Ambarella, Inc. (AMBA) Q1 2023 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by. And welcome to Ambarella Q1 Fiscal Year 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker’s presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today’s conference is being recorded. [Operator Instructions] I would now like to turn the conference over to your speaker for today, Louis Gerhardy. You may begin.

Thank you, Towanda. Good afternoon. And thank you for joining our first quarter fiscal year 2023 financial results conference call. On the call with me today is Dr. Fermi Wang, President and CEO; and Brian White, CEO -- CFO. The purpose of today’s call is to provide you with information regarding the results for our first quarter of fiscal year 2023. The discussion today and the responses to your questions will contain forward-looking statements regarding our projected financial results, financial prospects, market growth and demand for our solutions among other things. These statements are subject to risks, uncertainties and assumptions. Should any of these risks or uncertainties materialize or should our assumptions proved 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 we file with the SEC, including the annual report on Form 10-K that we filed on April 1, 2022, for fiscal year 2022 ending January 31, 2022. Access to our first quarter fiscal 2023 results, press release, transcripts, historical results, SEC filings and a replay of today’s call is on the Investor Relations portion of our website. Fermi will now provide our business update for the quarter and Brian will review the financial results and outlook, and will be available for your questions.

Okay. Thank you, Louis, and good afternoon. Thank you for joining our call today. During our first quarter we announced the passing of Casey Eichler, who had been our CFO since 2018. Casey’s positive demeanor was an inspiration to many of us and we are thankful to have experienced his leadership. On March 28th we announced the appointment of Brian White as Ambarella’s CFO. After two months, we are excited about the leadership and experience Brian brings as we scale the company for the significant opportunities ahead. Our Q1 revenue was essentially as expected, flat sequentially and up 29% year-over-year. CV revenue grew significantly, both sequentially and year-over-year, representing about 40% of total revenue, and our video processor business declined about 20% sequentially. Our blended average selling price continued to rise. During Q1, the pandemic flared-up in China and the resulting lockdown disrupted customer production schedules and orders placed on us, as well as logistics in the greater Asia supply-chain. A majority of our customers’ products are manufactured in this region and subject to impacts from China related supply-chain disruptions. We are seeing a similar degree of impact across both our automotive and IoT businesses, further complicating the pre-existing kitting issues we have discussed before. Last quarter we reported a supply constraint for our 14-nanometer video processor SoCs. At this time we continue to expect the Q2 impact to remain at about $5 million. We are now confident we will see a Q3 and Q4 improvement in supply of 14-nanometer video processor SoCs. As previously noted, the supply of our computer vision SoCs has not been impacted. We are very excited to announce in late May we received first silicon for CV3, our first central domain controller processor and we have successfully brought-up the key functional blocks on this 10 plus billion transistor SoC. There is more bring-up work to be completed, but we are confident this first rev will be sampled over the summer to key customers and will demonstrate significant performance and power leadership. As a reminder, CV3 will be a family of SoCs we expect to command a selling price between 5 times to 20 times our current corporate ASP. We remain focused on capturing the significant revenue opportunities in front of us. New 5-nanometer products are on schedule, with CV3 close to sampling and CV5, our first 5-nanometer SoC is expected to commence mass production in the second half of the year. We continue to expect our CV revenue to be about 45% of revenue this year and this richer mix is expected to drive our blended average selling price higher. Interest and activity around our products and technology remains very strong, I will now provide some examples of our market development activity. In the automotive market, during the last quarter Ambarella continued its success in sensing applications, an entirely new market for the company, in applications such as ADAS and driver monitoring, as well as new viewing markets like electronic mirrors. At Japanese OEM Honda, two of their joint venture companies introduced EV models using our H32AQ SoC for a multi-function electronic mirror plus drive recorder. Dongfeng Honda’s eNS1 EV and GAC Honda’s eNP1 EV both use this solution. Also during the quarter ISUZU, a Japanese OEM, introduced through a joint venture company its new MU-X SUV. Based on our CV22AQ SoC, the