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Ambarella, Inc. (NASDAQ:AMBA)
Q4 2019 Earnings Conference Call
March 5, 2019, 4:30 p.m. ET

Contents:

Prepared Remarks:

Operator

Good day, ladies and gentlemen. And welcome to the Ambarella fourth quarter and fiscal year 2019 earnings conference call. As a reminder, this call is being recorded. I would now like to introduce your host for today's conference, Mr. Louis Gerhardy, Director of Corporate Development and Investor Relations. Mr. Gerhardy, you may begin.

Louis Gerhardy -- Director, Corporate Development and Investor Relations

Thank you, Sarah. Good afternoon. And thank you for joining our fourth quarter and fiscal year 2019 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 2019 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 are under no obligation to update these statements.

These risks, uncertainties, and assumptions, as well as other information on potential risk factors that could affect our financial results are more fully described in the documents that we filed with the SEC including the annual report on Form 10-K that we filed on March 30th, 2018 for the 2018 fiscal year and Forms 10-Q, filed on June 8th, 2018, September 7th, 2018, and December 7th, 2018 for the fiscal year ending January 31st, 2019. Access to our fourth quarter and fiscal 2019 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 will now turn the call over to Dr. Fermi Wang.

Dr. Fermi Wang -- President and Chief Executive Officer

Thanks, Louis. And good afternoon, everyone. Fiscal year '19 was a pivotal year in Ambarella's transformation from a pure video processing company to a computer vision company. Inefficient of human viewing, we see products extracted and the process value to take off from which video streams. We're building our customer system to make intelligent decisions. During the year, we tapered out and assembled three CV devices, CV2, CV22, and CV25. Each integrating our new semi-pro, deep, neural network AI processor with our video processing into a single 10-nanometer SoC. Within several months of [inaudible], we commenced CV22 mass production. And we are experiencing strong [inaudible] activity globally. For the year, revenue from security camera in the automotive markets both increased in the mid-single-digit percentage range. Security camera revenue we present did about 50% of total revenue for fiscal 2019, with the auto approximately 20%.

Consumer electronics revenue declined faster than expected throughout the year and accounted for more than 100% of year-over-year revenue decline. For the full year ending January 31st, 2019, revenue declined 23% to $227.8 million. Our Q4 fiscal year 2019 revenue over $51.1 million represented a 28% decline from the $70.6 million of revenue in the same period of fiscal year 2018. Revenue from the security camera market increased about 10% from a year-ago quarter led by the professional security margin. For the quarter, consumer electronics revenue represented about 100% of the year-over-year revenue decline. During the recent consumer electronic show, CES, in January, Ambarella successfully demonstrated its latest solution for automotive and the whole monitoring of occasions focusing on our CVflow computer vision technology.

This included a demonstration of solutions addressing each of the six different automotive camera applications we are now targeting. These are OEMs and aftermarket drive recorders, electronic mirrors, interior drive and the cabin monitoring, front monitor or ABM, and the level two-plus autonomous driving applications. We also announced and demonstrate our first solutions of driving events, driver assistance, or ADAS front-camera market which is attempt already in excess of $1 billion represents a large opportunity for Ambarella. We also introduced our CV22AQ automotive camera system on chip, featuring Ambarella's CVflow computer vision architecture for powerful deep neural network processing. Popular applications include front ADAS cameras, electronic mirrors with blind-spot detection or BSD, interior driver and the cabin monitor cameras and the Around View Monitors or AVM with parking assist.

The new SoC provides the performance necessary to exceed a new car assessment program or NCAP requirements for applications such as lane-keeping, automatic emergency brake or AEB, intelligent headlight control, and the speed assistant functions. We also announced that HELLA Aglaia, a leading global developer of intelligent regional perception software was partnering with us to develop a platform for next-generation of the ADAS space on the CV22AQ. The platform enables forward-facing, single-docs ADAS cameras with advanced AI features and highly excellent image content recognition which are requirements for 60 critical applications. HELLA Aglaia choose the CV22AQ processor due to its ability to deal with extremely high computer region processing performance with the low-power consumption required for single-box ADAS camera designs.

The platform was demonstrated during the CES show featuring multiple neural networks running simultaneously on a single CV22AQ and performing object classification and a free-space detection. Ambarella is now working closely with HELLA Aglaia to market the joint solution to leading OEM customers. Also, at CES, we announced a partnership with Smart Eye, a world leader in developing artificial intelligence-powered eye, mouth, and head tracking technology to deliver a driver monitor assistance of EMS platform that tracks driver actions and intentions. With Ambarella CV22AQ, Smart Eye is able to provide high resolution, high-precision tracking at 60 frames per second, paired with the concurrent execution of AI-based interior sensing algorithms. At the show, we demonstrated that Smart Eye AI software running on our CV22AQ to automotive OEMs and Tier 1s, highlighting the increase that 17 made possible in future driver and the cabin monitor systems.

