
The air camera coming box bullets, and the team configurations, and Lucky I processing age to detect and identify movements captured through my faces an optimized Steve Holcomb.
Compression.
[noise] integrating multiple solutions are now, but it would offer attitude on security camera was a super analytics to help organizations keeping couldn't see fever appears on the health guidelines for long protracted faced mascus and the physical so 56.
This solution combines the power of video editing Allergists AI power electronics running on a broad ERP so see.
Also during the quarter. It's all a mouse you was acquiring UK based equals Asia existing users and broad based camera tweaks, but it's a video security and the command center software product offering and the operating and European Park presence.
You mean European security, neither axis communications into the body worn camera.
Market with its a first solutions designed for use by law enforcement and privacy security.
The body worn camera has been design on the open system architecture to support a poor range of Eagle management and evidence management systems based on Brazil is far I also see the camera capture pay TV deal Hopper wiped out I think we went to processing and the appraisal well 12 hours.
And also during the quarter, leaving Korea retail security camera, how quickly introduces west not pcus I'd be caremark bizarre and brought us see we to pay so see operating the harvest and performance obviously your full family.
The Sears included the TMB 9000, 8-K camera, which can lead to any area of huge while preserving details. You also include three four key caremark Depo form factors and featuring this he I'd say speed you analytics, including Crusoe face vehicle me collision.
We'll continue to management and the feedback.
Also in April marching I work, introducing if any six you see coming up pixel IP camera based on Ambarellas see V 22 areas. So C. Chem argues deep neural network processing power accurately to distinguish between people and the vehicle and the combined this next generation security analytics.
For accurate real time detection and hours of events.
You know home security camera market. We have also seen some impact oh cells as a result of custom order push outs.
Typically home security cameras, so in the retail online retail or a line.
The closure of the retail stores have impacted demand.
Majority of the Caremark are manufactured by Taiwanese old OTN.
I would generally be granted you production through all the crisis.
Beyond the enemy crisis, we see continued growth in this segment, including increasing demand for video bills and the full cameras, including greater level of intelligence.
During the quarter your smartphone company vivid introduces new BV local media Dobell pool based on Ambarellas, it's good it's spot.
The dobell camera at this full pay TV video is why why keep that one entity. We feel the view to guide you see both thesis of visitors and the packages left on your books that.
Vince Campbell, Okay, Steve.
The notify you, although Bible people and executing very well.
Yes, those conversations.
Returns.
You mean latapack ideals, some new version of its a circle view security camera supporting apples home kit small system based on Ambarellas, It's true and they see the Soviet recourse pay TPV deal with Waikiki peak, we feel that you have you can capture keep our rigs today.
At night up to 15 cents away.
You know exits cultural market.
Well the largest small upgrade in China announced acquire a P. 100 fingerprints. My luck is home to support the lock in the luck integration, it's true and base viewing camera offering TTP video alcohol why field of view and the lurking detection feature.
[noise] automotive market, our core revenues through the primary thought Oh, yes car, we coolers integrate into new models in Asia and aftermarket best camera shaking retail Oh here business has being affected by the temporary closure of although many players in Asia.
Well, Oh, you as a European Tashkent market being impacted by retail store closures.
Additionally, automotive market continues to remain weak with many Oems and tier one suppliers shutdown and procedure featured products generation has delayed.
Despite this however, we have continued to make progress.
Hey that you got from electronic meal occasions.
Yeah, that's only meal segment car manufacturers a currency to make a decision for single channel electronic mural solution ahead of the three needle designs that we had already been targeting.
Okay. So these provide the efficiency and cost effective solution for single channel minerals.
The into the other functions for example video recording.
As a result, we're seeing revenue opportunity for you and copies I was a so can you expect to begin preparing to 23 Patrick.
And was walking.
Conceptual well Chinese company founded in 2000, 2018 to build a nationwide rates network using a problems of driving trucks you.
Exceptions go to achieve security efficient.
Economical transportation I was just.
Logistic customers.
This to be achieved using conceptually automotive grade LTL cool autonomous driving software and hardware working in collaboration with major automotive manufacturers conceptually is using abroad CV to a Q.
Oh AC Q1 hundred and to see me to exit Ace automotive I still see to enable under this new network based 80 applications.
[noise] favorable Korea that can lead to think we're introducing secure C. 5000 model featuring two channel QHC plus cured immediately smart removed viewing as we move a lot location.
Based on Bralettes, aged 22, eight or so see affect camera also include Adas functions, including led detection warning or could you warming exactly like trivial.
We have previously mentioned, we're continuing with the week designs at customers that provide the aftermarket lead management solutions for commercial vehicles as well as solution for ride sharing and taxi services.
In addition to video recording the care about the new can support add based applications such as well.
Actually drive monetary and a blind spot detection.
The 80, CK 100 merger I will see a neutral as he told me if I still see combined advanced imaging powerful air processing and low power, making an ideal solution for caremark creeping in challenging automotive environments.
