Q2 2022 Ambarella Inc Earnings Call
[music].
Thank you for standing by and welcome to umbrella second quarter fiscal year 2022 earnings Conference call. At this time all participants are in listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During the session you will need to press star one on your telephone as a reminder, taste program is being recorded.
I would now like to introduce your host for today's program Lythgoe Hardy corporate development and Investor Relations. Please go ahead Sir.
Thank you Jonathan and good afternoon. Thank you for joining our second quarter fiscal year 2022 financial results conference call for the three months ending July 31, 2021 with me today on the call is Dr. Fermi, Wang President and CEO and Casey Eichler CFO.
The primary purpose of todays call is to provide you with information regarding the results for the second 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 financial prospects market growth.
And demand for our solutions among other things. These statements are subject to risks uncertainties and assumptions should any of these risks or uncertainties materialize.
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 business operations and financial results are more fully described in the documents we filed with the SEC, including the annual report on Form 10-K filed on March 31, 2021 for fiscal year 2021.
And in January 31, 2021, and the Form 10-Q filed on June eight 2021 for the first quarter of the fiscal year 2022.
Access to our second quarter fiscal 2022 results press release historical results SEC filings and the transcript of our prepared remarks and a replay of today's call can be found on the investor relations portion of our website.
<unk> will now offer a business update and then we will review the financial results and then for me Casey and I will be available for your questions with that I'll turn it over to Dr. Fermi Wang Thank you Louis and good afternoon.
Thank you for joining US today, we're pleased to report significant market and financial momentum our <unk> transformation continues to play out.
Q2 revenue was above the high end of our guidance up 13% sequentially and a 58% on a year over year basis. Our Q3 outlook is also well above the consensus estimate that by computer vision CV news product cycles in existing markets as well as our penetration.
<unk> into entirely new markets.
CV continue to drive our blended ASP higher and the positive operating leverage inherent in our model was apparent with non-GAAP operating margin, increasing 450 basis points sequentially, reaching 16, 9%.
Cyclical forces continue to constrain outperformance.
Supply from citizens ousting pets as wafer fab following the Texas pleased earlier this year reached a low point in Q2.
While we are seeing a recovery from this Texas fab and expect the recovery to continue in the second half, we do not anticipate a material improvement in the industry wide supply chain challenges.
CV momentum continue to rapidly build.
Since introducing our CV Soc family to the market, we have had more than 240 unique customers purchase engineering parts and ore development assistance with almost 60 unique customers achieving production status in the first half of this year.
Even at this early stage of our transformation transformation, we are realizing our revenue mix.
Is of a higher quality and with more diversity diversification.
Majority of our revenue is now driven by enterprise Capex public infrastructure spending and the consumer durable good investment.
For example, our automotive and Iot camera business most of the security camera stake both decisively achieve Rick.
Record quarterly revenue levels.
Ill now focus on the revenue, mostly mostly discretionary consumer leisure goods represented 10% of that revenue.
A record level.
Now I will now update you on target market progress.
In June we announced the expansion of our <unk> AI leasing aso's portfolio with the introduction of our new CV by us and the CV <unk> asos fees based on the CV flow architecture. The final Omega asos targeting Iot security applications with a meaningful new.
New SDK, including multi imager and small form factors.
This new asos camera support applications, requiring 360 degree coverage lower interviewing advanced in coding and the AI performance to more accurately identifying.
<unk> individuals or objects in the scene.
During the quarter eight weeks after receiving first silicon will ship, our first CV as development assistance and software development kit to customers.
This is a significant accomplishment and as such of this node and I am thankful for the strong execution for our hardware and software teams that made this happen.
Also in June.
This Avenue.
S trade show in Las Vegas, we held a virtual event that was attended by over 50, leading customers worldwide.
The event featured over 'twenty demonstrations, including a first look at the new CV in multi ecosystem and our latest access control reference design based on our continuing partnership with momentum and on semiconductor.
We have already secured multiple design wins for our new CV as well as new customers in the access control markets.
Motorola solution has become one of our largest customers and we are pleased to see their announcement they intended to acquire <unk> a technology leader in access control system further validating the look the opportunity in this growing market segment.
Toyota video security portfolio now includes IP camera makers of digital telco and the integral vision as well as Edison <unk> UK based police body worn camera supplier and the watch God a supplier a police vehicle cameras.
All of these companies.
All of our customers.
And rollouts of CV for everything else Youll see continued to gain share in a professional Iot security camera market with most major manufacturers have chosen our CV Soc.
During the quarter European Giant Bosch introduced its first three families of cameras based on Ambarella CV asos fees.
<unk> introduced the 5000 based on our CV 22, and <unk> 7000.
<unk> 8000 <unk>.
Based on our CV to associates.
By winning this three major platforms at Bosch the scalability CV.
<unk> portfolio is demonstrated.
