Well I broke down and added a little AMBA today, although it’s already a very large position. We’ll have to see what happens.
Saul
do you have a writeup on why you like it so much? I assume valuation is not a concern?
do you have a writeup on why you like it so much? I assume valuation is not a concern?
As far as valuation, they were as high as $36 or $37 after the Google announcement. Now, in response to a short attack they are about $26 !!!
Here are all my notes to myself on AMBA. It’s a lot of reading and all my notes on recommendations are shortened and may be paraphrased:
Saul
Ambarella AMBA
Makes chips for high definition video in cameras (and security cameras, and wearable cameras)
Oct 2012 – IPO !
Apr 2013 - Rec by Zacks Home-Run investor
AMBA is a semiconductor company that makes the chips that allow cameras to capture high definition video. Analysts have increased their estimates.
Ambarella had IPO in October 2012. Originally priced between $9 -$11 per share, the investment bankers moved the price to $6 even though they only sold 6 million shares. With the stock trading around $15, its now up about 150% from the IPO price.
Ambarella manufactures and sells semiconductors for high definition and high resolution cameras. It addresses three primary markets, the wearable camera segement; the auto segment and finally the IP Security segment.
Its chips come with software that allows for encoding of content and easy upload to sites like YouTube. An Ambarella chip basically replaces an entire board and thus the camera requires 50% less power.
There have been two events that have woken people up to the idea of high resolution/high definition video cameras. The first was the Russian meteor that was captured by dozens of dashboard cameras and give a real feel of what it was like to be present at that event. The second was the introduction of Google Glass.
Google Glasses is a product that carries a jaw-dropping $1500 price target and has a tiny camera embedded into a pair of glasses. Through voice commands a user can take a picture, record a video or jump into a Google Hangout (multi person video sharing event). The idea was pretty far out when launched, but there have since been several stories in the main stream media about the glasses.
The Russian meteor was captured on numerous dashboard cameras. Many of them used the AMBA chip to produce among the highest quality of video. Dashboard cameras are certainly popular in Russia and in Asia, but the idea of them coming to the United States shouldn’t suprirse anyone. The obvious use will be for insurance companies that want to quickly and cost effeciently settle accident claims. Jury’s, I am told, love video evidence.
Estimates for AMBA have risen recently.
The Zacks Consensus Estimate for 2013 stood at $0.57 in January but has since inched higher to $0.60. (This seems like a big under-estimation to me)
The Zacks Consensus Estimate for 2014 is currently at $0.84. That implies earnings growth of 40%. Earnings growth like that would normally carry a high valuation, but AMBA is reasonably priced.
At present the company is trading at 24x trailing earnings, which is slightly higher than the 18x industry average, but the expected growth of revenue will help bring that number lower.
June 2013 – Announced Apr quarter results
Revenue was $33.9 million, up 30.9% from $25.9 million.
Adj Gross Margin was 64.0%, down from 71.1% last year (which was artificially high due to the release of $1.6 million revenue that they had deferred recognizing), but up slightly from 63.3% sequentially. They expect it to be down to 60% next quarter because camera revenue, which is growing rapidly, has lower margins than infrastructure revenue because it’s a competitive consumer product.
Adj Op Expenses were $14.9 million, compared to $14.6 million a year ago, and to $14.8 million sequentially. Comparing to last year, operating expenses grew only 2.3%, while revenue grew 31% !!!
Adj Net Income was $6.2 million up 77% from $3.5 million, or 21 cents up from 11 cents.
Cash and cash equivalents were $104.0 million, up from $59.7 million a year ago. AMBA raised $32.4 million in net proceeds in its IPO in October 2012. The other $11.9 million they made.
We are very pleased with our progress in the first fiscal quarter, with total revenue up 31% over the first quarter of last year. During the quarter, we made excellent progress in the IP security camera market with important new design wins. We also saw especially strong revenue growth in the wearable sports camera category, led by market leader GoPro. In the automotive camera after-market, we continued to grow revenue while successfully expanding our customer base.
Outlook: We expect revenues for the second quarter to be about $36 million. This is an increase of about 29.5% over last year. Camera revenues are estimated to be about 90% of total revenue for the quarter as compared to 77% a year ago.
Revenues are being positively impacted by the growth of our primary cameras market with especially strong growth expected in the consumer and professional IP security markets.
