Good day, and thank you for standing by. Welcome to Ambarella's Third Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask the question during the session, you will need to press star one one on your telephone. I would now like to hand the conference over to the speaker for today. Louis Gerhardy, you may begin.
Thank you, Tawanda, and good afternoon. Thank you for joining our second quarter fiscal year 2023 financial results conference call. On the call with me today is Dr. Fermi Wang, President and CEO, and Brian White, CFO. The primary purpose of today's call is to provide you with information regarding the results for our second quarter of fiscal year 2023. 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 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 and 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, including the annual report on Form 10-K that we filed on April 1, 2022 for fiscal year 2022, ending January 31, 2022, and the Form 10-Q filed on June 8, 2022 for the first quarter of fiscal year 2023. Access to our second quarter fiscal 2023 results, press release, transcripts, historical results, SEC filings, and a replay of today's call can be found on the investor relations portion of our website. Fermi will provide a business update for the quarter. Brian will review the financial results. Then we'll all be available for your questions. With that, turn it over to Fermi.
Thank you, Louis, and good afternoon. Thank you for joining our call today. Q2 results were mostly as expected. Revenue was down 10% sequentially and up 2% versus the year ago quarter. CV revenue increased significantly on a year-over-year basis, driving our blended average selling price above $10. We have cumulatively shipped more than 10 million CV SoCs, including more than 20% into the automotive market. We remain on track to achieve our prior estimate that CV will represent about 45% of our total revenue for the year. In Q2, we observed the worst from both the China lockdown and the 14 nm shortage, and the incomplete kits remain a bottleneck for many of our customers.
Collectively, we should see some improvements from these factors in the second half, but our recovery outlook is tempered as some customers are now reducing their inventory levels, in particular a lead time contract. In July, we commenced a global roadshow to leading automotive tier ones and OEMs with a live demonstration of our CV3 SoC. As a reminder, CV3 is our first central domain controller integrating in a single monolithic die all of Ambarella's core competencies, including perception processing from cameras, radars, sensor fusion, and path planning, as well as our functional safety and application software. Just one month after the SoC came out of the fab, we demonstrated full functionality across multiple live cameras to many global automotive OEMs and tier ones.
The superior performance and efficiency as well as the scalability of our SoC roadmap were clearly recognized and well received, leading to many follow-on development discussions. Now, we expect to be able to share more about some of these customers' engagements by the end of the year. We are also proud to announce that CV5, our first 5 nm SoC, entered production in Q2 and is a quarter ahead of expectations. We have three IoT customers that each purchased production volume in Q2, and we're engaging with many other companies developing their first CV5 products. I will now provide some examples of our market development activity where production has already or is expected to commence this year. Toyota introduced its 16th-generation 2023 Toyota Crown model, featuring a two channel digital video recorder based on Ambarella's CV25AX AI processor.
Capable of recording from both the ADAS system and the electronic mirrors, the car recorder is supplied by Japanese Tier 1 Denso Ten. BMW began shipping two dash cameras models, the Advanced Car Eye 3.0 and the 3.0 Pro, providing both front and the rear view recording. Based on Ambarella's H22 video SoCs, the dash cams will be sold in over 80 markets, with the Chinese version also including electronic toll charging features. In June, China-based FAW Hongqi introduced its latest generation of B-class cars. The H5 sedan includes a L2 ADAS system based on our CV22 AQ automotive SoC and is supplied by Tier 1 Neusoft. Also in June, China-based Dongfeng introduced its Haoji SUV. The SUV includes a occupant monitoring system based on our CV28 AQ and supplied by Tier 1 BCAS.
In August, Israel-based Cipia announced Chery's SUV will integrate Cipia's Driver Sense DMS running on Ambarella's CV28 AI processor. The integration of the CV28 and the Driver Sense software utilized neural networks to offer robust driver monitoring capabilities. I will now talk about some of the new IoT product announcements. Johnson Controls introduced its fourth generation Illustra Flex camera series, including mini dome, PTZ, and bullet models based on our CV28S AI SoCs. Also during the quarter, Ubiquiti announced its AI bullet camera based on our CV25S AI SoC. The 4 MP camera includes smart detection of people and vehicles. Korean IP camera maker, IDIS, launched four new 8 MP and 6 MP PTZ cameras based on our CV28 and the CV22 SoCs. The cameras are designed for wide area surveillance operations with the capability to identify objects and recognize face at distance of up to 300 meters.
