Ambarella Q2 2024 Earnings Call Transcript

Quartr
Provided by Quartr
August 29, 2023

There are 12 speakers on the call.

Operator

For standing by, and welcome to Umbrella's 2nd Quarter Fiscal Year 20 24 Earnings Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session. We ask that you please limit yourself to one question and one As a reminder, today's program is being recorded. And now I'd like to introduce your host for today's program, Louis Gerhardy, Vice President, Corporate Development.

Operator

Please go ahead.

Speaker 1

Thank you, Jonathan. Good afternoon and thank you for joining our Q2 fiscal year 2024 financial results conference call. On the call with me today is Doctor. Fermi Wang, President and CEO and Brian White, CFO. The primary purpose of today's call is to provide you with information regarding the results for our Q2 fiscal year 2024.

Speaker 1

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. These 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 filed with the SEC. Access to our Q2 fiscal 2024 Results press release, transcripts, historical results, SEC filings and a replay of today's call can be found on the Investor Relations page of our website.

Speaker 1

The content of today's call as well as the materials posted on our websites Our Ambarella's property cannot be reproduced or transcribed without our prior written consent. Fermi will now provide a business update for the quarter. Brian will review the financial results and outlook and then we'll be available for your questions.

Speaker 2

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 processor business was down sequentially and down about 50% from a year ago. Our blended ASP in Q2 was above $12 and is on track to grow about 20% year over year. Thanks to the richer mix of AI SoCs, highlighting the value of our emerging AI inference fee business.

Speaker 2

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 have reduced our second half outlook. We are not expecting a recovery in calendar 2023, but we do anticipate our customers' inventory Well normalized by the end of the year and set us up for return to growth in calendar 2024. We continue to expand our position in the rapidly evolving AI inference processor market.

Speaker 2

Cumulatively, we have shipped more than 17,000,000 AI inference processors into device endpoints for IoT and automotive applications. And we are now expanding our AI inference processor reach into vehicle autonomy. As announced on the last earnings call, we continue to evaluate the AI inference accelerator market opportunity. I will now summarize the status of our 3 major SoC product families: video processors, CV2 and CV3. First, video processes on human viewing are expected to be about 40% of total revenue this year, Down from 55% last year and they typically command a single digit ASP.

Speaker 2

For several years, We have been prioritizing our limited resource on AI technology and products. And for this reason, we anticipate our video processor revenue to continue to contract. However, the revenue impact from the video processor contraction in fiscal year 2025 is anticipated to be significantly lower than what we are experiencing this year. 2nd, our CV2 family of SoCs Established Ambarella's in the AI inference market and these SoCs are expected to approach 60% of our total revenue in fiscal 2024, up from 45% last year. This family of AI inference SoC commands an ASP close to $20 and serves computer vision applications for auto and IoT.

Speaker 2

CV2 remains an important growth market for Ambarella in the mid to long term. 3rd, our CV3 family SoC 1st began to sample a year ago. Based on our 3rd generation's AI inference technology, this SoC target more challenging AI inference workload Such as partial or complete mobile system autonomy. The CV3 family SoC range from $50 to more than $400 per SoC And the autonomous driving sulfur stack optimized to run on CV3 can add 100 of dollars per unit of incremental sulfur value. The AI inference process embedding our CV3 SoC is a starting point for our evaluation of the Gen AI acceleration market.

Speaker 2

In the last quarter, we began to port the Mehta's LAMA II to the CV3 AD high And we expect to have chatbot demos available later this year. We will provide updates on our continuing evaluation I'm encouraged to see generative AI opportunities emerging on both the server and the device side of the market. I will now summarize representative customer activity in the quarter. Design activity in the enterprise security care market remains robust Motorola introduced its H5A multi sensor camera based on our CV2 AI SoC. The camera offers up to 360 degree view utilizing to full image sensors with up to 32 megapixel resolution And AI Analytics.

