Ambarella Q4 2025 Earnings Call Transcript

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Provided by Quartr
February 26, 2025

Key Takeaways

  • Strong financial performance: Q4 revenue grew 2% sequentially and FY25 revenue rose 26% year-over-year, exceeding guidance, returning to non-GAAP profitability and marking the 16th consecutive year of positive free cash flow.
  • 5 nm AI SoC ramp: Revenue was driven by first-wave CV5 products and initial volume production of CV7 devices, together expected to contribute over half of incremental revenue in FY26.
  • Edge AI momentum accelerated with the new N1665H Gen AI SoC (20 W) capable of running transformer networks and open-source reasoning models like DeepSeq R1 locally, reducing latency and power use.
  • Broad design wins: Secured new enterprise security deployments (e.g., Motorola body-cams, HID facial ID, AIPRO bullet cameras) and automotive wins across ADAS, e-mirrors and driver monitoring with FAW, VW, Nio, Hyundai Kia and Ford Trucks.
  • FY26 guidance targets mid- to high-teens revenue growth with built-in conservatism for geopolitical risks, while focusing on operating leverage and advancing next-generation 2 nm AGI processor development.
AI Generated. May Contain Errors.
Earnings Conference Call
Ambarella Q4 2025
00:00 / 00:00

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Operator

Good day and thank you for standing by. Welcome to Umbrella's Q4 and Full Fiscal Year twenty twenty five Earnings Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session. Please be advised that today's conference is being recorded.

Operator

I would now like to hand the conference over to your speaker today, Louis Girardi, VP, Corporate Development. Please go ahead.

Louis Gerhardy
Louis Gerhardy
Vice President of Corporate Development at Ambarella

Thank you, Michelle. Good afternoon, and thank you for joining our fourth quarter and full year fiscal twenty twenty five financial results conference call. On the call with me today is Doctor. Fermy Wong, President and CEO and John Young, CFO. The primary purpose of today's call is provide you with information regarding the results for our fourth quarter and full year fiscal twenty twenty five.

Louis Gerhardy
Louis Gerhardy
Vice President of Corporate Development at Ambarella

The discussion today and the responses to your questions will contain forward looking statements regarding our projected financial results, financial prospects, market growth and demand for our solutions among other things. These statements are based on currently available information and subject to risks, uncertainties and assumptions. Should any of these risks or uncertainties materialize or should our assumptions prove to be incorrect, our actual results could differ materially from these forward looking statements. We are under no obligation to update these statements. These risks, uncertainties and assumptions as well as other information on potential risk factors that could affect our financial results are more fully described in the documents we filed with the SEC.

Louis Gerhardy
Louis Gerhardy
Vice President of Corporate Development at Ambarella

Before starting the call, we hope to see you at one of the following investor events, Bernstein's Third Annual Technology, Media and Telecom Forum tomorrow February 27 in Palo Alto Susquehanna's Virtual Annual Technology Conference on Friday, February 28 Morgan Stanley's Technology, Media and Telecom Conference March '3 in San Francisco Loop Capital's Conference March eleven in New York City Cantor's Global Tech Conference March Twelve in New York and the ROTH Conference March seventeen in Southern California. Access to our fourth quarter and full year fiscal twenty twenty five results press release, transcripts, historical results, SEC filings and a replay of today's call can be found on the Investor Relations page of our website. The content of today's call as well as the materials posted on our website are Ambarella's property and cannot be reproduced or transcribed without our prior written consent. Fermi will now provide a business update for the quarter. John will review the financial results and outlook and then we'll all be available for your questions. Fermi?

Fermi Wang
Fermi Wang
Chief Executive Officer at Ambarella

Thank you, Louis. Good Good afternoon and thank you for joining our call today. Ambarella finished fiscal twenty twenty five with strong results and a positive outlook. HAI is clearly established as our key revenue driver, enabling us to grow and overcome the cyclical economy and geopolitical challenges in the last year. We achieved record AI revenue in Q4 as well as for the full year fiscal twenty twenty five.

