Q2 2024 Ambarella Inc Earnings Call
Okay.
Yeah.
Thank you for standing by and welcome to umbrella second quarter fiscal year 2024 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. We ask that you. Please limit yourself to one question and one follow up you may get back in the queue as time allows.
To remove yourself from the queue simply press Star one again as a reminder, today's program is being recorded and now I'd like to introduce your host for today's program Lewis go Hardie Vice President Corporate development. Please go ahead.
Thank you Jonathan.
Good afternoon, and thank you for joining our second quarter fiscal year 2024 financial results Conference call.
On the call with me today is Dr. Fermi, Wang President and CEO .
Brian White CFO .
Primary purpose of todays call is to provide you with information regarding the results for our second quarter.
Fiscal year 2024.
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 based on our currently available information and 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.
Risks, uncertainties and assumptions as well as other information on potential risk factors that could affect our financial results are more fully described in the documents we file with the SEC.
Access to our second quarter fiscal 2024 results press release transcripts historical results.
Our SEC filings and a replay of today's call can be found on the Investor Relations page of our website.
The content of today's call as well as the materials posted on our websites are ambarella, <unk> property and cannot be reproduced or transcribed without our prior written consent.
For me will now provide a business update for the quarter Brian .
Brian will review the financial results and outlook and then we'll be available for your questions.
Thank you Louis and good afternoon, everyone.
Our fiscal Q2 revenue was approximately flat sequentially and consistent with our guidance, our AI business grew sequentially and year over year, while our video pockets of business was down sequentially and talking about 50% from a year ago.
Our blended Asps in Q2 was about $12 and it is on track to grow about 20% year over year.
Thanks to the richer mix of AIA saucisse, highlighting the value of our emerging AI inference speed business.
Our mid to long term growth outlook for the AI inference processor business remains positive. However, the near term environment is very challenging for our overall business.
Customers are now more aggressively reducing their inventory and we are now seeing some pockets of weak end market demand, which complicates our customers' ongoing inventory reduction efforts.
Given this we haven't reduced our second half outlook, we are not expecting a recovery in calendar 2020 three but we do anticipate our customers' inventory will normalize by the end of the year and set us up for return to growth in calendar 'twenty to 'twenty four.
We continue to expand our position in the rapidly evolving AI inference processor market.
Separately, we have shipped more than 17 million AI inference processors into device and endpoint for Iot and automotive applications.
We are now expanding our AI inference processor reach into vehicle autonomy.
As announced on our last earning call we continue to evaluate to the AI inference accelerator market opportunity.
I will now summarize the status of our three major Ace Oce product families video processors see me too and the C suite.
First video processes, all human viewing I expect it to be about 40% of total revenue this year down from 55% last year and they typically come in a single digit a S. P.
For several years, where I've been part heightening, our limited resource on AI technology and products.
And for this reason, we anticipate our video processors revenue to continue to contract. However, the revenue impact from the video processor contraction in fiscal year 'twenty to 'twenty five is anticipated to be significantly lower than what we're experiencing this year.
Second.
Our series two family airbase Ocs establish.
Establish ambarella is in the AI inference market and this a saucisse I expect it to approach 60% of our total revenue in fiscal 2024.
After a 45% last year.
This family of AI inference asos he come in as an E. S. P close to $20 and serves computer vision applications for auto and Iot.
C V. Two remains an important growth market for ambarella in a mid to long term.
Third Oh series III family of S. O C. First began to assemble a year ago based on our search and ratios for AI inference technology. These asos targeting more challenging AI inference workloads, such as a partial or complete mobile social economy.
The series three family Sushi range from $50 to more than $400 per S. O C and the autonomous driving software stack optimized Toronto see me three can add hundreds of dollars per unit or an incremental software value.
The AI inference process of embedding a C V. S. O C is a starting point for all evaluation over the Chin AI acceleration market in the last quarter, we began to important bathhouse Lama true to the C V. Three a D hi.
And we expect to have a chat about that most of that available.
Available later this year, we will provide updates on our computing evaluation I encourage to see Joe with your AI opportunities emerging on both the server and the device side of the market.
I will now summarize representative of customer activity in the quarter.
