Earnings Call: Q2 2022

Aug 31, 2021

Thank you for standing by, and welcome to Ambarella's Second Quarter Fiscal Year 2022 Earnings Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session. As a reminder, today's program is being recorded. I would now like to introduce your host for today's program, Louis Gerhardy, Corporate Development and Investor Relations. Please go ahead, sir. Thank you, Jonathan, and good afternoon. Thank you for joining our Q2 fiscal year 2022 financial results Conference Call for the 3 months ending July 31, 2021. With me today on the call is Doctor. Fermi Wang, President and CEO and Casey Eichler, CFO. The primary purpose of today's call is to provide you With information regarding the results for the Q2 of our fiscal year 2022, 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 As well as other information on potential risk factors that could affect our business operations and financial results are more fully described in the documents we filed with the SEC, Including the annual report on Form 10 ks filed on March 31, 2021 for fiscal year 2021 Ending January 31, 2021, and the Form 10 Q filed on June 8, 2021 for the Q1 of the fiscal year 2022. Access to our Q2 fiscal 2022 results, press release, historical results, SEC filings and the transcript of our prepared remarks and the replay of today's call can be found on the Investor Relations Fermi will now offer a business update and then we'll review the financial results. And then Fermi Casey and I will be available for your questions. With that, I'll turn it over to Doctor. Fermi Wang. Thank you, Louis, and good afternoon. Thank you for joining us today. We are pleased to report significant market and the financial momentum as our AIoT transformation continues to play out. Q2 revenue was above the high end of our guidance, up 13% sequentially and 58% on a year over year basis. Our Q3 outlook is also well above the consensus estimate led by computer vision, CV, news Product cycles in existing markets as well as our penetration into entirely new markets. CV continued to drive our blended ASP higher and the positive operating leverage inherent In our model was apparent with non GAAP operating margin increasing 4.50 basis points sequentially, Reaching 16.9 percent. Cyclical forces continue to constrain our performance. Wafer supply from Sensors Austin, Texas This wafer fab following the Texas freeze earlier this year reached a low point in Q2. While we are seeing a recovery from this Texas fab and expect the recovery to continue in the second half. We do not anticipate a material improvement in the industry wide supply chain challenges. CV momentum continue to rapidly build. Since introducing our CV SoC family to the market, We have had more than 240 unique customers purchase engineering parts and or development systems, With almost 60 unique customers achieving production status in the first half of this year. Even at this early stage of our transformation, we are realizing a revenue mix that is of higher quality And with more diversification, a majority of our revenue is now driven by enterprise CapEx, Public infrastructure spending and the consumer durable goods investment. For example, our automotive and IoT camera business, Mostly security cameras take both decisively achieve record quarterly revenue levels, While our non focused other revenue, mostly discretionary consumer ledger goods, represented 10% of revenue Now I will now update you on target market progress. In June, we announced the expansion of our AI Vision SoC portfolio with the introduction of our new CV5S And the CV52S SoCs. Based on the CV4 architecture, the 5 nanometer SoC target IoT security applications With the MiMx OS, a new SDK including multi imager and small form factors. This new SoC camera support Application requiring 360 degree coverage, low range viewing, advanced encoding and the AI performance to more accurately identifying to identify individuals or objects in a scene. During the quarter, 8 weeks after receiving First Silicon, We shipped our 1st CD5S development systems and software development kit to customers. This is a significant accomplishment As such, at this note, and I'm thankful for the strong execution for our hardware and software teams that made this happen. Also in June, In advance of the annual ISC West trade show in Las Vegas, we held a virtual event that was attended by over 50 leading customers worldwide. The event featured over 20 demonstrations, including a first look at the new CV5S In the multi image system and our latest access control reference design based on our continuing partnership with Momentum And on Semiconductor, we have already secured multiple design wins for the new CV5S as well as new customers In the access control markets, Motorola Solutions has become one of our largest customers, And we are pleased to see their announcement they intended to acquire OpenPAS, a technology leader in access control system, Further validating the significant opportunity in this growing market segment, Motorola's video security portfolio Now includes IP camera makers of Vigilant, Telco and Indigo Vision as well as Addisix, a U. K. Based Police body worn camera supplier and WatchGuard, a supplier of police vehicle cameras. All of these companies are Ambarella customers. Ambarella's CV4 AI Vision SoC continue to gain share in a professional IoT security camera market, With most major manufacturers have chosen our CV SoCs, during the quarter, European Giant, Bosch Introduce its first three families of cameras based on Ambarella CV SoCs. Bosch introduced the 5000i Based on our CV22 and the 7000i and the 8000i based on our CV2 SoCs. By winning these 3 major platforms at Bosch, the scalability of our CV SoC portfolio is demonstrated. In addition to our SoC share gains in professional security outside of China, last quarter we spoke about Opportunity to gain market share within China and we announced 2 new customer today. We are announcing 2 additional customer, Milesight and Fushan. First, Milesight introduced its CV25 based AI Pro Bullet Network Camera Family Available in 2.5 and 8 megapixel version and including Aviso Analytics, people counting, face detection and ultra low light operations. 