Ambarella, Inc. (AMBA) Q4 2020 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by, and welcome to Ambarella's Fourth Quarter and Full Year 2020 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference call is being recorded. [Operator Instructions] I would now like to hand the conference over to your speaker today, Louis Gerhardy, Corporate Development. Thank you. And please go ahead, sir.

Thank you, Chris. Good afternoon, and thank you for joining our fourth quarter and fiscal year 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 our fourth quarter and fiscal 2020 results. 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 financial results are more fully described in the documents that we file with the SEC, including the annual report on Form 10-K that we filed on March 29, 2019, for the fiscal year 2019 ending January 31, 2019, and the Form 10-Q filed on December 6, 2019, for the third quarter of fiscal year ending January 31, 2020. Access to our fourth quarter and fiscal 2020 results press release, historical results, SEC filings and a replay of today's call can be found on the Investor Relations portion of our website. I'll now turn the call over to Dr. Fermi Wang.

Thank you, Louis, and good afternoon, everyone. Before reviewing our results, I will first provide an update on the extraordinary factors, geopolitical now, also public health that may continue to impact our business. First, on COVID-19. We are and will continue taking the necessary precautions to ensure the safety of our employees. We express our deepest sympathies to those affected worldwide, and we offer our best wishes to them for complete recovery. We are starting to see a financial impact from the virus, and we expect to continue to face an elevated level of demand and supply uncertainty. We are taking precautions to mitigate the risks to our own operation. Based on what we know at the time of this call and to the best of our ability, we have factored these risks into our Q1 guidance. Geopolitical risks are dynamic and remain high. The Phase 1 trade deal eased the tension somewhat, and our October 15 8-K update provided some clarity to the October 9th Entity List, but there are a wide variety of geopolitical risks at play, including foreign policy, trade and IP matters. Factors potentially disruptive to our business included: new export controls on advanced technologies; the risk of customers in China to take actions to reduce their dependence on the supply of U.S. components potentially subject to the various geopolitical factors; changes to the Entity List and/or tariffs; market share shifts between our customers; and the supply chain issues. On the other hand, our largest competitor in the security camera SoC market, HiSilicon, a unit of Huawei, is facing challenges that are helping us gain share outside of China. As you can see, multiple factors are contributing to a wide range of potential outcomes for us. Fiscal year '20 revenue of $228.7 million increased slightly from the prior year, with no major shift in market exposure. In fiscal year '20, just a year after taking our CV2, CV22 and CV25, these products generated production revenue from a dozen customers, and it is still very early with the CV revenue only a few percent of our total revenue, but with more than 100 different CV customers purchasing engineering parts, evaluation kits and/or development boards in fiscal year '20. This foundation of activity give us confidence our CV investment will take another major step forward. Looking into fiscal year '21. Momentum in our strategic focus area of CV is strong, and we expect CV to reach 10% of total revenue for the year. Our goal is to grow our total revenue in fiscal year '21 despite the headwinds and uncertainties. At the recent Consumer Electronics Show in January, we experienced a strong turnout with more than 250 customer and partner meetings. With more than 20 indoor and outdoor demos, we exhibited our latest solution for automotive and home monitoring applications as well as 4 new applications, such as access control, robotics, retail and logistics. During CES, we announced our first SoCs with Automotive Safety Integrity Level B, also known as ASIL B, for safety critical automotive applications. CV22FS and CV2FS target forward-facing monocular and the stereovision ADAS cameras as well as the computer vision ECUs for L2+ and high level of autonomy. Featuring extremely low power consumption, this 2 SoC make it possible for Tier 1s and OEMs to surpass new car assessment program, or NCAP, performance requirements within the power consumption constraints of a single-box, windshield-mounted forward ADAS cameras. ZF, a German-based Tier 1 that is one of the largest global supplier to the passenger and the commercial vehicle market announced it was working with Ambarella on the next generation of intelligent viewing