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Ambarella (NASDAQ:AMBA)
Q3 2021 Earnings Call
Nov 23, 2020, 4:30 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Operator

Ladies and gentlemen, thank you for standing by. And welcome to Ambarella's third-quarter fiscal year 2021 earnings call.[Operator instructions]. I would now like to hand the conference over to your host, Louis Gerhardy, corporate development. Please, go ahead.

Louis Gerhardy -- Director of Corporate Development and Investor Relations

Good afternoon and thank you for joining our third-quarter fiscal year 2021 financial results conference call. Calling in, today from different locations 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 our third quarter of our fiscal 2021.

The discussion today and the responses to your questions will contain forward-looking statements regarding our projected financial results, financial prospects, market growth, and demand for our solutions, among other things. These statements are based upon information available today and are subject to risks, uncertainties, and assumptions. Should any of these risks and 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 we file with the SEC, including the Annual Report on Form 10-K filed on March 27, 2020, for the fiscal year 2020 ending January 31, 2020, and the Form 10-Q filed on September 9, 2020, for the second-quarter ending July 31, 2020, and Form 10-Q filed on June 8, 2020, for the first quarter of the fiscal year ending April 30, 2020. Access to our third quarter fiscal 2021 results press release, historical results, SEC filings, and a replay and prepared transcripts of today's call can be found on the Investor Relations portion of our website. With that, I'll turn the call over to Dr. Fermi Wang.

Fermi Wang

Good afternoon, everyone, and thanks to you for joining us this holiday-shortened week. We are pleased to see our multi-year visual AI investment as the major force driving our accelerated business momentum which is apparent in our Q3 results and outlook. Q3 revenue of $56.1 million was above the high-end of our original guidance range. CV led the way, but we also faced stronger than expected demand for video processors, despite the persistent geopolitical and public health risks.

The gross margin of 62.7% was above the high end of our long-term model for the second consecutive quarter, reflecting a favorable customer mix and continued operational execution. CV revenue was slightly more than 10% of total revenue in Q3, and we continue to expect it to be 10% for the full year. With an ASP about 2x our non-CV ASP, CV units were less than 4% of our total units shipped, and an even smaller portion of the installed base, highlighting the very early stage of this opportunity and the significant multi-year headroom for growth. We anticipate CV revenue will represent about 25% of our total revenue in the fiscal year 2022, and we have a flattish outlook for video processors.

The megatrends for security, safety, and automation are very favorable, and the pandemic appears to be accelerating this digital transformation. To support this anticipated growth, we continue to build our team globally, and we intend to further expand our presence around the world to support the rising interest in our CV SoCs from both existing and new markets.I will now talk about our markets and customers. As we have previously mentioned, Chinese IP security camera makers have become concerned about the continuity of supply from existing Chinese suppliers, and have been evaluating alternative camera designs on other solutions. Ambarella's CVflow AI SoCs have won a number of design wins based on their AI performance, high-quality imaging, and low power.

We have now received orders for shipment beginning in the fourth quarter of this year, including orders for our CVflow SoCs from Dahua, China's second-largest security camera company. Outside of China, we are continuing to see customers introduce new IP security cameras based on our solutions, including our CVflow AI SoCs. During the quarter, Johnson Controls launched its new Tyco Multisensor Camera. Based on Ambarella's S2E SoC, the camera is equipped with four separate image sensors to provide up to 360-degree coverage via four separate non-stitched video streams.

Each of the four sensors is able to capture 4MP images, enabling the camera to cover an area that might normally require four separate high definition video surveillance cameras.Honeywell introduced its 60 Series IP cameras, including 5MP indoor and outdoor dome, bullet and outdoor speed dome models, and the 2MP outdoor speed dome models. Based on Ambarella's S5L SoC, the 60 Series offers increased resolution and provides fast notification and verification of potential threats and responses. And FLIR introduced its Elara thermal camera for accurately measuring skin temperature at medium- to high-throughput entry control points. Based on Ambarella's CV22 AI SoC, it is equipped with on-edge, intelligent face detection, and issues on-screen prompts to individuals when they need to remove glasses, while also guiding them to the correct position for best measurement.

An also, Panasonic iPro continued to expand its portfolio of Ambarella-based models with the introduction of its Vehicle Capture Camera, the WV-X5550. Based on Ambarella's CV22, the camera can capture clear images of vehicle occupants on one channel and license plates on another, even in challenging lighting environments, including night time. In the body-worn camera market, Panasonic iPro introduced its BWC4000 camera. Based on Ambarella's CV25 SoC, the BWC4000 records 1080P video and has 12-hour battery life.

Also during the quarter, Motorola introduced its VB400 body-worn camera, aimedat security professionals and based on Ambarella's low power SoC. Integrated with Avigilon's Control Center, the VB400 can augment fixed video deployments by displaying first-person perspective video from the body-worn camera alongside fixed cameras for superior situational awareness. During the quarter, Comcast announced its new Xfinity Home offering called Self Protection designed for consumers who want high-quality security cameras, but who may not need a professionally installed and monitored whole-home security system. The new Xfinity's HD home security camera is powered by Ambarella's S3LM SoC and is built for both indoor and outdoor use.

This month, we introduced our CV28M camera SoC, the latest in our CVflow family, supporting the introduction of advanced AI features targeting a variety of cameras in new high volume markets. Its highly efficient AI processing and low power will enable a new class of smart IoT devices for applications, including smart home security, retail monitoring, home robotics, and occupancy monitoring. For new AI sensing applications, like retail monitoring or occupancy monitoring, the SoC provides the AI performance to make all decisions in the camera, preserving privacy and avoiding heavy video processing running on back-end servers. In-home robotics applications, the CV28M can be connected to a wide range of sensors such as visible structured light, and time-of-flight, to capture,and then process the data required for navigation.