2nd, Fushan introduced a non contact facial recognition temperature major system based on our CV28M SoC. The tablet device can recognize people with max arm and use dual sensors. Also during the quarter, Canada based March Networks introduced its new VA Series IP camera based on our CVflow processors. Our chips And the power of the cameras advanced video analytics. Now turning to the automotive market. We continue to make progress in the fleet management market due to the efficiency of our CV SoC as well as an advantage of our open platform, which allow OEMs and Tier 1s to create differentiated multifunctional products. Next quarter, we announced 4 examples from the Shanghai Auto Show. At this quarter, we are pleased to announce 3 additional wins: KeepTruckin, Yandex and Solera. Earlier in August, Fleet management leader, Keith Trucking announced it. It was partnering with Ambarella to deliver its new AI dashcam For front ADAS, driver monitoring and telematics, the AI DAS can use a single CV22 SoC And the 2nd RGB IR camera for the drive monitoring system was recording. This morning, we announced Yandex, a major Internet service as a product company, introduced its signal Q2 Driver monitoring camera for its ride sharing partners, powered by Ambarella CV25 SoC. The Yandex EMS camera We'll be deploying across Yandex taxipartner fleet, which consists of over 700,000 vehicles starting In 2022 and is also being offered to other delivery fleet companies. Also during the quarter, Soliris' Omnitrax division announced its next generation fleet solution Using smart drive technology with our CV25 SoC, this combo system simultaneously process data from 2 sensors, monochrome and the RGB IR to enable DMS and the recording functionality. In the passenger vehicle OEM market, Chinese carmaker Dongfeng introduced its new Euluo Max car featuring a driver monitoring camera based on Ambarella CV25 8Q Processor. With this market progress, you can see we are winning because our efficiency, both in terms of performance per watt and the performance per dollar. And our open platform and the flexible architecture, which allow our customer to capture sulfur value and introduce differentiated multi featured combination systems. In conclusion, we are leading a significant shift in how camera are used and providing the corresponding Step function increase in processing performance. In addition to human vision viewing all through a lens of a camera, Data can be collected and then processed in our SoC, enabling new level of safety, security and efficiency Through partial or complete level automation across multiple industries, this processing we provide is occurring in Purpose built IoT 8 point, not in servers, where it's fundamentally different and more expensive SoC architecture are used. The global economic picture is strong. New stimulus programs are in the works Like infrastructure bill in the U. S, supply side cyclical dynamics are extended. But to be clear, The inflection you are seeing with Umbrella, what gets us most excited is how we are driving AI into numerous IoT endpoint verticals and how we are demonstrating we can capitalize on this tremendous growth opportunity to drive shareholder returns. The demand for deep learning, the AIoT endpoints is a new and a critical phase of the digital transformation That is just beginning to impact to so many verticals. Our confidence in our long term prospects is high. We expect to achieve record revenue in fiscal year 2022, ahead of the $315,000,000 revenue we did in fiscal year 2016. And we remain comfortable that CV revenue will be as less 25% of total revenue this year. Before we get into the financials, I would like you to mark your calendars For our Capital Market Days, we plan to host at our Las Vegas CES location on Tuesday afternoon, January 4. This event will allow us to more thoroughly discuss the inflection we are seeing and provide a corporate strategy update. With that, I will ask Louis to review the Q2 financials and provide the Q3 outlook. Thank you, Fermi. I will now review the financial highlights for the Q2 of fiscal 2022 ending July 31st and provide a financial outlook for our Q3 of fiscal 2022 ending October 31. 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 adjusted for the impact of taxes. In Q2, the industry wide supply chain challenges remained significant. And in this period, We believe we experienced the worst of the wafer shortfall from the Texas freeze as previously forecasted. However, our operations team and manufacturing partners work diligently to support the strong and broad based demand and they successfully minimized disruptions for our customers. Our revenue of $79,300,000 was 5% above the high end of our guidance, representing a sequential increase of 13% from Q1 And a 58% increase from the year ago quarter, automotive revenue increased about 10% sequentially, Security grew more than 20% sequentially and other product revenue was down more than 20% sequentially. Non GAAP gross margin for Q2 was 62.8%, slightly below the 62.9% in the preceding quarter. We incurred some higher cost to manage the supply chain challenges, but the pricing environment and the mix remained relatively stable, Sustaining gross margin above the high end of our long term model. Non GAAP operating expense for the Q2 was 36.4 Compared to $35,400,000 for the previous quarter, OpEx was slightly below the midpoint of our guidance as G and A was lower than Forecasted. We continue to demonstrate strong positive operating leverage with operating margin On a non GAAP basis, up 4.50 basis points sequentially, reaching 16.9%, Up from 2.2 percent a year ago. Other income of $218,000 reflects the low interest rate environment. The non GAAP