Marubeni Q2 2025 Earnings Call Transcript

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Provided by Quartr
August 27, 2024

There are 13 speakers on the call.

Operator

and thank you for standing by. Welcome to Ambarella's Q2 Fiscal Year 2025 Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer

Speaker 1

session.

Operator

I would now like to turn the call over to Louis Gerhardti. You may begin.

Speaker 2

Thank you, Towanda. Good afternoon and thank you for joining our Q2 fiscal year 2025 financial results conference call. On the call with me today is Doctor. Fermi Wang, President and CEO and John Young, CFO. The primary purpose of today's call is to provide you with information regarding the results for our Q2 of fiscal year 2025.

Speaker 2

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 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 file with the SEC.

Speaker 2

Access to our Q2 fiscal 2025 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. The content of today's call as well as the materials posted on our website are Ambarella's property and cannot be reproduced or transcribed without our prior written consent. Before we start the call, I want to note that we will be participating on August 29th in Deutsche Bank's Technology Conference will be September 4 at Citi's 2024 Global TMT Conference, September 17 in Bernstein's 6th Annual West Coast Semiconductor Bus Tour and September 24th in Evercore ISI's ADAS, AV and AI Summit. We hope to see you at one of these events. Fermi will now provide a business update for the quarter.

Speaker 3

John will

Speaker 2

review the financial results and outlook, and then we'll be available for your questions. Fermi?

Speaker 3

Thank you, Louis, and good afternoon. Thank you all for joining our call today. Our 2nd quarter revenue was near the high end of our guidance range, increasing 17% sequentially. Auto revenue grew slightly sequentially with stronger growth in IoT, which represented about 70% of total revenue. We achieved record age AI inference revenue, which has supported a higher blended average selling price in this quarter.

Speaker 3

The midpoint of our fiscal Q3 revenue guidance implies about 24% sequential growth with double digit sequential growth anticipated for both IoT and auto. In our last earnings call on May 30, we expressed confidence in the consensus fiscal year 2025 revenue estimate of $250,000,000 At this time, based on customer orders and the forecast, we expect our fiscal year 2025 revenue growth in the mid to high teens percent versus last year. I will now provide some additional insight into the gives and the takes of our current outlook. First, our analysts indicate most of our customers have now completed the rebalancing of their inventory of umbrella SoCs and our revenue in the second half of the fiscal twenty twenty five is expected to reflect actual end market demand. 2nd, the overall economic environment is currently at headwind for us.

Speaker 3

As you have heard, global auto production is forecasted to be down slightly this year. There is an electrical vehicle OEM shakeout underway and the enterprise and consumer IoT spending is mixed. So it should be clear, there are company specific factors offsetting the headwinds and driving our strong results and outlook. There is rising demand for AI powered solutions, including AI inference at the age where we have been investing. Most importantly, we are seeing initial revenue ramps from certain IoT and Automotive customers, especially for our higher price new products.

Speaker 3

Our confidence is building in our new products, which we expect will lead to new waves of revenue growth in the years ahead. I would like to clearly define what I mean when I say new products. New products include the CV5, CV7 and the CV3 AD families, which are all 5 nanometer, most integrate our 3rd generation AI inference accelerator and all command above average ASPs. In this new product group, the first wave of revenue is from the CV5 family, which is ongoing and continue to ramp. We expect to easily exceed 1,000,000 units shipped this year across more than 1,000 design wins in IoT as well as automotive.

Speaker 3

Our second new product revenue wave is expected from the CV7 family, which we expect to enter production as of the end of fiscal year 2025. The CV7 family also serve both auto and IoT applications with initial revenue from computer vision applications expected to be followed by revenue from more advanced AI network, such as CLIP and Vision Language Model. The CV3-8D family for L2 plus and the higher level of autonomy is also in our new product grouping. We remain highly focused on converting multiple OEMs and Tier 1 RFIs and RFQs for CV3 into the 1 carbon, which will be incremental to the lead motor and the commercial vehicle wins we have previously discussed. We continue to expect the 1st full year of production for CV3 family in calendar year 2026, our fiscal year 2027 and growing from there.

