AMBA thoughts

Well, the Q3 numbers are in.

TTM adj EPS: $3.35
Price: $59.35
P/E: 17.7
1 yr EPS growth: 114.7%
1YRPEG: 0.15

Guidance for Q4 (Q ending 1/31/16) was weak. At $0.47 per share. This would be lower than the quarter in the prior year which was $0.68. Looking at the number if they hit guidance and the stock price stays the same:

TTM adj EPS: $3.14
Price: $59.35
P/E: 18.9
1 yr EPS growth: 58.6%
1YRPEG: 0.32

While that looks ok, it really is ok only if the growth resumes. Key questions are…

  1. Will the non-sports camera markets continue the strong growth? These markets are drones, home security, auto aftermarket, and wearable cameras.

  2. Will GoPro sales rebound after they launch their new version products? Maybe this is not essential if the markets in #1 above continue their rapid growth.


Now the FY2017 guidance:

They said it estimate 15-20% revenue growth and a high 20s to low 30 operating margin. If he assume the shares increase to 34.5 and the effective tax rate stays at 7.5% the the numbers would look like this:

Revenue: $333.7M at guidance midpoint
Operating Income: $100.1M at 30% operating income
Net income after taxes: $92.6M
EPS: $2.68 this would be GAAP

Maybe the stock based comp adj would be around $1.00 (just a guess based on historical numbers).

So we would end FY2017 with the following assuming today’s stock price:

Adj EPS (FY2017): $3.68
Adj EPS (FY2016): $3.14
Stock Price: $59.35 (today’s price)
1 yr growth: 17.1%
P/E (after FY17 is reported): 16.1
1yrPEG: 0.94

That won’t look so good anymore.


I just tripped across a 2-month old draft of my research on incoming competitors/invaders in AMBA’s space that I did not have time back then to compose a post here. Although I no longer have any interest in AMBA, FWIW, I’ll share my take with updated financials.

Although past posts here mention Qualcomm Inc. (QCOM) and Intel Corp. (INTC) as competitors that might or could crush AMBA, none thus far provide any magnitude of the financial differences and technological capabilities among competitors that give tremendous distinct advantages for some over others, and none address or consider the worthiness and possibility of AMBA as a potential buyout candidate.

While AMBA recently has exhibited strong financial fundamentals and experienced rapid growth in revenue, income and earnings, a key concern/lingering question is its sustainability (including margins) in a growing highly competitive landscape. In order to compete and survive, AMBA must stay ahead of the technological curve by committing sufficient capital to fund their research and development. This, however, is where aggressive solid corporate giants, i.e., Samsung Electronics, QCOM and INTC have a monster competitive edge and advantage over AMBA, not only in R&D spending, but also in cash on hand, free cash flow (FCF) and manpower as clearly shown in the following table. AMBA’s $58 million for R & D pales in comparison to Samsung’s $13 billion, Intel’s $11 billion and QCOM’s $5 billion. Likewise, for cash, AMBA $239 million versus Samsung $60 billion, Intel $21 billion and QCOM $17 billion.

	                 AMBA	 INTC  SAMSUNG	  QCOM
Mkt. Cap	        1.85B 162.62B  163.81B	72.96B
P/E (ttm)	        24.88	14.82	  9.10	 15.07
52wk High	       129.19	37.90 1,286.85	 75.72
Nov 27, 2015	        58.47	34.46 1,100.00	 48.54
52wk Low	        44.45	24.87	850.00	 47.52
FY 2014
R & D (billion $)	0.058	11.537	13.179	 5.477
FCF (billion $)	        0.051	10.313  12.342	 4.562
Cash (billion $ mrq)	0.239	21.210	 60.73	17.320
Debt/Equity	           0%	   37%	    7%	   35%
Current Ratio (mrq)	 5.74	  2.40	  2.45	  3.62
FY 2010	                0.00%	34.64%	22.09%	25.27%
FY 2011	                0.00%	37.38%	16.31%	28.80%
FY 2012	                0.00%	25.52%	26.52%	24.44%
FY 2013	              207.02%	17.60%	30.14%	28.58%
FY 2014	              238.95%	19.67%	19.34%	30.33%
ROIC	              251.65%	20.05%	16.40%	20.83%
WACC	               18.89%	 7.77%	10.81%	12.37%
EVA	              232.76%	12.28%	 5.59%	 8.46%
Employees	          598  106,700 235,999	33,000

As shown above, historically, INTC, Samsung and QCOM continue to realize strong returns on invested capital and create value for investors with currently excellent ROIC-WACC spreads (EVA). The EVA for AMBA is out of this world for now, but most likely unsustainable in the near future. However, AMBA’s current value creation is a positive attribute among others that might make it a potential takeover target.

