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Ambarella Inc (NASDAQ:AMBA)
Q2 2020 Earnings Call
Aug 29, 2019, 4:30 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, ladies and gentlemen, and welcome to the Ambarella's Second Quarter Fiscal Year 2020 Earnings Conference Call. [Operator Instructions]

I would now like to introduce your host for today's conference, Mr. Louis Gerhardy Head of Corporate Development and Investor Relations. You may begin.

Louis P. Gerhardy -- Corporate Development and Invester Relations

Thank you, Skylar. Good afternoon and thank you for joining our second quarter fiscal 2020 financial results conference call. Our speakers will be Dr. Fermi Wang, President and CEO and Casey Eichler, CFO.

The primary purpose of today's call is to provide you with information regarding the results for the second quarter of our fiscal 2020. The discussion today and the responses to your questions will contain forward-looking statements regarding our projected financial results, financial prospects, market growth and demand for our solutions, among other things. These statements are subject to risks, uncertainties and assumptions. Should any of these risks or uncertainties materialize or should our assumptions prove to be incorrect, our actual results could differ materially from these forward-looking statements. We are under no obligation to update these statements. These risks, uncertainties and assumptions, as well as other information on potential risk factors that could affect our financial results, are more fully described in the documents that we file with the SEC, including the Annual Report on Form 10-K filed on March 29, 2019 for fiscal 2019 ending January 31, 2019, and the Form 10-Q filed on June 7, 2019 for the first quarter of the fiscal year ending January 31, 2020.

Access to our second quarter fiscal 2020 results press release, historical results, SEC filings and a replay of today's call can be found on Investor Relations portion of our website.

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

Fermi Wang -- Chief Executive Officer

Thank you, Louis, and good afternoon, everyone. Before I discuss our results, I will provide an updates on geopolitical factors that may continue to impact our business. View and [Part 05 00:00:14] market share shifts picking all customers and supply chain issues continue to be potentially disruptive. And as several of our customers in China continue to face the risk, will may be added to a U.S. government entity [Part 05 00:00:30], which could limit or restrict our shipments to them. At the same time, our largest competitor in the security cameras, semiconductor market, high silicon, a unit of a hallway is facing challenges that are helping us gain market share. As you can see, there are multiple factors, positive and negative, that yield a wide range of outcomes for us.

We continue to demonstrate strong progress toward our strategy to transform from a pure video processing company to an AI and computer vision company. During Q2, three customers, including one in the automotive market, generating a mass production CV revenue. CV designing activity remains strong. In Q2, we generated preproduction CV revenue for more than 40 customers, ordering engineering parts, evaluation kits and our development boards.

Driven by demand for our core video processing portfolio. I'll cover those in our fiscal year 2020 outlook has increased, despite the geopolitical uncertainty. Our Q2 fiscal year 2020 revenue of $56.4 million was above the high end of our guidance range and the revenue increased 20% from the $47.2 million in the prior quarter.

Three factors are driving the strong outlook in our core business. First, underlying demand at our largest security camera customer in China has improved. As noted by those [Part 05 00:02:12] customers in their recent earnings reports. Second, this [Part 05 00:02:18] outlook for security camera is being fortified by our global market share gains. And third, there is some inventory restocking in China.

I will now talk about our progress in our target markets, starting with security. We are seeing professional security camera makers increasing orders for shipments in the second half of the year. We have continued to gain market shares at customer outside of China as well as at Chinese customer for camera models to be exported to Europe and to U.S. We are also seeing widespread adoption of our CV solutions in a professional security camera market was both large established players as well as with a new group of emerging private players. We're excited to announce that average loan, the Motorola Solution company will be releasing its new 85A AI-powered camera line in the coming weeks. The new camera line lays the foundation for Avalanche's next generation of intelligent video solution, and it will offer a new era of AI innovation in video security. Based on Ambarella's CV22 CVflow AI processor, the new cameras feature Amazon's Next Generation Video Analytics that leverages the chips, neural network based video processing and events image capabilities to help recolonize and to classify people objects was extremely high accuracy.

