Ambarella posts 37% revenue growth as Edge AI adoption drives automotive and robotics expansion

Ambarella (AMBA) Q4 2026 Earnings Call Transcript

Feb. 26, 2026 at 4:30 p.m. ET Call participants * President and Chief Executive Officer -- Dr. Fermi Wang * Chief Financial Officer -- John Young * VP, Corporate Development and Strategy -- Louis P. Gerhardy Need a quote from a Motley Fool analyst? Email [email protected] Takeaways * Annual Revenue -- $390.7 million, a 37.2% increase year over year, with HAI products contributing approximately 80% of total revenue. * Q4 Revenue -- $100.9 million, down 7% sequentially from Q3 and up 20.1% year over year, slightly above the midpoint of guidance. * HAI Revenue Growth -- Up 50% year over year, fueled by new five-nanometer product cycles and customer launches. * Non-GAAP Gross Margin (Annual) -- 60.7%, compared to 62.7% in the prior year. * Non-GAAP Gross Margin (Q4) -- 59.8%, aligned with the midpoint of guidance (59%-60.5%). * Non-GAAP Operating Expense (Annual) -- Increased 12.9%, driven by higher labor costs and SoC development projects. * Non-GAAP Operating Expense (Q4) -- $56.5 million, at the midpoint of the $55 million-$58 million guidance range. * Q4 Non-GAAP Net Profit -- $5.5 million, or $0.13 per diluted share, with net interest and other income of $2.3 million. * Free Cash Flow (Annual) -- $58 million, representing 14.8% of revenue and the seventeenth consecutive year of positive free cash flow. * Cash and Marketable Securities (Year-End) -- $312.6 million, up from $250.3 million in the prior year. * Days Sales Outstanding -- 36 days for Q4, flat sequentially; Inventory Days -- Increased from 76 to 99 days. * Auto Pipeline Value -- $13 billion in won and bid opportunities over the next six years, flat in won business compared to last year; attributed to design wins and offsetting lower customer forecasts or delays. * Segment Revenue Details -- Automotive led by telematics increased in the high single digits; IoT increased nearly 50%, mainly portable video and physical security. * Product Cycle Update -- Third-generation five-nanometer CV75 and CV72 AI SoCs contributed a high single-digit percentage of Q4 revenue, with CV7 four-nanometer chip expected to generate revenue starting in Q4 of the new year. * Q1 2027 Outlook -- Anticipated revenue between $97 million and $103 million, with sequential auto growth and seasonal IoT decline; non-GAAP gross margin projected at 59%-60.5% and non-GAAP OpEx at $55 million-$58 million. * 2027 Guidance -- Expected 10%-15% total revenue growth, supported by new product cycles and rising ASPs and unit volumes in both auto and IoT. * Customer Concentration -- WT Microelectronics represented 73.1% of Q4 revenue and 69.7% of annual revenue as a logistics distributor. * Share Repurchase -- No buyback activity during 2026; $48 million remains under authorization, and 24,102 shares were repurchased for $1 million in Q1 2027. * Robotics and Drone Market -- Q4 marked the first full quarter of production revenue from the aerial drone market, and a U.S.-based e-commerce provider deployed robotic systems using Ambarella's N1655 AI SoC. * Channel and Go-to-Market Strategy -- Launch of incremental indirect sales channels (ISVs, distributors, system integrators) to capture fragmented robotics and edge infrastructure markets; at least a dozen ISVs targeted to adopt platform by end of year. * Semi-Custom/Custom ASIC Initiative -- First two-nanometer chip project in IoT with significant NRE paid, and multiple companies showing engagement; first silicon revenues expected in 2027. Summary Ambarella (AMBA +0.97%) achieved record annual revenue of $390.7 million, driven primarily by substantial growth in HAI products and new customer deployments across auto, IoT, and robotics. Management projects 10%-15% revenue expansion for 2027, aided by next-generation product cycles and a strengthened go-to-market approach focused on indirect channels and emerging ASIC partnerships. Continued cash flow generation, cumulative HAI momentum, and a growing auto pipeline underpin Ambarella's strategic emphasis on AI-focused SoCs for edge and physical AI markets. * The company maintained its long-term non-GAAP gross margin target of 59%-62% despite near-term segment shifts and ongoing product transitions. * President and Chief Executive Officer Dr. Fermi Wang said, "Fiscal 2026 established a new revenue record for Ambarella," underscoring management's focus on HAI and product innovation. * Interest and engagement in four-nanometer CV7 and two-nanometer ASIC projects indicate customer traction for higher-performance, tailored AI silicon. * Approximately $13 billion in pipeline automotive opportunities were disclosed, with the "won" proportion characterized as flat versus a year ago, reflecting resilience despite market weakness in 2025. * Chief Financial Officer John Young confirmed, "We forecast Q1 revenue to be seasonal and in the range of $97,000,000 to $103,000,000," providing quantifiable first quarter 2027 expectations for top line and margins. * The company highlighted robust pipeline development in the robotics and drone sectors, including the first major warehouse automation design win at a U.S.-based e-commerce customer. Industry glossary * HAI: Hybrid/Hardware-Assisted Artificial Intelligence; refers to Ambarella's SoCs that integrate advanced AI computation and edge processing capabilities. * SoC: System on a Chip; an integrated circuit that consolidates all components of a computer or electronic system. * AI-ISP: Artificial Intelligence-Image Signal Processor; image processing technology integrated with on-chip AI features for advanced image recognition and enhancement. * NRE: Non-Recurring Engineering; upfront engineering costs paid by customers to develop or customize ASIC products. Full Conference Call Transcript Dr. 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 2026. 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 are 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. Access to our fourth quarter fiscal year 2026 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, Inc.'s property and cannot be reproduced or transcribed without our prior written consent. Before starting the call, we hope to see you at one of the following investor events scheduled for 2027. March 3 will be at Morgan Stanley TMT Conference in San Francisco; March 10 at Loop Capital's Seventh Annual Investor Conference in New York; March 10 to 12 we will be at Embedded World in Nuremberg, Germany, and we are offering a limited number of investor meetings; March 11 at Cantor's Global Technology and Industrial Conference in New York; we will be hosting bus tours at our Santa Clara headquarters with Instinet Nomura, Wate, CLSA on March 12, 18, and 20, respectively; March 16 at Bank of America's 2026 Asia Tech Conference; and March 24 at the ROTH Conference in Dana Point. As a reminder, we will enter our first quarter quiet period on April 16, 2026. Fermi will now provide a business update for the quarter. John will review the financial results and outlook, and then we will be available for your questions. Fermi? Fermi Wang: Thank you, Louis. And good afternoon. Thank you for joining our call today. Fiscal 2026 established a new revenue record for Ambarella, Inc. Revenue increased 37% year over year, well above the growth in the overall semiconductor industry and most of our semiconductor company peers. Our five-nanometer new product cycles, together with our customers' new product launches, combined to drive 50% year-over-year growth in our HAI revenue. About 80% of our full year fiscal 2026 revenue is HAI, all of which is also defined as physical AI. Overall, auto and IoT revenue both grew, with company-wide growth in both units shipped and the average selling price. Our fourth quarter revenue results follow a seasonal pattern, with revenue down 7% sequentially, slightly above the midpoint of our original guidance. Our new third-generation five-nanometer CV75 and the CV72 AI SoCs are rapidly growing, reaching a high single-digit percent of total revenue in Q4, and these new products are poised to be an important source of incremental revenue in the new year. Looking further into fiscal 2027, we anticipate total revenue growth in the 10% to 15% range with non-GAAP gross margin within our long-term model of 59% to 62%. For the year, we expect our new product cycle to continue to drive both unit and average selling price increases, with revenue growth in both auto and IoT. In addition to the anticipated revenue ramp from CV75 and the CV72, the recently announced CV7, our first four-nanometer chip, is expected to begin to generate revenue in the fourth quarter of this year. By a variety of measures, our team's achievements in the last year have strengthened our HAI leadership, and we continue to enhance our market position. Financially, in fiscal year 2026, we continued to commercialize our AI investment and deliver premium revenue growth, returning to full-year non-GAAP profitability. Fiscal 2026 was our seventeenth consecutive year of positive free cash flow, with free cash flow for the year over $58 million, or 15% of revenue. We executed on both our operational and R&D parts. While facing a variety of industry-wide supply chain constraints, we shipped more than 25 million units across more than 15 SoCs with many variants, and we taped out our first four-nanometer chip and our first two-nanometer gate-all-around AI SoCs while successfully bringing CV75 and the CV72 to mass commercialization. Our Cooper development platform, while already powerful and well established, is in a constant state of enhancement, including new agentic capabilities. Strategically, we announced during our CES 2026 product and technology briefing we are augmenting our direct-to-customer go-to-market with incremental initiatives we expect to materially contribute to our long-term revenue growth. First, we are incrementally building an indirect sales channel, including independent software developers, distributors, and system integrators. We expect this to improve our ability to address the edge infrastructure market as well as the highly fragmented robotics market. Furthermore, in the long run, our existing portfolio should benefit with long-tailed revenue from small to mid-sized customers we have not directly supported in the past. The second strategic development is the establishment of a semi-custom/custom