We expect Adj Net Income for the quarter to be about $5.75 million. We forecast that operating expenses will increase by approximately $1 million sequentially, due to increased cost associated with the amortization of our chip development program and to a lesser extent due to headcount increases. We are using an estimated adjusted annualized effective tax rate of 10%.
In summary, our revenues, gross margins and profitability remain strong as our business continues to benefit from expansion in our core markets and what we believe is a strong competitive position of our product offerings.
Conclusion: Excellent quarter. I added a bunch before the report.
Sept 2013 – Announced Jul quarter results
Revenue was $37.7 million, up 35% from $27.8 million, and up sequentially as well. (They had predicted $36.0 million).
Adj Gross Margin was 61.8%, down from 69.1% last year. They had said they expected it to be down to 60% this quarter because camera revenue, which is growing rapidly, has lower margins than infrastructure revenue because it’s a competitive consumer product. Last year, gross margin was positively impacted by the release of $1.4 million in deferred revenue.
Adj Op Expenses were $14.8 million, down from $14.9 million sequentially.
Adj Net Income was $7.7 million up 24% from $6.2 million, or 26 cents up from 23 cents, and up from $6.2 million sequentially as well.
Cash and cash equivalents were $118.3 million, up from $104.0 million sequentially, and up from $65.2 million a year ago. AMBA raised $32.4 million in net proceeds in its IPO in October 2012. The other $11.9 million they made.
We continue to enjoy solid success in professional and consumer IP security markets, where we are delivering cost effective, feature rich solutions for technically demanding products. In addition to our security market success, our wearable sports and automotive camera markets continue to grow, contributing to our strong year-over-year growth.
Camera market revenue was estimated at 90% of quarterly revenue, up from 77% a year ago. Our growth continues to be fueled by our professional and consumer IP security, wearable sports, and automotive camera markets. For the first time we estimated that IP security camera unit shipment exceeded all other individual camera categories.The security markets had strong sequential and year-over-year growth due to the successful ramp of several new customers.
Outlook: We expect revenues for the third quarter to be between $43 million and $45 million, up between 21% and 26% year-over-year. Camera revenues are estimated to be about 88% of total revenue, up from 81%.
Revenues will be positively impacted by the growth of our consumer camera markets such as wearable sports and consumer IP security cameras adding to the ongoing strong revenue in our professional security markets.
We anticipate a sequential decline in revenues from the automotive market due to the competition at the low end of the China market as well as delays associated with transition to our new A7L-A based products. We expect our automotive market to return to growth in Q4 across all markets as result of the successful penetration in Korea and Taiwan and the adoption of our advanced A7L-A chip which supports the demand for more advanced features.
We estimate adj gross margins to be between 60% and 62%, compared to 61.9% this quarter and 64.5% a year ago. Gross margins will reflect the normal seasonal increase in low gross margin consumer product revenues which is expected to be partially offset by some near-term recovery in higher margin infrastructure business.
We expect adj net income for the quarter to be between $8 million and $9.5 million, and that operating expenses will increase by approximately $2 million from this quarter, reflecting the return of R&D cost to normal levels as the positive impact of the onetime nonrecurring $1 million R&D reimbursement in Q2 is eliminated and increased cost associated with amortization of our chip development programs. We are using an estimated non-GAAP annualized effective tax rate 10% for net income amounts.
GAAP net income will reflect an increase of approximately $800,000 in stock based compensation expense as a result of a grant to employees of Restricted Stock Units or RSUs under our annual evergreen stock program. We estimate our diluted share count to be 30.7 million shares.
In summary, our revenues, gross margins and profitability remain strong as our business continues to benefit from expansion in our core markets and what we believe is a strong competitive position of our product offerings.
Conclusion: Good, but not outstanding quarterly growth and earnings.
Sept 2013 - Rule Breaker Recommendation
When you watch TV, whether by satellite or cable, you’re seeing a signal that was compressed using Ambarella’s proprietary algorithms. When you enter an airport, bank, casino, government building, or other secure area, you’re probably being watched by a camera with Ambarella components.
That’s impressive ubiquity for a company just nine years old, but your Rule Breakers team is even more excited about Ambarella’s growing consumer business, which is driven by three emerging product lines: wearable sports cameras, automotive cameras, and IP security. Ambarella makes the systems-on-chips (SoCs) that power these devices. And although these markets aren’t highly visible to most Americans today, we think that will change in short order.