Speaker 2

Axis, a unit of Canon, announced the 2 megapixel M4215 cameras and the 4 ks M4218 cameras, both based on our CV25 AI inference SoCs, targeting indoor surveillance applications. Japanese market leader, Ipro, announced the expansion of its rapid PTZ X Series and the ACE series with 16 new models based on our CV25 and CV22 AI inference processors. Dynacolor introduces MultiQ next generation multi directional camera using our CV5 AI Processor to support 4 5 megapixel sensors. And in South Korea, Hanwha launched 3 new Biaspectron AI Cameras based on our CV2 AI SoC. These cameras provide 4 ks VJOY and thermal view simultaneously for the rapid detection and the classification of vehicles I will now talk about representative customer activity in the automotive market.

Speaker 2

In our May 30 earning call, I mentioned the positive feedback we received at the Shanghai Auto Show for our CV72AQ AI inference processor, a derivative of the CV3 family of SoCs. During Q2, I visited Tier 1 in China and I'm pleased to report Multiple Tier 1 wins for Level 2 plus applications. We expect some of these Tier 1 projects to commence production in the second half of the calendar year twenty twenty five. We are pleased to announce our first CV5 win In a passenger vehicle, we expect this wing to enter production in the next 12 months. In this application, the CV5 will support AI inference processing for multiple cameras.

Speaker 2

Additionally, in July, GAC Motor in China It's Hyper GT Intelligence Group including an L2 +US ADAS Intelligent Driver Assistance systems based on our CV22 8Q. 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 rear mirrors With CMS enabled models being legal beginning in July 2023, this CMS system represents a significant opportunity During the quarter, BAIC, 1 of the largest automotive OEMs in China began selling SUVs equipped with a CMS system based on our CV22 8Q. In the automotive aftermarket, Toyota introduced its wireless backup camera system for trailers based on our H32-8Q video processor. The camera will be an option for Toyota's model year 2024 Sequoia and Tundra's trucks.

Speaker 2

Canopy, the start ups resulting from Ford and ADT's 2022 joint venture, Introduce its first product, the Canopy Pickup Cam. Based on our CV25 AI inference processor, The camera provides a full HD recording, 180 degree field of view, person detection and the retrain detection for the best of a pickup. And in June, action camera maker Insta360 announced its Go 3 camera, a lightweight but powerful 2 ks camera that utilize our H22 video processor. This representative engagement indicate a healthy pace of our 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 3 years, thanks to the CV2 family, we have demonstrated The ability to capture more value per win as customer demand migrate to AI from video processors.

Speaker 2

Looking forward, we believe our newer products such as CV5, CV72 and CV3 are well positioned to support The increasingly sophisticated AI inference workload our customer are anticipating. As this new product ramp And as we also capture more software value, we anticipate our blended ASP will continue to rise. While Actively managing expenses through the current market turmoil, we will continue to drive our strategic R and D investment To fully realize the AI inference market opportunities we have discussed today. With that, Brian will now discuss the Q2 results and the outlook in more detail.

Speaker 3

Thanks, Fermi. I'll review the financial highlights for the Q2 of fiscal year 2024 and provide a financial outlook for our Q3 ending October 31, 2023. I'll be discussing non GAAP results and ask that you refer to today's press release for a detailed reconciliation of GAAP to non GAAP results. For 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 $62,100,000 in line with the midpoint of our prior guidance range, flat to the prior quarter and down 23% year over year.

Speaker 3

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 $46,000,000 below our prior guidance range of $48,000,000 to $50,000,000 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 $700,000 and our non GAAP tax provision was 800,000 We reported a non GAAP net loss of $6,000,000 or $0.15 loss per diluted share equal to the prior quarter. Now turn to our balance sheet and cash flow.

Speaker 3

Fiscal Q2 cash and marketable securities decreased $10,900,000 to $216,500,000 DSO was relatively flat at 45 days, while inventory declined from 151 to 147 days, down $6,500,000 from the prior quarter. Cash used in operations was $6,800,000 And capital expenditures for tangible and intangible assets were $5,400,000 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 2 logistics and ODM companies represent 10% or more of our revenue in Q2. WT Microelectronics, a fulfillment partner in Taiwan that ships to multiple customers in Asia came in at 54% of revenue. Chaconi and ODM, who manufactures for multiple IoT customers, was 14% of revenue.

Speaker 3

I'll now discuss the outlook for the Q3 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 $50,000,000 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%.