Our automotive demonstration also included long-range stereo camera based on our CV2 SoC, enabling both high resolution and low-range object classification at 150 meters in low-light conditions. We also showed our stereo cameras performing object detection while operating in complete darkness using active IR illumination. We demonstrated our electronic new solution replacing a vehicle's rear right and left mirrors with three cameras and an electronic mirror display. And leveraging the CV22's computer vision had the ability to perform advanced blind-spot detection. We introduced and demonstrated our latest SoC in the CVflow family, the CV25. CV25's focus on reducing our customers' overall system costs for delivery of a significant computer vision performance, high-quality image processing, and the advanced cycle of security features at very low power.

Camera space of CV25 will be capable of performing artificial intelligence at the age allowing features like facial recognition to happen in real time on the device, rather than in the car. For example, in smart video doorbells, CV25 can automatically recognize familiar faces approaching the front door, flag all new persons, recognize car license plates, and alert homeowner when a package is delivered. We are encouraged by the number of third-party software developers porting to our CVflow platform and demonstrated a wide range of the applications during CES. This included FX groups, car, and the license plate recognition, Clarify's retail analytics, Pilot AI's familiar face recognition, and the vehicle classification, and Xnor's person and vehicle detection applications. In summary, we had a highly successful CES.

And I will now talk a little about customer product introductions during the last quarter. In the whole year automotive market, we continue to see solid growth in [inaudible] applications, primarily in Asia. In December, Chinese car maker, Geely, introduced its Saiwai car models with 4HD car recording supplied by Tier 1 supplier, Long Haul in the [inaudible] camera SoC. Also, during the quarter, Chinese BAIC introduced new Senova car models with car recorders supplied by Tier 1 supplier, [inaudible] And again, based on Ambarella's A12A SoC. In the automotive aftermarket, Korean [inaudible] introduced its QXC 3000 camera featuring our H22 SoC and including HDR processing, lane detection warning, and the full collision warning features. European batch can provide the next space.

Also introduced is a series too of batch cameras based on Ambarella's A12 SoCs, supporting features including Amazon's Alexa intelligence voice control and emergency SOS response. In the professional security camera market, we are continuing to renew designs for our CVflow SoC based on their combination of AI processing performance, low-light processing, and the cyber security features. In January, we shifted the first mass production quantities of our CV22 to a leading camera supplier. And we have seen an extremely positive reaction from customers to our new CV25 family. We are also continuing to benefit from the opportunities and the customer looking for alternative solution to high silicon part of our way. In the whole monitor and camera market, a number of customers make new product introductions based on Ambarella's solution at the CES.

Many of these were in the doorbell category, were in broad strength in low-power operation in the high-dynamic engine processing are key enablers for small form factor cameras often mounted in challenging lighting conditions. Alarm.com introduced Wellcam, a small home video solution designed to enable safer independent living based on Ambarella's S2E, Wellcam is a smart security camera designed to make it easier to stay connected to family members. ΣCASA Smart Home announced a full range of connected home products including a smart video updates on Ambarella's S5L SoC and the small wire-free auto security camera based on our S2L SoC. The doorbell includes 50 action based on AI algorithms. First Alerts, a leading maker of smoke detectors and other connected device introduced its on Onelink bell, a smart home bell system based on Ambarella's S3L with full HD resolution, two-way audio, and support for Amazon Alexa and Google Assistant.

French market leader, Netatmo, announced its smart video doorbell based on Ambarella's full HD S3L SoC and supporting Apple's HomeKit ecosystem. The camera can be viewed through the home app and through via Siri and integrated with other smart devices. And Maximus, a home security company providing easy to install smart home security solutions, announced its insert DualCam video doorbell, the first smart doorbell to include dual cameras to illuminate the top or bottom blind spots based on Ambarella's S5 SoC. The doorbell is compatible with Google Assistant and Amazon Alexa. Both, Netatmo and the Maximus video doorbell models won TechHive's Best of CES awards. During the quarter, in the customer camera market, dual market leader DJI introduced its Osmo Pocket, a small form factor handheld three-axis stabilized camera which is proving popular with video loggers, especially in China.

Based on Ambarella's S22 camera SoC, the camera is capable 4K media, 60 frame per second, and 12-megapixel photos with a recording time of over two hours. The Osmo Pocket's active track and the face track modes lets you select a subject and keep it centered in the frame during recording. In summary, strategically, fiscal year '19 was one of the most important years in Ambarella's 15-year history. The company's multi-year sitting investment of approximately $250 million is now in the very early innings of delivering results. With our focus homed on automotive, surveillance, and the robotic markets, we are well-positioned to address a fast-growing multi-billion-dollar opportunity. Based on this nice opportunity and the full customer adoption of our CV products, we remain confident that we made the right decision to focus on CV. And we will continue to direct a majority of our work investment into this technology.

And I want to thank our stakeholders, our 750 employees, and our customers, vendors, and shareholders for their confidence and commitment in the last year. Now, I will turn it over to Casey for the financial details and guidance of our first quarter for fiscal 2020.