We are currently sampling CV28M to our customers. The CV28M's software compatibility with existing CVflow families is allowing customers to enter production very quickly, and we have already received mass production orders for shipment beginning in Q1 next year. In the automotive market, we are continuing to make great progress as we promote our AI solutions for a variety of automotive applications, including ADAS and AD applications to customers worldwide. Today, we are announcing our total automotive revenue funnel for the first time, and we intend to update it at least once every year.

Based on our best judgment, we currently estimate our automotive revenue funnel model is about $600 million with a majority represented by CV for a variety of ADAS and AD applications. The auto funnel revenue runs through FY27 with some of the more significant programs commencing production in calendar year '22 or calendar year '23. This funnel covers the business we have won as well as a pipeline of business we are currently competing for. We are seeing shipments of our CVflow-based ADAS solutions for commercial vehicles in China continuing to ramp with customers including Yutong buses, Shanqi trucks, and Dongfeng trucks.

We are currently the market leader in the OEM car recorder category with customers including Nissan, Honda, and Toyota in Japan, and Great Wall, Geely, and BYD in China. We are now seeing a recovery in orders for OEM car recorders in both regions, as car manufacturers begin to ramp production back up following the impact of the pandemic. And also, we are pleased to announce that we have our first design wins for our CV2FS automotive functional safety SoCs, which we introduced during CES at the beginning of this year. These SoCs include the AI processing and ASIL features required for safety-critical ADAS applications.During the quarter, we signed a development agreement to supply our CV2FS SoCs for level 2 plus ADAS systems with an OEM manufacturer of electric vehicles.

In this application, the CV2FS provides the AI processing performance and flexibility to support a wide array of driver assistance capabilities to improve safety and convenience. Also during the quarter, we signed a new development agreement with a Tier 1 supplier of electronic mirrors for the European commercial vehicle market based on our CV2FS functional safety AI SoCs. The CV2FS was chosen for its ability to process video from multiple cameras, and perform advanced AI processing to support features such as vulnerable road user detection and prediction. We are continuing to win new designs for fleet management solutions for commercial vehicles, as well as ride-sharing and taxi service.

With 140 million commercial vehicles in the U.S. and hundreds of millions worldwide, the ability to retrofit existing commercial vehicles with cutting-edge driver monitoring capabilities represents a major opportunity for Ambarella. Our CVflow AI SoCs have the required performance to support front ADAS applications, active driver monitoring, and video recording. In November, Ambarella announced a joint reference design for automotive camera applications that simultaneously monitors drivers while capturing vehicle occupants for one-way video conferencing.

The reference design uses software from Smart Eye, a world leader in developing AI-powered eye, mouth, and head tracking technology, and image sensors from OmniVision Technologies. Ambarella's CV22AQ SoC simultaneously processes both RGB color image and IR and runs Smart Eye's algorithms to analyze the driver's state and alert the vehicle to any unsafe indicators, such as drowsiness. With the holiday season approaching, there have been a number of new consumer product introductions featuring Ambarella SoCs. During the quarter, DJI introduced its Pocket 2 handheld camera, equipped with a 3-axis motorized gimbal to stabilize movement.

The Pocket 2 is based onAmbarella's H22 SoC and shoots 4Kp60 video takes 64 Mpixel photos and includes 8x zoom capability. On November 4, DJI introduced its Mini2 drone, the replacement for the popular Mavic Mini model. Featuring Ambarella's H22 SoC, the Mini 2 increases its maximum video resolution up to 4K at 30 frames per second, while also shooting 1080p video at up to 60fps.Also during the quarter, Insta360 introduced its OneX2 pocket camera. Based on Ambarella's H22 SoC, the One X2 includes dual-lens 5.7K capture for high-resolution 360-degree images, H.265 encoding, AI-based editing, and advanced image stabilization.

In summary, you have heard today more evidence on the broad and expanding adoption of our SoCs in automotive and security markets. In the professional security camera market our CV momentum, already strong, should build as we have added new CV customers in Asia, and we expect to see CV become material in the home security camera market over the next year. In auto, our CV traction is strong and a significant part of our expanding funnel. In addition, we continue to develop other IoT markets, including enterprise access control, smart locks, and counting/occupancy sensors, and we look forward to providing you with updates on our progress.

We are making significant progress in our multi-year transformation to a visual AI company, and the return on the investment is ramping. I'm very proud and would like to thank and acknowledge all of our employees worldwide for their contribution to our leadership position in the market, and for their execution in the face of the turbulent environment. I am also thankful for the support of our customers, vendors, and shareholders during these times. I will now turn the call over to Casey, who will give you more details about what we are seeing and expect for the business.

Casey Eichler -- Chief Financial Officer

Thank you, Fermi. And good afternoon everyone. Today, I will review the financial highlights for the third quarter of the fiscal year 2021ended October 31, and provide a financial outlook for our fourth quarter. During the quarter, I'll discuss non-GAAP results and ask you to refer to today's press release for a detailed reconciliation of GAAP to non-GAAP.

For non-GAAP reporting, we have eliminated stock-based compensation expense adjusted for the impact of taxes. Our revenue of $56.1 million was above the high-end of our original guidance. This represents an increase of 12% from Q2 and a decrease of 17% when compared to the same quarter of the prior year. In Q3 on a sequential basis, automotive revenue and other increased while security decreased.