Speaker 3

We expect non GAAP OpEx in the 3rd quarter to be in the range of $46,000,000 to $49,000,000 with the increase compared to Q2 driven by higher R and D We estimate net interest income to be approximately $1,000,000 Our non GAAP tax expense to be approximately $700,000 and our diluted share count to be approximately 40,100,000 shares. Ambarella will be participating in Evercore Semiconductor Conference on September 6th, 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 2. 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.

Speaker 3

Certainly.

Operator

And our first question comes from the line of Christopher Rolland from Susquehanna. Your question please.

Speaker 4

Hey guys, thanks for So if you guys could highlight a little bit more The 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, 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.

Speaker 2

Right. So first of all, in terms of The pockets of weak end market demand, I think there are 2 areas. 1 is on the of course, in China, We generally think that the China market is weaker than the other market. But I think most specifically, there is our Home IoT business, we do see some weakness and we were expecting some demands for the year end sales, But we don't see that. So we expect to see we are expecting a weaker market in consumer IoT.

Speaker 2

Those are two areas that Khoso allows. In terms of the you said that from the particular customer last quarter, we quote about The on the shipments, in fact, that customer come back with even further push out demand And so that our shipment to them will be even lower than the 30% we talked about last quarter. And I don't think there's people adding to the list, but it's just really a lot of customer already on the list, but they we see a new wave of push out the cancellation coming to the end of the quarter and come to the and all the way going to August. That's where we talk about.

Speaker 4

Understood. Perhaps also, the revision for next quarter Was pretty significant. Can you talk about what kind of backlog coverage you have going into each of these What kind of visibility you have? What kind of turns you typically need in each of these quarters? And then just kind of broader picture, I think you guys kind of thought maybe July would be the last of all of this.

Speaker 4

It now looks like the weakness is going to continue through January. I couldn't quite sense It didn't I don't know, was January going to be flat? Was it going to be up a little, down a little? Any of your thoughts there? And why do we have confidence that that is indeed going to be the bottom and will bounce from there?

Speaker 4

Thank you.

Speaker 3

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 forecasts that we provide And that remains the case. So as we give guidance for Q3, Q3 is covered with backlog. And as we look forward into Q4, you asked about kind of whether that's Flat or up or down. In the prepared remarks, we talked about an expectation that our range of revenue in fiscal Q4 will likely remain in Similar range as Q3.

Speaker 3

And again, that's based on additional clarity that We've obtained as we've moved through this cyclical correction. Certainly, we're much farther through that Correction at this point, we've seen some new information. We've incorporated that into our current outlooks. We think it's we think we have greater confidence enabled to in 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 Q1 for 'twenty five, but that's what we see at this point in time.

Speaker 4

Thanks, Brian. Appreciate.

Operator

Thank you. One moment for our next question. And our next question comes from the line of Quinn Bolton from Needham and Company. Your question please.

Speaker 5

Hey guys, thanks for taking my question. I guess first for me, you mentioned Some of the opportunities for the CV72S in China where I think you mentioned having secured several level 2 plus ADAS wins that ramp, I think you said towards the end of 2025. But just wondering if you could give us any more color, what's the magnitude Potentially of the lifetime revenue of those wins, are they significant, or are they sort of smaller projects? And then I've got a follow-up. Thank you.

Speaker 2

Right. So I talked about the several Designware was a Chinese Tier 1 for this Level 2 plus application. And the application is very specific, which is Smart ADAS plus parking for the Chinese market. And we believe this is going to be a next high volume opportunity in China to I think the price is right and feature is right, And we also have major OEMs looking at evaluating the products at this point. So I think We think this is could be as big as current ADAS market given time.

Speaker 2

Of course, that when we're ramping up the revenue in early in the second half twenty twenty five, the volume will be just ramping up. But I think on that peak, I think it can be a significant volume for a Chinese market point of view.

Speaker 5

Great. Thank you for me. And then second question, it sounds like you guys You mentioned you Ported the Meta Lava model to the CV3 chip. Wondering as you look out kind of what are the next steps For that project, where are you on the software and platform development? And are you still sort of thinking of this as Probably an 18 to 24 month time to revenue.

Speaker 5

Is that the right time frame to be thinking about potentially for revenue from this opportunity?

