Ambarella Inc
NASDAQ:AMBA
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
39.79
65.3
|
| Price Target |
|
We'll email you a reminder when the closing price reaches USD.
Choose the stock you wish to monitor with a price alert.
This alert will be permanently deleted.
Ambarella Inc
You don't have any saved screeners yet
Thank you for standing by and welcome to Ambarella Second Quarter Fiscal Year 2022 Earnings Conference Call. At this time, all participants are in listen-only mode. After the speaker's presentation there will be a question-and-answer session. [Operator Instructions] 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 second quarter fiscal year 2022 financial results conference call for the three months ending July 31, 2021. With me, today on the call is Dr. 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 second quarter 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 materially from these forward-looking statements. We're under no obligation to update these statements.
These risks, uncertainties, and assumptions, as well as other information on potential risk factors that could affect our business operations and financial results, are more fully described in the documents we filed with the SEC including the Annual Report on Form 10-K, 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 first quarter of the fiscal year 2022.
Access to our second quarter fiscal 2022 results press release, historical results, SEC filings, the transcript of our prepared remarks, and the replay of today's call can be found on the Investor Relations portion of our website.
Fermi will now offer a business update and then we will review the financial results, and then Fermi, Casey and I will be available for your questions. With that, I will turn it over to Dr. Fermi Wang.
Thank you, Louis, and good afternoon. Thank you for joining us today. We're pleased to report significant market and financial momentum as our AIoT transformation continues to play out. Q3 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, new product cycles in existing markets, as well as our penetration into entirely new markets. CV continues to drive our blended ASP higher, and the positive operating leverage inherent in our model was apparent with non-GAAP operating margin increasing 450 basis points, sequentially reaching 16.9%.
Cyclical forces continue to constrain our performance. Wafer supply from Samsung’s Austin, Texas 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 continues 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 a higher quality and with more diversification.
A majority of our revenues are now driven by enterprise CapEx, public infrastructure spending, and consumer durable good investment. For example, our Automotive and IoT camera business, mostly security cameras today both decisively achieved record quarterly revenue levels, while our non-focused other revenue, mostly discretionary consumer leisure goods, represented 10% of revenue or a record low.
Now, I will now update you on target market progress. In June, we announced the expansion of the 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 Linux OS, a new SDK including multi-imager and small form factors.
This new SoC camera supports applications requiring 360-degree coverage, long range viewing, advanced encoding, and AI performance to more accurately identify individuals or objects in a scene.
During the quarter, 8 weeks after receiving the first silicon, we shipped our first CV5S development systems and software developers kit to customers. This is a significant accomplishment on such an advanced node. And I'm thankful for the strong execution from 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-imager system, and our latest access control reference design based on our continuing partnership with Lumentum and ON Semiconductor.
We have already secured multiple design wins for the new CV5S, as well as new customers in the access control market. Motorola Solutions has become one of our largest customers, and we are pleased to see their announcement. They intended to acquire Openpath, 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 Avigilon, Pelco, and the IndigoVision, as well as Edesix, a UK - based police body-worn camera supplier, and WatchGuard, a supplier of police vehicle cameras. All of these companies are Ambarella customers. Ambarella’s CVflow AI vision SoC continues 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 introduced 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 on 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 two new customers today.
We're announcing two additional customers, Milesight and FSAN. First, Milesight introduced its CV25 based AI Pro Bullet network camera family available in 2, 5 and 8-megapixel version and including advanced analytics, people counting, face detection and ultra-low light operations.
Second, FSAN introduced a non-contact facial recognition temperature measurement system based on our CV28M SoC. The tablet device can recognize people with mask on, and use dual sensor.
Also during the quarter Canada based March Networks introduced its new VA series IP camera based on our CVflow processors. Our chipsets make them fully compliant with U.S. National Defense Authorization Act or NDAA, and power the camera's 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 allows OEMs and Tier-1s to create differentiated multifunctional products. Last quarter, we announced four examples from the Shanghai Auto Show. And this quarter, we are pleased to announce 3 additional wins KeepTruckin Yandex, and Solera.
Earlier in August, fleet management leader KeepTruckin announced it was partnering with Ambarella to deliver its new AI dashcam for front ADAS, driver monitoring and telematics.