Japan-based i-PRO introduced a new 2 MP machine vision camera aimed at manufacturing sites, and it's based on our CV22 AI SoC. The camera perform automatic visual inspections, and it supports up to 100 different object types. For example, detecting the presence of cables and the connectors, different colors, or the presence or polarity of electrical components. Also in Japan, JVC introduces new PTZ-2510 video conferencing camera focusing on live broadcast and recording applications such as concerts and lectures. Based on Ambarella's CV22 AI SoC, the camera support full 4K P60 video streaming, face detection, automatic tracking, and a wide viewing angle. In other IoT markets, Insta360 introduced two new products based on our H22 video SoCs.
The Insta360 Sphere is an accessory for drone, and it works by placing one camera above the drone and one below to create a seamless spherical image. In the smart home IoT market, Insta360's Link is an AI-powered 4K video conference device using a three-axis gimbal design and powerful AI tracking, automatic zooming, and framing to ensure that the presenter is always center stage. These representative engagements, a majority of which are based on our higher value CV SoCs, provide insight into the early and the continued success of our strategy. We have successfully leveraged our human viewing perception processing expertise into the larger machine sensing markets, addressing mega trends such as security, safety, and automation. This machine sensing unit opportunities are incremental and much larger than the human viewing market we have and will continue to serve.
Furthermore, we are demonstrating we can capture more value in the sensing applications from incremental processing functions such as radar and other sensor perception, sensor fusion, and planning, functional safety, and application software. CV, CV3 ties all this functionality together. We are confident that we are implementing the right strategy and demonstrating early signs of success. Despite the current market turmoil, we will continue to drive our organic R&D investment to fully realize these market opportunities, leveraging our leadership position in the AI endpoint market. With that, Brian will now provide our prepared financial comments.
Thanks, Fermi. I'll review the financial highlights for our fiscal second quarter and provide a financial outlook for our third quarter ending on October 31, 2022. I'll be discussing non-GAAP results and ask that you refer to today's press release for a detailed reconciliation of GAAP to non-GAAP results. For non-GAAP reporting, we have eliminated stock-based compensation expense and acquisition-related costs adjusted for the impact of taxes. Revenue for fiscal Q2 was $80.9 million, slightly above the midpoint of our prior guidance range, down 10% sequentially and up 2% year-over-year. As expected, supply chain-related disruptions were the primary factor in the sub-seasonal performance. Both IoT and auto revenue declined sequentially. Non-GAAP gross margin for fiscal Q2 was 64.5%, above the high end of our guidance range of 63%-64%.
Our gross margin outperformance was driven by a higher mix of NRE revenue than originally expected. Non-GAAP operating expense for the second quarter was $44.2 million compared to $39.8 million in Q1. This was $700,000 above the midpoint of our prior guidance range of $42 million-$45 million, driven primarily by engineering materials for new products. Our non-GAAP tax provision was $361,000, or 4.5% of pre-tax income. We reported non-GAAP net income of $7.6 million, or $0.20 per diluted share. Now I'll turn to our balance sheet and cash flow. Cash and marketable securities decreased by approximately $3 million, as unusual working capital benefits in the prior quarter reversed and metrics normalized. You'll remember that in the prior quarter, accounts receivable benefited from a front-end revenue skew and inventory declined.
For fiscal Q2, DSO increased to 43 days from 28 days, and days of inventory increased from 117- 125. We had two logistics and ODM companies represent 10% or more of our revenue in Q2. WT Microelectronics, a fulfillment partner in Taiwan that ships to multiple customers in Asia, came in at 59% of revenue. Chicony, an ODM who manufactures for multiple IoT customers, was 13%. I'll now discuss the outlook for the third quarter of fiscal year 2023. While we expect some improvement in the second half from the broad supply chain disruptions, we have started to see some customers reduce the amount of inventory they're willing to carry into year-end, in particular as component lead times contract. Our guidance to the best of our knowledge at the current time contemplates these challenges.