platforms, including surround view visualization, driver monitoring, stand-alone vision processing and e-mirror solution during CES. ZF chose Cvflow SoC for their combination of a high-quality imaging and advanced AI processing, enabling ZF to offer a wide range of viewing and interior-sensing applications. German ADAS software supplier, HELLA Aglaia, demonstrated its latest deep learning-based ADAS software suite running on our CV22 SoC. The AI algorithms included multi-class object detection, detection of the driving area limitations, depth estimation and classification of traffic lights and traffic signs. HELLA chose Ambarella's Cvflow SoC due to their ability to deliver extremely high computer vision processing performance with very low power consumption. At our CES location, OEM Mercedes-Benz provided live demonstrations in one of their Sprinter van of CoROS or cargo recognition and organization system. The system is designed to make the parcel delivery process more efficient and deleverages both the AI and the stereo processing capability of CV2, with multiple CV2 SoC program. Already expanding list of third-party software developers has chosen to invest resource to develop deep learning AI software on our Cvflow platform, with a number of these companies demonstrating at CES. For example, StradVision demonstrated both forward-facing ADAS and the driver monitoring running simultaneously on a single CV22. Broadmann17's forward-facing ADAS and recording solution runs on CV25 and target fleets and passenger vehicles. EyeSight's driver and interior camera system ran 3 cameras on 1 CV22. AnyVision's retail analytics platform was based on 4 live CV22-based cameras. And SenseTime's forward-facing ADAS and the driver monitoring system ran on our CV22. At the CES, Ambarella's Level 4 autonomous vehicle demonstration platform, EVA, or Embedded Vehicle Autonomy, successfully completed over 140 autonomous rides on Las Vegas streets. The rides were conducted both during the day and, for the first time, at night. The EVA cars leverage Ambarella's CV2-based stereos SuperCam cameras and Ambarella's L4 demonstration software stand together with radar but without LiDAR. The demonstration included generic obstacle detection, pedestrian, vehicle, bike, motorcycle and the traffic sign detection and classification, traffic light detection and management, path planning and autonomous parking. Ambarella also demonstrated at CES an AI-based 3-camera and a 3-mirror solution running on a single CV22 SoC. This e-mirror system's left and right side mirror not only provide an improved field of view in difficult lighting conditions, but by leveraging our Cvflow processing in the same chip, we could provide a blind spot detection warning from bikes, car or pedestrian present. During CES, Ambarella announced and demonstrated a solution for 2 new AI market applications: 3D access control and robotics. Ambarella's 3D sensing platform addresses access control, security panels, smart video locks, video doorbells and the face recognition payment systems. The platform is based on Ambarella's CV25 CVflow AI vision system on chip, ON Semiconductor's RGB-IR image sensor and structured-light powered by Lumentum's VCSELs. The system use a single image sensor for both visible and infrared images for depth sensing. The Ambarella CV25 SoC powers depth processing, anti-spoofing algorithms, 3D facial recognition algorithms and video encoding on a single chip, significantly reducing system complexity. And Ambarella's new robotic platform facilitates the development of robotic applications based on Ambarella's CVflow SoCs. It targets automated guided vehicle, or AGV, consumer robots and industrial robots. The robotic platform provides the unified software infrastructure for the most common robotics functions, including neural network processing and open-source computer vision library or OpenCV functions. Our demonstration included a single CV2 chip performing stereo processing, object detection, key points tracking, occupancy grid and video odometry. I will now take a little time about something -- some additional customer product information from the last quarter, starting with professional security. Motorola Solutions announced in February the launch of the new addition of video security portfolio, the original H5M camera. Based on Ambarella's video processing SoCs, the new H5M camera line is a cost-effective solution for budget-conscious video security projects that require a small-footprint camera for outdoor use. Pelco, a recent spinout of the global industrial giant Schneider Electric, intends to announce in March the Sarix Enhanced Series 3 camera, targeting critical infrastructure customers, such as airport, CVs, gaming and other enterprises and smart city customers. Based on Ambarella's CV SoCs and build with an industry-leading image quality, performance, roughness