Speaker 2

Yes. So first of all, we start putting Lama 2 as soon as it become available. And I think we made a great progress on that. We are in plan to demo this Lama 2 in a chatbot demo to our customer sometime in the coming quarter. And also, I think that we continue to believe that we Our current CV3 represents not only cost effective and power efficient, but also performance wise is capable to compete with A100.

Speaker 2

So from that point of view, we continue to develop. But I think you hit one important task is which Continue to build out the software infrastructure to support customer. That's definitely another area we are ramping up resource. We talk about really carve out a resource from the current employee pool to support the effort. But when we move forward, when we start engaging customer support, we probably need to increase Heycom.

Speaker 2

But that's the second phase after we Start engaging customer with our chatbot demo. In terms of revenue, last quarter we talked about this is more like a 24 month cycle. I continue to believe that's the case.

Speaker 5

Perfect. Thank you, Fermi.

Operator

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.

Speaker 6

Great. Thank you. Can you talk about how you're thinking about spending? Your OpEx is at this point Close to your revenue, I understand revenues are at temporary low point. 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.

Speaker 2

So Joe, I think Well, I think you noticed that we are definitely trying to control our expense. You can see that our Q2 OpEx Come below the guidance. And that's the direction we're going to continue to look at where we can cut and where we can save. But however, We still want to continue to invest on our strategy directions, namely a Series 3 architecture as well as for the Auto and IoT, our IoT, Auto and LRM. But those are the 3 big pieces of investment area.

Speaker 2

But things before we go online, we need to look at whether we have a resource to support it. So while we continue to managing carefully about expense, We do not want to sacrifice our strategy directions. Great.

Speaker 6

Thank you. And then in terms of the video processing Market that you talked about, we've obviously recognized that there was going to be a replacement cycle from video processing To Computer Vision, but do you think you're losing share in the segments, the sort of legacy markets That aren't moving to CV, is that part of why the numbers are challenged here?

Speaker 2

I think back What I said in the consumer IP can, majority of the product today is really focused on the low end cost competitive solutions. And that's where we really don't spend a lot of money to invest on. As you know, our investment strategy is always focused on the areas where we can continue to demand higher AI performance and for the consumer IoT side that we haven't focused on low end SoC roadmap definitely hurt us. I think That's where we have the biggest risk in terms of losing market share.

Speaker 6

Great. Thank you.

Operator

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.

Speaker 7

Thank you. Good afternoon, guys. Forgive me for this question for me, but maybe I read a little Too much into sort of the tone of your earnings release and some of your commentary. And With all the I mean, Joe asked the question just now about your investments and how you're going to focus them. And what I'm trying to get at is maybe one step Maybe one level of distraction above that is like the focus of the company like changed a lot now.

Speaker 7

I mean, it seems like there's a Maybe deemphasis of your camera business, and now a shift toward investment in Hardware and probably more software to support inference inclusive of some data center applications. 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 And I guess the second part of the question is, has there been a change at all in the focus of the company on the automotive end market. Right. Changes in expectation of revenue, timing of revenue, investment, etcetera. Like I said, maybe you can if I'm reading things that aren't there, certainly tell me, but I think it's an important question to address.

Speaker 7

Right.

Speaker 2

First of all, I think we continue to committed to the IoT market. I think that this is When you say camera, I think you meant IoT market. I think that's one area we need to continue to focus and continue to provide solution. After we think that we have differentiated technology as well as a big customer base, we need to continue we will continue To provide the solutions to our customers. So I think that is one area I will never say we take our eyes off the ball.

Speaker 2

And Given that, I think we want to continue to invest on auto. But when you say changing auto strategy, One thing that I will say will happen in the last 6 months is we believe that the China market will give us earlier and shorter term revenue than the other market. We definitely move more focus our resource to Chinese market for the CV72 and CV3. And I think that's area we believe is Can give us faster to the revenue. And but that doesn't mean we don't focus on Our U.

Speaker 2

S. And Europe or other markets, we can get our CV3 design in. But obviously, those design will take a longer time To go to revenue. So I think it's really a focus on the short term revenue versus longer term opportunities. But I will say For LOM, one thing is it's become very clear even our current market like Even security camera, when we talk to our professional security camera customers, they all start thinking about how LLM will impact Their business, how to use LILM to integrate multiple cameras into the services for their The service they provide you to their customers and also that automotive guys also start thinking bigger, bigger Transformer model, which kept the performance getting higher and leverage while we are investing in our LMM model.