The AI dash cam use a single CV22 SoC to simultaneously provide AI and image processing for its dual camera systems, which integrate one camera for the front ADAS with an incident recording and the second RGB IR camera for the driver monitoring system with recording.
This morning, we announced Yandex, a major internet service and product company introduced its SignalQ2 driver monitoring camera for its ride sharing partners, power by Ambarella CV25 SoC. The Yandex DMS camera will be deployed across Yandex taxi partner fleet, consisting of over 700,000 vehicles starting in 2022, and is also being offered to other delivery fleet companies.
Also, during the quarter, Solera's Omnitracs division announced its next-generation fleet solution using SmartDrive technology with our CV25 SoC. This combo system simultaneously process data from two sensors, monochrome and the RGB IR, to enable DMS and recording functionality.
In the passenger vehicle OEM market, Chinese car maker Dongfeng introduced its new Aeolus Max car featuring a driver monitoring camera based on Ambarella’s CV25AQ processor.
With this market progress you can see we're winning because of our efficiency, both in terms of performance per watt and the performance per dollar.
And our open platform and flexible architecture, which allow our customers to capture software value and introduce differentiated multi-featured combination systems. In conclusion, we are leading a significant shift in how cameras are used and providing the corresponding step-function increase in processing performance.
In addition to human viewing, all through a lens of a camera, data can be collected and then processed in our SoC, enabling a new level of safety, security, and efficiency through partial or complete level of automation across multiple industries. This processing we provide is occurring in purpose-built IoT edge endpoints, not in servers where it is 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 Ambarella, 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 in AIoT endpoints is a new and 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 22 ahead of the $360 million revenue reached in fiscal year ‘16. And we remain comfortable that CV revenue will be at least 25% of total revenue this year.
Before we get into the financials, I would like you to mark your calendars for our Capital Markets Day we plan to host at our Las Vegas CES location on Tuesday afternoon, January 4th. This event will allow us to more thoroughly discuss the inflection we are seeing and provide a corporate strategy update. With that, I'll ask Louis to review the Q2 financials and provide the Q3 outlook.
Thank you, Fermi. I will now review the financial highlights to the second quarter of fiscal '22 ending July 31st and provide a financial outlook for our Third Quarter of fiscal 22 ending October 31st. 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 remain 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 worked diligently to support the strong and broad-based demand, and they successfully minimize disruptions for our customers. Our revenue of 79.3 million 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 costs to manage the supply chain challenges, but the pricing environment in the mix remained relatively stable, sustaining gross margin above the high end of our long-term model. Non-GAAP operating expense for the second quarter was 36.4 compared to 35.4 million for the previous quarter; OpEx was slightly below the midpoint of our guidance as G&A was lower than forecasted.
We continue to demonstrate strong and positive operating leverage with operating margin on a non-GAAP basis up 450 basis points sequentially reaching 16.9% up from 2.2% a year ago. Other income of $218,000 reflects the low-interest-rate environment. The non-GAAP net income for Q2 was 13.1 million or $0.35 per diluted share compared with non-GAAP net income of 8.9 million or $0.23 per share in the first quarter.
In the second quarter, the non-GAAP earnings per share were based on 38 million diluted shares. The 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 34.5 million or 44 DSOs at the end of the prior quarter. Net inventory at the end of the second quarter was 42.1 million compared to 33.1 million at the end of the previous quarter. [Indiscernible] 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 goods inventory was down and at two-year lows. Our Q2 operating cash flow was a positive 14.4 million or about 18% of revenue. This compares with an outflow of 4.5 million the prior quarter.
Cash and marketable securities were 449.2 million up from 435.5 million at the end of the first quarter. We had 2, 10% plus customers in Q2, WT Microelectronics, a fulfillment partner in Taiwan who ships to multiple customers in Asia, represented 62% of revenue. And Chicony, the Taiwanese ODM who manufacturers for multiple customers, was 16% of revenue in the quarter.
DAVA and Hikvision combined represented a high single-digit proportion of our revenue. I will now discuss the outlook for our Third Quarter of fiscal 22. 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 persist. Our outlook is also constrained by shortages of other companies' components on our customer's bill of material.
Based on these factors and our best judgment at the current time, we expect total revenue for the third quarter ending October 31st, 2021 to be in the range of 88 million to 92 million revenue from automotive and IoT cameras, primarily security today, is expected to increase about 10% sequentially.
Another 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% and 63% compared to 62.8% in the Second Quarter.