and the deep learning analytics, these cameras are expected to be shipping later this month. At the ISC West, a security exhibition to be held later in March, VIVOTEK, a major professional security camera OEM/ODM in Taiwan, will demonstrate their new Cvflow-based camera. This outdoor fisheye camera will feature 6 megapixel H.265, including IP66 and IK10 ratings, smart IR, WDR Pro, local dewarping and embedded Smart360 VCA analytics, including intrusion detection, crowd detection and loitering detection. In the consumer security camera market, home security and automation firm, ADT, unveiled its first do-it-yourself home security platform, Blue by ADT. Ambarella's H5L or H2L are designed into indoor/outdoor and doorbell cameras in this platform, all capable of recording 1080p videos. Chinese home-monitoring camera maker, SIMToo, introduces a Simcam 1S camera, the first consumer model to feature Ambarella's Cvflow SoC. Based on our CV25 SoC, the camera included facial recognition, pet and vehicle recognition, auto-tracking and support for Amazon Alexa. I will now take a -- talk a little about some of the customer product introduction from automotive markets. Gentex Corporation and Aston Martin announced their jointly developed camera-based rear vision system that dramatically improves a driver's ability to monitor traffic to the rear and the sides of the vehicle. The Ambarella-based prototype was demonstrated at Gentex CES booth in Aston Martin DBS Superleggera. The largest bus and passenger coach OEM in China, Yutong, will use a forward-facing ADAS camera based on CV22AQ in their commercial fleet. Based on Tier 1 MAXIEYE's IFVS 500, the system provides autonomous emergency brake for vehicles and the pedestrian and lane-keeping functions. During the quarter, Garmin introduced its Tandem dash camera featuring 2 lenses, each with a 180-degree field of view to record in front and inside the car to provide complete coverage around the driver. Featuring 1440 resolution video and night vision, the Tandem camera is based on Ambarella's A12A automotive SoC. Nextbase, the U.K. and the Europe's leading dash camera supplier, introduced its 622GW model. Based on Ambarella's H22 automotive SoC, the camera records a 4K video at 30 frames per second and includes image stabilization, super slow motion, night vision and Amazon Alexa integration. In the China OEM automotive market, LiXiang introduced its LiXiang One electric vehicle featuring a car recorder as a standard feature. Supplied by 1 INVO and based on Ambarella's S2L SoC, the car recorder offers full video recording. And the Korean dash cam leader, Thinkware, introduced new models based on Ambarella's H22 automotive SoC, the QXD-3000 and QXD--mini, a 2-channel full HD design with small form factor and a super night vision features, while Quantum model is a 4K+ quad HD design. In the consumer market segment, Chinese sports and VR camera maker, Insta360, introduced its new OneR sports camera based on our H22 V75 SoC. The camera includes a 1-inch sensor, AI-drive editing software and a unique twin mode, which enables camera to offer 5.7k resolution, 360-degree capture or 4Kp60 wide angle video. In summary, fiscal year '20 represented a major step forward as we begin to establish the commercial foundation for our nearly $400 million investment into AI and the computer vision. The 3 waves of CV revenue we have previously articulated are all taking shape, that by wave 1, in the professional security camera market, we have -- we now -- where we have 7 customers in production. And this wave is in a very strong position to become material in the calendar year '20. In wave 2, the home monitoring market, we have 2 customers in production, and we expect design activity to remain high this year with revenue becoming material in the calendar year '21. In the automotive market, we are generating production CV revenue from 3 fleet and aftermarket customers and design activity is high across many different locations. We continue to expect auto CV revenue to become material in the calendar year '22 and the calendar year '23 time frame. AI and CV are beginning -- are bringing new product cycle to our existing markets, like security cameras. But most importantly, as you saw at CES, these new products are enabling a multibillion expansion of our serviceable market into vehicle, smart cities, smart homes, industry 4.0 logistics and other robotic applications. Despite the global uncertainty surrounding us, I want to thank Ambarella's 761 strong team for their perseverance and successful execution during this critical phase of [ development ] for our company. And we are thankful to all of our other stakeholders, including customers, vendors and shareholders, for your support. Now I'll turn the call over to Casey for the fourth quarter financial details and guidance for our first quarter of fiscal year '21.