Speaker 3

Other new products including our upcoming 2 nanometer offering, N1, 4 d image radar perception software and autonomous driving software stack IP. And as the business case for this new product develop, we will provide more information on the timing of their revenue contribution. Collectively, these new products are expected to represent a majority of our incremental revenue growth and they are the primary source of the positive momentum we are reporting. While most of the new product revenue originates from CV5 today, in the years ahead, we are anticipating several important waves of new product growth. I would now like to summarize representative customer activity in the quarter.

Speaker 3

During the quarter, Rivian introduced the 2nd generation R1S SUV and R1T pickup truck. This vehicle leverages Ambarella's 5 nanometer CV5 AI SoC to provide surround view images while driving as well as the gear guard camera function when the vehicle is parked. Sensara, a leading provider of a commercial fleet telematics solution, has introduced its CM33 front facing and the CM34 dual facing AI dash cameras. Based on Ambarella's CV22 SoC, both cameras offer advanced raw features, including land departure and a forward collision warning, and the CM34 also offers driver behavior analysis, including mobile distraction and drowsiness detection. In the China automotive market, OEMs continue to introduce new models with advanced camera based features leveraging Ambarella's SoCs.

Speaker 3

In August, BAIC joint venture company introduced the Stiletto S9 passenger vehicle with an electronic mirror camera monitoring system based on our CV22 SoC. And the new car brand, Luxid, a Cheri joint venture, introduced its A7 passenger vehicle, including a driver monitor system based on our CV28 automotive SoC. In Japan, we have started production from a smart rear camera for Honda based on CV28. This is available in the navigation package option, and it provides drive assistance and the smart parking, including detecting vehicles and lens behind the vehicle. I will now review some of the representative customer engagements in our IoT business.

Speaker 3

In the enterprise security camera market, UMP Market Leader Access introduced its P12 range of modular camera with thumb sized pinhole mini dome sensor unit variance. The cameras feature a deep learning processing unit based on our CV25 SoC for advanced analysis. Also during the quarter, Japanese market leader, iPro, introduced several new CV2 based products. The Eye Pro corner camera is based on Ambarella CV22, and this 5 nanometer camera includes a privacy guard feature for automatic blurring of faces. In our other IoT market, we are pleased to see handheld camera manufacturers increasingly require more performance to support multiple AI applications, while also requiring high resolution each like 4 ks or 8 ks from 1 or more cameras.

Speaker 3

For example, Insta360 has introduced 3 CV5 products this year and recently it also introduced the Go 3s wearable camera based on Ambarella's H22 SoC, the camera with just 1.4 ounces and include 4 ks video, 48 megapixel photo. And Moultrie, a brand of practical, introduced its H2 post cellular trail market camera. From this announcement and the one season pass, one can see we continue to expand our presence for AI inference at the age. Our CV2 products represent a vast majority of our AI revenue today, typically addressing computer vision applications for object detections and the classification, providing real time insights for a wide variety of applications. Looking ahead, there is no doubt there is a significant build out of AI training and inference capacity in data centers for the next generation AI networks.

Speaker 3

We view this as a positive long term leading indicator for our edge inference business. In fact, our auto and IoT customers are increasingly asking us how we can help them with the new advanced AI networks, how they can be implement at that age. Relative to AI computer vision, this new AI networks will require significantly higher level of computing performance and the efficiency we bring to the age is critical. For Ambarella, our new products are expected to initially run for AI computer vision applications. However, beginning with the CV7 family, we can also address applications using this more advanced AI network.

Speaker 3

Long term, we are optimistic about our significant investment in AI inference and how it positions us to scale to higher value added products. Now in the near to intermediate term, Q1 and Q2 were steps in the right direction, and one of our key objectives is to continue to drive revenue growth and achieve profitability, while sustaining the investment in our strategic R and D priorities. We will continue to actively managing our expenses, even though the cyclical downturn appear to be over for us. Our goal is to turn the corner and drive positive earning leverage in the next year with the anticipated revenue growth. Now John will talk about the Q2 results and Q3 outlook in more detail.

Speaker 4

I'll now review the financial highlights for the Q2 of fiscal year 2025 ending July 31, 2024. I will also provide a financial outlook for our Q3 of fiscal year 2025 ending October 31, 2024. 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 along with acquisition related costs adjusted for the impact of taxes. For fiscal Q2, revenue was $63,700,000 close to the high end of our guidance range, up 17% from the prior quarter and up 3% year over year.