In addition to all the <unk> share gains in professional security outside of China last quarter, we spoke about opportunity to gain market share within China, and we announced two new customer today.
We are announcing two additional customer meiocyte in the flu shot.
First.
<unk> introduced its CV 25 base AI propylene network camera family available to buy at a megapixel version and including a visitor analytics people counting face detection and ultra low light operations.
<unk> introduced a non contact facial recognition temperature major system based on our CV Soc the tablet device because recruitment is people with Max.
Two sensors.
Also during the quarter, Canada March networks introduces new Bac as IP camera based on our CV flow processes, our chipset make them fully complying with the U S National Defense authorization Act or NDAA and the power of the cameras advanced video analytics.
<unk>.
Now turning to the automotive market.
We continue to make progress in our fleet management market due to the efficiency of our CV Soc as well as the vintage of our open platform, which allows Oems and tier ones to create differentiated multi functional products.
Last quarter, we announced four examples from the Shanghai Auto show and this quarter. We are pleased to announce the three additional wins keep trucking index and solera.
Early in August Fleet management leader keep trucking announcing it was commenting with ambarella to deliver its new Aif ashcan for Adas driver monetary and telematics. The AI at Ash can use a single <unk> to simultaneously provide AI image processing for it.
<unk> camera system, which integrate one camera Adas with instant incident recording and the second RGB IR camera for the driver monitoring system with recording.
This morning, we announced the index a major Internet service and the product company introduces a signal Q2 drive driver monitoring camera 40, it's ridesharing Thomas powered by Ambarella <unk> Soc.
The index DNS camera will be deployed across the yandex taxi partner fleet.
Please.
Over 700000 vehicles, starting in 2022 and is also being offered to our delivery fleet companies.
Yes.
Also during the quarter, so virus Omni Trax Division announced its next generation <unk> solution using small drive technology with our CV 20 Soc.
This combo assistance from your opinion as to the process data from two sensors monochrome and the RGB IR to enable dms and recruiting functionality.
In the passenger vehicle OEM market Chinese carmaker thoughtful introduced its new <unk>.
Max car featuring a driver monitoring camera based on Ambarella CV quantify Ecu processor.
With this market progress. So this market progress you can see we are winning because our efficiency. Both in terms of performance per watt and performance per dollar and our open platform and a flexible architecture, which allow our customer to capture software value and introduce differentiated.
Multi featured combination systems.
Okay.
In conclusion, we are leaving a significant shifts in how camera used and providing the corresponding step function increase in processing performance.
In addition to human vision viewing all through the lens of a camera data can be collected and then processing our aco's.
Enabling new level of safety security and efficiency through partial or complete level automation across multiple industries.
This processing, we provide is occurring poker spirit Iot eight eight points.
Not in servers, where it's fundamentally different than the more expensive Soc architecture are used.
The global economic picture is strong.
New stimulus programs are in the works like infrastructure peer in the U S.
Supply side cyclical dynamics are extended but to be clear the inflation you are seeing with ambarella.
What gets US most excited is how we are driving AI into numerous Iot endpoints verticals, how we're demonstrating we can capitalize on this tremendous growth opportunity to drive shareholder returns.
The demand for deep learning AI Ot endpoints is a new and a critical phase of the digital transformation that is just beginning to impact to so many verticals.
Our confidence in our long term prospects is high we expect to achieve record revenue in fiscal year 'twenty. Two ahead of the $360 million revenue in fiscal year <unk>.
And we remain comfortable that CV revenue will be and is 25% of total revenue this year.
Before we get into the financials I would like to.
I would like you to Mark your calendars for our capital market days, we plan to host at our Las Vegas CES location on Tuesday afternoon January 4th.
This event will allow us to more thoroughly discussed the inflection we're seeing and provide a corporate strategy update.
With that I'll ask Lewis to review, the Q2 financials and provide our Q3 outlook.
Thank you Fermi.
I will now review the financial highlights for the second quarter of fiscal 'twenty, two ending July 31, and.
And provide a financial outlook for our third quarter of fiscal 'twenty, two ending October 31.
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 non-GAAP reporting we have eliminated stock based compensation expense adjusted for the impact of taxes.
In Q2, the industry wide supply chain challenges remains significant.
And in this period, we believe we experienced the worst of the wafer shortfall from the Texas freeze as previously forecasted.
However, our operations team and manufacturing partners worked diligently to support the strong and broad based demand and they successfully minimize disruptions for our customers.
Our revenue of $82.0 million was 5% above the high end of our guidance, representing a sequential increase of 13% from Q1, and 58% increase from the year ago quarter automotive revenue increased about 10% sequentially security grew more than 20% sequentially and other.
Revenue was down more than 20% sequentially.