SUV enables an intelligent driving assistance system utilizing a front facing camera supporting lane departure warning. We remain optimistic about the vehicular in-cabin monitoring systems opportunity for us. In June we expect Geely to announce a new passenger vehicle utilizing our CV28AQ for driver monitoring. Dongfeng, one of the largest commercial truck OEMs in the world, shipped its new DF760 truck utilizing a single CV22AQ SoC to support multiple cameras and multiple functions for driver monitoring around vehicle monitoring and blind spot detection. In IoT, our smart home business, which we have referred to as CV Wave 2, we are pleased to announce Vivint as another major CV customer. In May, Vivint announced four new products, including outdoor, indoor and doorbell cameras and a spotlight. All of the cameras implement our CV SoCs to execute Vivint’s intelligent AI algorithms for a variety of people and package detection and tracking functions. The spotlight uses the advanced detection algorithm of the outdoor camera to illuminate intruders and follow them as they move around the property. In the IoT market, the largest portion of our CV revenue has so far been realized from new product cycles in our enterprise and public security camera business, where the trend continues with a vast majority of our customers’ design activity involving our CV SoCs. During the ISC West Security Exhibition in March, almost every major security camera company was demonstrating new products based on our CV SoCs. There were also many public demonstrations at ISC West of companies entering the access control market with systems based on our reference designs. The access control market is a great example of how our CV portfolio allows us to reach entirely new markets we did not serve before and access control is one of the areas where we are showing encouraging early customer wins. In access control, Motorola Solutions announced the new Openpath Pro Series Video Intercom reader based on our CV25 SoC. The reader combines video, audio and enterprise call routing. Motorola has made a number of acquisitions in the last few years to leverage its IoT camera expertise into new verticals and Openpath is one example. We are proud to report that most of the camera companies acquired by Motorola are using Ambarella SoCs and we are eager to help them grow their business. Also in access control, based on our CV22, RealNetworks announced its SAFR SCAN, a touchless biometric system with anti-spoofing based on the fusion of structured light and cameras to ensure the most accurate results. During the show, targeting the enterprise and public markets, Hanwha Techwin announced two new AI-powered multi-sensor cameras based on our CV2 SoCs and featuring deep-learning based object detection and classification. Also in the enterprise and public IoT market, i-Pro, formerly part of Panansonic, introduced its new multi-sensor S series camera, which is based on our CV2 SoC, offering deep learning intelligence at the edge with pre-installed AI applications and the ability to add third-party applications. In the public safety fleet market, i-Pro also launched a 4K panoramic front camera based on CV22 with the form factor and thermal budget to be mounted behind the rearview mirror on the windshield. Factory automation is another greenfield market opportunity and during the quarter iRAYPLE introduced two products based on our CV2 AI SoC, a stereo 3D factory automation camera with precise measurement capability and a code reader with high resolution and deep learning abilities. In other IoT markets, Insta360 introduced the One RS action camera. The innovative consumer camera is based on our H22 SoC and can shoot 4Kp60 video, take 48 megapixel photos and includes AI driven editing to make stitching 360-degree footage simple. Recapping these announcements, a majority of the projects I just described are CV based. In these products, our state-of-the-art video processing expertise is leveraged into new applications where the camera, instead of just enabling a great human viewing experience is sensing, collecting data and then making decisions. A lot of incremental and specialized processing is needed to do this most efficiently and our high-bandwidth CVflow AI SoCs provide this for an increasingly diverse set of IoT sensing applications. About half of these products I described represent new product cycles in existing markets and the other half represent entirely new markets for us such as automotive sensing, factory automation and access control. We are in the midst of a very strong shift in design activity to our CV SoCs. Long-term, we expect to earn a higher ASP with CV products and the combination of higher ASPs and unit volumes is expected to drive premium growth. We are confident our strategy addresses the megatrends for security, safety and automation, enabling our customers to innovate and transform their own businesses. Our rapidly expanding AI product portfolio serves the diverse secular growth opportunities emanating from these trends. Now Brian will review our financials.

