Q3 2021 Ambarella Inc Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the Ambarella third quarter fiscal year 2021 earnings call.
At this time, all participant lines on the listen only mode.
After the speaker's presentation, there will be of question and answer session to ask the question. During the session you and need to press Star then one on your telephone. Please be advised of today's conference is being recorded if you acquire any further assistance. Please press Star then zero.
I would now like the hand the competition on what your hosts Lewis go Hardy corporate development. Please go ahead.
Thank you Sarah and good afternoon, everyone. Thank you for joining our third quarter fiscal year 2021 financial results Conference call.
Going into day from different locations will be Dr., Fermi, Wang President and CEO and Casey Eichler CFO.
The primary purpose of todays call is to provide you with the information regarding the results for our third quarter of our fiscal 2021.
The discussion today and the responses to your questions will contain forward looking statements regarding our projected financial results financial prospects market growth and.
And demand for our solutions among other things. These statements are based upon information available today and are subject to risks uncertainties and assumptions should any of these risks and uncertainties materialize or should our assumptions prove to be incorrect per actual results could differ materially from these forward.
Looking statements, we're under no obligation to update the statements. These risks uncertainties and assumptions as well as the other information on potential risk factors that could affect our financial results are more fully described and the documents we file with the FCC income.
Moving the annual report on form 10-K filed on March 27th 2020 for fiscal year 2020, ending January 31st 2020 and the.
Form 10-Q filed on September nine 2020 for the second quarter ending July 31st.
2020, and form 10-Q filed on June eight and 2020 for the first quarter of the fiscal year ending April Thirtyth the 2020.
Access to our third quarter fiscal 2021 of results press release historical results and SEC filings and the replay and prepare and transcript of today's call. He found on the Investor Relations portion of our web site with.
With that I will turn the call over to the Doctor Fermi Wang.
Thank you Lewis good afternoon, everyone.
And the thank you for joining on this holiday shows and the week.
I'm pleased to see our multiyear V. I investments most of the major force driving accelerated business momentum, which is the apparent in the whole Q3 results and outlook.
[noise] kills the revenue of $56.1 million was above the high end our original guidance range TV.
TV led the way well, we also face stronger than expected the men will veto processors in spite of the persistent geopolitical and pulp and the public health risks.
Gross margin of 62.7 per cent was above the high end of our loan to the model will the thick and calls Q this quarter.
Reflecting on favorable customer mix and the continued operational execution.
See the revenue was slightly more than 10% of total revenue in Q3 and.
And we continue to expect you to be 10% for the full year.
With the SP about two ex our non CV ISP TV units of was one less than 4% our total units shipped and the even a smaller portion of the install base highlighting the very early stage over this opportunity.
And the significant multiyear headroom for growth.
We anticipate CV revenue will present represent about 25 per cent, our total revenue in fiscal year Twentytwenty two and.
And the we have a flattish on Luke well video processors.
The meat of trends the full security safety and the automation are very favorable and the pandemic appears to be accelerating this digital transformation.
To support the this anticipate the growth we continue to build out and globally and we intend to further expand our presence around the award to support the rising interest in our CV and so sees on both existing and the new markets.
I will now talk about our markets and the customers.
As we have of previously mentioned Chinese IP security camera on me makers have become concerned above the continuity oversupply for existing Chinese suppliers.
And I've been evaluating alternatives the camera designs all of the solutions.
Ambarella is the CV of flow. So see have won a number of design wins based on their high performance high quality imaging and the low power we.
We have now received orders of shipments beginning in the fourth quarter of this year, including orders for our CV flow so seized on thoughtful.
Cannot second largest security camera company.
Outside of China, we are continuing to see customer introduce new IP security camera based on our solution, including all the scene flow AI Socit.
During the quarter Johnson controls launched its new Picor multi sensor the camera Vince up on Ambarella is to you also see the camera is equipped with the full separate image sensors to provide up to 360 degree coverage. We have four separate the non speech video streams. Each of the force sensors are able to capture force.
Okay got peaks of images, enabling came on to cover the area, which in my normally require a whole separate high definition video surveillance cameras.
And the Honeywell introduce its 60 series IP camera, including finding of pixel indoor and outdoor pool, it and all of those speed on models and the timing of pixel although speed on models.
Based on the umbrella if I also see the 60 series.
However, increased the resolution and the provide fast notification and the verification of potential threats and the response.
And Florida introduce is the lateral thermal camera for accurately majoring skin temperature and the media into a high throughput.
Entry controls.
We saw and Bras C V 22, and ISO seat heaters equipped it was one with on age intelligent the face detection and the issues on screen Pops to individuals what they needed to remove glasses well also guiding on to the correct position for best measurement.
And the also Panasonic Appro continued to experience portfolio and brought on based models that was the introduction of its a vehicle capture of camera. The WB ex 50, 550 based on and grow the Cdtwenty two the camera and capture clear images of vehicle occupants on one channel and license.
Play on another even in challenging lighting up environments, including night time.
In the body worn camera market and of the eye pro input used it's the Pwc 4000 camera based on Ambarellas CV Ptwenty five day, so see the Pwc 4000 recorded pay TV deal and the has 12 hour battery life.
And also during the quarter and Motorola introduces of VB 400 body worn camera and the security professional and the base on and Bras and low Power Association.
Integrate it with of the Joe's cultural centre. The VB 400 can overcome and fix video of the point by displaying first person perspective video on the body worn camera, although alongside the fixed camera for superior situation.
Situational awareness.