Design activity, either enterprise security care market remains robust at a major customer worldwide.
Toyota introduced it's H by a multi sensor camera based on our C V to AIA. So seats. The camera offers up to 360 degree viewing utilizing choose for image sensors with with up to 32 megapixel resolution and AI analytics.
Axis a unit cannon.
The two Mega pixel and 42, 15 cameras and a four K and 42 18 cameras both space on our C. V 25 E I N S.
Hey, Saucisse targeting indoor surveillance applications.
Japanese market beta I pro announced the expansion of its right to the P. T E X Sirius and XM Sirius with 16, New models based on all the C V 25, and C V 22, AI inference processors.
That's about call. It introduces Martha Q next generation multi directional camera using a C V. Five AI processor to support four five megapixel sensors.
And in South Korea, how hard launch of three new back by spectrum AI cameras based on our C V to AIA soucy.
This cameras provide full K V joint Thermo view simultaneously for the rapid detection and classification of vehicles or intruders.
I will now talk about representative of customer activity in the automotive market.
In our May 30 earnings call I mentioned the positive feedback we received at the Shanghai Auto show for all of the C. V 72, Ecu AI inference processor a theory.
Or the C V III family of Asos East.
During Q2, I visit Tijuana in China, and I'm pleased to report multiple tier one wins for level two plus applications. We expect solve this tijuana project to commence production in the second half over calendar year, 2020 five.
We are pleased to announce our first C V. If I win in passenger vehicle. We expect this win to enter production in the next 12 months in this application. The C V five well support AI inference processing for multiple cameras.
Additionally in July .
T a C motor in China, and we also it's hyper G T intelligence coup, including an L plus eight asking how does just intelligent driver.
This assistance based on our C V 22 Ecu.
And recently, the Chinese government passed a new policy, allowing camera monitoring system CMS to replace conventional left and the right side mirrors. The policy also covers interior real heroes with CMS enabled the models being legal beginning in July 2023.
This is CMS system represents a significant opportunity for ambarella is a C V. Two family of AI inference processors.
During the quarter B I C. B, a I see one of the largest automotive Oems in China began selling acu vs equipped with our CMS system based on all of the C V 22 Ecu.
In the automotive aftermarket Toyota introduced its wireless breakout camera system for trailers based on age 32, Ecu video processor the.
The camera will be an option for Toyota has model year, 'twenty 'twenty, four Sequoia and tundra trucks.
[noise] colopy, the startup cost, resulting from Ford and the Adt's 2022 joint venture introduce its first product they cannot be pick up can based on all the C. V 25, AI inference processor. The camera provides a full HD recording 180 degree field of view person detection in reaching.
Tax rate for the back of a pickup.
And in June <unk> action camera maker <unk> 360.
It's a go three camera light weight about powerful toolkit camera that utilize our H 'twenty two video processor.
This is representative engagement indicate a healthy pace or continuing customer design activity for AI inference processors, our investment strategy is aligned with.
The anticipated market demand for more sophisticated software intensive AI inference applications.
In the last three years, thanks to the seeming to family we have demonstrated the ability to capture more value per win as customer demand migrate to a I phone video processors.
Looking forward, we believe our newer products such as a C V. Five C V 72, and the C. V. Three are well positioned to support the increasingly sophisticated AI inference workloads all customer are anticipating.
Oh, so this new product ramp and as we also capture more software value, we anticipate our blended ASP will continue to rise.
Well I actively managing expenses through the current market turmoil.
We will continue to drive our strategic R&D investment to fully realize the AI inference market opportunities we have discussed today.
With that Brian will talk now I'll discuss the Q2 results and outlook in more detail.
Thanks, Jeremy.
Ill review the financial highlights for the second quarter of fiscal year 2024, and.
And provide a financial outlook for our third quarter ending October 31 2023.
I'll be discussing non-GAAP results and ask that you refer to todays press release for a detailed reconciliation of GAAP to non-GAAP results.
For non-GAAP reporting we have eliminated stock based compensation expense and acquisition related costs adjusted for the impact of taxes.
For fiscal Q2 revenue was $62 1 million in line with the midpoint of our prior guidance range flat to the prior quarter and down 23% year over year.