Casey Eichler -- Chief Financial Officer

Thank you, Fermi. And good afternoon, everyone. Today, I'll review the financial highlights for the fourth quarter and full-year of fiscal 2019, ending January 31st, and provide a financial outlook for the first quarter of fiscal 2020. During the call, I'll discuss non-GAAP results and ask that you refer to today's press release for a detailed reconciliation of GAAP to non-GAAP results. For non-GAAP reporting, we have eliminated stock-based compensation expense and the reversal of evaluation allowance on certain deferred tax assets adjusted for the impact of taxes. For fiscal 2019, revenue, declined 23% to $227.8 million with more than 100% of the decline attributed to the legacy consumer electronics business while the automotive and security businesses increases in the single-digits on a year-over-year basis. For fiscal year 2019, non-GAAP gross margin was 61.2%.

And non-GAAP operating expenses increased 10%, primarily due to the continuation of our strong R&D investment in the computer vision technology and platforms. Despite this high level of R&D investment, our operating cash flow was a positive $24.5 million for the year. With no debt, cash from marketable securities totaled $359 million or $10.97 per diluted share. We repurchased $99.9 million of stock in fiscal 2019 resulting in our fully diluted non-GAAP shares count declining 5.4% compared to Q4 of 2018. In line with our previous guidance, our Q4 revenue totaled $51.1 million which represents a decrease of 11% from Q3 and a decrease of 28% when compared to the same quarter of the prior year. In Q4, we saw solid growth both sequentially and on a year-over-year basis in professional security cameras, our largest project segment with all other major product categories declining.

Auto revenue declined as we experienced the anticipated impact of a decline in a major customer's promotional activity and as the overall tone of the auto market remain cautious. Consumer and other product revenue declined slightly sequentially, exiting the year in the mid-teens as a percentage of total revenue. Non-GAAP close margin for Q4 was 60.6% compared to 60.9% in the preceding quarter. Relative to our expectation, gross margins reflected a better mix than anticipated. Non-GAAP operating expense for the fourth quarter was $29.5 million compared to $28.7 million for the previous quarter. OpEx increased with a higher level of R&D investment in our computer vision product technology and platforms offset by a reduction in SG&A. Other income of $3.3 million was higher than anticipated as we received a $1.8 million Italian R&D grant.

Non-GAAP net income for Q4 was $4.5 million or $0.14 per share compared with non-GAAP net income of $7 million or $0.21 per share in Q3. The non-GAAP effective tax rate in Q4 was approximately 5.8%. In the fourth quarter, the non-GAAP earnings per share were based on 32.8 million shares as compared to 32.9 million shares in the prior quarter. Total headcount at the end of the fourth quarter was 750 compared to 747 at the end of the previous quarter with about 80% of our employees dedicated to engineering. Approximately 70% of our total headcount is located in Asia. In Q4, we generated positive operating cash flow of $14 million with cash and marketable securities of $359 million, up from $349 million at the end of Q3. During the quarter, the company repurchased approximately 104,000 shares at an average price of $33.44 for a total consideration of approximately 3.5 million.

As of January 31st, 2019, approximately 31.9 million remained available for repurchase under the $100 million repurchase program authorized through June 4th, 2019. Total accounts receivable at the end of the fourth quarter were $26.2 million or 46 days sales outstanding. This compares to accounts receivable of $32.4 million or 51 days sales outstanding at the end of the prior quarter. Net inventory at the end of the fourth quarter was $18.3 million, compared to $23.3 million at the end of the previous quarter. Days of inventory declined to 90 days in Q4 from 109 days in Q3. We had two 10%-plus revenue customers in Q4, WT Microelectronics, a fulfillment partner in Taiwan, came in at 62% of revenue. And Chikoni, a Taiwanese ODM who manufactures for multiple customers came in at 13%. Now, I will discuss the outlook for the first quarter of fiscal 2020. We expect total revenue for the first quarter ending April 30th, 2019 to be $47 million plus or minus 3%.

Global trade tensions are causing our customers' order patterns to be more volatile. We anticipate security revenue to decline sequentially with consumer security up and professional security expected to be down. The combination of order volatility, a slowing economy, and the normal weak seasonal order patterns from our largest customers in China is driving the decline in professional security. We expect to benefit from a favorable customer mix and some inventory build in the consumer security market. Automotive revenue, driven by OEM and Tier 1 customers, appears to have bottomed out and is expected to grow sequentially. Consumer electronics revenue should continue to decline over the next two to three years.

With a gradual ramp in CV revenue from the professional security camera market and expected return to growth in our automotive business and less impact from the declining consumer electronics business, we anticipate quarterly revenue to be stable in the first half and return to growth in the second half of fiscal 2020. Global tariff issues, the potential for export restrictions, and changes in the macroeconomic conditions including deleveraging in China are issues that make forecasting challenging and are matters that we will continue to monitor closely during the quarter. We estimate two-one non-GAAP gross margins to be between 59% and 60% compared to 60.6% in Q4. We expect non-GAAP OpEx in the first quarter to be between $30.5 million and $32.5 million with the increase from Q4 primarily coming from increased engineering headcount, payroll tax accruals, and other engineering expenses. The Q1 tax rate should be modeled at 30%.