During the quarter Comcast announced its new extremity home operating code self protection designed for consumer who want high quality security cameras, but who may not need of professionally installed and monitor the whole homes the security system.
The newly expanded the Ts.
The whole security camera is powered by and gross a three hour and associates and is a beautiful both indoor and outdoor use.
And this month.
We introduced our CV and he and camera so see the latest in our CV flow family supporting the introduction of the event AI features targeting of variety of the current Ross in new high volume markets.
It's a highly efficient and processing and low power walking able and new class a smart aiotv devices for applications, including Smart home security retail monitoring on robotics and the occupancy Mark.
For new licensing application like the retail monitoring or occupancy monitoring the Esso see provides the the AI performance to make all decision Inc. In the camera preserving privacy and avoiding heavy video processing running on the back end servers.
In home robotics of applications, the cdtwenty and can be connected to a wide range of sensors, such and such as visible structure of the light and the time to flight to capture and then process the data required the full navigation.
And we are currently simple cdtwenty and to our customers. The Cdtwenty am software compatibility with the existing see flow families is allowing customer to enter production very quickly and we have already received the mass production orders per shipment beginning in Q1 next year.
In the automotive market, we are continuing to make the great progress and we promote our EPS solutions for a variety of automotive of patients, including Adas and 84 cost customers worldwide.
Today, we are announcing our total automotive revenue phone of for the first time and we tend to update it at least once every year.
Based on our best judgment, we currently estimate our automotive revenue of on the model is about $600 million with the majority of CV for a variety of Adas and the 80 applications.
The OTO fund the revenue growth through fiscal year 27, with some of the more significant progress commencing production Inc. This calendar year of 22 or 23.
And this fall no covers business, we have one as well as the pipeline of the business. We are currently competing for.
We're seeing shipment of our CV flow based Adas solution for commercial vehicles in China current continuing to ramp with the customers, including youth home bosses, Sean Sheetrock and Dove on trucks.
We are currently the market leader in the OEM car recorders category with customers, including Nissan Honda and Toyota and Japan, and Gray War, Gd and be why the in China.
We are now seeing on recovery in orders for Oems and car recorders in both regions.
As the car manufacturers begin to ramp production back up following the impact of the pandemic.
And the also we are very pleased to announce that we have our first is on wins for our CV to fs automotive functional safety a sales season, which we introduced during CES at the beginning of this year. This.
This aid associates include the air processing and the Ace of feature required for safety critical as applications.
During the quarter, we signed the of development agreements the supply our Q2, fs and still see well level to plus eight the assistance with the OEM manufacturer of electrical the electric vehicles.
And this application the seeming to Fs provide the AI processing performance of flexibility to support a wide array of the driver assistance of ability to improve safety and the convenience.
Also during the quarter, we signed a new development agreement with the tier one supplier of electric immune rose for the European commercial vehicle market based on our CV to Fs functional safety a CIO CS.
The CV to Fs was chosen for its ability to process of each of you for multiple cameras and the potential of the Vince Air processing to support features such as of vulnerable ROE user of the Petchem and prediction.
And we'll continue to win new designs for fleet management solutions for commercial vehicles, as well as ride sharing and ex taxi services.
With the 140 million and commercial VX via causing us the hundreds of millions worldwide the ability to retrofit existing commercial vehicles with cutting age drive Trevor monitoring capabilities represents.
On major opportunity for ambarella.
Our see flow so see how of the requirement to support long Adas application activity driver monitoring and the video recording.
And in November Ambarella announced the joint and reference design for automotive camera applications that simultaneously monitors drivers, while capturing vehicle occupants or one way video conferencing.
The reference design uses so very fast by a world leader in developing AI powered the i. mouth, and the head tracking technology and the image sensor for anomalies Omnivision technologies.
And grow as the Cdtwenty two HQ AE, so see subcutaneously process, both RGB color image and the IR and as Ron small eyes, LCOS and to analyze the drivers state and the alert the vehicle to any on safe indicators, such as the draws on us.
With the holiday season approaching there have been a number of the new consumer product introductions, featuring and brought on associates.
During the quarter DG I introduce the is a paki true handheld camera income with the three axis motorized symbol to stabilize most of it. The paki true is based on and Bras age 22, SLC and shoot for K P. 60 video takes 64 Mega pixel photos and the.
Includes 800 zone capability.
And on the live before TJ I introduced its meaning to draw on the replacement for the popular bank Maverick Mimi model, featuring and draws 80 22, and so see the meaning to increase is the maximum of video resolution of two full case at the 30 frames per second while also shooting.
Paytv PVD tool and the up to 60 frames per second.
Also during the quarter in South recently introduced is one the X true paki camera based on and Bras and you're trying to associate the one ex to including includes do less of 5.7 K. capture for high resolution 360 degree images and two six of our encoding and based advertising and the of the Vince images.
Liberalization.
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In summary.
We have heard you and you have heard today will average does on the growth and expanding adoption of our associate in automotive and security camera.
Security camera market.
In the professional security camera market, our CV momentum already strong should be viewed as we have added new CV customers in Asia.
And the we expect to see CV become material in the home security camera market over the next year.
In auto our CV traction is strong and the cyclical and part of the our expanding follow.
In addition, we continue to develop other I O T market, including enterprise access control small ops and the counting occupancy sensors and.
And the we look forward to providing you with updates on our progress.
We are making significant progress on multiyear transformation to a rejoined the company and the the return on the investment is ramping.
And proud and we'd like to thank and acknowledge all of our employees worldwide for their contribution to our leadership position in the market.
