Q1 2022 Ambarella Inc Earnings Call
And then thank you for standing by and welcome to Ambarella first quarter fiscal year, 2020, 2 and earnings conference call. At this time, all participants on a listen only mode. After the speaker's presentation, there will be a question and answer session.
Good question during the session you will need to press star 1 on your telephone please be advised that today's conference is being recorded.
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I would now like to hand, the conference over to your speaker today, Louis Guyot Hardy corporate development and Investor Relations. Please go ahead.
Thank you joelle.
Good afternoon, and thank you for joining our first quarter.
Fiscal year 2022 financial results conference call for the 3 months ending April 32021 with me on the call today is Dr. Fermi, Wang President and CEO and Casey Eichler CFO.
The primary purpose of todays calls to provide you with information regarding our results for the first quarter of our fiscal year 2022, the discussion today and the responses to your questions will contain forward looking statements regarding our projected financial results for <unk>.
Natural prospects market growth and demand for our solutions. Among other things. These statements are subject to risks uncertainties and assumptions should any of these risks or uncertainties materialize.
Or should our assumptions prove to be incorrect, our 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 on potential risk factors that could affect our financial results are more fully described and the documents we file.
With the FCC.
In the annual report on form 10-K filed on March 31st 2021 for fiscal year 2021, ending January 31st 2021.
Access to our first quarter fiscal 2022 results press release historical results that SEC filings and a transcript of our prepared remarks and a replay of today's call can be found on the investor relations portion of our website.
Today, we'll begin with a business update from for me I'll review the financial results and then we'll open it up and you can direct questions 2 for me or Casey with that I will turn it over and affirming thank.
Thank you Louis.
Good afternoon, and thank you for joining us today.
The first quarter was another strong quarter with revenue growing nearly 13% sequentially and 28% all year over year basis, we continued to deliver positive operating leverage with non-GAAP operating margins, expanding 212 per cent for 8% and the prior quarter and a 1%.
And year ago.
All results are clearly being driven by the beginning of our C V new product cycle and to a much lesser degree by industry.
And co forces.
In fact currently synchrony co forces are actually constraining our results.
Exaggerating them.
Supply chain challenges remained significant but our execution is strong and our guidance assumes the worst on the supply chain challenge from the Texas, Greece won't be felt in Q2 and gradually improve as we progress through the second half.
Capacity is tight and lead times for certain sub trees that may extend it.
With a solid support from key supply chain commerce, including foundry upon the Samsung, we usually I'm not so the bottleneck for our customers.
With our higher revenue outlook, we remain competent C V won't be at least 25% on total revenue this year.
Professional security C V revenue for CV wave 1.
And material last year and momentum continues to build with some new design wins and the new customers entering production.
We express our whole security C V business of wave 2 and it becomes material this year with several large programs entering mass production.
Automotive O C. D wave 3 has clearly comment in fact yesterday may 31st we have a chemotherapy, we shipped more than 450000, and CVA Soc ease into the automotive market.
We expect our automotive business to roughly double this year and we see tremendous remaining headroom for growth.
Oh sure exiting this year is expected to be only a few percent of our serviceable market, we estimate to be about $2.2 billion and calendar year, 'twenty, 1 and approaching $5 billion and calendar year 'twenty 5.
I will now update you on our target market progress beginning with automotive.
The automotive market is being transformed by the introduction of electric vehicles that enables sustainable high performance transportation.
The requirements of all other.
And is active safety features and this vehicles, we present, a significant opportunity for our AI Vijay saucisse due to the need for increasing level of our performance and camera based AI perception.
During the quarter, we were excited to see the successful IPO of a UK based on electrical vehicle maker arrival.
Founded in 2015 arrivals mission to provide for affordable and sustainable urban transportation and producing electric vehicles at a competitive price and by piloting a new methods of manufacturing challenges traditional economies of scale.
I am pleased to announce the arrival is from.
Adjusted Ambarella <unk> for AI vision processor for the environmental perception module used to enable Dow to pulse economy, Inc, and Greg will passenger buses and hemo and events.
The inclusion of level, 2 plus autonomous driving capability provides the driver and a great safety and convenience related Greg will assistance or Adas capabilities.
And gorilla for AI vision process, what chosen because over their neural network processing performance sterile visa support excellent image quality and extremely low power.
We look forward to sharing more information regarding our partnership with <unk> arrival in the near future.
And you know this until the efficiency of our CB <unk> offer we have also highlighted on the vintage.
And our open platform approach puts it on.
And our Oems and tier ones to create differentiated combo products.
And I'm pleased to discuss for examples on this forum.
And this from the recent Shanghai Auto show and then the Great Wall Motors momentum total crews and high school.
In April we announced that the leading domestic China Chinese automaker Greenwald Maltose has launched a 3 and 1 combo system based on our C V 25 Ecu for.
Driver recruiting driver monitoring or Tms.
And the occupancy monitoring for N S.
The system is integral to the new W. E Y mochi, our flagship SUV and <unk>.
Was launched during auto Shanghai 'twenty 'twenty, 1 of the first module for cheap probably a and coffee intelligence driving platform.
This is C V 25, Ecu based assistant can support a wide variety of semi opinions and multi caremark channel combinations for recording and the Ot EMS Nols with the entire CIS and meeting your uncapped 2020.5 standards and playing a key role in T W and intelligent.
Intelligent process.
