I’d like to know your thoughts on some of the recent news
A.J., I think this is one of those times where it’s really worth doing your own research and coming to your own conclusions. I think it’s just too easy to get scared out of a stock during volatile times if you don’t fully understand the company and why you’re invested in it. It’s too easy to start second-guessing yourself. You need to be comfortable with the current situation, the risks (there are always risks), and the future prospects of the company.
Here is my brief opinion on the news items you mentioned.
- Yes, AMBA does a lot of sales to GoPro, but it is increasingly becoming diversified and selling now to other wearable camera manufacturers, as well as other industries: security cams, drone cams, probably auto soon, body cams for law enforcement, etc.
About Qualcomm and Intel:
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Yes, Qualcomm and Intel are entering the drone market. Competition isn’t new: AMBA already deals with competitors.
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It’s not clear yet if these new entrants will be directly competing for the same customers AMBA does. They give the impression that they’re going after the low end, whereas AMBA does best in the high end, but we’ll have to see.
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Drones are just a single industry that AMBA competes in.
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If the drone industry truly explodes into something as huge as people say, there will probably be room for multiple winners.
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I think the VisLab acquisition could prove to be a big game changer for AMBA. Computer vision is going to become increasingly critical for industries like security, drones, and auto (and even wearables). Anyone familiar with Avigilon already knows how important it is for security (object tracking, license plate reading, etc). I think it’s also going to be critical for drones, allowing them to be much smarter (go find that lost hiker, or the cow that wandered away) and react much better to current conditions (avoid collisions with objects and other drones – the Lily drone, which Karen mentioned here when it was announced, cannot avoid trees). And of course it’ll be critical for automotive (which is what VisLab specializes in): not just self-driving, but also many forms of “assistance” as conditions suddenly change (breaking when a kid runs out into the road, or steps behind the car when it’s backing up). It could pave the way for facial recognition, body language cues, or perhaps even weapon detection for body cams for law enforcement (pure speculation on my part). So VisLab probably brings technology and talent that can be leveraged across the many verticals AMBA is competing in and growing into.
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I think it’s easy to compare offerings based just on raw specs and price and draw conclusions, but I think that oversimplifies the buying choices in many cases (and certainly at the high end, where AMBA tends to compete). Apple vs. Samsung illustrates this concept, albeit in a different industry: Samsung (and other Android manufacturers) would always tout some superior raw spec, but that rarely translated into a superior overall experience: there were just too many other things that also mattered, and now we’re seeing Apple crush Samsung as consumers increasingly realize that (perhaps after trying an Android device or two). Again, it’s not an apples-to-apples comparison (no pun intended), but what’s going to matter at the high end of these markets is the ability to deliver value to users: if you’re buying a drone for search and rescue, you don’t care how fast the processor is, you care about whether you can find a lost kid on the mountain who got separated from her parents, which involves a lot of things coming together: great computer vision to spot the kid, great battery life to do a meaningful search, the ability for the drone to safely dip down below the tree cover while avoiding trees and rocks, high resolution photos to help spot tracks or other evidence of someone passing by recently, etc. If AMBA’s tech can help drone manufacturers accomplish these things in a superior way, I think that’s going to matter a lot more.
These are just my thoughts, though. It’s certainly possible that QCOM and INTC crush AMBA in drones, and then move in to other industries too. But I also know that one of the big mistakes I’ve made in the past is getting scared out of stocks by tail risks: I was convinced the cable companies would crush Netflix once it became clear they were a threat, using their clout with content companies to prevent licensing to Netflix on the one hand, and throttling bandwidth on the other; and if they didn’t do in Netflix, I was convinced Amazon would with their Prime video service. But while both of those were/are legitimate threats, none of have become meaningful: Netflix continues to thrive and grow, and I missed out on a huge winner. I’ve seen people avoid UPS because they were convinced 3D printing was going to spell an end to package delivery; people talking about the demise of MasterCard and Visa because of potential disruption to that industry; people talked about how Google Plus was going to kill Facebook; and practically every year there was a new iPod-killer, iPhone-killer, iPad-killer, iTunes-killer, you name it – often with superior specs and cheaper prices – and yet none of them have ever made a dent in Apple. There are always risks, always threats: that’s just a reality in investing, as is the market’s approach of shooting first and asking questions later. And it can happen to big companies with huge moats: right now Disney’s stock has been crushed because people worry about the effect of cord-cutters on ESPN. Really? Seriously?
I don’t want to play down the threats from Qualcomm and Intel. It’s quite possible they’ll come to dominate the drone market, pushing AMBA out, and maybe – flush with success – even move into other verticals in which AMBA is competing or looking to compete. This could be the beginning of the end of AMBA as we know it. That’s why it’s just one part of my portfolio. But I also know that, many times, these risks are remote and overblown: AMBA is not standing still, after all. We’ll just have to see how it plays out over time, but I will be looking for a meaningful impact to AMBA’s business rather than hypothetical what-if’s. Right now I believe the business is doing just fine.
Again, A.J., I recommend doing your own research and coming to your own conclusions. I could be terribly wrong about the above, and even if I’m right that doesn’t mean AMBA is the company for you. If you do decide to invest, you need to decide on an allocation that accounts for the risks you see (and considers the ones you don’t). I often suspect a lot of the anxiety arising from big drops in stock prices is related to over-allocation in one’s portfolio during the good times, when all we see by holding back is the opportunity cost of future gains. The time to very seriously think about allocation, and what you’re genuinely comfortable losing, is when you’re buying – not after the stock has been cut in half. You don’t want to put yourself in the position of buying high and selling low because you start to wonder if maybe you’re over-exposed to a company after the share price plummets (and believe me, I’ve been there!).
Just a few thoughts.
Neil
Long AMBA