Even if AMBA diversifies by expanding into other areas, it will still be out gunned. overshadowed and overwhelmed by the likes of Samsung, INTC and QCOM, among oathers.

How about the worthiness of AMBA as a buyout target for the following giants?


I believe no deal for Samsung which tries to do almost everything these days in-house. Here’s an 8/11/15 Economic Times interview with a top Samsung Electronics executive at their first ever imaging sensor forum in India, showcasing some new technologies to partners and manufacturers.…

What exactly is Samsung’s system LSI business about?

Samsung has a big semiconductor operation - the memory operation is very well known. System LSI has three groups:

• Contract manufacturing for others (the Foundry business),

• The System on Chip or SoC business, which takes care of application processors (Exynos is part of this), and

• LSI (imaging sensors).

If you look at a modern smartphone, there are maybe 20 different semiconductor chipsets in it - LSI takes care of a lot of these, including things like imaging, NFC, SIM card controllers and so on.

We keep seeing smartphones getting smaller. Is it a clear focus of the business to combine different functions into one chip - to save space and make smartphones smaller?

It really depends - you can save some space by integrating different components into one. However, in some cases, it is better to leave them separated. For example, the chip that controls the signal strength can be close to the antenna. Other chips need to be close to the battery There is a trade-off between leaving things separate and miniaturising - we’re always trying to fund the optimum solution. Our competitive edge is to optimise all these aspects for our customers - which are typically device manufacturers.

What kind of other devices will need imaging sensors?

Needs are limitless these days, especially in the Internet of Things (IoT) era. An imaging sensor simply captures the light - other components decide what to do with it. We perceive the outside world mostly through images.
• Automotive is one good example where demand is really increasing. Some modern high-end cars now can have up to 20 imaging sensors built in. Some are used for the more mundane reverse cameras, other more sophisticated systems can track cars and obstacles around you while driving, read and interpret data from traffic lights and signboards, track the driver’s state, warn you if you are too close to other cars or warn you if you are straying from a lane. All these systems rely on imaging sensors.
• Internet connected surveillance cameras for home use are on the rise as are consumer drones with HD cameras.
• Cleaning robots use image sensors too - to detect obstacles and move around them.
Finally, even the medical industry seems to be taking to this. For instance, a company we’re in talks with is developing technologies that use imaging sensors for non-invasive blood tests. This is all possible because these sensors can see spectrum of light that the human eye cannot.

Samsung is a huge threat, crashing the IoT scene big time.


I don’t expect any interest by Intel to acquire AMBA. Why?

Take a look at this 8/26/2015 video, showing Intel CEO Brian Krzanich and Yuneec Electric Aviation CEO Tian Yu cozying up together over a $60 million Intel investment in Yuneec to make drones that will change the world. According to Kranich, The two companies have got “drones on our road map that are going to truly change the world and revolutionize the drone industry.”…

Here is more info in a Forbes article;…
Yuneec International, a Shanghai-based drone and aerospace company founded in 1999 that makes drones and electric-powered airplanes, has secured a more than $60 million investment from Intel’s venture capital arm. Intel has also invested in drone companies Airware and PrecisionHawk as it seeks to sidestep the declining PC market by betting on the possible commercial use of drones.
Yuneec’s newest Typhoon drone features 4K, 30fps HD video capture is priced at $1,299.

INTC also has an Internet of Things Group exploring areas of interest and opportunities.…


QCOM most likely has no interest buying a small sweet potato like AMBA. Here’s why. In order to maintain its position among its giant competitors (INTC, Samsung and others), in April 2015, QCOM sold $10 billion worth of debt to fund its aggressive share buyback program and earmarked up to 50 percent of the proceeds for strategic acquisitions. After competitor INTC snapped up Altera Corp. in a $16.7 billion deal, and smaller competitor Avago Technologies (AVGO) made a $37 billion bid to takeover Broadcom Corp, analysts and investors have been waiting for a major acquisition move by QCOM. Although Skyworks Solutions’ name has come up, I don’t think SWKS is a target because of Qualcomm’s commitment to develop its own one RF solution disruptive technology that, if and when successful, will deliver a major blow to SWKS, as well as AVGO, Qorvo, Inc. (QRVO) and others in the RF arena. Some pundits, however, believe SWKS is an attractive QCOM target as a provider of chips and components for everything from cars and medical devices to GPS systems and smartphones. So, the big question remains on hold as to where and what QCOM will make a significant strategic buy.

