Image source: Amabarella, Inc.

What: Shares of Ambarella Inc (NASDAQ:AMBA) climbed as much as 11.9% early Friday, then settled to close up 9.4% after the video-processing-chip specialist released stronger-than-expected fiscal first-quarter 2017 results.

So what: Quarterly revenue fell 19.5% year over year, to $71 million, but was still well above guidance that called for revenue of $55 million to $57 million. Based on generally accepted accounting principles (GAAP), that translated to net income of $1.8 million, or $0.05 per diluted share, down from GAAP net income of $18.9 million, or $0.56 per share in last year's fiscal first quarter. On an adjusted basis, which offers perspective by excluding items like stock-based compensation, net income was $11.4 million, or $0.34 per share, down from $23.7 million, or $0.71 per share in the same year-ago period. Here again, guidance called for lower adjusted net income between $8 million and $10 million.

"We are pleased with our execution during the first fiscal quarter of 2017," added Ambarella CEO Fermi Wang, "as we introduced our first 14nm IP camera SoC and continued to see strong design win momentum for our new 4K and HEVC SoC families across all market segments."

Wang elaborated that, while Ambarella continues to see weakness in the wearable sports-camera market, and expects "some adverse impact" from a supply disruption of Sony image sensors related to the Japanese earthquake in April, the company is confident in its future prospects.

Now what: In the meantime, Ambarella anticipates revenue in the current (fiscal second) quarter to be between $60 million and $66 million, or a year-over-year decline of between 29% and 22%, respectively, driven largely by the Sony supply situation. As such, Ambarella now anticipates total revenue for fiscal 2017 to be flat to down 5% from fiscal 2016.

Excluding that supply shortage, however, Ambarella continues to see growth consistent with expectations in its drone, home security, and automotive aftermarket businesses, and expects to see its core wearable-camera-chip market recover in the second half of the year. Analysts, on average, were already anticipating that fiscal 2017 revenue would decline roughly 1.5% year over year.

Given Ambarella's relative outperformance to start its new fiscal year, and impending recovery in arguably its most-troublesome market segment in wearables, and with shares still down more than 16% year to date, investors are right to celebrate these results.

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