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Ambarella, Inc. (AMBA)

Q2 2025 Earnings Call· Tue, Aug 27, 2024

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Transcript

Operator

Operator

Hello and thank you for standing by. Welcome to Ambarella's Q2 Fiscal Year 2025 Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] I would now like to turn the call over to Louis Gerhardy. You may begin.

Louis Gerhardy

Analyst

Thank you, Twanda. Good afternoon and thank you for joining our second quarter fiscal year 2025 financial results conference call. On the call with me today is Dr. Fermi Wang, President and CEO; and John Young, CFO. The primary purpose of today's call is to provide you with information regarding the results for our second quarter of fiscal year 2025. 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 based on currently available information and 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 we filed with the SEC. Access to our second quarter fiscal 2025 results press release, transcripts, historical results, SEC filings and a replay of today's call can be found on the Investor Relations page of our website. The content of today's call as well as the materials posted on our website are Ambarella's property and cannot be reproduced or transcribed without our prior written consent. Before we start the call, I want to note that we will be participating on August 29th in Deutsche Bank's Technology Conference. We'll be September 4th at Citi's 2024 Global TMT conference. September 17th in Bernstein's 6th Annual West Coast Semiconductor Bus Tour, and September 24th in Evercore ISI's ADAS, AV & AI Summit. We hope to see you at one of these events. Fermi will now provide a business update for the quarter. John will review the financial results and outlook and then we'll be available for your questions. Fermi?

Fermi Wang

Analyst

Thank you, Louis, and good afternoon. Thank you for all for joining our call today. Our second quarter revenue was near the high end of our guidance range, increasing 17% sequentially. Auto revenue grew slightly sequentially with stronger growth in IoT, which represented about 70% of total revenue. We achieved record edge AI inference revenue, which supported a higher blended average selling price in this quarter. The midpoint of our fiscal third quarter revenue guidance implies about 24% sequential growth with double-digit sequential growth anticipated for both IoT and Auto. In our last earnings call on May 30th, we expressed confidence in the consensus fiscal year 2025 revenue estimate of $250 million. At this time, based on customer orders and the forecast, we expect our fiscal year 2025 revenue growth in the mid to high-teens percent versus last year. I will now provide some additional insight into the gives and takes of our current outlook. First, our analysts indicate most of our customers have now completed the rebalancing of their inventory of Ambarella SOCs and our revenue in the second half of the fiscal '25 is expected to reflect actual end market demand. Second, the overall economic environment is currently a headwind for us. As you have heard, global auto production is forecasted to be down slightly this year. There is an electrical vehicle OEM shakeout underway and the enterprise and consumer IoT spending is mixed. So it should be clear there are company-specific factors offsetting the headwinds and driving our strong results and outlook. There is rising demand for AI-powered solutions, including AI inference and the edge where we have been investing. Most importantly, we are seeing initial revenue ramps from certain IoT and automotive customers especially for our higher-priced new products. Our confidence is building in our new…

John Young

Analyst

I'll now review the financial highlights for the second quarter of fiscal year 2025 ending July 31st, 2024. I will also provide a financial outlook for our third quarter of fiscal year 2025 ending October 31st, 2024. 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 along with acquisition-related costs adjusted for the impact of taxes. For fiscal Q2, revenue was $63.7 million, close to the high end of our guidance range, up 17% from the prior quarter and up 3% year-over-year. Non-GAAP gross margin for fiscal Q2 was 63.3%, slightly above the midpoint of our prior guidance. Non-GAAP operating expense was $47.7 million, $0.8 million lower than the midpoint of our prior guidance range of $47.5 million to $49.5 million driven by continued expense management and the timing of spending between quarters. We remain on track to our internal product development milestones. Q2 net interest and other income was $2.1 million. Q2 non-GAAP tax provision was approximately $299,000. We reported a non-GAAP net loss of $5.5 million or a $0.13 loss per diluted share. Now I'll turn to our balance sheet and statement of cash flows. Fiscal Q2 cash and marketable securities increased $16.5 million from the prior quarter to $219.8 million. Receivables day sales outstanding decreased from 47 days in the prior quarter to 33 days and days of inventory decreased from 123 days to 108 days. Inventory dollars increased 8% sequentially and decreased 12% from a year ago. We generated positive operating cash flow of $16.7 million for the quarter. Capital expenditures for tangible and intangible assets were $2.6 million. We had two logistics companies representing 10% or more of our revenue in Q2.…

Operator

Operator

Thank you. [Operator Instructions] Our first question comes from the line of Christopher Rolland with Susquehanna. Your line is open.