Speaker 4

Non GAAP gross margin for fiscal Q2 was 63.3%, slightly above the midpoint of our prior guidance. Non GAAP operating expense was $47,700,000 $800,000 lower than the midpoint of our prior guidance range of 47.5 dollars to $49,500,000 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 $2,100,000 Q2 non GAAP tax provision was approximately $299,000 We reported a non GAAP net loss of $5,500,000 or a $0.13 loss per diluted share. Now I'll turn to our balance sheet and statement of cash flows.

Speaker 4

Fiscal Q2 cash and marketable securities increased $16,500,000 from the prior quarter to $219,800,000 Receivables day sales outstanding decreased from 47 days in the prior quarter to 33 days and days of inventory decreased from 123 to 108 days. Inventory dollars increased 8% sequentially and decreased 12% from a year ago. We generated positive operating cash flow of $16,700,000 for the quarter. Capital expenditures for tangible and intangible assets were $2,600,000 We had 2 logistics companies representing 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 63% of revenue for the Q2 while Hakuto, a distributor in Japan was 10% of revenue for the quarter.

Speaker 4

I'll now discuss the outlook for the Q3 of fiscal year 2025. As Fermi described, company specific factors, in particular, our new product ramps are providing us with improved visibility into the second half of fiscal twenty twenty five. For fiscal Q3, we estimate our total revenue will be in the range of $77,000,000 to $81,000,000 with sequential growth in both IoT and auto. We expect fiscal Q3 non GAAP gross margin to be in the range of 62.5 percent to 64%. We expect non GAAP OpEx in the 3rd quarter to be in the range of $49,000,000 to $51,000,000 with the increase compared to Q2 driven by increased headcount and project related engineering expenses.

Speaker 4

We estimate net interest income to be approximately $1,800,000 our non GAAP tax expense to be approximately $500,000 and our diluted share count to be approximately 41,700,000 fully diluted shares. Thank you for joining our call today. And with that, I will turn the call over to the operator for questions.

Operator

Thank Our first question comes from the line of Christopher Rolland with Susquehanna. Your line is open.

Speaker 5

Hey, guys. Thanks so much for the question here. I guess my first one is you referenced vision language models. Is this a new opportunity or an opportunity that you've been addressing for some time here? And how your architecture might be different from GPU or an ASIC here?

Speaker 5

And is this a CV3 opportunity? I think you've maybe talked about $1,000 ASP, something like that. Is that the kind of opportunity we're talking about here?

Speaker 3

Yes. For vision language model, we demoed our first Lava model at CES this year with a chip called M1, which is a derivative of a CV3 family chip. So it's our 3rd generation inference engine and we run the LAVA model, which is a vision language model on L1 at CES. And since we give a demo, I think we attract a lot of customer interest. Most of us are interested using a vision language model to hook up with multiple camera and describe what the camera sees real time.

Speaker 3

So you can imagine that this is a very important for our existing customer both for enterprise IoT as well as maybe even for automotive. So this is a feature that we've been talking about for 3 quarters. But I think recently, we believe we can even using CV72 to run a smaller model to enable VOM running on camera to provide real time feedback, which I think is unique offering that Ambarella can do.

Speaker 5

Great. Thank you for that, Fermi. And then secondly, as I kind of look at your guidance for October, which was very strong and then reconcile it with the full year guidance that you gave, it implies maybe a significantly weaker Q4 traditional seasonality, at least the way we track it would suggest. I guess maybe you could just talk about maybe the moving parts here into January, What how you view traditional seasonality for the Q4 and the expectation for January, the implied expectation? Thank you.

Speaker 3

Yes. Thank you. So when we do the calculation, I believe the current guidance between Q3 and the whole year reflects a very normal seasonality for Q4. When we look at normal seasonality in the last 10 years, is anywhere between 7% to 10% negative, right? So if you take that calculation, I will find that our midpoint is probably in the range of normal seasonality.

Speaker 3

So I think that we expect we go back to normal seasonality because the inventory correction is done with us. We're ramping our products and so that we believe that the gallons is reasonable.

Speaker 5

Thank you, Fermi.

Operator

Thank you. Our next question comes from the line of Joe Moore with Morgan Stanley. Your line is open.