The increase in the tax rate is a result of our inability to use tax losses in certain jurisdictions. We estimate our diluted share count for Q1 to be approximately 33.1 million shares. Ambarella will be presenting at the Roth Conference on March 18th, the Bank of America Auto Summit on April 17th, and exhibiting at the International Security Conference and Exhibition on April 10th to April 12th. Please contact Louis for more information on these events. Thank you for joining our call today. And with that, I'd like to turn it back over to the operator for questions.

Questions and Answers:

Operator

Thank you. Ladies and gentlemen, if you have a question at this time, please press * then 1 on your touchtone telephone. If your question has been answered or you wish to remove yourself from the queue, please press the # key. Again, that is * then 1 if you would like to ask a question. Our first question comes from the line of Joe Moore with Morgan Stanley. Your line is now open.

Joseph Moore -- Morgan Stanley -- Analyst

Great. Thank you. So, you said stable in the first half. I assume that means Q2 sequentially flat. And then if you could characterize it, you said the trade-related tensions -- what bucket would you put that in? is that inventory build around trade issues that's affecting you? Is it design activity? Is it demand that just -- what's the direct impact of the trade tensions?

Casey Eichler -- Chief Financial Officer

Yeah. I generally say yes. I think all of those are -- and I'll affirm your comment in a minute. But I think all of those are factors that we're seeing in the world. We're in China discussing the second half and just the overall year with our customers. It's hard to put any emphasis on one over the other. And obviously, we were hoping we'd be talking on this call about some resolution. But it seems to continue on. And so, the volatility that we're anticipating we might see, it's hard to put it on any one factor, in particular.

Dr. Fermi Wang -- President and Chief Executive Officer

Well, Joe, this is Fermi. I think there are two things particularly important for us. One is we identify some strange ordering pattern from customer that we've never seen before. We truly believe that that's trade war issues, these costs. Those are ordering pattern. At same time, as you can recall, the second important things that we notice is that last year, I think that on November 19th, our government, the US government Bureau of Industry and Security published a recommendation to put some kind of a IP counter-protocol. I think that a lot of our Chinese customer grasped on that and start worrying that going to impact our shipment to them if this recommendation being adopted by the US government.

So, I think those two things definitely is generally quite uncertain to us. One is on the revenue. The other one is on the way things are with moving forward. However, even with that uncertainty, we continue to see that our Chinese customer are moving forward with our CV design wins and are building engineering activity with us. So, we are cautious to point out that could eventually, in time, become reality. But I haven't seen that the second one, impact us directly yet.

Joseph Moore -- Morgan Stanley -- Analyst

Great. Okay. Thank you. And then just on automotive bottoming out, can you characterize which segments are growing? Is it OEM versus aftermarket? And are you seeing tangible progress on the rearview mirror side yet?

Dr. Fermi Wang -- President and Chief Executive Officer

Yeah. So, first of all, we say open revenue. I think we're definitely refer that to the OEM side. Even for aftermarket, we still also see flat and a little bit growth. But OEM definitely continue to have a significant growth for us. But from revenue side, majority are OEM revenue come from our recorders today. But at same time, for engineer activity, I think that we continue to see a lot of activity. Just give you one example that we announced that in December, we are partnering with HELLA Aglaia on the ADAS design. Following that, there are multiple things happen after the announcement. First of all, we mutually demoed their system at CES in our booth and got some really good feedback. And in parallel, they are demoing the same system to their customer, multiple OEMs at the same time. In fact, for the demo, they're giving to OEM is not a demo anymore. It's inserting on the car and do a live demo. The third thing happen is HELLA Aglaia has a capital market date on February 14th, just few days ago.

In that event, they generate following quote. He say, quote, "Our mutual demo idea was referenced as a successful demo of a new AI-based L2-L3 perception functions on ultra-low power SoC anchored." So, basically, what I think they are -- two thing. First of all, this is the first time our customer come out to confirm what we have been saying that we have very powerful CV processing performance chip while at a very low power consumption. And this is the first time a customer confirmed that.

Second of all, the comment they made is after they see our demo compared to the same software running on different competitive solutions, they come to that conclusion. So, I really think that's a very important milestone for us. And also, at same time, right now, I can highlight they are currently marketing this solution to a leading Tier 1 together at this point. So, I think this is a wide example we made of progress. Even after we announced in December with HELLA Aglaia, we've continued to make progress with that on the [inaudible].

Joseph Moore -- Morgan Stanley -- Analyst

Great. Congratulations on the progress in automotive. Thanks.

Operator

[Audio cuts out] question comes from the line of [audio cuts out] Gonzales with Bank of America. Your line is now open.

Adam Gonzales -- Bank of America Merrill Lynch -- Analyst

Yeah. Thanks for taking my question. First, just looking at your base automotive and security camera business, which I think you said grew mid-single-digits year-over-year, the most recently completed year, what's the right way to think about just that base business, the sustainable growth rate in the mid-term? Is that mid-single-digit rate the right trajectory? Was that too low? It could be higher or lower? Any puts and takes. Thanks.