We estimate our Q3 revenue to be in the range of $81 million-$85 million, or approximately flat to up 5% sequentially. We estimate Q3 non-GAAP gross margin to be between 63%-64%. We expect non-GAAP OpEx in the third quarter to be in the range of $44 million-$46 million, with the increase compared to Q2 coming primarily from increased headcount and sales activities taking place during the quarter. We estimate net interest income to be approximately $400,000, our non-GAAP tax rate to be in the range of 4%-6%, and our diluted share count to be approximately 39 million. Ambarella will be participating in Deutsche Bank's Technology Conference on September first, Credit Suisse Virtual Asia Technology Conference on September 6th, Citi Technology Conference on September 8th, and UBS's Virtual Future of Mobility Conference October third.
Please contact us for more details. Thank you for joining our call today. With that, I'll turn the call over to the operator for questions.
Thank you. As a reminder to ask the question, you will need to press star one one on your telephone. Please stand by while we compile the Q&A roster. Our first question comes from the line of Matt Ramsay with Cowen. Your line is open.
Thank you very much. Good afternoon, guys. Congratulations, Fermi, on sampling CV3. I wanted to ask if you could give us a few updates and anecdotes as to how the sampling is going with customers. Maybe how many customers have formally sampled, what those engagements have been like, and sort of the early performance feedback on the part relative to what you guys had modeled and just how the software ports to CV3 are going with the customer samples. Thanks.
Right. First of all, we demoed to roughly 2,000 customers, including tier ones or OEMs. I think there are three important takeaways from the demos. First of all of the customers are very impressed that we give a very thorough demo four weeks after the chip come back from the fab. The demo we gave was, you know, a live board with CV3 sitting in the middle, and we're taking multiple camera live video. Those live video goes into CV3, and we do our standard image processing for all of the cameras. The processed video went to both our compression engine as well as the CVflow engine. The CVflow engine is running multiple different neural networks that's important for the autonomous driving.
All the video went through that neural network processing, and the end result, both the processed video plus the neural network results, are displayed on a TV monitor. You can imagine that this is a very thorough demo, which pretty much touches over all of the important data paths of this big die. We can do that in four weeks after the chip came back. It shows you that not only we have a stable chip, but also our fundamental software side is good enough and solid enough to give a live demo. I think all our customers are surprised and glad to see that. The second thing is the most important, the performance, like you said.
In fact, you know, before we demoed CV3, we told them, all our customers the performance expectation they have. In fact, we hit those expectations right on, and we didn't surprise you know, with our real chip. In fact, that's a big surprise to them because they are used to see people giving a higher projection on the data, on the paper presentation, and when the real chip show up, the performance is a little lower. In our case, we definitely deliver as we advertised for CV3.
That's the second takeaway. The third takeaway is the power consumption. We also give our customer projection the potential power number, and we hear that the power number we talk about. In summary, basically, we show people that we have a chip that can run multiple times CV performance than our competitors at a small portion of power consumption, and which is a live demo, which is not a PowerPoint presentation anymore. I think that really hit our customer, giving them very good impression about our CV3. The next important milestone is to provide our hardware and SDK for our customer to do software development and also porting their neural network.
I think that's something in progress, and we are engaging customer as we're speaking. Hopefully that will continue to be able to report more. As I said in my script, we believe that we will be able to give you more updates on our customer engagement by the end of the year.
No. Thank you for all that, Fermi. That's really helpful, and congratulations on the progress. As my follow-up, Brian, I wanted to ask about some of the customer kitting issues and your commentary about the potential for customers to want to hold less inventory into year-end. Any way to quantify what that impact is to maybe the second half of the fiscal year? If you have any color on which geographies, which specific end markets, you're seeing that inventory coming down or folks being willing to take less inventory. Any anecdotes there would be really helpful. Thanks, guys.
Sure. Well, we gave you our outlook for revenue for fiscal Q3. We're not gonna venture out into Q4 at this point. In terms of where we're seeing this type of feedback, it's with customers in various areas, so it's not specifically targeted to a single exposure. You know, I think we're in a situation where customers have been experiencing supply disruptions for quite some time, right? Those disruptions are beginning to abate to some extent. Things are getting a little bit better. They're also looking ahead to some of the economic risks that could be on the horizon and the uncertainties associated with that. There's, I think, a return to a focus on inventory management that maybe didn't exist for a period of time, particularly as we head into the end of the calendar year.