Speaker 1

Great. Thank you. I wonder if you

Speaker 6

could talk about the outlook

Speaker 1

for the quarter. You talked about being driven by new products. Is that kind of content increases because you're migrating people to CV5? Are there new end markets or applications? Just kind of want to understand what's driving the strength in the coming quarter.

Speaker 3

Right. So in fact, let's talk about that new quarter. We can look at it from 2 different perspective. 1 is market, right? And the driver we see both automotive IoT has new product being introduced by our customer.

Speaker 3

On the IoT side and IoT enterprise as well as the other IoT products, we have customer introduced new product with much higher ASP than before. So that's definitely on IoT side. On the automotive side, both Sensara and the Rivian are ramping up with CV5 in this quarter. So I think that's just show you the on the market side. But if you look at on the product side, really is CV5 ramping up for the is the main reason for us to have the growth.

Speaker 3

But also CV22 go back to the normal growth rate after the inventory correction helps growth too. So those two reasons are from the product side.

Speaker 1

Great. That's very helpful. Thank you. And then separately, the announcement you had of LEAP Motors a quarter ago, can you just talk to is that leading to additional conversations in the China EV market? And just I know you're not ready to make any announcements there, but just how are you seeing the potential to increase traction with other OEMs in China?

Speaker 3

Yes. I think that definitely with any design win that helps our momentum. And I think like I said before, Chinese market is going to be continue to drive the innovation technology. So we continue to talk to multiple OEMs and Tier 1s in China for CV3. So I think that's important for us, so we're going to continue to drive that.

Speaker 3

But at the same time, for getting some European, U. S. Customer design wins is

Operator

Our next question comes from the line of Tore Svanberg. Your line is open.

Speaker 7

Yes, thank you and congratulations on the strong results here. So Fermi, I kind of just wanted to paint a little bit of a picture and maybe you can help me out here. So I mean obviously CV2, CV22 has been doing well. The Holy Grail is CV3N1. CV5 obviously now really ramping.

Speaker 7

What about CV75 and CV72? Are those going to ramp quite meaningfully into production next year? Or are those also more 2026?

Operator

Our next question comes from the line of Tore Sender. Your line is open with Stifel. Yes.

Speaker 7

Thank you and congrats on the strong results guys. So Fermi, I was hoping you could just help me out a little bit with some of the product cycles here, right? Because obviously CB2, CB22 has been doing well. You're now ramping CB5. Everyone's waiting for CB3 and N1.

Speaker 7

But in the meantime, we got CB75 and CB72. So are we going to see pretty strong ramps from CV75 and CV72 next year? Or are those also going to be more 2026?

Speaker 3

Yes. Thank you. First of all, sorry for the interruption. From the product point of view, I think CV5 will continue to be strong next year. We believe that the CV5 ramping up this year will continue next year.

Speaker 3

And CV72, we expect to start ramping up at the end of this year and you will start seeing CV72 product shipping in the enterprise in the IoT enterprise next year ramping up. And you will start in fact that's interesting because most of our customer when they design CV72 product, they plan for the traditional CNN type of neural network. But we believe that in later stage, after they ship the CV72 camera, they can use a software upgrade to upgrade newer more advanced neural network model like CLIP or vision language model to CV72. So we expect that the CV72 at beginning is really serving our traditional IoT enterprise side, but it will enable new applications in the second half of next year. And we expect the life cycle of this product will be 3, 4 years just like before.

Speaker 3

And also we have CD75 that will ramp up as a mid end or low end product for the CD7 family. So that is the ramping up situation.

Speaker 7

Right. And so just to put that in the perspective from a pricing perspective, right, because obviously you said that a lot of the growth right now is being driven by new products but higher ASPs. So when we especially look at CV72 that would still be a higher ASP product than CD5, right?

Speaker 3

No. In fact, CV72, if you compare that to CV22, CV5 is a high end CV2 family. So CV72 is really coming into you should treat that as a replacement of CV22 family, which CV22 family has been 5 year old and we need to refresh the cycle. So CV72, I would say, is significant ASP jump for CV22 family and CV5s continue to be a high end of the market.

Speaker 2

Yes. And Tore just to add some perspective, our blended ASP today for SoCs is around 12 to 13 and all of these new products that Fermi was talking about, CV5, CV7 family and then of course, CV3, they would all bring our blended ASP higher as they ramp.