We expect all customers to begin field trials and initial production fourth quarter only just.
Deploying Gee I software solutions that are based on the old house models and fibrous ecosystem partners.
[noise] in summary, we said environment around was highly volatile and uncertain. We are 40 committed to all strategy and long term secular trends well dressing remain intact.
Our strategy to leverage our success will be due process heritage intuitive element highly optimized to meet your computer vision powerful has not changed.
In essence, we are mboe, enabling higher level automation multiple industry flows and what he does emerges from the current crisis demand for higher level of automation should be more important than ever.
Having large new markets, we have identified in the past.
Furthermore, our operating cash flow.
Financial discipline, it'll be cookie over the strip and the strength of our balance sheet.
Able us to sustain our plan level will be Joel the right.
Estimates through this difficult times.
The strong execution, we continue to expect out significant R&D investment to yield positive returns.
Oh I see strategies continue to validate it was a broad customer acuity and expanding list of a customer in production ODC the revenue growth and the new product and technology that expense little platform and our our reach into new markets.
For example, during Q1 find more customers enter production status, we saw CV associate leading security camera market to equal to benchmark.
You know next year, we'll monitor we expect to begin to symbol customer I'll first automotive safety into integrity level April April season, and the development our view family over financial either a so see continued to move forward.
Finally, he is responsible to help and then it all corporate giving giving initiative.
Comprise though employee donation in the corporate match rates of one of the $300000 well various eight organizations.
Because we operate.
I think and burrows employees for their response to this giving initiative for managing their safety and safety on those around that.
As well as well this strong execution to support our customers and drive on digital initiatives.
I will now critical over to Casey will give you more details about what we are seeing and expect hopeful that business.
Thank you for me and good afternoon, everyone.
Today I'll review the financial highlights for the first quarter fiscal year 21, ending April Thirtyth provided financial outlook for our second quarter fiscal 21, ending July 31st.
During the call I'll discuss non-GAAP results and ask that you referred to todays press release for a detailed reconciliation of GAAP to non-GAAP results.
For non-GAAP reporting we have eliminated stock based compensation expense adjusted for the impact of taxes.
We faced a full quarter, both public health and geopolitical challenges in Q1 and despite this our revenue of 54.6 mill was slightly above the midpoint of our original guidance.
This represents a decrease of 4% from Q4, and an increase of 16% when compared to the same quarter over the prior year.
In Q1 revenue decline sequentially and all in markets with automotive down in the very low double digits in security and other product revenue was down slightly.
Both professional and smart home security business declined slightly sequentially.
Non-GAAP gross margin for Q1 was 59.1% compared to 58.7% and the preceding quarter and was close to the high end of our guidance due to favorable mix in business.
Non-GAAP operating expense for the first quarter was 31.9 million compared to 30.5 million for the previous quarter.
Opex increased primarily due to an increase in payroll taxes and an increase in amortization expense.
The tape out of new five nanometer and 10 nanometer efficiencies.
Other income of one point threemillion reflected the impact of lower interest rates.
The non-GAAP net income for Q1 was 1.3 million or four cents per share compared to non-GAAP net income of 4.9 million or 14 cents per share in the fourth quarter.
In the first quarter non-GAAP earnings per share were based on 35.2 million diluted shares as compared to 35.1 million diluted shares in the prior quarter.
Non-GAAP net income for the first quarter fiscal year 2021.
Includes a change in the non-GAAP tax rate calculation to exclude losses from jurisdictions, where there is no tax benefit associated.
This was done to improve the alignment of the non-GAAP income tax true to non-GAAP profit before tax.
Accordingly, non-GAAP net income and non-GAAP loss per share for the first quarter fiscal year 20 ended April Thirtyth 2019 have been adjusted for the change in non-GAAP income tax effect and presented consistent with the first quarter fiscal year 21 presentation.
A reconciliation of the GAAP to non-GAAP calculations is included in the financial statement portion of our press release.
Total headcount at the end of the fourth quarter was 760 was about 81% of our employees dedicated to engineering.
Approximately 69% of total head count is located in Asia.
In Q1, we generated positive operating cash flow of 7.6 million.
Cash and marketable securities were 411.3 million up from 404.7 million at the end to the fourth quarter.
We purchased 25719 shares of common stock in the quarter for a million dollars, representing an average price of about $39 per share.
In May Ambarellas Board of directors approved an extension of the current $50 million repurchase program for an additional 12 months ending June Thirtyth 2021.
And so today remaining $49 million available from the $50 million repurchase agreement authorized in June Thirtyth 2021.
Total accounts receivable at the end of Q1.
Were 20.7 million or 34 days sales outstanding.
This compares to accounts receivable of 18.5 million or 30 days sales outstanding at the end of the prior quarter.
Inventory at the end of the first quarter was 22 million compared to 23 million at the end of the previous quarter.