Casey Eichler -- Chief Financial Officer

Yeah. I think that's a pro -- again, we don't guide beyond the current quarter. But I think we said that we're gonna continue to have growth in the automotive business over the course of the year. The CV product line that we're focused on obviously won't contribute to that growth until we get out beyond this year. But we've had a lot of projects under way with our video-based products that I think continue to get adopted and provide growth for the year. But what you're thinking about is probably a good way to think about it.

Adam Gonzales -- Bank of America Merrill Lynch -- Analyst

Got it. And then more of a high-level question on the strategy with CV and autos. Could you outline just the different camera areas within the car, whether it's driver monitoring, ADAS forward cameras around you, e-mirrors, what the relative opportunity is in each and the timing for revenues?

Dr. Fermi Wang -- President and Chief Executive Officer

Okay. So, in my script, we talked about six potential opportunity for automotive OES. The first one is recorders which already generated revenue. We'll continue to see more opportunity in Asia. And we believe this is a revenue-growing market for us in the near-term. And the second one that we mentioned is electronic mirrors. And we already have a media-only solution introduction with one Chinese customer. And we are working with other projects. But at same time, last quarter, we announced that electronic mirror with blind-spot detection enabled by our CVflow functions. And I think that is probably -- we believe it's become mainstream in the future. So, really, the only product is going to be, I would say, intermediary product. But in the flow, any e-mirror will have blind-spot detection. That's what we believe right now. So, I think that is going to fall into the regular automotive design cycle so that we're gonna see short-term media-only revenue from the e-mirror but not a lot.

But in the long-term, I think that our CVflow solution will enable us to become major player in the electronic mirror for OEM business. We think this is definitely a area we want to focus on. The interior driver monitoring, the DMS basically for interior driver and cabin monitoring, this is an interesting combination because we see two different approach on this market. One is individual camera do nothing but driver monitor which is a reasonable market. And there are a lot of people asking for the solution today. And that's really we're trying to play in there. But however, we think the long-term for the market we really want to play into is the driver monitor system combined with ADAS because all ADAS function need to associate with the DMS right now because when you go to have a solution, one of the biggest challenge that everybody talking about is whether the driver really pay attention while it's required. So, I think our focus will be enabling driver monitor system with ADAS solution which is a requirement of NCAP today.

So, that one is something -- in fact, for example, we know that HELLA Aglaia want to use this kind of solution moving forward. And that's also part for our defense program. But even for the DMS solution by itself, last quarter, we announced that one Chinese customer only using our S22 to enable in DMS system because it's relatively easy and low-performance requirement. So, that is a short-term market, is more competitive. But it definitely is something we'll continue to work on and deliver a solution for. AVM is a market that right now really converting to the first AVS market, especially for media only. I think that market is ongoing. But I think the whole market converting to a CV enabled passing of system solutions. So, when we say AVM, we're definitely referring to the current video solution as well as the CV space AVS. And that market we are playing there, but we haven't announced any design win with AVM yet. The last category is level-two plus.

That's basically HELLA Aglaia. That's basically that short-range stereo camera we mentioned in the past. And definitely, this is the one area we continue to focus on. Our plan is to continue to work with HELLA Aglaia to enable multiple OEMs through them. And hopefully, we can also identify other potential opportunities and working with the current partners that we can deliver more news along this direction. So, I would say that we have spent a lot of time on the previous category. But we also identified a level two-plus, ADAS-plus autonomous driving applications are the focus for us right now.

Adam Gonzales -- Bank of America Merrill Lynch -- Analyst

Great. Thank you.

Operator

Thank you. Our next question comes from the line of Matt Ramsay with Cowen. Your line is now open.

Matt Ramsay -- Cowen -- Analyst

Thank you very much. Good afternoon, guys. For me, a couple additional questions on the level two-plus opportunity in your automotive business. First of all, if you could give us a little bit of an understanding as to how and why you believe that the HELLA folks are demonstrating your integrated solution to their customer base and what that breadth looks like and, second, if there's any progress report on your connection and potential landing of other Tier 1s across the automotive industry. I know HELLA has a pretty wide berth. But there's also, obviously, other guys that you could be working with. Thanks.

Dr. Fermi Wang -- President and Chief Executive Officer

Right. So, first of all, we have regular meetings in terms of engineering as well as a fiscal review. So, we know that he provides us updates on the OEM they are engaging with. And sometime, we probably need to help them to deliver something special. So, we do know who they are talking to and the progress. And more importantly, we continue to provide engineer support at their request. So, although we cannot talk about the OEMs that we are talking to, but I feel confident that we are moving forward positively with HELLA Aglaia because now they can [inaudible] a car. In terms of other tier 1 and other potential OEMs in this space, that's something we visit after we continue to move forward. Although, we didn't mention any new ones. But you should assume that we continue to talk to multiple potential customers and hopefully, that we can give you updates later.

Matt Ramsay -- Cowen -- Analyst

Got it. Fair enough. And then, obviously, the big focus on China and some of the unusual ordering patterns. But I wanted to focus on the two top enterprise security customers over there in Hikvision and Daiwa. How are you seeing those folks and their adoption of CV into their mix? And as we progress through the year, any sense of computer vision versus human vision revenue splits with those two customers? Just to understand how that CV penetration is happening there would be helpful. Thank you.