And I'm, a combo product language and always open C. V. Praful is momentum all totaling 8 for fleet management solution, combining from Adas and <unk>.
Yes, and that drive recruiting functions based on Ambarella C. V 22, the product includes a from Adas features such as a for collision warning pedestrian collision warning Kiwi monitoring and warning and lane departure warning for.
Dms features include a phase IV, particularly passion and distracted drivers detection with a full HD video recording.
And the other active safety combo assistant this was on automotive tier 1 auto crews Inc.
And is expected to enter mass production this year public and commercial fleet deployments.
Our solution combines from a debt and DNS function on a single <unk> quantified Sophie.
And lastly.
For school, a spinout of leading OEM.
<unk>.
Illustrated is adaptive driving thing.
ABB solution based on <unk> and block C V 22, Aqa's Oc and the solution utilized sports Adas and the CMS algorithms for intelligent and I feel like control.
As you can see ambarella expansion and the Shanghai Auto show in April generated strong interest with more than 50, automotive Oems and tier ones for visiting our booth and.
And broth demonstrated a number of design cover and Adas and electronic mirrors Dms and applications. While also demonstrating partnership with many of China's leading third party automotive silver and copper.
1 area of significant interest at the show was all ruble from <unk> reference designs for turnkey platform based on our CV to MFS Asos and <unk> software stack. This solution include for Adas features such as pedestrian detection and detection.
<unk> favorable area of detection Taiping life and tried to Santee picture, while also supporting millimeter wave radar and the visuals perception.
Providing sensor fusion between camera integrator.
Rebel reference design provides tier 1 suppliers and our software development partners on open platform for differentiated high performance automotive systems.
I will now update you on our continuing progress in the IP security camera markets.
During our Q2 fiscal year 'twenty, 1 earning call on September 2nd we stay to that New addition to our asos and share gains and professional security camera outside of China for the first time, we will also see additional opportunities in the professional security market, we think channel.
During the last quarter really insight launch and the first 1 was camera based on ambarella solution, including 2 mega and forming for models.
Caller, my vision and people counting capability.
This is the first camera design and mass production using our new low cost CB, <unk> and CB flow asos, and <unk>, which it was.
And the end of last year.
Also during the quarter Qunar Com introduced its first ambarella based design the other.
<unk> 6 <unk> and IPC pool by camera is based on our C V 2 and assuming 22 agency.
For IPC 695 features including non megapixel resolutions HD snapshots and AI based exposure optimization, while the ITC for 5 features for Mega pixel phone design with other this area of intrusion detection and the mobile day motion detection.
Our CV for asos are raising the bar and multi sensor camera designs plays off.
Our ability to process multiple high resolution streams and core.
Currently with AI processing.
In April April, formerly and security camera business.
Introducing 2 new model space on our Simi today, Sophie the $85.30 and 85.
This cameras are equipped with our force sensors for camera capable of independent operation for 360 degree viewing and minimal blind spots and color imaging, Inc. Just 0.05 lakhs, all extremely low light conditions.
In the body worn security camera category U K based on reveal became the first to introduce a new camera was ambarella <unk> Soc to provide the platform for events AI based feature based on our <unk> 25, <unk>. The new case series camera on include HD recording <unk>.
Both glass and other color display.
And in April home monitoring market leader Green.
Unit of Amazon and introduced new models based on Ambarella for C V for associates.
The new video Doorbell Pro 2 model raise the bar for video doorbell designs with street emotion detection.
HD class video and the integration of ARINC suck reading.
Additionally, these new floodlight camera Wired pool also includes 3 and emotion detection and aspirin.
For free precise motion alerts.
And lastly, among new customer product introductions, Inc. Stock 360 introduces a tiny called to action camera based on Ambarella is H 'twenty 2 asos.
Waterproof camera and recall for K P 30 video, including includes a 6 times be hyper labs, malte image stabilization and small and not to be worn on shirts prohibits.
From this customer engagements and.
And you can see umbrella for asos and voting, enabling customers to design to add significant value to their products.
For efficiency benchmark like performance per watt and performance sports other important elements of our customer design win and decisions.
Our open platform and it's a flexibility also uniquely enable on customer to create optimized and the differentiated products and pricing and accordingly.
Open platform means customer can be volatile and also for it to run on our <unk>.
Youll see.
Flexibility means they can be creative and use the hardware and software and resources.
<unk> to develop proprietary configurations and the feature set.
Such a flexibility is usually not available for our competitors for example from automotive market earlier I discussed projects, great wall momentum hotel crews and high school and I take a vintage over the flexibility of our asos to create unique humble systems.
This powerful solution integrate.
What used to be 2 to 3 discrete camera products with limited functionality into a unified features.
And unify the feature rich solution operating on 1 ambarella CBO Susie.
And we are especially excited about our design win arrival, where performance for the performance flexibility and low power of our asos is being harnessed for the next generation from an ACH.
Trickle vehicles.
In conclusion and broad product portfolio is the strongest.
After a very good Q1, despite the supply chain challenges what guidance Q2 revenue to be up 48% for 54% year over year.
Moving to outlook is fueled by our high level of investment into proprietary technology that is setting the pace of innovation and a visual and market.
And I always our CD portfolio continuing to extend our reach into new markets, but we believe our huizhou AIG roadmap will enable us to capture more processing value per design win.
With that we are very thankful to have stakeholders interest.
And our dedicated employees as well as our network of suppliers customers and investors, who understand AI vision ability and to support us.