Christopher Rolland

Analyst

Hey, guys. Thanks so much for the question here. I guess my first one is you referenced vision language models. Is this a new opportunity or an opportunity that you've been addressing for some time here? And how your architecture might be different from GPU or an ASIC here. And is this a CV3 opportunity. I think you've maybe talked about a $1,000 ASP something like that. Is that the kind of opportunity we're talking about here?

Fermi Wang

Analyst

Yeah. For vision language Model, we demo our first LLaVA model at the CES this year with a chip called N1 which is a derivative of a CV3 family chain. So it's our third-generation inference engine and we run the LLaVA model, which is a vision language model on N1 at CES. And since we give a demo, I think we attract a lot of customer interest. Most of us are interested in using a vision language model to hook up with multiple camera and describe what the camera sees real time. So you can imagine that this is a very important for our existing customers, both for enterprise IoT as well as maybe even for automotive. So this is a feature that we've been talking about for three quarters. But I think recently we believe we can even using CV72 to run a smaller model to enable the VRM running on camera to provide real-time feedback which I think is a unique offering that Ambarella can do.

Christopher Rolland

Analyst

Great. Thank you for that, Fermi. And then secondly as I kind of look at your guidance for October, which was very strong, and then reconcile it with the full year guidance that you gave. It implies maybe a significantly weaker Q4 than traditional seasonality at least the way we track it would suggest. I guess maybe you could just talk about maybe the moving parts here into January you know what -- how you view traditional seasonality for the fourth quarter and the expectation for January the implied expectation? Thank you.

Fermi Wang

Analyst

Yes, thank you. So when we do the calculation, I believe, the current guidance between Q3 and the whole year reflects a very normal seasonality for Q4. When we look at normal seasonality in the last ten years is anywhere between 7% to 10% negative, right. So if you take that calculation, I will find that our midpoint is probably in a range of normal seasonality. So I think that we expect we go back to normal seasonality because the inventory correction is done with us. We're ramping our products. And so that we believe that the guidance is reasonable.

Christopher Rolland

Analyst

Thank you, Fermi.

Operator

Operator

Thank you. Please stand by for our next question. Our next question comes from the line of Joe Moore with Morgan Stanley. Your line is open.

Joe Moore

Analyst · Morgan Stanley. Your line is open.

Great. Thank you. I wonder if you could talk about the outlook. For the quarter, you talked about being driven by new products. Is that kind of content increases because you're migrating people to CV5? Are there new end markets or applications? Just kind of want to understand what's driving the strength in the coming quarter.

Fermi Wang

Analyst · Morgan Stanley. Your line is open.

Right. So, in fact, let's talk about that new quarter. There are two. We can look at it from two different perspectives. One is market, right. And the driver -- we see both automotive IoT has new product being introduced by our customer. On the IoT side. In the IoT enterprise as well as the other IoT products, we have customers introduced new products with much higher ASP than before. So that's definitely on IoT side. On the automotive side, both Samsara and the Rivian are ramping up with CV5 in this quarter. So I think that's to show you the -- on the market side. But if you look at on the product side, really, is CV5 ramping up for them is the major reason for us to have the growth, but also CV22, go back to the normal growth rate after inventory correction helps growth too. So those two reasons are from the product side.

Joe Moore

Analyst · Morgan Stanley. Your line is open.

Great. That's very helpful. Thank you. And then separately the announcement you had of Leapmotor's a quarter ago. Can you just talk to you know is that leading to additional conversations in the China EV market? And just I know you're not ready to make any announcements there, but just how are you seeing the potential to increase traction with other OEMs in China?

Fermi Wang

Analyst · Morgan Stanley. Your line is open.

Yeah, I think that definitely with any design wing that helps our momentum. And I think, like I said before, Chinese market is going to be continue to drive the innovation technology. So we continue to talk to multiple OEMs and Tier 1s in China for CV3. So I think that's important for us. So we're going to continue to drive that. But at the same time for getting some European US customer design wins is [Technical Difficulty]

Operator

Operator

Our next question comes from the line of Tore Svanberg. Your line is open.