Dr. Fermi Wang -- President and Chief Executive Officer

Right. So, first of all, we have a lobby that actually supports customers. And like I said, we do have a engineering activity kickoff for our CV projects based on our CVflow chips. And last year, Hikvision talked about they shipped roughly one million units of CV cameras. And I believe they plan to be very aggressively promoting this product. However, I do know their target plan. And it's split between video and CV. However, based on the -- when I talked to them last time, they made it clear that they believe the CV market is become real. And they believe they're gonna continue to provide different price-performance point product into this market.

So, that make me believe that they are now serious about investing a lot of money on that. They also see an opportunity in China on those kind of product. In terms of split, really, I don't have the visibility on theirs yet. In fact, right now, because most of our activity was announced on engineering side and we really haven't got their feedback on their product planning in terms of when they're going to introduce a product, how they ramp up, and what the pricing. So, it's hard for us to make a guess at this point.

Matt Ramsay -- Cowen -- Analyst

Got it. That's fair enough. But congratulations, overall, on the progress on the automotive side. And we'll stay tuned for updates as we push through a bit of a turbulent time. But appreciate the color.

Operator

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

John Donnelly -- Stifel -- Analyst

Hi. This is John Donnelly on for Kevin. Thanks for taking my questions. Can you talk about the advantages that the 10-nanometer process gives you for the CV products?

Dr. Fermi Wang -- President and Chief Executive Officer

Well, I think that the 10-nanometer really benefit for us for multiple reasons. But the most important reason is power consumption. We have a very unique silicon architecture which it give us our power consumption advantages. But just like in the past, we knew that if we fall behind on the process note, if we fall behind for more than two process note, the power consumption advantage of our silicon architecture will disappear. And we are assuming we're going to compete with Mobileeye, Core COM, High Silicon, all of them moving to a 10-nanometer and probably only have plan with seven-nanometer. So, I knew that -- so, that's why moving to 10-nanometer is a must for us to keep our power consumption advantage.

But because of our investment, 10-nanometer solution, when you compare our CV solution versus a competitor's not from that group I just mentioned, then it really gives a huge amount of a power consumption advantage because now we're talking about not only just our architecture advantage but also the process note advantage. And that help us tremendously to win design wins in those category. For example, we start seeing many RFQs from consumer, security camera, leading suppliers. And all of them require powerful CV performance. At same time, they want to build a doorbell as well as powered or battery-based security camera which it require very low power consumption. And our 10-nanometer becomes significantly important in that category.

John Donnelly -- Stifel -- Analyst

Okay. Great. And have you seen any change in terms of the popularity or the attach rate of the dashboard cameras from maybe some different geographies or push from insurers or regulators to promote greater use of those?

Dr. Fermi Wang -- President and Chief Executive Officer

Yes. In fact, we do see that. In fact, in the past, the major driver was China. And last year, it gradually -- China and Korea. Last year, we talked about Japan become very popular, especially, our OEM space. Now, we are seeing multiple customer taking this camera concept to British and gradually going to Europe. And we start generating revenue there. So, it's driven by the insurance company, like you said. So, although it's a small number compared to other areas, but we do think that -- we are hopeful that those market gonna drive new adopt rate for us.

Casey Eichler -- Chief Financial Officer

Just to add to that, there are some countries that over the next year are gonna start to require that new cars have recorders in the cars. And so, that's gonna be -- the regulatory basis of that will also be constructive and helpful to that market.

John Donnelly -- Stifel -- Analyst

Great. Thank you very much.

Operator

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

Suji Desilva -- ROTH Capital -- Analyst

[Audio cuts out] Fermi. Hi, Casey. You talked about the growth areas, security and automotive growing to single-digits. I think Casey, as you indicated, that's what it might grow, longer-term. But you're a little bit circumspect on that. But the other consumer area you talk about declining two or three years, what rate of decline could we think about there and understanding how the overall revenue nets out as that headwind plays out?

Casey Eichler -- Chief Financial Officer

Yeah. As I talked about, as we exited the year, that business represented the mid-teens as a percentage of total revenue. So, a lot of that, really, is just about through the course of last year and, in particular, the second half of last year. There is a tail to that business though. And we do continue to see revenue. And I think we will, as I mentioned over the next two to three years, will -- I think it will decline over that period of time. But I think because of the level that it's at today, it's not gonna have a meaningful impact like it really did last year where it contributed more than 100% of the decline for the full year off of that legacy consumer business. And so, the takeaway there is I think we worked through the majority of that last year. And it was really a headwind in the second half. It will continue to decline. But I don't think you'll see it be anywhere near the headwind that it was last year.

Suji Desilva -- ROTH Capital -- Analyst

Okay. That's helpful color. And then a bigger picture question on your CV products. You have a 22 now in commercial and CV2 and 25 coming. Could you talk about the relative size of the addressable markets for CV2 and CV25? How much do those add on versus the CV22s addressable market?