As we continue to execute amidst all of the challenges and market has thrown at us in recent years. So once again thank you.
Okay. Thank you for me.
I will now review the financial highlights for the first quarter of fiscal year 'twenty 2.
And Dean April 30th and provide a financial outlook for our second quarter of fiscal year 'twenty 2 ending July 31.
I'll be discussing non-GAAP results and ask that you refer to today's press release for a detailed reconciliation of GAAP to non-GAAP results for.
For non-GAAP reporting we have eliminated stock based compensation expense adjusted for the impact of taxes.
Robust demand was kept in the quarter by the supply chain challenges. Nevertheless revenue of $70.1 million was slightly above the high end of our original guidance. This.
This represents a sequential increase of about 13% from Q4, and a 28% increase from the year ago quarter Automd.
Automotive revenue increased about 40% sequentially security grew more than 20% sequentially and other product revenue was down more than 25% sequentially.
Non-GAAP gross margin for Q1 was 62, 9% compared to 61, 4% and the preceding quarter we.
We incurred some higher costs to manage the supply chain challenges, but.
Relatively stable pricing environment, and a more favorable customer mix combined to offset this.
Non-GAAP operating expenses for the first quarter for $35.4 million compared to $33.4 million for the previous quarter operating expenses increased primarily due to a seasonal increase in payroll taxes and.
And increased head count.
Other income was $593000, reflecting a continuation of the low interest rate environment.
Non-GAAP net income for Q1 was $8.9 million.
Our 23 cents per share compared with non-GAAP net income of $5.1 million or 14 cents per share and the fourth quarter.
And the first quarter. The non-GAAP earnings per share were based on $38.1 million diluted shares as compared to 37.6 million and the prior quarter.
Total head count at the end of the fourth quarter.
Gives me total head count at the end of the first quarter was 803 with about 81% of employees dedicated to engineering.
Approximately 68% of our total head count is located in Asia.
Total accounts receivable at the end of Q1 were $34.5 million for.
44 days sales outstanding versus $25 million for 37 days sales outstanding at the end of the prior quarter to.
The increase was primarily driven by supply constraints, which caused the quarter to be more backend loaded.
Net inventory at the end of the first quarter was $33.1 million compared to $26.1 million at the end of the previous quarter Dave.
Days of inventory increased to 102 days in Q1 from 93 and Q4.
For the anticipated demand.
And Q1, our operating cash outflow was for $5 million.
Cash and marketable securities were $435.5 million.
Down from $440.7 million at the end of the fourth quarter.
We had 210% plus revenue customers and Q1.
WT microelectronics, a fulfillment partner in Taiwan, and the ships to multiple customers and Asia was <unk> 63 per cent of revenue and.
And Cecconi a Taiwanese ODM.
Manufacturing for multiple customers came in at 16%.
For all 1 hike vision combined declined sequentially and represented about 10% of our total revenue in Q1.
I will now discuss the outlook for the second quarter of fiscal year 'twenty 2.
During Q2, we expect to continue to experience a variety of supply chain challenges and particular from the Texas freeze, which disrupted video processor manufacturing at Samsung's Austin, Texas wafer fab.
We expect wafer deliveries from Samsung's Austin and fab to gradually recover in the second half for the year.
While other industry wide cyclical forces are likely to constrain supply through the end of the year.
Based on these factors and our best judgment at the current time, we expect total revenue for the second quarter ending July 31, 2021 to be and the range of 74 million to $77 million.
We anticipate both auto and security.
To increase about 10% sequentially.
With other revenue down about 20% sequentially.
We estimate Q2, non-GAAP gross margins to be between 61 and 62%.
Versus 62, 9% and the first quarter.
We expect to continue to incur higher cost to manage the supply chain challenges, but a stable pricing environment should continue to support gross margins at the mid to high end of our long term model for 59 to 62 per cent.
We expect non-GAAP operating expenses and the second quarter to be between 36, and $37.5 million due primarily to accelerate hiring and.
And increased chip development costs.
Other income should be modeled around $200000.
Reflecting lower interest rates on our cash and marketable securities.
Q2, non-GAAP tax rate should be modeled and the 3% to 6% range.
We estimate our diluted share count for Q2 to be approximately 38.3 million shares.
Ambarella will be participating and Cowen TMT conference.
And Craig Hallums institutional Investor Conference.
Both of them Tomorrow June 2nd.
Rosenblatts age of AI scaling conference on June 3rd.
Bank of America's Global Technology Conference on G&A.
And Stifel Cross sector insights conference on June 9th.
In addition, and advance of the International Security Conference also known as ISC West will be hosting virtual demos on June 23rd.
And just contact us for more information on those events.
With that I will turn it over to the operator joelle for polling on Q&A.
Thank you as a reminder to ask a question you will need to pass on our 1 on your telephone.
Chinese question per key.
Please stand by while we compile the Q&A last day.
Our first question comes from Joe Moore with Morgan Stanley. Your line is now open.
Great. Thank you congratulations on the numbers.
Wonder if you could talk about the automotive split.
You're saying, it's going to more than double this year whats the split going to be around kind of numbers between OEM and aftermarket and how much of that do you think will be CV. This year.
Right.
First of all I think that there are for strong growth from coming from 3 areas first of all is from a very strong growth in the OEM and drive recorders, which I think in Chechnya, Japan, China, and Korea were doing very well and also we have further growth in the aftermarket and mainly in the fleet management type.
