Release Date: November 26, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Ambarella Inc (NASDAQ:AMBA) reported third-quarter revenue above the high end of its guidance range, with a 30% sequential increase in both auto and IoT business segments.
• The company achieved a record level of AI revenue, contributing to a higher blended average selling price.
• Ambarella Inc (NASDAQ:AMBA) forecasts fiscal 2025 revenue to increase by 22% to 24% year over year, exceeding prior estimates.
• The company is optimistic about its new product waves, particularly the CV5 and upcoming CV7, which are expected to drive revenue growth in fiscal 2026.
• Ambarella Inc (NASDAQ:AMBA) returned to non-GAAP profitability in Q3 and has maintained 15 consecutive years of positive free cash flow.

Negative Points

• The automotive revenue funnel decreased from $2.4 billion to $2.2 billion due to project delays, cancellations, and revised forecasts.
• Level two plus market penetration remains low, with adoption slower than expected, impacting the automotive business outlook.
• Non-GAAP gross margin for fiscal Q3 was at the low end of the guidance range due to product mix, with some revenue driven by lower-margin legacy processors.
• The company anticipates a normal seasonal decline in Q4 revenue, with both IoT and auto segments expected to be flat to slightly down sequentially.
• Ambarella Inc (NASDAQ:AMBA) faces significant competition in the automotive market, which could impact future gross margins, particularly with the CV3 platform.

Q & A Highlights

• Warning! GuruFocus has detected 7 Warning Signs with AMBA.

Q: What factors contributed to Ambarella's strong Q3 results and guidance for Q4? A: Dr. Fermi Wang, President and CEO, explained that Q3 results were bolstered by the end of an inventory correction and the growth of new products, particularly the CV5 processor. The Q4 guidance reflects continued growth driven by new product adoption, indicating a secular growth trend rather than just a cyclical rebound.

Q: How has the automotive revenue funnel changed, and what does it indicate about Ambarella's growth prospects? A: Dr. Fermi Wang noted that the automotive revenue funnel decreased from $2.4 billion to $2.2 billion due to project delays and cancellations, particularly in Europe and the US. Despite this, Ambarella remains optimistic about the long-term potential of the CV3 platform and the level two plus market.

Q: Can you provide more details on the mix between CV2, CV5, and CV7 processors? A: Dr. Fermi Wang stated that AI revenue constituted about 70% of the quarter's revenue, with CV5 shipments exceeding a million units. The CV5's ASP ranges from $25 to $50, indicating strong performance. The CV7 family is expected to contribute to revenue in the future.

Q: How is Ambarella addressing the challenges in the level two plus automotive market? A: Dr. Fermi Wang highlighted that Ambarella is focusing on reducing costs and improving software scalability to address OEM concerns. The company offers a scalable software solution that can adapt from level two to level four, which helps reduce R&D costs for customers.

Q: What is the geographic distribution of Ambarella's automotive pipeline, and how does it impact the company's strategy? A: Dr. Fermi Wang clarified that only 15% of the automotive pipeline is from China, with a higher concentration in Europe. The shorter design cycles in China mean that the pipeline may not fully reflect the opportunities there, but Ambarella is well-positioned to capitalize on global opportunities.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.