I just got around to looking at AMBA’s call and I couldn’t believe what I’m seeing. It’s so terrible I wonder if I’ve made a mistake somewhere, but I don’t see it. If you do, please let me know.

*Non-GAAP net income for Q4 2016 was $21.6 million, or 64 cents compared with $22.6 million or 68 cents for the same period in the previous year… The non-GAAP effective tax rate in Q4 2016 was a negative 3.6%, reflecting a lower annual non-GAAP tax rate of 5%. For non-GAAP reporting, we eliminated stock-based compensation expense and the impact of the one-time write-down of a deferred tax asset that may not be usable in the future.*

Thus they got that 64 cents only by using a negative tax rate for the quarter. Most companies when they use adjusted earnings use a standard tax rate like 35% or 38%, and use fully taxed earnings if this is an odd one-time deal. Using a negative rate, they not only didn’t take ANY tax, but they added some imaginary cash back. Their actual fully taxed adjusted earnings would have been about 40 or 41 cents, down from 68 cents, at least the way I calculate it.

*We expect non-GAAP net income for the first quarter to be between $8 million and $10 million. We are using an estimated non-GAAP annualized effective tax rate of 7.5% for the net income amounts.*

Thus, **at the high end**, next quarter they only expect net income to be $10 million, **which is less than half of what they had this quarter** (46% actually). And they will have to use **a positive tax rate**, even if it’s not fully taxed. **We’re talking about earnings of about 26 cents, down from 71 cents**.

Granted they probably expect to beat the high end, but that’s a **terrible** forecast, not just a weak one.

Now this is just the way I figured it. If I have made a mistake here, please let me know.

Saul