Fermi Wang
Fermi Wang
Chief Executive Officer at Ambarella

In the fourth quarter of fiscal twenty twenty five, our revenue increased 2% sequentially and exceeded the high end of our guidance range by 5%. Our five nanometer SoC products led the results with new product revenue wave one from the CV5 family, leading the charge. And for the first time, we generated production revenue from the CV7 family or new product revenue too. Our fiscal twenty twenty five revenue increased 26% year over year with both units and the average selling price rising. AJAI was about 17% of our total revenue.

Fermi Wang
Fermi Wang
Chief Executive Officer at Ambarella

Our customers completed the digestion of their excess inventory in the first half of the year. And in the second half, the secular growth of our Edge AI strategy became more apparent. I'm proud of the key achievements our team delivered in the last year. First, financially, revenue growth was restored and in the second half, we returned to non GAAP profitability. Fiscal twenty twenty five represented our sixteenth consecutive year of positive free cash flow.

Fermi Wang
Fermi Wang
Chief Executive Officer at Ambarella

Second, we executed on our R and D priorities. As a result, we are realizing revenue growth from the CV5 and the CV7 new product families with emergent opportunities on the horizon. Most importantly, we are successfully commercializing our AI investment. AJAI commenced in our enterprise security market and from there we continue to successfully reach into more markets such as fleet telematics, ADAS, automotive e mirrors, cabin monitors in cabin systems, next generation access control, advanced video conferencing and the portable consumer electronics. Looking into fiscal year twenty twenty six, we anticipate mid to high teens revenue growth despite the higher base of the much stronger than expected Q4.

Fermi Wang
Fermi Wang
Chief Executive Officer at Ambarella

With uncertainty related to government policy decisions, we have built conservatism into our outlook for the second half of fiscal twenty twenty six. While we do not expect to be directly impacted by tariffs, we suspect that some customers are evaluating their own supply chains as well as the elasticity of demand for their products. Turning to developments in a broad AI market, the breakthroughs with more powerful, efficient and open sourced reasoning models was an exciting industry development in January. We expect open source reasoning models such as DeepSeq R1 to enable more advanced decision making and intelligence in all tiers of AI processing hierarchy, including our target market at Edge. While breakthroughs like this bring new level of compute efficiency, the implementation of new reasoning models at Edge is expected to require incremental AI compute power.

Fermi Wang
Fermi Wang
Chief Executive Officer at Ambarella

In Edge AI, this is an example of a secular trend we expect to drive our ASP higher. An excellent example of how Ambarella is leading the rapid evolution of the HAI market with innovation and execution is our CES exhibition this year, where we demonstrate the vision language model processing on our CV7, CV3 and N1 product families. We already successfully brought up the DeepSeq ROI model on CV7 and N1 product families, and we are showing them to our customers. There is a growing trend towards performing more AI processing as of age, as cloud based processing has a higher total cost of ownership, latency challenges, high power usage, data security and the privacy concerns. Edge AI processing is now being enabled with the introduction of a smaller and more optimized model.

Fermi Wang
Fermi Wang
Chief Executive Officer at Ambarella

We introduced our N1665H Gen AI SoC at CES this year with a high AI processing performance to support the latest transformer network and popular multi model VLMs and large language models. L1655 comes with only 20 watts of power and targets applications such as on premise AI box or the Palamas mobile robots, security network video recorders and retail analytics. As I show, we demonstrated N1655 running clip and Lava type of vision model with data inputs including text, video and speech, all running locally on AI box without the need for Internet connection. In the enterprise security market, Motorola introduced a small form factor V200 body worn camera based on our A3L SoC and designed to enhance worker safety and security in public environments such as the retail, medical or hospitality industries. Additionally, Motorola introduced its V700 body camera based on our A6L and SoC and offering twelve hour operation.

Fermi Wang
Fermi Wang
Chief Executive Officer at Ambarella

Motorola also introduced its H6A fisheye camera based on our five nanometer CV72 and offering three sixty degree viewing, 11 megapixel resolution and AI powered video and audio analytics. Japanese enterprise security leader, AIPRO, formerly Panasonic, introduced its new line for high zoom bullet cameras targeting long range monitoring of highways, parking lots and the stadiums. Based on our five nanometer CV52, the cameras are pre installed with nine edge AI applications. We are very pleased to announce our first win with the HID division of ASSA ABLOY, a global leader in the access solution market. HID has deployed its URU camera identification system based on our CV22 to deliver fast, accurate and secure facial recognition.