Thank you, Fermi, and good afternoon, everyone. Today, I will review the financial highlights for the fourth quarter and FY '20 ending January 31st and provide a financial outlook for the first quarter of fiscal year '21. During the call, I'll discuss non-GAAP results and I 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. Revenue in FY '20 increased slightly to $228.7 million, with revenue by market similar to the prior year, with security camera in the 60% to 65% range and the balance split between automotive and other. For FY '20, non-GAAP gross margin was 58.5% down from 61.2%, due to lower margins in the professional security camera and other markets, partially offset by higher auto margins. Non-GAAP operating expenses decreased 2% primarily due to foreign credits included in R&D. Even with non-GAAP R&D expense at 38% of revenue, our operating cash flow was a positive $39.4 million for the year, with no debt, net cash and marketable securities totaling $404.7 million. Our Q4 revenue of $57.2 million was slightly above the midpoint of our guidance, $55 million to $59 million, and in line with consensus. These results represent a decrease of 16% from Q3 and an increase of 12% when compared to the same quarter of the prior year. As expected, auto and security were down, while other revenue increased sequentially. Non-GAAP gross margin for Q4 was 58.7%, up about 60 basis points from the prior quarter and slightly higher than our guidance of 56.5% to 58.5%, primarily due to mix. Non-GAAP operating expense for the fourth quarter was $30.5 million compared to $29.3 million in Q3. This was close to the midpoint of our guidance of $29.5 million to $31.5 million. Other income was $1.7 million and primarily represented interest income on cash and marketable securities. Non-GAAP net income for the fourth quarter was $4.9 million or $0.14 per share compared to $11.3 million or $0.32 per share in the third quarter. The non-GAAP effective tax rate in Q4 was a benefit of 1.66%, better than our guidance of 10% at the end of Q3 due to tax law change in Taiwan, foreign tax credits and lower taxable income in foreign jurisdictions. In the fourth quarter, the non-GAAP earnings per share were based on 35.1 million shares as compared to 34.8 million shares in the prior quarter. Total head count at the end of the fourth quarter was 761, with about 81% of our employees dedicated to engineering, most of them focused on software. Approximately 69% of our total head count is located in Asia. In Q4, we generated positive operating cash flow of $4.1 million. Total accounts receivable at the end of Q4 were $18.5 million or 30 days sales outstanding. This compares to accounts receivable of $21.6 million or 29 days sales outstanding at the end of the prior quarter. Net inventory at the end of the fourth quarter was $23 million compared to $19.8 million at the end of the previous quarter. Days of inventory increased to 82 days in Q4 from 59 days in Q3. We had 2 10%-plus customer -- revenue customers in Q4. WT Microelectronics, a fulfillment partner in Taiwan, who ships to multiple customers in Asia, came in at 63% of revenue; and Chicony, a Taiwanese ODM, who manufactures for multiple customers, primarily U.S.-based, came in at 18.7%. I'll now discuss the outlook for the first quarter of fiscal '21. We expect total revenue for the first quarter to be in the $52 million to $57 million range or down 1% to 9% sequentially, which is less than our typical seasonal decline in Q1. In Q1, we anticipate all markets to decline seasonally, with the exception of the home security camera market, where we are seeing strong and broad-based demand. As Fermi discussed, the geopolitical and now public health factors are bringing significant uncertainty to our forecasting demand and supply, and we are taking measures to protect our employees and operations. In November, we estimated 2 professional security camera customers in China had pulled in roughly $10 million of revenue from fiscal year '21 to fiscal year '20. And while we're starting to see weaker ordering patterns from one of these customers in Q1, we still believe a vast majority of the safety stock inventory has not been depleted. Going forward, we remain concerned about the dual China and non-China supply chain that is being created and what that means as it relates to our ability to continue to supply to our customers in China. In addition, due to COVID-19, we have started to see some order push-outs and cancellations, and our Q1 guidance assumes these recent trends continue in the quarter. Needless to say, forecasting is extremely difficult. We estimate Q1 non-GAAP gross margin to be between 57.5% and 59.5% compared to 58.7% in the fourth quarter. We expect non-GAAP OpEx in the first quarter to be between $33 million and $35 million, with the increase from Q4 primarily coming from engineering head count, payroll tax accruals and other engineering expenses. In Q1, non-GAAP tax rate should be modeled in the 10% to 13% range versus the benefit of 1.7% in Q4. We estimate our diluted share count in Q1 to be approximately 35.4 million shares. We are closely monitoring the public health crisis and will really evaluate external events on a case-by-case basis. We intend to limit the number of executives at each event. Currently, we intend to participate in the Morgan Stanley TMT conference and the KeyBanc Emerging Technology Summit on March 4, although at KeyBanc's request we have converted our fireside chat to a one-on-one presentation. We also expect to participate in the Roth conference on March 17 and the Bank of America Auto Summit on April 7. Please contact Louis for more details. Thank you for joining our call today. And with that, I'll turn it back over to the operator for questions.