While we're seeing some higher costs 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 of 59% to 62%. We expect non-GAAP OpEx in the third quarter to be between 36 million and 37.5 million.
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 38.3 million shares. Ambarella will be participating in the Jefferies one-on-one conference tomorrow, September 1st. Credit Suisse's Asian Technology Conference on September 7th.
Deutsche Bank and Collier's conferences, both on September ninth, Evercore Atotech and ai form on September Twenty-First, and Berenberg CEO Conference in New York on November 9th and as Fermi noted, please mark your calendar for our Capital Markets Day on January 4th at our CES location in Las Vegas. Thank you for joining the call today. And with that, Jonathan, I will turn it back to you for the Q&A session with Fermi and Casey.
Certainly, ladies and gentlemen, [Operator Instructions]. 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 a transformation of the Company, good execution. And my question relates to the progression of your quarterly revenue. You just grew revenue $9 million sequentially, you're expecting to grow $11 million in the current quarter sequentially.
And so I have no doubt that the demand is strong, but are those sequential increases largely a function of a strong demand backdrop, a 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 unfilled backlog, as of 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 on 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 million CV revenue and this year we do 25% total revenue oversight for CV. And you can calculate difference and that basically come from 2 different reason.
One is, we talk about this all CV ASPS 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 2 things. One is new product cycles in existing markets, for example, our security camera.
They [Indiscernible] the oldest video-only products replaced by AI-based video cameras. And also we're reaching into new markets. We talk about access control, we talk about automotive, we have DMS, we have all kind of multi-function devices that we're penetrating into. So this combination of those things on the CV side, basic provide the majority of growth.
On the supply side, Texas foundry was a problem in Q1 and Q2, but it will recover on Second Half like Louis said, and that will become less impact. And we'll still be impacted by other component shortage for our -- because of our customers 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 [Indiscernible] I don't see that become Q3, Q4 [Indiscernible] in Q2 impact from this point-of-view, follows -- go ahead.
Good. I was just going to say, my follow-ups related, and so if you have more supply coming on against a backdrop of strong demand, and I know your other business might be seasonally soft in the Fourth Quarter, all those things considered, do you think you can grow your Fourth Quarter revenue sequentially?
We haven't provided guidance yet, but however, it's like you said, you know, our non -- our consumer -- our traditional consumer business as a seasonality in there to play industry, we'll consider that. But I do believe that our CV revenue continue to be strong, not only for this year, but will continue to be strong in the near future because, like I said, we see a huge amount design win activity, we talked about 200 plus customer purchasing our CV [Indiscernible] and also only 60 of them are in production right now.
So you see there's a big momentum on the CV side. I will prefer to look at as long-term business, [Indiscernible] 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 therefrom KeepTruckin and Yandex, and a couple 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 guys talk about where we are with OEM penetration of 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 how we called it. And most of those are commercial vehicles. And first of all, I think that market is sizable. I think the existing market is -- the vehicle is roughly 50-60 million units and grow at 10% a year.
And we believe that the -- all the designs we just mentioned this time, and in the previous time, what most -- majority of their working production this year and ramping up next year. You should start seeing revenue this year and hopefully then can see a lot more next year.
And in terms of passenger vehicles, I mean it's part of the European NCAP standards already. It seems there should be some adoption in luxury passenger vehicles relatively soon?
Well, we -- first of all, we talked a lot about our Chinese design wins already. But for the European, US, we are not allowed to talk about, but I definitely think that's a focus area that we continue to work hard to make sure that we make [Indiscernible]
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, Fermi, it's pretty obvious from the strong results and the momentum that you guys are seeing that one of the thesis points around HiSilicon 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, I think a couple of new security customers from China on the call today, talked about the momentum with Motorola and all of their subsidiaries, and a lot of folks that are shipping into the 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 [Indiscernible] and you've taken 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 HiSilicon 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, Hikvision and Dahua use our silicon for export business mainly. So it's not surprise for us that we continue to have a strong holding on the outside China. But inside China we start picking up some market like we talked about that while we talked about now four new Chinese [Indiscernible] 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 start-up or existing Company try to compete, and try to grab a share [Indiscernible]. Bu t however, I will 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 like we do, right? We talked about our CVflow SoCs. We talked about six different silicon cover with very wide range of performance and wide range of ASPs. We see strong competition on the low-end side, we see very little everywhere else.