net income for Q2 was $13,100,000 or 0 point 3 $5 per diluted share compared with non GAAP net come of $8,900,000 or $0.23 per share in the Q1. In the second quarter, the non GAAP earnings per share were based on 38,000,000 diluted shares. Total headcount at the end of the second quarter was 827. That's up 9% from a year ago With about 81% of employees dedicated to engineering, approximately 68% of our total headcount is located in Asia. Total accounts receivable at the end of Q2 were 38.3 or 44 days of sales outstanding versus $34,500,000 or 44 DSOs at the end of the prior quarter. Net inventory at the end of the second quarter was $42,100,000 compared to $33,100,000 at the end of the previous quarter. Days of inventory increased to 115 in Q2 from 102 the prior quarter. On a sequential basis, work in progress was up sequentially to support the rising demand, while the finished good inventory was down and at 2 year lows. Our Q2 operating cash flow was a positive $14,400,000 or about 18% of revenue. This compares with an outflow of $4,500,000 in the prior quarter. Cash and marketable securities were $449,200,000 Up from $435,500,000 at the end of the Q1. We had 2 10% plus customers in Q2. WT Microelectronics, a fulfillment partner in Taiwan who ships to multiple customers in Asia, they represented 62% of revenue. And Chaconi, the Taiwanese ODM who manufactures for multiple customers was 16% of revenue in the quarter. Dahua and Hikvision combined represented a high single digit proportion of our revenue. I will now That's the outlook for our Q3 of fiscal 2022. During the second half of the year, we expect output from Samsung's Austin, Texas wafer fab to continue to recover from the February freeze. Nevertheless, we continue to experience a variety of industry wide supply chain challenges. While extended lead times for wafers and substrates persists, our outlook is also constrained by shortages of other companies' components on our customers' bill of material. Based on these factors and our best judgment at the current time, We expect total revenue for the Q3 ending October 31, 2021 to be in the range of $88,000,000 to $92,000,000 Revenue from automotive and IoT cameras, primarily security today, is expected to increase about 10% sequentially. Other revenue off a low base is expected to have a seasonally strong quarter, but still down on a year over year basis. We estimate Q3 non GAAP gross margin to be between 61% 63% Compared to 62.8% in the Q2, while we're seeing some higher cost to manage the supply chain, The healthy mix and relatively stable pricing environment may cause our gross margins in the short term To temporarily exceed the high end of our long term model, the 59% to 62%. We expect non GAAP OpEx in the 3rd quarter to be between $36,000,000 $37,500,000 The Q3 non GAAP tax rate should be modeled in the 3% to 6% range and we estimate our diluted share count For Q3 to be approximately 38,300,000 shares. Ambarella will be participating In the Jefferies 1 on 1 conference tomorrow, September 1 Credit Suisse's Asian Technology Conference on September 7 Deutsche Bank and Colliers conferences both on September 9th, Evercore Auto Tech and AI Forum on September 21st And Berenberg's CEO Conference in New York on November 9. And as Fermi noted, please mark your calendar for our Capital Markets Day on January 4 at our CES location in Las Vegas. Thank you for joining the call today. And with that, Jonathan, I'll turn it back to you If your question has been answered and you'd like to remove yourself from the queue, please press the pound key. Our first question comes from the line of Gary Mobley from Wells Fargo Securities. Your question please. Hey, guys. Let me extend my congratulations on strong results, but as well the fruition of of the transformation of the company, good execution. And my question relates to the progression of your quarterly revenue. You just grew revenue $9,000,000 sequentially. You're expecting to grow $11,000,000 in the current quarter sequentially. And so I have no doubt that the demand is strong, but is are those sequential increases largely a function of a strong demand backdrop, Strong backlog and as well better access to foundry capacity. And related to that, could you give us Some sort of metric as it relates to unbilled backlog is at the end of the July quarter compared to the prior quarter. Right. So first of all, our continued revenue increase is due to the strong demand Our CV portfolio, if you look at our revenue growth this year over last year, I think CV is a majority of that growth. Last year, we did $25,000,000 CV revenue and this year we do 25% total revenue of from CV. And you can calculate the difference and that basically come from 2 different reasons. One is we talk about this our CV ASP is twice higher than the video processor. So even just replacing the previous product, we are getting more revenue from that. But more importantly, I think CV take us into Two things. One is new product cycles in existing market, for example, our security camera, a lot of the old Video only product is replaced by AI based video cameras. And also, we are reaching into new markets. We talk about access control, we talk about in automotive, we have DMS, we have all kind of multifunction device that we're penetrating into. So This combination of those other things on the CV side basically provide the majority of growth. On the supply side, Texas foundry was a problem in Q1 and Q2, but it will recover from second half like Louis said And that will become less impact. And we still be impacted by other components shortage for all because when our customers want to build their products, It's not just our supplies, everybody else's supplies matters. So I think that's going to be continued limiting factor. But however, I don't see that become Q3, Q4 is more significant than Q2 impact from this point of view. Follows go ahead. Go ahead. I was just going to say my follow-up is related. And so if you