Thanks Fermi. I’ll review the financial highlights for our fiscal Q1 and provide a financial outlook for our second quarter of fiscal year 2023 ending on July 31, 2022. I’ll be discussing non-GAAP results and ask that you refer to today’s press release for a detailed reconciliation of GAAP to non-GAAP results. For non-GAAP reporting, we have eliminated stock-based compensation expense and acquisition related costs adjusted for the impact of taxes. Revenue for fiscal Q1 was $90.3 million, in line with the midpoint of our prior guidance, flat to the prior quarter and up 29% year-over-year. As expected, a sequential increase in IoT revenue offset a decline in automotive. Both IoT and automotive were up strongly on a year-over-year basis. Non-GAAP gross margin for Q1 was 63.8%, slightly ahead of the midpoint of our prior guidance range. Non-GAAP operating expense for fiscal Q1 was $39.8 million, down $500,000 from the prior quarter. Non-GAAP operating expense was $2.2 million below the mid-point of our prior guidance, driven by the timing of new product development activities. Our non-GAAP tax provision was $0.9 million or 4.8% of pre-tax income and we reported non-GAAP net income of $17.1 million or $0.44 per diluted share. Now I’ll turn to our balance sheet and cash flow. Cash increased $30 million to $201 million, driven by strong operating cash flow of $34 million. Fiscal Q1 cash flow was aided by decreases in both inventory and accounts receivable. Inventory decreased $4 million from 128 days to 117 days and accounts receivable decreased $16 million from 45 days to 28 days. The substantial decrease in accounts receivable was attributable to a front-end skewed revenue profile in the quarter. We had three logistics and ODM companies represent 10% or more of our revenue in Q1. WT Microelectronics, a fulfillment partner in Taiwan that ships to multiple customers in Asia, came in at 57% of revenue. Chicony an ODM who manufactures for multiple IoT customers was 11% and Hakuto, a logistics partner who primarily supplies multiple automotive customers in Japan was about 10% of revenue. I will now discuss the outlook for the second quarter of fiscal year 2023. As Fermi described, the external environment remains complex and dynamic. The supply chain already stressed with persistent kitting issues is now also facing the rolling pandemic impacts in China. Our guidance to the best of our knowledge contemplates these challenges. We estimate our Q2 revenue to be in the $78 million to $82 million range or down approximately 11% sequentially at the midpoint. We estimate Q2 non-GAAP gross margin to be between 63% and 64%, relatively flat to the prior quarter. We expect non-GAAP OpEx in the second quarter to be in the range of $42 million to $45 million. The sequential increase in OpEx is driven by the beginning of an advanced 5-nanometer automotive grade CV SoC development project. Our fiscal Q2 forecast for Ambarella’s non-GAAP tax rate is 4% to 6% and we estimate our diluted share count to be approximately 38.7 million shares. Ambarella will be participating on June 1st in Craig-Hallum’s Virtual Investor Conference, June 2nd at Cowen’s TMT Conference, June 8th at Bank of America’s TMT Conference and on June 9th at Rosenblatt’s Virtual AI Scaling Conference. Please contact us for more details. Thank you for joining our call today. With that, I will turn the call over to the Operator for questions.

Thank you. [Operator Instructions] Our first question comes from the line of Joe Moore with Morgan Stanley. Your line is open.

Great. Thank you. One of you guys could talk about the issues in China in the coming quarter? Can you tell how much of it is -- is there any demand side issues in there, is it all supply side and you mentioned it’s broad across multiple customers, is it sort of Chinese customers manufacturing China, multinationals, just any kind of more color you could give us on what the dynamics are of the challenges there?

Hi, Joe. This is Fermi. So what we saw was that, at the end of March and early April, when we start seeing the China lockdown in Shenzhen and Shanghai, and almost at same time we start seeing our global customer base start pushing all the acute to demand and like we believe the reason that we were given was that with the kitting issue persists and also that lockdown make the kitting issue allow worst for our global customer base, particularly for those who manufacturing in China or in greater Asia locations and they were impacted the most. And that’s the scale that we’re seeing. In terms of demand, at this point, particularly outside China, I will say that, most of our customers are telling us, they can sell almost everything they can build. So I think the demand, at least outside China is pretty solid, in my opinion. We believe that we’ll continue to monitor this progress through this lockdown situation and we all heard that Shanghai lockdown will probably expire on June 1st. We are looking forward to see any updates on the market and follow up customer point of view.

Okay. That’s helpful. Thank you. And then in terms of the incomplete kitting issue, is that an issue that people aren’t ordering Ambarella parts because they’re waiting to get other things or is that an issue that they have inventory of Ambarella parts, because they can’t get those other things? Like, can you tell how much of this is going to be an inventory burn off that’s required versus just a pent-up demand?

Well, I think, a portion of that is definitely, there’s some kind of inventory sitting in the channel. But I do believe this lockdown is really when the customer find out and they really cannot allocate enough other parts, particularly like PMIC [ph] and the WiFi and micro -- particular microcontroller for automotive. I think that they decide to push out the acute to demand to a future quarters. So I think that inventory situation is like what we discussed before. But this time, I think that a lot of push out is based on the kitting issue, particular new kitting issue, which is amplified by this lockdown situation.

Great. Thank you.

Thank you. Our next question is from the line of Ross Seymore with Deutsche Bank. Your line is open.

Hi, guys. Thanks for letting me ask the question. Brian, welcome to Ambarella. I just want to ask about the duration side of this equation. I know lockdowns and what COVID is going to do and China is going to do is kind of beyond my pay grade and maybe you guys don’t have great visibility into that. But what’s your assumption beyond the July quarter, whether it would be the Samsung side getting better, as I think you alluded to, Fermi, or the persistence of the lockdown headwinds?