[Operator Instructions] And our first question comes from the line of Adam Gonzalez with Bank of America Securities.

I wanted to start with a more long-term question. Fermi, you guys first started talking about this access control opportunity at CES, and you spoke a little bit about it tonight. Can you just give us a sense of what the longer-term opportunity there is?

Yes. In fact, this technology can be used in many different applications. We kind of touched on the -- our traditional market like doorbell, like -- just, for example, enterprise access control. But it can be applied to many other applications, for example, the payment system in China, like use of face recognition as the way to do identification. So as you know, the biggest challenge of current face detection algorithm is that you can be easily fooled by some -- using a picture or other materials, so that using some kind of 3D lighting structure to enhance the algorithm has become necessary for those applications. And I think we quickly estimate the total market size of a unit number, we're talking about probably tens of millions, close to 20 million to 30 million units and growing fast in the future. So -- and we also believe because for the security reason, the technology required for this kind of system will continue to grow so that we need to continue to do better in terms of AI technology for different sensing technology as well as providing more fusion of different kind sensor to provide higher confidence on those face detection access control. So what I'm trying to say is we think this is a new market, and we saw a lot of -- addressing a lot of needs on the traditional as well as new applications. And the most the thing really interests us is, we believe the technology requirement for this market will continue to grow, which play to our strength.

Great. And then, Casey, I have 1 follow-up. In the press release, you talked about growing revenue overall this year, and I appreciate there are a lot of uncertainties with the geopolitical environment and virus concerns. You also outlined in the prepared remarks that your end market exposure is relatively the same as last year, which I think implies that consumer and your legacy nonstrategic areas still 10%, 15% of overall revenues, at least. Could you just help us understand, first, on the consumer legacy side, how is that business going to wind down? What do you expect that business to grow? And then what are the puts and takes in terms of growing this year overall?

Well, to kind of clean up the first part of that, yes, we've said in the past that revenue was about 60% security, 20% auto and 20% other, and what I'm indicating is it roughly came in at that level. Obviously, we had some pull-ins in the professional security side, but we think the mix data is about the same. From the other section and, in particular, in a couple of our consumer areas, we had some new product introductions that actually did better than we were forecasting. So we saw stronger revenue there last year, and I think we'll continue to see that into this year. But it hasn't changed our perspective that over the next 3 to 5 years we think that it's going to continue to decline, but there happens to be a couple of current products right now that seem to be helping us there and that's constructive. As far as the puts and takes, it kind of goes back to Fermi's comments. Between the China and the virus uncertainty, automotive industry continues to be -- it was soft last year, continues to be soft and the visibility issue of how much disruption we've seen or we're going to see, it's really hard to say exactly how that's going to shake out. We're going to continue to give you good guidance on it. We continue to be excited about our penetration in the markets and probably most excited about the CV adoption, which isn't necessary just a this-year story, but it really sets up the future of the company that Fermi's been talking about.

And our next question comes from the line of Matt Ramsay with Cowen.

Fermi, I wanted to talk about the CV adoption. And I think in the prepared remarks you talked about CV being on the order of 10% of revenue in the upcoming fiscal year that might -- I don't know if that's above your expectations about what you guys expected. I assume most of the business you're picking up from Huawei's challenges internationally is still non-CV. So maybe you could just give us some puts and takes there and what end markets and maybe what China exposure are you guys thinking about of that 10% of revenue that might be CV-based this year.

First of all, I think that you are right, the CV revenue increase that we see this year, majority come from the non-Chinese customers, and especially, we announced -- we mentioned 5 customers already in like professional, which is Motorola; Hanwha Techwin; Panasonic; VIVOTEK; Pelco. You can see that trend from the professional. This professional IP security camera guys generating majority of CV revenue this year. So you can see that it's really about the new product line introduced by our non-Chinese customers at this point, and we continue to feel confident about this 10% guidance for CV revenue. And I think that we talked about -- we have -- in addition to the 10 million -- sorry, 10% of revenue growth, we also talked about -- we have more than 100 customers buying the design kits, engineering parts and development boards in fiscal year '20, which will really build a huge base for us to grow in the future. So I really think this is an important portion of discussion. And also you talked about China. I think our China exposure -- you need to look in 2 different ways. First of all, there are a lot of products being manufactured in China. We talked about, we estimate probably 40% roughly being manufactured in China. But we also talked about Hikvision and Dahua use our chip manufactured in China, but are export to the -- outside China. So we think our end customer exposure in China is roughly 20% of total revenue. I hope that helps you to clarify that question.

That does help. As my follow-up, Casey, I noticed that -- I mean, we've talked about here on the call the different uncertainties around geopolitical stuff and with the virus. But it looks like you've guided OpEx up on the order of 10% sequentially. Maybe you could walk us through the new areas of spending and which pieces are ramping? And then also, if things do get tough from some of these variables, how much flexibility you have to limit that spending growth?

Yes. So a majority of that increase is coming in engineering, and that's in 2 places. One is we continue to hire in that area and continue to push the CV platform and the new product introduction there, and so that's a portion of it. It also is our largest number of employees. And when the first of the year comes around, the employee taxes kick in and all the other things that you see in the beginning of the year, typically. And so that adds to the engineering line in particular, but across the board to everywhere. The other thing that runs through the engineering is, as we start to go to lower geometries and CAD tools continue to get more expensive, mass costs continue to get more expensive, so the amortization of that through the P&L also builds as we start to build these higher -- or lower geometry, higher development projects.