Non-GAAP gross margin for Q2 was 62, 8% slightly below the 62, 9% in the preceding quarter, we incurred some higher costs to manage the supply chain challenges, but the pricing environment and mix remained relatively stable sustaining gross margin above the high end of our long term model.
Non-GAAP operating expense for the second quarter was $36 four compared to $39.0 million for the previous quarter Opex was slightly below the midpoint of our guidance SG&A was lower than forecasted.
We continue to demonstrate strong positive operating leverage with operating margin on a non-GAAP basis up 450 basis points sequentially, reaching 16, 9% upfront two 2% a year ago.
Other income of $218000 reflects the low interest rate environment. The non-GAAP net income for Q2 was $14.0 million or <unk> 35 per diluted share compared with non-GAAP net income of $17.0 million or 23 per share in the first quarter and the second quarter the non-GAAP earn.
<unk> per share were based on 38 million diluted shares.
Total head count at the end of the second quarter was 827, that's up 9% from a year ago with about 81% of employees dedicated to engineering approximately 68% of our total headcount is located in Asia.
Total accounts receivable at the end of Q2 were $38 three or <unk> 44 days of sales outstanding versus $39.0 million or <unk> 44, dsos at the end of the prior quarter.
Net.
<unk> at the end of the second quarter was $43.0 million compared to $34.0 million at the end of the previous quarter days of inventory increased to 115 in Q2 from 100 to the prior quarter on a sequential basis work in progress was up sequentially to <unk>.
Port the rising demand while the finished good inventory was down.
And at two year lows.
Our Q2 operating cash flow was a positive $18.0 million or about 18% of revenue.
This compares with an outflow of $9.0 million in the prior quarter cash and marketable securities were $451.0 million up from $440.0 million at the end of the first quarter.
We had 210% plus customers in Q2.
WT microelectronics, a fulfillment partner in Taiwan, who ships to multiple customers in Asia.
They represented 62% of revenue.
And <unk>, the Taiwanese ODM, who manufactures for multiple customers was 16% of revenue in the quarter to Iowa and hype vision combined represented a high single digit proportion of our revenue.
I will now discuss the outlook for our third quarter of fiscal 'twenty two.
During the second half of the year, we expect output from Samsung's Austin, Texas wafer fab to continue to recover from the February freeze.
Nevertheless, we continue to experience a variety of industry wide supply chain challenges, while extended lead times for wafers and substrates persists.
<unk> is also constrained by shortages of other companies' components on our customer's bill of material.
Based on these factors and our best judgment at the current time, we expect total revenue for the third quarter ending October 31, 2021 to be in the range of $88 million to $92 million revenue from automotive and Iot cameras, primarily security today is expected to increase about 10%. So.
<unk> other revenue off a low base is expected to have a seasonally strong quarter, but still down on a year over year basis.
We estimate Q3, non-GAAP gross margin to be between 61%, 63% compared to 62, 8% in the second quarter, while were seeing some higher cost to manage the supply chain.
The healthy mix and relative stable pricing environment may cause our gross margins in the short term to temporarily exceed the high end of our long term model of 59% to 62%.
We expect non-GAAP opex in the third quarter to be between $78.0 million.
The Q3, non-GAAP tax rate should be modeled in the 3% to 6% range.
And we estimate our diluted share count for Q3 to be approximately $41.0 million shares.
Ambarella will be participating in the Jefferies. One on one conference Tomorrow September one.
Credit Suisse's Asian Technology Conference on September seven.
Deutsche Bank and Colliers conferences, both on September 9th.
Evercore auto Tech and AI form on September 21.
And Baron Brooks CEO Conference in New York on November 9th and is firmly noted please mark your calendar for our capital markets day on January 4th at our CES location in Las Vegas.
Thank you for joining the call today and with that John.
Then I'll turn it back to you.
For the Q&A session with Fermi and Casey.
Certainly, ladies and gentlemen, which may have a question at this time. Please press Star then one if your question has been answered and you'd like to remove yourself from the queue. Please press the pound key our first question comes from the line of Gary Mobley from Wells Fargo Securities. Your question. Please.
Hey, guys.
Extend my congratulations on strong results, but as well the fruition of.
The transformation of the company good execution.
And my question relates to you.
The progression of your quarterly revenue.
<unk> grew revenue $9 million sequentially, youre expecting to grow $11 million in the current quarter sequentially.
So I have no doubt that the demand is strong but is are those sequential increases largely a function of strong demand backdrop, the strong backlog and as well better.
Access to.
Foundry capacity.
And related to that could you give us some sort of metric as it relates to unbilled backlog at the end of the July quarter compared to the prior quarter.
Right so.
First of all our continue revenue increase is due to the strong demand.
CV portfolio. If you look at our revenue growth. This year over last year I think CV is a majority of that growth last.
Last year, we did $25 million CV revenue and this year, we do 25% total revenue for CV and you can calculate difference and that basically come from two different reasons. One is we talk about this our CV asp's twice higher than the video processor. So even just replacing the previous product we're getting more revenue.