Well, I think the major impact on the last quarter is a lockdown headwinds and I am sure even today, we don’t have a visibility, how fast this recovery will look like. But you mentioned this Samsung situation, Samsung 14-nanometer. We still expected $5 million impact to us in July quarter and but we’ve expected as Q3, Q4, the 14-nanometer supply will improve. So I think this time we are really talking about this China lockdown causing a lot of kitting issues for our customers.

And I guess as a follow up question to get into the model. You guys are now just having the two segments, the IoT and the automotive side of things. Can you give us any color about the size they were in the quarter, either as percentage of sales? What they did sequentially? I know you said up and down, but any numbers around that? And then is there a difference in the guidance for the July quarter between the two segments?

Yeah. So in Q1 automotive represented about 25% of our revenue with IoT at 75%. As we look into Q2, we expect both of those segments to be down approximately equally in percentage terms. So both down into double-digit sequentially.

Got it. Thank you.

Thank you. Our next question comes from Quinn Bolton with Needham & Company. Your line is open.

Welcome, Brian. I guess, Fermi or Brian, just seems like it’s a dynamic environment out there with the rolling lockdowns in China. I guess my question is, sounds like customers have been delaying orders here in the near-term because of these kitting issues. Do you guys have any sense based on your customer conversations, whether you expect that to extend beyond the July quarter or do you think that as the rolling lockdowns hopefully come to an end that orders start to pick back up?

I think, when we talk to our customer we got a lot of uncertainty from them, because they still don’t know how fast this lockdown situation will improve. We believe that if the lockdown and those kitting issue not getting any worse than right now, we believe Q3 revenue should be better than Q2 and maybe even have better to be cover in Q4, but that’s under a lot of assumption that how this kitting issue and lockdown issue will continue or not.

Got it. That’s helpful. And then I guess maybe, Fermi, a longer term question. I know you guys have been talking about the opportunity around Level 2 plus design wins. I know you haven’t announced any to-date. But do you feel like you’re making progress? Do you think you’re getting closer to potentially a large Level 2 plus win that I believe in the past you’ve said you expect to hopefully secure at least one if not multiple Level 2 plus wins this year?

Right. So, I think, that throughout our discussion about people keep asking about our CV3 and we believe that by announcing a CV3 that is up and running and we have bought our multiple functions in there. We have a high confidence that we will ship the sample the CV3 was over -- in over the summer. I think this will really give our customer a sense how real this project is and what kind of performance and the power number we can prove in a real so they can then just show up in presentation. So I think that with the CV3, we are very optimistic about that we continue to make progress with key Tier 1 OEMs on this design win.

Thank you.

Thank you. Next comes from the line of Matt Ramsay with Cowen. Your line is open.

Yes. Good afternoon. Thank you very much. Fermi, I guess, I wanted to follow up on what you were just talking about there with CV3 and maybe you could give us a sense of what the steps are from here. So you -- it sounds like you have for silicon back, you have some bring up being done in the lab. There’s obviously more software and bios and other work that you’ll need to do to get everything fully up to where you can sample the customers in the summer. And what I’m interested in is the next steps beyond that where you guys could start to engage with customers with CV3, demonstrates stuff live in labs and what the timeline could look like to potentially start to convert some of these? I guess the part of the automotive funnel that you’re going after into one business? So like what kind of timelines are we looking at where we could see something announced with CV3 and what are the steps that are kind of in front of you to get there? Thanks.

Right. So I think, maybe just talk about how much we have done in total CV3. CV3 silicon came back to our lab seven days ago, in a short period of one week time, we basically brought up all the fundamental blocks and making sure that the chip not only live, but we can stop doing software integration. And we start verifying all the performance number and power number recorded to our customer in the past and we are getting our confidence level getting higher and higher every day. So in the near -- after the sampling to our customer, the near-term goal for us is to bring up our VisLab software, as well as Oculii software running on CV3. So we can do a system level demo. It is not only just demo to show the competency, as well as the ability of the silicon CV, but all the assistance given to our customer. I think that’s a major milestone, because if you talk to all our OEMs that today the biggest question for there is not only just whether your silicon can perform, but also whether you have software that can match can -- you can really leverage them to deliver the best performance. And that we have both of VisLab a complete software spec for autonomous driving all the way to Level 4 and as well as Oculii’s centralized radar processing capability. I think that’s our next important milestone in the near future to demo and hopefully that we are still targeting year 2025, 2026, SOP was our customers.