have more supply coming on against the backdrop of strong demand, And I know your other business might be seasonally soft in the Q4. All those things considered, do you think you can grow your Q4 revenue sequentially? We haven't provided guidance yet. But however, like you said, our non our consumer Our traditional consumer business has a seasonality in there, the play in the swing, we need to consider that. But I do believe that our CV revenue continue to be strong, not only just for this year, but We'll continue to be strong in the near future because like I said, we see a huge amount design win activity. We talk about 200 plus Customer purchasing our CV silicon, rapid design of silicones and also only 60 of them are in production right now. So you see there's a big momentum on the CV side. So I will prefer to look at as a long term business that's going to continue to be a strength on the CV side for us. Understood. Thank you. Thank you. Our next question comes from the line of Joe Moore from Morgan Stanley. Your question please. Great. Thank you. My question is on driver monitoring. You guys had a number of key wins there from KeepTruck and Yandex, There's a couple of others during the quarter. And that seems like something that can start to be in production vehicles fairly soon with you guys having a good presence. Can you kind of talk about Where we are with OEM penetration and driver monitoring and when you might when that might become a more material part of your revenue? Right. So I think you're talking about the fleet management, that's what we quoted. And most of it is commercial vehicles. And first of all, I think that that market is sizable. I think the existing market is the vehicles is roughly 50,000,000, 60,000,000 units and grow at 10% a year. And we believe that The OLED design win we just mentioned this time and in the previous time, majority of them will be in production this year and ramping up next year. So you should start seeing revenue this year and hopefully that we can see a lot more next year. And in terms of Passenger vehicles, I mean, it's part of the European NCAP standards already. I mean, it seems like there should be some adoption in luxury passenger vehicles relatively soon. Well, first of all, we talk a lot about our Chinese design wins already. But for the European, U. S, we are not allowed to talk about it, But I definitely think that's a focus area that we continue to work hard to make sure that we make progress there. Great. Thank you very much. Thank you. Our next question comes from the line of Matt Ramsay from Cowen. Your question please. Thank you very much. Good afternoon, guys. My first question, for me, it's pretty obvious from the strong results and the momentum that you guys are seeing that One of the thesis points around high silicon being challenged in terms of their own production As one of your main competitors that you guys are picking up more and more design wins from you announced A couple of new security customers from China on the call today, talked about the momentum with Motorola and all Their subsidiaries and a lot of folks that are shipping into international camera markets. And I guess my question the first question is, Do you concur that that's actually playing out? And I guess what inning of that, fee change and you taking some of those wins are we in? And I guess second Part of the question is, have you seen new competition starting to pop up? And what does the competitive landscape look like for CV now, with the industry digesting that high silicon might be permanently impaired? Thanks. Right. First of all, your Observation on the HiSilicon and our momentum in China, outside China is correct. And Even in the past when we compete with HiSilicon, HiVision Dong Hao use our silicon for export business mainly, right. So It's not a surprise for us that we continue to have strong holding on the outside China. But inside China, we'll start picking up some market Like we talk about Dahua, we talk about now 4 new Chinese duty camera customer using our solution for CVs. So I think the momentum is right. In terms of competition, I can tell you that there are probably I don't want to exaggerate, maybe 20, 30 Different company, startup or existing company try to compete and try to grab a share that Heising left. But however, I would say majority of them are fighting at the very low end, the $2 $3 ASP type of solution. And on the CV side, all of them are focusing on low end and I haven't seen anybody build a platform that we do, right. When we talk about our CVflow SoCs, we talk about 6 given silicon cover with very wide range of performance, a wide range of ASPs. We see strong competition on the low end side. We see very little everywhere else. So I think that it's Continue to be our strategy that we want to leverage our platform and to cover the most important customers to convince them to use us from the bottom to the top. And it's also our strategy continue to maintain our leadership on the middle and high end moving forward. Got it. No, that's really helpful color for me. As my follow-up question, it's pretty remarkable to see Operating margin in the guidance for your October quarter above 20%. I think it was down about 5% in the October quarter a year ago. And obviously, there were I guess my question is, how do you feel like the company I guess the question for all 3 of you guys is how do you feel like the company is staffed and funded right now both from a sales marketing biz dev point of view and obviously From an R and D point of view, as it sounds like the company continues to expand and attack some of these markets and what kind of margins are we talking about as we continue to get leverage? Thank you. Right. So first of all, I think you already noticed that in the last 12 months, we have to start ramping up our business development staff, Particularly in U. S. And Europe. And we hired a brand new team in Europe. We hired a new automotive sales team