Non-GAAP gross margin for Q3 was 62.7% compared to 62.4% in the preceding quarter and remained above the high-end of our guidance primarily due to customer mix as revenue from the two large professional security companies in China remained at low levels. Margins were also supported by continued operational execution in a challenging environment. Non-GAAP operating expense for the third quarter was $32.4 million, compared to $30.2 million in the previous quarter. Opex was slightly above the mid-point of our guidance range, and the consequence of the increase was primarily due to additionalchip development expenses, and higher employee-related costs outside of the U.S.

as normal activity resumed. Other income of $673,000 was due primarily to lower interest income as rates continue to remain low. Non-GAAP net income for Q3 was $3.3 million, or $0.09 per share, compared to net income of $2.1 million, or $0.06 per share in the second quarter. In the third quarter, the non-GAAP earnings per share were based on 35.8 milliondiluted shares, as compared to 35.4 million in the prior quarter.Total headcount at the end of the third quarter was 766 with about 81% of employees in engineering.

Approximately, 69% of our total headcount is located in Asia. Cash and marketable securities were $423.6 million up from $410.7 million at the end of the second quarter. In Q3, we had a positive operating cash flow of $13.1 million. Total accounts receivable at the end of Q3 were $24.1 million or 39 days sales outstanding.

This compares to $23.3 million or 42 days sales outstanding in the prior quarter. Net inventory at the end of the quarter was $23.7 million, compared to $23.9 million at the end of the previous quarter. Days of revenue increased to 102 days in Q3 from 109 days in Q2. We did not repurchase any shares in the third quarter.

In May, Ambarella's Board of Directors approved an extension of the current $50.0 million repurchase program for an additional twelve months ending June 30, 2021. As of today, there remained $49 million available for repurchase. We had two customers over 10% of revenue in Q3. WT Microelectronics, afulfillment partner serving multiple customers, came in at 62% of revenue, and Chicony, a Taiwanese ODM who manufactures for multiple customers, came in at 18%.

I will now discuss the outlook for Q4 FY21: Our visibility has improved, but we remain on guard for risks related to the pandemic and geopolitical factors. Furthermore, as the semiconductor industry supply chain tightens, our operations team remains vigilant in their efforts to manage manufacturing lead-times and on-time deliveries. We have seen some customer requests order pull-ins and orders placed within our lead-times. CV Design activity is at record highs.

In our prior earnings calls, we estimated two professional security camera customers in China, had pulled in $10 million of revenue into FY21 from FY20. In addition, revenue for video processor inventory has been reduced, we anticipate orders will remain weak, offset by some degree of a ramp in computer vision SoC orders. During Q3, these two customers combined and remained in the mid-single-digit as a percent of revenue, which will likely be the trough for the foreseeable future. Based on these factors and our best ability to estimate today, we anticipate total revenue for the fourth quarter ending January 31, 2021, to be in the range of $56 million to $60 million.

Automotive revenue is benefiting from an early CV ramp and a post-pandemic rebound, and we anticipate auto revenue will be up at least 20% on both a sequential and year-on-year comparison. We anticipate security camera revenue will be up in the low-double digits sequentially. Following a normal seasonal pattern, another revenue is expected to decline sequentially. We anticipate Q4 nonoperating gross margin to be between 59% and 61%, compared to 62.7% in the third quarter, with product and customer mix the primary driver for this change.

We expect non-GAAP opex for the fourth quarter to be relatively flat in a range between $31 million and $33 million. Q4 Other income should be modeled around $500,000. The Q4 non-GAAP tax rate should be modeled at approximately 10%. We anticipate our diluted shares for the fourth quarter to be approximately 36.3 million.

Ambarella is registered to participate in virtual conferences in Q4, including Wells Fargo, Imperial Capital, UBS, Barclays, MKM, and Needham. Ambarella will also be hosting virtual CES meetings between January 11 and January 22. Please contact Louis for more details on these events. With that, I'd like to turn it over to questions.

Operator.

Questions & Answers:


Operator

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

Joe Moore -- Morgan Stanley -- Analyst

Great, thank you. Congratulations on the quarter. I wonder if you could talk a little bit more about the funnel, the $600 million I believe is a number. Can you compare that to the $200 million which was secure design wins from a quarter ago? How much of that 600 million is secured.

And then, I assume that as you move forward there's still an opportunity to add incremental revenues to that funnel in the timeframe that you suggested.

Casey Eichler -- Chief Financial Officer

Yes. Thanks, Phil. You're right. Well, what we announced last quarter represented the design wins one for the first six months of the year.

What we're talking about today is the $600 million. This is for the design wins that are won and also in our pipeline. So based on what we have today and in our pipeline, we have $600 million [Inaudible] to your point that doesn't mean that we can't continue to add to that. We also give that a haircut as you might imagine related to what the customers think their revenue is going to be.

And also, the probability of timing the market. So I think it's a relatively reasonable and conservative look at it, and there is to your point an opportunity to add to that.

Joe Moore -- Morgan Stanley -- Analyst

Ok. Great. And I assume that's mostly computer vision. I mean, is there a video processing component to that.

Casey Eichler -- Chief Financial Officer

There is, but there is also a healthy component for computer vision as well. But there is some vision-based system up as well.

Joe Moore -- Morgan Stanley -- Analyst

Great. Thank you very much.

Casey Eichler -- Chief Financial Officer

You bet.

Louis Gerhardy -- Director of Corporate Development and Investor Relations

Let me add one more thing. Hi, Joe, I think that [Inaudible] majority of that $600 million of CV.

Joe Moore -- Morgan Stanley -- Analyst

Thank you.

Operator

Thank you. Our next question comes from the line of Tristan Gerra with Baird. Your line is now open.

Tristan Gerra -- Robert W. Baird -- Analyst

Hi. Looking at the design wins that you've announced in the security camera business and at the same time, you're two large customers not to be ordering. Is the inflection point that you're expecting in terms of new orders coming from those customers. And is that when you expect the inventory rebuild to happen.