We are getting some requests for pushouts from various customers, and we're reflecting that in the guidance we provided.
Thank you. Please stand by for our next question. Our next question comes from the line of Joseph Moore with Morgan Stanley. Your line is open.
Great. Thank you. Following up on that last question on the customer inventory stuff, when you talk about lead time contraction, is that your lead time or is that lead time for other components? I had a follow-up.
I think, you know, Joe, we're talking about both, but I can talk about our own lead time changes. You know, at the peak, our lead time was at roughly 40 weeks. Now we are talking about roughly at 30 weeks. Before COVID, our normal lead time was 24 weeks. I think we are gradually going back to normal, and that's basically talking about our lead time. I think we also noticed some of the components, other components of our partners also are showing lead time contractions.
Okay. That's helpful. Thank you. In terms of thinking about October, you know, I know you normally get kind of a seasonal ramp in the consumer-centric businesses, both in surveillance and other consumer. You're coming off of a quarter where your revenues were depressed by the foundry issue. You know, are you still seeing that kind of seasonal impact, and it's being offset by these other issues that you're talking about? Or is the impact that's hitting you kind of more on the more seasonal products? Can you just kind of describe? You know, it seems like there's a pretty big fall off in something if you're getting that normal seasonal ramp. I just wanna make sure I understand.
Right. Joe, I think first of all, those three supply chain issue we have been talking about, although it's kind of reduced but didn't go away, even for second half, we believe will persist, but you know, lesser degree. On top of that, we just talked about the inventory reduction at the customers. I think those two things are probably the major factors. Also, I think this is a really unique year. I think with all the supply chain situation that we're monitoring, geopolitical situation, I have to say, I don't think that our normal seasonality apply this year.
Got it. Okay. Thank you.
Thank you. Please stand by for our next question. As a reminder, ladies and gentlemen, that's star one one to ask the question, and we ask that you limit yourself to one question and one follow-up. Our next question comes from the line of Vivek Arya with Bank of America. Your line is open.
Thanks for taking my question. I actually have a clarification and two quick questions. Brian, you mentioned there were some NRE revenues that helped to improve gross margins. I was hoping you could quantify how much in incremental NRE in Q2 and what's embedded in your Q3 outlook.
Yeah, Vivek. So we don't normally break it out specifically, but just to give you an idea, NRE for the company typically runs in the 1%-2% of total range. In the second quarter, total NRE was kind of low- to mid-single digits in terms of million dollars of revenue. You know, it's gonna be lumpy as we go forward, but as we look at the near term, you know, Q3, fiscal Q3, for example, we see that normalizing and returning back to kind of a typical run rate. I think, you know, as we go out further in time and we have more activities associated with CV3 and so on, it's possible that starts to become a slightly larger portion of the overall revenue mix. We're not quite there on a sustained level yet.
Got it. On the inventory reduction by your customers, is that more on the automotive side? Is that more on the IoT side? Because on the automotive side, when I look at the results and outlook for most of the other automotive-exposed semiconductor suppliers, they seem to have been, you know, pretty strong, at least in the near term. Obviously, I understand that, you know, every company is supplying different kinds of components, so it might not be exactly apples to apples. I'm curious, where are you seeing the somewhat softer demand signals? Is it more automotive or more IoT?
No, I think you're right. We see a little inventory reduction on the automotive customer. In fact, they are 25% of total revenue. The balance of the business on the security, IoT side, particularly security camera side, we do see our customer trying to reduce the inventory.
All right. Finally, your overall inventory kind of stands out, right? Because, you know, it has now reduced for the fourth straight quarter, which is kind of an anomaly in this sector where inventories are up for most of the semiconductor suppliers. What is the right way to view the lower level of inventory on your balance sheet? Is it a signal of your, you know, demand outlook for the next, you know, two to three quarters? Is it something else? What is the right way to look at, you know, your being able to manage with lower levels of, you know, absolute dollars of inventory?