Days of inventory increased to 91 days in Q1 from 82 days in Q4.
We had to 10% plus revenue customers in Q1.
T microelectronics fulfillment partner in Taiwan came in at 62% of revenue and Ciccone, Taiwanese ODM, who manufacture from multiple customers came in at 15%.
I will now discuss the outlook for the second quarter fiscal 21.
The confluence of health pandemic and geopolitical factors has led to unprecedented volatility.
Continued uncertainty in forecasting.
The global Health pandemic continues to disrupt demand.
On our March Threerd earnings call. We stated we were beginning to see order push outs and cancellations. This trend the other with a slowdown in design activity began in Q1, and we believe will continue in Q2.
Most importantly, the pandemic threats put global economies in sharp contraction with unemployment rapidly rising and the impact of changes in government business in consumer spending it's significantly unknown at this time.
In addition to the health pandemic as we have discussed for the last year, we continue to be a wide variety or geopolitical risk and situations remaining very fluid geopolitical risk, including new us export control on advanced technologies the risk.
Customers in trying to continue to take action to reduce their dependence on us components that they believe maybe subject to export control changes in the entity list and or tariffs as well as market share shifts between our customers.
We remain concerned about the dual China non trying to supply chain that is being created and how it impacts our customers in China.
For foreign direct product cruel announced by the US on May 15th and the addition of 33 companies through the entity list on May 22nd have further escalated pension, which may lead to an adverse reaction from the government and or for customers in China.
[music].
In our prior earnings calls, we estimated to professional security camera customers in China had pulled in roughly $10 million a revenue from fiscal year 21 to fiscal year 20.
We do not believe there has been a material change in the inventory of Ambarella announced will cease carried by these two customers and we continue to anticipate weaker order patterns from both of these customers in the second half as the digest their safety stock of inventory.
Based on these factors in our best judgment at the current time, we expect total revenue for the second quarter ending July 30, Onest 2020 to be in the range of $50 million plus or minus 6%.
We anticipate the security market will be up sequentially.
With automotive and other revenue expected to decline.
With a very wide range of public health and geopolitical forces impacting be outlook at this point.
Time, we are unable to forecast beyond the second quarter.
We estimate Q2, non-GAAP gross margin to be between 50, 960.5% compared to 59.1% in the first quarter has a favorable customer mix brings gross margins back into our long term model of 59% to 62%.
We expect non-GAAP operating.
Excuse me non-GAAP opex in the second quarter to be between 31, and 33 million due to increased engineering expenses, including amortization for the tape out of our first family of five nanometer Esso Ses.
As well as potential changes and our ability to continue to receive the engineering credits that we've talked about in the past.
Second quarter other income should be modeled around 1 million, reflecting lower interest rates on our net cash position.
The second quarter non-GAAP tax rate should be model in the 15% to 20% range.
We estimate our diluted share count for Q2 to be approximately 35.3 million shares.
However, a little participating in the bank of America Virtual Global Technology Conference on June Threerd, The Stifel Cross sector insight Virtual conference on June 9th and the Ross London Virtual Conference on June 20 ports. Please contact Lewis for more details on these events.
Thank you for joining our call today and with that I'll turn it back over to the operator for questions.
Certainly ladies and gentlemen, if you have a question at this time. Please press Star then one on your Touchtone telephone. If your question has been answered and you'd like to remove yourself from the Q. Please press the pound key our first question comes on line up Joe Moore from Morgan Stanley. Your question. Please.
Yeah. Thanks, Let me ask the question I think you guys said of the five.
TV customers that are in production that to our in automotive.
And I was little surprised by that I Wonder if you could talk about what types of applications are already in production with CV and if my follow up just are you still think you're on track to be sort of 10% CD funding here.
Well first of all the let me answer that the 10% I think although.
We have a less visibility on the second half are we still continue to believe that.
We have we're very which has to deal with the 10% total CV revenue and I think thats on track well continue to report on the progress on that so the 10% CV things I think it's definitely something that we we think it's important for milestone will be comfortable trick on that.
In terms of Frank customers, we didn't.
I'll now turn them, but I think that both total revenue coming from more most likely you know it's.
Commercial vehicle full eight as.
And all fleet management for eight dies or.
Looking turnover among those.
Application, because they don't need to eight ace or application, so it's easier and faster to get into production. So I think thats the kind of look automotive production what talking about.
Great. Thank you.
Thank you. Our next question comes from a line of trusting gear up from there to your question. Please.
Hi, good afternoon.
Could you remind us has.
Last quarter, the percentage of tier one when you coming from China customers and what did they started to diversify chairman away from you is vendors I think that the number it was about 20% to deploy your quarter.
And so.
Details that you could add in terms of that you restriction.
Correct.
At the same time putting into.
Next I city come being eventually kind of from TSMC.
Dynamics does that create you know later this year.
Getting China.