Got it. No. Thanks to that, Fermi. That’s helpful. Just a real quick sort of follow up to that one before my second question, I guess the quick follow up is, as through this summer, any sense of how many customers you anticipate sampling CV3 to, I’m just trying to understand a little bit more about the breadth of the engagement? And then I guess my follow up question for Brian, any way that you can try to size the impact of all the logistics issues in China on the guidance for July or I assume it’s just $5 million for the Samsung impact and then if you -- if there’s any quantification of what you guys think that impact is in dollar terms, that’d be helpful. I know that’s hard one to do, but thank you guys. Appreciate it.

Yeah. In terms of CV3 sample, I will believe the double-digit customers.

Yeah. And in terms of the impact associated with the supply chain disruptions in China, I think, our guide is down about 11% to midpoint and that would -- that’s really all attributable to that factor.

Got it. Thank you very much.

Thank you. Our next question comes from the line of David Kelley with Jefferies. Your line is open.

Hi, guys. Good afternoon and thanks for taking my questions. I believe you noted CV mix for the year is still on track for 45% of sales. So can you talk about the lockdown and supply chain disruptions specific to CV, if you’re seeing a less or more impact there and maybe demand trends throughout the last couple months?

Yeah. I think that this lockdown and kitting issue impact both IoT and automotive equally, but also apply to video processor and computer vision chip equally, and we don’t see particularly which product line can impact more than the others. But I -- also we believe that the kitting issue right now it’s really is -- it can happen to any product line, because it’s really, for example, both video processor and as well as computer vision need PMIC or WiFi or microcontroller to complete a product.

Okay. Got it. That’s helpful. And I might have missed this. Apologies in advance. But can you provide a bit more color on kind of the drivers of the OpEx cadence here into the second quarter guide?

Yeah. We said that, OpEx would increase coming in the second quarter, which is really driven by a new CV 5-nanometer project that’s beginning and that’s starting to kick in to the OpEx.

Okay. Perfect. Thank you.

Thank you. Our next question comes from the line of Tristen Barra with Baird. Your line is open.

Hi. Good afternoon. I know there’s been some questions obviously already on the impact of the July quarter guidance and you reiterated the mix of CV at 45% of revenue. Previously, we thought that CV revenue will double this year. Assuming that the lockdowns go away on June 1st, notably in Shanghai, how much of your second half concerned about the topline rebounding sequentially would be, I guess, impacted by weak consumer demand in China as opposed to component shortages like MCU and WiFi. Where do you think is the biggest bottleneck or uncertainty as to the lockdowns impact goes away?

Well, I think that, WiFi to our customer beyond Q2 could go into Q3 and Q4. I think the answer is really about uncertainty. Even they say they relaxed the lockdown on June 1st, but how fast the production line can go back to normal stage, how quickly that the production can start working to full speed. I think all of that needs to be answered. And that’s not only just a component side, but also our customer side. So there’s still uncertainty in Q3 and Q4. In terms of China demand, I really think that China economy that as we see is definitely weak, but we have roughly 15% of our sale to -- our 15% products are consumed in China. So I think we are right now more focused on to understand the demand situation outside China, to like I said in a previous answer, I think that outside China, I think, our demand still strong.

Okay. Great. And as my follow up question, how should we quantify the ramp of CV5 in the second half, which I think you’ve said previously, initially is going to go into consumer is that as well impacted by the current lockdowns or is this going to be material in terms of lifting your second hand versus first half?

Right now because also most of CV5 products are still in design phase and the revenue ramp up will be happening in Q4. So I think that the lockdown or the development cycle are not severely impacted yet. We are watching it. We’re still confident that several of our customer, AI IoT customer will take CV5 into production, particularly on a security camera side and as well as back as a consumer. We don’t give a consumer, we put it all in a past consumer product into the AI IoT. So I think multiple AI IoT customers will take CV5 into production in Q4 and start ramping up on it.

Great. Thank you very much.

Thank you. Our next question comes from the line of Andrew Buscaglia with Berenberg. Your line is open.

Hey, guys. I wanted to talk through maybe a dynamic you might be seeing in that, you have all the supply chain constraints your customers are seeing, I wonder if customers that have yet to really move forward with implementing AI in their products, sort of speed that process up and move kind of to the next gen AI stuff rather than kind of continuing to purchase and develop or maintain non like more so human viewing applications?