Yeah, Vivek. Inventory has declined the last couple of quarters in dollar terms, but if you look at the second quarter, it actually was up in terms of days, because COGS was down in the quarter. You know, we went from, I think we were about 117 days of inventory in Q1, and we were about 125 in Q2. That's a relatively elevated level in terms of days of inventory for the company. But we've been running at a higher relative inventory level because of all the supply disruptions, to try to buffer ourselves from some of those gyrations.
You know, if you think about it longer term, if we can get all of these supply issues behind us and get to something more of a normalized state, I would expect we should be running under 100 days of inventory in the future.
Understood. Thanks very much.
Thank you. Please stand by for our next question. Our next question comes from the line of Gary Mobley with Wells Fargo. Your line is open.
Hey, guys. Thanks for taking my question. I appreciate the disclosure about how your blended ASP has now trended above $10, but maybe if you can give us some baseline, maybe in terms of thinking about it on a quarter-over-quarter basis, year-over-year basis, and how that compares to your unit growth?
I think what we can say is that since we have introduced our CV product line, our ASP continued to grow, and we expect the growth will probably continue. When we get CV3 or CV3 family of products into production, the ASP will continue to expand. I think the unit number-wise, this is two separate issues. In fact, where we lose the majority of unit number is with Hikvision and Dahua . The ASP is very low, which is probably the lowest ASP business in the last several years. We basically lost that business. That also helps to improve our ASP company-wide ASP. But I would say that overall, our ASP growth will continue because of our CVflow product line.
Okay. Thanks for that color for me. I wanted to confirm that the Samsung 14 nm supply issue, the lingering impact in the July quarter was, as you approximated, $5 million. I want it to be clear that that's no longer a headwind looking into the October quarter. Is that right?
Well, I think the first of all, the $5 million in the July quarter is true and in-
October quarter, is that right?
Well, I think the first of all, the $5 million in the July quarter is true, and in October I think it's much less, but we already consider when we give that guidance.
Okay. All right. Thank you, guys.
Thank you. Please stand by for our next question.
Our next question comes from the line of Quinn Bolton with Needham. Your line is open.
Hi. Yes, Great, thank you. I just had a question on CV5. I can see it's now entered into mass production ahead of the schedule. But just on this, could you talk us through how you see the adoption of CV5 over the next 6-12 months? Just so we could think about sort of the revenue curve over the next year. Do you expect to see a sharp adoption, and could it be an important growth driver for the business? Any color on how to think about it, like as to how to size this revenue stream would be helpful.
Right. I think you should consider CV five as our next generation high-end CV four engine. I think the target application is high-end enterprise class security cameras, the enterprise video conferencing system, as well as some of our home applications, high-end home applications. Almost all of our security cameras for if they do high-end products, they are looking at CV five, and some of them, like I said, one of them will take that into production this quarter, and multiple will take that into production second half this year. I think CV five revenue will start second half of this year and then ramp up next year. It definitely help us on the ASP expansion as well as helping us to maintain our gross margin.
Okay, great. Thank you. That's helpful. I guess just as a follow-up, in terms of the two segments, IoT and automotive, I know you mentioned they declined sequentially in the quarter. Could you give us any color about how to size them in the quarter, what they did as a percentage of sales? I suppose just to add to that, looking at the Q3 guidance, could we expect something similar for the October quarter? Thank you.
Can you repeat the question?
Yeah, sure. I guess just in terms of the two segments, if we look at IoT and automotive, I was just hoping for any more color about the size of them in the quarter, what they did as a percentage of sales. Just to add to that, for the Q3 guidance, could we expect something similar in the October quarter?
Yes. This is Louis speaking. So auto and IoT, you know, roughly the same, you know, when you consider everything included, including the NRE. The outlook for Q3 is to have both of these areas growing sequentially.
Thank you.
Thank you. Please stand by for our next question. Our next question comes from the line of Ross Seymore with Deutsche Bank. Your line is open.