So so let me look for me answer the last question, but as far as geographic breakdown of revenue, we don't disclose specifically by country. The geographic breakdown of revenue a lot of our revenue in Asia and in China. In particular goes through WT. So you can see that deputy is a big part of.
Our revenue and a lot of that goes through WT is what was your Tony and others, but we don't specifically call out customers I think people have made estimates as to what certain customers might be for example.
Hi Division were Dahua, but we don't called that out we just call out our over 10% customers, which are WT in Chicago.
Right. So for the high Silicon question I think that.
Oh.
First of all I think that because it just came out and when we told to Oh attorney I think there's still a lagova above.
Details that which I'm not very well understood what trying to understand that and the we haven't seen our whole customer react to that ruling yet however.
We said before we knew that this is going to continue to help us outside China I think Jose channel really reported second Panasonic hides Hot Ecolink would you use high so getting the past and you can see there for our earning call. This time, we do see let the we picking up design we found that.
Inside China I think.
Different story, because there are multiple different factors playing at the same time, while high so they can my now.
If even TSMC cannot.
While ship too high so they can but however, I spend time, most our Chinese customer.
Probably trying to avoid you always component at this point and they probably will peak.
Using other solutions, if they have choice, but alamito at high and they have less a choice. So there are so many uncertainty in China today and that really so new we are still watching the how this progress on the web talking to our customer, particularly in China to understand Holyfield lives.
So I will say, if there's something for certain I think the outside China. It's definitely we'll see a positive was inside China is still on them.
Okay, Great. That's Jvs food and then just a quick follow up.
Are you seeing any lingering supply chain disruptions.
Trading at your customers and you've mentioned the.
She can you say can rebound in security related revenue. This quarter is is that we actually feel for what could that be built in Q1.
Are you basically back in line with real end demand in Q2 and security.
First of all the supply chain point of view I think our supply chain.
Very little impact.
From the Colby 19, however, we do see.
Very strange ordering pattern fall customer when we talk to that they do mention the.
Disruptions in their supply chains, particularly in the auto space also we'll see some.
Disruption in the supply chain for security Cosmos.
However, the I think security cap if you look at all costs. Our current market I was trying to address I will say the professional security caramelized, probably the list the impact that Colby lighting and also there are lagova.
New demands thermal thermal offensive integrated was the cameras, Mike can come kind of those care Ross will say single application. So we do see opportunities.
Full security for the professional security camera. So maybe that's the reason of that we are seeing a better as a result on a professional security side.
But also however, I did point out on the consumer security side. So it's a retail product and always although a lot of retail channels shutdown yours in Europe, we do see that supply chain PAMA is one thing by the end demand is different story when that becomes a Q3 Q3 in the midst you all know.
We are working with our customer trying to understand that as much as we can.
Thank you so much.
Thank you. Our next question comes on line of to respond Burke from Stifel. Your question. Please.
Yes. Thank you.
I had a question on.
The professional security market, you mentioned the integration of thermal sensors and soon and so forth is that something that you're already offering.
And if not when would you expect to start.
Perhaps delivering answers sees that would include terminal sensors.
Well first of all we don't include the Cmos sensor thermal says that in our service, but we can interface easily with Cmos someone says, it's just that interface with Cmos sensors. So in fact, several customer for example, flare and as well as of original they already stopped.
Shipping some thermal several cameras.
We saw traditional security camera by using our solution, which is those are very small at this point, but that proof of concept that using our existing chip, we can easily interface with thermal sensor and the future we can even apply.
So I'm kind of sensor fusion.
Our capability. So I think some weakness was of furniture market in the past, but was a pandemic you can see a strong demand and the in the future.
Carlos.
And also tied to talk a little bit, though screening all that was a temperature I think that definitely drive the demand for this so I think the answer to your question is our existing solution to into was simple similar says a lot and you promise.
Hey, good and as a follow up on the automotive automotive side of things that market's been weak for you already some for several months now that the there's some for production starting up again in that market. I guess is starting to see any positive signs are movements in the OTA business at all.
Well, we see some part of the site in China, but not.
You know Arlo places for example, although I am hoping that Japan can come by some because.
A lot of our.
You will recall the business is in Japan, but.
The Japanese government hopping on and off shutting down the season in Japan, So equally the unknown to us So I always say that all the automotive business, we see a.
More ups more of positive signs in China, but not well not anywhere else.
Great. Thank you very much.
Thank you. Our next question comes from the line of Ross Seymore from Deutsche Bank. Your question. Please.
Hi, guys. Thanks for random asked the question Congrats on weathering. All these storms simultaneously I guess my first question would be for Casey you talked about Directionally up for IP security in your fiscal second quarter guidance, then down for automotive and consumer but as we've seen in the automotive market down can be quite a severe magnitude so any sort of.
Quantification of that even kind of ballpark ranges like you gave for what it actually did in the fiscal first quarter that should give us for your second quarter guide by segment.
Yes, so what I had said about the.
The automotive and other is that we would expect that they would decline.