Dr. Fermi Wang -- President and Chief Executive Officer

Right. So, you should consider CV2 as a high-end CVflow solution. CV22's a mid-stream. And the CV25's really target at the cost-effective solution. So, for market, for example, you can think that for automotive, most of company customer are using CV22. Professional security will use CV22 and the CV25. And consumer I think will use mainly CV25. That's just a rule of thumb. And so, in terms of total revenue, I think that ASP-wise, of course, CV2 is a high risk but low-risk volume while CV25 has low-risk ASP but consider volume could be much bigger. So, if I was to make a forecast right now -- we see a lot of CV25 interest from our customer right now, considering the competitive cost and the performance.

Suji Desilva -- ROTH Capital -- Analyst

Okay. Very helpful. Thanks, guys.

Operator

Thank you. Our next question comes from the line of Charlie Anderson with Dougherty & Co. Your line is now open.

Charlie Anderson -- Dougherty & Co. -- Analyst

Yeah. Thanks for taking my questions. Maybe just wanna start with a big-picture question for me. As you look at the automotive opportunities that are out there you have the two initial wins, HELLA and then the other one. I wonder what are your reasonable expectations for this year, Fermi, in terms of design win activity based on some of the improvements that you've made and some of the interactions you've had now with the industry?

Dr. Fermi Wang -- President and Chief Executive Officer

Well, we had our board meeting just last week. We signed up some goals which is more than what we just have talked about, obviously. So, our internal goal is we need to continue to make progress not only on the engineering side but, of course, on the business development side that we are very happy with HELLA and the other design wins. But we are not -- that's not enough. We need to make a lot more progress on that direction. I am sorry that I can not really talk about the names and the design win potential. But I know that we have a lot of activities with other customers that will give me confidence that we will continue to do well in this area.

Charlie Anderson -- Dougherty & Co. -- Analyst

Great. And then you guys mentioned stable revenue in the first half but then growth in the second half. I wonder if you maybe can just rank order for us some of those contributors to growth in the second half relative to the first half? Thanks.

Casey Eichler -- Chief Financial Officer

Yeah. Certainly, it's gonna be the auto space and the security space that are gonna be the drivers for the year and, in particular, in the second half. As I mentioned, there'll be a little bit of headwind in my mind from the consumer side. But I think most of that is behind us at this point. But when we're looking at growth drivers, in auto, it is the non-CV products this year. But then we'll start to ramp in in the future and, as we've talked about, the real CV opportunity to start to show some growth in the second half. That's really in the security space and is, we mentioned, in-script. We're seeing quite a bit of good activity there.

Dr. Fermi Wang -- President and Chief Executive Officer

One thing might be worth to mention is we mentioned that we start winning design from a high silicon design win in the past. And we do believe we're gonna see those revenue impact to our revenue probably the end of this year. So, it's definitely driving some of the second-half growth on the professional security camera side.

Charlie Anderson -- Dougherty & Co. -- Analyst

Great. Thank you so much.

Operator

Thank you. Our next question comes from the line of Quinn Bolton with Needham & Co. Your line is now open.

Quinn Bolton -- Needham & Co. -- Analyst

Hey, guys. I wanted to ask a couple of questions just on that guidance. The second half comment for growth, was that just sequential growth off the first half base? Or is that year-on-year? And then I've got a few follow-on questions.

Casey Eichler -- Chief Financial Officer

Yeah. As we looked out -- as we mentioned in the script as well, it's a little difficult with the macro environment and some of the things going on, in particular, with China to understand exactly how that growth will model out. I think what we're seeing with our customers in a lot of the discussions that our engineers and that Fermi's personally having with our customers that we see some of the markets -- for example, I mentioned that the auto market looked like it had bottomed out. As you know, there's been some pressure on that market. And we see that growing. When you think about sequential versus year-on-year, year-on-year's a little difficult because we had such different makeup in our revenue last year with some of the consumer tailing off as well as just some of the other markets ramping in.

And so, it's hard to do a year-on-year comparison. But when we look at the growth that we see, as I mentioned before, it's definitely gonna be from the automotive non-CV and from CV and the video products in the security side of the business. And then it's, again, hard to gauge a little bit how much -- the question earlier -- that the consumer continues to tail off. But it's at a point in the revenue that I don't think it'll be material headwind. And in some quarters, it could be relatively stable, as we indicated. In other quarters, it can drop a little bit just depending on how the designs roll out into the future.

Quinn Bolton -- Needham & Co. -- Analyst

Got it. So, I know you're not giving annual guidance, but if you're $47 million plus or minus 3% in Q1 and stable in Q2 -- let's say you even grow 10% sequentially in Q3-Q4. Still looks like your total revenue for fiscal '20 would be down on the order of 10-ish%. I'm just trying to reconcile that growth for the year where you're saying maybe it's high-single-digit growth in 85% of your revenue. Is the disconnect simply that the consumer business on a year-over-year basis is down significantly but from the April quarter level, it's flat to down slightly on a sequential basis and that's the big difference between a poor business and the consumer business?