But more importantly, I think CV take us into two things one is a new product cycles in existing market for example, our security camera.
The oldest video only product is replaced by AI based video.
And also what reaching into new markets, we talk about access control will talk about in automotive.
<unk> will have all kinds of multi function devices, our penetration into so this combination of those all the things on the CV side basically provide the majority of growth.
While the supply side.
Texas Foundry was a problem in Q1 Q2, but you will recover while second half like Louis said and that will become less impact will still be impacted by.
Other component shortage.
All because of where our customer want to build our products is not just our supplies everybody's alza supplies matters. So I think thats going to be continual limiting factor for hybrid.
I don't see Thats become Q3 Q4 was more significant in Q2 impact from this point of view photos.
Go ahead go ahead.
I was just going to say my follow ups related and so if you have more supply coming on against it.
Backdrop of strong demand.
And I know your other business might be seasonally soft in the fourth quarter. All those things considered do you think you can grow your fourth quarter revenue sequentially.
We haven't provided guidance, yet, but however, SEC you said.
Now our consumer a traditional consumer business seasonality in there to play I'm, assuming you'd consider that but I do believe that our CV revenue continued to be strong not only just for this year, but we'll continue to be strong in the near future because like I said, we see a huge amount.
When activity, we talked about 200, plus customers purchasing our CV silicon reference design, the silicones and also only 60 or 60 of them are in production right now so you see there.
<unk> momentum on the CV side so.
No.
I would prefer to look at it as a long term business. The security continue to be a strength on the CV side for us.
Understood. Thank you.
Thank you. Our next question comes from the line of Joe Moore from Morgan Stanley. Your question. Please.
Great. Thank you. My question is on driver monitoring you guys had a number of key wins there from keep trucking index and a couple of others during the quarter and that seems like something that can start to be in production vehicles fairly soon with you guys. Having a good presence can you kind of talk about where we are with.
With OEM penetration of driver monitoring and.
When you might when that might become a more material part of your revenue right.
Right. So I think I talked about the fleet management, that's why we called it and most of them as a commercial vehicles and first of all I think that that market is sizable I think the existing market.
Vehicles, roughly 50 to 60 million units of grow at 10% a year and we believe that the OEM design wins, we just mentioned this time than in the previous high.
Majority of them will be in production this year and ramping up next year. So you should start seeing revenue this year and hopefully that we can see a lot more of them next year.
And in terms of passenger vehicles I mean, it's part of the European and GAAP standards already I mean, it seems like there should be some adoption in luxury passenger vehicles relatively soon.
Well.
First of all we talk a lot about our Chinese design wins already but for the European U S. A we are not allowed to talk about but I definitely think that is a focus area that we continue to work hard to make sure that we may accomplish there.
Great. Thank you very much.
Thank you. Our next question comes from the line of Matt Ramsay from Cowen Your question. Please.
Thank you very much good afternoon guys.
My first question.
For me, it's pretty obvious from the.
Our strong results and the momentum that you guys are seeing that.
One of the thesis points around.
Hi, Silicon being <unk>.
<unk> in terms of their own production.
As one of your main competitors that you guys are picking up more and more design win from you announced I think a couple of new security customers from from China on the call today.
Talked about the momentum with <unk>.
Motorola and all of their subsidiaries and a lot of folks that are shipping into the international camera market and I guess my question. The first question.
You concur that that's actually playing out and I guess what inning of that.
C change and you are taking some of those wins are we in and I guess second part of the question is have you seen new competition starting to pop up.
And what is the competitive landscape look like Forbes for CV now with the industry digesting that high silicon might be permanently impaired.
Right first of all your observation on the <unk> and our momentum in China outside China is correct and.
EBIT in the past when we compete with high Silicon Hydrogel Darbar use our silicon for export business, mainly right. So it's not a surprise for us that we continue to have strong holding on the outside China, but inside China will start picking up some.
Market like we talked about while we talked about now for new Chinese security camera customer using our solution for Cvs. So I think the momentum right in terms of competition I can tell you that there are probably.
I don't want to exaggerate maybe 2030.
Different company.
Startup or existing company tried to compete and try to acquire but sure.
Hi, <unk>.
However, I will say majority of them are fighting at the very low end $5.0
ASP type of solution.
And on the CV side all of them are focusing our low end and I haven't seen anybody build a platform that we do right. When we talk about our CV flow asos.
We talked about six Stephen Silicon cover will very wide range of our performance in a wide range of ASP.
We see strong competition on the loan side, we see very little everywhere else. So I think that.
It's continued to be our strategy that we want to leverage our platform and to cover the most important customers to convince them to use us from the bottom to the top and it's also our strategy continue to maintain our leadership on the middle and high ends moving forward.