And the four their execution in the face of the two Poland and.
Environment.
And also thankful for the support of our customers vendors and shareholders. During this time.
I will now turn the call to Casey, who will give you more details of what we are seeing and expect for the business.
Thank you for me and good afternoon, everyone.
Today I will review the financial highlights for the third quarter of fiscal year 21 ended October 30, Onest and provide financial outlook for our fourth quarter.
During the quarter I'll discuss non-GAAP results and ask you to repurchase today's press release for a detailed reconciliation of GAAP to non-GAAP.
Per non-GAAP reporting we have it the eliminated stock based compensation expense adjusted for the impact of taxes.
Our revenue of 56.1 million was above the high end of our original guidance.
This represents an increase of 12% from Q2, and a decrease of 17% when compared to the same quarter of the prior year.
In Q3 on a sequential basis automotive revenue and other increased while security of decreased.
Non-GAAP gross margin and for Q3 was 62.4 per cent compared to 60 to 62.7 per cent compared to 62.4% and the preceding quarter and remained above the high end of our guidance, primarily due to customer mix as revenue from the two large.
Professional security companies in China remained at low levels.
Margins were also supported by continued operational execution in the challenging environment.
Non-GAAP operating expenses for the third quarter was $32.4 million compared to 30.2 million in the previous quarter.
Opex was slightly above the midpoint of our guidance range.
And the consequence of the increase was primarily due to additional chip development expenses and higher employee related costs.
Outside of the you and us as normal activity resumed.
Other income of 673000 was due primarily to lower interest income as rates continued to remain low.
Non-GAAP net income for Q3 was $3.3 million or nine cents per share compared to net income of 2.1 million or six cents per share in the second quarter.
In the third quarter.
The non-GAAP earnings per share was based on 35.8 million diluted shares as compared to $35.4 million in the prior quarter.
Total headcount at the end of third quarter was 766 with about 81% of employees and engineering.
Approximately 69% of our total headcount is located in Asia.
Cash and marketable securities were $423.6 million up from 410.7 million at the end of the second quarter the.
In Q3, we had profit positive operating cash flow of $13.1 million.
Total of accounts receivable at the end of Q3 were 24.1 million or 39 days sales outstanding.
This compares to $23.3 million or 42 days sales outstanding and the prior quarter.
Net inventory at the end of the quarter.
It was $23.7 million compared to 23.9 million at the end of the previous quarter.
Days of revenue increased to 102 days in Q3 per 109 days in Q2.
We did not repurchase any shares in.
The third quarter.
In May Ambarella is board of directors approved and extension of the current $50 million repurchase program for an additional 12 months ending June Thirtyth 2021.
As of today the remained.
49 million available for repurchase.
We had two customers over 10% of revenue in Q3.
WT microelectronics fulfillment partner, serving multiple customers came in at 62% of revenue and two KONI on Taiwanese OEM, who manufactures from multiple customers came in at 18%.
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I will now discuss the outlook for Q4.
Fly 21.
Our visibility has improved but we remain on guard per risk related to the pandemic and geopolitical factors.
Furthermore, as the semiconductor industry supply chain tightens, our operations teams remain vigilant and their efforts true manage manufacturing lead times and on time deliveries.
We have seen some customers request order pull ins.
And orders placed within our lead times.
CB design activity is at record highs.
And.
And our prior earnings calls, we estimated to professional security camera customers in China had pulled and formed excuse me.
$10 million of revenue from into fiscal year 21 from fiscal year 2000.
In addition.
Revenue.
Revenue for processor inventories is being reduced we anticipate orders to remain weak offset by some degree of a ramp and computer vision and so see orders.
During Q3 of these two customers combined and remained in the mid single digits as a percentage of revenue, which will likely be the trough for the foreseeable future.
Based on these factors and our best ability true.
Estimate today.
We anticipate total revenue for the fourth quarter, ending January 30, Onest 2021 to be in the range of $56 million to $60 million.
Automotive revenue is benefiting from an early CV ramp and a post pandemic right rebound.
We anticipate.
Auto revenue will be up at least 20% and both a sequential and year on year comparison.
We anticipate security camera revenue will be up in the low double digit sequentially.
The following a normal seasonal pattern.
Other revenue is expected to decline sequentially.
We anticipate Q4.
Non operating gross margins to be between 59, and 61% compared to 62.7, and the third quarter with product and customer mix. The primary driver for this change.
We expect non-GAAP opex for the fourth quarter to be relatively flat and then the range between 31 and $33 million.
Q4, other income should be modeled at the half million.
The Q4, non-GAAP tax rate should be modeled and approximately 10%.
We anticipate our diluted shares for the fourth quarter to be approximately 36.3 million.
Ambarella is registered to participate and virtual conferences and Q4.
Concluding wells Fargo.
Imperial capital.
EPS Barclays MKM and Needham.
And Brett will also be hosting virtual CES meetings between January 11 and January 22nd.
Please contact Louis for more details on these events.
With that I'd like to turn it over to questions.
Operator.
Thank you as a reminder to ask the question you and need to press Star then one on your telephone to growth. John Your question. Please press the pound key.
Our first question comes on the line of Joe Moore with Morgan Stanley. Your line is now open.
Great. Thank you congratulations on the quarter I Wonder if you could talk a little bit more about the funnel. The 600 million I believe is the number can you compare that to the 200 million, which was sort of secured design wins from a quarter ago, how much of that 600 million is secured and then.
I assume that as you move forward, there's still the opportunity to add incremental revenues to that channel and the timeframe. The you suggested.