Fermi Wang

Well, first of all, I think that we do see that both customers we're cutting -- are using their inventory right now. And also, we start seeing small orders coming from both of them. So that's why in the cases you just mentioned that we think we have a trough over the course of the revenue of those two companies at this point. Moving forward, I think that I expect the dollar will be strong on a computer vision and video processes will continue to be just flattish.

But vision is different though have we even we haven't announced any design win with TV design with a high vision yet. So, I will say that I will show this company separately, but we do believe that first, the inventory is gradually being where down. Two, the CV ramping in will be important for us. And three, in the future, we're going to continue to work with a high vision to see where we'll have the opportunity to work with them the computer vision technologies.

Tristan Gerra -- Robert W. Baird -- Analyst

Ok. Great. And then a quick follow-up, which is as you expect your CV business to ramp meaningfully over the next fiscal year. I understand the higher ASPs, is there any impact or how should we look at the trajectory of the result.

Casey Eichler -- Chief Financial Officer

Yes. I think the modeling for the CV we talked about is exactly what you just mentioned and that is two times, roughly two times the ASP. The same a similar gross margin profile. But obviously, operating leverage as we're able to now leverage our $450 million that we've already invested in CV along with taking our technology more broadly.

As Fermi mentioned to more and more customers, so I think, I think the CV leverage on an operating basis and on a top-line basis as you described it.

Tristan Gerra -- Robert W. Baird -- 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 and Company -- Analyst

Thank you, very much. Good afternoon, everybody. For me, I wanted to ask and I guess Casey, feel free to chime in here to something from the prepared script you reiterated CV as 10% of revenue targeted for this year, which around $22 million, $23 million, I guess based on on the guidance for the fiscal fourth quarter. And then, I just want to make sure that I heard this correctly that keeping vision camera revenue flat, you expect 25% CV revenue contribution next year, which I guess implies a tripling of the CV revenue.

Is that -- I don't know I'm doing the math here in the spreadsheet, and probably screwing it up. But I just wanted to see if that's an accurate portrayal of what you guys said. Thanks.

Fermi Wang

Yes. I think that is quite everything you say is correct, except one thing that we come to expect 10% of CV revenue this year. And also, we provide the guidance that we expect CV revenue will be 25% of total revenue next year. But that's 2.5 x, not 3x as you described.

Matt Ramsay -- Cowen and Company -- Analyst

Got it. Thanks, Fermi. I'm just following up on, I think Joe's question and may be asking in a different way on the auto pipeline number. I just want to really get precise about -- there was a $200 million in one business that you talked about last quarter.

And just within that $600 million, what's the progression over the last I guess three months of the business one in the same metric that you gave us last time. I understand that you'll be giving the full pipeline number going forward. But just since you gave us one data point, maybe you could give us the second one so we can try to draw a line. Thanks.

Fermi Wang

Well, I hope based on our current announcement, you see that we say at least two wins this quarter. One is that a function functional safety check for the ADAS, for the level two plus ADAS application for other one is for the electronic media. So with this tool, you should assume that we would definitely add more to the pipeline just this quarter. And we didn't disclose that because we didn't.

Going through this exercise is a time consuming to be accurate. So we plan to continue to update this as well. These final numbers and this one's a year so that we continue to provide you a data point. But also every quarter, we're going to come to update these, and when we get -- we will not disclose the amount but you can -- that we'll give you some indication as we continue to add to our funnel every quarter.

Matt Ramsay -- Cowen and Company -- Analyst

Got it. Thank you. Just one last one for me and I'll get out of the way. I guess if you are talking about forecasting CV revenue and the remainder of the business for fiscal 22.

What assumptions are you making at Hikvision and Dahua about their ability to secure high silicon chips and what that might mean for your business or are you assuming that things stay steady state, and whatever changes happen there may come in the future. Thank you.

Fermi Wang

I think my assumption for these two customers is different. My assumption is with the ramp-up of Dahua and CV chip, which will you talk about in this script as a Hikvision. We are in our current revenue forecast does not include any CV revenue or format with this awareness. And that's why we are working on the hope that we can convince them to use our senior technology in the future.

Matt Ramsay -- Cowen and Company -- Analyst

Thanks very much, Fermi. We appreciate it.

Operator

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

Tore Svanberg -- Stifel Financial Corp. -- Analyst

Yes. Thank you and congratulations on the solid results. First of all, it sounds like you're assuming the video business to be flat in fiscal '22. Is that just because of the CV cannibalizing or you're just being a bit conservative there too given the geopolitical tension still?

Fermi Wang

Well, Casey, go ahead.

Casey Eichler -- Chief Financial Officer

I was just going to say I mean certainly, we always try to be conservative in the way we look at business going forward. It's going to -- we'll learn over the next couple of years how much is pure growth, and how much of it is a replacement. They'll be an element of both. But I don't know that we have enough information to date to make that determination.

Clearly, after you get to that time point, it's going to be more and more cannibalization because we're not doing new video only processors for people to continue to extend, so they're going to have to either continue to use the products we have or overtime going to CV.

Tore Svanberg -- Stifel Financial Corp. -- Analyst

Very good. Go ahead, Fermi.

Fermi Wang

All right. Let me add one more thing. I believe when we talk to all the customers, I think all of that planning to use CV to gradually replace their video processor technology because everybody views that that two different technology. But it's a continuation of the product line.

All the video processor market will be replaced by CV in a span of three to five maybe even longer years. But eventually, the TV camera will replace that. In my opinion, I really think that in three years, the 50% of video process a market will cover to be a CV market and which is great for us because not only help to give us the chance to grab new markets here, but also increase our ASPs.