in U. S. And we continue to size up our Asian sales team, particularly for automotive business. So from a Business development point of view, we have been hiring for the last 12 months. On the R and D side, if you look at our headcount, we go from 700 plus last year to 800 plus this year to give you a good indication that We're also ramping up our engineering resource, which already is part of our R and D expenses in Q1, Q2 and continue to be in the future. Our strategy is we're going to continue to invest more in terms of CV technology as well as More development cycles into our next generation phase product and also at the same time continue to develop the advanced nodes. We are at 5 nanometer. I believe there were multiple 5 nanometer chipboard coming out from our roadmap. And We need to start equator we need to go to when we need to go to 4 and the 3 nanometers, and it's already investment We need to do. But by saying that, I also want to emphasize that I think We have we continue to have leverage on our operating margin is a very important factor for when we look at how we're managing our business. So I think that we are in a position that we can continue to increase and improve our engineering And the business development investment, while continuing to see leverage on the operating margin point of view. Thank you for all that for me. Congratulations on the progress guys. Thank you for sharing. Thank you. Our next question comes from the line of Tore Svanberg from Stifel, your question please. Yes. Thank you and congratulations on the strong results. I just had a question on the guidance. So just so I make sure I understand this correctly. So basically $90,000,000 at the midpoint that assumes All the sort of industry wide shortages that are going on, so if there is some easing there, There could be some potential upside. Is that how I should read it? Yes. That's our best judgment right now, and we think that's the right guidance to But as you commented, and I think Fermi has as well, there's still a lot of activity going on up and down the food chain, and we have to keep an eye on that as well. Very good. And as my follow-up, could you elaborate a little bit more on CB5? I mean, it sounds like from a product development perspective, it's been A big success, very strong execution. When should we expect to see some production revenue and ramps for the CV5 product line? Right. First of all, CD5 is very important because it's going to be it is our most advanced technology Not only because of the fan and node, but also from the performance point of view. So this chip not only could do 8 ks video at 2 watt power, But also we can integrate multiple camera into the silicon and so that we can serve multi camera solution for automotive and for security. So basically, this is really for anybody who want to have a high end system, this is a perfect chip for them. And we have Already secured multiple design wins with the chip. And I believe that first half next year, We'll start see people start ramping up into mass production and material revenue coming second half next year. Sounds good. Congratulations again. Thank you. Thank you. Our next question comes from the line of Ross Seymore from Deutsche Bank. Your question please. Hey, guys. Thanks for letting me ask a question and echo the congrats to the strong quarter and the strong guide. Just wanted to get into the supply side again. Is the Tailwind from the Texas fab coming back online, a meaningful driver of the upside in the October quarter. And do you expect that to be Done in the October quarter and I realize there are shortages elsewhere, but I'm just trying to localize that one dynamic. I believe that the tax The foundry impact in Q4 will be minimal. I don't think it's totally end, but I don't think there's going to be severe impact to us. And also, I would I'd also add to that throughout this process, we work closely with our foundry partner Samsung, Try to address those problem and I think throughout this productive exercise, we know exactly where we are at and we communicate to customer Proactively, so although it's a crisis, but also definitely show not we have a great supplier, but also show to our customer that we are A trustworthy partner with them by continue communicating the problem and working with them to solve their problem. The other thing I'd reiterate again is those are the things we control. The things we don't control are parts for other people that we have to Kind of modify whatever parts that they're getting restrained on as well. So we're doing a great job. Our team is doing a great job of considering the things we can control, but there's obvious They always things that we can't control as well, so that's why we have some caution to it. Thanks for the color on that. And for my follow-up, I just want Return to the seasonality framework and Fermi, you mentioned earlier about considering the consumerother category as we look into the fiscal Q4. But if you put all the puts and takes into your 2 main categories, the IP security cameras and the automotive side of things, is seasonality Even an issue in there or given the fact that more supply is coming on, shortages in a bunch of different places, a ton of new product Design wins that you have and new product launches, etcetera, are those latter dynamics just overwhelming any seasonality in your core businesses as we look into the fiscal Q4 or Is seasonality consideration that we need to have? Yes. I think you're right. As we look forward, we've been saying that we think that part of that business So you had talked about at the end was going to go over the next 2 to 3 years, slowly decline. Now it does have some seasonality, it can be up and down, But really the focus point is what you started with. That's really where we're focused right now today. That's where we're getting the growth and the opportunities. And the traditional business, I think we'll have some quarters up and some quarters