Ambarella, Inc. (AMBA) Q2 2020 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen. And welcome to the Ambarella Second Quarter Fiscal Year 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later we'll conduct the question-and-answer session and instructions will follow at that time [Operator Instructions]. As a reminder, this call is being recorded. I would now like to introduce your host for today's conference, Mr. Louis Gerhardy, Head of Corporate Development and Investor Relations. You may begin.

Thank you, Skylar. Good afternoon. And thank you for joining our second quarter fiscal 2020 financial results conference call. Our speakers will be 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 2020. 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 are under no obligation to update these statements. These risks, uncertainties and assumptions, as well as other information on potential risk factors that could affect our financial results are more fully described in the documents that we file with the SEC, including the annual report on Form 10-K filed on March 29, 2019 for fiscal 2019 ending January 31, 2019 and the form 10-Q filed on June 7, 2019 for the first quarter of the fiscal year ending January 31, 2020. Access to our second quarter fiscal 2020 results press release, historical results, SEC filings, and a replay of today's call can be found on investor relations portion of our Web site. I will now turn the call over to Dr. Fermi Wang.

Thanks, Louis aAnd good afternoon everyone. Before I discuss our results, I will provide an update on geopolitical factors that may continue to impact our business. New and old hire tariffs, market share shifts between our customers and supply chain issues continue to be potentially disruptive and the several of our customers in China continue to face the risk that maybe added to the U.S. government entity list, which could limit or restrict our shipments to them. At the same time, our largest competitor in the security camera semiconductor market, HiSilicon, a unit of Huawei is facing challenges that are helping us gain market share. As you can see, there are multiple factors, positive and negative, that yield a wide range of outcomes for us. We continue to demonstrate strong progress toward our strategy to transform from a pure video processing company to an AI and the computer vision company. During Q2, three customers including one up in the automotive market generated Max production CV revenue. CV design activity remains strong. In Q2, we generated pre-production CV revenue for more than 40 customers, ordering engineering parts, evaluation kits and/or development boards. Driven by demand for our core video processing portfolio, our confidence in our fiscal year 2020 outlook has increased despite the geopolitical uncertainty. Our Q2 fiscal year 2020 revenue over $56.4 million was above the high end of our guidance range, and revenue increased 20% from the $47.2 million in the prior quarter. Three factors are driving the strong outlook in our core business. First, underlying demand at our largest security camera customer in China has improved, as noted by this customer in their recent earnings reports. Second, this solid demand outlook for security camera is being fortified by our global market share gains. And third, there's some inventory restocking in China. I will now talk about our progress in our target markets starting with the security. We've seen professional security camera makers increasing orders for shipments in the second half of the year. We are continuing to gain market shares at the customer outside of China, as well as Chinese customer for camera models to be exported to Europe and the U.S. We're also seeing widespread adoption of our CV solutions in the professional security camera market with both large established players, as well as with the new group of emerging private players. We're excited to announce that Avigilon a Motorola solution company will be releasing its new H5A AI powered camera line in the coming weeks. The new camera line lays the foundation for Avigilon's next generation of intelligent video solutions, and offer the new era of AI innovation in video security. Based on Ambarella's CV22, CVflow AI processor, the new cameras feature Avigilon's next generation video analytics that leverages the chip's neural network based video processing and events image capabilities to help recognize and to classify different objects with extremely high accuracy. And in July, German engineering giant, Bosch, honored Ambarella with its prestigious Bosch Global Supplier Award for their energy and building technology business. The award recognized Ambarella's performance in the manufacturing and the supply of products and services, notably in the area of innovation, quality, costs and logistics. This year, Bosch awarded 47,000 of its 43,000 suppliers, representing its top suppliers across an array of industry and in 15 different countries. Ambarella has been a supply of SoC for Bosch IP cameras for over 10 years. During the quarter, leading Korean security camera supplier Hanwha Techwin released its new Q series of camera with models ranging from 2 mega and 5 mega resolution and in-box minitone and the multi-PCB form factors. All of new models are based on Ambarella's S3L HEVC SoCs, our first wins in professional models as its customer. Hanwha has stated that they will use Ambarella's CVflow SoC as they introduce new camera with integrated AI capabilities. At the IFSEC, international security show held in London in June, real professional IP camera maker, Vaion introduced its vcam dome in the panoramic cameras based on Ambarella's CV22 CVflow SoCs, with embedded video and audio analytics powered by AI algorithms. Vaion’s end-to-end surveillance solutions can detect