Tore Svanberg

Analyst

Yes. Thank you and congratulations on the strong results here. So, Fermi, I just wanted to paint a little bit of a picture and maybe if you can help me out here. So, I mean, obviously, CV2, CV22 has been doing well. You know, the Holy Grail is CV3 and CV1. CV5, obviously now really ramping. What about CV75 and CV72? Are those going to ramp quite meaningfully into production next year or are those also more 2026?

Operator

Operator

Please stand by.

Tore Svanberg

Analyst

Hello?

Operator

Operator

Yes, please stand by. Ladies and gentlemen please stand by. Your conference call will resume momentarily. Please stand by. You're connected. Our next question comes from the line of Tore Svanberg. Your line is open.

Tore Svanberg

Analyst

Yes. Thank you.

Operator

Operator

With Stifel. You're welcome.

Tore Svanberg

Analyst

Yes, thank you, and congrats on the strong results, guys. So, Fermi, I was hoping you could just help me out a little bit with some of the product cycles here, right, because obviously CV2, CV22 been doing well. You're now ramping CV5. Everyone's waiting for CV3 and CV1. But in the meantime, we got CV75 and CV72. So are we going to see pretty strong ramps from CV75 and CV72 next year or are those also going to be more 2026?

Fermi Wang

Analyst

Yes. Thank you. First of all, sorry for the interruption. From the product point of view, I think, CV5 will continue to be strong next year. We believe that the CV5 ramping up this year will continue next year. And CV72, we expect to start ramping up at the end of this year and you will start seeing CV72 product shipping in the enterprise, in the IoT enterprise next year ramping up. And it will start, in fact, that's interesting, because most of our customers, when they design CV72 product, they plan for the traditional CNN type of neural network. But we believe that in later stage, after they ship the CV72 camera, they can use a software upgrade to upgrade neural more advanced neural network model like CLIP or Vision Language Model to CV72. So we expect that the CV72 at the beginning is really serving our traditional IoT enterprise site, but it will enable new applications in the second half next year. And we expect the lifecycle of this product will be three years, four years, just like before. And also we have CV75 that will ramp up as a mid and low-end product for the CV7 family. So that is the ramping up situation.

Tore Svanberg

Analyst

Right. And so just to put that into perspective from a pricing perspective, right, because obviously you said that a lot of the growth right now is being driven by new products for higher ASPs. So when we especially look at CV72, that would still be a higher ASP product than CV5, right?

Fermi Wang

Analyst

No, in fact, CV72, you should compare that to CV22. CV5 is a high-end CV2 family. So CV72 is really coming. You should treat that as a replacement of CV22 family, which CV22 family has been five-year old and we need to refresh the cycle. So CV72, I would say, is a significant ASP jump for CV22 family. And CV5 continue to be a high-end of the market.

John Young

Analyst

Yeah. And Tore just to add some perspective. Our blended ASP today for SoCs is around 12 to 13. And all of these new products that Fermi was talking about CV5, CV7 family, and then, of course, CV3, they would all bring our blended ASP higher as they ramp.

Tore Svanberg

Analyst

That's great. Great color. Thank you so much.

Operator

Operator

Thank you. Please stand by for our next question. Our next question comes from the line of Ross Seymore with Deutsche Bank. Your line is open.

Ross Seymore

Analyst · Deutsche Bank. Your line is open.

Hi, guys. Can you hear me okay?

Fermi Wang

Analyst · Deutsche Bank. Your line is open.

Yes.

Ross Seymore

Analyst · Deutsche Bank. Your line is open.

Great. So, first, congratulations on the strong report and guide. I know you talked about how this is new product-driven and I understand that methodology, but you also said that the inventory burn is done. So are we getting to the point where you're not burning inventory? And so a big part of the step-up sequentially is that into the third quarter, and then from there, new products and normal seasonality applies. I'm just trying to figure out the new product side versus your comments that there's no longer an inventory burn either.

Fermi Wang

Analyst · Deutsche Bank. Your line is open.

Yes. So, first of all, we believe our inventory burn is done in Q2, maybe a little bit in Q3, but not much, because when we talk to a customer, most of the big customers already told us, they are done with inventory correction also. So we are -- and also when we look at how the -- with a very stable lead time with the -- from the foundry and we watch how our customer give us PEO and booking. We believe they are booking in a regular speed and they are not building up new inventory. So from that point of view, I think, inventory correction is done for us. And also when we look at the new, the revenue growth compared to before, and most of them is contributed by the CV5 family as well as the CV22 coming back from the inventory correction go back to normal growth. And those two things are the main reason we're seeing the growth this time.