Speaker 2

So I really think that Although that LILM start with on the server side, which is definitely an interesting area for us, Well, just in the last 3 months when start people talk when we start talking to our existing customer, it become very clear that LMM is also on the roadmap for all our existing customer. So LN, a road map for us is not just an opportunity we can choose to invest or not. I hope this has clarified your question.

Speaker 7

No. Thank you, Perni, for all the color there. I appreciate it. I guess, this is my follow-up question. You mentioned there's going to be different phases of your new investment around Inference and L.

Speaker 7

O. M, have you guys thought about sizing some of those investment areas? I mean, how what Number of people or number of dollars that you're shifting internal resources and then, if it goes well, like what kind of What magnitude of investment are you guys considering given where the P and L is right now? Thanks.

Speaker 2

Right now, so for the current phase, 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 the LLM. So we are talking about anywhere from 60, 80 people total to support unlimited engagement for the customer. Mike, our goal is not going to all the possible customer like we said last time. We need to prove the concept and with several customer But really want to have a second source for LLM on the server side.

Speaker 2

Also several customer in our current Customer base can use LRRM for their roadmap. So I think with the size to limit the scope, we think that we can Funded this activity with our P and Ls.

Speaker 7

Got it. Jump back in the queue. Thank you very much.

Operator

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.

Speaker 8

Hi guys. Thanks for taking the question. I wanted to ask a Near term question and then I have a follow-up. On the near term side, I guess there's kind of 2 parts, so forgive me for that. But for the guide for the Q3 for me Brian, you mentioned that I think you said the majority of the weakness would be in the IoT side, not auto.

Speaker 8

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 basis. I think Joe kind of asked it earlier, but it looks to me like your non CV revenues They're going to be down about 50% year over year. How much of that, if you can guess, do you think is share that's just gone and it's the low end stuff you mentioned Versus just the cyclical dynamic of inventory burn and some of that will snap back.

Speaker 2

Right. So first of all, I think that for the short term side, We definitely believe that it's a I think the question is related to

Speaker 3

Yes. I think 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 rebalancing of inventory and orders across 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.

Speaker 2

Right. On the second part is really whether that the video processor side, I think that video processor side is definitely Part of the weakness we talk about in the consumer IP can side. And so that it 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 original level. We believe That some of our video processor business will be replaced by our low end CV chip too. So I think that We talk about next year, our video processor business will continue to go down, but not in the same scales that we sold this year.

Speaker 8

And then I guess as my follow-up and forgive me, I guess we're kind of 3 here. As we look at the growth for fiscal year 2025, You said that the video process will still go down. What do you think are the key growth drivers in your CV business that we should look forward to either when design wins kick in and inventories burn, so cyclically or secularly, just roughly speaking, what do you see as the biggest tailwind to off

Speaker 2

So for CV side, I definitely believe that Both when inventory burns through as well as our new project like CV5 and CV72 production will help us to get tailwinds to boost our IoT business. But even on auto side, we believe that there's new design wins can help us to get more revenue growth for next year. So I think that professional From the professional Epicain side, it's become very clear that we think that our market is 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 plus with The CV5 and CV72 design when we talk about that should help.

Speaker 6

Thank you.

Operator

Thank you. One moment for our next question. And our next question comes from the line of Tristan Gerra from Baird. Your question please.

Speaker 9

Hi, this is Todd on for Tristan. Thanks for taking the questions. 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 ODMs as they take inventory control measures in the past few months? And do you expect any further order reductions before year end in auto?

Speaker 2

Right. So we did some small customer that Trying to reducing their inventory, but it's not as bad as IoT side. I think most of the time, I think our automotive customers continue to take the parts as planned. So although we see some weakness, but it's not like I said, IoT is really the main problem we are dealing with right now.

Speaker 9

Okay, great. And then for my follow-up, how different are the potential engagements for CV3 given the long term nature and software

Speaker 2

Right. So obviously, the CV3 design win take much longer than our Recorder in the past was like 18 months, even it's auto grade, 18 months design cycles. Here in the outside channel, we talk about 4 years. That's the reason we decided to really focus on our CV72 and CV3 opportunity for In China first, and so that we can address the revenue time to market time to revenue issue. So for that, we talk about CV72 most likely will have a revenue in second half twenty twenty five calendar year.