threats in their earlier stage and perform fast and effective investigations. And in August, U.S. based Verkada introduced its new Ambarella's based CM61 camera design to give customer the flexibility to add 4K video coverage everywhere. The solutions' hybrid cloud architecture supports ease of installation and the usability for minimize bandwidth usage without sacrificing 4K quality or performance. And in the consumer home monitoring market, which we previously mentioned, is the second wave our CV revenue we see increasing demand for camera solutions with greater intelligence as customers demand cameras with smart motion detection that notify user only in the event that something interesting is happening. In future, such camera will also be capable of identifying people, as well as classifying objects and that this level of intelligence while increasingly require dedicated AI hardware in the cameras. We also see cameras being offered as part of a broader IoT ecosystem that support similar integration with other devices in the home. During the quarter, U.S. based alarm.com introduced its V723 and V523 intelligent outdoor and indoor cameras based on Ambarella's S5L SoC, an operating Wi-Fi connectivity, full HD video and night vision. And Samsung SmartThings introduced its SmartThings camera [indiscernible] camera based on the Ambarella's H2LM SoC, clearly for $90 it offers full HD video, wide-angle operation, HDR processing and a two-way audio. LifeShield, an AT&T Company, introduced its LifeShield HD Video Doorbell, which integrates seamlessly with it's the security systems. Based on Ambarella's S2L SoC, the camera offers voice support for Amazon Alexa, allowing it to control alarm systems, adjust lightings and managing thermostat via voice command. We are also seeing new opportunity for cameras being integrated into smart locks. During this quarter, Hikvision's consumer division, EZVIZ, introduced its DL30VS smart-lock with building 720p wide-angle camera and night vision capabilities. Based on Ambarella's H3LM SoCs, the lock camera can detect when intruders are lurking and take a snapshot or record a video clip to send to the homeowner. In summary for IP security camera market, our sales are expanding both professional and the consumer markets are growing as we take market share and as we continue to make excellent progress in designing our CVflow SoCs into a next generation of AI cameras. I will now update you on our automotive market progress. In July, leading Korean automotive tier 1 Hyundai Mobis announced that it had developed a camera monitor system using cameras and monitors to replace a vehicle's rear and the side view mirrors. The system enables vehicles to achieve greater fuel economy by eliminating the track of the side mirrors, while the cameras widefield of view enhance driver safety by reducing blind spots. Ambarella's A9AQ Automotive SoC provides the image processing for all three of the video channels. We're also seeing increasing interest in our computer vision SoC from companies that provide a fleet management solution for commercial vehicles, such as trucks and buses. Existing camera solutions for commercial market typically lack intelligent features and can only run analytics in the cloud. With Ambarella's CVflow portfolio of AI chips, the solution providers can now deploy AI based applications, such as front ADAS, active driver monitoring system and blind spot detection in vehicles. Our CVflow solution has been chosen by multiple providers in Asia and USA with one generating mass production revenue in Q2, and others expect to be entering production by the end of the year. We continue to win car recorder designs as Asian automotive OEMs increasingly offer this feature in new car models as a pre-installed option. During the quarter, Chinese car maker Geely introduced its new Emgrand GS and GR models featuring full HD car recorder based on Ambrella's A12 automotive SoCs. Additionally, Great Wall Motors introduced its WEY VV6 SUV with one camera and three camera DVR options based on Ambrella's A12A and H22A automotive SoC, and the new electric car, the ORAR2 featuring a recorder based on our A12A. In aftermarket dash camera category, Korean supplier Thinkware announced its QXD MEGA recorder based on Ambrella's A9AQ Automotive SoC, the first four channel full HD car recorder in Korea. Additionally, Thinkware introduced its V500 Plus 2-channel dash camera based on Ambrella's A12 SoC. Also in Korea, Fine Digital, introduced its GX200 and GX2000 model based on Ambrella's A12 SoC, featuring Quad HD front and full HD rear recording, smartphone connectivity and auto night vision. In summary, we're just starting to realize our vision to enable Big Data analytics in video HD endpoint devices or AI in the camera. As this play out, we expect to see multibillion dollar increases in our addressable market. Our CV solution integrates our state-of-the-art video processing heritage with our recently deployed deep neural network AI processor. This is evident now that customers who are experienced with our video processors are able to efficiently migrate to our CV solutions, and our CV portfolio is also attracting new customers and expanding our customer base. We are on schedule to realize the three ways of CV revenue articulated on our last earning call, and we're pleased to see the improvements in our Q3 forecast of core video processing models. There are many distractions in the market today and I'm thankful Ambarella's global team is keeping up with a strong pace of execution. And also thanks to all of our stakeholders, including our 754 employees, customers, vendors and shareholders for our support. Now, I will turn the call over to Casey for the second quarter financial details and guidance for our third quarter of fiscal year 2020.