Sales of wearable sports cameras are rising faster than a paraglider riding a sweet thermal updraft — more than 50% a year. A company called GoPro, which exclusively uses Ambarella SoCs, owns about 70% of this market, and it also supplies other manufacturers. That’s great market penetration, but we also think that today’s wearable sports cameras — which skiers, divers, climbers, or other outdoor enthusiasts like to strap to a helmet to capture their exploits — will give way to new markets as the form factor gets smaller.
Think of a camera the size of a quarter that simultaneously captures video at multiple resolutions and streams it from a fireman’s jacket or a police officer’s glasses. Think of consumers who dispense with vacation snapshots because they have a tiny camera on their collar collecting images they can sort through later. These capabilities already exist, and the camera size is steadily coming down.
Given our Facebook world, we certainly think people will be interested in recording, streaming, and sharing more video. Mobile video is forecasted to grow at a 90% annual rate to reach 71% of total mobile data traffic by 2016.
In the automotive market, Ambarella SoCs are found in many dashboard cams, which are constantly recording to capture any accident or other event. This isn’t a huge consumer market in the United States (though the police routinely use them), but it’s a major phenomenon in Russia, China, South Korea, Taiwan, and other countries where traffic is notorious and dispute resolution can be difficult. (You may remember all the stunning footage of the Chelyabinsk meteor that fell in Russia earlier this year — available because so many drivers were recording when the bolt came out of the blue). We see opportunity as more drivers opt for cameras that look forward and possibly also behind, particularly if insurers decide to offer discounts to drivers who use them.
Security is another major market as professional security cameras are upgraded from analog to digital. There’s only about 15% digital penetration right now, Ambarella’s management estimates, but the switch is accelerating as airports require high-definition video and convenience-store owners decide they can do better than grainy black-and-white footage. There’s consumer potential, too: Cable and phone companies that have been selling “triple-play” Internet, TV, and phone services are increasingly rolling security into the mix. Most people shied away from this in the past because they had no practical way to store the data, but the growth of cloud-based services makes it a snap.
We love that Ambarella’s products aren’t commodities sold into the mass market — its differentiated devices have helped the company maintain a gross margin of more than 63% going back to 2008. In fact, the company could be even more profitable, but it plows more than 30% of revenue back into to R&D, which helps maintain its long lead over its competitors. That R&D expense should become a smaller percentage of revenue as the company scales, which should also help trim other expense margins. We expect profit to grow faster than sales, and that adds up to multibagger potential over the next several years.
Ambarella is trading for about 27 times its trailing free cash flow, but with revenue having climbed about 30% over the past 12 months, we think that’s more than reasonable. We expect growth to stay strong and potentially accelerate as Ambarella taps new markets. And with a market cap of less than $500 million, Ambarella is still a relatively small player with plenty of space to fill out its frame.
You may wonder why Ambarella isn’t going after the largest camera market: smartphones. For one thing, it’s focusing on higher margins. But the company’s technology is also considerably more complex than what you’ll find in a smartphone. The processing power it takes to run one of Ambarella’s devices could easily run a whole smartphone, which is why the company launched its iOne SoC — essentially a smartphone processor for Android, and a beefy one at that. Engadget called it “the smartphone processor of your dreams” when it was announced in late 2010. A “smart camera” using this system would run the Android OS and could also power apps and games with ease. The only problem is that the product was a bust, with no significant design wins we’ve heard of. The market may evolve to embrace this, but for now, it leaves Ambarella relying on the niches we discussed above.
Risks and When We’d Sell
That makes for a concentrated business. In addition, more than 86% of revenue last year came from Hong Kong, where camera manufacturers are clustered, and just two companies counted for a combined 80% of revenue. Any upset in where or how manufacturing occurs is going to be an upset for Ambarella, too. If we see days sales outstanding creeping up or any problems with the company’s accounts receivable, we might have to rethink our angle.
The Foolish Bottom Line
Ambarella went public in October at $6, which has made a tidy profit for those who got in on the ground floor. But the company has kept a low profile since then, rising steadily over the past year while flying under most investors’ radar. We think that’s a great place to be. As the company’s focus markets take off and investors take notice, we expect to be sitting on some pretty gains.