Got it that's really helpful color for me.
My follow up question.
Yes.
Pretty remarkable to see.
Operating margin in the guidance for your October quarter above, 20% I think it was down.
About 5% in the October quarter, a year ago, and obviously there was some COVID-19 headwind back then but.
I guess my question is.
How do you feel like the company I guess the question for all three of your guidance. How do you feel like the company is staffed and funded right now both from a <unk>.
Sales marketing Biz Dev point of view and obviously from an R&D point of view it sounds like the company continues to expand and attack some of these markets and what kind of margins are we talking about as we continue to get leverage. Thank you.
So first of all I think you already noticed that in the last 12 months, we have to start ramping up our business development staff, particularly in Europe in Europe, and we hire a brand new team in Europe. We have we have we hired a new automotive.
Sales team in U S and we continue to size up our Asia sales team.
Particularly for automotive business so far.
The ability of unemployment of view we haven't.
<unk> been hiring for the last 12 months.
On the R&D side, if you look at our head Count will go from 700, plus last year to 800, plus this year to give you a good indication that we are also ramping up our engineering resource, which already part of our R&D expenses in Q1, Q2 and continue to be in the future.
Our strategy is.
We got to continue to invest more.
England in terms of our CV technology as well as more development cycles into a next generation face product and also at same time continue to develop the advanced nodes. We often nanometer. We I believe there were multiple five nanometer chips coming out.
Roadmap and.
We need to start the quarter.
We need to go to when we need to go to <unk> and the three nanometers, unless all really investment we need to do so by saying that.
I also want to emphasize that.
I think that we have we continue to have the leverage on our operating margin is a very important factor for when we look at how we manage our business. So I think that we are in Europe.
Position that we can continue to include increase or improve our engineering and.
And the business development investment.
Continuing to see.
Leverage on the operating margin point of view.
Thank you for all that for me congratulations on the progress guys.
Thank you appreciate it.
Thank you. Our next question comes from the line of tourists Lundberg from Stifel. Your question. Please.
Yes. Thank you.
This was on the strong results.
Just had a question on the on the guidance.
Just so I make sure I understand this correctly, so basically 90 million at the midpoint that assumes.
All of the sort of industry wide shortages that are going on so if there is some easing there.
Uh huh.
There could be some potential upside is that how I should read it.
Yes, that's our best judgment right now and we think that's the right guidance to have today, but as you commented and I.
The Permian has as well, there's still a lot of activity going on up and down the food chain and we have to keep an eye on that as well.
Very good and then as my follow up could you elaborate a little bit more on CV filed I mean, it sounds like from a product development perspective, it's been a big success very strong execution.
When should we expect to see some production revenue ramps.
The <unk> product line.
Alright.
First of all <unk> is very important because it's going to be it is our.
Most events technology.
Not only because of financial but also from a performance point of view.
So this should not only get to 8-K video at at <unk> power.
Power, but also we can integrate multiple camera into the silicon and so that we can serve multi camera solution for automotive for security. So basically this is really.
For anybody who wanted to have a high end system. This is a perfect chip with them and we have already secured multiple design wins with the chip and I believe that.
First half next year.
Start pizza people will start ramping up into mass production.
Material revenue coming second half of next year.
Sounds good congratulations again thank.
Thank you.
Thank you. Our next question comes from the line of Ross Seymore from Deutsche Bank. Your question. Please.
Hey, guys. Thanks for letting me ask the question and Echo the congrats to the strong quarter and a strong guide I just wanted to get into the supply side again is the tailwind from the Texas Fab coming back online a meaningful driver of the upside in the October quarter, and do you expect that to be done in the October quarter, and I realize theres shortages.
As elsewhere, but I'm, just trying to localize that one dynamic.
I believe that the types of films the impact in Q4 will be minimal.
I don't think its totally and but I don't think thats colleagues severe impact to us and also.
I also add to that.
Throughout this process, we work closely with our foundry partner Samsung try to address those problems and I think throughout this productive exercise, we know exactly where we add when we communicate with customer proactively so although it's a crisis, but also definitely show we.
We have a great supplier, but also to our customer that we are a trustworthy partner with them by continue communicating the problem.
And working with them to solve their problem.
Other thing I'd reiterate again is those are the things we control the things, we don't control or parts for other people.
We have to kind of modify whatever parts, they're getting screened on as well. So we're doing a great job. Our team is doing a great job of considering the things we can control, but there's obviously always things that we can't control as well. So that's why we have some caution to it.
Thanks for the color on that and for my follow up I just wanted to return to the seasonality framework and for me you mentioned earlier about considering the consumer slash other category as we look into the fiscal fourth quarter.
If you put all the puts and takes into your two main categories. The IP security cameras in the automotive side of things.
His analogy, even an issue in there or given the fact that more supply is coming on.
