Ambarella (NASDAQ:AMBA) recently released its fourth-quarter earnings report and issued guidance for the current fiscal period. The chipmaker recorded quarterly sales and earnings that were better than the average analyst estimate as collected in a Reuters poll, with the average analyst estimate calling for for $59.4 million and earnings per share of $0.59, while the actual results came in at $64.7 million in sales and earnings of $0.63 per share. Margins for the quarter just topped the company's expectations at 64.1%.
After the earnings release, CEO Fermi Wang, CFO George Laplante, and investor relations officer Debbie Stapleton took part in a conference call to discuss the quarter's results and shed some light on where the business is heading. Here are five key takeaways from the call.
Ambarella has impressive new chips for action and security cameras
During the call, Wang took time to highlight some new chips that could be growth drivers going forward. The company's H1 chip was revealed at CES in January, and would seem to be a likely component in upcoming devices such as GoPro cameras. The action camera maker hasn't announced that it will be using Amabrella's H1, but the chip's ability to capture 4K ultra-HD footage at 60 frames per second, or 30 frames per second with superior encoding, would seem to be a natural fit for GoPro's devices. Wang also took time to spotlight the company's A12W SoC and reference design kit for security scenarios:
This enables the development of a new generation of compact, ultra-low power, body-worn HD video cameras suitable for police and security applications. The new A12W SoC can encode two video streams simultaneously for dual lens camera designs as well as streaming. The A12W also includes our advanced electronic image stabilization for stable video recording during motion and High-dynamic-range processing for clear images in challenging light conditions.
Ambarella sees big growth potential in automotive chips
Chips for wearable and security cameras account for the vast majority of the company's sales, but Ambarella anticipates that it will see substantial growth from its automotive segment. It's already evidencing momentum to that end, with fourth-quarter sales of automotive chips up both year over year and sequentially. Here's Wang on the potentials of electronic mirrors based on the company's A9 SoC:
The electronic mirror is designed to replace conventional rearview or side mirrors in an automobile with externally mounted cameras and an LCD display. This solution provides greater visibility for the driver with a wider, unobstructed rearview, and in the case of side mirrors, can also reduce the air resistance associated with large external mirrors.
Later in the call, he clarified that dash cams would be the segment's growth driver in the short term, but the company anticipates selling chips for features like the electronic mirror and 360-degree cameras to automobile OEMs.
The company is scoring big wins in Asia
Strong performance in China and South Korea was a major component of the company's fourth-quarter revenue beat, and Ambarella anticipates that these territories will continue to be growth drivers. The company saw increased demand for its high-end products in both territories, with China in particular pushing revenue from professional IP security cameras, helping the company to avoid a traditional seasonal slowdown in the segment. Ambarella scored wins by getting its chips inside Asus' STRIX car camcorder and Xiaomi's upcoming low-cost action camera. Here's Wang on China and South Korea propelling the automotive segment to growth:
Q4 automotive market revenues increased both sequentially and year-over-year, reflecting growth in both Korea and China. The automotive market in Russia, where higher end dash cam products are more popular, remained soft in the quarter due to weak economic conditions in Russia.
The company anticipates that unfolding potential in Asian territories will continue to propel sales across its segments.
Ambarella anticipates a strong first quarter and fiscal 2016
After a great fourth-quarter, Ambarella expects a strong first-quarter in fiscal 2016 and strong performance throughout the annual period. As with the last quarter of fiscal 2015, CFO George Laplante said the company is expecting first-quarter margins to come in between 62% and 64% thanks to a favorable product mix leading to strong camera margins. The company anticipates that revenue will be between $64 million and $68 million and that non-GAAP net income will come in between $18 million and $20 million for the quarter. Here's Laplante on the broader outlook for fiscal 2016:
Due to the expected market strength, the success of our low-end products in the professional IP security market, as well as the projected growth in automotive aftermarket, we now anticipate the company will exceed the long-term growth rate this year as presented in our target model on our last earnings call. This year's annual growth rate is now expected to be between 27% and 30% from revenues associated with our current camera markets. We believe our gross margins will settle into the target model range of 59% to 62% as the year progresses and the impact of our success in the low end of the IP security market becomes a bigger part of our revenue. As a result of the strong revenues, we expect our fiscal 2016 operating margins to improve to the high 20% range.
Consumer IP security cameras are an opportunity, but not a big factor in revenue guidance
Chips for commercial IP security cameras accounted for the largest portion of Ambarella's unit shipments in the fourth quarter, but the company has yet to see significant unit sales or revenue from consumer security cameras. During the question-and-answer portion of the call, Wang was asked to what extent the company's revenue outlook was dependent on growth in consumer security cameras. Here's what he had to say:
I think that service providers' side of consumer IP camera is still very little in terms of revenue on our forecast. They have a great potential. We believe they are going to grow fast but in terms of the total revenue, they still are a small percentage versus other markets.
Wang went on to reiterate that the company sees big growth potential from the segment down the line, particularly as it teams with service partners such as AT&T.
Keith Noonan has no position in any stocks mentioned. The Motley Fool recommends Ambarella and GoPro. The Motley Fool owns shares of Ambarella. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.