Thank you, Fermi, and good afternoon everyone. Today, I'll review the financial highlights for the second quarter of fiscal 2020, and provide a financial outlook for our third quarter of fiscal 2020, as well as full year. During the call, I'll discuss 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. Our Q2 revenue of $56.4 million exceeded the high-end of our guidance of $51 million to $53 million. These results represent an increase of 20% from Q1 and a decrease of 10% when compared to the same quarter of the prior year. In Q2, on a sequential basis, security revenue increased, automotive was relatively flat and other revenue was down. Non-GAAP gross margin for Q2 was 58.1% compared to 59.6% in the preceding quarter, and was slightly above the midpoint of our guidance of 57% to 59%. Non-GAAP operating expense for the second quarter was $27 million compared to $29.9 million for the previous quarter. This was below our guidance range of $29.5 million to $31.5 million due to R&D grants of $3.2 million for fiscal year '19 and the first half of fiscal year '20. We will be including this benefit on a quarterly basis in our operating expense guidance in the future quarters. Other income was $2.2 million and primarily represented interest income on our cash and marketable securities. GAAP net income for the second quarter was $7.3 million or $0.21 per share compared to $266,000 or $0.01 per share in the first quarter. The non-GAAP effective tax rate in Q2 was 9.1%. In the second quarter, the non-GAAP earnings per share were based on 33.9 million shares as compared to 33.5 million shares in the prior quarter. Total headcount at the end of the second quarter was 754 with about 81% of our employees dedicated to engineering, most of whom are software engineers. Approximately 70% of our total headcount is located in Asia. In Q2, we generated positive operating cash flow of $8.1 million. Cash and marketable securities were $376 million, up from $366 million at the end of the first quarter. We did not repurchase stock during the quarter under the $50 million repurchase program authorized through June 30, 2020. Total accounts receivable at the end of Q2 were $27.9 million, or 46 days of sales outstanding. This compares to accounts receivable of $26.5 million or 50 days sales outstanding at the end of the prior quarter. Net inventory at the end of the second quarter was $17.4 million compared to $17.6 million at the end of the previous quarter. Days of inventory declined to 67 days in Q2 from 85 days in Q1. We had two 10% plus revenue customers in Q2. WT Microelectronics, our fulfillment partner in Taiwan came in at 55% of revenue and Chicony, a Taiwanese ODM, who manufactures for multiple customers, came in at 21%. I will now discuss the outlook for the third quarter of fiscal 2020. For Q3 fiscal 2020, we are raising our revenue guidance above the current street consensus. We expect total revenue for the third quarter to be in the $63 million to $67 million range. We anticipate all market segments led by automotive but including security and other to increase sequentially. We continue to expect other revenues comprise primarily of consumer electronics products to remain volatile, and decline as a percentage of revenue over the next two to three years. Although, forecasting is difficult in the current environment, we continue to expect our revenue to increase in the second half of the year when compared to the first half with fourth quarter revenue experiencing the normal seasonal sequential decline. The global economic and political environment is generating a significant amount of uncertainty with our customer outlook and our customer supply chain. Three key factors are impacting our gross margin results and our outlook. Our professional security camera business is experiencing strong underlying demand globally. Combined with some restocking at our Chinese customers, they are growing faster than the market. And with their purchasing power as the number one and number two suppliers globally, this puts pressure on our gross margin. To support our increased revenue outlook and demanded supply chain challenges from geopolitical factors, we may also experience increased costs as we accelerate orders to our suppliers. In addition, rising tariffs may have a greater impact on our customers' ability to sell their products incorporating our higher margin devices. Based on these factors, we estimate Q3 non-GAAP gross margin to be between 56% and 58% compared to 58% in the second quarter. We expect non-GAAP OpEx in the third quarter to be between $30 million and $32 million. We expect to continue to provide positive operating leverage as revenue increases. The Q3 tax rate should be modeled at 10% versus 9.1% in Q2, and 36% in Q1. The tax rate has started to normalize from Q1 levels as our increased level of profitability enables tax losses in certain jurisdictions to be utilized. We estimate our diluted share count for Q3 to be approximately 34.4 million shares. Ambarella will be participating in the Dougherty & Company Institutional Investor Conference on September 5th in Minneapolis and the 26th Annual CLSA Investor Forum on September 12th in Hong Kong. Please contact Louis for more details on these events. Thank you for joining us on our call today. And with that, I'll turn the call over to the operator for questions.

