Ambarella (AMBA 1.87%) recently announced a much-anticipated return to sales growth as the company's transition away from consumer-focused niches started to pay off for the business. The video tech specialist's outlook for the fourth quarter, meanwhile, forecasts a return to annual revenue gains following declines in fiscal 2017, 2018 and 2019.
In a conference call with Wall Street analysts, CEO Fermi Wang and his team went into more detail about that 2020 guidance and some of the key reasons why they're optimistic about Ambarella's chances in emerging artificial intelligence (AI) markets. Below are a few highlights from that presentation.
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Solid growth
Our Q3 revenue of $67.9 million was above the high end of our guidance range and the revenue increased 20% from the $56.4 million in the prior quarter.
-- Wang
Ambarella edged past management's growth targets on what executives described as broadly strong demand. Sales to manufacturers in the security camera niche led the way, as usual, but the company notched some key wins in AI cameras and in video processing for auto companies like Mercedes-Benz.
Ambarella also noted strength in its prior generation of computer vision chips, along with decent growth in the consumer market for drone tech. These wins helped it overcome a choppy world trade environment to post solid third-quarter results that surpassed Wall Street's forecasts.
Proof of concept
We continue to demonstrate strong progress toward our strategy to transform from a pure video processing company to an AI and the computer vision [CV] company. During Q2, all of our CV family contributed to the early ramp in our CV revenue with mass production shipments continuing in automotive and security camera markets.
-- Wang
Ambarella has been designing and producing computer vision and AI-focused tech for long enough to develop a wide offering lineup. This spans several generations of its computer vision (CV) chips, the latest of which is its fourth-generation system-on-a-chip tech that just entered mass production in the third quarter.
It's still early on in that release, but executives are encouraged by the demand, including the fact that 50 customers are evaluating the IP for their specific manufacturing needs.
A volatile sales environment
Multiple factors, both positive and the negative, are contributing to a wide range of potential outcomes for us.
-- Wang
Ambarella issued guidance for the seasonally weak fourth quarter that tracked closely to what most investors expected. Yet that prediction came with an important caveat. Specifically, management sees world trade issues like tariff rate changes and market access restrictions on certain customers and competitors as having a disruptive and unpredictable impact on sales. In some cases, the impact has been positive, but in others it has harmed Ambarella's ability to market its products and pulled sales forward in time from future quarters.
Ultimately, that means investors have to brace for more volatility ahead for the next few quarters, which could result in actual results that deviate from management's predictions. "The geopolitical economic environment continues to generate a significant amount of uncertainty with our customers' outlooks and supply chain," CFO Kevin Eichler said. "Needless to say, forecasting is difficult."