Over a recorder business.
The first of all that's the first part is really all existing market. The second growth come from the RVO markets. We talk about that we have Qian Wang with Tms and with Adas I think both revenue and are ramping up last year and sequentially and growth this year and that definitely inkjet show that more growth for us in this year.
And also we believe that even level, 2 plus and email well.
Help us cool and revenue, even very near future.
The third thing is really the C V. A S. Peter the seat and we talked about the C V Asp's twice higher than the video and this is definitely another factor that we see on.
Automotive revenue growth.
Although we give a split out the percentage between CV and non CV, but we do say that.
Cumulatively, we have we should more than 450000 CV chips from beginning to now and you can see that we continue to track.
Shifting.
And the C V into our automotive market and hopefully that answered your question.
Great. That's helpful. Thank you and then just for a follow up and terms of the supply constraints that you guys are seeing and the July quarter.
And obviously, we've heard some of that from your customers.
How much how much unfulfilled demand do you think there will be and.
Are you negatively impacting your customer shipments and.
And the month of May are you know.
When does that start to get set up.
And so the tax free Inc. Have caused problems for the central and tax foundry and therefore impact to us and.
Like I said the impact to our Q2 revenue.
Is the worst.
Compared to other quarters, and we believe that the situation will gradually improve in the second half of this year in terms of what the.
Revenue generation and definitely the impact.
Impact on our customer delivery and for sure with delinquency.
Supplies in fact, and also we have to go into allocation mode for the the video processors, which are produced in our <unk>.
Central Texas foundry. So the impact is there, although we didn't quantify it but I think we will communicate to all customers who are impacted.
And we cut we continue to expect the impact will be there for Q3 and Q4 per albeit much nicer, particularly then on Q2.
Great. Thank you.
Thank you. Our next question comes from Derek I have with Bank of America. Your line is now open.
Thanks for taking my question first 1 just on gross margin. So good good upside and the April on a quarter, but I think the outlook suggest some reversal of that so was just hoping for some color around what drove the upside in April and what would drive a different trend and.
July.
Sure.
A large portion of that again is our 2 major customers in China. So it's mixed overall, but certainly when they're when they're mixed goes down and that helps our margin.
And we did see some of that and mcwhorter that would probably be along with other margin mixes that would be the thing that would probably have the biggest highest impact.
And for my follow up for me I think you mentioned this very nice number for over 450000 I believe.
CV.
Shipments and and too.
Automotive I think that last quarter, you mentioned 300000, and so it went up.
150000 units sequentially could you give us a sense of how much and revenue does that represent and was this exceeding 450000 was it in line or different than the expectations on that.
So first of all let me clarify the number last quarter, we talked about cumulatively 300000. This each time with towboat cumulatively 450000, and I told you that we shipped 150000.
As of today. So this is really up and so we're not saying we shipped 450000 this quarter right.
About 450 cumulatively. So that's just a clarification in terms of the revenue I would say that first of all.
The asps higher because a lot of these auto grade chip and also for 8 hours and the Adas Asps athletes are much higher than the recorders and OEM and even OEM recorders ASP is higher than the aftermarket. So I think overall that the.
And the Asps on those automotive is pretty healthy for us and moving forward.
Continue to see the center and and.
I think this is just showing the beginning of the CV ramp up we talked about our CV revenue weighted which is wave 3 will materialize in 2023, but we just try to give you indication that we start seeing this wave and moving forward and look on to continue to update you about how fast and we can ramp up this revenue.
Thank you.
Thank you. Our next question comes from game of Lee with Wells Fargo Securities. Your line is now open.
Hey, guys, let me start out by congratulating you to a strong start to the fiscal year.
And I appreciate the fact that.
You were able to deliver gross margin upside due to mix and other factors, but I was hoping that maybe you can quantify the supply chain impact.
Higher substrate cost higher back and testing and assembly and.
And could you speak to perhaps the ability of your group to pass along these price increases on renegotiate some of these price increases for your customers right.
So.
With this.
This increase on the substrate and to certain extent on the testing packaging side.
For those price increase we have not reflected in our ESP, yet and we believe that at this point, but we will not change on ASP because on that we might reconsider this positioning.
And the wafer price got changed but until then we feel that we're comfortable with the decision on <unk>.
And the price change that we did in the last few months was that.
Because of the allocation solid customer are willing to pay for Super Hot a lot together, a bigger allocation and we help them to okay. Those super Hull art by paying more money and we asked our customer to share the increase on losses Super Hot side and that's the only thing that's only a ASP growth.
In the flat to our customer.
I appreciate that my follow up question I wanted to ask about your product roadmap direction, if I'm not mistaken you.
And vision, maybe rolling and some sensor.
Sensor fusion domain controller technology, and I was hoping you could give us an update on where this initiative stance.
No.
As you can see we have addressed almost if you look at the automotive.
CV market in fact, we have a solution for all of them, except domain controller, and it's our ambition and that we need to.
A domain controller type of solution to not only just for sensor fusion and but also to provide higher performance has much lower power consumption and on our credit.
Offer in the near future and we are developing that and hopefully we can give you updates on.
I appreciate it thanks guys.
Thank you. Our next question comes from Kevin Cassidy with Wellington.
Your line is now open.
Thanks, and congratulations on the strong quarter.
You mentioned the wave 2 happening this year with some large programs and if thats home security cameras.
Can you say are some of those programs launched and I guess, what percentage would you say you're into is it going to be a stronger October quarter compared to this July quarter.
