Ambarella (AMBA) Q1 2022 Earnings Call Transcript

Ambarella (AMBA 0.49%)
Q1 2022 Earnings Call
Jun 01, 2021, 4:30 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good day and thank you for standing by. Welcome to Ambarella's first-quarter fiscal year 2022 earnings conference call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session.

[Operator instructions] Please be advised that today's conference is being recorded. [Operator instructions] I would now like to hand the conference over to your speaker today, Louis Gerhardy, corporate development and investor relations. Please go ahead.

Louis Gerhardy -- Corporate Development and Investor Relations

Thank you, Joelle. Good afternoon, and thank you for joining our first-quarter fiscal year 2022 financial results conference call for the three months ending April 30, 2021. With me on the call today is 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 first quarter of our fiscal year 2022. 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're under no obligation to update these statements. These risks, uncertainties, and assumptions, as well as other information on potential risk factors that could affect our financial results, are more fully described in the documents we filed with the SEC in the annual report on Form 10-K filed on March 31, 2021, for fiscal year 2021 ending January 31, 2021. Access to our first-quarter fiscal 2022 results press release, historical results, SEC filings, and a transcript of our prepared remarks and a replay of today's call can be found on the Investor Relations portion of our website. Today, we'll begin with a business update from Fermi.

I'll review the financial results, and then we'll open it up, and you can direct questions to Fermi or Casey. With that, I will turn it over to Fermi.

Fermi Wang -- President and Chief Executive Officer

Thank you, Louis. Good afternoon, and thank you for joining us today. The first quarter was another strong quarter with revenue growing nearly 13% sequentially and 28% on a year-over-year basis. We continued to deliver positive operating leverage with non-GAAP operating margins expanding to 12% from 8% in the prior quarter and 1% a year ago.

Our results are clearly being driven by the beginning of our CV new product cycle and to a much lesser degree by industrywide cyclical forces. In fact, currently, cyclical forces are actually constraining our results, not exaggerating them. Supply chain challenges remain significant, but our execution is strong, and our guidance assumes the worst of the supply chain challenge from the Texas freeze will be filled in Q2 and gradually improve as we progress through the second half. Capacity is tight, and lead times for certain substrates remain extended.

With solid support from key supply chain partners, including foundry partner, Samsung, we usually are not the bottleneck for our customers. With our higher revenue outlook, we remain confident CV will be at least 25% of total revenue this year. Professional security CV revenue for CV wave 1, became material last year, and momentum continues to build with new design wins and new customers entering production. We expect our home security CV business or wave 2 to become material this year with several large programs entering mass production now.

Automotive or CV wave 3 has clearly commenced. In fact, as of yesterday, May 31, we have cumulatively shipped more than 450,000 CV SoCs into the automotive market. We expect our automotive business to roughly double this year, and we see tremendous remaining headroom for growth. Our share exiting this year is expected to be only a few percent of our serviceable market, we estimate to be about $2.2 billion in calendar year '21 and approaching $5 billion in calendar year '25.

I will now update you on our target market progress, beginning with automotive. The automotive market is being transformed by the introduction of electric vehicles that enable sustainable, high-performance transportation. The requirements for advanced active safety features in these vehicles represent a significant new opportunity for our AI vision SoCs due to the need for increasing level of performance in camera-based AI perception. During the quarter, we were excited to see the successful IPO of U.K.-based electric vehicle maker, Arrival.

Founded in 2015, Arrival's mission to provide affordable and sustainable urban transportation by producing electric vehicles at a competitive price and by pounding a new method of manufacturing by challenges traditional economies of scale. I'm pleased to announce that Arrival has selected Ambarella CVflow AI vision processor for the environmental perception module used to enable L2+ autonomy in Arrival passenger buses and delivery events. The inclusion of Level 2+ autonomous driving capability provides the driver an array of safety and convenience related to driver assistance or ADAS capabilities. Ambarella's AI vision products were chosen because of the neuro network processing performance, sterile vision support, excellent image quality, and extremely low power.

We look forward to sharing more information regarding our partnership with Arrival in the near future. In addition to the efficiency of our CV SoC offer, we have also highlighted the advantage about our open platform approach, which allow OEMs and Tier 1s to create differentiated combo products. Today, I'm pleased to discuss four examples of this form recent -- this from the recent Shanghai Auto Show, namely, Great Wall Motors, Momenta, Autocruis, and HASCO. In April, we announced that the leading domestic Chinese SUV automaker, Great Wall Motors has launched a three-in-one combo system based on our CV25AQ for drive recording, drive monitoring or DMS, and occupancy monitoring or OMS.

The system is integral to a new WEY Mocha flagship SUV, which was launched during Auto Shanghai 2021 as the first model from GWM's Coffee Intelligence driving platform. This CV25AQ-based assistant can support a variety of simultaneous multi-camera channel combinations for recording and/or DMS and OMS, with the entire system meeting Euro NCAP 2025 standards and playing a key role in GWM's intelligent to drive process. Another combo product leveraging our open CV platform is Momenta's AutoRing A4 fleet management solution, combining from ADAS, DMS, and the drive recording functions. Based on Ambarella CV22, the product includes front ADAS features such as forward collision warning, pedestrian collision warning, headway monitoring warning, and lane departure warning, while DMS features include face ID, fatigue detection, and distracted driver detection with a full HD video recording.

Another active safety combo system, this one from automotive Tier 1 Autocruis, is expected to enter mass production this year, targeting commercial fleet deployments. The solution combines front ADAS and DMS function on a single CV25 SoC. And lastly, HASCO, a spin-out of leading OEM ASIC demonstrated its adaptive driving beam or ADB solution based on Ambarella's CV22AQ SoC. The solution utilized both ADAS and DMS algorithms for intelligent headlight control.