In July, channel engineering giant Bosch Honors Ambarella's versus prestigious Bosch Global Supplier Award for their energy and the building technology business. The award recognized Ambarella's performance in the manufacture and the supply of products and the services, notably in the area of innovation, quality, cost and logistics. This year Bosch awarded a 47 of its 43,000 suppliers, representing its top suppliers across an array of industry, and in 15 different countries.

Ambarella has been a supplier of SOC for Bosch IP cameras for over 10 years. During the quarter, leading Korea's security camera supplier Hanwha Techwin, release its new Q series camera with models ranging from 2-Mega and 5-Mega resolution and the inbox we need on and the multi-PTB form factors. All of the new models are based on Ambarella's history of HEVC SOC's. Our first wings in professional models and this customer. Hanwha has stated that they will use Ambarella's CVflow SOC also they introduce new camera was integrated AI capabilities.

At the asset, International Security Show, held in London in June. New professional IP camera maker via introduce it's V-cam dorm and the panoramic cameras based on Ambarella's CV22 CVflow SOCs with embedded video and audio analytics powered by AI algorithms, while end-to-end surveillance solutions can detect threats in their earlier stage and they perform fast in effective investigations. And in August, US based Verkada introduced it's new Ambarella-based CM61 camera design to give customer the flexibility to add 4K video coverage everywhere. The solution hybrid cloud architecture supports ease of installation and usability for minimizing bandwidth of usage without sacrificing 4K quality or performance.

And in a consumer whole monetary market, which we previously mentioned is the second wave our CV revenue. We see increasing demand for camera solutions with greater intelligence as customers demand cameras with small motion detection, that notify user only in the event that something interesting is happening. In future, such camera will also be capable of identifying people as well as classifying objects and that -- this level of intelligence will increasingly require dedicated AI hour in the cameras.

We also see cameras being offered as part of a broader IoT ecosystems that support a seamless integration with other devices in the home. During the quarter U.S. based Alarm.com introduce its V723 and V523 intelligent outdoor and indoor cameras based on Ambarella's S5L SoCs and operating Wi-Fi connectivity for HD video and night vision. And Samsung SmartThings introduced its SmartThings camera home monitor camera based Ambarella's S2Lm SoC, selling for $90, it offers full HD video, wide angle operation HDR processing and a two way audio.

LifeShield, an ADT company introduced it's LifeShield HD video doorbell which integrate seamlessly with it's security systems. Based on Ambarella's S2L SoC, the camera offers voice support for Amazon Alexa, along its control alarm systems, adjust lightings and managing film at service via voice commands. We are also seeing new opportunity for cameras being integrated into smart locks. During this quarter, HIK videos consumer division, EZVIZ introduced it's DL-30 VS smart lock with the building 720p wide angle camera and night vision capabilities. These are Ambarella's S3LM SoC the lock camera can detect while intruders are lurking and take a snapshot or record a video clip to send to the homeowner.

In summary, for IP security camera market, our sales are expanding both professional and the customer markets are growing. As we take market share and as we continue to make excellent progress in designing our CVflow SoCs into a next generation of AI cameras.

I will now update you on our automotive market progress. In July leading Korean Automotive Tier 1 Honda, Honda both models announced that it had developed a camera monitor system using cameras and monitors to replace a vehicle's a rear and the side view mirrors. The system enabled vehicles to achieve greater fuel economy by eliminating the track of the side mirrors while the camera's wide field of view enhance driver safety by reducing blind spots.

In Ambarella's A9AQ SoC provides the image processing for all three of the video channels. We are also seeing increasing interest in all computer vision SoC, phone companies that provide the fleet management solution for commercial vehicles such as trucks and buses. Existing camera solution for commercial market typically lack intelligence features and can only long analytics in the cloud with a barrel of CVflow portfolio of AI chips. The solution providers can now deploy AI based applications such as from ADAS, Active Driver Monitoring system and the blind spot detection in vehicles.

Our CVflow solution have been chosen by multiple providers in Asia and USA was one generating mass production revenue in Q2 and ours expect to be entering production by the end of the year. We come here to win car recorder designs of Asian automotive, OEMs increasingly offer this feature in new car models as a pre installed option. During the quarter, Chinese carmaker Geely, introduced its new Emgrand GS and GL models featuring full HD car recorder based on Ambarella's A12 automotive SoCs.