Well, so I think we in England.
And my script, just now I mentioned that the ring announced 2 products.
We saw <unk> flow asos and.
And they are basically replacing our existing.
Green products with video only solutions. So yes, I think debt, we continue to see strong momentum for <unk>.
And also we expect to see other customer Inc.
Introducing CV sorry, other consumer IP security camera customer introduce ECB flow based solution in the near future and go into production this year.
Okay are there still any human vision designs are all the new designs and CB designs.
We still see.
Several human vision design wins.
I will say that.
It's more toward lower and all of the middle and high end solutions targeting CV. The space, we still see a mix of CV announced CB simple products.
Product space on all customers, but we continue to focus more on the <unk> side, because that's where our strength is and where we have differentiation.
Okay, great. Thank you.
Thank you for our next question comes from twice and back with Stifel. Your line is now open.
Yes, Thank you and congratulations on the results first question is back to oil and some other sub segments.
If I can maybe just split between recorder and non recorder is it safe to say that this year every quarter would be about 90% with a lot of other new applications being the other 10 roughly.
I think that the.
And 90% too high for for 8 quarters I don't have the number with me back operating tells me that.
Our other business and will be more than 10%.
Great. Thank you and as my follow up.
I know in the past you've talked about.
Non of cameras going into car is about 1.5 and last year.
Do you have any.
Estimate this year based on conversations you're having with your customers, how how that number could potentially turn up.
Yeah towards the 1.5 is like Oh, I'm, sorry, 1.3 it's like a third party market research firm estimate across all new vehicles produced and a year and.
And so that number the expectation is that it's going to continue to increase as more and more cameras are used and a car not just human viewing cameras, but in particular more and more of the centene cameras that require the C. D flow chips for things such as driver monitoring and our front to aid us on.
Or.
Surround view or on all kinds of other.
<unk>. So we see that number third party firms continue to see that number increasing over the next several years.
Great. Thank you and congrats again.
Thank you and next question comes from Andrew Buscaglia on Advair.
And bank your line is now open.
Hi, guys.
Could you did you did you guys give a number around around what exactly what T. V represented as a percentage of sales and the quarter and then given the strength in automotive do you foresee you still foresee 25 per cent of yourselves being computer vision and still this year or is that.
Spectation increase.
Yeah first of all we still expect that our CV revenue will be.
More than 25% on total revenue this year and we think that.
We have a very good chance for television or on that and then with automotive and continue to increase that definitely that will help us to drive a more severe for CV growth, but as you can see that the majority of our CV revenue will still come from Securities book, particularly in professional security camera and I think that will be continuous driver for CV until next.
Year when consumer IP.
It can jump up and also more and more automotive CV revenue accompanying so I would say next year, we could see continued growth on our CV revenue.
Okay and.
And you know this is your.
Fourth quarter and a row with it.
Our band of that gross margin range, and you guided to kind of upper band at the midpoint.
Yeah, where it really does.
Your guidance and your long term guidance would imply and kind of a sizable step down on the back half.
Do you still want to fit and that 59 and call. It to <unk> 62 per cent range. So what I.
And I guess, what do you need to see or what would provide you some confidence and maybe move that the low end of that up at some point and it just seems like your you keep outperforming your own and I.
And I asked the mix issue, but.
And if you talk about that certainly a part of it is mix and a part of it is the uncertainty that for me talked about for the second half of the year, depending on how that plays out and there's pricing issues and other issues that could create debt to move.
Again, we've been at the high and the ranges you commented and.
We'll take that but we felt that with everything that's going on right now we needed to be.
And balanced and the way we're looking at over the second half for the year or at least certainly in the quarter to to make sure that we keep our keep our range for where it is today and if we see something different longer term will then we'll start to think about that.
Alright, Thank you guys.
Thank you and next question comes from Matt Ramsey with Cowen. Your line is now open.
Thank you very much guys good afternoon.
For me I was particularly interested and and the announcement that you made with arrival.
<unk> win.
Maybe you could give us it sounds like you might be kind of give us some color as youre able going forward, but if you could give a little bit more color on the background there and what were the folks that you were competing against and the particular features and that allowed you to take that.
And went down.
I think we compete with everybody.
And I think.
It's on.
And I truly believe unrivaled strength all of our people who has a similar solution out there and I think CV to MFS were chosen for several reasons I think and the biggest reason is our performance per watt.
And also it's a open platform that really enabled and 2 to allow other things on the on and I think this truth and combined help us to work and it is on wages.
Got it thanks I appreciate that.
And my follow up question is for KC and obviously the primary drivers.
Going forward are gonna be and.
Auto and security, but I noticed that in and the printed results.
Other category was down I don't know on the order of 20% I think you mentioned and then it looks like it's down 20% again I'd be interested if there are things changing debt you might call out and some of those other smaller markets from a supply demand perspective or is this.
Supply tightness at Samsung and you guys are allocating wafers to your more strategic business or is it a combination of both.
Yes, it really is a combination of both for when we talked about our other a couple of years ago, we expected that to start declining and <unk>.
Continued decline over and over 3 to 5 years, we did have some upside.
And the past year that we took and we're happy about but as we look forward because we're moving everything towards the CV product line and a lot of those markets. The C V really doesn't have the advantages it doesn't and some other markets. We've talked about we would anticipate that to continue to decline over time.
Yes.