[Operator Instructions] Our first question comes from Joe Moore with Morgan Stanley.

I wonder if you could talk about the Chinese inventory accumulation you referenced it again. Any sense for how much that's contributing to the top line last quarter and this coming quarter? And how long you expect that to continue to happen?

Well, like Casey said, I think the upside that we have seen right now is a combination of our Chinese customer accumulating inventory, as well as their business getting stronger. And at this point, it's hard for us to differentiate between these two. But however, we continue to believe that our Chinese customers will continue to build our inventory until to a level they feel comfortable. And that reflects on our Q3 forecast. But also because their business -- ongoing businesses also have a strong demand, and that's why we provided higher revenue forecast for Q3. I do believe that with the uncertainty of two customers might get onto the entity list they will definitely try to build inventory level till they are comfortable.

And then it seems like with the visual announcements and the others, you're starting to see real kind of announceable traction in the surveillance space. Can you give us a sense for when the CV contribution -- as that starting to become material in the second half, and just, if you look at your professional business next year? Can you kind of just give us a qualitative sense for how much CV ramps within the portfolio?

Like I said last time, we expect that -- we said that nine of the top 10 professional CV customers are doing design with us. Now, we are believing five of them will get into the mass production stage at the end of this year, so that we do see revenue coming out this year. But I think material revenue contribution will come from next year, particularly on the professional security camera side. And that definitely help us to get better gross margin as well as market share.

Our next question comes from Matt Ramsey with Cowen. Your line is now open.

I guess, Fermi, you'd talked on the call about a number of different design wins and engagements that you guys have for the computer vision program. Obviously, some are in China, many are not. Maybe you could just talk a little bit and Casey, obviously chime in where you can. But how do you feel about the pipeline for CV in terms of what percentage of that might be in China versus outside? Thank you.

First of all, really the answer is different from markets to markets. So let me repeat some of the thing we said. First of all, we said there are three CV customers in production with us at this time in Q2 and Q3. And I will say, one is outside China, two are inside China. But if you look, I also talked about we have 40 revenue customers with, or CV revenue customer this quarter, and almost all of them are in the security camera, as well as in automotive. In security camera, the majority is outside China and the auto, I would say, half a half. But I think that's definitely the split we're seeing. But one thing I have to say is that the moment on the CV design that people are trying to find the pre-production chip or evaluation board that activities continue to be strong for us.

I guess as a follow-up question for me, I think, Casey, in your prepared script, you had mentioned that the guidance for the third quarter would be led by automotive. Maybe you could talk a little bit more specifically about which programs you see ramping and the split across, maybe e-mirrors and different types of cameras that are going into automotive, that might be driving that revenue for the third quarter? Thank you.

Well, on the product side, I'll let Fermi talk about that a little bit. But clearly, the revenue today is being driven in the automotive space by our vision-based or our video-based products. As we talked about in automotive, the ability to get mass production revenue off of CVs is a longer term story, and that's why we talked about the first two ways being the professional security or surveillance and the consumer home that we talk about. But I think it's kind of -- in the vision based, initially, we were led by the aftermarket in the video recorders and then -- and that's now getting adopted more and more in the OEM as we talked about. And so that certainly is leading the revenue in the auto space is the recorder business. But we are seeing traction across the announcements that again Fermi's talked about in the e-mirror space, cabin monitor, driver monitor and the fleet type of opportunities that we just announced during the quarter. So I think, it will become more broad based. But today, it still is primarily driven by the video recorders.