Speaker 2

And I even think CV3, We have a design win with Tier 1 that we might generate revenue in fiscal sorry, calendar year 2026. And that is definitely shorter than Any other areas that we're seeing.

Speaker 9

Okay, great. Thanks for the questions.

Operator

Thank you. One moment for our next question. And our next question comes from the line of Tore Svanberg from Stifel. Your question please.

Speaker 8

Yes, thank

Speaker 10

you. Fermi, just back Sort of the resources and the opportunities, and specifically thinking about CV3, The leverage of the software because we're talking about OTO, right, but at the same which is an edge device, but we're also talking about AI accelerators at the core. So 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.

Speaker 2

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 a brand new software stack That's 100 percent AI based very soon. Like what we talked about in the past, right? We talked about that we are working with the county Our sulfur stack, in parallel, we're doing our own sulfur development.

Speaker 2

With our current resource, with the 2 acquisition, both Oculi as well as Palmer VisLab, we are at a stage that ready to demo our next generation of sulfur stack. So from the development point of view, Sulfur side, I think we definitely not only proved that we have enough resource, but we're finishing the work to some extent. So now the issue is with LLM. Also we funded our phase first phase of LLM investment based on our current resource And leveraging a lot of investment we're putting to CV3 software already. But for the second phase that we are waiting to see whether The result of first phase of the engagement with customers that even that ramping up is not going to be A lot more than what we have today.

Speaker 2

We definitely will be ready to talk to investors when we are talking about ramping up. From that point of view, you can think that even for the silicon side for LLM, Like I said, this is going to be our next phase of CV3 road map. So we have to build that generation road map For the silicon side, and this will leverage 100% of existing VLSI team. So the any New development or new investment cycle for LOM is a software team to support customer. I hope that clarify the question.

Speaker 10

Yes. No, absolutely. And I also wanted to follow-up on, I think there was a previous question about LLM or AI Accelerator milestones. So what kind of milestones as investors should we be looking at here? I always understand the timing part of it, What are some of the more specific milestones that we should be keeping an eye on?

Speaker 2

I think the first important milestone is that we demo our chatbot demos to our customers So I think that's important because with the demo, 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.

Speaker 10

Very helpful. Thank you, Fermi.

Speaker 2

Thank you.

Operator

Thank you. One moment for our next question. And our next question comes from the line of Kevin Cassidy from Rosenblatt. Your question please.

Speaker 1

Yes, thanks for taking my question. My question is also along the lines of the software stack. With the CV72 in China, how much of the software stack you developed it, is there a component of that? Can you sell that

Speaker 2

Yes. So there are 2 I think our strategy software strategy inside China, outside China are different. Inside China, we're counting on our software partners because to really collect data and train the data in China is problematic for us. So we are counting on working with our Chinese software partners to deliver CV72. Last quarter, we talked about we already identified multiple Our software partner and they are porting aggressively their software to our CV72 platform, Huawei platform and ready to demo to OEMs in this quarter.

Speaker 2

So I think from the China side, it's pretty we know exactly what to do with CV90 2. With outside China with CV3, we talk about our collaboration with County. But more importantly, we want to demo our own software stack, which We don't plan to bundle 100%, but we definitely think this is an important software, important technology that we can help our customer to leverage What we have developed, this software stack, we will talk about more next time. But however, it's really we think one of the Very few software stack is 100 percent AI based. And we can show the performance and the functions that were close to the BSD level.

Speaker 2

And I think this is definitely one thing we need to talk about not only technology, but also Our business model when we are ready sometime in the near future.

Speaker 1

Yes, Kevin, I'll just add. Next week, September 5 to 8, Continental will be demonstrating our joint software stack on CV3 At the IAA show. So public demonstration, if anyone's in the area to check it out. Yes, we'll look for that. Maybe along those lines of demos and Your work with Compute, is there any update of how many OEMs you're talking to and any progress at all?

Speaker 2

We announced one design win last time. And this time, we continue to engage multiple OEMs with potential collaboration with County, but also independent that we also talk to OEM directly. So we continue to have engagement multiple engagement with OEMs at this point.