To have an order of magnitude and visibility in this environment is pretty tough I think I'm directionally correct that for me to try to put brackets on it more tightly than that I.
I think would give you a sense could I have more visibility than I really do today and thats really true for all of the markets.
But.
Because of some of the comments that that for me just made.
Again, Directionally I do think that the security market will be up it but again due to quantify that is really really tough in this current environment. I mean, we we feel good incompetent thats why we gave a guidance, although it'd be a little broader.
We have some visibility into Q2 to get to find on it I think I think would be difficult.
Got it thanks for that color and then I guess for my follow up when you talk about that $10 million that you expect to customers for an off into the second half of the year have you seen their behavior actually start to change it doesn't sound like it has yet it seems like you have this somewhat ironic combination that the longer that trade tension.
Stay elevated more likely those customers want to carry offer has anything changed to give you believe that will be burnt down in the second half of this year or are you just basically sticking around waiting to happen just like the rest of us.
I think we are waiting but also we saw signs.
First of all I think they're ordering patterns suggest that that this although we've had a slowing down basically suggested I think burning off because like you said they are country of the shipping all kind of cameras.
However, I spent time the trade war now really shifting the geared toward being held equal to handle high so they can supply so well they see all Chinese causal good inventory you shouldn't you should assume that it probably building up a lot more high sneakers apartment building hours, because we said that we have no problem the containership products.
So that is point so.
I think that's that's a difference so we do see sung indication that they are putting off.
So the inventory gradually.
Yes, I guess, one final housekeeping one Casey how are you thinking about opex in the second half. This year you did a good job Inc. first quarter I assume a lot of the.
The variable cost that you can keep tight are already so it just kind of a run rate first quarter second quarter, and 32 million the run rate going into the second half or are there. Some items that we need to appreciate that that would be a little more lumpier in nature.
Well again as we continue to push our roadmap forward aggressively not only in 10 nanometer, but in five nanometer as you can imagine the tape out cost CAD tools et cetera, all will amortize that pushes that amortization up. So you do have some build from that.
As you go out into the year, but we don't have any other programs that are dramatic that I would say are going to change to the opex, one way or the other but I think the announcing onto is obviously at this current difficult time, but that's been watching out expense. Other areas is very important for us while we commit to continue.
Two final meter and 10 nanometer silicon development I sense, how we are very cautiously in terms of a hiring people.
Ali experiences, including trade show travels, which naturally being caught the come back and so we are watching all expense I read about we continue to come meat on the R&D R&D expenses, not hiring but on the cable and silicon development tenancy again, its little hard to tell when people are going to be able to feel comfortable traveling and these comps.
So those are going to start to take place in person again in second half.
We'll have to watch that as well.
Let's just opened in the second half thanks, guys appreciate it.
Your next question comes on line of Adam Gonzales from Bank of America Securities. Your question. Please.
Hi, guys. Thanks for taking my question apologies. If this was the addressed in the prepared remarks, my connection with little bit spotty, but.
Just wanted to know how the current up endemic in crisis is really impacted your design momentum in pipeline, particularly in TV for autos I have your customer interactions changed at all.
Well first of all there are multiple different impact first of all for example, because a walking fall and some of the company customer Eva only working two days a week. So he definitely the the.
The decision is being slow down and also the some activity that engineering activity got delayed so I think thats impacts a clear, but we are trying to FICO is weather when they come back to.
The normal stage, whether they go through we view Hollycon revealed at current investment level and Hollycon to invest south defend those projects that I think something that we really we'll try to understand how that impacts.
There, we don't we don't see a clear indication yet, but if on the impact one of your definitely the current project looking.
The activities slowdown some project push out just because of working style.
Got it and then on the first security side in response to earlier question I think you alluded to some risk of.
The China customers, perhaps wanting to procure chips from you know a non us customers moving forward.
Outside of Hi, Silicon you might be cut off from TSMC soon what other options or are there really and the first surveillance market.
Well like we said before in a low as side there are quite a few in China and Taiwan.
So infant so that's definitely a concern however, middle and high particularly on the CV.
The Ministry Maxcv 22, CV C level of chip I don't think there is a material choice. So.
That's why we continue to talking to our Chinese customers understand about hardware.
My feeling is that.
The.
So.
Yes in China, a situation consumer deteriorate really trigger all customer have more concerns of using us component.
Thank you.
Thank you. Our next question comes from a line of Jeff Kessler from Imperial Capital. Your question. Please.
Thank you and thank you for taking my question.
With regard to with regard to access axis access control.
A number of the integrators, you been able to get into closed schools close the government facilities have been able to start.
For the for the first time getting involved getting into empty empty spaces and beginning to install.
Both access and video and I'm wondering.
I'm wondering if you're seeing an uptick from your end markets.
In in that area, particularly a particularly when it comes to some of the electronic network locks that integrate with video.