<unk> in a bunch of different places a ton of new product design wins that you have a new product launches et cetera are those latter dynamics just overwhelming any seasonality in your core businesses as we look into the fiscal fourth quarter or.
Seasonality consideration that we need to have.
Yes, I think youre right as we look forward, we have been saying that we think that that part of the business that you had talked about it was going to go over over the next two to three years slowly decline now it does have some seasonality it can be up and down but really the focus point is what you started with that's really where we're focused right now today, that's where we're getting the growth and the.
<unk> in the traditional business I think we'll have some quarters up some.
Some quarters down, but overall, we'll be continuing to deteriorate over the next two to three years.
Thank you.
Thank you. Our next question comes from the line of <unk> Silva from Roth Capital. Your question. Please.
Hi, Fermi Casey Louis Congrats on recovering to record revenues in the long road back no pun intended.
So on a couple of follow ups on the auto semi is fleet management rather.
50 to 60 million unit opportunity, what do you think amba share opportunity there could be and what's the competitive landscape for fleet management.
So first of all I think I think the biggest variable is how fast this.
Video AI base, a video camera will penetrate into this.
This market right now majority majority majority of the market still doesn't have any video in there. So I think I think the biggest question is how fast is the penetration rate has contributed I think thats good.
We don't have the answer on that but from a competitive landscape I think the biggest competitor. We are seeing is qualcomm they are selling their solution with <unk>.
<unk> in there, so however, but with our power consumption all much better video quality.
Computer vision performance, we continue to achieve much better performance on this market. So I think that we're competing with Qualcomm on this market.
This market royalty was small I hope of that penetration great work increased dramatically in the future when the technology become more widely available and are being required by regulations that will change that.
Really market dynamics.
That's very helpful for me in terms of color.
Hey Associates, Louis I was just going to add.
The installed base is firmly set as 50 to 60 million commercial vehicles in the world and it's a market where there is a monthly reoccurring revenue for the service providers.
And it typically it's for telematics type applications and they view us as very attractive because they can get incremental monthly revenue.
By offering Adas features whether it's monitoring the driver or front facing Adas camera or both in the case of some of the announcements. We've made so this is an existing market and they're just adding additional services on top of the telematic service they already offer.
Okay.
Hi, Barry J for them and then a follow up on the CV 550, <unk> products multi image I just want to understand for me. The architectural difference here you prior products could take multiple video feeds but that seems different from what you've done here or is this maybe two separate CV stacks handling different images independently versus before they were all feeding into one is that the difference here.
Understand the difference while its really about total seat performance in the past weekend taking forward.
ATP 30 videos now can taking full <unk>, so we basically.
The video performance without increasing the power consumption and basically an all you can look at still wanted to.
<unk> video and then we can taking 16 cameras and which really because if you look at the current autonomous driving people are talking about more video into one chip, but also even for security camera.
The people working on multi multi sensor.
Imager assistant for the security camera sooner. So I think this really play very well for those cost customer who wanted to build a high end system.
Because they want to continue to scale.
The size of the image as well as number of a strength going into the chip.
Okay very helpful. Thanks, guys.
Hey, Rick.
Thank you. Our next question comes from the line of Quinn Bolton from Needham and company. Your question. Please.
So I just wanted to offer my congratulations, but then follow up on the automotive CV opportunity last quarter. I think you said you had surpassed 450000 cumulative units wondering if you could give us an update on that figure or if you can't could you maybe just comment whether that that rate is accelerating and then I've got a follow up well we can definitely offer you a number.
Later, we will make it public we don't quickly now, but hopefully the trend continues even stop also for example last time, we talked about our automotive revenue will double from last year to this year I think that forecast continue hold and we believe that we can deliver that so thats gives you another indication our automotive revenue continued.
Well right now.
Great and the second question is sort of related with the fleet management wins, starting production. This year guiding to higher revenue next year, it sort of feels like perhaps that wave three opportunity you've talked about maybe starting earlier.
In CV for professional you certainly have some pretty good traction, but I havent heard as many consumer.
Camera applications. So kind of wondering are you seeing in wave three perhaps becoming a bigger opportunity than perhaps surpassing the wave two consumer camera opportunity here over the next year or two.
This year, what do you talk about Amazon doing a consumer IP camera and there are others coming up that week, which we haven't announced yet.
So we still feel comfortable that CV wave two lumpy there, but you are right. Our <unk> III. We are ahead of schedule and we do believe that we can deliver better result than we promised in the past.
Great. Thank you.
Our next question comes from the line of Kevin Cassidy from Rosenblatt Securities. Your question. Please.
Yes, Thank you and congratulations on the great results.
Yes that was going to ask about the wave two last quarter, you talked about ring introducing two new.
Cameras based on CV and I'm wondering just how that launch is going and can you talk about your pipeline going into the October and even into the.
January quarter for home security.
No.