Additionally, Great Wall Motors introduced it's WEY VV6 SUV with a one camera and three camera TVR [Phonetic] option based on Ambarella's A12A and H22A automotive SoCs. And a new U.S. car, the OIA R2 featuring a recorder based on our A12A. You know, aftermarket dash camera category. Korean supplier Thinkware announced it's QXT mega recorder based on Ambarella's A9AQ Automotive SoC. The first four Channel for HD car recorder includes, potentially Thinkware introducing it's the 500 plus two channel dash camera based on Ambarella's A12 SoC. Also in Korea find digital introduce its GX 200 and GX 2000 model based on Ambarella's A12 SoC featuring quite HD front and full HD, we are recording. Smartphone connectivity and auto night vision.

In summary, we're just starting to realize our vision to enable big data analytics in video HD endpoint devices or AI in the camera. As this play out, we expect to see multi-billion dollar increases in our addressable market. Our CV solution integrates our state-of-the-art video processing heritage was recently deploy deep neural network AI processor. It is evident now that customer who are experienced with our video processors are able to efficiently migrate to our CV solutions and our CV portfolio is also attracting new customers and expanding our customer base. We are on schedule to realize the three waves of CV revenue, articulate our last earnings call and we're pleased to see the improvements in our Q3 forecast our core video processing models. There are many distractions in the market today and I am thankful Ambarella's global team is keeping up with the strong pace of execution. And also thanks to all of our stakeholders, including our 754 [Phonetic] employees, customers, vendors and shareholders for our support.

Now I will turn the call over to Casey for the second quarter, financial details and guidance for our third quarter of fiscal year 2020.

Kevin Casey Eichler -- Vice President and Chief Financial Officer

Thank, Fermi. Good afternoon, everyone. Today, I will review the financial highlights for the second quarter of fiscal 2020 and provide a financial outlook for the third quarter of fiscal 2020 and as well as full year. During the call, I'll discuss non-GAAP results and ask that you refer to today's press release for a detailed reconciliation of GAAP to non-GAAP results. For non-GAAP reporting we have a limited stock based compensation expense adjusted for the impact of taxes.

Our Q2 revenue, was $56.4 million exceeded the high end of our guidance of $51 million to $53 million. These results represent an increase of 20% from Q1 and a decrease of 10% when compared to the same quarter of the prior year. In Q2, on a sequential basis, security revenue increased, automotive was relatively flat and other revenue was down. Non-GAAP gross margin for Q2 was 58.1% compared to 59.6% in the preceding quarter and was slightly above the midpoint of our guidance of 57% to 59%. Non-GAAP operating expense for the second quarter was $27 million compared to $29.9 million for the previous quarter.

This was below our guidance -- this was below our guidance range of $29.5 million and $31.5 million due to R&D grants of $3.2 million for fiscal year '19 and the first half of fiscal year '20. We will be including this benefit on a quarterly basis in our Operating expense guidance in the future quarters. Other income was $2.2 million and primarily represented interest income on our cash and marketable securities. GAAP net income for the second quarter was $7.3 million or $0.21 per share compared to $266,000 or $0.01 per share in the first quarter. The non-GAAP effective tax rate in Q2 was 9.1%. In the second quarter, the non-GAAP earnings per share were based on 33.9 million shares as compared to 33.5 million shares in the prior quarter.

Total headcount at the end of the second quarter was 754 with about 81% of our employees dedicated to engineering, most of whom are software engineers. Approximately 70% of our total headcount is located in Asia. In Q2, we generated positive operating cash flow of $8.1 million. Cash and marketable securities were $376 million, up from $366 million at the end of the first quarter. We did not repurchase stock during the quarter under the $50 million repurchase program authorized through June 30, 2020.

Total accounts receivable at the end of Q2 were $27.9 million or 46 days sales outstanding. This compares to accounts receivable of $26.5 million or 50 days sales outstanding at the end of the prior quarter. Net inventory at the end of the second quarter was $17.4 million, compared to $17.6 million at the end of the previous quarter. Days of inventory declined to 67 days in Q2 from 85 days in Q1. We had two 10% plus revenue customers in Q2. WT Microelectronics, a fulfillment partner in Taiwan, came in at 55% of revenue; and Chicony, a Taiwanese ODM who manufactures for multiple customers, came in at 21%.