As you can see, Ambarella's expression at the Shanghai Auto Show in April generated strong interest with more than 50 automotive OEMs and Tier 1s visiting our booth, Ambarella demonstrated a number of designs covering ADAS, electronic mirrors, DMS, and OMS amplifications, while also demonstrating partnership with mainly our China's leading third-party automotive software company. One area of significant interest at the show was our Rebel front ADAS revenue design, our turnkey platform based on our CV2FS SoC and SenseTime's software stack. This solution includes strong ADAS features such as pedestrian detection, lane detection, drivable area detection, tracking light and traffic sign detection, while also supporting millimeter-wave radar and visual perception, providing sensor fusion between the camera and the radar. Our Rebel revenue design provides Tier 1 suppliers and the software development partners on open platform for differentiated high-performance automotive systems.

I will now update you on our continuing progress in the IP security camera markets. During our Q2 fiscal year '21 earnings call on September 2, we stated that in addition to our SoC share gains in professional security camera outside of China, for the first time, we were also seeing additional opportunities in the professional security market within China. During the last quarter, Unisinsight launched along the first of its cameras based on Ambarella solutions, including 2-mega and 4-megapixel models with full-color night vision and people counting capabilities. This is the first camera design in mass production using our new low-cost CV28M CVflow SoC, which was introduced at the end of last year.

Also during the quarter, KEDACOM introduced its first Ambarella-based design, the IPC695 and IPC445 cameras based on our CV2 and CV22 SoCs. The IPC695 features, including 9-megapixel resolutions, HD snapshot, and AI-based exposure optimization, while the IPC445 features 4-megapixel dome design with advanced area intrusion detection and motion detection. Our CVflow SoC are raising the bar in multi-sensor camera designs based on their ability to process multiple high-resolution streams and currently with AI processing. In April, i-PRO, formerly Panasonic's security camera business, introduced two new models based on our CV2 SoC, the 8530 and 8570.

These cameras are equipped with four sensors per camera capable of independent operation for 360-degree viewing with minimal blind spots and color imaging in just 0.05 lux or extremely low-light conditions. In the body-worn security camera category, U.K.-based Reveal became the first to introduce new camera with Ambarella CVflow SOCs to provide the platform for advanced AI-based feature. Based on our CV25 SoC, the new K-Series camera include HD recording, movable lens, and full-color display. And in April, home monitoring market leader, Ring, a unit of Amazon, introduced two new models based on Ambarella's CVflow SoCs.

The new Video Doorbell Pro 2 model raised the bar for video doorbell designs, with 3D motion detection, head-to-toe HD+ video, and the integration of Alexa greeting. Additionally, Ring's new Floodlight Cam Wired Pro also includes 3D motion detection and adds bird's eye video of precise motion alerts. And lastly, among new customer product introductions, InSta360 introduces a tiny GO 2 action cam based on Ambarella's H22 SoC, the waterproof camera that we call 4Kp30 video includes a six-time speed hyper-lapse mode, image stabilization and is small enough to be worn on a shirt or headbands. From this customer engagement and others, you can see Ambarella's SoC enabling customers to design -- to add significant value to their products.

For efficiency, benchmark like performance per watt and performance per dollar are important elements of customer design win decisions. Our open platform and its flexibility also uniquely enable our customer to create optimize and differentiate the products and to price them accordingly. Open platform means customer can develop their own software to run on our SoC, our flexibility means they can be creative and use the hardware and software resources on our SoC to develop proprietary configurations and the feature sets. Such flexibility is usually not available for our competitors.

For example, in automotive market, earlier I discussed projects Great Wall, Momenta, Autocruis, and HASCO that take advantage of the flexibility of our SoCs to create unique combo systems. This powerful solution integrates what used to be two to three discrete camera products with limited functionality into unified features -- a unified feature reach solution, operating on one umbrella CV SoC. And we are especially excited about our design wins with Arrival where performance or the performance flexibility and low power of our SoC is being harnessed for the next generation of electrical vehicles. In conclusion, Ambarella's product portfolio is the strongest in our history.

After a very good Q1, despite the supply chain challenges, we are guiding Q2 revenue to be up 48% to 54% year over year. Our long-term outlook is fueled by our high level of investment into proprietary technology that is setting the pace of innovation in the visual AI market. Not only is our CV portfolio continuing to expand our reach in new markets, but we believe our video AI roadmap will enable us to capture more processing value per designer. With that, we are very thankful to have stakeholders, in particular our dedicated employees, as well as a network of suppliers, customers, and investors, who understand the AI vision opportunity and support us as we continue to execute amid all of the challenges that market has thrown at us in recent years.

So once again, thank you.

Louis Gerhardy -- Corporate Development and Investor Relations

Thank you, Fermi. I will now review the financial highlights for the first quarter of fiscal year '22 ending April 30 and provide a financial outlook for our second quarter of fiscal year '22 ending July 31. I'll be discussing non-GAAP results and ask that you refer to today's press release for a detailed reconciliation of GAAP to non-GAAP results. For non-GAAP reporting, we have eliminated stock-based compensation expense, adjusted for the impact of taxes.

Robust demand was capped in the quarter by the supply chain challenges. Nevertheless, revenue of $70.1 million was slightly above the high end of our original guidance. This represents a sequential increase of about 13% from Q4 and a 28% increase from the year-ago quarter. Automotive revenue increased about 40% sequentially, security grew more than 20% sequentially, and other product revenue was down more than 25% sequentially.

Non-GAAP gross margin for Q1 was 62.9%, compared to 61.4% in the preceding quarter. We incurred some higher costs to manage the supply chain challenges, but the relatively stable pricing environment and a more favorable customer mix combined to offset this. Non-GAAP operating expenses for the first quarter were $35.4 million, compared to $33.4 million for the previous quarter. Operating expenses increased primarily due to a seasonal increase in payroll taxes and increased headcount.