One thing I can say is that Amazon is one of the largest customer because of the CV product line.
I think that's definitely a true statement that we didn't say it but I think thats.
One thing to highlight here.
And also we believe that our consumer IP camera design win momentum is there.
We are waiting for a customer to be go into production this year and.
And also more go into production next year so.
I will say that our wave two revenue is OLED materialize because of the.
Amazon's design win and also that there will be more Atwood later this year early next year.
Okay great.
Congratulations to have been able to increase your inventory in this market.
As most of that CV product.
Differences, because it's higher priced product.
Days of inventory are higher yes.
Yes, that's definitely the public reason because you can see that the.
We are growing our CV revenue, even as a unit number I'll call. It doubled so that definitely add to the total.
It'll cost dollar size wise in terms of our inventory, but also I have to say that you know.
That also is a sign that we believe that we can continue to have a strong demand of our product lines and Thats why we continue to build up our inventory and of course. The third thing is that we continue to worry about whether this industry wide show supply will continue in <unk>.
Prudent for us to build up more revenue more inventory just in case that the shortage in persist. So the combination of that is the reason we built out those revenues inventories.
Alright, yes, I don't think Thats very prudent thank you.
Thank you and due to time constraints, we ask that participants from like forward simply ask one question and then move on to the next questioner. Our next question comes from the line of Andrew Buscaglia from Aaron Berg. Your question. Please.
Good evening guys.
Hi.
So.
I just want to follow up on the security side.
Yes, actually so maybe.
Two part of your answer I don't mean to cheat on the.
Over here.
Tom go ahead.
Okay.
The security yet your gross margin.
You're kind of tracking towards the higher end or above the higher end of the kind of that range.
Got it.
David on some of the bigger professional guys coming back in a more meaningful way. This year that you guys think you alluded that gross margin kind of backtracking eventually again.
And then maybe like I thought 10.
10%.
Sequential growth in security.
A little bit low considering you have this home security theft coming can you talk a little bit more about that.
I think 10% in Q2.
It'd be a little bit higher number up sequentially.
Well first of all.
Think of that.
In China I don't think.
We'll come back any time soon I think that will have.
Talk about this before and.
One thing that.
We talked about last time is.
On the high end security camera, we were impacted by the substrate and continue to see that impact although the impact is not as big as Texas Foundry security issue.
But we did talk about the substrate supplier shortage definitely impact our CV revenue on a security camera and the net income continued to be there. So that also.
<unk> on our <unk>.
Our revenue forecast our higher market. So that's just giving you information about quite shortly to continue as a problem for us.
Okay.
And again it can be based off of other suppliers that are extracted as well and so part of it is <unk>.
Fact that we have and I've been part of it is your customers right.
Alright, so on a gross margin point of view I think we continue to see that.
Although we believe in the long term our revenue I'm sorry, the gross margin guidance continue to be 59 to 62, but because of our momentum.
Our CV. The Solutia ended there has just been introduced recently and we started will continue enjoying.
First to look and.
Gross margin, but eventually I think you will go back to come to a 59% to 62% was our long term guidance.
Yes, Okay, alright got it.
Thank you.
Great.
Thank you. Our next question comes from the line of Brian.
From Imperial capital your question please.
Yes, so ill kept keep mine to one.
So on the security and automotive can you break down that was 90% of your total revenue can you break down the difference between the two.
What's growing faster, maybe give us a little trends, especially on the security side is where I'm more focused on what you are saying.
Okay.
Brian It's Chris.
Hey, Brian it's Louis.
So the automotive business was in the low 20% range and that's a business. We've said is going to more than double this year.
And so that's clearly has the largest Sam for us and we're demonstrating we can take advantage of that large Sam and it's growing at the fastest rate for security.
<unk>.
Mid 60% range as a percent of our total revenue think of two thirds of that driven by what we call professional that's enterprise capex driven as well as public infrastructure spending and then the other third of the mid 60% is coming from the <unk>.
Smart home durable goods.
Products like the Amazon devices affirming referenced earlier.
Alright, Thank you very much.
Thank you. Our next question comes from the line of David O'connor from expand.
Question. Please.
Great. Thanks for.
Squeezing me in sticking to one question, maybe just one on the.
240 customers you talked to Boes for me on CV 60 of them I think the production in the first half whats the expectation for the second half how many of those remaining customers do you expect also to be in production in the second half. Thank you.
Well first of all I think we can continue to add to this 240 number because we are going continue to go.
Going to new market.
And even in the existing markets.
Total new customers, so that 240 number definitely looking to grow and I believe.
Thanks.
I don't have a concrete number to say, but I think it's going to be.
For example, last time, we disclosed the number was 45 now in 16. So in fact Thats a pace. We're looking at it from a historical point of view I will say that the pace will continue.
Thank you.
Our next question comes from the line of Martin Yang from Oppenheimer. Your question. Please.