Sequentially Iot revenue was up slightly while automotive revenue was down slightly.
non-GAAP gross margin for fiscal Q2 was 64, 6% at the high end of our prior guidance range.
non-GAAP operating expense was $46 million below our prior guidance range of $48 million to $50 million driven by continued expense management and the timing of spending between quarters.
We remain on track to our internal product development milestones.
Q2, net interest and other income was 700000 and our non-GAAP tax provision was 800000.
We reported a non-GAAP net loss of $6 million or 15 cent loss per diluted share equal to the prior quarter.
Now I'll turn to our balance sheet and cash flow.
Fiscal Q2, cash and marketable securities decreased $10 9 million to $216 5 million.
DSO was relatively flat at 45 days, while inventory declined from 151 to 147 days down $6 5 million from the prior quarter.
Cash used in operations was $6 8 million and capital expenditures for tangible and intangible assets were $5 4 million.
Free cash flow defined as cash from operations less Capex was minus 20% of revenue for the quarter and positive 4% on a trailing 12 month basis.
We had two logistics and ODM companies represent 10% or more of our revenue in Q2.
WT microelectronics, a fulfillment partner in Taiwan that chips to multiple customers in Asia came in at 54% of revenue.
<unk>, an ODM, who manufactures for multiple Iot customers was 14% of revenue.
I'll now discuss the outlook for the third quarter of fiscal year 2024.
The near term revenue outlook is challenging.
Customer inventory management actions have accelerated and pockets of end demand softening have appeared.
Considering these factors we estimate that our fiscal Q3 revenue will decline to approximately $50 million plus or minus 4% drip.
Driven by our Iot end market.
At this time, we anticipate that this revenue range could continue into our fiscal Q4 with sequential revenue growth resuming in our fiscal Q1.
We expect fiscal Q3, non-GAAP gross margin to be in the range of 62% to 64%.
We expect non-GAAP opex in the third quarter to be in the range of $46 million to $49 million.
With the increase compared to Q2, driven by higher R&D tied to new product development activities.
We estimate net interest income to be approximately $1 million.
Our non-GAAP tax expense to be approximately 700000.
And our diluted share count to be approximately $40 1 million shares.
Ambarella will be participating in Evercore semiconductor conference on September six.
The Asia Investor Conference on September 12th hosted by NASDAQ.
The Morgan Stanley Bank of America future car series on September 28.
And the mobility conference hosted by UBS on October 2nd please contact us for more details.
Thank you for joining our call today with that I'll turn the call over to the operator for questions.
Certainly and as a reminder, ladies and gentlemen, please limit yourself to one question and one follow up one moment for our first question.
And our first question comes from the line of Christopher Rolland from Susquehanna. Your question. Please.
Hey, guys. Thanks for the question. So Ah Ah if you guys could highlight a little bit more for.
Pockets of weaker end demand that you're seeing there.
And then.
Maybe you can put this in terms of under shipment by end market. Our last quarter you talked about as an example, a customer that was under shipping by 30%.
Has that under shipment changed at that customer and have new customers joined that kind of level of under shipment as well.
Thanks.
Right. So first of all in terms of the pockets of weak end market demand I think there are two areas. One is on the of course in China. We generally think that the China market is weaker than the other market, but I think more specifically there is our hum Iot business, we do see some.
And we were expecting song.
Demands for the ear and the sales, but we don't see that so we expect to see we are expecting a weaker market in consumer Iot those are two areas that closer of longs in terms over the Ah you.
You said that Oh from a particular customer last quarter, we called about the the.
The on the shipments in fact that customer come back with even further push out demand and so that our shipment to them it will be even lower than the 30% we talked about last.
Last quarter, and I don't think Theres people, we're adding to the list, but it's just really a lot of customer ODI, all alerts, but they can't we see a new wave of push out that cancellation coming to the end of the quarter and the country and all the way going into the August that's where we talk about.
Understood. Perhaps also you know the revision for next quarter was was pretty significant can you talk about what kind of backlog coverage you have going into each of these quarters, what kind of visibility you have.
What kind of turns you typically need in each of these quarters.
And then and then just kind of broader picture.
Thank you guys kind of thought maybe July would be the last of all of this and now looks like the weakness is going to continue through January .