So I think that we 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-ends moving forward.
Got it. No, that's really helpful color Fermi. As my follow-up question, 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 some COVID headwind back then.
But I guess my question is, how do you feel the Company -- the question for all three of you guys is, how do you feel the Company is staffed and funded right now, both from a sales, marketing, biz dev point of view, and obviously from an R&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. First of all, I think you already noticed that in the last 12 months, we have to start ramping up our biz dev on the staff, particularly in US and Europe. And we hired a brand new team in Europe, we have -- hired a new automotive sales team in US and we continue to size up our Asian sales team, particularly for automotive business.
So from a biz development point of view, we have been hiring for the last 12 months. On the R&D side, if you look at a high count, we go from 700 plus last year to 800 plus this year to give a clear indication that we're also ramping up our engineer resource, which already is part of our R&D expenses in Q1, Q2 and continue to be in the future.
Our strategy is we got to continue to invest more In terms of the CV technology, as well as more development cycles into our next generation faced product. And also at the some time continued developed the advanced notes. We [Indiscernible] which I believe they will multiple five-nanometer chip are coming out from our roadmap. And we need to start it. We need to go to, we need to go to 4 and the 3 nanometers, and it's all really investment. We need to do.
But by saying that I also want to emphasize that I think that we continue to have leverage on the operating margin, it's a very important factor for we look at how we manage our business. So I think that we are in a position that we can continue to increase and improve our engineering and business development investment while continuing to see the leverage on the operating margin point of view.
Thank you for all that's Fermi. 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. Just had a question on the guidance. So just so I make sure I understand this correctly. So basically, 90 million 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?
Yeah, that's our best judgment right now. And we think that's the right guidance to have today. But as you've 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.
Thank you. And then, as my follow-up, could you elaborate a little bit more on CV5? 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, CV5 is very important because it's going to be -- it is our most event technology, not only because of financial, but also from a performance point of view. So this chip not only can do 8K video at 2-watt power, but also we can integrate multiple camera into the Civic and so that we can serve multi-camera solution for automotive, for security.
So basically, this is for anybody who wanted to have a high-end system, this is the 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 -- people start ramping up into mass production and mature revenue coming second half of 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?
Hi, guys. Thanks for allowing me to ask a question, and I 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 [Indiscernible] 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's shortages elsewhere, but I am just to localize that one dynamic.
I believe that the [Indiscernible] 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 also add that throughout this process, we work closely with our founding partner, Samsung, try to address those problems, and I think throughout this productive exercise, we know exactly where we're at, and we communicate to our customer proactively.
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 continuing 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 modify whatever parts 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 obviously 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 wanted to return to the seasonality framework. And Fermi, you mentioned earlier about considering the consumer slash other category as we look into the fiscal Fourth Quarter.
But if you put all the puts and takes into your two main categories, the IP security cameras in the automotive side of things, is seasonality even an issue in there or given the fact that more supplies coming on, shortages in a bunch of different places, a ton of new product design wins that you have a new product launches, et cetera.
Are those ladder dynamics just overwhelming any seasonality in your core businesses as we look into the fiscal Fourth Quarter or a seasonality consideration that we need to have?
Yeah. I think you're right. As we look forward, we've been saying that we think that part of the business that you had talked about at the end was going to go over the next 2-3 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 2-3 years.
Thank you.
Thank you. Our next question comes from the line of Suji Desilva from ROTH Capital. Your question, please.
Hi, Fermi, Casey, Louis. Congrats on recovering the record revenues in the long road back, no pun intended. So on a couple of follow-ups. On the auto semi fleet management rather, a 50-60 million unit opportunity, what do you think [Indiscernible] opportunity there could be and what's the competitive landscape for fleet management?
So first of all, I think the biggest variable is how fast this AI-based video camera will penetrate into this market. Right now, majority, majority, majority of the market still doesn't have any video in there. 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 insight on that. But for the competitive landscape, I think the biggest competitor that we are seeing is Qualcomm. They are selling their solution with 5G in there. However, with our power consumption, our much better video quality, our computer vision performance, we continue to achieve much better performance on this market. I think that we're competing with Qualcomm in 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 are being required by regulations, then that will change the reading market dynamics.
That's very helpful Fermi, in terms of color.