Other income was $593,000 reflecting a continuation of the low interest rate environment. Non-GAAP net income for Q1 was $8.9 million or $0.23 per share compared with non-GAAP net income of $5.1 million or $0.14 per share in the fourth quarter. In the first quarter, the non-GAAP earnings per share were based on 38.1 million diluted shares as compared to 37.6 million in the prior quarter. Total headcount at the end of the fourth quarter -- total headcount at the end of the first quarter was 803, with about 81% of employees dedicated to engineering.

Approximately 68% of our total headcount is located in Asia. Total accounts receivable at the end of Q1 were $34.5 million, 44 days of sales outstanding versus $25 million or 37 days sales outstanding at the end of the prior quarter. The increase was primarily driven by supply constraints, which caused the quarter to be more back-end-loaded. Net inventory at the end of the first quarter was $33.1 million, compared to $26.1 million at the end of the previous quarter.

Days of inventory increased to 102 days in Q1 from 93 in Q4 for the anticipated demand. In Q1, our operating cash outflow was $4.5 million. Cash and marketable securities were $435.5 million, down from $440.7 million at the end of the fourth quarter. We had 10%-plus revenue customers in Q1.

WT Microelectronics, a fulfillment partner in Taiwan who ships to multiple customers in Asia, was 63% of revenue. And Chicony, the Taiwanese ODM, manufacturing for multiple customers, came in at 16%. Dahua and Hikvision combined declined sequentially and represented about 10% of our total revenue in Q1. I will now discuss the outlook for the second quarter of fiscal year '22.

During Q2, we expect to continue to experience a variety of supply chain challenges, in particular from the Texas freeze, which disrupted video processor manufacturing at Samsung's Austin, Texas wafer fab. We expect wafer deliveries from Samsung's Austin fab to gradually recover in the second half of the year, while other industrywide cyclical forces are likely to constrain supply through the end of the year. Based on these factors and our best judgment at the current time, we expect total revenue for the second quarter ending July 31, 2021, to be in the range of $74 million to $77 million. We anticipate both auto and security to increase about 10% sequentially, with other revenue down about 20% sequentially.

We estimate Q2 non-GAAP gross margins to be between 61% and 62% versus 62.9% in the first quarter. We expect to continue to incur higher costs to manage the supply chain challenges, but a stable pricing environment should continue to support gross margins at the mid- to high end of our long-term model of 59% to 62%. We expect non-GAAP operating expenses in the second quarter to be between $36 million and $37.5 million due primarily to accelerate hiring and increased chip development costs. Other income should be modeled around $200,000, reflecting lower interest rates on our cash and marketable securities.

Q2 non-GAAP tax rate should be modeled in the 3% to 6% range. We estimate our diluted share count for Q2 to be approximately 38.3 million shares. Ambarella will be participating in Cowen's TMT Conference and Craig Hallum's Institutional Investor Conference, both of them tomorrow, June 2, Rosenblatt's Age of AI Scaling Conference on June 3, Bank of America's Global Technology Conference on June 8, and Stifel's Cross Sector Insights Conference on June 9. In addition, in advance of the International Security Conference, also known as ISC West, we will be hosting virtual demos on June 23.

Please contact us for more information on those events. With that, I will turn it over to the operator, Joelle, for polling on Q&A.

Questions & Answers:

Operator

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

Joe Moore -- Morgan Stanley -- Analyst

Great. Thank you. Congratulations on the numbers. I wonder if you could talk about the automotive split.

It's interesting, it's going to more than double this year. What's the split going to be around kind of numbers between OEM and aftermarket? And how much of that do you think will be CV this year?

Fermi Wang -- President and Chief Executive Officer

Right. First of all, I think that the strong growth coming from three areas. First of all, it's from a very strong growth in the OE and drive recorders, which I think in Japan, China, and Korea, we're doing very well. And also, we have a solid growth in the aftermarket, but mainly in the fleet management type of recorded business.

So that's the first part is really our existing market. The second growth comes from our new markets. We talk about that we have design win with DMS and with ADAS. I think both revenue are ramping up last year and they start gradually grow this year, and that definitely inject with the more growth for us in this year.

And also, we believe that even Level 2+ [Inaudible] will help us grow the revenue in the very near future. The third thing is really CV ASP, the -- we talked about the CV ASP is twice higher than the video. And this is definitely another factor that we see automotive revenue growth. Although we give a split-out the percentage between CV and non-CV, but we do say that accumulatively, we ship more than 450,000 CV chips from beginning to now, and you can see that we continue to track shipping quite well in the CV into our automotive market.

And hopefully, that answers your question.

Joe Moore -- Morgan Stanley -- Analyst

All right. Great. That's helpful. Thank you.

And then just for a follow-up, in terms of the supply constraints that you guys are seeing in the July quarter, like obviously, we've heard some of that from your customers. How much unfulfilled demand do you think there will be? And are you negatively impacting your customer shipments in the month of May? Or when does that start to get cleared up? Thank you.

Fermi Wang -- President and Chief Executive Officer

Right. So the Tex freeze caused problem for the Samsung Tex foundry and therefore, impacted us. And like I said, the impact to our Q2 revenue is the worst compared to other quarters. And we believe that the situation will gradually improve in the second half of this year.

In terms of the revenue generation, definitely, we impacted our customer delivery, for sure with delinquency on the supplies, in fact. And also, we have to go into allocation mode for the video processors, which are produced in Central Texas foundry. So the impact is there. Although we didn't quantify it, but I think we will communicate to all customers who are impacted.

We continue to expect the impact will be there for Q3 and Q4 but will be a much lesser degree than Q2.

Joe Moore -- Morgan Stanley -- Analyst

Great. Thank you.

Operator

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

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

Thanks for taking my question. First one, just on gross margin. So good upside in the April quarter, but I think the outlook suggests some reversal of that. So I was just hoping for some color around what drove the upside in April and what will drive a different trend in July?