I will now discuss the outlook for the third quarter of fiscal 2020. For Q3 fiscal 2020, we are raising our revenue guidance above the current street consensus. We expect total revenue for the third quarter to be in the $63 million to $67 million range. We anticipate all market segments led by automotive, but including security and other to increase sequentially. We continue to expect other revenue comprised primarily of consumer electronics products to remain volatile and decline as a percentage of revenue over the next two to three years.

Although forecasting is difficult in the current environment, we continue to expect our revenue to increase in the second half of the year when compared to the first half with fourth quarter revenue experiencing the normal seasonal sequential decline. The global economic and political environment is generating a significant amount of uncertainty with our customers outlook and our customers supply chains. Three key factors are impacting our gross margin result and our outlook. Our professional security camera business is experiencing strong underlying demand globally, combined with some restocking at our Chinese customers, they are growing faster than the market and with their purchasing powers, the number one and number two suppliers globally, this puts pressure on our gross margin.

To support our increased revenue outlook and demand and supply chain challenges from geopolitical factors we may also experience increased costs as we accelerate orders to our suppliers. In addition, rising tariffs may have a greater impact on our customers ability to sell their products, incorporating our higher margin devices. Based on these factors we estimate Q3 non-GAAP gross margin to be between 56% and 58% compared to 58% in the second quarter.

We expect non-GAAP OpEx in the third quarter to be between $30 million and $32 million. We expect to continue to provide positive operating leverage as revenue increases. The Q3 tax rate should be modeled at 10% versus 9.1% in Q2 and 36% in Q1. The tax rate has started to normalize from Q1 levels as our increased level of profitability enables tax losses in certain jurisdictions to be utilized. We estimate our deluded share count for Q3 to be approximately 34.4 million shares. Ambarella will be participating in the Dougherty & Company Institutional Investor Conference on September 5th in Minneapolis and the 26 annual CLSA investor forum on September 12th in Hong Kong. Please contact Louis for more details on these events.

Thank you for joining us on our call today. And with that, I'll turn the call over to the operator for questions.

Questions and Answers:

Operator

[Operator Instructions] Our first question comes from Jim Moran with Morgan Stanley. Your line is now open.

Jim Moran -- Morgan Stanley -- Analyst

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

Fermi Wang -- Chief Executive Officer

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

Jim Moran -- Morgan Stanley -- Analyst

Got it. Okay. And then it seems like with the visual and ultrasound technologies [Phonetic], you're starting to see real kind of announcer traction in the surveillance space. Can you give us a sense for when CV contribution, that starting to become material in the second half and just, if you're looking for professional business next year, can kind of just give us a qualitative sense for, you know, how much CV rounds within the portfolio.

Fermi Wang -- Chief Executive Officer

Right. Like I said last time, we expect that we already -- we said that nine out of top 10 professional customer are doing design within us. Now we are believing file for that will gain through their mass production stage at the end of this year. So that we do see revenue coming out this year. But I think material revenue contribution will come from next year, put particular on the professional security camera side and that definitely help us together better gross margin as well as market share.

Jim Moran -- Morgan Stanley -- Analyst

Great. Thank you so much.

Fermi Wang -- Chief Executive Officer

Thank you.

Kevin Casey Eichler -- Vice President and Chief Financial Officer

Thanks, Jim.

Operator

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

Matt Ramsay -- Cowen -- Analyst

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

Kevin Casey Eichler -- Vice President and Chief Financial Officer

I see. First of all, it's a really 00 the answer is different from markets-to-markets. But, so let me repeat some of the things we said. First of all, we said there are three CV customer in production with us at this time in Q3 -- sorry in Q2 and Q3. And I will say, one is in outside China, two are in inside China? But if you look at, I also talk about we have 40 revenue customer was -- our CV revenue customer this year, this quarter. And is all almost, all of the -- for security camera, as well as in auto. In security camera, majority of is outside China. And in auto I will say half-the-half, but I think that's definitely the split we're seen. But one thing I have to say is that the momentum on the CV design that people are trying to buy in the preproduction ship or evaluation board, that activities continue to be strong for us.