ASIC business, where we have strong interest from a variety of companies. Our deep intellectual property, perception engines, AI accelerators, software development platform, advanced VLSI capabilities, and established position in the edge AI market are increasingly valued by companies considering semi-custom or custom ASIC projects. Stepping back for a minute, there continue to be significant industry developments with AI agents, applications, content models, and services that, when combined with our enabling AI SoCs, create the environment where more edge and physical AI use cases can practically emerge. Techniques evolved in the industry, such as distillation and mixture of experts, are enabling edge models to become smaller yet smarter, which we expect will enable applications to evolve from early adopters to the mainstream. Altogether, we see a variety of enterprise and consumer edge AI systems become real time, proactive, and able to make closed-loop decisions autonomously for end users through agentics. Of course, with all the breakthroughs, our customers have a lot to learn and evaluate as they consider new AI business cases. The various components of our comprehensive Cooper development platform, together with our engineering support, are enabling customers to implement new technologies. For example, a power-constrained application may need a hybrid AI workload split between cloud and edge, but in other cases where no latency is applicable, we need to support a vast majority of AI processing on our silicon. Overall, you can see there are many different applications, use cases, and trade-offs we must support. Our broad HAI product portfolios and established powerful development platforms are must-haves to drive the portfolio proliferation and diversification of the edge and physical AI market. I will now discuss some representative customer engagements during the quarter. I want to start by highlighting our industrial automation robotic design win at the warehouses of a large U.S.-based e-commerce provider. They leverage our N1655 AI SoC to develop a perception hub for the warehouse floor. A fleet of this system is being deployed to enable a high-speed, accurate, and efficient storage and retrieval system at their large-scale warehouses across the country. We are seeing several such physical AI designs starting to emerge on our SoCs. In other IoT applications, we were awarded several projects in the video conference market this quarter. Insta360 launched their Link 2 Pro and Link 2 2C Pro high-end web camera based on our H22 SoC, and QSC, a cloud-native audio, video, and control ecosystem company based in California, announced their Q-SYS high-definition video conferencing PTZ camera designed on our CV72 SoC. They are leveraging our AI-ISP for enhanced video quality and use AI for face detection and intelligent presenter tracking. In enterprise security, IDIS, a leading security camera technology customer, announced their DCD-3168 security camera based on our CV72 SoC, and our customer Dallmeier, based in Germany, launched their Dallmeier RDF6140 dome camera based on CV25 this quarter. They leverage our AI accelerator to offer several AI features like motion detection, tamper detection, intrusion detection, and line crossing. Finally, one of our leading customers, i-PRO (previously known as Bosch), announced two new AI products, both based on CV72. The Flexidome 7100i anonymizes the image inside the camera for enhanced privacy and compliance, and the DeepDevian 7100i detects people and vehicles accurately with maximum detail in dark, low-light conditions. In our automotive ADAS and telematics business, I would like to share some key customer wins during the quarter. Ford recently launched the dealer-fit truck bed camera last quarter. It is a smart security camera for the truck bed built on our CV25. It provides real-time truck bed monitoring, leveraging AI-powered intrusion monitoring and threat detection. Thinkware System in South Korea launched their QXD2 in-car digital video recorder system, which is the first of its kind to leverage our AI-ISP neural network on our CV25 SoC. Thinkware also uses Ambarella, Inc.'s ADAS software stack to enhance perception capability for their forward-facing ADAS. Garmin announced their innovative Dual-View based on CV25. It is a rugged two-camera system that enables professional truck drivers an edge in situational awareness. In summary, these representative customer engagements represent the implementation of a wide variety of applications and AI workloads. Inherent in these wins is the high degree of programmability and flexibility in our SoC and software platform, enabling us to serve a wide variety of applications with minimal incremental investment, while the customers benefit by having the ability to reuse their software and scale. While we are seeing edge AI green shoots emerging across a very diverse range of edge applications, we currently see the largest long-term growth opportunities in the robotics, automotive, and edge infrastructure markets. The robotics market is a diverse market in a variety of applications: fixed factory automation, humanoid, mobile terrestrial, aerial drones, and more. We are already shipping into the fixed factory automation market and Q4 was our first full quarter of production revenue from the aerial drone market, which we believe is one of the highest-volume mobile robotics markets today. With our industrial automation robotic engagement announced today, we are establishing ourselves in yet another form factor in the diverse and nascent robotics market. In the automotive market, we have two businesses. One is safety telematics/ADAS business, which represents most of our revenue and a majority of our near-term growth opportunity in autos, and also our auto autonomy business, starting at the Level 2+, which offers long-term growth opportunity. At this time, the auto opportunities we have either won or are being invited to bid upon in the next six years, from fiscal year 2027 to fiscal year 2032, is approximately $13,000,000,000, with the won proportion similar to last year. In the edge infrastructure market, we are observing early customer opportunity with two different design architectures. First, enterprise buyers want to run physical AI inference on a local edge gateway to aggregate multimodal data, multiple sensors, pre-processing it in real time for use cases such as fleet management, physical security, and industrial robots. They typically design fully self-efficient agent solutions to process data locally on devices for real-time, low-latency, and secure decision-making that can be summarized and sent to data centers for training and analytics. Second, we see early customer opportunities from enterprise IT buyers for digital AI applications that push centrally trained and high-capacity models to be distilled, quantized, and deployed in edge nodes to enable low-latency, closed-loop automation for secure digital applications while still maintaining centralized control in the cloud. In summary, we are an HAI market leader across a broad set of criteria. First is our credibility. We have an installed base of 42,000,000 HAI SoCs with more than 370 unique customers' AI products reaching production, and approximately $1,000,000,000 in cumulative HAI revenue, primarily from our second-generation CV2 family. Next is our portfolio breadth. We have 12 HAI SoCs supporting models ranging up to 34,000,000,000 parameters. We support up to 100,000,000,000 parameters in the future, covering the full breadth of applications. Finally, our development platform is established as a critical enablement tool. The Cooper development platform scales across our HAI portfolio and multiple applications, with customers implementing and reaching production with more than 200 different model architectures. In conclusion, I am very proud of the resilience, commitment, and execution of our team in the last year. I am very excited about our prospects in fiscal 2027 and the years ahead. We are committed to our HAI strategy and driving earnings growth. With that, John will now discuss the Q4 and fiscal year 2026 results as well as the first quarter outlook in more detail. John? John Young: Thanks, Fermi. I will now review the financial highlights for the fourth quarter fiscal year 2026 ending 01/31/2026. I will also provide a financial outlook for our 2027 ending 04/30/2026. I will 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 and acquisition-related expenses, adjusted for the impact of taxes. Fiscal year 2026 revenue increased 37.2% to $390,700,000. Automotive revenue, led by telematics, increased in the high single digits, and IoT increased almost 50% year over year, led by portable video and a continuation of strong growth in physical security. For fiscal year 2026, non-GAAP gross margin was 60.7% versus 62.7% in fiscal 2025. Non-GAAP operating expense increased 12.9% for the year versus 6.5% in the prior year, driven by higher costs related to employees and SoC development projects. Ending cash and marketable securities totaled $312,600,000, up from $250,300,000 at the end of the prior year, driven by free cash flow of $58,000,000 for the year or 14.8% of revenue. For fiscal Q4, revenue was $100,900,000, slightly above the midpoint of our prior guidance range of $97 million to $103,000,000, down 7% from the prior quarter and up 20.1% year over year. Sequentially, automotive and IoT both experienced a similar seasonal decline. Non-GAAP gross margin for fiscal Q4 was 59.8% at the midpoint of our prior guidance range of 59% to 60.5%. Non-GAAP operating expense in Q4 was $56,500,000, also at the midpoint of our prior guidance range of $55,000,000 to $58,000,000. Q4 net interest and other income was $2,300,000. Q4 non-GAAP tax provision was approximately $551,000, and we reported a non-GAAP net profit of $5,500,000, or $0.13 per diluted share in Q4. Now I will turn to our balance sheet and cash flow. Fiscal Q4 cash and marketable securities reached $30,112,600,000, increasing $17,300,000 from the prior quarter and $62,300,000 from the same quarter a year ago. Increased cash and marketable securities were primarily from operating cash flow associated with increased revenue. Receivables days sales outstanding of 36 in Q4 was flat with the prior quarter. Days of inventory increased from 76 days to 99 days to support our current level of business. Operating cash inflow was $818,900,000 for the quarter and $73,500,000 for the year. Capital expenditures for tangible and intangible assets were $3,900,000 for the quarter and $15,500,000 for the year. Free cash flow was $15,000,000 for the quarter. During 2026, Ambarella, Inc.'s Board of Directors approved an extension of the current share repurchase program for an additional twelve months ending 06/30/2026. In 2026, the company did not repurchase shares. During the first quarter, we repurchased 24,102 shares of our stock for total consideration of $1,000,000. As of today, there is approximately $48,000,000 available under our repurchase authorization. We have one logistics company representing 10% or more of our revenue. WT Microelectronics, a fulfillment partner in Taiwan that ships to multiple in Asia, came in at 73.1% of revenue for the fourth quarter and 69.7% for the year. I will now discuss the outlook for 2027. We forecast Q1 revenue to be seasonal and in the range of $97,000,000 to $103,000,000, or $100,000,000 at the midpoint. Sequentially, auto revenue is expected to increase, with IoT revenue expected to be seasonally down. We expect fiscal Q1 non-GAAP gross margin to be in the range of 59% to 60.5%. We expect non-GAAP OpEx in the first quarter to be in the range of $55,000,000 to $58,000,000. We estimate net interest and other income to be approximately $2,000,000, our non-GAAP tax expense to be approximately $800,000, and our diluted share count to be approximately 44,100,000 shares. Thank you for joining our call today. And with that, I will turn the call over to the operator for questions. Operator: Thank you. As a reminder, to ask a question, please press 11 on your telephone and wait for your name to be announced. To withdraw your question, please press 11 again. We ask that you please limit yourself to one question and one follow-up. We will now open for questions. Our first question will come from the line of Quinn Bolton with Needham and Co. Your line is open. Please go ahead. Quinn Bolton: Hey, guys. Congratulations on the nice results. Fermi, I wanted to ask for maybe a little bit more detail on the e-commerce warehouse robotics win that you discussed in your script. Can you give us a sense, is this already in production? If not, when would you expect it to go to production? And how many warehouses or perhaps how many robots could you be participating in for this customer? Is it a meaningful opportunity? Fermi Wang: First of all, it is in production. Although it is in low-volume production right now, we definitely expect that will continue to grow. And we think that it can be meaningful. It depends on how wide this goes to their warehouses. In terms of the function that we are doing, it is really, like I said, a perception hub in a warehouse to help them to do automation for the production and also the product movement. I think this is significant because it is the first such a design win for us. Although we are not allowed to talk about the name and also the size opportunity, we think this is definitely an indication that our perception system has been well respected and used in this large organization. Quinn Bolton: I imagine it could be a nice flagship customer that could lead to some other wins as well, so congratulations on that. The second question I had is you gave us the update on the auto pipeline now standing at $13,000,000,000. I believe that is sort of an un-probability-weighted number. In the past, I think you had given us a $2,200,000,000 probability-weighted forecast. I am just wondering if you look back at the last forecast that was probability weighted, could you give us an apples-to-apples comparison as to whether that auto pipeline has grown over the last year? Fermi Wang: Yeah. So first of all, for automotive opportunities, I want to differentiate what we have been doing in the last several years. The first number we quote is the total size of the $19,000,000,000. That involves all of the business opportunities that we see in the next six years that we have either won or are being invited to bid. Compared to last year, we do see growth in this category. On the won business, we see the numbers similar to last year as an apples-to-apples comparison. I also want to highlight one thing. Although the won business is flat, considering the weak automotive market in 2025, we are very happy to see the end result because that shows not only do we see more opportunity in the total automotive opportunity side, but also we continue to add new design wins to compensate for, for example, customers cutting their forecasts or delaying production. We continue to maintain a healthy design win momentum in automotive. Quinn Bolton: Great. And, sorry, just a clarification for me. Did you say that the total pipeline is $13,000,000,000 or $19,000,000,000? John Young: $13,000,000,000. Sorry. Quinn Bolton: Got it. Okay. Thank you. Operator: Thank you. And one moment for our next question. Our next question comes from the line of Tore Svanberg with Stifel. Your line is open. Please go ahead. Tore Svanberg: Yes, thank you, and congrats on the record revenue year. Fermi, I was hoping you could maybe help us look for, I guess, guideposts on particular topics. One is just your channel strategy. How is that going? Are there certain things that we should look out for 2027? And then on your semi-custom ASIC business, again, any specific things that we should be keeping an eye on, and what are perhaps some of the early applications where you would potentially get an ASIC design win? Thank you. Fermi Wang: Right. I think at CES, we talked about our new go-to-market strategy and also highlighted several milestones we want to achieve. In the first year, our goal for this new go-to-market strategy is to focus on building out with our partners, particularly ISVs as well as system integrators and distributors. We are shooting to get at least a dozen ISVs committed to our platform by the end of the year so that they can help us drive multiple different applications and different customers at the same time. We are also targeting to establish certain milestones with distributors and system integrators as the milestones for the first year, so you should expect us to continue to make progress on that. However, I am not expecting any meaningful revenue this year from this new business model, but we expect to start seeing maybe ramping up a little bit in the next year. In terms of custom ASIC/semi-custom ASIC business, we already talked about our first two-nanometer chip in this business model, and it is in the IoT space. Our current engagements show multiple companies are interested in this model, and I would not be surprised that we continue to announce new design wins in this category. So what you should expect is when we get new design wins, we will give you a hint so that you know we definitely won something, but we will not disclose the customer name or the specific business. We will give you a hint that we continue to make progress in this business model. Tore Svanberg: Very good. Thank you for that. And as my follow-up, on the 10% to 15% growth guidance for fiscal 2027, I know in fiscal 2026 IoT obviously outgrew automotive by quite a bit. I am just wondering how you think about the mix in fiscal 2027. And I assume the 10% to 15% assumes both unit growth and also continuous ASP growth. Thank you. Fermi Wang: First of all, your assumption is right. Both ASP and unit growth are there, and we believe both IoT and auto will grow. I want to add a little bit more color on our growth rate. When we look at fiscal year 2026, growth was 37%. It came from two areas. One is our new product ramp-up, and also, to our pleasant surprise, strong customer new product ramp-up in fiscal 2026 combined to generate this growth. This year, we are very confident that we are going to continue to ride this momentum, and we are confident about our own new product ramp-up, like CV72, CV75, and CV7. We are trying to understand, and working with customers to understand, their new product ramp-up and how it is going to impact our growth this year. Operator: Thank you. And one moment for our next question. Our next question is going to come from the line of Kevin Cassidy with Rosenblatt Securities. Your line is open. Please go ahead. Kevin Cassidy: Yes. Thanks for taking my question, and congratulations on the good year. What are you seeing in the competitive landscape as you are getting into drones? Are we past the point where companies are trying to build their own devices and will prefer to work with you for the AI capabilities? And what else do you have as competition coming from China? Fermi Wang: You are talking about China specifically. First of all, in the drone market, DJI continues to build their own silicon. They also use external silicon solutions to complement their product portfolios. Outside that, I think that the majority of the other drone market does not plan to build their own; at least we do not know anybody planning to build their own, so they will use external silicon. Particularly, if you look at our offering to the drone market, it is from five nanometer down to four nanometer, and then to two nanometer, and from that point of view, I think that uniquely positions us as one of the few that can provide to the Chinese market. Kevin Cassidy: And with the ASIC market, with AMD and Meta announcing a partnership earlier this week, part of the discussion was that Meta has certain models that they want to run on a semi-custom version of AMD's MI450s, and to me it reminded me of your design where you have algorithm-first type of application, or the way you made your CV design in the first place. Is that where you are finding applications for the semi-custom version? Is it certain models for running what the customer is looking for, an optimized SoC? Fermi Wang: I think that is one of the areas our customers want to leverage. But I want to highlight most, in fact, all of the customers that we are engaging for this business model are trying to leverage either our CVflow AI accelerator because of performance and performance efficiency, or our AI-ISP, which we are using for a lot of AI performance. Third, our software platform that they can easily leverage to quickly go to market with a new product and new models. Fourth, and also as important, is our capability to tape out a two-nanometer chip. I think all customers are trying to take advantage of a combination of these