Ambarella's Light Guidance Overshadows a Solid Quarter

Ambarella Inc. (AMBA +2.88%) released fiscal first-quarter 2018 results on Tuesday after the market closed, punctuated by sustained momentum in several key markets.

But Ambarella also detailed some competitive pressures in the drone market while issuing forward guidance that left the market underwhelmed. Let's take a closer look at what drove the video-processing chip company's business as it kicked off the new fiscal year.

Image source: Ambarella.

Ambarella results: The raw numbers

Data source: Ambarella, Inc. 

What happened with Ambarella this quarter?

• Revenue was near the high end of guidance provided last quarter, which called for a range of $62.5 million to $64.5 million.
• Adjusted (non-GAAP) gross margin was 64.3%, down 30 basis points year over year but also near the high end of guidance for 63% to 64.5%.
• Adjusted net income increased 17.5% year over year to $13.4 million, and adjusted net income per share grew 14.7% to $0.39.
• Ambarella repurchased 162,738 shares during the quarter for $8.77 million, leaving around $46 million remaining under Ambarella's share-repurchase program, which is good through June 30. Ambarella also authorized the repurchase of an additional $50 million in shares over a 12-month period beginning July 1.
• Last quarter, management warned that high inventory levels at GoPro and GoPro's original design manufacturers would have a significant impact on revenue growth this quarter. Revenue excluding GoPro climbed 16.1% year over year this quarter -- near the high end of guidance for 13.1% to 16.8% growth -- driven by strength in automotive, wearables, and professional and consumer IP security cameras.
• Ambarella is seeing potential weakness in the drone market, particularly among some tier 2 customers who have incorporated competing flying-camera solutions in recent product launches.

What management had to say

During the subsequent conference call, Ambarella CEO Fermi Wang elaborated on Ambarella's growth drivers going forward:

While our current markets continue to expand, we believe the combination of video with computer vision technology will be the real driver of new opportunities in both our current markets as well as emerging markets such as OEM automotive and robotics. We feel our investment in the development of a family of computer-vision SoCs [systems on a chip] in support of our customers' advanced video cameras will be the foundation for the future expansion of our business.

For perspective, Ambarella's first computer-vision chip, dubbed "CV-1," is scheduled to commence shipments to customers in the second half of this year. And Ambarella is dedicated to designing a complete family of computer-vision chips -- probably at a pace of two to three new chips per year -- at a variety of price points to target both current and new market opportunities going forward.

Looking forward

For the current fiscal second quarter, Ambarella expects revenue to be between $69 million and $72 million, good for growth of 5.9% to 10.5% from the same year-ago period. Adjusted gross margin for the second quarter should be between 62% and 63.5%. That said -- and keeping in mind we don't generally pay close attention to Wall Street's demands -- consensus estimates predicted higher second-quarter revenue of $72.4 million.

Also during the call, management noted that it's still comfortable with the company's full-year guidance for revenue of plus or minus 3% against fiscal 2017, as the aforementioned weakness in the drone market should be more than offset by the relative outperformance of other segments. Wang further elaborated that Ambarella remains positioned to capture continued growth over the long term as the broader drone market expands.

Any weakness is unlikely to sit well with skittish investors, but there were no big surprises in Ambarella's report.