Hi, guys. Thanks for letting me ask a question here. On the automotive side, it seems like it's been at about that 25% of revenue range now, given the answer to the prior question. It seems like for three quarters in a row. When do you expect that to really accelerate? I know it takes longer in the CV stuff. The majority of that's been impacting to the benefit of the IoT side. But how do you think about the growth rates of the two segments, and specifically automotive? When should we expect, you know, either a stair step up or a bigger ramp given all the design wins that you've highlighted in the preamble for me?
I really think that the next important milestone for us in terms of automotive revenue growth is that one major OEM take ADAS level 2+ car into production, right? That's really the key for us to provide the long-term growth. I think, you know, although automotive revenue will continue to grow, but I think the step function you're looking for is really the, like I said, the major OEM take ADAS into the market.
Any sort of rough color when that may occur? Is that something that, you know, you think you have the design wins, or is that gonna be more CV3 dependent, so it's, you know, a couple of years out given the design cycles? Any sort of rough color on that?
I think CV2 will give us some boost. Like we said in the past, right, and the CV3, because the ASP will really provide the biggest jump for us. I think between now and the CV3 in production, you should continue to see our CV, our automotive revenue grow.
Great. Thank you.
Thank you. Please stand by for our next question. Our next question comes from the line of Tore Svanberg with Stifel. Your line is open.
Yes, thank you. I know you're not gonna comment beyond Q3, but just thinking about the lead times and the sort of inventory adjustment, do you think that you'll be down to sort of the mid-20s lead times during the October quarter? Or when you talked about sort of going from 40- 30, you know, that process started, you know, a little bit later.
Well, I think 30 is now and whether we'll move to 20-24 like before, it would really depends on our supply chain, right? I think it will take a while because there's still, I think on a high-end process node, probably 30 will be stable for a while. I won't expect that it happen, go back to 20-24 immediately. However, I think the trend is there, and I think our customer is really reacting to the trend, expecting that the lead time will go back to normal soon.
Very good. As my follow-up, can you confirm that you're gonna be updating us on your sort of vehicle revenue funnel 3.0 next quarter? You know, since you're obviously not gonna share data now, right now, could you at least talk qualitatively about how that funnel continues to improve?
We definitely will give you update on the 3.0 in November.
Okay. Any comment qualitatively, or am I jumping the gun here?
I think we are a little three months too early to talk about it.
All right, very good. Since you're not gonna answer that question, I'll have one last one. Could you just elaborate a little bit on the supply chain dynamics? I know you talked about the 14 nm , but I also know there's been maybe some potential yield issues with 10 nm. Now that you are in production in 5 nm, how do you feel the yield improvements are going on with your current supplier? Thank you.
Right. You know, there are a lot of, you know, news articles about Samsung's 5 nm. I think it's, you know, based on our experience, when we start working with Samsung 5 nm, yield was a problem. You know, now we are ready to production, and in fact, we are in production in Q2. I can say that the yield is not a problem. It can be continued to be improved, but I don't think that's a problem, you know, for us anymore. Because, you know, we have been working with our foundry supplier for many years. For any advanced node, it's a similar experience at beginning that the yield is low, and we work together with our foundry partner to improve it.
I think at this point this 5 nm yield is definitely in a, you know, normal range and can be further improved in the near future.
That's great perspective. Thank you.
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.
Hi, Fermi. Hi, Brian. You talked about the CV3 and some of the implementations there, and you talked about some NRE, perhaps. Can you just talk about how the design cycle, how long design cycle there is relative to prior products? I know it sounds more software intensive. Whether Tier 1s, auto Tier 1s would be part of getting that established through the industry? Thanks.
You know, I think first of all, the design for any level 2+ design win, I think it's going to take probably three to four years to enter production in outside China. Inside China, maybe a little faster than that. I think for our design win cap, you know, momentum, I think we're talking to both OEM and the Tier ones. We think that both are very equally important. OEM want to make a decision and try to control software, but still they need a Tier 1 to deliver the final product. We need to work closely with our Tier 1 partner to deliver those final products.
I think that's why, you know, when we went out to demo CV3, we went out to both all the major Tier 1s as well as the major OEM to make sure they see the capability and the potential of CV3. When they talk to each other to make a decision on the design wins, that they will consider CV3.