Ironically, QCOM was able to recruit Yuneec Electric Aviation as the first customer for its Snapdragon Flight platform for drones because, soon after, Yuneec received a $60 million investment from Intel, a QCOM competitor. The QCOM Snapdragon Flight robotics dev platform is specifically designed for one of the world’s smallest 4K flying cameras that will be released in 2016 by Yuneec at affordable prices, targeting a rapidly growing consumer drone segment.……

Here is a recent Fortune article on QCOM cheap drones. [my emphasis in bold]

Qualcomm has crammed a lot of features on a single chip designed to bring the cost of a drone down below $300, with a reference design it showed of on Thursday. To watchers of the chip firm, this will come as no surprise. This is exactly what Qualcomm did in the cell phone world—shoved a bunch of different classes of semiconductors into one system on a chip and then managed to dominate the market for awhile.
By deeply integrating the radios and processors on a chip, Qualcomm reduced the space that the electronics took up inside of cell phones, lowering the cost of those materials and requiring less power to run. Qualcomm is doing something similar with the newly launched Qualcomm Snapdragon Flight reference design.

In shoving navigation, video processing and computation all on the same system on a chip, Qualcomm also created a virtuous cycle by reducing the overall size of the board and battery required to power the electronics. A smaller battery reduces the weight, which reduces the motor size, and in general, leads to a smaller and cheaper device. Qualcomm already has a customer called Yuneec in Hong Kong designing a drone around the new Flight platform.


Perhaps I am overlooking something significant, but at this time I just don’t see “must haves” in the AMBA arsenal that the big guys urgently need and eventually can develop and have on their own, given their huge R &D budgets and financial resources. In the short term, AMBA could continue to prosper as a provider in the supply chains of video surveillance companies and drone companies like Dajiang Innovation Technology Co. (DJI), China’s first company to pioneer drone making and currently the leader of the pack, accounting for more than 70% of the consumer drone market. However, expect a lot of companies and upstarts crashing and crowding these spaces as well as the IoT arena.

As always, conduct your own due diligence and decision-making.



1) Will the non-sports camera markets continue the strong growth? These markets are drones, home security, auto aftermarket, and wearable cameras.

What are our other possible futures and markets?
Wearable makes me think of Police, but is there a wearable military application that might grow. My company makes night vision cameras for the military, but I don’t know if Ambarella products would apply. Not sure I have the contacts to research that.

Drones make me think home and professional, but does Amba supply the big boys the military uses? Is that an advantage to the power savings? Does the military need even more powerful cameras than Amba can supply?

What about commercial security? Smaller, easier to hid surveillance cameras? I do think home security will grow, even I have been considering some Home Security “2.0” system like Canary, SimpliSafe, etc. Costco sells surveillance systems.

Gaming? The Occulus is getting us into virtual reality, I can’t think of a need for a camera with that, but might games somehow start integrating cameras? HD “tag”, kids run around with a “head-cam” and you have to find them by the footage you are receiving. Ok, dumb, but some stupid game will pop up that we can’t think of.

Pro Sports beyond GoPro will we start embedding small but high quality cameras in sports more? The orange pylones in football have cameras, I think home plates do now. what else might be coming?

Mass environmental studies where the camera sends footage back over cell (Side note, in the deep jungle of some African country, the have cheap cell phone in trees (powered by solar) that send back audio for processing. They can pick up the sounds of illegal logging and triangulate on the location to find the bad guys - what next with cameras?)

Video conferencing is becoming cheap and ubiquitous, TVs will have cameras so the NSA and Chinese hackers can spy on you! But also so you can have a 4K VTC between grammy and Timmy. Lots of very cheap competition there.

Robot army of the apocalypse coming to get us? Don’t you want your roomba to live stream so you can see it clean your house :wink:

Some of these might be just different uses of GoPro or Drone technology, but they might be future markets at the same time.

There was an article in the morning paper about the increased interest in drones from farmers.

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