Yeah. So I think independent of this lockdown and also the kitting issue, we did see that most of our customers new products are CV based. Of course, there are still new projects based on our video processor, new product, I mean, that kick off in the last several months, but in terms of percentage, we will see higher and higher still CV based product kickoff in the last several months.

Yeah. Okay. Okay. Interesting. Can you -- and maybe one for Brian, you guys have in your press release a little statement about stock repurchase that you approved in an extension. I wonder if -- where the stock is and where the valuation is relative to all the CV development if share repurchase becomes more of an area of capital allocation going forward?

Yeah. I don’t think that there’s really a change to the strategy or thought process around repurchases. As you mentioned, the Board did extend the existing $49 million authorization for another year. We have had strong cash flow. We believe we have sufficient liquidity. So it did consume around $300 million for the purchase of Oculii and the radar technology late last year. So at this point, we still view the repurchase option as being an opportunistic alternative rather than something that has changed from a strategic perspective at this time.

Okay. Thank you.

Thank you. Our next question comes from the line of Kevin Cassidy with Rosenblatt Securities. Your line is open.

Thanks for taking my question. This quarter you had accrued to the Japanese automotive distributor was a 10% customer, last quarter there were 12% customer, do you expect them to stay as a large customer and maybe what kind of service do they provide and maybe if you could just give us a little more description of your relationship with them?

Yeah. So I think that for Hakuto, they are basically is our Japanese automotive distributor. And basically almost -- I think, almost all of our Japanese automotive business is -- are going through their service. Their service is just providing two things, one is logistic, basically making sure that chip is delivered properly and we collect cash flow. On top of that another important function they perform for us is really providing inventory for the automotive customer, because I think all of our Japanese customer, because they want to make sure there’s no supply issue, so they require their distributor, in this case, Hakuto to keep anywhere between six weeks to eight weeks of inventory for their production and they are definitely blend to pursue this at the end of a project. So and that’s the main function. So, well, the -- because the Japanese auto business continue to grow for us, we believe Hakuto will continue to grow. But from quarter-to-quarter point of view, the up and down cannot be really managed it, because the some project is run by our some project ramped up. But if you look at a straight line, I hope I believe our Japanese automotive business will continue to grow.

Okay. Great. Thanks for that answer. And also on Oculii, could you give us a little more description of what progress you made in the past quarter?

So, again, to separate out the Oculii disclosure, but it’s very consistent with what we said, when we acquire them. We believe this year we’re going to do roughly $3 million to $4 million of business with Oculii. Most of us still at the margin level and ORE [ph] level. The first major production will happen next year? And in terms of our automotive customer, we haven’t announced that product yet. So that’s all we’re doing. But, however, at certain time, I think, all the things, everything I just said is based on Oculii’s business before they got acquired. After acquisition, one of the major goal is to integrate Oculii software into our CV family chip, particularly in CV3, so that we can provide integrated audio, sorry, the radar and the video solution to our customer. That has to be a main focus for us and that will also be a long-term revenue source for us.

Okay. Great. Thank you.

Thank you. Our next question comes from the line of Tore Svanberg with Stifel. Your line is open.

Yes. This is Jeremy calling for Tore. First, just a quick clarification, I think, you mentioned, a percentage of products of your revenue that is consumed in China, was that 50% or 15%.

15%.

15%? Okay. That’s what I thought. And then, secondly, in terms of the inventories, was down sequentially both dollars and days. Is this something that was intentional? Was this part of the impact of the $5 million constraint or is this something that you’re kind of managing a little bit more on the long-term basis, just help us understand your inventory strategy here?

Sure. It was really driven by our ability to get materials during the quarter as opposed to active effort to reduce inventory levels. In the longer term, we’ll look at targeted inventory levels that, potentially lower levels, but in the current environment, we’re trying to have sufficient inventory on hand to satisfy customers in a very dynamic environment. So that decrease was not driven intentionally, it was driven by our ability to get materials.

Great. Thank you. And I guess maybe a little bit of a longer term question, looking at some of the new markets that that you’re just entering, whether it’s automotive, factory automation, access control? Would you or maybe just looking at the ladder two, since automotive seems to be its own category? Can you maybe weight which one you see ramping sooner and which one might have the larger TAM?

Well, in terms of larger TAM, I think, the mobile robotics obviously is the largest one, in my opinion, for instance, is happening faster. In terms of revenue, I think, access control is probably the candidate. But, however, I think, the point we tried to make is that, we continue to see new verticals that we can address with our CV SoCs. And hopefully, of course, we are focusing on all of them. But I think that we have a high hope on mobile robotics, because of the revenue potentials.