As you can see that in our announcement, we mentioned few -- several design wins with the Chinese and Japanese OEMs for recorders. But we also mentioned that we have a mass production product with driver monitor system for the aftermarket business, and that's basically of fleet management with the CV revenue. So I think that also we've announced that Korean company doing e-mirror with us. So although, majority of the revenue, Q3 revenue, come from recorder especially OEM recorders but also we start talking about revenue coming from other the portions of the OEM business.

And if I could just sneak one more in guys, Casey, you mentioned Q4 being normal seasonality, the last couple of fiscal years have been a bit abnormal, I would guess. Maybe you could remind us what you guys consider normal for Q4? Thanks.

Yes, I think if you look back over a longer period of time, say three to five years, you would see that Q4 is usually down in the low double-digits, somewhere between 12% and 15%. And that's just based off of the last few years. So I would expect we'd see that similar type of activity in our Q4 as well. But as you point out, sometimes you're surprised by other activity it's not always the case. But that would not seem to be unreasonable in my mind for an estimate of Q4.

Our next question comes from Adam Gonzalez with Bank of America Merrill Lynch. Your line is now open.

Fermi, on your prepared remarks, you outlined the three factors that are driving your better outlook for Q3 and the year. I know, it's hard for you to decipher, at least from a quantitative perspective, what, how much is from inventory restocking versus just market share gains. But just qualitatively, could you help us understand, which is the biggest factor, is it inventory restocking? Is it unfettered demand from your underlying security camera customers, or is it this market share gain factor that you mentioned?

Well, I would like to say it's hard to really put quantity on that. But however, if you have to be into prioritize those factors I think that our best estimate improved the main outlook probably is really the number one and followed by the inventory destocking. And also -- but the share gain although, it's more than a shorter result, but I think the share gain has a more longer term impact to our revenue in the future, especially several our customer while switching from our competitive solutions to us. And it will take time for them to go into production by accumulatively in the long-term will help us more for our revenue growth.

And then on seasonality for Q4, I know you just mentioned there're down 12% to 15%. But in the past, I think that's really been driven by your outsized consumer exposure, and now that that's kind of less meaningful part of the business. Just wondering what's driving that, deep sequential decline in Q4 specifically?

Well, first of all that the consumer security camera is still consumer business, that's one thing. And also professional security camera as a year-to-year, usually, that'll show some weakness, that's always our experience. And so, I think we still expect that it's typical for the seasonality to us this year.

And if I can just sneak one more in, I saw that R&D was down quite a bit in Q2. Just wondering what caused that, and how we should expect that to moving forward?

Yes. So as I mentioned, we had an R&D grant that totaled about $3.2 million in the current quarter that was accumulation. As you remember, at the end of last year, we took a similar grants and we did that for fiscal year 2018 as we went through and calculated '19, started getting the benefit of '18 and look to '20, we were able to book '19 and the first half of '20 based off of our -- are starting to utilize the credit, or the grants and our ability to look forward. So now I think we have an ability to see how that's going to play out, and we'll be able to record that on a quarterly basis. So the guidance I gave for Q3 incorporates anything that would come, and I'll do that continually into the future quarters. But this is, if you will, a bit of a catch up as we move forward you won't see that. And so that's why the R&D is going back or the OpEx is going back to normal levels.

Our next question comes from Quinn Bolton with Needham & Company.

This is Michelle on for Quinn. Thanks for taking the question. So I guess first, on the AI-based professional camera market and the market -- calendar 2019. I believe you guys have said before Hikvision is the largest player there, and they should develop 1 million units in 2018, and they were targeting 3 million this year. So I was just trying to see is that still in line with, or is that still their expectation? Are you guys hearing anything difference there? Any idea to kind of get a unit perspective that will be good?

You're talking about Hikvision, the forecast for the AI-based camera, right?

Exactly, yes.

Yes. So when we talk to that, I think the 1 million units was history, so last year numbers. So I think that's done. I think they are still looking at the significant growth. They haven't given us a new update on that, but I think they probably contract to get through that level, maybe a little less, maybe a little more. But I definitely think the growth from last year to this year in terms of AI camera is significant for Hikvision.

And they still haven't given any sort of target for 2020 as well, right?

We haven't seen any yet.