Hey Suji, it's Louis. I was just going to add the installed base as Fermi said is 50 to 60 million 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 futures, whether it's monitoring the driver or front-facing ADAS camera or both in the case of some of the announcements we've made. This is an existing market and they are just adding additional services on top of the telematics service they already offer.
Exciting [Indiscernible] thanks for them. And then a follow-up on the CV52s products, multi-image or I just want to understand Fermi 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? I just don't understand the difference.
Well, it's really about total seat performance. In the past, we can take in four 1080p 30 videos. Now, in taking four 4K video. So we basically quadruple the video performance, we are increasing the power consumption.
And basically, and, or you can look at-- if you want the 2K video, then we can take in 16 cameras and which really because if you look at the current harmless driving people are talking about, more video into one chip, but also even for security camera, there are other people working on multi-sensor, multi-image assistant for the security cameras [Indiscernible] 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 Image as well as, number of strength going into the chip.
Okay, very helpful. Thanks guys.
Thank you. Our next question comes from the line of Quinn Bolton from Needham & Company. Your question, please.
Hey, guys. I just wanted to offer my congratulations, 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 [Indiscernible] the trend continues. It didn't stop. Also, for example, last time we talked about our automotive revenue, well, 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.
The second question is related with the fleet management wins starting production this year regarding to higher revenue next year. It feels like perhaps that Wave 3 opportunity, you've talked about, maybe starting to earlier in CV 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 two?
Well, this year, when you talk about Amazon doing consumer IP [Indiscernible], and there are others coming up that we have announced yet. So we still feel comfortable that CV Wave 2 warping there. But you're right, our Wave 3 we're ahead of schedule and we do believe that we can give you a better result than we promised you in the past.
Great. Thank you.
Okay. 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. Yeah, I was going to ask about the Wave 2. Last quarter you had talked about Ring introducing two new cameras based on CV and I wondered 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 our customer because of the CV [Indiscernible] I think that's definitely true [Indiscernible] that we even said, but I think that's one thing to highlight here.
And also we believe that our consumer [Indiscernible] We are waiting for customer to be going to production this year and also more will go into production next year. I will say that our Wave 2 revenue is already materialized because of the Amazons design win. And also that there will be more added to it later this year and early next year.
Okay. Great. And congratulations to have 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 proper reason because you can see that, you know, the way we are growing our CV revenue, as saying unit number, our cost doubled. So that definitely add to the total costs, [Indiscernible], in terms of inventory. But also, I have to say that that also is a sign that we believe that we can continue have a strong demand on our product lines. And that's why we continue to build up our inventory.
Of course, the third thing is that we continue to worry about whether this industry-wide show supplier will continue and is prudent for us to build up more revenue -- more inventory, just in case that the shortage persist. The combination of that is the reason we built up those inventories.
Right. I do think that's very prudent. Thank you.
Thank you. And due to time constraints, we ask that our participants from 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.
So I just want to follow up on the security side. Actually, so maybe two part if you can't then I don't mean to cheat on the new rule here.
Go ahead. We got time, go ahead.
Security, yes, your gross margin, you're tracking in towards the higher end or above the higher end of that range. Could you update us on some of those bigger professional guys coming back in a more meaningful way this year that you guys had alluded that gross margin is backtracking eventually again.
And then, I thought 10% sequential growth in securities, it seems a little bit low considering you have this home securities upcoming. Can you talk a little bit more about that? I would think 10% in Q2 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 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'll continue to see our impact.
Although the impact is not as big as [Indiscernible] issue, but we did talk about the substrate supplier shortage definitely impact our CV revenue on the security camera and that impact continue to be there. And that also reflect on our revenue forecasts on our high-end market. So that just give you information about why [Indiscernible] continue as a problem for us.
Okay.
And again, it could be based off of other supplies that our customer [Indiscernible] --
That's right.
-- as well. And so part of it is an impact that we have, and part of it is the other customers.
Right. From the gross margin point of view, I think we continue to see that although we believe in the long term gross margin guidance continues to be 59 to 62, but because our momentum on the CV solution ended just being introduced recently, and we'll start -- we'll continue enjoying the [Indiscernible] again, gross margin, but eventually I think you will go back down to 59% to 62% as our long-term guidance.
Yeah. Okay. All right. Got it. Thank you.
Thank you. Our next question comes from the line of Brian Ruttenbur from Imperial Capital. Your question, please.