What It Does: Ambarella develops systems-on-chips, codecs, and other software for high-definition cameras used primarily for the security, automotive, and sporting industries.
Why Buy: It’s the market leader in wearable sports cameras, dashboard cams, and IP security cameras. Existing markets have huge potential, and new areas such as 4K video offer ample opportunity. Ambarella invests heavily in R&D and has a strong lead on its competitors.
Risk Rating – 8 (marble)
The Fabless 4K - A heavy dose of R&D has kept Ambarella well ahead of its competitors. Although its Android-based “smart camera” platform doesn’t seem to have taken off (yet), we still think the company’s SoCs will find their way into more mainstream camera/camcorder combos. Part of the challenge is that companies such as Samsung, Sony, and Toshiba make their own camera sensors and aren’t necessarily looking for outside parts, much less entire integrated systems.
Yet Ambarella has already developed hardware and software for 4K camcorders — that is, cameras that can record content at 4,000 pixels of horizontal resolution (4096 x 2304 for you enthusiasts). Consumer-electronics companies hope 4K TV will be the next big thing, but one of the problems is that there’s almost no ultra-hi-res content to watch on these ultra-expensive sets, and those few camcorders that exist and could help create a content boom are prohibitively expensive.
That’s one reason Ambarella’s solution, which promises to be much cheaper than current models, could be eagerly embraced by some of the largest names in the industry.
Ambarella is a fabless semiconductor company, which means it designs chips but outsources manufacturing. That’s a common business model in the industry and puts it in the company of recent recommendation InvenSense, as well as Cypress Semiconductor which is mostly fabless. Overall, the semiconductor industry is generally cyclical, so it may make sense to pair these stocks with less economically sensitive investments.
Dec 2013 – Announced Oct quarter results
Revenue was $46.0 million, up 29% from $37.7 million, , and up 22% sequentially as well. (They had predicted $44.0 million).
Adj Gross Margin was 63.8%, down slightly from 64.5% but up quite a bit sequentially from 61.8%. This was better than they predicted.
Adj Net Income was $11.1 million, up 37% from $8.1 million, and up 44% sequentially from $7.7 million.
Adjusted Earnings were 37 cents, up 19% from 31 cents, and up from 26 cents sequentially.
Cash and cash equivalents were $128.1 million, up from $118.3 million sequentially, and up from $94.8 million a year ago.
We are very pleased with our execution across major markets. Our penetration into the fast growing security markets continued, reflecting our strong competitive position, as well as our broad product roadmap. In sports cameras, market leader GoPro introduced 2 new models based on Ambarella technology that deliver industry leading features at both 1080p60 and 4K resolutions.
This is an exciting time for our company as we continue to develop products on the leading edge of technology that will enable us to continue to offer the best technology without compromising power efficiency.
Camera market revenue was 87% of revenue as compared to 81% in the prior year. Our year-over-year growth was driven by strong performances in our security and wearable sports camera markets partially offset by expected decline in our automotive revenues.
Outlook: We expect revenues for the Jan quarter to be about $38 million reflecting a normal seasonal decrease. This represents an increase of 20% over last year. Camera revenues are estimated to be about 89% of total revenues for the quarter, as compared to 83% in the same period in the prior year.
Revenues of our wearable sports and consumer security markets are expected to demonstrate solid year over year growth. We see our Asia-based professional security market revenue slowing as a result of normal seasonality and the impact of the Chinese New Year.
We also anticipate a sequential increase in revenues from the automotive market, but still below prior year levels as we continue to transition our customers to our new A7L-A based products.
We estimate adj gross margins to be between 62% and 64%, compared to 63.8% in the preceding quarter and 63.3% in the same period in the prior year.
We expect adj net income for the quarter to be between $5 million and $6.5 million. We expect new chip development expense to become a larger percentage of OpEx in Q4 and into next year as we begin to develop the new 14 and 16 nanometer process nodes.
Our estimated adj annualized effective tax rate is 14%. The increase in Q4 effective tax rate relates to an increase in reserves for taxes that are mainly due on foreign revenue.
The effective tax rate for fiscal 2014 is now estimated to be 11%.
We estimate our diluted share count for Q4 to be 30.8 million shares.
Conclusion: Excellent but not outstanding results.
Motley Fool Take - Ambarella reported strong results.