And then just another one on the Chinese automotive market. Have you guys done any design activity changes with the automotive OEMs in China there due to trade tensions, or maybe any other signs that Chinese OEMs are becoming increasingly cautious designing it due to the trade relations?

Just purely from a trade point of view, I don't think we have -- we got any feedback from our automotive OEM/OCM customer in China. I don't think they care that -- I don't think, they emphasize on that point or we haven't seen any resistance until now, using external solution so far. I think majority of the resistance come from our China security customers, especially the two being mentioned by the -- potentially to be put on the end receivers. In general, in automotive Chinese market, I really think that the biggest impact is the growth this year was relatively weak compared to the historic data. And so that a lot of people are trying to figure out how to move to new direction, add differentiation to the car. And I really think that the CV function, CV features could be -- is a one direction that many Chinese OEMs are focusing on. So that's definitely something we see. And like I said, I don't see any over there has a concern because of the trade.

And one last one. Have you -- maybe have you guys seen any indication of additional enforcing in Hikvision or Dahua, given the threats that's being added to the list...

No, there's no -- we don't see any other enforcement that we have -- other than what we talked about. So this is the same thing. But I think the pressure is still there, is really about our customer want to make sure that they prepare for the worse and that's why they continue to pull in the products from us.

Our next question comes from Charlie Anderson with Dougherty & Company. Your line is now open.

So just wanted to look into the 40 customers or so that are pre-production revenue at this point. I wonder if you maybe you could speak to some of the end market applications you're seeing from some of those customers. What are the more promising ones in terms of underlying volume? And then I've got a follow up.

Yes, I think the 40 customers basically fall into that three waves of CV revenue we talked about last time. The first wave is professional security. You can imagine that, although that 40, it covers almost all the major brand and -- professional security camera brands out there, plus several other start-up company focused on using CV as a differentiation for the professional security camera. So that's a big chunk of the 40 people. And also we are starting some consumer security camera demands, and there are a few companies in that category. And then auto side, there's a huge amount of company but it's separate into multi different category. There are some they're using CV purely for DMS, some they're using for heavy monitoring, some using for ADAS, some they're follow your e-mirror for the blind spot detection. So although there's quite a few automotive customers if you divide them into different category, you see several in each category in that. So if amount of 40 companies, I would say that the security camera and auto probably is equally split.

And then for my follow-up for me, I wonder, if you could just give us an update on the HELLA Aglaia partnership, kind of roughly where it's at in terms of responding to RFPs? Are you actively in that phase at this point, and maybe timeline of when we might start to see some volume associated with that partnership? Thanks.

So for the HELLA Aglaia, we continue to work together on porting more of their neural network AI onto our platform. I think the major milestone for this collaboration is, because ADAS require ASO chip. So we believe that our current software preparation on our CV22 or CV2AQ chip, it's really preparing that that software ready for ASO chip when comes out. So I think, we continue to work on the software algorithm development. And as soon as our ASO chip come out, you should expect that the software will run on ASO chip, so we can assemble through the OEMs together, and assemble to OEM continue to happen with our AQ chip just that we have to come out with ASO chip to get into max -- for the final production ready solution.

[Operator Instructions] Our next question comes from Suji Desilva with ROTH Capital. Your line is now open.

Just to be clear, Casey, on the inventory restocking, I just want to understand whether the relative impact of it was stronger in the fiscal second quarter, or the guided fiscal third quarter? And just along with that and the guidance for seasonal fiscal fourth quarter. Are you no longer comprehending inventory restocking continuing to that timeframe?

Well, as Fermi I think referenced, it's hard for us to know exactly or have a good visibility into that. I think that there's no question that they are going to restock and build some inventory for the reasons that we discussed earlier. I would agree with the order of priorities that Fermi said in the earlier question. But it's a combination of both. It definitely affected this quarter and will affect next quarter as well. Where we don't have perfect visibility into Q4, there could be some activity in Q4 as well. But I really think what you're going to see continue over the next few quarters is the strength that Hikvision and Dahua talked about in the market overall, and the growth that they're seeing outside of all of these. I think the overall home monitoring and surveillance market as well as the professional market are going to pretty good. And so, we should see pretty good growth and in particular with some of the CV products coming online. Just to remind you, they do have 2 times the ASP as the comparable vision-only systems. And so, I think that the restocking is a part of the current dynamic with the global tension that we see. But really I think the story as we get out into next year past the seasonal aspects that we talked about in Q4 is really going to be that revenue building, not only the vision based products but primarily or in particular in the CV products as the second wave starts to come in in the consumer side.