four factors, which is the reason to talk to us. By the way, we are not targeting at all for the data center design. That is not where our strength is. Our strength is with customers who want to build HAI SoCs with their own algorithms. That is our sweet spot. Kevin Cassidy: Okay. Great. Thanks for making that clear. Operator: Thank you. And one moment for our next question. Our next question comes from the line of Joe Moore with Morgan Stanley. Your line is open. Please go ahead. Joe Moore: Great. Thank you. I heard you reiterate the 59% to 62% long-term gross margin. I just wonder if you need to rethink that at all with the focus on different markets, anything that would pull you out of that range one way or the other? Just any color. Thank you. Fermi Wang: So first of all, we repeat to say this year our gross margin will be within our long-term gross margin of 59% to 62%. At CES, I also mentioned that when the custom/semi-custom chip design becomes more mature, if we need to change the model because of that, we will come to talk to our investor world about this. But today, because that new business model is still at an early stage, and we are still talking to customers for different business models, I think it is premature to talk about this in terms of gross margin impact for that business. For our existing ongoing business, we continue to feel comfortable that we will be at 59% to 62%. Joe Moore: Okay. Thank you. Fermi Wang: Thank you. Operator: Thank you. And one moment for our next question. Our next question is going to come from the line of Liam Yevgeny Pharr with Bank of America. Your line is open. Please go ahead. Liam Yevgeny Pharr: Hi. This is Liam Farr on for Vivek. Thank you so much for taking my question. Are you seeing any or expecting any impacts or benefits from the recent restrictions of a Chinese competitor in the drone market? Fermi Wang: We are definitely watching it. We are talking to our customers. It is not clear. Our current design wins that are already in production are not impacted by the new regulations. Whether the next generation will be impacted really depends on whether they will file for FCC review. There is a possibility it will be impacted. However, I want to point out that outside the U.S., there is still a huge drone market that we can tap into, not only in China, but outside the U.S. That is still a very big market that we can work with. So overall, the answer is no direct impact right now, but we are watching the potential impact in the future. Liam Yevgeny Pharr: Thank you. And then are you seeing any impact on the overall demand environment from component cost inflation? Fermi Wang: You are talking about DRAM. First of all, there is obviously no direct impact to us, but we talk to a lot of customers. In fact, all of our customers about this issue. It is very clear that the majority of them have concerns about the price increases rather than the shortage of components. In fact, I think most of the companies that we talk to still can find supplies, but at a much, much higher price today. So the indirect impact, in my opinion, is for the products which have a very low gross margin, which cannot sustain the cost increase, will be impacted the most. If you look at our product and customer portfolio, that means the really low-end business, which we do not have much at all. So from our point of view, we do not expect huge impact because of DRAM price at this point. We will continue to watch this because it changes so quickly and is so dynamic. We want to make sure that we do not overlook this potential impact. Liam Yevgeny Pharr: Thank you very much. Operator: Thank you. And as a reminder, if you would like to ask a question, please press 11. Our next question will come from the line of Martin Yang with Oppenheimer. Your line is open. Please go ahead. Martin Yang: Hi. Thank you for taking my question. My question is the unit and ASP in relation to CV7 launch. In the latter half of the year, do you think that initial launch could change your seasonal patterns a little bit? And also, how should we think about the overall ASP uplift for the year versus FY26? Fermi Wang: First of all, we expect the ramp-up in the first quarter this year, but we do not expect material revenue generated by CV7 this year. However, we highlight CV7 for two reasons. One is CV7 is our first four-nanometer chip and has 2.5x higher AI performance than CV5. From that point of view, we see huge interest, and in fact many design wins are already engaged, and some will be ramping up in production later this year. That is significant for us. That confirms our thesis that our customers have huge demand and appetite for higher AI performance for their applications, which is very encouraging to us. In terms of ASP, we expect there is a premium ASP compared to current CV5 ASP, but we have not finalized all the negotiations yet. So that is just an indication of what we are looking at in terms of total ASP for CV7. Martin Yang: Got it. Thank you, Fermi. Operator: Thank you. And one moment for our next question. Our next question comes from the line of Gus Richard with Northland Capital. Your line is open. Please go ahead. Gus Richard: As you move into the ASIC business and an indirect channel, I was hoping you could discuss a little bit about how that is going to change the P&L. In the indirect channel, you are going to have likely slower volumes, higher gross margin, and maybe higher G&A to go along with that. In the ASIC business, do you get paid for the NRE? Does that necessitate a lower unit cost or lower gross margin on the units? If you could just talk about how you think that is going to play out over time. Fermi Wang: First of all, I think it is a little too early for us to talk about the business model for the new go-to-market strategy. We definitely need to come back to you to talk about this, but considering there is no revenue generation from that this year, we would like to delay that discussion a little bit. Your question on the ASIC side is important for us. First of all, it has to have NRE associated with those kinds of projects. Otherwise, it does not make sense for us to discuss. However, there are different kinds of variables we can play with. For example, some customers want to integrate their black-box IP into a chip. Somebody wants to have a special I/O design for their application. There is a huge variety of demands, but at the end, we need to have NRE while being willing to look at different ASP structures to make the overall business make sense for us and for our customers. For the first product that we talk about, we only talk about the significant amount of NRE that they are paying right now, and the first revenue generated for silicon for the first ASIC/semi-custom chip is going to be early next year. In terms of the gross margin impact, we still believe that overall, if you average out the whole business in that first silicon, the gross margin is still within our long-term gross margin. But I also believe that to exchange for more aggressive NRE, this model might change for others in the future. Because it is really uncertain, I do not want to talk about it, and we do not want to give you an indication just yet. I just want to tell you that there is a variety of possibilities, and we are willing to talk with the customers that want to work with us. Obviously, at the end, it has to be beneficial for both Ambarella, Inc. as well as for our customers. Gus Richard: Got it. Thank you for that. Then just a housekeeping question. Did you give me a sense of, in the IoT business, how much of that was industrial, how much of it was consumer? Maybe if we divide it by CapEx-driven businesses versus consumer-driven? Louis P. Gerhardy: Gus, this is Louis speaking, by the way. It is roughly 50/50. It did not change much from the prior couple of quarters. If we break it down a little bit, IoT for the year was around 80% of revenue, and security, which is mostly enterprise security for us, is obviously enterprise CapEx. There is a little bit of home there. In portable video, things like wearables or enterprise video conferencing -- I think we had three announcements in that category this quarter -- that is enterprise CapEx. But then you have 360-degree cameras, things like aerial drones that went to production for us in Q4. Those are all consumer/prosumer related. So that is how you get to roughly 50/50. Gus Richard: Got it. Thanks so much. Operator: Thank you. I am showing no further questions at this time. I would like to hand the conference back over to Dr. Fermi Wang for closing remarks. Fermi Wang: Yes. Thank you for joining our call today, and I hope to see you at some of our numerous events this quarter. Thank you. Talk to you next time. Operator: This concludes today's conference call. Thank you for participating, and you may now disconnect. Everyone, have a great day.

Ambarella targets 10%-15% revenue growth in fiscal 2027 as edge AI adoption accelerates (NASDAQ:AMBA)

Earnings Call Insights: Ambarella, Inc. (AMBA) Q4 2026 Management View * Fermi Wang, President and CEO, announced that fiscal 2026 was a record year for Ambarella, with revenue increasing 37% year-over-year, driven by "5-nanometer new product cycles" and "50% year-over-year growth in our Edge AI revenue." Wang highlighted that "about 80% of our This article was automatically generated by an AI tool based on content available on the Seeking Alpha website, and has not been curated or reviewed by humans. Due to inherent limitations in using AI-based tools, the accuracy, completeness, or timeliness of such articles cannot be guaranteed. This article is intended for informational purposes only. Seeking Alpha does not take account of your objectives or your financial situation and does not offer any personalized investment advice. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Growth is driven by new 5-nanometer product cycles, higher unit shipments, higher average selling prices, and expanding customer wins in automotive, IoT, and robotics segments. Management projects 10%-15% revenue growth and expects gross margins within the long-term model (59%-62%), though notes seasonality, limited short-term revenue from new models, and ongoing margin pressure. Risks include supply chain constraints, possible DRAM cost increases, competition in drone markets, early-stage custom ASIC and indirect sales channels, and evolving geopolitical/regulatory issues.