A lot of that and historically in the past 2 quarters have been just a few customers that really have driven that dji, we've talked about in the past and a few others. As we go forward, if we see some opportunities where markets.
Television is.
Well suited for women I think he might be able to see some opportunity there, but meanwhile, we've kind of thought about it as a declining market and we can you know.
And if we get upside we've taken it but we arent really changing our viewpoint on that.
Got it thanks, guys I appreciate it.
You bet.
Thank you and next question comes from Ross Seymore with Deutsche Bank. Your line is now open.
Hi, guys. Congrats on the strong results just had a question a couple of questions, but the first 1 is on the inventory and the supply side of things. How did you guys have your inventory increase so significantly and not that the days are out of whack with anything historically, but I was a little surprised that you have those constraints on 1 hand.
You talked about with revenue and the second quarter being the worst but your inventory still went up I think about 25, 30% sequentially is that just different parts, where you're not supply constrained outside of the Austin and fab or specific on markets likely to be more impacted by the Austin freeze any color there would be helpful.
Well first of all I think that debt.
And we.
We have very good visibility for our customers and the demand is strong and the wheat basically the inventory number you see is based on.
First of all the strong demand second and I think it's become very clear that we need to give a bigger lead time, because the lead on increase a lot we decided to increase our inventory levels. So that we can protect ourselves and put our customers. The combination of this to really drive on inventory.
Same time I have to do.
I think.
We are competent those inventory not gonna be debt inventory for us because we know the.
The run rate on the customer we have multiple customers in the deep and Paula lines and we are confident that we're building on inventory that we will be able to sell and but the most important things come through the current environment, we really need to do.
<unk>.
To make sure that we have now.
Sure.
For our customers if the lead time on those products continue to be a problem for us.
Thanks for that for me I guess for my follow up question kind of a 2 part 1 here and and it's a little bit for.
Following on a prior question that was asked on your other business.
But I'm really getting at what seasonality can look like and the back half of the year. If you put together the supply loosening up.
On the positive side and all the design wins, you have but the potential negative side being the fact that the consumer side, it's just not as big of your business. So the 2 questions would be how would you think about second half seasonality and and any sort of ballpark as a percentage of sales where that consumer businesses and the first half for the year. It seems like it must be down to kind of I don't know right around a 10% number.
Or any kind of right sizing their for our models would be helpful.
Yes, I think when we look at the second half of the year as we've talked about there's a lot of uncertainty.
And the second half for the year and so when we look out I think we feel flow opportunity to to continue to supply to our customers.
Barring any change and.
And some of the dynamics that we're seeing today I think we don't guide beyond 1 quarter.
I think that we've seen the worst of it is for me you talked about earlier and a lot of the areas and we should be able to to meet demand as it comes through and the second half of the year.
We're also looking into some of the newer markets that we talked about it as we've said we've got 3 phases net by the end of this year into next year. We're gonna have all phases kind of starting to really kick in and that's what's really exciting to us.
Great and any sort of right sizing on how big that consumer is as a percentage of sales was it kind of around 10% ish and the first quarter and then your implied in your guidance on the second.
You mean, the consumer business that was down.
Just trying to see the you know you gave a percentage sequential changes for the quarter and the guide, but just want to make sure. The absolutes are aligned as well.
Yeah, I think youre going to see that.
The quarter for excuse me the numbers go down.
And that in that market as well and so youre going to see the other to go up and Youre going to see the consumer business go down as we've talked about.
Okay and.
1 final housekeeping 1 for me you had talked about Darwin Dhawan hike vision being I think low to mid teens 2 quarters ago. You said it dropped to about 10 per cent and the most recent quarter can you just talk a little bit about did the dollars drop as well as the percentages and more importantly, what's the update on Dol, while rolling out the CV design wins that you.
And I've had is that a customer that you expect to be a tailwind going forward or is there some change in and the narrative there.
Alright, so for how can we just don't want it.
Both of them are using our video products and we talk about a build on inventory few quarters ago. They just type I think digests, the inventory and star reordering for some other parts and they continue to reorder and much lower level. So I think our video product sales tools for company will continue to shrink over time.
And for the time.
We are going to.
Cash wrap up our CV revenue with them, but it's kind of limited amount of supply and as it was a buy the subtree situation, but I think as soon as we are.
Transitioning out of those problem and we think we think of that deal without CBS.
<unk> revenue will be a growth for us.
Although I still think that combine the Palestine, and probably similar to last quarter.
Great. Thank you.
Thank you and next question comes from synergies it sounds like with your line is now open hi.
Jeremy Casey Louis and congratulation on the progress here, perhaps first for Casey on the operating leverage here you got the nice operating margin bump up to 12 per cent here and you talk about the expectations for Opex and what you think you'll be able to do as you continue to grow the revenue where you need to invest more here or can you keep that relatively stable.
I think we'll continue to invest not only and people, but also and an opportunity and so I think we'll see that having said that we're kind of focused on getting the 20% right now as you know the business can and the pass through is down 20%, 25% and and we think that's still obtainable as well, but right now from where we are we're focused on.
On getting to those type of margins and.
And here is your point and we've kind of grown pretty well over the last few quarters and we anticipate we should be able to do that into the into the next few as well.
Right well my question for for me, perhaps you know a lot of press on on autonomous attempts here and a notion of camera plus radar and perhaps perhaps shifting to camera plus lidar and just you know kind of what camera can and can't do maybe you can talk about the implications for ambarella is product designs and automotive footprint and whether that is impactful to you.