Ross Seymore

Analyst · Deutsche Bank. Your line is open.

Thanks, Fermi. I guess, as my follow-up, hopefully, you gave the full-year commentary. I was just thinking, some of the stuff you answered with Tore with the new products and the timing of when they're coming in et cetera. If we just put that to an end market perspective, to simplify it a little bit, how would you think the puts and takes on the growth rate of IoT versus automotive would be for next year? Do you expect one to grow significantly faster than the other? Is IoT going to be largely seasonal from here with some new product kickers and automotive is the one that has very large stair steps as new customer ramps begin? Just how should we think about the relative growth rates and kind of linearity of them?

Fermi Wang

Analyst · Deutsche Bank. Your line is open.

Right. So maybe in a very short term in Q3, we think that automotive IoT will grow in a similar rate because I think both sides has a new product ramping up. For next year, although we haven't given any official guidance, I personally believe that the IoT has a better growth than automotive just because CV72 is an IoT device and we believe that it will contribute more. But I do hope that after that CV3 family will kick in and start helping our growth rate at automotive.

Ross Seymore

Analyst · Deutsche Bank. Your line is open.

Thank you.

Operator

Operator

Thank you. Please stand by for our next question. Our next question comes from the line of Kevin Cassidy with Rosenblatt. Your line is open.

Kevin Cassidy

Analyst · Rosenblatt. Your line is open.

Yes, thanks for taking my question. And, clearly, you're in a very strong product cycle. You've had quite a few in the past. Can maybe Fermi give us a comparison? What's this product cycle like were different than past product cycles? Is there the customers maybe stickiness, the longer-term product cycle, software defending your product, just anything you can compare it to past cycles?

Fermi Wang

Analyst · Rosenblatt. Your line is open.

I think, when I look at this product cycle, there are two things that our customer offering is, which is really important for us. One is AI performance. As you can see that CV5, one of the reasons using CV5 is that AI performance. And we're seeing our customer using AI to improve video quality and also using AI to add more AI functions, for example, to do object detection, to help the video editing or security camera guys using advanced networks. So AI performance just like what we predict the performance requirement getting higher and higher. I think it's sticky for us because when you increase your AI performance, therefore, all the cameras that power consumption continue to be important. So we are the -- our unique offering is continue to offer higher AI performance without increase too much of the power consumption. And that's going to continue be the -- our differentiation. So like I said, if we believe that AI performance requirement will continue to go up, if that's the case, I think, this time, it will help us to have a sticky customer base.

Kevin Cassidy

Analyst · Rosenblatt. Your line is open.

Okay. Great. And just another, in your 10% customers, Chicony wasn't mentioned. Should we imply that that means consumer is getting to be less percentage of your overall revenue. And is that going to be the trend going forward?

Fermi Wang

Analyst · Rosenblatt. Your line is open.

Right, in the last few quarters, we talk about one of the weaknesses in the market size, our IoT home. We used to call it consumer IP cam, but it's really just the security camera using the home application. That majority of Chicony design was in that category. That's why they are not 10% this time and continues. Although we continue to have design wings in the security home, home security, sorry, IoT home category. But I think that the gross rate there is much slower than the price as well as other IoT or automotive.

Kevin Cassidy

Analyst · Rosenblatt. Your line is open.

Okay. Congratulations again on the great results.

Fermi Wang

Analyst · Rosenblatt. Your line is open.

Thank you.

Operator

Operator

Please stand by for our next question. Our next question comes from the line of Matt Ramsay with TD Cowen. Your line is open.

Sean O'Loughlin

Analyst · TD Cowen. Your line is open.

Hey, guys. It's actually Sean O'Loughlin on here for Matt. And I'll echo the congratulations of others on the really positive guidance here. I wanted to dig in actually on the more traditional video processor side of the business. I know that we saw a pretty significant decline in fiscal year 2024. I think at the time it was categorized as something like $80 million or so of that decline from the traditional legacy video processing. Should we sort of think about that as a potential another potential lever going forward or is the industry sort of moved on from that product segment into much more of the CV22 and beyond family that you've spent a lot of the call talking about?

Fermi Wang

Analyst · TD Cowen. Your line is open.