Ambarella at Morgan Stanley Conference: Edge AI Focus and Growth Strategy By Investing.com

On Tuesday, 03 March 2026, Ambarella Inc. (NASDAQ:AMBA) presented at the Morgan Stanley Technology, Media & Telecom Conference 2026, outlining its strategic focus on Edge AI and growth prospects. While the company showcased promising advancements, it also faced challenges in maintaining margins amid rapid technological shifts. Key Takeaways * Ambarella is concentrating on Edge AI applications, particularly in IoT, fleet management, and robotics. * The company reported a significant AI performance increase, with its CV7 chip offering 2.5 times the capability of its predecessor. * Fiscal '26 growth reached 37%, exceeding initial expectations, with a focus on automotive and AI markets. * Ambarella is confident in Samsung's 2nm process technology, securing capacity for 2026 and 2027. * The company is shifting towards projects with immediate revenue potential, especially in the automotive sector. Financial Results * Growth: Fiscal year '26 saw a growth rate of 37%, surpassing initial guidance of high teens. The company anticipates moderate growth this year, with optimism surrounding the ramp-up of the CV75, CV72, and CV7 products. * Opportunities: Ambarella identified a $13 billion opportunity in the automotive sector over the next six years. * Gross Margin: The strategy involves accepting lower gross margins if it provides better leverage on operating points, focusing on maintaining growth, average selling prices, and margins through differentiated technology. Operational Updates * Edge AI: Ambarella is targeting Edge AI applications in enterprise security, portable video, drones, and AI boxes. Collaborations with ISVs and system integrators are enhancing the Edge infrastructure business. * Software Platform: The Cooper development platform enables customers to port applications easily, with ISVs transitioning software from competitor platforms swiftly. * IoT Applications: Expansion into wearable cameras for retail clerks and Edge AI for fleet management is underway. * New Products: The CV7 chip delivers 2.5 times the AI performance of the CV5, with the first 2nm chip expected to ramp up in the first half of next year. * Automotive: Focus remains on securing autonomous OEM design wins and understanding competition dynamics. * Robotics: Success in warehouse robotics involves using multiple video camera sensors and sensor fusion. Future Outlook * Focus: Investment continues in Edge AI, including video and AI box solutions, with expectations for increased visibility in the next five years driven by real-time applications. * 2nm Technology: Ambarella plans to concentrate on areas with customer demand and high volume potential, leveraging semi-custom ASIC products, video processing, AI inference engines, low-power, and 2nm technologies. The company has secured 2nm capacity with Samsung for 2026 and 2027. * Strategic Direction: Ambarella's evolution from video processing to AI capabilities and now an Edge focus is central to its strategy. Q&A Highlights * CEO Fermi Wang emphasized the rapid development of AI, noting that while data centers receive most AI investments, Edge AI is advancing quickly. * The Cooper SDK's effectiveness was highlighted, with ISVs able to transition software in weeks. * Wang expressed confidence in Samsung's process technology, citing capacity advantages over competitors. Readers can refer to the full transcript for a detailed account of Ambarella's presentation at the conference. Full transcript - Morgan Stanley Technology, Media & Telecom Conference 2026: Joe Moore, Morgan Stanley Semiconductor Research, Morgan Stanley: Pointing this ways. Great. Thank you. Welcome back, everybody. I'm Joe Moore, Morgan Stanley Semiconductor Research. Very happy to have with us the CEO of Ambarella, Fermi Wang. Fermi Wang, CEO, Ambarella: Thank you. Joe Moore, Morgan Stanley Semiconductor Research, Morgan Stanley: Fermi, thanks for being here. Maybe we could start out, you know, the AI focus. We talked a lot about Edge AI a year ago, the focus has really shifted to data center. There's a lot of activity in the Edge space and you guys have pivoted nicely to sort of attack that. Can you talk about that? You know, Before we get into the details, just the enthusiasm you have for the Edge AI opportunity- Fermi Wang, CEO, Ambarella: Right Joe Moore, Morgan Stanley Semiconductor Research, Morgan Stanley: ... and what it means to you. Fermi Wang, CEO, Ambarella: In fact, that AI really developed fast, although, you know, data center take all of the investment and focus for AI side. AI definitely really develop very quickly and very nicely for us. First of all, everybody talk about robot today, which is a portion of a physical AI we talk about. We all believe that's gonna be huge market down the road, but today, most volume that we're focusing on is still, you know, from the enterprise security to the portable video to the drones. Those we talk about a lot. At this earning call, we talk another thing which is very important for AI is really we believe... In the past we talk about edge endpoints, cameras. This time we talk about, you know, building an AI box, not sitting on a data center but sitting at an edge, which aggregates all of the different sensor input and apply GenAI type of model on top of that to serve totally different purpose. Just give you one quick example. For example, at the CES, we demo with one of our software vendor that they collect the security camera feed to this AI box at the, you know, a retail store. With the new GenAI, they can turn this security camera into operational tools that can monitor the how the customer comes in, what they buy, and collect the customer data. Suddenly, security camera become your operation tool for your efficiency. Those kind of new application that you can think about almost all the retail store or any other operation can take advantage of the install base or video feed and using AI box to turn into a different application. That excite us because that really take a very little investment, you can turn on a huge market opportunity. The requirement is, for each application, you need a software vendor to write software on that. We need to have a system integrator integrate that box into existing infrastructure of the retail stores. We need to find partners who own that. For us to enable this, we call Edge infrastructure business. We are working with ISVs, with system integrators to enable. That's another market. We feel excited because we are seeing more and more AI application popping up, and we believe eventually the robots will be there driving huge volume, but before that, we see continuous of new application popping up, and we're going to continue to serve that. Joe Moore, Morgan Stanley Semiconductor Research, Morgan Stanley: You had some really interesting demos at CES, which is not new for Ambarella. You've had great demos for a decade. What's new about it is the pace of implementation seems really rapid. We talked to guys where, you know, you made your software available to them months ago and they're productizing it already, you know, versus automakers- Fermi Wang, CEO, Ambarella: Right Joe Moore, Morgan Stanley Semiconductor Research, Morgan Stanley: that have taken, you know, many, many years to get to production. You know, are you surprised by that? Are you seeing opportunities that you weren't aware of as you've opened that up? Fermi Wang, CEO, Ambarella: First of all, I'm surprised how fast our software vendor can really adopt our platform. It's by design. Five years ago, when we start looking at talking to a customer's biggest complaint is, "Every time we switch from one silicon to next silicon, I have to port your software over. That's time-consuming and waste a lot of resource. Why don't you make your software is portable?" That's where we start commit to do this Cooper development platform that will allow us, our customer to port application from one of our chip to another chip without too much effort. That take time for us to build the extra layer, so to separate out the hardware layer, but keep all the software layer open so that our customer doesn't need to spend a lot of time to port. It takes a few years to reach that. As soon as we reach that flexibility, this ISV demo you saw, we give our Cooper SDK to them three months before CES. They port the software over from our competitor's platform to us in less than few weeks and start demoing at the CES. That just show you when you have this not only a very powerful silicon platform, but a portable software platform, that really help our customer to enable new application quickly. Joe Moore, Morgan Stanley Semiconductor Research, Morgan Stanley: I shouldn't really say that's new in the sense of Continental and Bosch said the same stuff. Fermi Wang, CEO, Ambarella: That's right. Joe Moore, Morgan Stanley Semiconductor Research, Morgan Stanley: It was really fast for them to productize that. Of course, it's taken a very long time for that to turn into revenue... Fermi Wang, CEO, Ambarella: Right Joe Moore, Morgan Stanley Semiconductor Research, Morgan Stanley: ... which is a different question. You've always had that kind of software flexibility built into the system and kind of a software-first mentality to development. Fermi Wang, CEO, Ambarella: Absolutely. In fact, today we fully recognize that building 2nm silicon take time, but take even more time for our customer to port software because that's out of our control. Make their life easier is helping us to get them time to market. Joe Moore, Morgan Stanley Semiconductor Research, Morgan Stanley: What other IoT applications do you see emerging? I mean, you've always been, you know, near dominant with surveillance camera companies on the professional side. You've always seen a lot of opportunity to do, you know, stuff with those kinds of image data. Consumer's been a little harder because of the margins and things like that, as you see new opportunities, do you think those can open up? Are some of the new opportunities seem