I couldnt quite sense. It it didn't say I don't know it was January gonna be flat was it going to be up a little down a little any of your thoughts there and you know why why do we have confidence that that is indeed going to be the bottom and we'll bounce from there. Thank you.
Hey, Chris This is Brian .
In terms of backlog coverage coming into any quarter for the company, we typically come in.
With the quarter in backlog and don't really rely on turns to make the forecast that we provide.
And that remains the case, so as we give guidance for Q3.
Q3 is is covered with backlog.
And as we look forward.
Into Q4, you asked about kind of whether that flat or up or down in the prepared remarks, we talked about.
And expectation that our range of revenue in fiscal Q4 will likely remain in a similar range as Q3 and again that's based on additional clarity that we.
We've obtained as we've moved through this.
Cyclical correction.
Certainly.
Much farther through that correction at this point.
We've seen some new information we have incorporated that into our current outlooks. We think it's we think we have greater confidence enabled to our ability to.
Get our heads around how this is shaping up at this point, we think that there is an opportunity for sequential revenue growth as we move into our fiscal <unk>.
Q1, four for 25, but that's what we see at this point in time.
Thanks, Brian appreciate it.
Thank you one moment for our next question.
And our next question comes from the line of Quinn Bolton from Needham <unk> Company. Your question. Please.
Hey, guys. Thanks for taking my question I guess first for me you mentioned.
Some of the opportunities for the C V 70 to us in China, where I think you mentioned, having secured several level two plus.
Hey, Ashwin that ramp I think you said towards the end of 2025, but just wondering if you could give us any more color you know whats the magnitude potentially of the lifetime revenue of those wins are they significant again.
Or are they sort of smaller projects and then I've got a follow up thank you right.
Right so.
We I talked about the several design win with a Chinese tier one for this level two plus.
Applications and applications very specific which is smart Adas plus parking for the Chinese market and we believe this is going to be next.
<unk> volume opportunity in China to replace current single camera Adas market I think that.
I think the price is right and features right and we also have a major Oems looking at evaluating the products at this point. So I think we think this could be.
Is big US current Adas market given time of course is that when we're ramping up the revenue in early start in the second half of 2025, the Valeant will be just ramping up but I think when the peak I think it can be a significant value for the Chinese market point of view.
Great. Thank you for me and then the second question. It sounds like you guys continue to make progress on the data center or enterprise.
I Inferencing that application you think mentioned you reported that meta lava model to the C V three chip.
Wondering as you look out you know kind of what are the next steps to.
For that project, where are you on the software and platform development.
Are you still sort of thinking of this is <unk>.
Probably an 18 to 24 months time to revenue is that the right timeframe to be thinking about potentially for revenue from this opportunity.
Yes. So first of all we started putting Lamar to was for instance become available and I think we've made great progress on that we are in.
The planned short time or there's a lot more true in a chatbot stammel to a customer sometime in the coming quarter and also I think that we can't hear to believe that we are currency me three represent.
Not only cost effective power efficient, but also performance wise is capable to compete with a 100. So from that point of view, we continue to develop but I think you hit it.
While important task is which continue to build out the software infrastructure to support customer that's definitely another area. We are ramping up our resource we talk about we already a carve out.
Resource from our current employee pool to support the effort, but you know when we move forward, while we start engaging customers provide support customer support we probably need to increase head count, but that's a second phase after we.
Start engaging customer with our chatbot that would.
In terms of revenue last quarter, we talk about this as more like a 24 month cycle I continue to believe that's the case.
Perfect. Thank you Fermi.
Thank you one moment for our next question.
And our next question comes from the line of Joe Moore from Morgan Stanley . Your question. Please.
Great. Thank you.
Can you talk about how you're thinking about spending.
Your Opex is at this point.
Close to your revenue.
You know I understand the revenues are a temporary low point, but just how are you thinking about that sort of the balance between the importance of the revenue pipeline versus the sort of near term cash burn.
So Joe I think.
I think you'll notice that we are we are definitely trying to control. Our expense you can see that our Q2 opex came below the guidance.
And that's the direction, we're going to continue to look to look at where we can cut it where we can save but however, we still want to continue to invest in our strategic directions, namely a series re architecture as well as you know.