Yeah. Thanks Cheryl.
You're right the or what we announced last quarter represented the design wins one for the first six months of the year.
What we're talking about today is the 600 is for the design wins with our one and also in our pipeline. So.
Based on what we have today and in our pipeline, we have the $600 million flow.
And to your point that doesn't mean that we can't continue to add to that we also give that a a haircut as you might imagine related to what the customers think their revenue is going to be and also on the probability of timing to market. So I think it's a relatively reasonable and conservative look at it and the risk to your point and opportunity.
On to add to that.
Okay, great and and I assume the that's mostly computer vision and I mean is there is there a video come processing component of that.
There is but there is also a healthy component for computer vision as well, but there is some vision based system of as well.
Great. Thank you very much.
You bet and let me add one more thing Hey, Joe I think of the Mike Squid dimension that majority of that the on $600 million Alphaseven.
Okay. Thank you.
Thank you. Our next question comes on the line of Tristan Gerra with Baird. Your line is now open.
Hi.
And yet the.
The design wins that you and that you've announced in the security camera business and the at the same time Youre two large customers to the ordering.
Is the inflection point that you're expecting in terms of us.
New orders coming from those customers and that's when you would expect the inventory we've been able to.
Well.
First of all I think the we do see that the the boast customer where of cutting are using their inventories right now and the also we start seeing small orders coming from both of them and so.
So thats why in other cases, just mentioned that we think we of the trough of of the of.
On the revenue of those two companies and his point over moving forward I think of that the I expect the dahua will be strong on the computer vision and the of video process of business and will continue to be the flattish, but had visions of different low and vision and we haven't announced any of these ongoing with TV is on working with the Hikvision and yet.
So I will say the I will share the two companies separately, but we do believe that the first the the inventories gradually being where though to the CV ramping in the phone balance will be important for us and three in the future on the continue to.
What was the high vision to see we'll have opportunity work the to work with the on the computer vision technology.
Okay, Great and then the quick follow up which is you know as you expect to see the business to committing for the other the next of a day.
Fiscal year.
I understand the higher ASP is there any impact on how should we look at the the trajectory of Opex as a result.
Yes, I think so.
The the modeling for per CV, we've talked about is exactly what you. What you just mentioned and that is the two times roughly two times the of the ASP.
The same of similar gross margin profile, but obviously operating leverage as we are able to now leverage the $450 million that we've already invested and see the along with.
Taking taking our technology more broadly as Harry mentioned to more and more customers. So I think I think the CV leverage on the operating basis and on the topline basis is as you described it.
Great. Thank you.
Okay.
Thank you. Our next question comes on the line of Matt Ramsey with Cowen. Your line is now open.
Thank you very much good afternoon everybody.
For me I wanted to ask.
And I guess, the KC feel free to chime in here too on something from the prepared script.
You reiterated the 10% of revenue targeted for this year, which I don't know 22 23 million and I guess based on the on the guidance for the fiscal fourth quarter, and then I just want to make sure that I heard this correctly, the keeping camera sort of vision camera revenue flat you expect 20.
25% CV revenue contribution next year, which I guess implies a tripling of the CV revenue is that I don't know and doing.
Matthew and the spreadsheet and probably screwing it up but I just wanted to see if that's an average portrayal of what you guys said thanks.
Yeah, I think that what everything and says correct, except one thing that we continue to expect 10%. The CV revenue. This year and also we provide the guidance of that we expect in the revenue and will be 25% of total revenue next year, but thats 2.5, ex and our three ex as you described.
Got it. Thanks for me on just just following up on on I think Joes question, and maybe asking and a different way on the auto pipeline number I just want to.
Really get precise about and there was a $200 million and one business that you talked about last quarter and just within that.
The 600 million whats the progression over the last I guess three months of of the business on and the same metric that you gave us last time I understand that you'll be giving the the full pipeline number going forward, but just and she gave US one data point, maybe you could give us the second one so we can try to draw a line. Thanks.
Well.
We went up but based on our current announcement, you'll see that we sign and the two new design wins this quarter right why is that the functional safety chip on the eight yes.
For the level of two plus a best of patient you otherwise on the that's on a narrow so we see this to ensure the shown that the would definitely add more to the pipeline of.
Just this quarter and we havent disclosed the because we didnt know going through this exercise is the tank also linked to the accurate so and we we plan to continue to update is the hope this of fundamental numbers and this once a year. So that we come here to provide you a data point, but also every quarter when the company.
I hope all of these and when we get which we will not disclose the amount, but you can.
Now, we'll give you some indication and we continue to add to our funnel every quarter.
Got it. Thank you just one last one from me and I'll get out of the way I.
I guess, if you are talking about forecasting.
CV revenue and and the room.
And are the business for fiscal 22, what assumptions are you, making and hikvision and dahua about their ability to secure high silica and.
Chips, and what that might mean for your business or are you assuming that things stay steady state and and whatever changes happen there may come and the future. Thank you.
I think of my assumption.
For the steel cost about the upfront I my assumption is on the ramp up with backlog on the CV chip.
The other willing to talk about and this script and has the highest vision.
We on our current Oh.
Revenue forecast does not include any CV revenue of on that.
With the Silverjet and Thats why we are working on of hopefully that we kind of coincidental or use LCD technology and the future.
Thanks, very much for me I appreciate it.
Thank you.
Our next question comes on the line of tore Svanberg with Stifel. Your line is now open.
Yes, Thank you and congratulations on the solid results.
First of all of them.
It sounds like you're assuming the value of prospects is to be.