Right. So, first of all, I think the market definitely moved more towards AI. But also Ambarella made a very clear decision several years ago that we want to pour all our limited resources on the AI growth. So we haven't taped out any video processors in the last few years. So I think that's also important factor. So we don't believe the revenue or unit number sales of a video processor will increase in the future. But the decline rate was significantly slower than before. So I think that when the video processor decline in a much slower rate and our AI starts generating more revenue and that trend will help us to start showing up even the unit growth for the company as well as for the revenue.

Sean O'Loughlin

Analyst · TD Cowen. Your line is open.

Yeah, that's crystal clear. And then, on those new products, we talked a little bit about higher ASPs, but I was wondering, maybe John could speak to the margin profile of those new products considering that there are more advanced geometries and potential wafer pricing increases at the foundry and stuff like that. Thanks and congrats again.

John Young

Analyst · TD Cowen. Your line is open.

Great. Thank you. Yeah, Sean. So, at a high level, we don't anticipate the margin profiles as we go to smaller and smaller process nodes that the margin profiles will change significantly from what we've seen over this last several process nodes. You know, as we've said previously, our long-term gross margin range is 59% to 62%. And we expect to get into that long-term range as automotive becomes a larger portion of it. But that's more just kind of markets and commercial terms than, I would say, any kind of foundry issue.

Sean O'Loughlin

Analyst · TD Cowen. Your line is open.

Great. Thanks a lot and congrats again.

Fermi Wang

Analyst · TD Cowen. Your line is open.

Thank you.

Operator

Operator

Thank you. Please stand by for our next question. Our next question comes from the line of Suji Desilva with ROTH Capital. Your line is open.

Suji Desilva

Analyst · ROTH Capital. Your line is open.

Hi, Fermi. Hi, John. Congrats on the progress here. I just wanted to clarify the growth you had in the fiscal second quarter. I think it was mostly IoT. Please correct that if it's wrong. And if it is which applications kind of came back or did inventory burn and ordering resume in the IoT segment to help with the fiscal second quarter?

Fermi Wang

Analyst · ROTH Capital. Your line is open.

Right. So for the second quarter, you are right, the IoT growth rate is a lot higher than automotive. And then the main area of growth is really IoT enterprise as well as other IoT category. And you can see that the IoT enterprise is really to stabilize the inventory quickly and go back to gross mode, go back to the you know they clean up the inventory and go back to regular ordering pattern. And also the other IoT side that you know few customers taking our CV5 into production that helps.

Suji Desilva

Analyst · ROTH Capital. Your line is open.

Got it. And then flipping over to the auto side, you talked about in the CV3 helping ramp, maybe in the '25 or maybe potentially calendar '26 timeframe. Do you have visibility into program ramps there and the timing of when those start to inflect, to give a sense, roughly kind of where in the '25 time, calendar '25 timeframe, autos would kind of have a growth inflection upward or program ramp starts?

Fermi Wang

Analyst · ROTH Capital. Your line is open.

Right. So we talked about calendar year '26 for CV3 ramp up. The first one we talk about was the Leapmotor. We have not talked about the models yet and hopefully that we can provide information in the near future.

Suji Desilva

Analyst · ROTH Capital. Your line is open.

Okay. That's very helpful, Fermi. All right, thanks.

Operator

Operator

Thank you. [Operator Instructions] Please stand by for our next question. Our next question comes from the line of Shadi Mitwalli with Needham & Company. Your line is open.

Shadi Mitwalli

Analyst · Needham & Company. Your line is open.

Hey, this is Shadi Mitwalli on for Quinn Bolton. My first question is on Ambarella's passenger OEM win last quarter. Has that provided a halo effect for current passenger OEM engagements or more so has there been a shift in sentiment with current OEMs that Ambarella is engaged with?

Fermi Wang

Analyst · Needham & Company. Your line is open.

So, first of all, I think any design win helps. So I think that every OEM design win they consider different. But however, in the past, one of the issues we talk about winning design win is our scale and also our automotive experience. So that first design will definitely help. But every OEM design win going to be fighting to against our competitors on different categories, on the technology side, pricing side and also the customer support side. I think the first design win helps, but it cannot be deterministic to help us to win a future design.

Shadi Mitwalli

Analyst · Needham & Company. Your line is open.

Thanks for that. And my follow-up question is on the China auto market. There has been some recent news of aggressive pricing between Chinese OEMs. And I was wondering if Ambarella is seeing any negative impacts from this.