down. But overall, they'll be continuing to Deteriorate over the next 2 to 3 years. Thank you. Thank you. Our next question comes from the line of Suji Desilva from ROTH Capital, your question please. Hi, Fermi, Casey, Lewis. Congrats on recovering to record revenues in the long road Back, no pun intended. So a couple of follow ups. On the auto semis fleet management rather, a $50,000,000 to $60,000,000 unit opportunity, What do you think Amba's share opportunity there could be and what's the competitive landscape for fleet management? Right. So first of all, I think the biggest variable is how fast this video AI based video camera will penetrate into This market, right. Right now, majority of the market still doesn't have any video in there. So I think the biggest Question is how fast the penetration rate is going to be. I think that's a good question. We don't have an answer on that. But from the competitive landscape, I think The biggest competitor we're seeing is Qualcomm. They are selling their solution with 5 gs in there. So however, But with our power consumption, our much better video quality, our complete computer vision performance, we continue to achieve Much better performance on this market. So I think that we're competing with Qualcomm on this market, but at the same time, this market is relatively small. I hope that penetration rate will increase dramatically in the future when this technology become more widely available and being required by regulations, then that will change So, reading market dynamics. That's very helpful, Fermi, in terms of color. Hey, Suji, it's Louis. So I was just going to add, The installed base, as Fermi said, is 50,000,000 to 60,000,000 commercial vehicles in the world. And it's a market where there's a monthly reoccurring revenue for the service Providers, and it typically it's for telematics type applications and they view ADAS as very attractive because they can get incremental Monthly revenue by offering ADAS features, whether it's monitoring the driver or front facing ADAS Camera or both in the case of some of the announcements we've made. So this is an existing market and they're just adding additional services on Top of the telematics service they already offer. Okay. That's exciting, operator. Same for them. And then a follow-up on the CV5S52S products, Multi Imager, I just want to understand for me the architectural difference here. Your prior products could take in multiple video feeds, but that seems different from what you've done here. Is this Maybe 2 separate CV stacks handling different images independently versus before they were all feeding into 1. Is that the difference here or just trying to understand the difference? Well, it's really about total seat performance, right? In the past, we can taking 4 1080p30 videos. Now we can take in 4, 4 ks video. So we basically quadrupled all this video performance without increasing the power consumption. And basically and all you can look at, if you want to the 2 ks video, then we can take in 16 cameras and which really become if you look at the current Tom is driving people talking about more and more video into a 1 chip, but also even for security camera, there are other people working on Multi sensor, multi imager assistant for the security camera system. So I think this really play very well For those customers who want to build a high end system, because they want to continue to scale The size of the image as well as number of the string going to the chip. Okay, very helpful. Thanks guys. You bet. Thank you. Our next question comes from the line of Quinn Bolton from Needham and Company. Your question please. Hey, guys. So I just wanted to offer my But then follow-up on the automotive CV opportunity last quarter. I think you said you had surpassed 450,000 cumulative units. Wondering if You could give us an update on that figure or if you can't, could you maybe just comment whether that rate is accelerating? And then I've got a follow-up. Well, we can definitely offer you a number later and we'll make it public. We don't prepare a number, but definitely the trend continues. It didn't stop. Also, for example, last time we talked about our automotive revenue will double from last year to this year. I think that forecast continue hold and we Believe that we can deliver that. So just give you another indication, our automotive revenue continue doing well right now. Great. And the second question is sort of related with the fleet management wins starting production this year, guiding to higher revenue Next year, it sort of feels like perhaps that Wave 3 opportunity you've talked about maybe starting earlier. In CB for Professional, you certainly have some pretty good traction, but I haven't heard as many consumer camera applications. So kind of wondering, are you seeing Wave 3 perhaps becoming a bigger opportunity and perhaps, surpassing the Wave 2 consumer camera opportunity here over the next year or 2? Well, this year, when you talk about Amazon doing consumer IP cam and there are others coming up that we which we haven't announced yet. So we still feel comfortable that CV Wave 2 will be there. But you are right, our Wave 3, we are ahead of schedule, And we do believe that we can deliver better results than we promised in the past. Great. Thank you. Our next question comes from the line of Kevin Cassidy from Rosenblatt Securities. Your question please. Yes. Thank you and congratulations on the great results. Yes, I was going to ask about the Wave 2. Last quarter, you had talked about Ring introducing 2 new cameras based on CV. And I wonder just how that launch is going and can you talk about your pipeline going into The October and even into the January quarter for home security. One thing I can say is Amazon is one of the largest of our customers because of their CV partner line. I think that's definitely a Truth statement that we didn't say it, but I think that's one thing to highlight here. And also we believe that