What happened

Shares of Ambarella Inc. (NASDAQ:AMBA) were down 10.4% as of 1 p.m. EDT Wednesday, after the video-processing chip specialist announced strong fiscal first-quarter 2018 results, but followed with underwhelming forward guidance.

So what

Quarterly revenue increased 12.2% year over year to $64.1 million, near the high end of Ambarella's guidance for revenue of $62.5 million to $64.5 million. Adjusted gross margin fell 30 basis points year over year to 64.3%, also near the high end of guidance for 63% to 64.5%. And on the bottom line, adjusted net income per share increased 14.7% year over year to $0.39 -- above the $0.36 per share investors were expecting.

Management credited Ambarella's relative outperformance to strong growth in IP security cameras, wearables -- outside of GoPro (NASDAQ:GPRO), where high inventories have constrained growth -- and automotive cameras.

Ambarella chip, against a background of the Earth

IMAGE SOURCE: AMBARELLA INC.

For the current quarter, however, Ambarella anticipates revenue between $69 million and $72 million. That's good for growth of between 6% and 10.6% from the same year-ago period, but fell below Wall Street's consensus estimates for fiscal Q2 revenue of $72.4 million.

Now what

During the subsequent conference call, Ambarella's CFO explained that while the company expects continued growth in IP security, automotive, and non-GoPro wearables, sales into the drone market will likely be down; this is due to a combination of continued weakness from Tier 2 customers, and a tough comparison to last year's second quarter given the timing of new product launches. 

Of course, Ambarella could just as easily be underpromising with the intention of overdelivering, as it did in the first quarter. But the market is a forward-looking machine, and it's no surprise to see Ambarella stock pulling back as a result.

Steve Symington has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Ambarella and GoPro. The Motley Fool has the following options: short January 2019 $12 calls on GoPro and long January 2019 $12 puts on GoPro. The Motley Fool has a disclosure policy.