Thank you. Our next question comes from the line of Suji Desilva with ROTH Capital. Your line is open.

Hi, Fermi. Hi, Brian. Nice to be talking to again. Best of luck in the new role. Brian on the OpEx, the R&D, you talked about the 5-nanometer project. I’m wondering is there any kind of sizable tape outs involved in the fiscal 2023 timeframe which may not recur or is that kind of too aggressive assumption about a year-over-year trend?

Yeah. When I look at street expectations for OpEx for the fiscal year, I think, the consensus is somewhere around $171 million to $172 million in total for the year and that’s probably in a reasonable range to think about.

Okay. And then one for, Fermi, on the CV3, can you help us understand the design cycle there? Presumably it’s longer given the level of integration and effort on the part of the customer with radar and other things. Can you give a sense of how much longer that design cycle might be versus the other CV products as you start having customers sampling in the middle of the year?

Right. CV3 is designed for automotive markets, just by definition, it takes longer and CV3 particularly complicated because not only because huge die, but also very complicated software integration. So I think we think that the four years design cycle is probably right, the first two year is probably just on a software and the integration and last two year is really qualification and verification. So I think that that design cycle is probably standard for automotive market. I think that will be CV3’s design cycle.

Thank you. Our next question comes from the line of Gary Mobley with Wells Fargo Securities. Your line is open.

Hey, guys. Let me start out by saying, Casey will be missed, and welcome to the call, Brian. I have just one multi-part question and that relates to your Samsung relationship. Can you give us some color on what was the issue with respect 14-nanometer constraints? And the reason I’m asking is just to try to assess the probability of future reoccurrence of the issue. And as it relates to perhaps some of your purchase obligations with Samsung, given the weakness in revenue, is this going to be a situation where you are going to be forced to maybe carry a little bit extra inventory than you hoped for or is that even an issue? Thank you.

Yeah. Thank you. So for the 14-nanometers, although we didn’t get a clear answer about exactly what happened. My gut feeling is that somebody took that inventory away from us by paying a lot of money. So I think that’s the reason. Obviously, that’s -- if that’s a problem, I need to talk to Samsung about, and definitely, setting our meeting with CEO, trying to talk about not only the short-term problems, but also the long-term collaboration, particularly, for example, if we need to go into this automotive business negotiation with customers that our foundry partner obviously play a major role in there. In terms of inventory level, I don’t believe that we need to take on a lot more inventory than we have today. We don’t plan that. So I don’t think that’s an issue that we’ll need to worry about in the near future.

Thank you.

Thank you. Our next question comes from the line of David O'Connor, BNP Paribas. Your line is open.

Great. Good afternoon. Thanks for taking my questions. Maybe one for Fermi and one for Brian. Maybe, firstly, on the edge AI partnership with Lumentum, can you talk Fermi around the traction you’re seeing on that and the strategy kind of going forward on the edge AI? Do you have all the building blocks and software internally to kind of support all those different end markets or are we going to see more partnerships like this Lumentum partnership from you going forward? That’s the first question. And then maybe one for Brian on the ASP, I think at the start of the call you mentioned the CV3 family of SoCs with an ASP range of 5x to 20x the corporate average? Can you give us just an example of the functionality type for that 5x versus a 20x? Is that kind of redundancy or is it an L3 versus L5? Just conceptually how we should think about that the range of ASPs? Thank you.

Right. So I think let me answer that the ASP problem. When we talk about CV3 5 times 20x ASP, I think that is really referring to CV3 family of chips. In fact, CV3 is a chip that we take out and we are getting samples, but we are planning to sample or to build a family of CV3 for the low end to high end. So low end can be Level 2 plus market, high -- middle end can be series of Level 3 and high end for the Level 4. So you can imagine that ASP for each given market can be different based on the current price quote given to customer, we’re seeing 5 times to 20 times of a selling price versus our current corporate ASP. And it’s really about function performance not by the redundancy yet. The other part is, you asked about Lumentum and our partnership with other sensor company. We introduced CV3. We mentioned that we want to be the domain controller, which means we have to integrate multiple sensor modalities into our chip for different applications. For the -- our partnership with Lumentum is really about integrating structural AI into our solution for access control market and we found very well in terms of appealing our revenue design and winning design with that and we are very happy with the partnership with them. They have been very helpful to help us to solve a lot of design and production issues. And on the software point of view, we only identify all the software partner we need to have to provide this rapid design. Moving forward, I think, there will be more and more this kind of cases we need to address, meaning more sources of mortality. We need to integrate, for example, thermal sensors, LIDAR sensors, all the sensors. We continue -- we believe, instead of acquiring all of them, but I think our approach will be working with partners like Lumentum and to interface our CV3 chip to their sensor -- to their sensor modules and then we can add in values by providing software solution on CV3. So that’s all strategy and we definitely continue to look for other sensor modality partners.