For the.
OTO and Iot, our Iot auto and.
But those are the three big pieces on investment area.
Things before below the line, we need to look at whether we have a resource to support it. So while we continue to managing carefully by expense, we do not want to sacrifice our strategic directions.
Great. Thank you and then in terms of the video processing market that you talked about.
We've obviously recognized.
There is going to be a replacement cycle from even from video processing too to computer vision, but do you think you're losing share in this segment.
Legacy markets.
That that arent moving to CB is that part of why the numbers are challenge here.
I think what I said in a consumer IP can majority of their product today is really focused on the low end of course is cost competitive solutions and Thats, where we really don't spend a lot of money to invest as you know our investment strategy is always focus on the areas where it can continue to demand higher AI performed.
And.
For the consumer Iot side.
We have a focus on low end associated Womack definitely hurt us I think that's where we have the biggest risk in terms of losing market share.
Okay. Thank you.
Thank you one moment for our next question.
And our next question comes from the line of Matt Ramsay from TD Cowen Your question. Please.
Thank you good afternoon guys.
I don't know forgive me for this question for me, but maybe I read a little bit too much into sort of the tone of your earnings release and some of your commentary.
And.
With all that I mean, Joe asked the question just now about your investments and how youre going to focus them.
And what I'm trying to get out as maybe one maybe one level of distraction above that it's like the focus of the company like changed a lot now I mean, it seems like there's a maybe de emphasis of your camera business.
And now a shift toward investment in hardware and probably more software to support inference inclusive of some data center application. So I guess should we be taking some of the tone here over the last Tonight, and maybe last quarter's call as well as a big shift in direction of where you and your team are focused and I guess the <unk>.
Second part of the question is.
Has there been a change at all in the focus of the company on the automotive end market.
Alright changes in expectation of revenue timing of revenue.
Investment.
Et cetera, like I said, maybe you can.
Im reading things that arent there.
Tell me, but I think it's an important question to address right.
First of all I think we continue to commit there too.
The Iot market I think that this is when you say camera I think commence Iot market I think that's one area, we need to continue to focus on continuing to provide solution. After what we think that we have a differentiated technology as well as a big customer base and we need to continue and we will continue to provide.
The solutions to our customers. So I think that is one area I would never say, we take our eyes off the ball.
And.
Given that I think we want to continue to invest a whole top up when you say changing auto strategy I, one thing that I would say all happening in the last six months is we believe that the China market work. It was earlier and shorter time to revenue than the other market, we definitely move more focus our resources.
Chinese market for the C V 72, and <unk> three and I think that's the area. We believe is cant give us faster.
The revenue and but that doesn't mean, we don't focus on all our USA Europe or other market that we can get our sea me three design, but obviously designing will take longer time to go to a revenue. So I think it's really a focus on the short term revenue versus a longer term opportunities.
But I will say four O N.
But one thing is it's.
It's become very clear, even our current market like even security camera, when we talked to our our professional security camera customers. They all start thinking about how and what impact their business how to use it.
To integrate multiple cameras into our services for their well.
The service they provide to their customers and also that automotive guys also start thinking bigger bigger transformer model.
The pro forma is getting higher and leverage while we are in very small.
So I really think that although that oh I have to start with.
On the server side could you definitely an interesting area for us.
Interest in the last three months when stopped people would talk when we start talking to our existing customer you become very clear that <unk> is also on the roadmap for all of our existing customer so.
Our roadmap for US is not just the opportunity we can.
Choose to invest on that.
Hope this is clarifies your question.
No. Thank you from me for all the color there I appreciate it.
I guess as my follow up question.
You mentioned, there's going to be different phases of your new investment around in front of an L O N.
Have you guys.
Thought about sizing some of those investment areas I mean, how what.
Number of people or a number of dollars that youre shifting internal resources and then.
If it goes well like what what kind of math.
Magnitude of investment are you guys, considering given where the P&L is right now.
Right now so for the current phase I, we talk about we only carve out a team that we using our current resource which is under our payroll already to do that but obviously when we start ramping up we probably need to duplicate a similar size of team to support it.
So we're talking about anywhere from 60 to 80 people total to support.