Matt Ramsay -- Cowen -- Analyst

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

Kevin Casey Eichler -- Vice President and Chief Financial Officer

You know, well on the product side, I'll let Fermi talk about that a little bit. But clearly, the revenue today is being driven in the automotive space by our vision based or video based products. As we talked about in automotive the ability to get mass production revenue off of CV is a longer term story. And that's why we talked about the first two waves being the professional security or surveillance and the consumer home that we talk about.

But I think it's kind of -- in the vision base initially we were led by the aftermarket in the video recorders and then and that's now getting adopted more and more in the OEM as we talked about. And so that certainly is leading the revenue in the auto space is the recorder business. But we are seeing a traction across the announcements that again Fermi's talked about in the e-mirror space, cabin monitor, driver monitor and the fleet type of opportunities that we just announced during the quarter. So I think it'll become more broad based. But today, it still is primarily driven by the video recorders.

Fermi Wang -- Chief Executive Officer

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

Matt Ramsay -- Cowen -- Analyst

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

Kevin Casey Eichler -- Vice President and Chief Financial Officer

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

Operator

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

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

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

Fermi Wang -- Chief Executive Officer

Well, to say it's hard to really put a quantity on that. But however, if you have to be to prioritize those two factors, I think that our best estimator improved demand outlook probably is really the number one, followed by the inventory restocking. And also but the share gain, although it's a more than a short-term results, but I think the share gain has a more longer term impact to our revenue in the future, especially several all customer, while switching from our competitors solution to us, it would take time for them to point production by cumulatively in the loan term we help us more for our revenue growth.

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

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

Fermi Wang -- Chief Executive Officer

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

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

Got it. Thanks. And if I can just speak one more in, I saw that R&D was down quite a bit in Q2. I'm just wondering what caused that and how we should expect that to moving forward.

Kevin Casey Eichler -- Vice President and Chief Financial Officer

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

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

Great. Thank you.

Operator

Our next question comes from Quinn Bolton with Needham and Company. Your line is now open.

Michelle -- Needham and Company -- Analyst

Hi, guys, Michelle on for Quinn. Thanks for taking the questions. So just first, on the AI based professional camera market and the market calendar 2019. I believe you guys have said before the night [Phonetic] vision is the largest player there. And they shipped about $1 million units in 2018 and now we're targeting $3 million this year. So I was just trying to see is that still in line with or is that still their expectation or you guys hear anything different there, any idea to kind of getting that perspective. That would be great.

Kevin Casey Eichler -- Vice President and Chief Financial Officer

Yes, talking about Hikvision's or forecasts for the AI based camera. Right?

Michelle -- Needham and Company -- Analyst

Exactly. Yeah.

Kevin Casey Eichler -- Vice President and Chief Financial Officer

Yeah. So what we talked about, I think that $1 million units was historic, so naturally a numbers, I think that's done. I think they are still looking at the cyclical growth. They haven't give us a new update on that. But I think they are probably contract to get to that level, maybe a little less, maybe a little more. But I definitely think the growth from last year to this year in terms of AI camera is significant for night [Phonetic] vision.

Michelle -- Needham and Company -- Analyst

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

Fermi Wang -- Chief Executive Officer

We haven't seen any yet.

Michelle -- Needham and Company -- Analyst

Okay. And then just another one on the Chinese automotive market, has there seen any design activity changes with the automotive OEM in China there? Do trade tensions or maybe any other signs that Chinese OEMs are increasingly cautious designing it due to the trade relations?

Fermi Wang -- Chief Executive Officer

Just purely from a trade point of view, I don't think we have -- we got any feedback from our automotive OEM and Tier 1 [Phonetic] customers in China, I don't think they care that. I don't think they emphasize on that point or we haven't seen any resistance on design wins using external solutions so far. I think the majority of the resistance come from the house China security customers, especially the two being mentioned by the potential is to be put on the entity list.

In general, in autos -- in automotive Chinese market, I really think that the biggest impact is the growth this year was relatively compared to the historic data. And so that a lot of people were trying to figure out how to move to a new direction at differentiation to the car and I think that the CV function CV features could be is a one direction and many Chinese OEM and Tier 1 are focusing on. So that's definitely something we see. And like I said, I don't see any of that has a concerned because of the trade.