Speaker 7

That's great. Great color. Thank you so much.

Operator

Thank you. Please standby for our next question. Our next question comes from the line of Ross Seymore with Deutsche Bank. Your line is open.

Speaker 6

Hi, guys. Can you hear me okay?

Speaker 3

Yes.

Speaker 6

Great. So first, congratulations on the strong report and guide. I know you talked about how this is new product driven, and I understand that methodology, but you also said that the inventory burn is done. So are we getting to the point where you're not burning inventory and so a big part of the step up sequentially is that into the Q3 and then from there new products and normal seasonality apply? Just trying to figure out the new product side versus your comments that there's no longer an inventory burn either.

Speaker 3

Yes. So first of all, we believe our inventory burn is down in Q2, maybe a little bit Q3, but not much because when we talk to our customer, they most of the big customer always told us they are done with inventory correction also. So we are and also when we look at how the with a very stable lead time with foundry and we watch how our customer give us PO and booking, we believe booking in a regular speed and they are not building up new inventory. So from that point of view, I think inventory correction is down for us. And also when we look at the new the revenue growth compared to before and most of them is contributed by the CV family as well as some the CV22 coming back from the inventory correction go back to normal growth.

Speaker 3

And those two things are the main reason we're seeing the growth this time.

Speaker 6

Thanks, Rami. I guess as my follow-up, it's helpful you gave the full year commentary. I was just thinking some of the stuff you answered with Torrey with the new products and the timing of when they're coming in, etcetera, if we just put that into an end market perspective to simplify it a little bit, would you think the puts and takes on the growth rate of IoT versus automotive would be for next year? Do you expect one to grow significantly faster than the other? Is IoT going to be largely seasonal from here with some new product kickers and automotive is the one that has very large stair steps as new customer ramps begin?

Speaker 6

Just how should we think about the relative growth rates and kind of linearity of them?

Speaker 3

Right. So maybe in a very short term in Q3, we think that automotive IoT will grow in a similar rate. We because I think both sides has a new product ramping up. For next year, although we haven't given any official guidance, I personally believe that the IoT has better growth than automotive just because CV72 is an IoT device and we believe that it will contribute more. But I do hope that after that CV3 family will kick in and start helping our growth rate at the automotive.

Speaker 8

Thank you.

Operator

Thank you. Please stand by for our next question. Our next question comes from the line of Kevin Cassidy with Rosenblatt. Your line is open.

Speaker 9

Yes. Thanks for taking my question. And clearly you're in a very strong product cycle. You've had quite a few in the past. Can maybe Fermi give us a comparison, what's this product cycle like were different than past product cycles?

Speaker 9

Is there the customers maybe stickiness, the longer term product cycle, software defending your product, just anything you can compare it to past cycles?

Speaker 3

I think, when I look at, this product cycle, there are two things that our customer offering is, which is really important for us. 1 is AI performance. As you can see that CV5 one of the reason using CV5 is that AI performance. And we're seeing our customer using AI to improve video quality and also using AI to add more AI functions for example to object detection to help the video editing or security camera guys using advanced network. So AI performance just like what we predict the performance requirement getting higher and higher.

Speaker 3

I think it's sticky for us because when you increase your AI performance for all the cameras that power consumption continue to be important. So we are the our unique offering is continue to offer higher AI performance without increase too much of the power consumption and that's going to continue to be the our differentiation. So I like I said, if we believe that AI performance requirement will continue to go up. If that's the case, I think this time it will help us to have a sticky customer base.

Speaker 9

Okay, great. And just another in your 10% customers that Tricone wasn't mentioned, should we imply that that means consumer is getting to be less percentage of your overall revenue? And is that going to be the trend going forward?

Speaker 3

Right. In the last few quarters, we talked about one of the weakness in the market side is our IoT phone. We used to call it consumer IP cam, but it's really just the security camera using the home application. That and the Chikoni is majority of Chikoni design wins in that category. That's why they are not 10% this time.

Speaker 3

And continues although we continue to have design wins in the security home home security sorry IoT home category, but I think that the growth rate there is much slower than price as well as other IoT or automotive.

Speaker 9

Okay. Congratulations again on great results.