Fermi Wang

Analyst · Needham & Company. Your line is open.

Well, you are absolutely right. The pricing pressure in China market is very high and we continue to see our current design win, in fact, in the last quarters, we have announced multiple Chinese OEM Tier 1 design wins for different type of products like ADAS, recorders, e-mirrors and monitors. So we do see the pricing pressures. But however, also, if you look at our total gross margin that John just talked about, I think, yes, there's always pressure there, but I think in the balance we still think that our gross margin profile is not going to change a lot in the next few quarters.

Shadi Mitwalli

Analyst · Needham & Company. Your line is open.

Awesome. Thanks for that. Congrats on the solid quarter and guide.

Operator

Operator

Thank you. [Operator Instructions] Please stand by for our next question. We have a follow-up question from the line of Ross Seymore with Deutsche Bank. Your line is open.

Ross Seymore

Analyst

Hi, guys. Thanks for letting me speak two quick ones in here. Louis or I think it might be Fermi that gave what typical seasonality is in the fourth quarter. To the extent seasonality is a framework that's going to matter more as we look into next fiscal year, however, you want to define it, can you just give us an idea of how you view seasonality?

Louis Gerhardy

Analyst

Sure. Whether you look at five-year averages or 10-year, which is, we look at both, you've got Q4 down sequentially, you've got Q1 can be down sequentially and then our strongest quarters are Q3 and Q2. The numbers vary a bit if you do five-year or 10-year average, but that's the average.

Ross Seymore

Analyst

Got it. Thank you, Louis. And then I guess one for John. As I think about next year looking like it's going to be a much more significant revenue growth year. How do I -- how does the company think about OpEx relative to revenue growth? I know you've put a ton of that work in already and you've been spending ahead of the growth, but to the extent, leverage is going to be an important metric in profitability, as Fermi mentioned, I just want to see how you guys think about that relationship.

John Young

Analyst

Yes. I mean, obviously, there's a lot of factors that go into the plan for next year, but the primary focus is to drive toward non-GAAP profitability. And so, from an OpEx perspective, we're going to hold incremental spend as low as we possibly can while still delivering on the road map.

Ross Seymore

Analyst

Great. Thank you.

Operator

Operator

Thank you. Ladies and gentlemen, I'm showing no further questions in the queue. I would now like to turn the call back over to Dr. Fermi Wang for closing remarks.

Fermi Wang

Analyst

Tawanda, I just noticed we had one more pop-up. Martin, why don't we take that? Sorry to interrupt.

Operator

Operator

No problem. I see it now. One moment. Our next question comes from the line of Martin Yang with Oppenheimer & Company. Your line is open.

Martin Yang

Analyst · Oppenheimer & Company. Your line is open.

Thank you. I have a quick question on guidance. Is there anything happening regarding the non-industrial IoT in your guidance that has helped with the strength?

Fermi Wang

Analyst · Oppenheimer & Company. Your line is open.

Sorry. We didn't get the question clear. Can you say it again?

Martin Yang

Analyst · Oppenheimer & Company. Your line is open.

So is there anything regarding consumer IoT segment that helped with the guidance and the strength of the guidance in 3Q?

Fermi Wang

Analyst · Oppenheimer & Company. Your line is open.

So it's really about consumer IP cam or what we call the IoT home now. And first of all, we still believe that's one of the markets that's weak for us because the market going to a low-end model with a limited performance requirement. However, with that, so the Q3 guidance, IoT home didn't help our Q3 guidance. However, the market continue to change and we start seeing some of the home IoT people thinking about adding language model like VLM or CLIP onto their service. If that happens, when that happens, I think that will definitely give us the opportunity to go back to sell our CV75 type of product because if you want to run CLIP at the edge in a camera, I think, very few chips can do that. So I think we are waiting to see whether that new function and a new neural network requirement will be happening in a consumer IP cam. If that happens, that would become a better fit for us. But for Q3 guidance, that market doesn't help.

Martin Yang

Analyst · Oppenheimer & Company. Your line is open.

Got it. Thank you, Fermi.

Fermi Wang

Analyst · Oppenheimer & Company. Your line is open.

Thank you.

Operator

Operator

Thank you. I'll now turn the call back over to Dr. Fermi Wang.

Fermi Wang

Analyst

Thank you everybody for joining us today and looking forward to talk to you in a different conference or next time. Thank you guys.

Operator

Operator

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