And then in the professional security market, I know you couldn't give the specific on maybe what Hikvision was expecting for AI professional cameras in '20. But maybe more broadly, could you talk about in calendar '20, what you might think given all the programs you have and interest. What's the attach rate, Fermi, is of AI potentially to special security cameras, or maybe a range of attached rates in the calendar '20 timeframe?

Suji, I think, it's hard for me to predict at this point, because it really depends on the pricing and the marketing strategy for our current customers. But one thing I can say is we are seeing our customer spending more and more resource building CV based products, AI based products. And I think next year, I will probably expect customer building more CV SKUs than the video SKUs, moving forward. So I have to believe that the attach rate was ramping up next year is we're going to see, next year probably the first year we're going to see material revenue from security camera customer. But I do believe that could be a very good ramp up for us. But again, there's no data to support it. It is really a graph reading more than analytics.

But the point you're making Fermi is that the new SKUs coming out next year, the majority will now have CV incorporated, that's what you're saying?

That's what I'm saying, yes.

Our next question comes from Gus Richard with Northland. Your line is now open.

Basically, China is implementing social scoring. The numbers I see about 600 million cameras by the end of 2020, up from about 180 million in '18. How much of this professional security camera demand is coming from China in terms of internal consumption and how fast you think the overall market is growing? And I got a follow-up.

Well, first of all, I think the Hikvision Dahua is totally on strong demands on there -- for their products. I think that our products that we ship to Hikvision Dahua are mainly used in their export business. And I think this market is probably for security camera continues to grow, I would say, the high single-digit points, maybe Hik Dahua probably is higher than the market. So I think this is a trend we're continuing to seeing in professional security camera.

So the strong results are a function of market share gains primarily?

Market share gains, yes. And also outside China, particularly that we are continue to see the market share gains.

And then in terms of manufacturing at Samsung, it looks like only the EUV photoresists are going to be banned. In conversations with Samsung, your foundry, what are they telling you in terms of their availability and capacity, moving forward?

The majority of our products are still in 28, 14 and moving to 10 nanometers. So we are not in EUV yet. And when we talk to Samsung, they could basically give a guarantee that our current product line will not be impacted by this Japan Korean tensions.

Our next question comes from Richard Shannon with Craig-Hallum. Your line is now open.

Maybe kind of a multi part question on security market, I think you said you're engaged with nine of the top 10 OEM's with expecting to ship five of them with CV this year. Maybe if you can talk about whether you expect any of the other four remaining wants to be shipping at some point next year, any visibility on that? And then any discussion about competition, you talked about few of the maybe bigger public players out there. But wondering if still that's the competitive profile, or there's any new entrants you're seeing out there?

So for the balance of the CV design win, we definitely believe all of the rest four probably go into production sometime next year, and that's our current visibility, and that we still -- progress we made, I will be confident that all of that will be in production sometime next year. In terms of competition on the CV side, I think, HiSilicon remains to be our biggest competitor. But while that early I was trying to be there and the Intel part of the Movidius, but I really think that among all the -- Qualcomm also try to come to this using the AI processors. But for the professional security or consumer security camera market, we continue to believe that HiSilicon will be our biggest competitor, moving forward.

And just a quick follow-up on this, Fermi, do you expect any particular customer, especially in those top 10s to be using one or another solution? Or do you think it'll be a mix of more than one supplier, especially the CV solution to be specific?

Yes. I have to believe that all of that will try to have a few suppliers. But at this point, I think the design win we announced so far, they're using our solution. And -- but, for example, I think some of our customers are using -- have their own solutions, sooner or later they will probably have their own CV chips and use so they have a dual source, one for internal one for us. So that's a possibility. Also, I think outside the U.S. right now, I think we are in very good position for this AI-based security camera. And eventually, people will find out how to compete with us on the low end, but on the high end side I think we're in relatively good position.

At this time, I'm showing no further questions. I'd like to turn the call back over to Mr. Wang for closing remarks.

And thank you -- especially thank you for all of you to joining us our earning call today. And I will talk to you guys next time. Thank you and goodbye.

Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program, you may now disconnect. Everyone have a great day.