And Matt, this is Fermi. I would like to add, you should expect that we have our first 5-nanometer tape-out this year, which basically explained to you that the NRE we have to put into our budget as well as the CAD tools that we have to buy to get a 5-nanometer tape-out is extremely higher than the whole [ pay pool ] in the past.

Our next question comes from the line of Ross Seymore with Deutsche Bank.

Congrats on the solid guide. I guess, either Casey or Fermi, I guess, that's why I want to start with my first question is, if we went 30 days ago, you talked about kind of down, I think, low double digits was normal seasonality and then you had the concern about the inventory digestion from the 2 big Chinese security camera customers. I guess what's changed since then that leads you to kind of guiding down roughly 5%? Because it seems like the world has gotten more uncertain and yet your numbers are better despite highlighting accurately all those uncertainties. So something seems to have gotten significantly better. And so any color you could provide on that would be helpful.

Right. So first of all, the previous guidance we provided was 90 days ago in the previous conference call. I don't think we provided any guidance in any earning call till now. However, you are right that there are things changed. I think the Q1 seasonally is a weak quarter for us, and we continue to see the weakness across the market except in consumer security -- IP security camera market, and we see a broad base as well as higher demand than we expected than before and led by one large customer, Ring. So in general, we do see -- we're doing well in the market and our customers doing well in the market. That's basically the main reason showing some strength in our guidance this time.

So basically, if it wasn't for that customer, that's kind of the primary delta?

No. In fact, I'd say it's not led by one customer, but this is really a market we're talking about. We talk of broad-based customer base. In fact, we have many consumer IP camera customers and most of them show strength in Q4 and on the forecast on Q1. So -- but -- which, of course, Ring is our largest customer in this space, and they are leading our -- in terms of total revenue forecast.

Got it. Okay. And I guess, a slightly longer-term question, but still the same sort of financial bend to it. The line that you have at the end of your press release saying that your goal is to grow revenue for the year, what are you trying to capture in that? Because you're starting the year up the better part at 15, mid-teens, at least year-over-year. Is there a seasonality difference that you guys expect this year with that $10 million? Or is it just an abundance of caution, given -- or abundance of uncertainty given what's going on in the world with virus and geopolitical, et cetera.

First of all, I think we established a goal this year that we definitely think we want to have a growth year this year. And before this COVID-19 situation, we do see, like I said, strong forecast in certain market segments. And although we cannot predict or forecast what's going to happen in the next 3 quarters, but we want to maintain a goal that we want to have a growth year, particularly with our strength on the CV and -- which is our basis of growth and, hopefully, that if we can have a stabilized market in the next 3 quarters, we want to achieve the goals that we set up early this year.

And our next question comes from the line of Joe Moore with Morgan Stanley.

Great. Just following up on the last question. As you guys have looked at these risk factors that you talked about around COVID, can you give us a sense of how much you might -- that might have changed your forecast? Because we hadn't seen that situation, is it possible to quantify how much of an impact that was?

Well, Joe, I think it's hard for us to provide the whole year guidance at this point. And COVID-19, obviously, there's an impact to our forecast. And we tried to factor that in our Q1 forecast already. And...

And just more for the quarter, not for the full year, just for the quarter.

So this quarter, we -- I definitely think that with 1 month of shipment already in the bag, and we look at the forecast we're going to do in the next 2 months, we think we feel relatively good about our current guidance.

Yes, Joe, it's difficult to say how much impact it's really having. What we did is we looked out what we're seeing early in the quarter and what we might expect is -- or anticipate is further cancellations or pushouts and try to work that into our guidance. But we're kind of caught here because of the 1-month off from December in a place where all this is happening really pretty quick in the last week or so. And so what we tried to communicate is that we tried to factor into our guidance not only what we've seen, but what we think we're going to see for the quarter.

Great. That's helpful. And then as you talk about 10% CV for the year, I assume that's still primarily in professional surveillance, and it seems like that means you're exiting the year at -- with a pretty reasonably good percentage of your professional surveillance business having transitioned. Is that -- any context I'm missing there? And just anything you can do to kind of help us with what that progression looks like?

