Shares of video processing and computer vision chip maker Ambarella (NASDAQ:AMBA) rallied after the company reported results for its fiscal year 2019 fourth quarter (the year ended January 31, 2019). The stock's rise should give long-suffering shareholders reason to breathe a little easier after a bruising year. Shares were down 25% from the beginning of 2018 through the day of the report on March 5, 2019.

However, though results were better than expected, Ambarella isn't out of the woods yet. New computer vision chips that could open up new sources of revenue won't start yielding meaningful results for a while, and in the meantime older segments are still in decline. I, for one, am not a buyer yet.

Check out the latest earnings call transcript for Ambarella.

An ugly year by the numbers

The good news is that the security camera and automotive markets both grew for Ambarella last year in the mid-single-digits, the former accounting for about 50% of sales and the latter about 20%. The problem? The remaining portion of the business, consumer electronics, fell so far that it more than offset the growth in security cameras and autos.


12 Months Ended January 31, 2019

12 Months Ended January 31, 2018

YOY Change


$227.8 million

$295.4 million


Gross profit margin



(2.9 p.p.)

Operating expenses

$178.6 million

$163.3 million


Earnings (loss) per share




Adjusted earnings (loss) per share




YOY = year over year. P.p. = percentage point. Data source: Ambarella.

The resulting fall in sales hurt profit margins on product sold, and contributed to a steeper decline in earnings -- even when adjusting for stock-based compensation and one-time items. Another factor that contributed to the evaporating bottom line were operating expenses, which continued to rise even as sales fell. Most of the increase in operating expense was related to an 11% jump in research and development spending as Ambarella tried to rapidly introduce new computer vision chips for commercial and industrial use.

A close-up of a camera aperture opening.

Image source: Getty Images.

Credit where credit is due

Rollout and adoption of those new computer vision chips has been slow, and it looks like it could still be a while before they start contributing to results -- let alone put Ambarella back in growth mode. However, Abarella thinks that its business in cameras and cars will continue to chug higher and stop the bleeding. In putting its money where its mouth is, the company is still repurchasing its own shares -- $3.5 million worth in the fourth quarter alone.

Look for a potential rebound to happen later in 2019, though. For the first quarter of the new year, Ambarella's outlook still isn't warm and fuzzy. Management called for revenue of $47.0 million, plus or minus 3%, and gross profit margin of 59% to 60%. Adjusted operating expenses are expected to come in at $30.5 to $32.5 million. That compares to revenue of $56.9 million, gross margin of 61.3%, and adjusted expenses of $30.6 million in the comparable period a year ago.

Thus, it looks like the business is still stuck in a slide from top to bottom. Ambarella is making good progress on its computer vision chips, but weakness elsewhere is keeping full-blown hope and optimism in check. I'm still not quite ready to pull the trigger here.