Louis Gerhardy -- Corporate Development and Investor Relations

Sure. So a large portion of that, again, is our two major customers in China. So it's a mix overall. But certainly, when their mix goes down, that helps our margin, and we did see some of that in the quarter.

That would probably be, along with other margin mixes, that would be the thing that would probably have the highest impact.

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

Right. And for my follow-up, Fermi, I think you mentioned this very nice number for over 450,000, I believe, CV shipments into automotive. I think that last quarter, you mentioned 300,000. So it went up, right, almost 150,000 units sequentially.

Could you give us a sense of how much revenue does that represent? And was this exceeding 450,000, was it in line or different than the expectations that you had?

Fermi Wang -- President and Chief Executive Officer

Sorry, first of all, let me clarify the number. Last quarter, we talked about cumulatively 300,000. This time, we talked about cumulatively 450,000, I told you that we shipped 150,000 as of today. So this is really -- so we are not saying we shipped 450,000 this quarter.

We talked about 450,000 cumulatively. So that's just a clarification. In terms of the revenue, I would say that, first of all, the ASP is higher because a lot of this is auto-grade chip, and also the ADAS and ADAS ASP definitely is much higher than the recorders. And OEM, even OEM recorders' ASP is higher than the aftermarket.

So I think, overall, that the ASP on automotive is pretty healthy for us. And moving forward, we continue to see the same trend. But I think this is just showing the beginning of a CV ramp-up. We talked about our CV revenue wave, which is wave 3, will materialize in 2023.

But we just had to give you indication that we start seeing this wave moving forward, and we're going to continue to update you about how fast we can ramp up this revenue.

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

Thank you.

Operator

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

Gary Mobley -- Wells Fargo Securities -- Analyst

Hey, guys, let me start off by congratulating you to a strong start to the fiscal year. I appreciate the fact that you're able to deliver gross margin upside due to mix and other factors. But I was hoping that maybe you can quantify the supply chain impact, a higher substrate cost, higher back-end test, and assembly? And could you speak to perhaps the ability of your group to pass along these price increases or renegotiate some of these price increases for your customers?

Fermi Wang -- President and Chief Executive Officer

Right. So we did see a price increase on the substrates and to certain extent, on the past in packaging side. For those price increase, we have not reflected in our ASP yet. And we believe that at this point, that we will not change our ASP because of that, we might reconsider this position if our wafer price got changed.

But until then, we feel that we're comfortable with the decision. Our only price change we did in the -- through the last few months was that because of the allocation, some of the customers are willing to pay for [Inaudible] to get a bigger allocation. And we help them to get those [Inaudible] by paying more money. And we ask our customers to share the increase on those [Inaudible].

That's the only thing that -- that's only ASP we grow in -- reflect to our customer.

Gary Mobley -- Wells Fargo Securities -- Analyst

Appreciate that. As my follow-up question, I wanted to ask about your product roadmap direction. If I'm not mistaken, I think envision maybe rolling in some sensor fusion domain controller technology, and I was hoping that you can give us an update on where this initiative stands.

Fermi Wang -- President and Chief Executive Officer

As you can see, we have addressed almost -- if you look at the automotive CV market. In fact, we have a solution for all of them except domain controller. And it's our ambition, and we need to have a domain controller type of solution to not read just for [Inaudible] but also to provide a higher performance at much lower power consumption that Ambarella can offer in the near future. And we are developing that and hopefully, we can give you update soon.

Gary Mobley -- Wells Fargo Securities -- Analyst

Thanks, guys.

Operator

Our next question comes from Kevin Cassidy with Rosenblatt. Your line is now open.

Kevin Cassidy -- Rosenblatt Securities -- Analyst

Thanks, and congratulations on the strong quarter. You mentioned the wave 2 happening this year with some large programs and if that's home security cameras. Can you say that -- are some of those programs launched? And I guess, what percentage would you say you're into? Is it going to be a stronger October quarter compared to this July quarter?

Fermi Wang -- President and Chief Executive Officer

Well, so I think in my script just now, I mentioned that the Ring announced two products with Cvflow SoCs. And they are basically replacing our existing Ring products with video-only solutions. So yes, I think that we continue to see strong momentum in Cvflow designs. And also, we expect to see other customers introducing CV -- sorry, other consumer IP security camera customer introduce a CVflow-based solution in the near future and go into production this year.

Kevin Cassidy -- Rosenblatt Securities -- Analyst

OK. Are there still any human vision designs, or are all the new design CV designs?

Fermi Wang -- President and Chief Executive Officer

We still see several human vision design wins. But I would say that it's more toward the lower end. All the middle and high-end solutions are targeting CV these days. We still see a mix of CV and non-CV product based on our customers, but we continue to focus more on the CV side because that's where our strength is and where we have differentiation.

Kevin Cassidy -- Rosenblatt Securities -- Analyst

OK, great. Thank you. 

Operator

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

Tore Svanberg -- Stifel Financial Corp. -- Analyst

Yes. Thank you, and congratulations on the results. First question is back to auto and some of the subsegments, if I can maybe just split between recorder and nonrecorder, is it safe to say that this year, the quarter would be about 90% with a lot of the new applications being the other 10%, roughly?

Fermi Wang -- President and Chief Executive Officer

I think the 90% is too high for recorders. I don't have the number with me, but [Inaudible] tells me that our other business will be more than 10%.

Tore Svanberg -- Stifel Financial Corp. -- Analyst

Great. Thank you. And as my follow-up, I know in the past, you've talked about the amount of cameras going into car is about 1.5 in last year. Do you have any estimate this year based on conversations you're having with your customers, how that number could potentially trend up?