Tore Svanberg -- Stifel Financial Corp. -- Analyst

That's a great perspective. And I have a question about CV28. It sounds like this is more of a consumer product for you, and I'm just wondering if this is something that goes after higher unit volumes. And if so, what implications does that have for ASPs and potentially margins.

Thank you.

Fermi Wang

Right. So first of all, you're absolutely right. We talk about in the past, we want to build a complete family over CV chip based on our CV SoC architecture. As CV translates this new member is redesigned to target a high volume market, and so which also very sensitive to the ASP and the cost.

And at the same time, I want to point out the 2x ASPs versus our video process the technology is still applied to CV28 because our low-end video process of the price is very low. Also, that's the first thing. In terms of gross margin, I will say that Chip's gross margin will be as good as or maybe better than the video process equivalent to the video process of technology. But however, it is not going to be as high as our corporate gross margin.

So that's a balance of this as we go to a higher volume market that you are competing a bit on the pricing side. So CV28 is designed for that.

Tore Svanberg -- Stifel Financial Corp. -- Analyst

That makes sense. Think again, and congratulations.

Fermi Wang

Thank you.

Operator

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

Quinn Bolton -- Needham and Company -- Analyst

Hey guys, congratulations. Just wanted to follow up on the auto funnel. First, this clarification as you said that was extended through fiscal '27. I'm just trying to get the date right.

Casey Eichler -- Chief Financial Officer

Yes, that's correct. I said it was fiscal 26. It's fiscal '27 that's a total of six years.

Quinn Bolton -- Needham and Company -- Analyst

Ok. It's for six years. So obviously, can you give us any shape of that funnel? It sounded like you said that the bigger ramp is going to happen in calendar 22, 23. I would assume we're sitting where you are today there may not be a lot of business that's been added at this point for say 20, 25.

So should we think about it that you ramp up to a steady-state level by 2023 with this current funnel? And then it would be flattish for several years, or could you give us an idea of how your view in that shape. Obviously, anything you add to the funnel in the future will add to this. But just wondering what the shape of that funnel looks like.

Louis Gerhardy -- Director of Corporate Development and Investor Relations

Yes, Quinn, This is Louis.

Casey Eichler -- Chief Financial Officer

Go ahead, Louis.

Louis Gerhardy -- Director of Corporate Development and Investor Relations

Yes, you're right about the shape. So there are some large programs that start to go into production in calendar year '22 and calendar year '23. And then it levels out in terms of that annual contribution, but over time, we'd expect those numbers to change as we -- when new programs or bid on new programs.

Quinn Bolton -- Needham and Company -- Analyst

Got it. Understood. Ok. And then I guess I'm maybe I missed something on the gross margin guidance, it sounds like Hikvision and Dahua maybe just more broadly China professional is going to remain at a fairly small percentage of revenue in the January quarter.

Yet margins are going to be down nearly 200-basis-points to 400-basis-points, and so it doesn't feel like you have an adverse mix shift back to China professional security. What's the cause for the margins to come back down in the January quarter.

Casey Eichler -- Chief Financial Officer

It's an overall general mix between several different customers, but there is a fair amount of revenue that we will start to see I think in Q4 from those two customers. Some of the vision-based is for me just mentioned somewhere being CV based around Dahua. And I think that will be a nice contribution to the top line, but it will also put pressure. It's not the only factor but it certainly is one of them.

As you -- as I mentioned, the consumer side of the business is always down this quarter that's a seasonal thing. So that changes the mix not only the customer but also the product mix. And so, there's more than just one thing going on, but look there will be some recovery in that revenue. And again, as I mentioned, I think while the vision will be relatively stable or not have as much growth, we will see that CV starts to come in Q4 and that while it helps revenue, we'll also have some margin impact.

Quinn Bolton -- Needham and Company -- Analyst

Got it. And I guess with that vision business may be starting to come back a little bit, can we assume now that you're largely through that $10 million inventory purge, or do you think that $10 million that some of that is still burning off in the January quarter.

Fermi Wang

Hi, Quinn. This is Fermi. I think we continue to see that they are burning through this inventory. But we -- I don't believe we've seen the end of it.

Among all of the product lines of video process of product Hikvision and Dahua ordering, because we're only seeing several items coming back to new orders but remaining still, we haven't seen many orders yet. So I think that's a sign of two things. One is there continue to burn through the inventory, but for some product line the [Inaudible]already done so we saw seeing new orders, but we are seeing in the next few quarters we're going to continue to monitor how they are going to come back. But however, I sometimes I also need to mention that we also mentioned that CV will start ramping Q4 that will help us on the revenue side pulls put some pressure on the market side.

Quinn Bolton -- Needham and Company -- Analyst

Got it. Thank you.

Operator

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

Kevin Cassidy -- Rosenblatt Securities -- Analyst

Yes. Thanks. Congratulations on the great results. As you're introducing the new CV devices, the CV28 in particular now.

Now that all of your customers have done some CV designs. Is there a change in the time to market from the time you introduce a product to the time your customer comes out with the product?

Fermi Wang

Hi, Kevin, this is Fermi. I think you're absolutely right. Our overall CV family chips CV22, CV25 to CV28, share the same SDK. As soon as CV28 works from the chip, the hardware was then put simply the customer people can port the existing SDK that they only have unto CV28.

And that's why we think that that time to market is much, much faster. And we also -- in my script, I talk about that we expect to see where we receive orders in Q1 next year, and we expect to ship on time.

Kevin Cassidy -- Rosenblatt Securities -- Analyst

Ok. Great. And the -- on the opex side, it looks like it's under control very flat quarter over quarter, even with 5 nanometres products coming in the pipeline. Are there any foreseen expenses coming up, or should we expect this through fiscal year '22 to be kind of tight control over that opex?