Okay. For me, that's helpful. Thanks. On the Oculii acquisition radar, can you just update us on what expectations are for incremental fundamental contribution, revenue contribution, or how we should think about that over the next few quarters as you integrate that in?
Right. First of all, we didn't break out Oculii radar revenue per quarter, but we give a guidance probably $3 million-$4 million this year. I think we are close to that. We're going to continue to monitor the progress we made with our current customer. We did talk about there are a few design wins that we're working on. Hopefully, we'll see results in the next year and for the ramp-up revenue.
I think there's another very important milestone I think you should track is when we can demo Oculii software running on CV3 silicon, which will probably the first silicon platform that can do sensor fusion with video data and the radar data at the same time. That, like I said before, that's really important for us to provide not only just better perception and sensor fusion to our customer, but it provide huge cost saving to our customer too. I think that also is an important milestone that we're trying to hit.
Okay. Thanks, Brian.
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.
Yes, thank you for taking my question. Just as you're looking at the opportunities for CV3, is there a difference between consumer vehicles and, say, robotaxis and shuttles? Is there a shorter time to market or any one that might be better suited for the CV3?
I think for both consumer and the commercial vehicle outside China, design cycle is probably similar because, you know, even for commercial vehicle, people also want to have auto-grade silicon hardware, silicon and software. Inside China, it's a little different, and the people are more willing to introduce product and test out in the market. I think that's two different timing. Definitely we will try to, you know, take advantage of the shorter design cycle in China, see whether we can quickly introduce some product there.
Okay. I see. Thanks. Going back to the NRE question, is Oculii part of that NRE revenue?
Yes, it is.
Okay. That's expected to go forward also?
I think, you know, now we are engaging with a new customer after we acquire them. Yes, we expect that we're gonna see new revenue opportunities with radar also.
Okay, great. Thank you.
Thank you. Please stand by for our next question. Our next question comes from the line of Andrew Buscaglia with Berenberg. Your line is open.
Hey, guys. You know, look, you know, into the quarter, I think there is some optimism brewing around some, you know, decision-making moving forward with some, automotive OEs. Just given you saw their announcements for some adjacent technologies, you know, specifically VW. You know, so what. You know, I understand the inventory commentary, but what about your conversations within the automotive, you know, just generally in the automotive space around decision-making moving forward? Because, as you said, these design cycles, you know, you would think we should start to see some movement near term despite, you know, what we're seeing around the latest on the inventory side.
You're talking about CV3 engagement?
Yes, specifically, yeah, CV3, you know, more so your latest technology, your latest chips. Yeah, specifically CV3.
Yeah. First of all, the CV3 engagement, like I said, you know, we have done well with the first phase of demos, and we need to follow up with a lot of engagement on the engineering side to help customer to pull software, to pull the new network and demo the system. I think that's definitely an important one. At same time, for future or next gen. I should not say. Or should. We are developing derivative chips in the CV3 family so that we can address different applications. For example, we are working on another silicon, 5 nm silicon for auto grade chip, which is going to be enabling our customer going to production in 2024-2025.
That's definitely the chip that we are working on, and we're going to continue to work on different derivatives of CV3 chips. That is definitely an important investment strategy for us moving forward. I hope that answered your question.
Well, I guess I was more so, you know, in terms of and being able to announce some design wins. Just that we're seeing some movement and we are seeing some decision-making move forward with some adjacent technologies. I guess, you know, where does CV fit in there? I would think that you would start to see some movement, you know, even despite these inventory pressures.
I think, you know, like, in our script, we talk about, you know, we believe we can give you more updates in before the end of the year. There are two things we're gonna give you indication. One is, in November, we're going to give a final update, which will probably give you indication how we are, how we're doing with OEM in terms of design wins, as well as we're going to talk about CV3 engagement. Like we said, probably by the end of year, we will talk about that. Hopefully that will continue.
Yeah.
to use this to provide you input.
Maybe when you're talking with customers around the, you know, specifically those sampling CV3, is there regionally any sort of bias you're seeing more interest in one region versus the other, whether it be U.S., Europe or Asia or too early to tell?
In fact, among the 2,000 customers all over, I think it's global, and we talk to almost every place, including China, Japan, Korea, Europe and U.S. I think all we probably talk to the target customer that we want to talk to in the last few weeks.