Whether youre kind of worth talking with all of that.
Right first of all we continue to believe that camera is the most important sales or in any kind of autonomous driving on.
Our market and.
And also in front of us.
The requirement for the camera technology will continue growth.
To get more camera for car every camera with our high resolution high frame rate, you'll need a stereo plus processing, you'll need a much better <unk> performance.
For more and more different type of Detections and you'll need to have a sensor fusion and so with that I really think the camera continue to have we're going to continue to try to.
And good roadmap for all camera products for contracting.
And you say that I still believe I also believe that.
Redundancy is very important for those market and we believe that on.
Right.
<unk> is.
Couponer for that any camera solutions and also I think.
The reason why the answer lionized because steel on the costs on the price side light is expensive and realize more successful and also green dot is not optical sensor and so that is really a good technology and complement to our camera technologies.
Okay. Thanks, guys.
You bet. Thank you and next question comes from Quinn Bolton with Needham and company. Your line is now open.
Hey, guys.
I'll Echo my congratulations, but just wanted to come back to the to the Samsung Austin and impact on the on the business did you say for me that that was just for the video processor side of the business or are there any TV products manufactured at a debt facility.
And so only video processor or our CV processor appeared in Korea foundries.
Got it thanks for that clarification, and then I guess, then with with that mix shift if you're shipping if you're constrained or most constrained.
On the video processor side wouldn't that be a tailwind to margins over the next couple of quarters.
No other margins basically are the same between CP and the vision based products, while while obviously.
And we've talked about.
The fact that it doubles.
The top line and doesn't really change the margin at all.
Got it Okay and then lastly, just you know with with the video processor being constrained do you think any of that demand that you might not meet this quarter and next is perishable or would you expect that demand just to sort of roll into future quarters, and you'll you'll meet at 1 you can get the wafers are substrates.
I shouldn't is perishable.
We look at those for video products.
Some of them go to professional security camera and go to a consumer security camera suncal to other consumer market on TGI foolish.
For the 2 for the consumer security camera and the consumer camera for those.
And most dementias perishable for secured professional security camera and may be the Airbus Steel you know.
Some team and you know requirements on different timing for example for example, usually the selling season and that selling season and the people at the end of year try to digest the book.
<unk> and huge and spend a lot in Q4, so if we missed with those points.
And that might be also perishable.
Understood Thanks for that clarification.
Thank you. Our next question comes from Justin GAAP with Baird. Your line is now open.
Hi, Good afternoon, and just a quick follow up on on the gross margin outlook, Kevin you've mentioned some of the curtain and instead might have an impact on gross margin directionally for the second half for the year.
And as your supply improves is it fair to assume that your surveillance camera customers in China are going to improve as a percent of total mix and that's going to be gross margin component to consider for the second guidance and also if you could give us on a date on the impact of thanks, and then maybe development.
On cost gross margin for the next few quarters.
Yes.
And I said, we're not changing our guidance on our standard guidance that we've had from the.
And from the from the margin perspective and.
We guide quarter by quarter, So we've given that indication.
When we when we.
Get out further.
I think that you know.
You can see some different mix as we talked about earlier again.
And Japan in particular has a mix issue that can impact us from quarter to quarter and as we look out and do into the next couple of quarters. We're gonna have to see how that comes out for us, but that's probably it.
Several different mixed elements, but thats certainly the biggest 1 that we've seen historically over the last maybe 4 to 6 quarters.
Okay and then.
Just as a quick follow up any.
Any changes that you see in terms of the competitive environment in China.
In surveillance and notably at the low and I'm, assuming that would not impact you, but do you expect any changes and the pricing.
Competitive environment medium term.
Right so.
Turning to the comparative competitive situation in China.
I think high Silicon is remained to be things that we need to watch out because first of all they still have tons of inventory sitting either customer or leasing a high silicon. So we still see seamless shipping the products.
But.
Other than high Silicon and we haven't.
A competitor that in administering or high and product line.
Many many many.
Chinese and Taiwanese competitors.
Greeting and Lula and video and even on the low and CV side. So I think that price pressure is always layer on a lower insight on the middle and high end side I think we're comfortable with our current ASP guidance.
Okay, and and and that makes and that just 1 last quick follow up which is when do you think high silicon inventories might.
Normalized and and would that translate into next generation and demand for your product.
Well.
And we don't know, but however, our cosmos he was an indication and they can easily survive for another 12 months without.
Any new financing and so I think they are sitting on tons of inventory right now.
Great. Thank you very much.
Thank you. Our next question comes from Richard Shannon with Craig Hallum. Your line is now open.
Well thanks, guys for taking my question for me, maybe kind of industry question here.
Security as it relates to C. V. Here, how are you seeing the adoption curves here.
Relative to what you saw on the and the past the transition from analog to digital is it a faster slower and what.
Kind of indications, you're seeing and market pricing here that we'd indicated indicate either of those inflections.
Right. So first of all.
Ill.
Well, we of course always through this analog to digital IP security for transition 10 years ago.
And I remember that first 2 years and was slow that suddenly and transitioned.
I will say that we are not in the hockey stick yet we haven't seen that because majority of our professional security camera units number of shipments still in the video only solution.
So with that I will say that with 2 other <unk>.
Early stage of the transition from the video.
And.
The I think the biggest reason that I think that the trigger for that transition.