Casey Eichler -- Chief Financial Officer

Yes. I think you're going to continue to see the drivers in opex be in two things. One is, we're going to continue to be hiring not only in engineering but we're starting to do some hiring outside of that as we start to really deeply pursue some of these markets that we haven't been in in the past. The second thing is, although there can be a little bit of lumpiness to it there will be a build in the cost of designing as you mentioned in the lower technologies not only the CAD tools and foundry costs, but the overall costs of being on the front edge of this technology will continue to be a driver generally that could smooth a little bit the way we treat that over the quarters.

But you can as a project start and stop have a certain amount of lumpiness to it. But I think those would really be the two drivers the rest of the business in pretty good shape.

Kevin Cassidy -- Rosenblatt Securities -- Analyst

Ok, great. Congratulations again.

Casey Eichler -- Chief Financial Officer

Appreciate it.

Fermi Wang

Thank you.

Operator

Thank you. Our next question comes from the line of Charlie Anderson with Colliers Securities. Your line is now open.

Charlie Anderson -- Colliers Securities -- Analyst

Yes, thanks for taking my questions. And my congrats on a strong quarter and outlook. I wanted to start with some of the opportunities in automotive. Your software partner was acquired but in Europe was acquired by an automaker.

I'm curious that maybe changes the complexion over there. And then, there's been some reporting on potentially some mandates or some goals in China around partial driving and self-driving. And I wonder if you're seeing that manifest itself in any of the design activity of some of the push over there. And then I've got a follow-up.

Fermi Wang

Yes. Thank you. So first of all. Yes, they are very important.

They were acquired by the VW and making [Inaudible] chance. First of all, I think that the media people[Inaudible]. We have a warranty there. I think somebody's helping us to have better VW mobility.

We know that but I also realize that we need to have a new [Inaudible] partner content for other things that would be very, very well. We spent a lot of time to develop what we needed to do. In terms of your second question, Charlie, I'm reminding you.

Charlie Anderson -- Colliers Securities -- Analyst

Yes, sorry. I know in China it seems like there's a push toward more personal autonomy and full autonomy. Some mandates potentially I wonder if you're seeing any of that manifest itself in the design activity and some of the planning.

Fermi Wang -- President and Chief Executive Officer

Yes, we do see that. And first of all, I think that more commercial vehicle top boxes and flag shop with strong revenue will be ready in time for the [Inaudible] market. So I really think that that's one market that we're seeing drivers of government regulation point of view and that I think we will continue to work on. We haven't seen really require a suitable vehicle.

So, if we hear anything we'll provide updates.

Casey Eichler -- Chief Financial Officer

As Louis mentioned, we're two different sites, and seems like we're doing a little bit for some reason at this point that we'll see what we can do.

Charlie Anderson -- Colliers Securities -- Analyst

Ok, great. Now I just had a quick follow up. I was curious if you could maybe update us on the high silicon situation. I know the last call you talked about a lot of inventory being out there, but I'm just curious how that's looking not in terms of some of the opportunities just captures the metal sockets.

Thanks.

Fermi Wang

So in the last few weeks -- few months we continue to monitor the situation. I believe the situation just like what we said last time. There's still plenty of inventory out there, but many stays in the big customers I think. For example, Hikvision, I believe we don't have any proof but we do believe Hikvision has a lot of inventory of high silicon chips, so they can continue to ship.

However, for other smaller high silicon customers, I think they are looking for new suppliers. And that's why we are seeing opportunities so that we can win. And we mention that we win a handful of Chinese professionals and become professional security camera customers in the last three months including Dahua. And also, we believe they're going to gradually ramp up their production with us I mean, Q4 moving to the next year.

And also, we also see in any other video market we see a lot of customers are looking for solutions, and we definitely believe we have the opportunity and technology that we can sell.

Charlie Anderson -- Colliers Securities -- Analyst

Great. Thank you.

Operator

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

Ross Seymore -- Deutsche Bank -- Analyst

Hi, guys. Congrats on the strong results and guide. I guess my first question just another clarification on the automotive funnel side of things, and forgive me if I'm cutting this little to finally. But with that $600 million a combination of both existing designs wins.

And then, I thought Fermi, you said designs you're competing for. Is that like a sand analysis? Is those design wins that you're competing for, but you think you're going to get? I just want to clarify how those concrete those design wins are.

Louis Gerhardy -- Director of Corporate Development and Investor Relations

Hi, Ross, this is Louis. For that $600 million funnels, as Fermi said, a majority think of 70% is business that's one. And that business has been discounted based on our confidence in the revenue forecasts, it's been given to us at the time we won the business. The other $200 million are opportunities that we're bidding on with two discount factors.

Discount factor one is the probability of winning that business. Discount factor 2, is the confidence in the revenue forecasts that's been provided to us at the time were betting on the program. So it's a six-year funnel, and again, as Fermi said, a majority of that business is one.

Ross Seymore -- Deutsche Bank -- Analyst

So another way to say with the $200 million you gave last quarter that -- at that point you had a year to date, you've pretty much added another $200 million until today. And then, the final $200 million is the part that you hope to win.

Casey Eichler -- Chief Financial Officer

No. Last quarter Ross what we provided was $200 million in the first six months of the year. So there's an additional $200 million on that that we had won before that period of time or more recently.

Ross Seymore -- Deutsche Bank -- Analyst

Got it. Ok, thanks for the clarification on that. Then maybe one for Casey. A lot of good questions have been asked and answered already, but you get great granularity in the sequential guide by your three primary segments.

But you just gave a directional guide of what they actually were in the prior quarter. So whether it was for the fiscal third quarter or if you want to do it for the entirety of the fiscal year, how do your revenue split between the IP security, automotive, and then consumer and other buckets. So we just have a baseline to work these percentages off of going forward.