Eliminate engagement for their customer like I'll go is not going to all the possible customer that we said last time, we need to prove the concept and with <unk>.
Several customer that.
Really want to have a second source for arrow and on the server side also several customer in our current.
Customer base they can't use.
The roadmap so I think with the site so to limit the scope and we think that we can fund this activity with our <unk>.
Got it jump back in the queue. Thank you very much.
Thank you one moment for our next question.
And our next question comes from the line of Ross Seymore from Deutsche Bank. Your question. Please.
Hi, guys. Thanks for the question.
Near term question and then I'll follow up on the near term side I guess, there's kind of two parts. So forgive me for that but for the guide for the third quarter for me are Brian you mentioned that I think you said the majority of the weakness would be in the Iot side not auto I just wanted to get some color on that and then the second part of the first question here is going to be the fiscal year.
Year basis, I think Joe kind of asked it earlier, but it looks to me like Youre non CV revenues are going to be down about 50% year over year, how much of that if you can guess do you think is sure. That's just gone and it's the low end stuff you mentioned versus just a cyclical dynamic of inventory burn and some of that will snap back.
Alright, So first of all I think that for the short term side, we definitely believe that.
I think the question is related to.
Yes, I think your the first part of your question Ross was confirmation that the weakness that we see in revenue for fiscal Q3 is driven by the Iot side of the equation and that is correct.
We're seeing obviously some significant.
Let's see inventory orders.
Most of our businesses, but in terms of what's driving this leg down in revenue between Q2 and Q3 it appears to essentially be all Iot at this point.
Right on the second part is really whether that the video processor side I think that the video processors is definitely part of the weakness we spoke about in the Pensacola.
<unk> side, and so that is really depends on the inventory situation, whether they well how fast they can rebound to it but I don't think we can snap back to the origin of level. We believe that some of our video processing business will be replaced by our low end CV chip too. So I think that we talk about next year.
Our video processor business or continues to go down but not in the same skills that we sold this year.
Okay.
And then I guess as my follow up and forgive me I guess, there are kind of three here as we look at the growth for fiscal year 'twenty five.
<unk> said the video processes will still go down what do you think are the key growth drivers and your CV business that we should look forward to either when design wins kick in and inventories burn so cyclically or secular Lee just roughly speaking what do you see as the biggest tailwind to offset that video processor headwinds.
For the.
For CV side, I definitely believe that both inventory burning through as well as our new.
Project like CB <unk>, CB 72 production will help us to get a tailwind.
To boost our Iot business, but even on auto side. We believe that there is new design wins can help us to get more revenue growth.
For next year, so I think that professor.
Professional IP for the professional IP Cam side, it's become very clear that we think that the our market still we hold our market share very well and as soon as we get the inventory cleaned we should be able to see a rebound on the current design wins and the plus with the <unk> five and <unk> 72 design when we talk.
That should help.
Thank you.
Thank you one moment for our next question.
And our next question.
Comes from the line of.
Interesting Gara from Baird. Your question please.
Hi, This is Patricia and thanks for taking the question just you touched on the Iot side of the business, but maybe on the auto side have you seen any step downs in order patterns from automotive Oems as they take inventory control measures in the past few months and do you expect any further order reductions before year end and auto.
Right so with this song.
Our small customer.
Trying to reducing their inventory by its not as bad.
Iot side I think most of the time I think our automotive customers continue to take the parts of the play.
So, although we see some weakness by its not like I said.
It is really the main problem, we're dealing with right now.
Okay, Great and then for my follow up how different are the potential engagements for CVT three given the long term nature and software platform cost of developing AI solutions versus the traditional segments that you play in including data for the quarter.
Right, So obviously that.
The C V three design wins take a much longer than our record in the past recall that in the past. It was like 18 months, even if auto grades <unk> cycles here in our outside China. We're talking about four years. That's the reason, we decided to really focus on our <unk> 72, and <unk> opportunity.
<unk> four in China first and so that we can address.
The revenue.
Time to market time to revenue issue so for that for that we talk about <unk> 72, most likely will have a revenue second half 2025 calendar year and I, even think CB three we have a design win with a tier one that we might generate revenue in fiscal sorry calendar year 2026.