like they're opportunities from before that are coming back, like drones? Fermi Wang, CEO, Ambarella: Right. Joe Moore, Morgan Stanley Semiconductor Research, Morgan Stanley: Just how are you thinking about IoT now as a market? Fermi Wang, CEO, Ambarella: Well, in fact, for IoT, there's also a market we talked about in the past is called wearable camera. Joe Moore, Morgan Stanley Semiconductor Research, Morgan Stanley: Yeah. Fermi Wang, CEO, Ambarella: In the past, wearable camera is for policemen only. Joe Moore, Morgan Stanley Semiconductor Research, Morgan Stanley: Yeah. Fermi Wang, CEO, Ambarella: Today, we are start seeing the wearable camera goes to the clerk at the retail stores, right? Everybody want to document what happened, you know, interaction between the service people to the customers, and that become a really big market. In fact, I want to mention another important application that we never talk about two years ago. For example, the Edge AI technology going to fleet management. In the past, fleet management is really just, you know, using a GPS to identify where the car is. Today, with AI-enabled camera and the telematics information, now you can enjoy using AI to help you to detect the environment, so you can safer work, driving environment. Also use that to provide more information about the condition of the drivers, the cars, the products, and the storage in the truck. With those information, they can build even better service to the fleet management customers. That, for example, Sensora is our biggest customer in that space. We see huge growth from them just in that space, and also seeing that almost all the people in that space start adopting Edge AI. That's just one simple example that Edge AI can apply to almost all the business to help them to get more productivity out. Joe Moore, Morgan Stanley Semiconductor Research, Morgan Stanley: Okay, great. Thank you for that. Maybe we could talk a little bit about the business. You know, you had a nice growth year in 2025, good product cycles with CV5 and now starting CV7. You sort of started this year with a little bit more of a moderate view of this year's growth. Just how are you thinking about those growth dynamics? Fermi Wang, CEO, Ambarella: Right. When we look at fiscal '26, which is last year, when we start Q1 last year, our first guidance of the year was, you know, high teens. Joe Moore, Morgan Stanley Semiconductor Research, Morgan Stanley: Mm. Fermi Wang, CEO, Ambarella: We end up growing 37%. What happened was that, you know, at beginning of the year, we were very confident about our own product ramping up growth, and we know that we're going to ramp up the product on time. What come as pleasant surprise to us is our customer ramping up faster than we expected. That's where we get this really outstanding growth last year. This year, we're standing at a very similar position. We are very confident our new product ramping up, including CV75, CV72, and CV7. In fact, we know that our first 2nm chip will ramp up first half of next year, which we've already seen that. We are quite confident about our own product ramp up. What we are trying to do is understand our customers ramp up with the new product, second half of this year. This will determine, you know, how we, how well we're gonna perform this year. Joe Moore, Morgan Stanley Semiconductor Research, Morgan Stanley: You might be conservative again, but you wanna wait and see how that plays out. Fermi Wang, CEO, Ambarella: You know, you know me. You know, we try to be conservative all the time. Joe Moore, Morgan Stanley Semiconductor Research, Morgan Stanley: You always do. Fermi Wang, CEO, Ambarella: Yeah. Joe Moore, Morgan Stanley Semiconductor Research, Morgan Stanley: For sure. Okay. Maybe just speaking of earnings, to clarify the Insta360 lawsuit. Ironically, the night you reported, the stock was down a lot on a lawsuit that doesn't seem to have much fundamental impact. Fermi Wang, CEO, Ambarella: Well, in fact, that somebody, one of our investors, text us when we're still in that conference. Think about that. Fortunately, nobody asked that question because I don't know the answer. Fortunately, after that, we start talking to our customer, and also they made a public announcement that there's absolutely no impact to them. Therefore, there's absolutely no impact to us because of the lawsuit. They obviously have done a lot of work to work around the patent, getting the product that involve the patent. From our point of view, there's absolutely no impact to us. Joe Moore, Morgan Stanley Semiconductor Research, Morgan Stanley: Okay, great. That's helpful. I guess going back to IoT, as you think about consumer opportunities, you know, you've had a lot of ramps of drones, then you sort of got priced out of the market a little bit. Same thing on doorbells, things like that. How do you think about that? I mean, on the one hand, the technology requirements in those markets are gonna grow as you actually incorporate AI, so you can get those kinds of premium margins. On the other hand, you know, is there a merit to thinking about a lower gross margin model so that you can participate more in those opportunities? Fermi Wang, CEO, Ambarella: That's absolutely true. We definitely want to play on the lower gross margin as long as they give us better leverage on the operating point. Joe Moore, Morgan Stanley Semiconductor Research, Morgan Stanley: Yeah. Fermi Wang, CEO, Ambarella: I also want to point out, one of the reason that people can... You know, the lower-end product or lower priced product come in because there's no other feature differentiation. Joe Moore, Morgan Stanley Semiconductor Research, Morgan Stanley: Yeah. Fermi Wang, CEO, Ambarella: The price become the only thing matters. Joe Moore, Morgan Stanley Semiconductor Research, Morgan Stanley: You start putting resources into holding at declining margin. Fermi Wang, CEO, Ambarella: That's right. Joe Moore, Morgan Stanley Semiconductor Research, Morgan Stanley: Not worth it. Fermi Wang, CEO, Ambarella: What we are trying to do is we are trying to invest on the market that we continue to see differentiation. You know, AI, particular Edge AI, you know, when we start doing a CV2 family, you need, I don't know, 2 TOPS, 3 TOPS performance. Today, our customer needs, say, needed 20 TOPS, 30 TOPS, maybe 50 TOPS performance because the applications require more and more AI performance. One is because of application, the other one is because of GenAI model, which is really big, and that require a huge amount of AI performance. As long as we can continue to offer differentiated technology and the ASP continue going up, I think that's market we can continue to maintain not only the growth, but also ASP and gross margin. Any market where when it happens that the price is the only thing matters, that's where I think we should consider maybe minimize the investment in the market and try to milk it through. AI, Edge AI is way ahead of that point yet. Joe Moore, Morgan Stanley Semiconductor Research, Morgan Stanley: Yeah. Yeah, I mean, it seems like when you're incorporating AI features, there's a lot of headroom. Fermi Wang, CEO, Ambarella: Yeah. Joe Moore, Morgan Stanley Semiconductor Research, Morgan Stanley: It's not like, you know, you're 4K, 120 frames per second and get to the next thing. Fermi Wang, CEO, Ambarella: Let me use an example. Our new chip, CV7, which is our first full nanometer chip, and the CV5 was our first 5 nanometer chip. CV7 have 2.5x AI performance than CV5. Joe Moore, Morgan Stanley Semiconductor Research, Morgan Stanley: Mm. Fermi Wang, CEO, Ambarella: Just in within 2 years, our customers are demanding that kind of performance increase. I can say that for sure that our design in activity with CV7 is huge. In terms of multiple different applications. We can see that there are definitely application want to have more and more AI performance, and the CV7 hit the right spot. Joe Moore, Morgan Stanley Semiconductor Research, Morgan Stanley: Great. Other categories within IoT, this portable video and others, and obviously Insta360 has become a big enough customer that we had to worry about that stuff the other day. How do you think about that part of the market? It seems like there's a lot of really cool stuff on display at CES around that. Fermi Wang, CEO, Ambarella: First of all, you know, before, you know, this kind of the video product coming out, you know, cell phone kind of take over, so they become the best video capture devices. If you look at the product built by Insta360 or DJI for the drone, for the 360 cameras, I think we can argue that they have a much better video capabilities than cell phone can be. From that point of view, for anybody who are interested in capturing the highest possible quality video or, you know, for the YouTubers that want to capture their own production video, that become a popular device. That's where we see huge growth for the total TAM of this kind of video capture device. We feel comfortable that the market going to continue to grow because the differentiation is on AI and on the video resolution side. We definitely think that's a market we want to continue to focus on. We also realize that, you know, it's having one really concentrated customer might not be the best for the company, and we the way to do is not to lose revenue from that. Joe Moore, Morgan Stanley Semiconductor Research, Morgan Stanley: Yeah. Fermi Wang, CEO, Ambarella: a more revenue source on the different market, and that's exactly what we're trying to do, to get more AI application that we can address our current silicon and software solution and try to really dilute that concentration. Joe Moore, Morgan Stanley Semiconductor Research, Morgan Stanley: Great. Thank you. I wanna pivot and talk about cars. I continue to be a big believer in your technology for ADAS applications and particularly advanced levels of autonomy, and the market just hasn't really gotten there yet. I still feel like the opportunity is there. It seems like you guys also are still investing for some of those