Casey Eichler -- Chief Financial Officer

Yeah. I think that's a fair way to think about it. As we said, we had some customers that were, in the beginning, half a year, in particular, last year that are totally out of the revenue today. And then we have other products that are still going on but at a lesser level. Some of the markets -- take the drone market, for example. There was a fair amount if insourcing to their own solutions. And so, while in some of those lines we're doing as good or better than last year, we're participating less broadly in some of those markets. And I think that adds to the year-over-year piece as well. Auto's growing off of a fairly small number. And then the CV will contribute smaller this year in security than we'll see in the future just because it's ramping up. But I think all those things combine to get to that guidance.

Quinn Bolton -- Needham & Co. -- Analyst

Got it. And then just a question on the security market. I know you're expecting in the near-term professional to be down. But it sounds like a consumer business for you is pretty strong. I've gotten a number of questions about Arlo. And obviously, Arlo had a pretty ugly outlook for their business. And they tend to be more consumer-focused. And just wondering if you think it's by reflection of the specific products that Arlo has or why you may be doing so much better in the consumer segment of the surveillance market.

Dr. Fermi Wang -- President and Chief Executive Officer

Right. So, first of all, Arlo's not our customer. So, we really don't know what their problem is. But we do not see -- we have many other customer in the consumer security camera. We do not see similar problems in those big customers in that category.

Quinn Bolton -- Needham & Co. -- Analyst

Got it. And then last one for me, Fermi. You had mentioned Hikvision in 2018 may have shifted about a million CV cameras. Are those using very high-end application processors that really aren't high-volume solutions or --

[Crosstalk]

Dr. Fermi Wang -- President and Chief Executive Officer

They use NVIDIA TX2.

Quinn Bolton -- Needham & Co. -- Analyst

Got it. Okay. Thank you.

Operator

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

Joe Flynn -- Craig-Hallum -- Analyst

 High. This is Joe Flynn on for Richard. Just was hoping you could expand on the security business a little bit. And we were wondering how broad the pickup would be and if you have more visibility into the 10 design wins that you mentioned. Is this something that we could see the majority of them late this year or early next year and during production?

Dr. Fermi Wang -- President and Chief Executive Officer

Yes, definitely. You know that our business model for professional security camera is focused on the top 10 customers. And among those top 10 customers that we have, we have one customer already start shipping early this year. And also, in the remaining months, we have a end engineering activity with a majority of it accepted. For those two companies, we are negotiating with them to decide in terms of pricing and engaging a model so they can keep all the projects. So, that take is undetermined here.

So, that's a situation with a professional security camera. So, because we have a lot of the engineering activity among the majority of the IP security tech and professional items, we can carry more customers. We believe we're gonna start seeing people lending up later this year, early next year. Really depends on their product planning and their marketing plan. So, like I said, we know we have a lot of engineer engagement. But we need to understand there is a plan like [inaudible] we can give you more accurate guidance for our revenue, which we don't have a lock-in for this yet.

Joe Flynn -- Craig-Hallum -- Analyst

Okay. Thanks. That's helpful. And a quick question on gross margin. You mentioned strong growth second half. Should we expect gross margin based on [audio cuts out] around the steady 59%-60% levels and then over time, increasing as the ASP is increased with CV and --

[Crosstalk]

Casey Eichler -- Chief Financial Officer

Yeah. I think for right now, the guidance that we have on the lower end of our traditional range is the right place to be. As we see the mix on CV out into the next fiscal year and beyond, whether or not that improves back up to the high end of the range, it'll remain to be seen. But I think that's a pretty good place to be right now is in the low end of the range, which the bottom of the rang that we've talked about traditionally has been 59%. So, the 59% to 60% is a good place to be.

Dr. Fermi Wang -- President and Chief Executive Officer

My feeling is that CV will be a gross margin helper instead dragging down our current gross margin.

Joe Flynn -- Craig-Hallum -- Analyst

Okay. That's helpful. That's all for me. Thanks.

Operator

Thank you. This concludes our question and answer session for today. I would now like to turn the call back to Fermi Wang for any further remarks.

Dr. Fermi Wang -- President and Chief Executive Officer

Again, I would like to thank our stakeholders, especially our 750 employees for their support and commitment in the last year. Thank you. I will talk to you next time.

Operator

Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program. You may all disconnect. Everyone have a great day.

Duration: 58 minutes

Call participants:

Louis Gerhardy -- Director, Corporate Development and Investor Relations

Dr. Fermi Wang -- President and Chief Executive Officer

Casey Eichler -- Chief Financial Officer

Joseph Moore -- Morgan Stanley -- Analyst

Adam Gonzales -- Bank of America Merrill Lynch -- Analyst

Matt Ramsay -- Cowen -- Analyst

John Donnelly -- Stifel -- Analyst

Suji Desilva -- ROTH Capital -- Analyst

Charlie Anderson -- Dougherty & Co. -- Analyst

Quinn Bolton -- Needham & Co. -- Analyst

Joe Flynn -- Craig-Hallum -- Analyst

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