Casey Eichler -- Chief Financial Officer

Yes. Tory, the 1.5 is like a -- I'm sorry, 1.3 is like a third-party market research firm estimate across all new vehicles produced in a year. And so that number, the expectation is that it's going to continue to increase as more and more cameras are used in the car, not just human viewing cameras, but in particular, more and more of the sensing cameras that require the Cvflow chips for things such as driver monitoring or front ADAS or surround view or all kinds of other applications. So we see that number -- third-party firms continue to see that number increasing over the next several years.

Tore Svanberg -- Stifel Financial Corp. -- Analyst

Great. Thanks. Congrats again.

Operator

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

Andrew Buscaglia -- Berenberg Capital Markets -- Analyst

Guys, can you -- did you guys give a number around what -- exactly what CV represented as a percentage of sales in the quarter. And then given strength in automotive, do you still foresee 25% of your sales being computer vision still this year? Or is that expectation increased?

Fermi Wang -- President and Chief Executive Officer

Yeah. First of all, we still expect that our CV revenue will be more than 25% of total revenue this year. And we think that we have a very good chance to deliver on that. And with automotive continue to increase, definitely, that will help us to drive more CV growth.

But as you can see that the majority of our CV revenue still come from security, particularly professional security camera. And I think that will be a continued driver for CV until next year when the consumer IP can jump up and also more and more automotive CV revenue coming. So I would say next year, we can see continued growth on our CV revenue.

Andrew Buscaglia -- Berenberg Capital Markets -- Analyst

OK. And this is your fourth quarter in a row with at the upper band of that gross margin range, and you guided to kind of upper band at the midpoint. Yeah. We really -- your guidance -- your long-term guidance would imply kind of a sizable step down in the back half.

If you still want to fit in that 59%, call it, to 62% range. So I guess what do you need to see or what would provide you some confidence to maybe move the low end of that up at some point? It just seems like you keep outperforming your own. I don't know you have some mix issues, but if you talk about that.

Casey Eichler -- Chief Financial Officer

Certainly, a part of it is mix, and a part of it is the uncertainty that Fermi talked about for the second half of the year. Depending on how that plays out, there's pricing issues and other issues that could create that to move. Again, we've been at the high end of the range, as you commented, and we'll take that. But we felt that with everything that's going on right now, we needed to be balanced in the way we're looking out over the second half of the year or at least certainly in the quarter to make sure that we keep our -- keep our range to where it is today.

And if we see something different longer term, then we'll start to think about that.

Andrew Buscaglia -- Berenberg Capital Markets -- Analyst

Thanks.

Operator

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

Matt Ramsay -- Cowen and Company -- Analyst

Thank you very much, guys. Good afternoon. Fermi, I was particularly interested in the announcement that you made with Arrival, the CV2FS win. Maybe you could give us a -- it sounds like you might be -- kind of give us some color as you're able going forward.

But if you could give a little bit more color on the background there? And what were the folks that you were competing against and the particular features that allowed you to take that big design win down? Thank you.

Fermi Wang -- President and Chief Executive Officer

I think we compete with everybody out there. And I think it's -- I truly believe that Arrival checked all of the people who has a similar solution out there. And I think CV2FS was chosen for several reasons. I think the biggest reason is our performance per watt.

And also, it's an open platform that really enable them to do a lot of things on their own. And I think those two things combined help us to get design wins.

Matt Ramsay -- Cowen and Company -- Analyst

Got it. Thanks. I appreciate that. My follow-up question is for Casey.

Obviously, the primary drivers of Ambarella going forward are going to be in auto and security. But I noticed that in the printed results, the other category was down, I don't know, on the order of 20%, I think you mentioned, and then it looks like it's down 20% again. I'd be interested if there are things changing that you might call out in some of those other smaller markets from a supply/demand perspective? Or is this supply tightness at Samsung and you guys allocating wafers to your more strategic business? Or is it a combination of both?

Casey Eichler -- Chief Financial Officer

Yeah, it really is a combination of both. When we talked about a couple of years ago, we expected that to start declining and continue to decline over three to five years. We did have some upside in the past year that we took and we're happy about. But as we look forward because we're moving everything toward the CV product line in a lot of those markets, the CV really doesn't have the advantage as it does in some of the markets we've talked about, we'd anticipate that to continue to decline over time.

A lot of that historically, in the past few quarters have been just a few customers that really have driven that, DJI, we've talked about in the past and a few others. As we go forward, if we see some opportunities or markets that CV is well suited for, I think you might be able to see some opportunity there. But meanwhile, we've kind of thought about it as a declining market. And if we get upside, we've taken it, but we aren't really changing our viewpoint on that.

Matt Ramsay -- Cowen and Company -- Analyst

Got it. Thanks, guys. Appreciate it.

Operator

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

Ross Seymore -- Deutsche Bank -- Analyst

Hi, guys. Congrats on the strong results. Just had a question -- a couple of questions. But the first one is on the inventory and the supply side of things.

How did you guys have your inventory increase so significantly, not that the days are out of whack with anything historically, but I was a little surprised that you have those constraints on one hand that you talked about with revenue in the second quarter being the worst, but your inventory still went up, I think, about 25%, 30% sequentially. Is that just different parts where you're not supply constrained outside of the Austin fab or specific end markets likely to be more impacted by the Austin freeze? Any color there would be helpful.

Fermi Wang -- President and Chief Executive Officer

Well, first of all, I think that we have very good visibility for our customers, and the demand is strong. And basically, the inventory number you see is based on, first of all, the strong demand. Second, I think it's become very clear that you need to give a bigger lead time because the lead time increased a lot, we decide to increase our inventory level so that we can protect ourselves and protect our customers. The combination of these two really drive out inventory.

But at the same time, I have to say, I think we are confident those inventory is not going to be debt inventory for us because we know the run rate of the customer, we have multiple customers in the different product lines and we are confident that we're building a inventory that we will be able to sell. But the most important thing is consider the current environment, we really need to make sure that we have announced product for our customers if the lead time of those products continue to be a problem for us.