Speaker 3

Thank you.

Operator

We stand by for our next question.

Speaker 1

Our next question comes from the

Operator

line of Matt Ramsay with TD Cowen. Your line is open.

Speaker 10

Hey, guys. It's actually Sean O'Loughlin on here for Matt. And I'll echo the congratulations of others on the really positive guidance here. I wanted to dig in actually on the more traditional video processor side of the business. And I know that we saw a pretty significant decline in fiscal year 2024.

Speaker 10

I think at the time it was categorized to something like 80,000,000 dollars or so of that decline from the traditional legacy video processing. Should we sort of think about that as a potential another potential lever going forward? Or is the industry sort of moved on from that product segment into much more of the CV22 and beyond family that you've spent a lot of the call talking about?

Speaker 3

Right. So first of all, I think the market definitely moved more toward AI. But also Ambarella made a very clear decision several years ago that we want to pool all our limited resource on the AI growth. So we haven't paid out any video processor in the last few years. So I think that's also important factor.

Speaker 3

So we don't believe the revenue or unit number sales of a video processor will increase in the future, but the decline rate was significantly slower than before. So I think that when the video processor decline in a much slower rate and our AI start generating more revenue. And that trend will help us to start showing up even the unit growth for the company as well as for the revenue.

Speaker 10

Yes. That's crystal clear. And then on those new products, we talked a little bit about higher ASPs, but I was wondering maybe John could speak to the margin profile of those new products considering that there are more advanced geometries and potential wafer pricing increases at foundry and stuff like that? Thanks and congrats again.

Speaker 4

Great. Thank you. Yes, Sean, so at a high level, we don't anticipate the margin profiles as we go to smaller and smaller process nodes that the margin profiles will change significantly from what we've seen over this last several process nodes. As we've said previously, our long term gross margin range is 59% to 62% and we expect to get into that long term range as automotive becomes a larger portion of it. But that's more just kind of markets and commercial terms than I would say any kind of foundry issue.

Speaker 10

Great. Thanks a lot and congrats again.

Speaker 3

Thank you.

Operator

Thank you. Please stand by for our next question. Our next question comes from the line of Suji Desilva with Roth Capital. Your line is open.

Speaker 11

Hi, Fermi. Hi, John. Congrats on the progress here. I just wanted to clarify and the growth you had in the fiscal second quarter, I think it was mostly IoT. Please correct me if it's wrong.

Speaker 11

And if it is, which applications kind of came back or did inventory burn and ordering resume in the IoT segment to help the fiscal second quarter?

Speaker 3

Right. So for the Q2, you are right. The IoT growth rate is a lot higher than automotive. And then the main area of growth is really IoT Enterprise as well as other IoT category. And you can see that the IoT Enterprise is really to stabilize the inventory quickly and go back to growth mode, go back to the they clean up the inventory and go back to regular ordering pattern.

Speaker 3

And also the other IoT side that few customer taking our CV5 into production that helps.

Speaker 11

Got it. And then flipping over to the auto side, you talked about in the CV3 helping ramp maybe in the 2025 or potentially calendar 2026 timeframe. Do you have visibility into program ramps there and the timing of when those start to inflect to give us a sense roughly kind of where in the 20 5 time calendar-twenty 5 time frame autos would kind of have a growth inflection upward or program ramp starts?

Speaker 3

Right. So we talk about calendar year 2026 for CV3 ramp up. The first one we talk about was the lean motor. We have not talked about the models yet and hopefully that we can provide information in the near future.

Speaker 2

Okay. That's very helpful. All right. Thanks.

Operator

Thank you. Our next question comes from the line of Shadi Midwali with Needham and Company. Your line is open.

Speaker 12

Hey, this is Shadi Midwali on for Quinn Boland. My first question is on Ambarella's passenger OEM win last quarter. Has that provided a halo effect for current passenger OEM engagements? Or more so has there been a shift in sentiment with current OEMs that Ambarella is engaged with?

Speaker 3

So first of all, I think any design win helps. So I think that every OEM design win they consider different. But however, in the past, the one of the issue we talk about winning design win is our scale and also our automotive experience. So that first design will definitely help. But every OEM design win is going to be fighting to against our competitors on different category on the technology side, pricing side and also the customer support side.