our consumer IP Can design win momentum is there. We are waiting for customer to be going to production this year And also more going to production next year. So I will say that our Wave 2 revenue is already materialized because of Amazon's design win and also that there will be more add to it later this year and early next year. Okay, great. And congratulations, I've been able to increase your inventory in this market. Is most of that CV product? Is the differences because it's higher priced product that the days of inventory are higher? Yes. That's definitely the part of the reason because you can see that the way we are growing our CV revenue, even at same unit number, our cost doubled. So that definitely adds to the total costs dollar sign wise in terms of inventory. But also I have to say that That also is a sign that we believe that we can continue to have a strong demand on our product lines. And that's why we continue to build up our inventory. And of course, the third thing is that we continue to worry about whether this Industry wide, show supply will continue and it's prudent for us to build up more revenue more inventory just in case That the shortage persists. So the combination of that is a reason we build out those revenues inventories. Right. Yes, I think that's very prudent. Thank you. Thank you. And due to time constraints, we ask that our participants from the forward simply ask one question and then move on to the next questioner. Our next question comes from the line of Andrew Buscaglia from Berenberg. Your question please. Good evening, guys. Hi. Hi. So, I just want to follow-up on the security side. Actually, so Maybe it's a 2 part, if you can, sir. I don't mean to cheat on the new rule here. Go ahead. You got time. Go ahead. Okay. So, security, yes, so your gross margin, you're kind of tracking towards the higher end or above the higher end of the kind of that range. Can you update us on some of those bigger professional guys coming back in a more meaningful way this year that I think you alluded to that gross margin kind of backtracking eventually again. And then maybe like I thought 10% Sequential growth in securities seems a little bit low considering you have this home security stuff coming. Can you talk a little bit more about that? Like I would think 10% in Q2 would be I think that would be a little bit higher number up sequentially. Well, first of all, I think that In China, I don't think Hikvision will come back anytime soon. I think that we have talked about this before. And on the one thing that we also like we talked about last time is on the high end security camera, We were impacted by the substrate and we continue to see that impact. Although the impact is not as big as Texas foundry situation, but we did talk about The sub trade supplier shortage definitely impact our CV revenue on the security camera and that impact continue to be there. So and that also reflect on our revenue forecast on our high end market. So that's just give you information about why short digital continuous is a problem for us. Okay. And again, it can be based off of other supplies that our customers need as well. And so part of it is an impact that we have and part of it is the other customers. Right. From a gross margin point of view, I think we continue to see that although we believe in the long term our revenue Sorry, gross margin guidance continue to be 59% to 62%. But because our momentum on the AI our CV solution ended, it's just been introduced recently, We start to continue enjoying the first to the Gantt gross margin, but eventually I think you will go back Down to 59% to 62% is our long term guidance. Yes. Okay. All right. Got it. Thank you. Great. Thank you. Our next question comes from the line of Brian Rettenberg from Imperial Capital. Your question, please. Yes. So I'll keep mine to 1. So on the security and automotive, can you break down that was 90% of your total revenue. Can you break down the difference between the 2? What's growing faster? Maybe give us a little trends, especially on the security side is Was in the low 20% range and that's a business we've said is going to more than double this year. And so that's clearly Has the largest SAM for us and we're demonstrating we can take advantage of that large SAM and it's growing at the fastest For security, security is in the mid-sixty percent range as a percent of our total revenue. Think of 2 thirds of that driven by what we call professional, that's enterprise CapEx driven as well as public infrastructure spending. And then the other third of the mid-sixty percent is coming from the smart home durable goods, Products like the Amazon devices that Fermi referenced earlier. Great. Thank you very much. Thank you. Our next question comes from the line of David O'Connor from Spandex. Your question, please. Great. Thanks for squeezing me in. Sticking to one question, maybe just one on the 2 40 customers You talked about Fermi on CV, 60 of them, I think, in production in the first half. What's the expectation For the second half, how many of those remaining customers do you expect also to be in production in the second half? Thank you. Well, first of all, I think we're going to continue to add This two forty number because we are going to continue to go into new market and even in the existing market, So to continue to talk to new customers. So that two forty number definitely will continue to grow. And I believe that this I don't have a concrete number to say, but I think it's going to be for example, last time we disclosed a number we're at 45, now we're at 60. So in fact, that's the pace we're looking at from a historic point of view. I would say that the pace will continue. Thank you. Our next question comes from the line of Martin Yang from Oppenheimer. Your question please. Hi, good afternoon. Thank you for taking the question. My one question is on Bosch. That design win with 3 platforms seems quite meaningful. Can you perhaps