opportunities, even if you're sort of having to burn not talking about it as much. Fermi Wang, CEO, Ambarella: Mm-hmm. Joe Moore, Morgan Stanley Semiconductor Research, Morgan Stanley: Just, you know, how do you think about it? I mean, ultimately, it seems like we can't just ignore what Tesla FSD is doing, what China cars are doing in the autonomy space and just not start to follow down that path. Fermi Wang, CEO, Ambarella: Right. First of all, we definitely continue to work on those autonomous OEM design wins. One of the important reason is that not only we have technology, but also we throughout the process, we learn how to compete in that space. Although, you know, that we lost VW, but after the VW case, we get more, you know, recognition on the space. Almost all the new RFQ, RFI came to invite us to bid on. From that point of view, we get better visibility, even we lost the VW case. In fact, that reflects on our auto opportunity we disclose this time, right? We talk about $13 billion total auto opportunity we identify for the next six years. Compared to what happened last year, this number goes up. That fact reflects that we continue to bid on more projects. I also believe that autonomous driving is going to be a very important location. I think that any design win can drive meaningful, Sorry, a meaningful revenue change. More importantly, I really think that the software and the silicon investment we put at autonomous driving, now we start seeing that can go to, you know, robotic. Joe Moore, Morgan Stanley Semiconductor Research, Morgan Stanley: Mm-hmm. Fermi Wang, CEO, Ambarella: When it go to drone application. Any autonomous drone will require similar software and hardware requirements as we develop for CV3 as autonomous solution. From that point of view, we are convinced that if we want to stay any kind of mobile robot market, our current investment is important. Maybe, you know, the combination of that existing business that we need to bid on and also future opportunity, we need to continue to have investment on that. Joe Moore, Morgan Stanley Semiconductor Research, Morgan Stanley: I mean, it still seems like the technology that you showed with Continental and Bosch is better than anything that's been implemented in cars so far, at least, you know, outside of Tesla and China. You know, that was seven years ago now. It's been a long time. Fermi Wang, CEO, Ambarella: Five years at the body. Joe Moore, Morgan Stanley Semiconductor Research, Morgan Stanley: Yeah. Yeah. Fermi Wang, CEO, Ambarella: More than that. Joe Moore, Morgan Stanley Semiconductor Research, Morgan Stanley: really, really big breakthrough kind of technology that has yet to just be adopted. You referenced the VW situation specifically. You know, what is the challenge? Is it that people in that world are reluctant to bet on smaller companies from a supply chain standpoint? What needs to happen to close that gap? Fermi Wang, CEO, Ambarella: You know, before VW, I really think that our company size is a problem. For any design win, we need to go in, you know, not only talking to their purchasing people, engineering people, but also the top management to explain why a company that, like, Ambarella can compete with NVIDIA and Qualcomm in terms of technology. Sometimes hard to convince them. I think we overcome that problem. For example, VW at the end, we talk about this. We lost the deal because our competitor put a financial deal in front of our customer to offset the decision at the end. We think that if that happens again, we know how to counteroffer that, and also that we continue to see more and more deal. I think we're in a better position to address this before, but I still believe that working with Bosch and Continental, as those large Tier 1s. Joe Moore, Morgan Stanley Semiconductor Research, Morgan Stanley: Yeah. Fermi Wang, CEO, Ambarella: is continue to be important for us. Joe Moore, Morgan Stanley Semiconductor Research, Morgan Stanley: If you have progress where you feel a high % chance that you're gonna win something, you're probably not gonna tell us about it.Until it becomes revenue? Is that a fair way. Fermi Wang, CEO, Ambarella: I think we learned from the lesson, right? Joe Moore, Morgan Stanley Semiconductor Research, Morgan Stanley: Yeah. Yeah. Fermi Wang, CEO, Ambarella: until we confirm that, we don't, we won't. Joe Moore, Morgan Stanley Semiconductor Research, Morgan Stanley: The fact that you're not necessarily pointing to the funnel anymore doesn't mean that there isn't still a vibrant funnel opportunity. Fermi Wang, CEO, Ambarella: Well, in fact, that our funnel, you know. Joe Moore, Morgan Stanley Semiconductor Research, Morgan Stanley: Yeah Fermi Wang, CEO, Ambarella: not funnel. The op-auto opportunity growth- Joe Moore, Morgan Stanley Semiconductor Research, Morgan Stanley: Yeah Fermi Wang, CEO, Ambarella: that's just indication that we continue to do our effort to make sure that we can win something in the near future. Joe Moore, Morgan Stanley Semiconductor Research, Morgan Stanley: Yeah. Okay. That's very helpful. Then this idea, I mean, you can teach a car to drive itself. There's a lot of other things that you can teach robots to do. Fermi Wang, CEO, Ambarella: Right Joe Moore, Morgan Stanley Semiconductor Research, Morgan Stanley: ... to do. I guess, how much have you thought about those opportunities and the focus on, you know, humanoid robots and all the super futuristic stuff? When you talk about military applications, defense applications, seems like your technology would have really viable use cases in those markets. Fermi Wang, CEO, Ambarella: Right. Anything, in fact, any mobile robots can take advantage of our technology, both on hardware and software side. All application you talk about, you know, definitely that can use our technology. I want to emphasize is that moving forward, if you want to do any, like, human, humanoid, although I think it's going to be far away from the high volume production, you need to have a very powerful GenAI type model. Joe Moore, Morgan Stanley Semiconductor Research, Morgan Stanley: Mm-hmm. Fermi Wang, CEO, Ambarella: End-to-end model to control robots. Just from that point of view, my personal belief, humanoid is more complicated than Level 4 cars. Joe Moore, Morgan Stanley Semiconductor Research, Morgan Stanley: Yeah. Fermi Wang, CEO, Ambarella: Level 4 car drive in an environment is well controlled. You have traffic light, you have sign, you have things. Joe Moore, Morgan Stanley Semiconductor Research, Morgan Stanley: That's real tight. Fermi Wang, CEO, Ambarella: Humanoid, you have no limit working environment. Joe Moore, Morgan Stanley Semiconductor Research, Morgan Stanley: Yeah. Fermi Wang, CEO, Ambarella: Anything could happen. From that point of view, the model you need to develop to guarantee not only works and functional, but also has safety concerns, security concern, all of that, it make things very difficult. What I'm trying to say is that's a roadmap. I think we talk about what kind of market we want to invest. We want to invest, there's a roadmap that we can continue to offer differentiated technology. That's where we want to be. Joe Moore, Morgan Stanley Semiconductor Research, Morgan Stanley: Okay. Your software-first approach is helpful at driving those opportunities? Fermi Wang, CEO, Ambarella: Absolutely. In fact, that, you really don't want to put a water cooling system into your robots, right? You have to have be power efficient. From that point of view, that you have to make sure that you design a chip for this application, right? Obviously, that people going to using whatever they can access to put most like GPUs to prototype or generate first generation, second generation product. When you come to really mass production, when the power efficient matter, when the cost matters, you need to have a chip that designed for this application so that it can minimize not only the power, but also minimize the cost. Also minimize the theory, which has become so important this year. All of that is the reason I think that a chip that designed for specific application will win at the end. Joe Moore, Morgan Stanley Semiconductor Research, Morgan Stanley: You talked about a warehouse robotics win. That's a market that actually historically hasn't used as much vision maybe as what we're starting to see. You've seen cobots and things like that. Fermi Wang, CEO, Ambarella: Yeah Joe Moore, Morgan Stanley Semiconductor Research, Morgan Stanley: ... don't even have vision capability. Is that changing now? Are you starting to see the need for that? Fermi Wang, CEO, Ambarella: The particular design we mentioned in our earnings call Joe Moore, Morgan Stanley Semiconductor Research, Morgan Stanley: Yeah Fermi Wang, CEO, Ambarella: is using video. Basically, the chip aggregate multiple video camera sensors and along with other sensors and do a sensor fusion for the perception. That's exactly the usage for this particular application wins. When I talk about robotic, we offer 3 type of different products. 