Speaker 3

I think the first design win helps, but it cannot be deterministic to help us to win a future design.

Speaker 12

Thanks for that. And my follow-up question is on the China auto market. There has been some recent news of aggressive pricing between Chinese OEMs. And I was wondering if Ambarella is seeing any negative impacts from this?

Speaker 3

Well, you're absolutely right. The pricing pressure in China market is very high and we continue to see our current design win. In fact in the last quarters, we have announced multiple Chinese OEM Tier 1 design wins for different type of products like ADAS or recorders, EMUROs, monitors. So we do see the pricing pressures. But however, also if you look at our total gross margin that John just talked about, I think, yes, there's always pressure there.

Speaker 3

But I think in the balance, we still think that our gross margin profile is not going to change a lot in the next few quarters.

Speaker 12

Awesome. Thanks for that. Congrats on the solid quarter and good.

Operator

Thank you. We have a follow-up question from the line of Ross Seymore with Deutsche Bank. Your line is open.

Speaker 6

Hi, guys. Thanks for letting me speak 2 quick ones in here. Louis, or I think it might have been Fermi that gave what typical seasonality is in the Q4. To the extent seasonality is a framework that's going to matter more as we look into next fiscal year, however you want to define it, can you just give us an idea of how you view seasonality?

Speaker 2

Sure. Whether you look at 5 year averages or 10 year, which is we look at both, you've got Q4 down sequentially. You've got Q1 can be down sequentially. And then our strongest quarters are Q3 and Q2. The numbers vary a bit if you do 5 year or 10 year average, but that's the average.

Speaker 4

Got it.

Speaker 6

Thank you, Louis. And then I guess one for John. As I think about next year looking like it's going to be a much more significant revenue growth year,

Speaker 3

how do I how does

Speaker 6

the company think about OpEx relative to revenue growth? I know you've put a ton of that work in already and you've been spending ahead of the growth. But to the extent leverage is going to be an important metric and profitability as Fermi mentioned, I just want to see how you guys think about that relationship.

Speaker 4

Yes. I mean, obviously, there's lots of factors that go into the plan for next year. But the primary focus is to drive toward non GAAP profitability. And so from an OpEx perspective, we're going to hold incremental spend as low as we possibly can while still delivering on the roadmap.

Speaker 1

Great. Thank you.

Operator

Thank you. Ladies and gentlemen, I'm showing no further questions in the queue.

Speaker 1

I would now like to turn the call back over to Doctor. Fermi Wang for closing remarks.

Speaker 2

Tawanda, I just noticed we

Speaker 10

had one more pop up.

Speaker 2

Martin, why don't we take that? Sorry to interrupt.

Operator

No problem. I see it now. One moment. Our next question comes from the line of Martin Yang with Oppenheimer and Company. Your line is open.

Speaker 8

Thank you. A quick question on guidance. Is there anything happening regarding the non industrial IoT in your guidance that has helped with the strength?

Speaker 3

Sorry, we didn't get the question clear. Can you say it again?

Speaker 8

So is there anything regarding consumer IoT segment that helped with the guidance and the strength of the guidance in 3Q?

Speaker 3

Yes. So this is really about consumer IP can or we call the IoT home now. And first of all, we still believe that's one of the market that's weak for us because the market going to a low end model with limited performance requirement. However, with that, so the Q3 guidance, IoT Home didn't help our Q3 guidance. However, the market continue to change and we start seeing some of the Home IoT people are thinking about adding language model like VLM or CLIP onto their service.

Speaker 3

If that happens, when that happens, I think that will definitely give us opportunity to go back to sell a CV75 type of product because if you want to run clip at the edge in a camera, I think very few chips can do that. So I think we are waiting to see whether that new function and a new network requirement will be happening in our consumer IP can. If that happens that will become a better fit for us. But for Q3 guidance that market doesn't help.

Speaker 8

Got it. Thank you, Tony.

Speaker 3

Thank you.

Operator

Thank you. I'll now turn the

Speaker 1

call back over to Doctor. Fermi Wang.

Speaker 3

Thank you, everybody, for joining us today and looking forward to talk to you in a different conference or next time. Thank you, guys.

Operator

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.

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Earnings Conference Call
Marubeni Q2 2025
00:00 / 00:00
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