Michelle -- Needham and Company -- Analyst

Okay. And one last one. Have you -- maybe you guys have any indication of additional enforcing Hikvision or Dahua, pursuing acquisitions are never given the threat of being added it, can you just --

Fermi Wang -- Chief Executive Officer

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

Michelle -- Needham and Company -- Analyst

Okay. All right. That's all for me. Thanks.

Operator

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

Charlie Anderson -- Dougherty & Company -- Analyst

Yeah, thanks for taking my questions and congrats on the strong results and guidance. So, just wanted to look into the 40 customers or so that are pre-production revenue at this point. I wonder if maybe you could speak to some of the [Indecipherable] applications you're seeing from some of those customers what are the more promising ones in terms of underlying volume, I'm not going to follow.

Fermi Wang -- Chief Executive Officer

Yeah, I think the 40 customer basically fall into that three way, so CV revenue we talk about lifetime. The first wave is a professional security you can imagine that although that 40 covers almost all the major brand, then professional security came up brand, then all there plus several of stellar company focus on using CV as a differentiation for the professional security camera. So that's a big chunk of the 40 people. And also we are start seeing some consumer security camera demands and well there are a few companies in that category. And then the auto side, there is a huge amount of a company, but it's separate into multi different category. There are some that are using CV purely for DMS, some that are using for cabin monitoring, some using for ADAS, some that follow your email for the blind spot detection. So although there's quite a few automotive customer value will be running into different category, you will see server in each category in that. So another 40 companies, I will say that the security camera and auto probably is equally split it.

Charlie Anderson -- Dougherty & Company -- Analyst

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

Fermi Wang -- Chief Executive Officer

Right. So for the HELLA Aglaia we continue to work together on importing more of their new network -- AI that was onto our platform. I think the major milestone for this collaboration is because ADAS require SL chip. So we believe that our current Soffer preparation on our current CV22 or CV2AQ Chip is really preparing that the Soffer ready for SL chip when it comes out. So I think we continue to work on the Soffer algorithm development and as soon as our SL Chip come out, you should expect that the Soffer run on SL Chips, so we can demo through the OEM together and an example OEM continue to happen without AQ chip, just that we have to come out with SL chip to get into the mass for the final production ready solution.

Charlie Anderson -- Dougherty & Company -- Analyst

Got it. Okay. Thank you so much.

Operator

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

Suji Desilva -- Roth Capital -- Analyst

Hi Fermi, hi Casey. Congrats on the strong results here. Just to be clear -- just to be clear, Casey on the inventory restocking. I just understand whether the relative impact of it was stronger in the reported fiscal second quarter or the guided fiscal third quarter. And just along with that on the guidance for a seasonal fiscal fourth quarter, are you no longer comprehending inventory restocking continue into that timeframe?

Kevin Casey Eichler -- Vice President and Chief Financial Officer

As Fermi, I think referenced, it's hard for us to know exactly or have good visibility into that. I think that there's no question that they are going to restock and build some inventory for the reasons that we discussed earlier. I would agree with the order priority that Fermi said in the earlier question. But it's a combination of both it definitely affected this quarter and will affect next quarter as well, where we don't have perfect visibility into Q4, there could be some activity in Q4 as well. But I really think what you're going to see continue over the next few quarters is the strength that Hikvision and dollar I talked about in the market overall, and the growth that they're seeing outside of all of this. I think the overall home monitoring and surveillance market as well as the professional market are going to be pretty good. And so we should see pretty good growth in particular with some of the CV products coming online. Just to remind you, they do have two times the DASP is the comparable vision only systems.

And so I think that the restocking is a part of the current dynamic with the global tension that we see. But really, I think the story as we get out into next year, pass the seasonal aspects that we talked about in Q4 is really going to be that revenue building, not only division based products, but primarily or in particular in the CV products as the second wave starts to come in and the consumer side.

Suji Desilva -- Roth Capital -- Analyst

Okay. Understood, yeah. And then in the professional security mark, I know you couldn't give specific on maybe what Hikvision was expecting for AI professional cameras in '20, but maybe more broadly. Could you talk about encounter '20, what you might think given all the programs you have an interest, what the a cash rate for me if of AI potentially to national security cameras, maybe a range of -- range of attach rates in the calendar '20 time frame.