Ross Seymore -- Deutsche Bank -- Analyst

Thanks for that, Fermi. I guess my follow-up question, kind of a two-part one here, and it's a little bit following on a prior question that was asked on your other business. But I'm really getting at what seasonality can look like in the back half of the year if you put together the supply loosening up on the positive side and all the design wins you have, but the potential negative side being the fact that the consumer side is just not as big as your business. So the two questions would be, how would you think about second-half seasonality? And any sort of ballpark as a percentage of sales where that consumer business is in the first half of the year? It seems like it must be down to kind of, I don't know, right around a 10% number.

Any kind of rightsizing there for our models would be helpful.

Casey Eichler -- Chief Financial Officer

Yeah. I think when we look at the second half of the year, as we've talked about, there's a lot of uncertainty in the second half of the year. And so when we look out, I think we feel opportunity to continue to supply to our customers, barring any change in some of the dynamics that we're seeing today, I think we don't guide beyond one quarter. But I think that we've seen the worst of it, as Fermi talked about earlier, in a lot of the areas, and we should be able to meet demand as it comes through in the second half of the year.

We're also looking into some of the newer markets that we talked about, as we said, we've got three phases that we're -- by the end of this year into next year, we're going to have all phases kind of starting to really kick in, and that's what's really exciting to us.

Ross Seymore -- Deutsche Bank -- Analyst

Great. Any sort of rightsizing on how big that consumer is as percentage of sales? Was it kind of around 10%-ish in the first quarter and then implied in your guidance in the second?

Casey Eichler -- Chief Financial Officer

You mean the consumer business that was down?

Ross Seymore -- Deutsche Bank -- Analyst

Yeah. Just trying to see -- you know, you gave percentage sequential changes for the quarter and the guide. We just want to make sure the absolutes are aligned as well.

Casey Eichler -- Chief Financial Officer

Yeah. I think you're going to see the quarter go -- particularly, the numbers go down in that market as well. And so you're going to see the other two go up, and you're going to see the consumer business go down as we talked about.

Ross Seymore -- Deutsche Bank -- Analyst

OK. And one final housekeeping one. Fermi, you had talked about Dahua and Hikvision being, I think, low to mid-teens, two quarters ago, you said it dropped to about 10% in the most recent quarter. Can you just talk a little bit about did the dollars drop, as well as the percentages? And more importantly, the update on Dahua rolling out the CV design wins that you have had? Is that a customer that you expect to be a tailwind going forward? Or is there some change in the narrative there?

Fermi Wang -- President and Chief Executive Officer

Great. So for Hikvision, Dahua, both of them using our video products, and we talk about the buildup inventory a few quarters ago. They just, I think, digest the inventory and start reordering for some of the parts. And they continue to be ordering but a much lower level.

So I think our video product sales for those two companies will continue to shrink over time. And for the Dahua, we are going to -- we ramp up our CV revenue with them, but it's kind of limited by our suppliers who want a better substrate situation. But I think as soon as we transition out of those problems, we think that Dahua CV revenue will be a growth for us. Overall, I still think that combined, the dollar sign up probably is similar to our last quarter.

Ross Seymore -- Deutsche Bank -- Analyst

Great. Thank you. 

Operator

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

Suji Desilva -- ROTH Capital Partners -- Analyst

Fermi, Casey, Louis, congratulations on the progress here. Perhaps, first, for Casey, on the operating leverage here. You got the nice operating margin bump up to 12% here. Can you talk about the expectations for opex and what you think to be able to do as you continue to grow the revenue? Will you need to invest more here? Or can you keep that relatively stable?

Casey Eichler -- Chief Financial Officer

I think we'll continue to invest not only in people but also in opportunity. And so I think we'll see that. Having said that, we're kind of focused on getting to 20% right now. As you know, the business can -- in the past has done 20% to 25%, and we think that's still attainable as well.

But right now, from where we are, we're focused on getting to those type of margins. And as your point, we've kind of grown pretty well over the last few quarters, and we anticipate we should be able to do that into the next few as well.

Suji Desilva -- ROTH Capital Partners -- Analyst

OK. Great. My question for Fermi, perhaps a lot of press on autonomous attempts here and a notion of camera plus radar, perhaps shifting to camera plus LiDAR. And just kind of what camera can and can't do, maybe you can talk about the implications for Ambarella's product designs and automotive footprint? And whether that is impactful to you, whether you're kind of orthogonal to all that?

Fermi Wang -- President and Chief Executive Officer

Right. First of all, we continue to believe the camera is the most important sensor in any kind of autonomous driving market. And also, in front of us, the requirement for the camera technology will continue to grow. We're going to get more camera per car.

Every camera will have a high resolution, higher frame rate, you need a stereo processing, you need a much better CV performance to offer more and more different type of detections, and you need to have a sense of fusion. So with that, I really think that camera continue to have -- we're going to continue to have good roadmap for our camera products for account trading. Having said that, I still believe -- I also believe that redundancy is very important for those markets. And we believe that radar particularly is a good partner for the any camera solutions.

And also, the reason-I think the answer is LiDAR is because still on the cost -- on the price side, LIDAR is expensive, and radar is more accessible. And also, radar is not an optical sensor. And so that is really a good technology complement to our camera technologies.

Suji Desilva -- ROTH Capital Partners -- Analyst

OK. Thanks, guys.

Operator

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

Quinn Bolton -- Needham & Company -- Analyst

Hey, guys. All right. Congratulations. But I just wanted to come back to the Samsung Austin impact on the business.

Did you say Fermi that that was just for the video processor side of the business? Or are there any CV products manufactured out of that facility?

Fermi Wang -- President and Chief Executive Officer

Right. It's only a video processor. All our CV processors are built in Korea foundries.