Revenue increased 29% to $46 million due to strong sales in its IP security camera and wearable sports camera segments. Those offset some expected weakness in its automotive camera business due to OEM new product introductions being delayed and hitting their markets later than expected. The new products are now out, with new chips from Ambarella, and seeing improving sales.
Net Income increased 36% from $6.7 million to $9 million. That’s a very nice jump.
The cherry on top of the solid results was that they surpassed analysts’ expectations. Analysts expected $44 million of sales and $0.22 of GAAP EPS and the company delivered $46 million of sales and $0.30 of EPS. Guidance for the 4th quarter was inline with analysts’ expectations.
But enough about short-term estimates, let’s talk about what’s going on at the company. The first thing I want to highlight is that the company’s catalysts are still strong. Security camera customers continue to see a strong shift from analog CCTV camera to digital IP security cameras. What’s more, Ambarella sees improving demand for wearable cameras for social networking and professional application. That’s great news.
The company continues to invest in its 14 nanometer technology chips. The new platform will reduce power consumption, leading to smaller form factors even as functionality increases. That’s very important when going after new wearables markets over the next 3-5 years.
Staying on chip development, I wanted to comment on Ambarella’s chip progression strategy. It current workhorse chip, the A5, continues to sell very well. It’s older and the company has received some cost-reduction benefits based on volume discounts from suppliers. So the company has been able to milk that cash cow and reinvest that money into its next chip, the A7.
A7 chips continue to gain traction. The company is taking the same strategy as Intel or any other chip manufacturer. Ambarella wants to introduce a new chip to the market before the demand of the older chip starts to wane. And the company is working on its A9 chip to have it ready to launch next year.
As a chip company, it has to keep pushing its technology and functionality forward. That’s how it offsets the price deflation that occurs over time. Again, it’s important to know that Ambarella was created by experts on both the hardware and software side of problem. That way, we know equal attention will be given the challenges of designing new chips to make sure the customer gets what the customer wants.
My outlook is still the same for Ambarella. I think it is still set up to be a big winner for Rule Breakers over the years. It serves a growing market and it’s working with developers to go after new markets with its technology. I think the management team is top-notch, as well. So I look forward to more good news next quarter.
Dave
Dec 2013 - Award
Ambarella announced that the Global Semiconductor Alliance (GSA) has honored the Company with the award for the Favorite Analyst Semiconductor Company of 2013. The award was presented at the GSA’s annual Awards Dinner.
Semiconductor financial analysts from top-tier firms select their favorite company for this award. The analysts base their decision on historical as well as projected data such as stock performance, revenue growth, net profit margin, revenue forecasts and product performance.
“GSA is proud to honor Ambarella with the Favorite Analyst Semiconductor Award chosen by Morgan Stanley,” said the president of GSA. “They received the GSA 2010, 2011 and 2012 award for ‘Most Respected Private Company’ and this year’s award proves that Ambarella has continued to progress since going public in October of 2012.”
Dec 2013 - Ambarella and Google Exploring Wearable Cameras for Helpouts™
New Ambarella reference design enables untethered live video training and coaching.
Ambarella announced that it is exploring with Google a new class of wearable cameras for the Helpouts application and service. The two companies will jointly demonstrate the wearable camera reference design during the Consumer Electronics Show in Las Vegas, Jan. 7-10th.
Helpouts is a new way to share knowledge and expertise over live video. It’s easy to use and incorporates scheduling and payments to allow instructors to monetize services. Ambarella-based wearable cameras with Helpouts will enable instructors to see live video from the trainee’s perspective, or vice versa, supporting interactive teaching of sports, fitness, art, cooking, engineering or any other hands-on activity.
Ambarella’s new design enables small wearable cameras that allow users complete mobility during a Helpouts session. The camera can record full HD video while simultaneously streaming live video wirelessly to the Google Helpouts server via a smartphone or Wi-Fi access point. Utilizing Ambarella’s A7LW camera SoC, the camera stabilizes video even when users are in motion. It provides excellent image quality in low light conditions, while its low power operation enables long battery life.
“Helpouts allow people to get expert advice in real time over video. With easy-to-use wearable cameras, the other person sees what you see, and the interaction becomes efficient and simple.”
“We are delighted to be working with Google and look forward to enabling Helpouts on our new wearable camera platform. The result will be a new class of camera that enables teachers and trainees to interact in an entirely new way.”
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Saul,
Thank you for sharing
Erik