Right. So we do here if all customer they start reengaging with their end customer and start doing those kind of things, but how we haven't seen on the older impacting yet because there is obviously if you may need you to empty inventory level. They deal with any new to understand that so from that by talking to consummate we understand they already.
Hi, Reengaging, most our U.S. and customer.
On the professional security cameras, I told us that reengaging with.
The current customers already so thats a great side and that's another reason, we believe that the professional security has much less impact than the other market that we're dealing with as in time and I also believe Quinn hopefully that will legal back to normal a little bit in fact, we believe that the.
The contactless.
Monitor.
Camera as well as other AI trend will continue to help us to establish our solution to the this kind of market and being able to even more.
Implications in the future.
One other quick question on.
Axis.
And the introduction of a body worn cameras. It appears that isn't just access for some other.
Higher end camera manufacturers are getting involved in tried to get more analytics on them on a mobile basis getting mobile cameras out there not just for police but for other uses as well are you seeing are you seeing demand in.
Obviously, you've mentioned acts axis and their mobile camera, but are are you seeing demand from axis and other companies at the high end that are that are that are going to need AI.
For for mobile applications.
Yes, they need it is clear and the the challenging is how to do and the video and the streaming add to Paul consumption that.
Okay offer the any of the camera can operate 12 hours in a row with an operating older. The credibility just talk about so and that we saw solution, we're getting there and those old leave that our investment in the.
Lower geometry process, what that's going to enable that however for this market I want to point out.
It's at the beginning of the demand because any wearable camera.
If you use only for police Memphis Evil Security Guard. The Maki size limited. However will you start figuring out all the usage that.
That would require this kind of camera that could be.
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Usually increase our hands, so I think of the trees. There. However, I think that because the technology limitation on at this point.
It was a dual map that continue to increase the pro formas reduce a power consumption had more performance to their enabling a much.
Better customer usage.
Better customer experience with this kind of wearable camera and that's why we're looking for.
Okay, great. Thank you very much appreciate it.
Thank you for calling our next question comes on line of Quinn Bolton from Needham Your question. Please.
Hey, guys, maybe first a clarification from accretion on the site.
You say that the overall security market would be up or is that just professional security just just want to make sure I heard your right.
I said overall security.
Can you can you say, whether that's both professional and consumer or just your comments.
Yes.
Yes, I think it overall, we feel that is the right way to think about it again because of the visibility.
We've got I don't want to get into specifics around what's going on for me again has talked about a lot of customers, both professional and and consumer.
There that are moving forward in when we feel very good about but I think I would keep it at this crucially up for the overall security market.
Great and then free you kind of mentioned that the slowdown in design activity in April and May and and I assume it's too early in June to try to assess June trends, but what do you think it takes for those companies are customers to start to Reengage does that they have to get folks back to the office is it.
I just need time to figure out how to work can be effective working from home I'm. Just wondering what's your what your thoughts on kind of reengaging with those customers are.
I don't think is required to go back to Opus, 100% is really that for example, sorl auto multi customer they not only working following the only look two days a week.
So we start limitation that really hurts the productivity and I think.
Even in California people start talking about.
Well, we open in June gradually I don't think local hundred presenting to opus immediately, but I do think that if we're going to plan very slow gradually.
Progress to by moving in play back to Opus.
So from that point of view.
I think that to the productive loss will be reduced but I think the most important thing is really about was there some companies putting very.
The streets rules about working hours 40, 40 employees and actually remove was to see a back to normal working conditions.
Understood and then last question you guys had mentioned that the mirror design win I know, it's a little ways out, but just wondering if you give us any more detail I think you said it was a single channel you mirror. So just wondering is I mean, it's just like.
Do you do you have both sides and the rear view, maybe give us any sort of sense on a dollar content per vehicle for that one.
So in the past we focus our sweet.
All three cats we.
Windows and the about now streaming rose, but I think right now what we add to it as we start doing a one channel design, but the one channel design also was a one channel plus other function for example allow people trying to use a one channel, but also add sung.
Other functions into there.
Cameras. So I think the single channel camera, Reram Euro and but also older customer that we talked to the how they need a roadmap to an average single Cameron single single mid single meaningful application as well as to Meanwhile, as well three meals. So when you have a dual map that cover all of that big.
Make it easier for customers to using one supplier to address older needs. We that's only meals. That's why we've spoken about so well we always talk about single.
Single. Meanwhile, design with this time, but I do believe that leveraging our experience all three channel pass and of that now we can offer the complete.
Well map funded one channel to straight channel Ida Yu efficient cost I think thats. The reason we style winning those keysight.
Thank you for me.
Thank you. Our next question comes from the line as Suji de Silva from Roth Capital. Your question. Please.
Hi, Casey Keith can you just circle back to the consumer security market, just I'm trying to put together the comments you made.
You had momentum I think you know earlier in the or and then you know the visibility is limited because a macro anybody said the.
The security for the.