Flat and fiscal 22.
Is that just because of a CD cannibalizing or you're just being a bit conservative there true given the.
Geopolitical tensions still.
Yes, well.
Go ahead. Please go ahead.
I was just kind of say I mean, certainly we always tried the conservative and the way we look at it and business going forward.
Its current we'll learn over the next couple of years, how much is pure growth and how much of the this replacement Dolby and build the element of both but I don't know that we have enough information to date to true.
To make that the termination clearly after you get to that time point, it's going to be more.
More and more cannibalization, because we're not doing new video only process of processors for people to continue to extend so they are going to have to either continue to use the products. We have over time and go to CB.
Very good and so on what the yet.
And from it sorry, let me add one more thing.
I I believe when we talk to all the customer.
All there.
I think all of the planning to use CV to gradually replace the off of their video processor technology because every day.
By the view that the almost two different technology bodies of continuous the of the the part of life of all of video processor.
The market will be replaced by CB spent on three to five and even longer years, but eventually see the camera will replace that in my opinion I really think that in three years, the 50% of port of.
Video processor, Mark and we'll call were to be CV market, and the which is great for us because the can only help giving us the test growth won't new market share, but also increase the ASP.
And that's that's great perspective, and the other question on C., the 28 and it it sounds like this is more of a consumer product for you and UBS.
I'm just wondering if this is something of that goes after higher unit volumes and if so what implications does that have for asps and potentially margins. Thank you.
Right. So first of all you're absolutely right you know we talk about in the past we want the view of the complete family oversee the chip based on I'll see the flow architecture as anytime. He is this new member is really designed to target at a high volume market and the so which also very sensitive to the.
ASP and the cost and and sent high I want to point out the two ex ASP.
Versus our legal process of technology is still apply to see anytime the eight because.
Our LOE and Vito process of price is very low on.
Total.
That's first and in terms of gross margin I will say that this chips gross margin and won't be as good the us on maybe better than the video process equivalent of the video processor technology, but however is not going to be of high as our corporate gross margin. So yes. That's the balance of this true when you go to higher volume market and you are competing.
A bit on the pricing side, so cdtwenty eight years these type of that.
That makes sense, thank you again and congratulations.
Thank you.
Thank you. Our next question comes on the line of Quinn Bolton with Needham. Your line is now open.
Hey, guys. Congratulations just wanted to follow up on the auto funnel for some clarification did you say that was extended through.
Physical 27.
And then you get the day rate.
Yeah, that's correct, what I said was fiscal 26.
And it's just took 27 and it's a total of six years.
Okay. The six okay six year so.
And obviously the.
[music].
Can you give us any any sort of shape of the funnel and it sounded like you said.
The the bigger range kind of happening calendar 22, 23, I would assume.
And where you already day, there may not be a lot of business that's been added and just.
One per se 2025, so should we think about it the ramp up to a steady state level by the 2023 with this current funnel and then it would be sort of flattish for several years or can you give the city idea, how you're viewing that shape, obviously anything you'd add to the funnel and the future of will add to this but just just kind of wondering what the shape of that.
The looks like.
Yes go and this right so the.
Go ahead Louis yes.
You're right about the shape. So there is some large programs that start to go into production and calendar year 22, and calendar year 2003, and then it and levels out in terms the annual contribution, but overtime and we'd expect those numbers the change as we win new programs or bid on new programs.
Got it understood. Okay. Thanks, and then Kishore I guess.
Maybe I missed something on the gross margin guidance, it sounds like Hikvision and Dahua or maybe just more broadly China professional is going to remain at a fairly small percentage of revenue.
And the January quarter, yet margins are going to be down nearly to the 400 basis points and so it doesn't feel like you have an adverse mix shift back to China professional security. So what's what's the cause for the margins come back down in the January quarter.
Well, it's and overall general mix between between of several different customers, but there is a fair amount of of of revenue that we will start to see I think in Q4 from those two customers. Some of the vision based on his from you just mentioned some of it being CV based around the around Dawan.
I think that will be a nice contribution to the top line, but it will also put pressure it's not the only factor, but it certainly is one of them.
As you as we as I mentioned, the consumer side of the business is always down this quarter EPS. The seasonal thing so that changes the mix of not only customer, but also product mix and so there's more than the in just one thing going on but but there will be some recovery.
And in that revenue and again as I mentioned I think while the vision will be relatively stable or not have as much growth. We will see that CV start to come into Q4 and that while it helps revenue will also have some margin and pack.
Got it great and and I guess with that vision business, maybe starting to come back a little bit can we assume now that you're largely true that $10 million inventory for true or do you think the debt 10 million and that some of that is still burning off in the January quarter.
Hi, guys affirmed the I think we continue to see that the they operating through this inventory flow. We don't believe we have seen the end of it.
Now all of how the lives of legal process Apollo how do we get and the our older. The boss, we only see a several items coming back to full of new orders, but the remaining still we haven't seen many old us yet. So I think that's the site for two things why is there continue to burn through the inventory but for sales.
Other than product line and the predictability of dogs. So we saw the new older Spas and that's why we think of in the next few quarters on the continuing to monitor how they go on to come back, but however, as the anti I also need to mention that the the but we also measure the top on CV will start ramping in Q4 that will help us on the revenue side, both put some pressure on the.
As I.
Got it okay. Thank you.
Operator.
Thank you. Our next question comes on the line of Kevin Cassidy with Rosenblatt Securities. Your line is now open.
Yes, thanks, and congratulations on the great results.