Speaker 1

Okay. Thank you.

Operator

And our next question comes from the line of Suji Desilva from ROTH. Your question please.

Speaker 11

Hi, Fermi. Hi, Brian. So thanks for giving us the mix of revenue for the year roughly between the products, Vidyo, CV2, CV3. Can Can you give us a sense of what the mix is either currently or kind of when it normalizes between auto and IoT? Because it sounds like those two categories are having different Trends right now, I think it would be helpful to understand kind

Speaker 9

of where each one sits in

Speaker 11

your revenue today and maybe in a year or so where things

Speaker 3

normalize? Yes. Sure, Suji. So if you go back to last year, automotive was about a quarter and IoT was about 3 quarters. Given the relative stability of automotive this year versus IoT, which has been much more volatile to the downside.

Speaker 3

That mix is looking more like 70% IoT and 30% automotive For the current year, obviously, we said that the size of our SAM they're pursuing over a multiyear time period It's much more levered to automotive where it would be the inverse of that relationship where long term we would expect automotive to be up 70% in IoT, about 30% as we move out several years in the future as we get traction with CB3 and some of the other automotive solutions.

Speaker 11

Okay. Thanks, Brian. That's very helpful. And then just trying to reconcile guys that the large pipeline number you've been giving the last Several quarters versus the inventory correction here. Is there a timeframe in which some of that pipeline starts to convert meaningfully contribute?

Speaker 11

I imagine that that process will be independent of the inventory perturbations that are happening right now. Just correct me if that's wrong, but that's not pushed out or pulled in And in any way because of what's going on right now? Thanks.

Speaker 2

So I think that, if you talk about the funnel number we talk about, So for the very near term, for example, if you talk about the funnel for this year, definitely there is some impact for the inventory. But in general, I don't think there's The current inventory correction should have any impact to the funnel because it's really based on design wins and also the probability and the volume of the design win. So We'll be ready to talk about this number in November this year. And Fermi, can you just

Speaker 11

give us an idea what years those start to kind of come in the elbow of those, How many years away that is?

Speaker 1

Well, our final, Suji, is 6 years. And given the Time it takes to land some of these wins, in particular with CV3, it was back end loaded in the definitely in the latter half of those 6 years.

Speaker 11

Okay, great. Thanks a little.

Operator

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.

Speaker 9

Hey, guys. Thanks for taking my question. If I'm not mistaken, there's about 20 Customers that really moved 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. And to give us a sense of the Ira of the 20% sequential revenue decline expected for the Q3, how many customers are driving that down or is it Isolate in just 1 or 2?

Speaker 2

I think that in general for IoT, all of the top 20 customers Are having inventory correction problems. But auto might not be as bad. Some of the auto customer have an inventory problem, but Our top auto guys, some of them may not. So if you look at if you really separate application looking at IoT, Any customer any of our top customers, all of them have inventory problems. Maybe at a different degree.

Speaker 9

I'm sorry, go ahead.

Speaker 2

I'm just saying that maybe they will have different degrees of inventory, but all of them have some significant inventories. Okay. Thank you. So a follow-up,

Speaker 9

I want to ask about your relationships with Bosch And some other China Tier 1 partners for CV3, where do those stand relative to how Continental is moving along?

Speaker 2

So I think in China, we focus on working with the Chinese Tier 1s was the first priority and also with Conti and Bosch. So I think that those are the priorities we have. And we definitely have Continue to have appeal some RFQ from OEMs through those Tier 1s. CV72 because this is really Pacifica is not ASO, but it's a system ASO solution. This is definitely Chinese Tier 1 play.

Speaker 2

For both and county, we'll focus on the CV3 levels of a solution to Chinese market right now. And we definitely have That multiple discussion with Bosch and Conti on this.

Speaker 9

Thanks, Bernie. Thanks, Bernie.

Operator

Thank you. This does conclude the question and answer session of today's program. I'd like to hand the program back to Doctor. Fermi Wang for any further remarks.

Speaker 2

Thank you, everybody, for joining us today and looking forward to talk to you soon. Thank you.

Operator

Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.

Remove Ads
Powered by Quartr
Earnings Conference Call
Ambarella Q2 2024
00:00 / 00:00
Remove Ads