The security market overall be up sorry standpoint, or send the qualitative comments you, making on the consumer security market, particularly going into the what it would normally be holiday season, obviously different your this right.
So first of all last time, we had this conference call. We made a clear that constantly IP Ken is it a bit the market I'd really help us.
To continue to grow already.
And we are saying that is in a long term point of view that you didn't change. However in a short time point of view that because of other retail store at all customer used to sell there I just comes from I cant through our oldest VLP somebody we also got shutdown and the also may even closed so until those.
Retail store open we have very little visibility of a second half demand that's going to say and the right now just because older business just gradually reopen I think we'll take a week's fall customer to decide how they want to respond to the selling season, because as you know if theres a selling season. This early this year.
We need to stop prepare products and they need to prepare the their final systems and the put into the channel. This profit need to start right. Now so we are waiting to see a.
Fall customer how do you want to react to this reopening and how they forecast of all the second half were particularly from a selling season as you know suji last year in the second half we had the first wave of CV, which was in the professional IP security camera market and we talked about the consumer being a similar.
Type of second wave in the second half of this year.
Clearly with everything going on or we just talked about in firms reference. It's it's a point in time, where it's difficult to say or understand what if any impact.
Is going to happen in the second half clearly with consumer staying at home and everything else. It's just put a big clouded that it's hard to get much visibility into it but we still feel it's going to be the second wave of CV and then the off some of the automotive and other areas the access control and robotics forming up.
The next waves in CV, but.
It's just hard for us to continue to make that call is precisely as we were feeling a quarter or two ago, because because of what's going on.
Okay. That's helpful color and then maybe a big high level question, perhaps for me I'm. The a the product road map you have the tenant bike products can you talk a lot the key vectors, you're pushing on here on the road map bar to stay competitive versus the Gpus that PJ in the market better you're competing within the automotive market any color would be helpful. Then of course, all supposed to Italy fairly soon it's you guys live but.
Kinda give us some color there would be helpful.
So first of all I think that.
You know low power has is Rick low power consumption has being one key area that we try to differentiate and we said many times before that our Petro give us a silicon perpetual give us to that low power consumption differentiation for however, if we fall behind to process node we.
My lose that Lupolianski took advantage totally.
This all competitors like you know.
So space and even the security space.
You will that be companies now moving aggressively moving forward and we have to us and things of will find them either is cross border for older chips that we're thankful CV two and Cdtwenty. Two as you can you buy you you should expect to that they don't need a we have oh chips to address go security Panama as was automotive and I've spent time.
So automotive if you want to drive address CV to sorry, the level two plus a solution that everybody trying to design design win the pro Formas requirements continue to increase and pool to achieve a prop appropriate uphole consumption, which is my.
Actually lower than our competitors.
That.
We need to not only lightbridge, our sick architecture, but also move to find nanometers to keep our vintages.
Okay. Thanks, guys.
Thank you. Our next question comes from line of Charlie Anderson from call. Your security your question. Please.
Yes, thanks for taking my questions Casey just to start out with inventory came down a little bit in the quarter you have a lot of variables to deal with the rest of the euro when are you because just give us sort of your Hello overview of how you treat inventory and recently or like a follow up.
Yes, as you know weve over the last.
For the six quarters have brought inventory down and done a little bit more rigorous inventory management I think that's that's been helpful. In a good discipline for the business.
At this point, we've kind of been hovering roughly in this area and it just kind of depends on the orders, we see what's getting shifted beginning in in some quarters and there really isn't much to read into that it was a million dollar change. So it really wasn't that much of a change.
Most of our inventory and product or in high runners and and so we feel don't feel lot of exposure to that long term.
But but we're managing inventory and trying to make sure that we stay in the right place.
It's really tricky like everything else right now with the visibility because you don't want to get caught with all of sudden.
Turn and you don't have product and so we're trying to balance out in an appropriate way.
Okay, Great and from my Paul just on the subsequent thermal.
Cameras, I think we're seeing real pull in the market like immediately some sort of curious where things stand as far as your ability to serve that market. The is there a design activity in the needs to take place or are there any existing models in the market with your silicon that can answer that need or is this more than 20 want to be on thanks.
Well like I said I believe that multiple calls professional security camera customers.
Working on that and I believe you will see products coming out this year and thank you said, it's a high demand and I think Thats I hope is ongoing demand, but we should see but we do believe that they will be solutions all to this year. The however, I do believe that Aslidis. This trend started when people realized.
Thermal can use of can be easily integrate and the price comes off on the current Colin level that would enable different totally different applications. For example, I can imagine that even for the home security camera life at of dry price a thermal camera can be very helpful.
On the doing access control and also in fact that if the the as the price and the power is right, but even if automotive business you can use that to identify leaving us so over.
Personally or alamos they want to avoid.
Driving those things become helpful. The because probably in the past was.
Thermal says are usually very expensive as not well very easy to integrate and very.