Fermi Wang -- Chief Executive Officer

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

Suji Desilva -- Roth Capital -- Analyst

But the point I make it for me is that the news skills is coming out next year. The majority will now have CV encorporated. That's what you're saying.

Fermi Wang -- Chief Executive Officer

That's what I'm saying. Yes.

Suji Desilva -- Roth Capital -- Analyst

Okay. That's very promising. All right, great. Thanks, guys. Congrats again.

Operator

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

Auguste Richard -- Northland -- Analyst

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

Fermi Wang -- Chief Executive Officer

Well, first of all, I think the high-vision Dahua totally a strong demands on their -- for their products. I think that our products that we ship to HIKvision and Dahua are mainly used in their export business. And I think this market is probably providing a security camera continue to grow, I would say the high single digit point, maybe [Indecipherable] probably is higher than the market. So I think this is a trend we're continuing to seeing in a professional security camera.

Auguste Richard -- Northland -- Analyst

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

Fermi Wang -- Chief Executive Officer

Market share gains, yes.

Auguste Richard -- Northland -- Analyst

[Speech Overlap]

Fermi Wang -- Chief Executive Officer

And also -- outside China, particularly that we are continuing to see a market share gains.

Auguste Richard -- Northland -- Analyst

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

Fermi Wang -- Chief Executive Officer

Majority of products still in 20a-14 and moving to 10 nanometers. So we are not in the EUV yet. And we told to sensor, they basically give a guarantee that our current product line will not be impacted by this Japan, Korean patients.

Auguste Richard -- Northland -- Analyst

Got it. Thank you so much.

Fermi Wang -- Chief Executive Officer

Thank you.

Kevin Casey Eichler -- Vice President and Chief Financial Officer

Thanks, guys.

Operator

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

Richard Shannon -- Craig Hallum -- Analyst

Hi, guys, thanks for taking my questions as well. Maybe kind of a multipart question, the security market. I think you said your engaged with nine of the top 10 OEMs with expecting to ship five them with CV with their share. Maybe if you can talk about whether you expect any of the other four remaining wants to be shipping at some point next year. Any visibility on that and then any discussion about competition you've talked about a few of the bigger public players out there, but wonder if still that's the competitive profile as any new entrants you're seeing out there?

Fermi Wang -- Chief Executive Officer

Right. So for the balance of the CV designing, we definitely believe all of the rest, well probably going to production center sometime next year. And that's a current visibility and that we still progress we've made, I will be confident that all of them will be in production sometime next year. In terms of a competition on the CV side, I think HiSilicon remains to be the -- our biggest competitor. But while -- you know that the media was trying to be there and Intel about part of the Movidius, but I rethink that among all the core also tried to come to this using the ad processors, but for the professional security or consumer security camera market we continue to believe that HiSilicon will be our biggest competitor moving forward.

Richard Shannon -- Craig Hallum -- Analyst

Okay. Just a quick follow up on that, Fermi, do you expect any particular customer, especially in those top 10, to be using one or another solution? Or do you think it will be a mix of more than one supplier, especially in CV solutions, to be specific.

Fermi Wang -- Chief Executive Officer

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

Richard Shannon -- Craig Hallum -- Analyst

Okay. Great. That's all the questions for me. Thank you.

Fermi Wang -- Chief Executive Officer

Thank you.

Operator

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

Fermi Wang -- Chief Executive Officer

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

Kevin Casey Eichler -- Vice President and Chief Financial Officer

Appreciate it.

Operator

[Operator Closing Remarks]

Duration: 49 minutes

Call participants:

Louis P. Gerhardy -- Corporate Development and Invester Relations

Fermi Wang -- Chief Executive Officer

Kevin Casey Eichler -- Vice President and Chief Financial Officer

Jim Moran -- Morgan Stanley -- Analyst

Matt Ramsay -- Cowen -- Analyst

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

Michelle -- Needham and Company -- Analyst

Charlie Anderson -- Dougherty & Company -- Analyst

Suji Desilva -- Roth Capital -- Analyst

Auguste Richard -- Northland -- Analyst

Richard Shannon -- Craig Hallum -- Analyst

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