Sneak Vito happened and I think about customer need to drive their price television camera.
Price true, maybe only a minimal premium over the current video product, that's what triggered the transition and I don't see 1 day on yet.
Okay. That's helpful perspective for me and thanks for that my last question here is on the automotive side again related to CV applications, like DNS, and Ddos et cetera, not looking so much of the higher and once I, California, all 5 but more of the immediate immediate term ones and.
While you have a sense of and can you characterize for us.
What kind of share and design wins do you think you have and that space right now or have visibility into.
We don't have a number for you, but however, I can say that I think if you read through our our design win activity in the last few quarters every quarter. We publish those design win you can see that we have a consistent maybe even increasing number but these are we on the Tms and OLS.
And <unk> now so obviously.
And our market share is increasing and also of near term market, but I just don't have a number because most of that is still pretty new and I will still say that in the adas market and mobilize 2 dominant and we still.
Gating southeast I wish he and there so I hope that that momentum will continue to carry us moving forward I would say on <unk>.
We're still very small profit on the oil MST on his side because its premium market I think we have a chance to get it.
Our market share there.
Okay and.
For me any way you'd want to characterize what your goals might be and O. M. S. N D. M. S. I mean, obviously, it's difficult for competing against strictly gets mobile ly, but could you get channel and 20, 25% of that market over time.
In fact I'll go the thing we really want to push it is not just capturing the market share of Tms Tim is on US we are trying to push and a concept that our customer tier 1 Oems, which have adas and have a recorders as dms or EMS and they need a 1 unified platform.
To do all of that because if you look for Adas is really from facing camera to mobile and <unk> and also a front facing camera to record of today. There's no reason this 2 product cannot be deferred and same time for Tms is really and location and you have the other payback for camera, you're facing insight and book canvas.
The driver and also we like to argue the driver and the Adas and need to be synced in the video so that when there's something happening and know exactly what are the drivers and doing so that has to be seen so I really think the combo product makes sense and where we really think it for that.
And that will become a market requirement and that was definitely help us tour and market share because I don't see any other.
A competitor solution can do those kinds of combo partner today.
Excellent perspective, I think I'll follow up on line with that 1 but thank you very much for me and that's all for me.
Thank you.
Thank you. Our next question comes from tight and bank that's useful and your line is now open.
Yes, just a quick follow up and and maybe related to the last topic. There are you still attractive sampling <unk> 5.
This quarter and is everything sort of.
On track with what Sam.
Samsung's 5 nanometer process there.
Yes, the answer is yes, and yes, and we are on track for both and we are eager.
We are working on the <unk> 52, and a lot right. Now we are we believe we'll get ready to simple it and also.
We are working on.
Of course for CVI CVI is our first 5 nanometer chip with Samsung and we continue to what we said and so on the C refi process improvement.
And as well as our production plan.
I continue to believe we will start generating <unk> revenue.
Sometime next year.
That's great. Thank you.
Thank you and our next question comes from Mike and Yang with Oppenheimer. Your line is now open.
Hi, Thanks for taking my question just 1 for me I'm curious if current supply constraints may affect or change, how and how high silicon thing about adoption for C. V is there anything that maybe you changed your view on maybe getting CV sooner do you have a few there.
Well, yeah from a hike vision.
So that's right I think.
And we talked to hydrogen and all the time.
Thank you for hydrogen is really following the.
And the direction that tried to now you got to use the U S component as much and so they can.
This is hardly 1 company, we see the following policy to a very.
Tightly and I think that so that's why the build up so much high silicon and inventory and <unk>.
Believe they are trying to find out whether they have options with others Chinese supplier. So I think that's the current situation.
Like I said before we cannot force people to look at U S component. The only thing we can help our customer is for provide a solution and types of very hard to find and replacement in China and that's how we can continue to have a market share Inc.
Thank you.
Thank you and your next question comes from Derek Soderberg with Calia Securities. Your line is now open.
Hi, guys. Just 1 question for me as well for me I'm wondering in your view, which design wins, you announced or the.
The most meaningful for the company if you could maybe just call out the top 2 or 3 wins and provide any additional detail on on those ones I think that'd be helpful. Thanks.
You talked about design win that we just mentioned I think on arrival and obviously the most important 1 for me.
And I'll leave that automotive design win but this is.
Important for different reason why this is a level 2 plus and using our CD flow engine volume.
Ultimately this is going for the first few Etfs chip design win we announced and that just show you that <unk>, 2 <unk> and functional safety chip and very good shape and our customers adopting it and testing it so everything on.
And on that point of view and excited about now not to mention that arrival.
And is a great European company and.
And I think for check of other pension from different places I think thats definitely.
Potent for us, but the other ones that are equally excited about is this a great announcement that we had just a month ago and great wall is a really a very well known Chinese Oems.
And they adopt our solution, which is a combo solution by the way is really a drive recorder with CMS was oil and that's all in 1 and they are the first 1 to really push this concept and hopefully.
With this and that we show our capability and performance with GW and and other people will pick it up and said this is right way to go and hopefully that will give us more.
And our design wins in the future. So for this reason and so this 2 are probably the most.
The project and most exciting.
Perfect. Thanks.
Thank you and I'm not showing any further questions. At this time I would now like to turn the call back to Mr. Dr. Fermi Wang for closing remarks.
And first of all and thank you very much for joining us today and looking for to see you next.
And next time thank you.
This concludes today's conference call. Thank you for participating you may now disconnect.
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