Quinn Bolton -- Needham & Company -- Analyst

Got it. Thanks for the clarification. And I guess then with that mix shift, if you're shipping -- if you're constrained or most constrained on the video processor side, wouldn't that be a tailwind to margins over the next couple of quarters?

Casey Eichler -- Chief Financial Officer

No. Margins basically are the same between CV and the vision-based products. While, obviously, we talked about the fact that it doubles the top line, it didn't really change the margin at all.

Quinn Bolton -- Needham & Company -- Analyst

Got it. OK. And then lastly, just with the video processors being constrained. Do you think any of that demand that you might not meet this quarter or next is perishable? Or would you expect that demand just to sort of roll into future quarters and you'll meet it when you can get the wafers or substrates?

Fermi Wang -- President and Chief Executive Officer

I think it's perishable. If you look at those video products, some of them go to professional security cameras, some go to a consumer security camera, some go to other consumer market like DJI. For the true -- for the consumer security camera and the consumer camera, those demand is perishable. For professional security camera, it may be there, but still, there are some demands, requirements on different timing.

For example, usually, the selling season -- not selling season, the people at the end of the year, try to digest their budget and usually better a lot in Q4. So if we miss those points, those demand might be also perishable.

Quinn Bolton -- Needham & Company -- Analyst

Understood. Thanks for the clarification.

Operator

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

Tristan Gerra -- Robert W. Baird -- Analyst

Hi. Good afternoon. Just a quick follow-up on the gross margin outlook, and you've mentioned some of the catalysts that might have an impact on gross margin directionally for the second half of the year. As your supply improves, is it fair to assume that your surveillance camera customers in China are going to improve as a percent of total mix and that's going to be gross margin component to consider for the second half? And also, if you could give us an update on the impact of 5-nanometer development cost on gross margin for the next few quarters?

Casey Eichler -- Chief Financial Officer

Yeah. Well, like I said, we're not changing our standard guidance that we've had from the margin perspective. And we guide quarter by quarter. So we've given that indication.

When we get out further, I think that you can see some different mix. As we talked about earlier again, Japan, in particular, has a mix issue that can impact us from quarter to quarter. And as we look out into the next couple of quarters, we're going to have to see how that comes out for us. But that's probably -- there's several different mix elements, but that's certainly the biggest one that we've seen historically over the last maybe four to six quarters.

Tristan Gerra -- Robert W. Baird -- Analyst

OK. And then just as a quick follow-up. Any changes that you see in terms of the competitive environment in China in surveillance, notably at the low end, I'm assuming that would not impact you, but do you expect any changes in the pricing, competitive environment medium term?

Fermi Wang -- President and Chief Executive Officer

Right. So in terms of the competition in China, I think HiSilicon is remained to be things that we need to watch out, because, first of all, they still have tons of inventory sitting either in a customer or within a HiSilicon. So we're still shipping the products. But out of the HiSilicon, we haven't seen a competitor that in the mainstream or high-end product line.

There are many, many, many growing Chinese and Taiwanese competitors competing in the lower-end video and even some of the low-end CV side. So I think that price pressure is always there on the lower-end side, but on the middle and high-end side, I think we're comfortable with our current ASP guidance.

Tristan Gerra -- Robert W. Baird -- Analyst

OK. And that begs just one last quick follow-up, which is when do you think HiSilicon inventories might normalize? And would that translate into an acceleration in demand for your product?

Fermi Wang -- President and Chief Executive Officer

Well, we don't know. But however, our customer give us an indication, they can easily survive without -- for another 12 months without any new products here. So I think they are sitting on tons of inventory right now.

Tristan Gerra -- Robert W. Baird -- Analyst

Great. Thank you very much.

Operator

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

Richard Shannon -- Craig-Hallum Capital Group -- Analyst

Well, thanks, guys, for taking my question. Fermi, maybe kind of industry question here, professional security as it relates to CV here. How are you seeing the adoption curves here relative to what you saw in the past transitions from analog to digital? Is it faster, slower? What kind of indications you're seeing on market pricing here that would indicate either of those inflections?

Fermi Wang -- President and Chief Executive Officer

Right. So first of all, when we go -- we went through this analog to digital IP security model transition 10 years ago, I remember that first two years, we slowed, that suddenly transitioned. I will say that we are not in the hockey stick yet. We haven't seen that because majority of our professional security camera unit number shipments still in a video-only solution.

So with that, I would say that we're still at an early stage of the transition from video to CV. I think the biggest reason that -- I think the trigger of that transition is the hockey stick needs to happen, I think that customer need to drive their price -- CV camera product price to maybe only a minimum premium over the current video product. That's what triggers the transition. And I don't think we're there yet.

Richard Shannon -- Craig-Hallum Capital Group -- Analyst

OK. That's helpful perspective, Fermi. My last question here is on the automotive side, again, related to CV applications like DMS and ADAS, etc., not looking so much at the higher-end ones like L4 and L5, but more the immediate term ones. Any way you have a sense of and can you characterize for us what kind of share and design wins do you think you have in that space right now or have visibility into?

Fermi Wang -- President and Chief Executive Officer

We don't have a number for you, but however, I can say that I think if you read through our design win activity in the last few quarters, every quarter, we published those design wins. You can see that we have a consistent, maybe even increasing number of design wins on the DMS and OMS and the ADAS now. So obviously, our market share is increasing on those near-term market. But I just don't have a number because most of them are still pretty new.

And I would still say that in the ADAS market, Mobileye is still dominant. We'll just start gaining some design wins in there. So I hope that momentum will continue to carry us moving forward. I would say ADAS were still very small.

But from the OMS/DMS side because it's brand-new market, I think we have a chance to get bigger market share there.

Richard Shannon -- Craig-Hallum Capital Group -- Analyst

OK. And, Fermi, anyway you'd want to characterize what your goals might be in OMS and DMS? I mean, obviously, it's difficult to competing historically against Mobileye, but could you get to 20%, 25% of that market over time?