I think we end the fiscal year '20 with some initial ramp-up of professional IP cam. And we made some assumptions on how fast the ramp up, what happens this year and also with the -- considering the factors of the geopolitical situation and COVID-19. But also, we're also putting some of the forecast, the early ramp-up of consumer IP cam also. So between the professional IP cam for the whole year revenue and some late Q4 consumer IP revenue, that should be the big portion of our new CV revenue for fiscal year '21.

And our next question comes from the line of Quinn Bolton with Needham & Company.

Congratulations on the nice guidance. I guess just following up on Joe's question. It sounds like you've got a pretty good backlog on hand over the next couple of months and you've judged that down for COVID-19. So are we right to assume that if you shipped everything in backlog, revenue would have been higher than what you guided so you're actually expecting some pushouts or cancellations from what's in backlog today?

As we said, we've seen some already. And we have kind of not -- we don't think that's over. We're going to see some. So by definition, yes, some of that -- now you're always hoping, of course, it's pushed, not canceled. And so initially, it tends to be pushed, and we're hoping that that's the case. But we generally see an increase in business in Q2 and then another increase in business in Q3. And so all bets are kind of off as far as ordering patterns and how things are flowing today, but we will see some of that or we hope to see some of that in Q2 because it starts, like I say, as pushouts. And what you hope is some of -- at some time will get canceled possibly, but you hope you have more pushouts than cancellations.

Great. And then second question, I think, subsequent to your -- the last quarterly earnings conference call, it seems like the commerce department has increased chatter about potentially changing the de minimis rule. It still sounds like from your comments today that the $10 million pull into fiscal '20 and out of fiscal '21 is the right amount of inventory, that you haven't seen further inventory build as a result of potential de minimis rule changes?

Well, first of all, de minimis rule hasn't changed. Of course, there is a lot of discussion, but we haven't seen the rule changed. In terms of the inventory buildup from our Chinese customers, I think in Q4, they did exactly what we expected them to do. And for Q1, like Casey just reported, one of the customer showing some weak ordering patterns. So we believe they are trying to deplete their inventory starting this quarter. So we -- based on that, we believe that the $10 million inventory is still there, and it will take time for them to use all of that.

Great. And then just last thing for me. You talked about 10% of revenue from CV applications, mostly professional security this year. But I think in the script, you talked about 3 sort of aftermarket automotive CV-based wins. I'm just wondering if you could give us a time frame. Do you think that those aftermarket designs could start to ramp in some meaningful way in calendar '21 or is, even though it's aftermarket, more in the calendar '22, '23 time frame?

No, I think for those 3 products we mentioned, I think the ramp-up will be this year. But -- however, the size, because of the aftermarket as well as the fleet management in terms of the volume, is not going to be as meaningful as professional security camera that we're seeing right now. So I do believe that those -- although the 3 production products we talked about in the automotive side will contribute, but it's going to be less than professional IP handheld cameras.

A little bit of the temper on the auto is, obviously, as we talked about, auto was, as an industry, softer last year. And we see that somewhat carrying forward into this year. So that makes you kind of temper your comment as well.

And our next question comes from the line of Suji Desilva with ROTH Capital Markets.

Just a quick financial question first, Casey. The fiscal '21 growth revenue guidance, what is that -- what's the assumption that's in there about the consumer legacy? Is that part stable? Is that part declining? Just any color there would be helpful.

Again, right now, we're seeing it pretty stable. As we saw last year, we thought we are going to start to see a bigger decline than we really saw. So for the year, we really haven't guided on anything. But right now it feels pretty stable. This, obviously, from a consumer standpoint, this quarter is typically weaker because it's after the Q4 time frame. So even if it was stronger than usual, it doesn't necessarily mean it would be up. It just would be down less than you might expect.

Okay. That's helpful, Casey. And then a question on the OpEx growth in terms of what's driving it. The -- you've reached 100 engagements on CV, so congratulations on that. Are you seeing partners and channel folks helping you kind of source new engagements? Or are you still having to deploy people to acquire and then support these additional customers? Or is the engineering really for the product road map and support there? Any color on the -- where the resources are going to would be helpful.

Yes, the go-to-market strategy is still the same. We are leveraging our partners -- business contacts. For example, we mentioned 5, 6 software partners, they're all demo-ing our system and helping us to acquire customers based on their market approach. At the same time, we still have -- using our own marketing and sales to try to capture customers. So we're using both. In fact, that trying to get a lot more software partners to put our CV silicon. The main reason is trying to -- with their help, we can gain access to more customer quicker than by doing everything ourself.

And our next question comes from the line of Charlie Anderson with Dougherty & Company.