Casey Eichler -- Chief Financial Officer

Yes. For the full year, we've said it remains true that the auto side of the business is probably going to be between 15% and 20% of total revenue that the consumer business was probably going to be close to 20% of total revenue. And then the balance would be IP security. So we were saying in the past 2020, but it's changed a little bit.

Obviously, as the course put it but not a lot.

Ross Seymore -- Deutsche Bank -- Analyst

And then, as you go into the fourth quarter this goes back to the gross margin question. I think either Tore or Quinn asked about the revenue mix side of the equation. I get that it sounds like Dahua Hikvision is going to be a little bit more of the business, still mid-single digits maybe a little bit more. What is the other mix related headwind? Are there positives in the consumer segment that were big tailwinds in the fiscal third quarter that seasonally go away, or is there something else going on.

Casey Eichler -- Chief Financial Officer

As I said, it is a mix. The only correction I would make is that for the security camera revenue, we said that it will be for the fourth quarter. We said it will be up in the low double digits sequentially. So, it will be up.

And in with Dahua that we've talked about and certainly talked about as well as some HiSilicon that that's part of it but not all of it. But that's part of the mix.

Ross Seymore -- Deutsche Bank -- Analyst

Got it. Perfect. Thanks, guys. Congrats again.

Casey Eichler -- Chief Financial Officer

You bet.

Fermi Wang

Thank you.

Operator

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

Andrew Buscaglia -- Berenberg Capital Markets -- Analyst

Good evening guys. I wanted to follow up on -- you talk about the computer vision as a percentage of sales around 25 next year. So that's much -- I was modeling out that out and I came down just under 20. So, I'm wondering -- it seems like you guys are pretty optimistic here and I'm wondering if you could provide maybe some breakdown of what that comprises of next year.

I imagine it's mostly professional security. But do you have any other color you can add to how that the makeup of that 25%?

Fermi Wang

Yes. First of all, I think you are right. The big part of over that 25% is from a professional security camera. However, we also mentioned that we believe we control all consumer, sorry over home security camera business will ramp up with a CV economic, CV product next year.

And then, we also mention that we think it could be material next year for their revenue point of view. But more importantly, on CV, on the automotive side, I think our new song CV revenue shorter CV revenue opportunity that we can ramp up, particularly in China commercial vehicle, and also the [Inaudible] outside China will total fleet management. Honestly, management customers outside China are using CV chip for ADAS, as well as the federal monitor applications. I also believe that this is all I remember.

So I think they are all about the potential -- this is an opportunity for us for fiscal year 22. But I think you're absolutely right that the professional security camera will be the biggest part of it.

Andrew Buscaglia -- Berenberg Capital Markets -- Analyst

So, presumably, though you have -- you talked pretty positively on what's going on in automotive with that funnel. So presumably, the real driver for computer vision will even come beyond 2020 the calendar year 2022, and beyond. I would think that would be an even bigger driver for that computer vision segment.

Fermi Wang

I agree with you.

Andrew Buscaglia -- Berenberg Capital Markets -- Analyst

Yes. Ok. Interesting. And then maybe the last one for me, you said you had some interesting commentary around the security market over a three to five-year adopting computer vision.

Are you essentially saying products that you see being sold three to five years and I will have to go? I guess what's prompting people to upgrade to these new CV capabilities. Where are the drivers behind that because that could be a pretty big upgrade cycle?

Fermi Wang

About professional security camera the biggest driver is the following: In the past, all of the computer vision is down on the server-side, and that requires your trust to meet all the video to the server store there and through the video and it takes a computer vision offline which is Ok for maybe a media unit or camera, but you want to scale to media has a million send or hundreds of millions of camera that add to the huge pressure not only on the bandwidth infrastructure but also storage cost. So -- and when we total customer they all agree the only solution for that is to apply it to computer vision. So they only tend to analyze the data back to the server, and only apply big so analytics on video data on the cloud always required. That will dramatically reduce the requirement for transmitting the video and server storage.

So where computation, and that's a huge investment for saving for the customer. That's why we believe that we're going to continue to see that trend. On the other side, however, the people who took part is that the current CV camera is a lot more expensive than the video process a camera. However, that's why I said three or five years the economy will bring down the cost of the camera will make this more attractive for all customers to replace them.

So, there is a huge driver purely based on technical reasons. But I think that the financial reason will come in three to five years to make it happen. In our internal forecasts, we believe that our CV revenue will continue to go up at a big percentage just because of that. And also on the other side, we also see the same thing in the future, although with the new design we know we are winning majority will not be realized because you don't need a CV, but CV in a car today.

But people want to put the CV policy in there it just makes it have a future upgrade. And so that's a future proof criterion really helps us with designing a CV chip for the automotive abilities.

Andrew Buscaglia -- Berenberg Capital Markets -- Analyst

Got it. Thanks for the color.

Operator

Thank you. Our next question comes from the line of Vivek Arya with Bank of America Securities. Your line is now open.

Vivek Arya -- Bank of America Merrill Lynch -- Analyst

Thanks for taking my question, and congratulations on the strong growth. Fermi, I had a few conceptual questions. First one, when do you think automotive CV becomes more than 10% of your sales. Is that something that can happen in 22 to 23? Just conceptually when should we expect automotive CV to be more than 10% of your sales.

Casey Eichler -- Chief Financial Officer

It sounds -- what we're trying to get some additional color through the revenue and certainly the emerging somebody's markets. It is early times as Fermi I think mentioned and so, we try to guide as best we can quarter by quarter. I don't know that today we are ready to try to commit to timelines. Conceptually we think that CVS is going to continue to write all of our revenue platforms.