You know as you of introducing the new CV devices on the CV 28, and particular now not all of your customers.
Customers have done some CB designs Uh huh.
Is there a change in the time to market from the time you introduced the product to the time your customer comes out with the product.
Okay.
Yes, Hey, Kevin This Fermi I think.
Absolutely right, you know and our eight hour all of all see family chips for the seeming to 20 to 25 to 28 the share of the sense So price teekay.
The assessing it on here works on the chip the Hollywood and simple to customer people can port the existing SDK that the only have outdoorsy meet ideate and that's why we think of the type of market.
The much much faster and we also in my script I talk about that and we expect to see a really receive owners and Q1 next year and we expect the call the ship on time.
Okay, great, Yeah, and the up on.
On the Opex side as you know it looks like it's under control very.
Yeah, the flat quarter over quarter, even with the five nanometers products coming and the pipeline are there any foreseen the ex.
The expenses coming up or should we expect the true fiscal year funding to the be kind of tight control over opex.
Yes, I think you're going to continue to see the drivers and opex be a two things one is.
We're going to continue to be hiring a modern way and engineering, but we're starting to do some hiring outside of that as we start to really deeply pursue some of these markets. Good we haven't been and in the past. The second thing is although there can be a little bit of lumpiness to it there will be a build and the cost of of designing is you mentioned the.
The lower technologies, not only the CAD tools and foundry costs, but the good the overall cost of being on the on the front edge of this technology will continue to be a driver generally that gets smoothed a little bit the way, we treat that over the quarters, but you can as project start and stop have a a certain amount of lumpiness to it but but I think the.
And you really be the two drivers the rest of the business and pretty good shape.
Okay, great Congratulations again.
Appreciate it thank you.
Thank you. Our next question comes on the line of Charlie Anderson, Let's call. Your Securities. Your line is now open.
Yes, thanks for taking my questions and my congrats on a strong quarter and outlook I wanted to start with the.
Some of the opportunities and automotive.
The your software partner was acquired by and Europe was acquired by a lot of make I'm sort of curious of that.
Maybe changes the complexion over there and then there's been some reporting on potentially the mandates are some goals and China around partial driving and self driving and I wonder if you're seeing that manifest itself in any of the design activity in terms of some of the bush over there and then I've got a follow up.
Yeah. Thank you so first of all highlights.
Yes, they are very important soap and part of was on there.
Part of the VW and of late.
The change was.
He is the follow.
And first of all I think that the recall.
Okay.
And the video views on that.
No we kind of the more we went in there and I think that's the helping on the.
The other of VW.
Quantity, we know that the.
And so I think.
Total realized that we need to have a one on the.
You saw the partner or other.
All of this.
That's the wild.
Very very well.
We spent a lot of highest and develop and consulting and legal and probably.
That's a book on the phone.
All of us.
In terms of the your second question I'll answer the question.
And Charlie can you remind you of the and working with Oh, Yeah, sorry, It was about.
I know and China, It seems like there's a push towards more per.
First of all autonomy and full autonomy.
The mandates potentially I wonder if you're seeing any of that manifest itself and the design activity and some of the planning.
Yeah, we do see that and the first of all I think that the.
No more for the commercial vehicle product and the boxes and the fact that you flagged the.
On the strong revenue growth.
Renting Inc. The time and for the other eight that market. So I really think of that the and that's the one market and we sourcing of.
Sure.
Drivers mechanics on the government directly on the the and that I think of walking and work on and we haven't seen moving equity required the.
Ill slip of vehicle so.
So where we hear anything we'll provide updates.
So as long as we mentioned we're in the two different sites and seems like we're getting a little the barrier for some reason at this point, but we'll see what we can do what we do.
Okay. Okay. Good and then I just had a quick follow up I was curious.
If you get maybe update us on the high Silicon situation I know last call you talked about a lot of inventory being out there and midyear.
And just curious you know.
How that's looking on in terms of some of the opportunity just capture some of the sockets. Thanks.
Right so.
In the last few weeks few months, we continue to monitor the situation and we believe on.
The situation just like what we said last time, there's still plenty of the inventory out there, but many stay in the P. customers I think for example, Hikvision and I believe we don't have any proof, but we do believe hi, visa has a lot of of inventory.
The inventory of of high Silicon chips. So they can continue to ship. The however for other smaller I sort of and customer I think they are looking for new opposite new ore suppliers and that's why we on US we were seeing opportunities and that we can win and we mentioned that we win the handful of a Chinese.
Professional semico of professional.
Oh, the security camera customers in the last three months, including Dahua and the also we believe there on the gradually ramp up on other production with us.
And in Q4 moving to the next year, So and the also we also see on any other of video market. We see a lot of customers are looking for solutions and we definitely believe we have the opportunity and the technology that can we consider.
Great. Thank you.
Thank you on our next question comes on the line of Ross Seymore of with Deutsche Bank. Your line is now open.
Hi, guys. Congrats on the strong results and the guide I guess for my first question just another clarification on the automotive funnel side of things and forgive me if I'm cutting this little too finely but was that 600 million a combination of both existing design wins and then I thought for me you said designs you're competing for it.
Is that kind of like a Sam analysis are those design wins that you're competing for that you think you're going to get I just wanted to clarify how kind of concrete those design wins are.
Hey, Ross this is Louis.
For that 600 million funnel is firmly set of majority think of 70% of his business. That's one and that business has been discounted based on our confidence and the revenue forecast that's the given to us at the time, we won the business the.