Congrats on all the CV progress. I wanted to start with some of the commentary around CV more material in OEM for automotive in the '22, '23 time frame. I wondered to what degree you guys have visibility today on any wins there. And then as you kind of consider how this year plays out, what would be some of the goals in terms of achieving those wins? In what areas, specifically, do you think you'll see the early success that result in that 2022, 2023 ramp? And I've got a follow-up.

Right. So for the owner OEMs, I think there's a multiple direction that we are following up, right? So one thing is, for example, we talked about electronic mirrors and we finally start seeing momentum there, and we do believe that will help us to address that wave 3 revenue for the calendar year '22, '23 as well as the cabin monitor as well as the cabin monitor system that definitely is happening. And we are -- but more importantly, the most important thing for us is to continue to talk to the Tier 1s and OEM for the ADAS and the L2+. I think that's the biggest area that we spend most of our engineering marketing resource to secure design wins as well as helping our customers. So all the 3 areas are the key focus for us right now.

Great. And then for my follow-up, Casey, just a couple of housekeeping. On gross margin, it was obviously strong. Sort of curious what you view as the trajectory there. And then inventory, you've been sort of bringing it down, but you did build a little bit this quarter. So I'm just kind of curious on your thoughts there as well?

Yes. From inventory basis, I feel that we're still pretty lean. Obviously, when we came into the beginning of the quarter, we had a little bit more inventory, and that's because we saw a little bit more opportunity or a little bit more activity in month 1, and so we had built inventory a little bit, but there really isn't much to read into that. As far as from a margin perspective, we don't give longer-term guidance other than our model or our target. We're kind of hovering around the bottom of that target right now. As I think Fermi mentioned or we both mentioned in the past, although you aren't going to see significantly higher margins on the CV products, you are going to see twice the ASPs, which gives you the operating leverage that we're really looking for. So depending on the mix and what we see happening in the professional business, in particular, in China, that will really guide kind of where we are in our range, but we're going to maintain the range at 59% to 62% and work to get back not only in it but higher up into it than where we are.

And our last question comes from the line of Tore Svanberg with Stifel.

My first question is on the R&D efficiency. So you announced the CV22 and CV2FS products in January. Are these sort of very simple derivative products from a cost perspective? Or is there still a lot of heavy R&D that goes into those products? Because I'm just trying to understand it does seem like those are very specific for auto.

Yes. So from a purely video processing and AI technology point of view, CV2 and CV2FS, for example, are similar. But -- however, the biggest challenge for CV2FS is to build ASIL B, which is auto-grade silicon, the amount of engineering effort, not in developing new technology, but follow the process, follow the standard so that we can say we can pass ASIL B qualification. That's a significant investment and has been viewed as a big barrier to get into the automotive business. Now we reached that, and we are confident that we're going to pass the ASIL B qualification. I think that investment is behind us. But -- however, that's really -- I think that's basically -- if you view that as a barrier that we have to cross over to get in auto. But from an engineering development point of view, from a technology point of view, it's just similar to the CV2.

That's very helpful. And Fermi, you mentioned 5-nanometer. When should we expect products to be in production on 5?

Well, what I say is, we are planning to take our first 5-nanometer chip, but we haven't talked about the product plan, how we're going to -- what kind of product going to be used based on 5-nanometer. But based on history, you should expect that we're going to build 5-nanometer product across the board for auto, for security camera, for smart TV, smart home, and it will be a family of chips. I think that we kind of basically say we are going to skip 7-nanometer, go to 5-nano directly as our engineering investment. But you should see that in the next few -- after -- when we tape out 5-nano, we're going to provide much more detailed description about our plan for products with 5-nanometer products.

Sounds good. And one last question for Casey. Casey, the R&D is obviously stepping quite a bit in the April quarter. Will it kind of flatten out do you think a little bit for the remaining quarters? Or will we continue to see these types of step-ups?

Yes. So again, we don't typically guide beyond 1 quarter. But what I'd say is you're not going to see a step function like that throughout the year. Like I said, there's some unusual things that come in like the payroll taxes and some of those that tend to feather out as you get further in the year. So I think you're going to see us continue to invest in the R&D, and our OpEx will stay fairly consistent with where we are today. But you're not going to see us back off R&D or really accelerate it much more.

Thank you. And this does conclude today's question-and-answer session. I would now like to turn the call back to Dr. Wang for closing remarks.

And thank you for joining us today. I will talk to you the next time. Thank you. Bye.

Thanks.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.