Yeah. Andrew, just to, you know, give you some more perspective on, you know, what's at play here. This is our first central domain controller, and so you go through a sequential process, you know, where we had introduced the product idea to customers, you know, in the last couple of years. As Fermi described, you know, we've gone through the demonstration process, you know. Almost several dozen customers on a global basis have now seen the board and it operating live. Then the next step that we described is providing the SDKs and EVKs where they can begin to port their own software, you know, onto the chip. As you move through this progression of steps, a series of steps, customers will feel more comfortable to make that decision.
We're still saying we expect to, you know, provide an update on where we're at by the end of this year.
Okay. All right. Thanks, Louis. Thanks, Fermi.
Thank you.
Thank you. Please stand by for our next question. Our next question comes from the line of Richard Shannon with Craig-Hallum. Your line is open.
Hi, guys. Thanks for taking my question. I think just one question from me and following up on the topic of CV3 here. While I know the discussions and demos are very early stage here, for me, wondering what you see in terms of future discussions and competitive and sourcing dynamics with large automotive customers. Do you expect them to be choosing one domain controller across, you know, the entire portfolio, or do you expect them to or to possibly use two or more? In other words, is this an all or none situation or is there a kind of a split situation over time?
You know, it's interesting because a lot of companies that we talk to always start with, you know, they want to choose one because it's so fair. At the end, I think they all understand the risk of taking only one. I think it's, there's a chance that some people will take two, and also there's a chance that someone will take one. Between these two are possibilities.
Okay, great. Well, I look forward to getting an update on that one.
Yeah.
Thanks for that perspective. That's all from me. Thank you.
Thank you.
Thank you. Please stand by for our next question. Our next question comes from the line of Tristan Gerra with Baird. Your line is open.
Hi, good afternoon. You've mentioned that the CV5 will start ramping the second half and into next year. Should we assume that CV5 is going to be material to your revenue this second half and is it material to your Q3 guidance or is it just initial shipments and then it becomes more meaningful next year?
I would say that the meaningful revenue come from next year. This Q3 and Q4 will be a ramp-up time for several customers, but I think meaningful revenue probably more toward to Q1, Q2 next year.
Okay. You've mentioned as my second question the some inventory deleveraging across customers, both on the automotive and IoT side. I just wanted to get any color that you could provide specific to the China automotive market. You know, how high are inventory levels right now, and have you seen, you know, pushouts or delays, you know, either in terms of deliveries or new project? You know, how is the situation there, and how do you expect it to evolve over the next several quarters?
You're talking about China market, right?
Yes. Uh-huh.
Okay.
In automotive.
Yeah, China automotive. I think, you know, if you talk about China automotive, I would say that you need to separate consumer versus commercial vehicles. I think China commercial vehicles are facing a severe problems in terms of demand, but which is smaller market. On the consumer vehicle, I think inventory we haven't seen that market is still facing short supplies. That's why we haven't seen any, you know, revenue reduction—sorry, the inventory reduction in the Chinese consumer automotive at this point.
When would you expect then this supply to get back in balance? Would that create more of a slowdown on your existing revenue base to the automotive, you know, end market in China by then?
You know, I'm not sure because I don't know exactly what's the inventory level of current customers for our chip, right? I can imagine that some of them probably build a little bit of inventory. Some people will be conservative. It's really going to be customer by customer discussion. For example, even for IoT, not all of our customer has inventory problem. Some people are more conservative when in terms of building up inventory. The inventory reduction is more minor for them. But there are some customers that have been aggressive building out inventories throughout the last 24 months, and definitely there is a longer time for them to digest the inventory. It's really customer to customer discussion. It's very hard to, you know, normalize it.
Okay. Thank you very much.
Thank you. Please stand by for our next question. I'm showing Kevin Cassidy in the queue. Sir, did you have a follow-up?
No, I didn't. Thanks.
Okay, thank you. I'm showing no further questions in the queue. I would now like to turn the call back over to Dr. Wang for closing remarks.
I would like to thank you for all, for your time and your consideration today, and I'm looking forward to see you in the upcoming event. Thank you, guys.
Connect. Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.