The other 200 million or opportunities that we're bidding and on with two discount factors discount factor. One is the probability of winning that business discount factor too is the confidence and the revenue forecast that's been provided to us at the time were bidding on the program.
So its a six year funnel and again as for me said.
Of the majority of that business is one.
So another way to say with the 200 million you gave last quarter that you are at that point you had year to date you.
You've pretty much added another 200 million until today and then there's the final 200 million is kind of the the part that you hope to win last quarter Ross. What we provided it was 200 million of business, one and the first six months of the year.
So there is an additional 200 million and on that that we had one before that period of time or more.
More recently.
Got it okay. Thanks for the clarification on that and then maybe one per case. The a lot of good questions have been asked and answered already but you get great granularity on the sequential guide by year three primary segments, but.
But you just gave directional guide of what they actually were in the prior quarter. So whether it was for the fiscal third quarter or if you wanted to do it for the entirety of the fiscal year, how do your revenue split between the IP security automotive and then consumer and other buckets. So we just have a baseline to work these percentages off of going forward.
Yes for the for the for the full year, we as we've said and it remains true that the the auto side of the business is probably going to be between 15 and 20% of total revenue.
The the consumer business was probably going to be close to 20% of.
Of total revenue and then the balance with the IP security.
And so we were saying in the past kind of 2020.
But but what's changed a little bit obviously, as the course, but but not a lot.
And then as you go into the the fourth quarter. This goes back to the gross margin question I think either Tornier Quinn asked about the revenue mix side of the equation I get that it sounds like Dow on Hikvision are going to be a little bit more of the business still mid single digits, maybe a little bit more is what is the other ms.
Ex related headwinds are the positives and the consumer segment that were big Tailwinds and the fiscal third quarter that and seasonally go away or is there something else going on.
Like I say it is the mix the only correction I would make is that for per the security camera revenue. We said that it will be for the fourth quarter, we said that will be up in the low double digits sequentially.
So it will be up.
And with the with the dialogue that we've talked about and for these talked about as well as a sort of some by silicon that that's part of it but not all of it but that's part of the mix.
Got it perfect. Thanks, guys Congrats again.
You bet.
Thank you. Thank you. Our next question comes from the line of Andrew Buscaglia with ban Baird. Your line is now open.
And even guys I wanted to follow up on you're talking about the computer vision.
As a percentage of sales are on 25 next year. So.
Yeah, that's much I was modeling out that out and I came to of just under 20, So I'm wondering and.
It seems like you guys are pretty optimistic here and I'm wondering if you could provide maybe some sort of breakdown of.
The but what that comprises of next year I imagine its.
Most of the professional security, but do you have any other like color you can add at and how that you know the makeup of that.
25%, yes.
First of all on I think you're right the the pool of.
The part of the over the 25 per Se is the from the professional security camera.
However, we also mentioned that we believe will control all consumer sorry over home security camera business will ramp up with the CV economic CV product next year and the we also mentioned that we think the could be material.
The next year folder and of revenue of point of view, but.
But also more importantly on the CV on the on the automotive side I think our and there are sung CV revenue of Showtime's semi revenue opportunity that we can ramp up of particularly in China, our commercial vehicle and the also the buses or outside of China with total fleet management all of lead management customer outside share.
Our using LCV chip for Ada Es as well as the federal monitor applications and the also believes that that business will ramp up.
So I think they are all the of the the feet the potential of.
The business opportunity for us for the fiscal year 22, but I think the you're absolutely right. The the professional security camera on will be the bigger because part of it.
So the presumably though you know you have you talked pretty positively on what's going on and automotive to with that with that funnel. So presumably the real driver for computer vision will you know even comes beyond that 2020 calendar year 2022 and beyond.
I would think that would be.
And even bigger driver for that comes the computer vision.
Segment.
I agree with you on that.
Yeah, Okay interesting and then maybe.
And lastly from me you said at the interesting commentary around the security market over three to five years.
Yep adopting computer vision I used the are you essentially saying products that use we you see being sold three to five years and I will have to the.
What's I guess, what's prompting people.
People to upgrade to these new.
CV capabilities of the is what are the drivers behind that that you that because that's the way it could be a pretty big upgrade cycle.
Well for professional security camera and the biggest driver.
Is the following.
No in the pass all the of the computer vision is down on the suicide and of.
That is requires you Trust me to all the video to the server and store there and do the video analytics on a computer vision of line.
And the which is okay flow, maybe a media units of camera by all the scale to medias amini of tens of millions or hundreds of millions of camera.
The at two of the huge pressure not only on the bandwidth infrastructure, but also storage of cost so and the and the one we total cost and they all agree the only solution for the is to apply it come to the vision on the age so the only and the analyze the data back to the two server and only.
Plot apply big so.
So on analytics on video data on the cloud quite the required that will dramatically reduce the requirement on the the test meeting the video and the server storage and server computation.
And Thats, a huge investment for saving for the other customer that's why we believe that and we're going to continue to see the the trend the on the other side. However, the.
Typical par is that the current CV camera is a lot more expensive the of video process of camera behind the that's why I say three or five years. The economy will bring down the cost of the camera will make this more attractive for our customer to replacement so.
And there is a huge driver purely based on the of the technology reasons, but I think of the financial reason worldcom in three to five years to make it a habit our internal forecasts, we believe that our <unk> of CV revenue will continue to go up and the big percentage just because of that and also in the in the auto side. We also see authentic.
In the future all of the new design win that we are winning majority will not see the relays because even you don't need the CV, but CV in the car today, but people want to put the CV process, the leer and just make a hell of a future upgrade.
