Investors are Buzzing About Ambarella

Ambarella (NADAQ: AMBA) recently made waves through the investment world after posting some eye-popping quarterly results. The chip maker beat estimates, yet there is some question as to whether business will continue to surge in the coming quarters.

When you take a close look at the numbers, it becomes quite clear Ambarella is struggling.

The Bull Argument for Ambarella

Those buzzing about Ambarella believe the company’s latest chips are game-changers. The argument is these chips will open up all sorts of lucrative opportunities ranging from autonomous vehicles to drones and many more applications based on artificial intelligence.

Ambarella’s recent quarterly results slightly beat the street’s estimates with revenue coming in at $70.6 million. Analysts anticipated quarterly revenue of $70.3 million. It is important to note the company’s latest quarterly revenue represents about a 20 percent decline from the year prior.

This is quite alarming to say the least. The fact that revenue dropped by such a large margin should overshadow the fact that the company slightly beat earnings estimates.

Why It is Time to hit the Brakes

Though many were pleased with Ambarella’s latest financials, the chip maker’s adjusted earnings were chopped in half when compared to the same period in the year prior. The general anticipation is this decline will only worsen as time progresses. The company anticipates a top line reduction upwards of 15 percent, partially because business is slow.

It is no secret Ambarella is struggling to generate new business. The company’s sales to the popular action-camera producer GoPro, decreased by nearly 60 percent in the fourth quarter. This is a serious problem as GoPro is Ambarella’s top client. The truth is Ambarella failed to diversify its business across several products and clients. Little has been done to generate headway with clients aside from GoPro.

All in all, Ambarella’s aggregate revenue dropped by nearly 5 percent in the past fiscal year. Even if Ambarella were to gain traction with companies making drones and autonomous vehicles, it might not make much of a difference simply because the competition is so stiff. There are too many groups trying to obtain a piece of these economic pies. Rather than addressing the company’s progress beyond its relationship with GoPro, Ambarella executives glossed over the issue by stating the chip maker enjoyed “solid” growth on a year-over-year basis. Company executives admitted its business outside of GoPro will likely decrease by 12 percent year-over-year in the current quarter. This is quite the dreary outlook to say the least.

Is There Hope for Ambarella?

It appears as though Ambarella has some potential to ramp up business in the coming quarters and years.

The chip maker recently debuted its vision chips at the Consumer Electronics Show. Known as CV1 and CV22, these chip families could help Ambarella win market share in a variety of markets including high-tech security cameras and the previously mentioned artificial intelligence-enabled automobiles and drones. The company’s CEO, Fermi Wang, claims at least 40 automakers and component providers are in talks with the company after its Embedded Vehicle Autonomy platform was unveiled. This platform is powered by several cameras using CV1 chips.

Embedded Vehicle Autonomy will prove quite helpful in making autonomous vehicles as safe as possible by allowing for the instantaneous detection of nearby objects. This means the company’s technology will play an important part in powering autonomous vehicles.

The looming question is how much of the autonomous vehicle market share Ambarella can obtain. The Ambarella bears are adamant the chip maker’s entry into these markets will fail as a slew of competitors provide similar offerings and beat Ambarella to the punch. As an example, Ambarella is attempting to compete with the chip giant Intel. Intel scooped up Mobileye, a maker of ADAS systems with similar vision-based technology, dominated this niche last year. Reports state Intel has upwards of 90 percent of ADAS sales.

Can Ambarella Thrive With New Technologies?

According to Wang, plenty of groups approached him about the use of the company’s computer vision technology following its debut earlier this year. This technology replicates human sight to ameliorate the challenges of everything from robotics to security (facial recognition) and self-driving automobiles. However, mere interest in the company’s chips is not guaranteed to lead to significant sales.

Once you consider the fact that Ambarella is competing against the world’s elite chip makers, you should be hesitant to invest your money in this much-ballyhooed tech company.


Ethan Warrick
Wealth Authority