And that is definitely shorter than any other areas in that we're seeing.
Yeah.
Okay, great. Thanks for the questions.
Thank you one moment for our next question.
And our next question comes from the line of tourists Lundberg from Stifel. Your question. Please.
Yes. Thank you.
For me it just just back to sort of the resources and the opportunities.
And specifically thinking about CV three the leverage of the software because.
We're talking about auto which has an edge device, but we're also talking about.
AI accelerators that the core so just just trying to understand how much portability you have with your current investments.
So that you don't have to go through a completely new investment cycle. If you will.
Right. So we don't plan to have a brand new investment cycle with our current resource we only build up our software stack.
In a way we are ready to demo our brand new software stack, that's 100% AI based very soon.
We talk about in the past right, we talk about but we what we are working with the county, our software stack bar in parallel we're doing a whole software development with our current resource.
The two acquisition post ocular as well.
Palmer Visa lab, we are at the stage that ready to demo our next generation of software stack. So from a development point of view.
<unk> I think we definitely not only prove that we have enough resource or finishing the work to Sunday. So thanks Dan.
So now the issue is with alcohol and also we founded our face first phase.
Investment based on our current resource and leveraging a lot of investment were putting <unk> sulfate already.
But for the second phase, but we are waiting to see whether the result of the first phase of our.
Our engagement with customers that even that ramping up is not going to be you know a lot more than what we have today.
Well really it wont be ready to talk to investors we are.
Talking about ramping up for that from that point of view you can think of that.
For the.
Silicon side for <unk> and like.
Like I said this is going to be our next phase of a cvs or your roadmap. So we have to build a saturation roadmap for the silicon side and that this will leverage 100 per cell existing navios <unk>. So the any new store development.
The volume of our new investment cycle for.
Is a sofa to support customer I hope that clarify clarify.
Question.
Yes, absolutely and then I also wanted to follow up on I think there was a previous question about LLM, our AI accelerator milestones.
So.
What kind of milestones as investors should we be looking at here I, obviously understand the timing part of it but you know what.
What are some of the more specific milestones that we should be keeping an eye on.
I think the first important milestone is that we demo our chatbot that most to our customers and they won't happen.
Sometimes coming quarter. So I think that's important because it was the time. It also shows the performance our how we compete compared to our competitors and all those information will be become open to our customers I think that's probably the biggest near term milestone.
Very helpful. Thank you for me.
Thank you.
Thank you one moment for our next question.
Yeah.
Yeah.
And our next question comes from the line of Kevin Cassidy.
From Rosenblatt your question please.
Yes. Thanks for taking my question My Question's also along the lines of the software stack.
With the CB 72 in China, how much of the software stack you develop it.
We're a component of that and you sell that.
Software stack too.
Yeah. So there are two I think our strategy. So first strategy inside China outside China different inside China, we are counting on our software partners because to really collect data and trended data in China is problematic for us. So we are counting on working with our Chinese.
Our software partners to deliver 70 through last quarter, we talked about we already identified multiple our software partner and they are putting aggressively their software to our CV 72 platform, our platform and they're ready to demo to Oems.
In this quarter, so I think from the China side, there's a pretty.
We know exactly what to do with <unk> and Youtube with outside China. We see me three we talked about our collaboration with <unk>, but more importantly, we want to them our own software stack, which we don't plan to bundle, 100%, but we definitely think this is an important.
So far in potent technology that we can help our customer to leverage while we have developed this software stack will talk about more next time, but however is really we think one of the very few software stack with 100% AI based.
And we can show the performance in that function as well.
Close to.
The PSC level and I think this is definitely one thing we need to talk about not only technology, but also all of our business our business up.
Our business model, where we are.
Our radio sometime in the near future.
Yes, Kevin I'll just add.
Next week September fit to eight.
Continental will be demonstrated in our joint software stack on CV surgery at the IAA show.
So public demonstration.
If anyone's in the area to check it out.
Yes.
We will look for that.
Maybe along those lines of demos.
Your work with <unk> is there any update of how many.
Oems Youre talking to any any progress at all.
We announced one yeah, we announced one design win last time and this time, we are continuing to engage multiple Oems.
With a potential collaboration was countered by also independent of that we also talked to the OEM directly.