And the sales of this of future proof of.
Criteria and really help us to design of a.
A lot of the CV chip for the automotive of of abilities.
Got it all right thanks of the color.
Thank you. Our next question comes on the line of moving our yet with Banc of America Securities. Your line is now open.
Hi, Thanks for taking my question and congratulations on on the strong growth of.
For me I had a few conceptual question first one when do you think automotive CV becomes more than 10% of fuel sales is that something that can happen and.
And 22 23, just conceptually when should we expect automotive CV to the more than 10% of your sales.
You know whatever whatever on to get some additional color to it through the revenue and certainly the emergence of somebody's market. It is early times. It is for the I think mentioned and so you know.
We try to Gordon.
Got it the best we can quarter by quarter I don't know the today, we are ready to try to commit the timelines conceptually we think could see the is going to continue the right all of our revenue platforms and so we're very bullish where we're seeing the development activity growth strong EPS auto included but but how that plays out.
And these early times over the next few quarters I think we'll be able to comment on that more broadly as time goes on the true today I think what we've done is tried to characterize it as best we can.
I see okay, and some of my follow up in the wins that you're having an automotive and CV how many of them on exclusive. The you are the only see the process and the car fare you on one of many processors and if it is the latter other.
There are certain applications, where you have tended to do better on their certain applications, where the customer is preferring to go with the competitors such it's more of a technology.
Question asked to do the your exclusive or not and you know were not applications, where you tend to do better versus the competition.
Well.
On the yeah, maybe it's easier to look at the farm the if on the automotive application point of view flow.
On the of like EMEA.
EMEA growth of eight as or or the coders when they use the CV chip, usually there's only one and processing heroes of the patients. So if we choose and and the we are the only processor teaming process and in that the device by definition.
The however, the like you said, there's other so a patient like level, two plus and people are using the.
Multiple chips the two CV.
In sum of locations and we are the only one to provide multiple chip into the patient by the US cases also the there are some function being down by other chips and the we employ the other portion of the applications is the all depends on the customer as a preface as well as the current market situation. So for example.
The.
For the level two plus mobileye is dominating the market. So you can imagine that level two plus the us on customer sales sales for the change by strong camera, which is mobile IPO for other than the camera, but I think as you say the other of solution, which we can definitely the cost leader and the we once on that and I went back of that.
Yes.
Got it and just lastly, how should we think about operating expense and growth as you're starting to grow your top line at the foster base and these emerging markets I understand that you have done a lot of upfront R&D, but is there a simpler.
Simplistic model to drive the other operating expense growth from here and we'll let you know growth at half the pace of sales cool and what is the right way to think about your opex growth for the next won the three years. Thank you.
I think definitely you're going to see as I mentioned, the leverage coming the model as I mentioned earlier, that's partly because of the CV.
And the two times, Asps, which drives the top line, but you're not going to see that Oh, and pigs get taken out and the operating expenses, you're going to see our our operating margin growth continue over the or the over the next couple of quarters per our next couple of years, even but but the I think you're going to see the leverage.
On the income the margins are sort of after the margin line come back into the model and we were we were doing operating margins and said.
20% to 25%.
In the historically and I don't think of any recent over the next.
You are true you don't see that come back into the into that some of the target range.
Got it thanks very much.
Thank you.
Last question comes on the line of Suji de Silva with the boss capital. Your line is now open hi.
Hi, Fair I mean, the KC I'm looking past the January quarter and the the growth. There is there are some elements of seasonality looking into the fiscal first quarter 22 or are your program ramps, you think and the the restocking perhaps going to carry what's the dynamic looking into the the next six months.
Well, we're looking at a.
Historically, the as you comment going from Q3. The Q4, we were typically down the 10% to 15% and going from.
Q4 to Q1, we were typically down you know around 10% and part of that was driven by the consumer.
Consumer nature of the business historically, but part of what we're seeing now is good growth in that or start the beginnings of its early but the beginnings of good growth and the CV, which because of the of the up the or the the the profile of the topline profile I think that will take some of those that some of that season.
Now all of the out I think it still exists in the modeling and you know we're going to have to see how that matures out and how CV inventories out over the next few quarters, but you know clearly the you know we didnt see or we're not guiding to see that from a Q3, the Q4 and and when we get out the Q4, we'll guide in the Q1, but.
Some of that some of that seasonality or just by the nature of of the change and markets and products is going to go away.
Okay, that's actually.
I see and then maybe surprised me a you know on on the the China Hikvision and Dahua of dynamic here. It seems to me of Hikvision struggles to get high Silicon chips and doesn't use you guys I imagine some of the tier twos, you're starting to work with and China might start to grow.
The share position of similar those guys is that how this market's going to play out of those two still going to dominate the market or is one of the tier twos kind of coming up the curve to become as big as them for you potentially.
Well I need to be very careful bothers, because some of the tier three of interest by customers. The however.
In China, my personal belief that the hikvision and Dahua and the hallway now because of the third largest security camera provider. Those three will continue to on the majority market share just because of the their size and the momentum and the product portfolio. They already have.
I think it's all the others will have a chance to increase the market share by one not get to the point and then they can challenge and the market share of the.
Of I think the Dol Holly Okay.
Okay, great. Thanks very much.
Yes.
Thank you.
This concludes today's question and answer session I would now turn the call back over to adopt the fairly long for closing remarks.
And thank you everybody for joining us today and the I really think that the we made the great progress on CV side and I'm looking forward to provide you more updates next time. Thanks.
Thank you.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.
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