1 is just 1 single camera using to detect object, which is very simple. The second product we're offering is a perception box that taking multiple input and doing a sensor fusion, then you identify the environment objects. That is the product we talk about in this one. The third one is really the, I think, the final solution, which is domain controller using one single chip to control the whole robot, not only perception, but also path planning, control the movement, functions of the moving arms, all of that within one controller. That's where it's not only you need a powerful AI processor, but you need an end-to-end software model. Joe Moore, Morgan Stanley Semiconductor Research, Morgan Stanley: Yeah. Fermi Wang, CEO, Ambarella: That's where I think is the. Joe Moore, Morgan Stanley Semiconductor Research, Morgan Stanley: Sounds a lot like CV3. Fermi Wang, CEO, Ambarella: Sounds like a CV3, but probably more. Joe Moore, Morgan Stanley Semiconductor Research, Morgan Stanley: Yeah Fermi Wang, CEO, Ambarella: ... more higher performance than that. Joe Moore, Morgan Stanley Semiconductor Research, Morgan Stanley: Yeah Fermi Wang, CEO, Ambarella: we are talking about the design we just talked about is really about perception box is sitting in the middle. Joe Moore, Morgan Stanley Semiconductor Research, Morgan Stanley: Okay. I mean, you sort of talked about a full stack approach in automotive, but this is gonna be a much more fragmented customer base. Does that require allowing them to do more of the heavy lifting on the software side? How do you go to market in these kind of more fragmented spaces? Fermi Wang, CEO, Ambarella: First of all, I think we want to demo. We need to have a software that we can demo the basic function like perception, path planning, you know, movement, all of that. However, like you said, each robot require different control. There's no chance we can develop all applications for all the robots. What we need to do is really working with our software partners, system integrators, so they can help each customer to optimize all the software and the models, that is a new business model we talk about at the CES. We want to work with a partner like ISVs, system integrators, or, you know, the OEMs to build a complete solution for customers, they can maybe even add their own software on top of that. This kind of overall development platform need to be ready not only for robots, but also for each infrastructure box that we just talked about. Joe Moore, Morgan Stanley Semiconductor Research, Morgan Stanley: Okay. Can you talk about semi-custom ASIC types products in the context of all of this? Fermi Wang, CEO, Ambarella: You know, this discussion started with our first 2nm chip that we tape out at the end of last year. When we start this project, one of our customer approaching us say, "Hey, I'm interested at, you know, doing a semi-custom chip with you, and by adding some of the special sauce into our chip," but they don't want to pay for the whole thing. Joe Moore, Morgan Stanley Semiconductor Research, Morgan Stanley: Yeah, I was gonna say they know what a 2nm... Fermi Wang, CEO, Ambarella: Yeah. Joe Moore, Morgan Stanley Semiconductor Research, Morgan Stanley: mask set cost. Fermi Wang, CEO, Ambarella: The reason they came to us because nobody want to afford that 2nm chip tape out. Joe Moore, Morgan Stanley Semiconductor Research, Morgan Stanley: Yeah. Fermi Wang, CEO, Ambarella: However, the trade-out is they pay for a portion of the fee, but allow us to use that chip to sell to people, to customers not competing with them. Those arrangement definitely is a win-win because that cut back our R&D cost to develop the first 2nm project. Since then, since we start talking about this, many customers and maybe many new customer come to us says, "We are interested similar deal." The become us is what's our way? How do we determine who to engage, who not to engage? How we... Is that real business for us? We are at the stage now we need to make a decision by engaging maybe two to three customers to size up the opportunity, understand how difficult it is, and also go through our i's to make sure that we build this business that we can justify in the long term. If we decide to do, this is going to be a long-term business for us, now that obviously we could ramp up our go-to-market team as well as the VRSI team. Most important thing is that we need to make sure any customer come to us, they want to leverage first our IP, our video processing IP, our AI inference engine, our low-power technology, as well as 2nm technology. If anybody want to leverage those combinations, it's good customer. At the end, it's our way decide whether that's going to be a business we get to engage or not. Joe Moore, Morgan Stanley Semiconductor Research, Morgan Stanley: How are you thinking about 2nm in the sense of, you know, CV3 was a really expensive chip that didn't ever get the traction that you wanted and do you have to replicate that investment at 2nm, or are you able to sort of focus on these more project-oriented or sort of defined application-oriented 2nm products? Fermi Wang, CEO, Ambarella: For 2nm, we definitely try to. When we tape out any 2nm chip, we need to identify not only just a customer, but potential sales, right? We are being very careful about defining what kind of 2nm chip we want to build. There's a guaranteed customer and guaranteed market for us to enable 2nm. From that point of view, we are not going to do another automotive chip at 2nm anytime soon. Joe Moore, Morgan Stanley Semiconductor Research, Morgan Stanley: Yeah. Fermi Wang, CEO, Ambarella: The, we are gonna focus on the areas we know there's a customer demand and also have a high volume potential already. I think from that point of view, two nanometer is become, I think, important for the power efficient solution. If you really care about lowest possible power for robotic application, for any other HMI application, two nano become must have. Joe Moore, Morgan Stanley Semiconductor Research, Morgan Stanley: The state of your 2nm comes from Samsung, you're very confident in the process technology underlying it? Fermi Wang, CEO, Ambarella: We are getting a lot more confident than before. Joe Moore, Morgan Stanley Semiconductor Research, Morgan Stanley: Yeah. Fermi Wang, CEO, Ambarella: first of all... Joe Moore, Morgan Stanley Semiconductor Research, Morgan Stanley: Does it help that Elon's putting a lot of volume through? Fermi Wang, CEO, Ambarella: Of course, you know. When Elon announced it, I feel so happy because I don't need to be the only one defense counsel anymore. However, I think throughout the last 12 months, working closely with Samsung Foundry on this process technology, we get to a point that we believe their yield will be not only acceptable, but also good enough for going to production. We are going to go to production first half of next year. I think that will happen. More importantly, it's not only us saying that, right? Joe Moore, Morgan Stanley Semiconductor Research, Morgan Stanley: Mm-hmm. Fermi Wang, CEO, Ambarella: There are multiple other large companies are saying that. I think from that point of view, getting very comfortable that will happen. More importantly, working with Samsung become a advantage to us because that, TSMC has been telling people they don't have enough capacity. Joe Moore, Morgan Stanley Semiconductor Research, Morgan Stanley: Yeah. Fermi Wang, CEO, Ambarella: for everyone. Joe Moore, Morgan Stanley Semiconductor Research, Morgan Stanley: Yeah. Fermi Wang, CEO, Ambarella: Samsung not only have enough capacity for us, we secure all our capacity that require for 2026. Joe Moore, Morgan Stanley Semiconductor Research, Morgan Stanley: Okay. Fermi Wang, CEO, Ambarella: We also secure the 2nm capacity for 2027. From that point of view, I think that Samsung definitely help us to give the confidence to our customers that they don't need to really worry about the supply chain, you know, for many different reasons. Joe Moore, Morgan Stanley Semiconductor Research, Morgan Stanley: Yeah. Well, that's great. I just have one more question and go open it up to audience if there are any. I mean, you just, you've reinvented the company, I think, really for the third time around all of this. Starting out as sort of video processing and then incorporating AI capabilities and now sort of pivoting more towards the Edge. I guess what, where is the end point of that? What, what do you think the business mix looks like a few years out? I think automotive, given the Sam's commentary, is still gonna be a big part of it. How are you apportioning resources to automotive versus these other Edge AI markets? Fermi Wang, CEO, Ambarella: Even for automotive, I want to make clear that we are focusing on the project that can generate revenue. At the beginning, we focus on developing technology and invest heavily. Joe Moore, Morgan Stanley Semiconductor Research, Morgan Stanley: Yeah. Fermi Wang, CEO, Ambarella: Now we kinda reposition that for automotive. Let's focus on the project that we know is gonna generate revenue. That already is a different huge change for us. I think it's more important to address your first question is, how do we see this company going to evolve in the next five years? I really think that edge AI will become a lot more visible in the next five years. Today, 95% of AI investment go to data center. Joe Moore, Morgan Stanley Semiconductor Research, Morgan Stanley: Yeah. Fermi Wang, CEO, Ambarella: I think that will change. That will change because that you need to deploy real-time application based on AI. Everybody talking about, even OpenAI says they want to build a, you know, wearable device. Joe Moore, Morgan Stanley Semiconductor Research, Morgan Stanley: Mm. Fermi Wang, CEO, Ambarella: Guess what? That's a Edge AI device. Joe Moore, Morgan Stanley Semiconductor Research, Morgan Stanley: Mm-hmm. Fermi Wang, CEO, Ambarella: Right? I think that we still don't know what's the most, the killer app for Edge AI yet. We start seeing a lot of smaller market. Joe Moore, Morgan Stanley Semiconductor Research, Morgan Stanley: Yeah. Fermi Wang, CEO, Ambarella: We believe that will happen. From that point of view, that we will continue to invest heavily on the Edge AI side, not only just on the video. Video is definitely our cash cow and going to continue milk and develop project on that. We also see that on the digital AI side, go to AI box to aggregate. That's also huge investment. Edge AI will be the key platform and key area we're gonna continue to play. Joe Moore, Morgan Stanley Semiconductor Research, Morgan Stanley: Yeah. That's great. Let me see if there's questions from the audience. If not, we can wrap it up there. Fermi, congratulations, it's been a really successful year for you, everything you've achieved is really putting the company in an interesting place. Fermi Wang, CEO, Ambarella: Thank you, Joe. Thank you very much. Joe Moore, Morgan Stanley Semiconductor Research, Morgan Stanley: Thank you. Fermi Wang, CEO, Ambarella: Thank you, guys. This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.