So we still continue to have engagement multiple engagement with the Oems at this point.
Okay. Thank you.
Thank you one moment for our next question.
And our next question comes from the line of Sujit de Silva from Roth. Your question. Please.
Hi, Fermi Hi, Brian so thanks for giving your fee.
Revenue for the year roughly between the products video and <unk> can you give us a sense of what the mix is currently or kind of when it normalizes.
Auto and Iot because it sounds like those two categories are indifferent.
Trends right now and I think it'd be helpful to understand kind of where each new revenue.
And maybe in a year or so when things normalized.
Yeah sure Sanjay So if you go back to last year.
Automotive was about a quarter and Iot was about three quarters.
Given the relative stability of automotive this year versus <unk>.
<unk>, which has been much more volatile to the downside that mix is looking more like 70% Iot and 30% automotive for.
For the current year, obviously, we said that the size of our sand they're pursuing over a multiyear time period is much more levered to automotive where it would be the inverse of that relationship or long term, we would expect automotive to be up 70% in Iot are about 30%.
As we move out several years in the future as we get traction with David <unk> III at some of the other automotive solutions.
Okay. Thanks, Brian that's very helpful. And then just trying to reconcile guys. The large pipeline number you've been giving in the last several quarters versus the inventory correction here is there a timeframe in which some of that pipeline starts to convert me meaningfully contribute I imagined I imagine that that process will be independent of the inventory.
Inventory perturbations that are happening right now.
Me, if that's wrong, but.
That's not pushed out or pulled in any in any way because of what's going on right now.
So I think that I'll talk.
Talk about the funnel number we've talked about so far.
So for example, if you talk about the funnel for this year definitely theres, some impactful of inventory, but in general I don't think Thats the key.
Current inventory correction shall have any impact to the the funnel because it's really based on design wins and also the probability ended the volume of the <unk>.
So we will be ready to talk about this number in November this year.
And for me can you just give us an idea of what years does start to kind of come in the elbow of those like how many years away that is.
Sure.
While our final <unk> six years and given the time it takes to land some of these wins in particular with CV surgery. It was backend loaded.
So definitely in the latter half of those six years.
Okay, great. Thanks, a lot.
Thank you one moment for our next question.
And our next question comes from the line of Gary Mobley from Wells Fargo. Your question. Please.
Hey, guys. Thanks for taking my question.
Not mistaken theres about 20 customers that really move the needle for your overall business have you had an opportunity to review those top 20 customers and where they stand with respect to.
Inventory balances, whether healthy or not.
Give us a sense of the.
Okay.
Ivar of the 20% sequential revenue decline expected for the third quarter.
How many customers are driving that down or is it.
Great and just one or two.
I think that in general for Iot all of the top 20 customers are having inventory correction promise.
But total might not be as bad as some of the OTO commerce customer have an inventory problem, but our top auto guys solve them or not so if you look at if you really separate application looking at Iot.
Any customer any tougher.
All of our top customers all of them have an inventory of promise.
Maybe a different Marie.
Yeah.
I'm sorry go ahead.
I'm, just saying that maybe are they all have different different decrease of inventory, but all of them have some significant inventories.
Okay. Thank you it's a follow up I wanted to ask about your.
Year relationships with Bosch and some other China tier one partners for <unk>, III, where do those stand relative to how continental's moving along.
So I think in China, we focus on working with our Chinese tier was always our first priority and also with content. So I think that those are the priorities that we have and we definitely have a.
We continue to have appeal sung <unk>.
Our F Q4, OEM through those tier ones.
CB 72, because this is really a.
The silica is not <unk>, but it is a system solution.
This is definitely a Chinese tier one play propulsion County will focus on the CV three levels of our solution to Chinese market right now and we definitely have that.
Multiple discussion with Bosch and Conti others.
Thanks Bernie.
Thank you. This does conclude the question and answer session of today's program I'd like to hand, the program back to Dr. Fermi Wang for any further remarks.
Thank you everybody for joining us today and looking forward to talk to you soon thank you.
Thank you, ladies and gentlemen for your participation in today's conference. This does conclude the program you may now disconnect good day.
Yeah.
[music].
Yeah.