With this new marquee opportunity about people spending time find that finding ways to integrate it was a security camera as well as developing out was and so for it to do a sensor fusion between thermals answer as well as analysts and a seamless end so together and all of that effort will help the thermal essentially become more popular in my opinion.
Yes.
Both for all of the application that we're looking at right now.
Great. Thank you so much.
Thank you. Our next question comes from a line of Matt Ramsey from Cowen Your question. Please.
Thank you very much good afternoon guys.
Obviously, a lot of uncertainty out there, but it was nice to hear farming the April products.
Sounds like for the automotive industry are ready to start rolling out I, just wonder if you might talk about.
Programs that you've been working on in the automotive space that that might have been waiting for for April certified so again.
What your expectations are for for growth of those products over the next 12 18 months right.
So for this chip.
This ain't so should we see two FSS you 22 Fs. They are designed maybe for eight ACIP Acacia although they can be used for the eight that's party at CMS or eight Thats plus.
Incoming monitoring all of that the combination with those three application other sweet spot for the design.
And.
We are talking to multiple in fact, we announced a one Chinese kotkai already using our planning to use the CV to fs and what they will get simple very soon and the plus there are multiple customer I evaluating cdtwenty cdtwenty two as for their new programs, but I think the biggest ability for us in this space is trying to.
Enable adas application with the chip and we saw our software upon us we talk about highlighting the past there's a Korean strata vision there and then they are other partners, while working with so the trying to make sure our partners and poor there so for onto our platform and we can simple this two tier ones on time.
This is the key.
Execution will have to to your next civil Myles.
Got it thanks, and just a follow up I noted over the last 12 months or so.
Ben a little bit more communication from the company about things that you're doing in the logistics and and shipping factory automation those type markets with.
Some contracts and you've won with some trucking companies for for automating package delivery for obviously, some things with with your camera partners that maybe any Amazon go store and branded some software development stuff with Amazon I mean their cloud to work on your software stacks. It seems like that's a push that.
Product, maybe your products overall might be well suited for those markets as they develop and then something you're investing in just high level thoughts how important slash big an opportunity that might be and timing of such an opportunity when it happened. Thanks.
First of all we are continuing to invest those areas and we give them into this time, because I think koby nagging probably.
Called every all the others discussion that we have and this is like I said before it's I'll meet turned to maintain investment and we are continuing to invest this area. Because we think this important for US and also we believe that's big optic Mafia sort of thing of the meta low transource. So.
While we continue to work with the old of upon us submission.
As I said and also we continue to too busy development over zoom meetings over conference call to tell to then making sure. They I think we support them properly so.
All the projects ongoing however, since high although we do see how slow going some project because koby 19, and things, but we expect all the projects back to normal went up.
When that business, we open up again, although we didn't talk much about that direction, you mentioned, but that continue to be an area that we too have continued investment comes due to what we saw customer closely to introduce products.
Thank you very much guys appreciate it thank you.
Thank you our final question for today comes from a line of Richard Shannon from Craig Hallum. Your question. Please.
Thanks, guys said just two quick questions for me a embedded in your guidance for the July quarter, you're talking about security being up.
Curious if you can kind of give us a geographic breakdown your expectations, there specifically thinking about China versus rest of world.
You know, we talk about China basically to customer continues to digest the their inventory. So I think thats indication that to the probably either that slowing slower revenue in Q2 in Q2 forecast.
The other areas, we still think it's no move on the professional security camera side and we can we talk about comes from my opinion. So overall, our phone to China side I have to say you know.
We still look the geopolitical situation and the tree, we'll be putting us in China things become very very uncertain, even more on certain then pandemic in my opinion, because there's just too many factor to consider at this time. So the only thing. We're doing is continue talking to our customer in the regular piece, we're talking about weekly.
Don't think daily basis to understanding tension understanding how the project how much inventory they have and the question. We do to help into supporting all of that is happening in the meantime, ascend so that won't be seeing many times that olefin showing concerns not particularly targeting in Berlin, but they are all showing sitcoms us continue to.
With us component that I think is the biggest problem for all of us.
Okay. That's helpful. Thanks for the detail for me and my follow on question here just quickly on your CV revenues for this year here you hit your kind of 10% revenues goal here for this year again from a geographic point of view, how do you see that playing out here is that dominated or or strong in China or do you can see a balance throughout the throughout the world.
I I won't say stamina in China idle I'd say, it's very balanced.
And I still think that we said at the go up 10% CV revenue I still think we have a pretty good chance to achieving that.
Okay. Appreciate the detail that's all from you guys. Thank you. Thank you.
Thank you. This does conclude the question and answer session of today's program I'd like to hand, the program back to Dr. for me wrong for any further remarks. Please go ahead Sir.
Okay. Thank you will end the I am looking forward to talk to you next time. Thank you have talked you later bye. Thanks.
Thank you, ladies and gentlemen for your participation in todays conference. This does conclude the program you may now disconnect good day.
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