Thank you. Our next question comes from the line of Brian Ruttenbur with Imperial Capital. Your line is open.

Yes. Thank you very much. You mentioned in your commentary about the traction you’re getting on the security side with Vivint, specifically. Can you talk about other traction you’re getting on the security side in the quarter? And are you able to more easily procure chips for the residential security industry versus other verticals?

Yeah. So in -- we call the consumer security camera or security camera for home, we announced the Ring and the Vivint are the two major customers, we expect more in the future. In terms of supply chain issues, we see a similar impact from -- for all our customers. For example, I think although Ring is huge company, they really have a power to do -- to buy components. We also see them have some limitation on the supply side. So I think the kitting issue and the supply chain issue impact -- impacting everybody at the different scale.

Thank you.

Is there a second part…

Thank you. Our next question comes from the line of Martin Yang with Oppenheimer.

Hi. Good afternoon. Thank you for taking my questions. So a question on CV3 potential customers that was sample, can you talk about the geographic breakdown and how that compares to a current automotive customer base?

I think this going to be very similar. We’re going to sample probably everywhere, U.S., Europe, Japan, Korea and China. They all have -- we all have identified customers that we probably are sample to.

Thanks, Fermi. That’s all for me.

Thank you. Next question comes from the line of Richard Shannon with Craig-Hallum. Your line is open.

Well, thanks, guys for taking my question. Fermi, first one for you. Maybe you could talk about the competitive dynamics that you’re seeing so far and expect to see with a CV3 chip, both in terms of some of the new sensor modalities like radar generating and also maybe compare that with a competitive dynamics with past chips going into less complex use cases, I would love to hear perspective there? Thanks.

Right. So I think, I would like say, CV3 is really competing in many different second verticals and have all kinds of different performance and price. That’s why we leave CV3, we need to have a family of CV3 chip to address all of our units. You mentioned about radar sight. I think there are a lot of radar company out there doing for the injuries image radar, like an NSP and Fenian [ph] and also there are some newcomers coming up with solutions. I think what we really different -- differentiates with our approach. Oculii has this algorithm first approach to really try to minimize the number of antenna and RF chip you need and to achieve similar radar performance. With that, that really allow us, not only building a high quality cost effective solution, but also make the centralized radar solution possible in the future, which means, that also allows that we can really have a sense of fusion between video and radar had on the sensor chip, this is a unique offering that we think we can -- we will differentiate against everybody else. In terms of on the CV3, our domain controller competitors. I think that our biggest competitor is NVIDIA and Qualcomm. We believe that we can demo CV3. We will be able to show the performance and the power advantage that we talked about in our presentation and we’re waiting to -- we’re very eager to find a way to them what I tell customers.

Okay. Perfect. I appreciate that perspective, Fermi. Maybe one for Brian here, as we think about the goal of hitting CV 45% of sales this year and I think it’s a fair assumption to think that the IoT segment is higher relative to automotive. Would it be fair to think about that IoT segments already being or close to 50-50 CV already?

Sorry, can you say that, which segment you are talking about?

Yeah. So just wondering if the IoT segment already is or close to 50% of sales coming from CV already?

Right. So in fact that for the IoT portion, professional security camera probably is close to 50%, but in other IoT street level is not yet. Think about, last year, we’re only 25%. So we need to grow to 50% this year. So by the end of the year, I will say probably, the professional security segment will be close to 50%, maybe a little more. But other areas will be way below that.

Okay. Perfect. That’s what I was looking for. Thank you, Fermi. That’s all for me.

Thank you.

Thank you. I’m showing no further questions in the queue. I will now like to turn the call back over to Dr. Fermi Wang for closing remarks.

First of all, thank you for joining us this afternoon. Although the fiscal 2023 is bringing unexpected external challenge to us, but I am really glad our CV momentum remained very strong. I am particularly excited about the technology development progress we made with CV3 and the business development with CV5. These two 5-nanometer chips will provide significant opportunities for Ambarella for all of our markets. And with that, I want to thanks to all our stakeholders and especially our global base employees who continue to support us. thank you. I will talk to you next time.

Ladies and gentlemen, this concludes today’s conference call. Thank you for your participation. You may now disconnect.