Hi, Good afternoon, and thank you for taking my question. My one question is on Bosch that design win with three platform since quite meaningful.
Can you, perhaps give us more context around the design wing did you run into any competitors or how long did you.
Did it take you to win that design.
So first of all.
For Porsche.
You'll always started this business 12 years ago Bosch was the number the first one first customers who use our solution and system that would feel very strong relationship with.
With Bosch and throughout the year as they continue to use outbid us.
Hadar.
In most of their product lines. They also use other like a qualcomm.
Some other product lines, but with the CV I think right now I think the street family serious or the only product we have introduced.
For the CV product line and they are all hours. So I think that our relationship with Bosch has been.
A long time and I will say, it's very strong because we were collaborating mini giveaways and also happy to see that they are going to do this three families business CV product line and I hope and I believe there will be more more to come for Apache.
Great. Thank you.
Thank you. Our next question comes from the line of interesting Europe from Baird. Your question. Please.
Hi, guys question on your software.
Yes.
And he's at our basic litigation with software, but it equal.
<unk> applications and I think you had mentioned in the past that.
The software that you used was really.
Purposes.
The question is whether.
What is your strategy in terms of just where is that an opportunity later on in time.
Recurring royalty litigation are you there.
To be solely focused.
Okay.
Right. So first of all.
Right now we focus on so I think youre talking about automotive level two level three type of solution today with power.
Solution, how it only and but also we have shown many times that our software running our our Eva Eva car for Thermo purpose.
We definitely believe that our so the software that we developed as value.
And.
I think at the hour coming.
Analyst day in January at CES, we will probably disclose more the direction and the strategic direction that we are thinking about.
Great. Thank you.
Thank you. Our next question comes from the line of Derek <unk> from.
Securities Your question please.
Hey, guys. Congrats on the quarter I wanted to bring it back in cabin monitoring quick specifically around that infrastructure Bill.
Are you guys hearing from customers are seeing that bill sort of impact OEM design plans at all and generally as this moves forward quickly here would you have the capacity.
To secure supply for that opportunity just given the tight supply environment.
Are those products more constrained in your portfolio at all any commentary there would be great.
First of all we got involved a lot in cabin design win activities and I think this is definitely a.
A direction that become very very hot topic at this point and.
Involving discussion not only in Europe in Europe, but also in China Korea, Japan.
Our strength is really for in cabin monitoring you need a great video quality because of the lighting condition is not ideal and also you need to CV performance. So you need a very power efficient solution and also more importantly, I think that inc. Having cannot be just one function product moving forward.
In <unk>, we need to be integrated with driver monitoring as well as AWS as one unit box that integrate all the all the interior and exterior function. So that you can have.
Global picture of what's happening around the car. So I think this funnel interaction point of view I think we have a great position our offering to this market in terms of supply I have to say that.
Based on my observation Samsung supply to their customer better than TSMC GAAP I think TSMC is that for a lot more capacity constraints at this point a central so we all sides of this.
Texas foundry problem.
Although it's tight central has never shows the pilots.
Our demand so I would believe that.
We continue to tell the central about LTV worry to us on the 10 nanometer and 14 in 20 nanometer supply.
C.
Any how strength other than the types of foundries at this point.
I appreciate the color thanks, guys.
Thank you our final question for today comes from the line of Richard Shannon from Craig Hallum. Your question. Please.
Thanks, guys for me your last response here actually it's $2 two responses to go hear about.
Solutions that need not only in cabin monitoring, but dms, SaaS et cetera, and the importance of putting those together are you seeing any other competitors that have.
Any of those those functionalities put together or all of them.
Love to hear the prospects, there and if not or if it's limited can you talk about the leverage youre seeing in the market by having them be able to prove that capability together.
Right. So first of all I think a lot of our competitors claim they have the similar solution, but if you look at the reality that in terms of the performance requirement power requirement and also quality video quality requirement we definitely.
On top so this trend is more obvious in China, because China is they don't have infrastructure yet so they are definitely willing to pay for the more integrated solution. So that's why we believe that if there was any multi function device happened were happening in China.
And gradually moving into other spaces, but I also see a similar trend in Asia ex Japan Korea, China definitely closer to the main driver for this line.
Okay, great. Thank you.
<unk>.
Yeah.
Thank you. This does conclude the question and answer session of today's program I'd now like to hand, the program back to Dr. Fermi Wang for any further remarks.
Yes, Thank you and very proud of how our employees have achieved in the face of so many different challenges in recent years and I am convinced.
Years from now if we look back at fiscal year 'twenty two.
It's going to be a major inflection point for ambarella and I am very excited about our future and with that I'll say, thank you and goodbye for now.
Okay.
Thank you, ladies and gentlemen for your participation in today's conference. This does conclude the program you may now disconnect good day.
[music].
Yeah.