give us more context around the design win? Did you run into any competitors? Or how long did you Did it take you to bring that design? Right. So first of all, for Bosch, When we started this business 12 years ago, Bosch was the number the first one first customer to use our solution. And since then we've built a very strong relationship with Bosch. And throughout the years, they continue to use our product In most of their product line, they also use other like a Qualcomm for some other product line. So with the CV, I think right now, I think the Street Family Series are the only product I have introduced For the CV product line and they are all ours. So I think that our relationship with Bosch has been A long time and I would say it's very strong because we're collaborating many different ways. And also I'm happy to see that They are going to do this 3 families business CV product line and I hope and I believe there will be more to come from Bosch. Great. Thank you. Thank you. Our next question comes from the line of Tristan Gerra from Baird. Question on your software, we're seeing You know, sensor companies that are basically doing association with software and notably for L3, L4 applications. And I think you've mentioned in the past that The software that you used was really for AIMO purposes. So the question is whether What is your strategy in terms of software? Is that an opportunity later on in terms of recurring revenue C. Wei:] Or are you going to be solely focused on your front? C. Wei:] Right. So first of all, Right now, we focus on I think you're talking about automotive level 2, level 3 type of solution. Today, Our solution is Huawei only, but also we have shown many times that our software running Our EVA car for demo purpose. We definitely believe that our the software that we develop has value. And I think at our coming Analyst Day in January at CES, we will probably disclose more The direction and the strategy direction are we thinking about. Great. Thank you. Thank you. Our next question comes from the line of Derek Soderbergh from Collier Securities. Your question, please. Hey, guys. Congrats on the quarter. I wanted to bring it back to in cabin monitoring quick, specifically around that infrastructure bill. Are you guys hearing from customers or seeing that bill sort of impact OEM design plans at all? And generally, if this moves forward Quickly here, would you have the capacity to secure supply for that opportunity, just given the tight supply environment? Are those products more constrained in your portfolio at all? Any commentary there would be great. Great. First of all, we get involved a lot Encapping design win activities. And I think this is definitely a direction that become very it's a very hot topic at this point. And we're involving discussion not only in Europe and U. S, but also in China, Korea, Japan. Our strength is really for in cabin monitoring, you need a great video quality because the lighting condition is not ideal. And also you need to do CV performance, so you need a very power efficient solution. And also more importantly, I think that ink cabin cannot be just a one function product moving forward. Ink cabin need to be integrated by with Driver monitoring as well as ADAS is a 1 unit box that integrate all the interior and exterior function so that you can have a global picture of what's happening around the car. So I think this from a direction point of view, I think we have a great position offering To this market, in terms of supply, I have to say that based on my observation, Samsung supply to their customer better than TSMC can. I think TSMC is a lot full, a lot more Capacity constraint at this point in Samsung. So we outside of this Texas foundry problem, Although it's tight, Senso has never showed supply to us on our demand. So I will believe But we continue to talk to Senso about their delivery to us on the 10 nanometer and the 14 and 28 nanometer supply. I don't see any constraint other than the tax foundries at this point. Appreciate the color. Thanks guys. Thank you. Our final question for today comes from the line of Richard Shannon from Craig Hallum. Your question please. Thanks, guys. Fermi, your last response here, actually, it's 2 responses ago here about Solutions that need not only in cabin monitoring, but DMS, ADAS, etcetera, and the importance of putting those together. Are you seeing any other competitors that have Any of those functionalities put together or all of them, we'd love to hear the prospects there. And If not or if it's limited, can you talk about the leverage you're seeing in the market by having and be able to put that capability together? Right. So first of all, I think A lot of our competitors claim they have the similar solution, but if you look at the reality that in terms of the performance requirement, power requirement and also quality, Video quality requirements, we definitely is on top. So this trend is more obvious in China because China is really They don't have infrastructure yet, so they are definitely willing to pay for the more integrated solution. So that's why we believe that if there's any multifunction device happen, it will happen in China first and gradually moving to other spaces. But I also see a similar trend in Asia like Japan, Korea, but China definitely going to be the main driver for this one. Okay, great. Thank you, Praveen. Thank you. Thank you. This does conclude the question and After the session of today's program, I'd now like to hand the program back to Doctor. Fermi Wang for any further remarks. Yes, thank you. And very proud of what our employees have achieved in the face of so many different challenges in recent years. And I'm convinced Yes. From now, if we look back at the fiscal year 2022, this is going to be a major inflection point for Ambarella. And I'm very excited about our future. And with that, I say thank you and goodbye for now. Goodbye. Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.