And so we're very bullish. We're seeing the development activity very strong in auto included. But how that play out in these early times over the next few quarters. I think we'll be able to comment on that more broadly as time goes on.

But today, I think what we've done is try to characterize as best we can.

Vivek Arya -- Bank of America Merrill Lynch -- Analyst

I see. OK. And so my follow up, in the wins that you are having an automotive CV. How many of them are exclusive.

You are the only CV process that in the car. You are one of many processors, and if it is the latter, are there certain applications where you have tended to do better. Are there certain applications where the customer is preferring to go with the competitor? So it's more a technology question as to whether you an exclusive or not. And Ambarella applications where you tend to do better versus the competition.

Fermi Wang

Well further, it may be easier to look at from different automotive application points of view from [Inaudible] or recruiters when they use a CV Chip. Usually, there is only one process in those applications. So if we are chosen then we are the only processor TV in that device by definition. However, as Casey said, there are others of application like level 2+, and people are using multiple chips through to CV in some locations.

We are the only ones to provide multiple chips into the application. There are cases also that there are some functions being done by other chips, and we implement our portion of applications. It really depends on the customer's process, as well as the current market situation. So for example, at a low level, 2+ Mobileye is dominating the market.

So you can imagine that level 2 + Mobileye. Some customers say, Ok, I want to change my phone camera, which is the Mobileye app for an ultimate camera that they can't use other solutions, which we can definitely be considered and we want to sell that, I would like that.

Vivek Arya -- Bank of America Merrill Lynch -- Analyst

Got it. And just lastly, how should we think about operating expense growth. As you're starting to grow your top line at a faster pace in these emerging markets. I understand that you have done a lot of upfront attendees, but is there a simplistic model to drive your operating expense growth from here.

You grow at half the pace of [Inaudible]. What is the right way to think about your opex growth for the next one to three years? Thank you.

Casey Eichler -- Chief Financial Officer

I think definitely you're going to see it. As I mentioned, leverage coming the model as I mentioned earlier and that's partly because of the CV in the two times ASPs which drives the top line. But you're not going to see that get taken out in the operating expenses. You're going to see our operating margin growth continue over the next couple of quarters or the next couple of years even.

But I think you're going to see the leverage in that in the margins, I'm sorry after the margin line come back into the model. We were doing operating margins had 20% to 25% in historically, and I don't think there's any reason over the next year or two, you don't see that come back into the target range.

Vivek Arya -- Bank of America Merrill Lynch -- Analyst

Got it. Thanks very much.

Operator

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

Suji Desilva -- ROTH Capital -- Analyst

Hi, Fermi. Hi, Casey. Looking past the January quarter and the growth there is there are some elements of seasonality looking into the fiscal first quarter 22, or are the program ramps you think and maybe restocking perhaps in a carry. What's the dynamic-looking into the next six months.

Casey Eichler -- Chief Financial Officer

Well, looking at historically as you comment going from Q3 to Q4, we were typically down 10% to 15% going from Q4 to Q1. We were typically down around 10%. Part of that was driven by the consumer nature of the business. Historically, but part of what we're seeing now is good growth in that -- are starting to beginnings.

It's early but the beginnings of good growth in the CV, which because of the uptick or the profile, the top line profile, I think that will take some of those that some of that seasonality out. I think it still exists in the model, and we're going to have to see how that matures out and how CV matures out over the next few quarters. But clearly, we didn't see or we're not guiding to see that from Q3 to Q4. And when we get out to Q4 we'll guide into Q1.

But some of that seasonality might by the nature of the change in markets and products is going to go away.

Suji Desilva -- ROTH Capital -- Analyst

Ok. And then I mean on the China Hikvison dollar dynamic here. It seems to me Hikvision struggles to get silicon chips and doesn't use you guys that imagine some of Tier 2 starting to work within China might start to grow to a share position that's similar to those guys. Is that how this market's going to play out, or are those two still going to dominate the market, or is one of Tier 2 is coming up the curve to become as big as Ambarella potentially.

Fermi Wang

Well, I need to be very careful about this because all the Tier 2 you mentioned customers over in China. My personal belief that Hikvision and Dahua now become the largest security camera provider in history and will continue to our majority market share just because of their size and the momentum of the product portfolio they already have. I think it's all the others that will have a chance to increase their market share, but you will not get to the point that they can challenge the market share of all of the Hikvision and Dahua.

Suji Desilva -- ROTH Capital -- Analyst

Ok, great. That's it for me.

Operator

Thank you. This concludes today's Q&A session. I would now turn the call back over to Dr. Fermi Wang for closing remarks.

Fermi Wang

And thank you everybody for joining us today. And I really think that we made great progress on the CV side. And I'm looking forward to providing you more updates next time. Thanks a lot.

Louis Gerhardy -- Director of Corporate Development and Investor Relations

Thank you.

Operator

[Operator signoff]

Duration: 70 minutes

Call participants:

Louis Gerhardy -- Director of Corporate Development and Investor Relations

Fermi Wang -- President and Chief Executive Officer

Casey Eichler -- Chief Financial Officer

Joe Moore -- Morgan Stanley -- Analyst

Tristan Gerra -- Robert W. Baird -- Analyst

Matt Ramsay -- Cowen and Company -- Analyst

Tore Svanberg -- Stifel Financial Corp. -- Analyst

Quinn Bolton -- Needham and Company -- Analyst

Kevin Cassidy -- Rosenblatt Securities -- Analyst

Charlie Anderson -- Colliers Securities -- Analyst

Ross Seymore -- Deutsche Bank -- Analyst

Andrew Buscaglia -- Berenberg Capital Markets -- Analyst

Vivek Arya -- Bank of America Merrill Lynch -- Analyst

Suji Desilva -- ROTH Capital -- Analyst

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