Yes, I'll keep mine to one. So on the security and automotive, that was 90% of your total revenue, can you break down the difference between the two? What's growing faster? Maybe give us a little trends, especially on the security side is where I'm more focused on what you are seeing?
Hey, Brian, it's Louis.
Hey, Louis.
So the automotive business was in the low 20% range and that's a business we've said is gaining more than double this year. And so that clearly has the largest sum for us. And we're demonstrating we can take advantage of that large sum and it's growing at the fastest rate for security -- securities in the mid 60% range as a percent of our total revenue, think of two-thirds of that driven by what we call professional.
That's enterprise capex driven as well as public infrastructure spending. And the other third of the mid-60% is coming from the SmartHome durable goods. Products like the Amazon devices that Fermi referenced earlier.
Right. Thank you very much.
Thank you. Our next question comes from the line of David O'Connor from Exane BNP Question please.
Great. Thanks for squeezing me in. Sticking to one question. Maybe just one on the 240 customers, you talked of those, 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 of second half? Thank you.
Well, first of all, I think we continue to add to this 240 number because we are going to continue to go into new market, and even in the existing markets, we saw it's continuing to [Indiscernible] new customers. So that 240 number definitely will continue to grow.
And I believe 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 were at 45, now we're at 60. So in fact that's a pace we're looking at on 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.
Thank you for taking the question. My one question is on Bosch. That design win with three platforms seems quite meaningful. Can you perhaps give us more context around the design wing? Did you run into any competitors, or how long did you -- did it take for you to bring that design?
Right. First of all, for Bosch, when we started this business 12 years ago, Bosch was the first one, the first customer to use our solution. And since then we've build 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 solution like a Qualcomm for some other product line.
But with the CV, I think right now, I think the [Indiscernible] are the only product that 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 three 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. Your question, please.
Hi, guys. Question on your software. We're seeing [Indiscernible] of companies that are basically doing association with software, [Indiscernible] for L3, L4 applications, and I think you've mentioned in the past that the software that you used was really for [Indiscernible] purposes.
The question is whether your strategy in terms of software, is that an opportunity later on in terms of recurring revenue monetization or are you going to be solely focused on [Indiscernible]?
Right. So first of all, right now, we focus on -- I think you were talking about automotive level two, level three type of solution. Today, our solution is power only, but also we have shown many times that our software running our EVA car for demo purpose.
We definitely believe that the software that we develop has value. And I think as our coming analyst day in January, our CES, we will probably disclose more the direction and the strategy direction that we're thinking about.
Great. Thank you.
Thank you. Our next question comes from the line of Derek Soderberg from Colliers 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 on a lot in-cabin designing activities. And I think this is definitely a direction that is a very hot topic at this point. And we're in discussion not only in Europe and in US 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 needed a CV performance and so you need a very power-efficient solution. And also, more importantly, I think that in-cabin cannot be just one function product moving forward. In-cabin need to be integrated by -- with driver monitoring, as well as ADAS as one unit box that integrate all the interior and exterior functions 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 of offering to this market. In terms of supply, I have to say that based on my observation, Samsung supply to their customers better than TSMC [Indiscernible]. I think TSMC [Indiscernible] a lot more capacity constraints at this point than Samsung. So we are outside this [Indiscernible], although it's tight, sensor, has never showed supply lines on our demand.
So I will believe that we continue to tell the sensor about their delivery to us on the 10-nanometer and 14 and 28-nanometer supply. I don't see any to have strength other than the [Indiscernible] 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 2-3 responses ago here, about solutions that need not only in-cabin monitoring, but DMS, ADAS, et cetera, and the importance of putting those together.
Are you seeing any other competitors that have any of those functionalities put together for all of them? We'd love to hear the prospects therein, 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 [Indiscernible] 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 obviously in China because China 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'll happen in China first and gradually move into other spaces. And but I also see a similar trend in Asia like Japan, Korea, but China definitely goes with the main driver for this one.
Okay. Great. Thank you, Fermi.
Thank you.
Thank you. This does conclude the question-and-answer session of today's program. I'd now like to hand the program back to Dr. Fermi Wang for any further remarks.
Yes, thank you. I'm very proud of what our employees have achieved in the face of so many different challenges in recent years. And I am convinced, years from now, if we are looking back at fiscal year '22, 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.