Fermi Wang -- President and Chief Executive Officer

In fact, our goal, and the thing we really want to push is not just capturing the market share DMS or OMS. We are trying to push the concept that our customer Tier 1 OEM, which have ADAS, have recorders, have DMS and OMS, they need one unified platform to do all of that. Because if you look at ADAS, it's really front-facing camera to do Mobileye ADAS and also front-facing camera to do a recorder today. There's no reason these twos product cannot be the same.

At the same time, the DMS is really a cell location you have over the ADAS camera, you're facing inside and looking at the driver, and also we'd like to argue the driver and the ADAS need to be synced in the video so that when something happen, you know exactly what the driver is doing, so that has to be seen. So I really think the combo product makes sense, and we really think if that scenario becomes a market requirement, that will definitely help us to gain market share because I don't see any other competitor solution can do those kind of combo product today.

Richard Shannon -- Craig-Hallum Capital Group -- Analyst

Excellent perspective. Thank you.

Operator

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

Tore Svanberg -- Stifel Financial Corp. -- Analyst

Yes. Just a quick follow-up and maybe related to the last topic there. Are you still on track to sampling CV5 this quarter? And is everything sort of on track with Samsung's 5-nanometer process there?

Fermi Wang -- President and Chief Executive Officer

Yes. The answer is yes and yes. And we are on track for both. And we're working on CV52 in our lab right now.

We believe we'll get ready to sample it. And also, we are working on -- of course, the CV5 is our first 5-nanometer chip with Samsung, and we continue to work with Samsung on the CV5 process improvement and as well as the production plant. I continue to believe we will start generating CV5 revenue sometime next year.

Tore Svanberg -- Stifel Financial Corp. -- Analyst

That's great. Thank you.

Operator

Thank you. Our next question comes from Martin Yang with Oppenheimer. Your line is open.

Martin Yang -- Oppenheimer & Co. Inc. -- Analyst

Hi. Thanks for taking my question. Just one from me. I'm curious if current supply constraints may affect or change how HiSilicon think about adoption for CV? Is there anything that may change their view on maybe getting CV sooner? Do you have a view there?

Fermi Wang -- President and Chief Executive Officer

Well, yes, from the Hikvision. So I think we talk to Hikvision all the time. I think that Hikvision is really following the direction that try to -- now you got to use a U.S. component as much as they can.

As this is probably one company, we see the following policy to very tightly and I think that -- so they are -- that's why they build up so much HiSilicon inventory. And I believe they are trying to find out whether they have options with other Chinese supplier. So I think that's the current situation. Like I said before, we cannot force people to look at U.S.

component. The only thing we can help our customer is to provide a solution that is very hard to find a replacement in China, and that's how we can continue to drive a market share intake.

Martin Yang -- Oppenheimer & Co. Inc. -- Analyst

Thank you.

Operator

Thank you. Our next question comes from Derek Soderberg with Colliers Securities. Your line is now open.

Derek Soderberg -- Colliers Securities -- Analyst

Hi, guys. Just one question from me as well. Fermi, I'm wondering, in your view, which design wins you announced are the most meaningful for the company. If you could maybe just call out the top two or three wins and provide any additional detail on those wins.

I think that would be helpful. Thanks.

Fermi Wang -- President and Chief Executive Officer

You're talking about design wins we just mentioned. I think Arrival is obviously the most important one for me, not only that's an automotive design win, but they are important for different reasons why this is Level 2+ and using our CVflow engine. More importantly, this is from the first CV2FS chip design win we announced. And that just shows you that our CV2FS, the functional safety chip is in very good shape and the customer is always adopting it and testing it.

So everything that comes from that point of view, I'm excited, but not to mention that Arrival is a great European company and they attract a lot of tension from the different places. I think that's definitely important for us. But the other one that I'm equally excited about is this Great Wall announcement that we had just a month ago. And Great Wall is really a very well-known Chinese OEM.

And they adopt our solution, which is a combo solution, by the way. It's really a driver recorder with DMS, with OMS all in one. And they are the first one to really push this concept and hopefully with this, and we show our capability and performance with GWM and other people will pick it up, say, this is the right way to go. And hopefully, that will give us more design wins in the future.

So for this reason, so these two are probably the most -- the project I'm most excited.

Derek Soderberg -- Colliers Securities -- Analyst

Perfect. Thanks.

Operator

Thank you. I'm not showing any further questions at this time. I would now like to turn the call back over to Dr. Fermi Wang for closing remarks.

Fermi Wang -- President and Chief Executive Officer

And first of all, thank you very much for joining us today. I'm looking forward to seeing you sometime next time. Thank you. Bye.

Operator

[Operator signoff]

Duration: 66 minutes

Call participants:

Louis Gerhardy -- Corporate Development and Investor Relations

Fermi Wang -- President and Chief Executive Officer

Joe Moore -- Morgan Stanley -- Analyst

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

Gary Mobley -- Wells Fargo Securities -- Analyst

Kevin Cassidy -- Rosenblatt Securities -- Analyst

Tore Svanberg -- Stifel Financial Corp. -- Analyst

Casey Eichler -- Chief Financial Officer

Andrew Buscaglia -- Berenberg Capital Markets -- Analyst

Matt Ramsay -- Cowen and Company -- Analyst

Ross Seymore -- Deutsche Bank -- Analyst

Suji Desilva -- ROTH Capital Partners -- Analyst

Quinn Bolton -- Needham & Company -- Analyst

Tristan Gerra -- Robert W. Baird -- Analyst

Richard Shannon -- Craig-Hallum Capital Group -- Analyst

Martin Yang -- Oppenheimer & Co. Inc. -- Analyst

Derek Soderberg -- Colliers Securities -- Analyst

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