Fermi Wang
Fermi Wang
Chief Executive Officer at Ambarella

Powered by AI driven multi spectral image and advanced presentation attack detection, it enhances user convenience while reducing fraud risks even in high security and challenging environments. In the smart home security camera market, Canadian communication operator, TELUS, introduced a range of cameras, including doorbell, indoor and outdoor cameras, all based on our CV28. In vehicles, a vast majority of our revenue is currently in the ADAS market, and our global effort is demonstrated with this quarter's representative customer engagement in China, South Korea and France. During the quarter, FAW introduced its Hongqi H5 PHEV including Level two ADAS implemented with a 1V1R ADAS system based on our CV22 AQ. VW's joint venture with FAW introduced a pre installed dash cam in its megaton passenger vehicle based on our A12AQ.

Fermi Wang
Fermi Wang
Chief Executive Officer at Ambarella

Nio, considered one of the leading new energy vehicle companies, introduced its flagship EV, the ET9, including an electronic rearview mirror system based on our CV28Q. In December, we earned our first driver monitor win in Hyundai Kia passenger vehicle. The pre installed system is provided by LG Electronics is based on our CV25. In January, Ford Trucks was announced as the first customer for French Tier one Gaussi, who is providing its AI powered smart vision camera monitor system using our CV2FS. In summary, this quarter's list of 10 representative customer engagements highlights the increased breadth of our Edge AI revenue globally.

Fermi Wang
Fermi Wang
Chief Executive Officer at Ambarella

This includes a range of enterprise and consumer driven IoT applications and a variety of automotive applications such as Level two ADAS, driver monitoring, rearview and exterior left and right side Cumulatively, we have shipped more than 30,000,000 units of eight AI SoCs, with each SoC integrating our proprietary CVflow deep learning AI accelerator with our proprietary video processor. A vast majority of this in store base is represented by our CV2 family of computer vision processors, while we expect continued growth. Our new finite meter products, which come in above average ASP, represent our key growth driver with revenue exit to arrive in waves. The first wave from the growing CV5 family is underway, and it continues to have a strong growth outlook. Wave two from the CV7 family reached production status for the first time in fourth quarter with three customer purchasing production quantities.

Fermi Wang
Fermi Wang
Chief Executive Officer at Ambarella

Combined, these first two waves are expected to represent more than half of our incremental revenue in fiscal twenty twenty six. In addition to the new product efforts I have described, we remain committed to developing new technologies and products capable of processing advanced AI models. As the business case develops, we will provide more information on the timing of their revenue contribution. This is a very exciting period with the rapid evolution of the AI industry. Our HAI business intersect multiple industries where the megatrends of safety, security and automation intersect.

Fermi Wang
Fermi Wang
Chief Executive Officer at Ambarella

As a result, in this dynamic environment, we carefully evaluate new opportunities to maximize our return on investment. Our goals for fiscal twenty twenty six are to sustain a high level of innovation and execution to continue to lead the HAI market. We intend to drive positive operating leverage with revenue growth and a high focus on operating efficiency. The development of two nanometer technology for our next generation AGI processor is critical. In summary, in the new year, we intend to build upon the positive momentum we have established with our Edge AI strategy, technology and the products.

Fermi Wang
Fermi Wang
Chief Executive Officer at Ambarella

With that, John will now discuss the Q4 and the full year fiscal twenty twenty five results and the outlook in more detail.

John Young
John Young
Chief Financial Officer at Ambarella

Thank you, Fermi. I'll now review the financial highlights for the fourth quarter and full fiscal year 2025 ending 01/31/2025. I will also provide a financial outlook for our first quarter of fiscal year twenty twenty six ending 04/30/2025. I'll be discussing non GAAP results and ask that you refer to today's press release for a detailed reconciliation of GAAP to non GAAP results. For non GAAP reporting, we have eliminated stock based compensation expense along with acquisition related and restructuring costs adjusted for the impact of taxes.

John Young
John Young
Chief Financial Officer at Ambarella

Fiscal year twenty twenty five revenue increased 25.8% to $284,900,000 Automotive revenue increased mid single digits and IoT led by new five nanometer products was up more than 30% year over year. For fiscal year twenty twenty five, non GAAP gross margin was 62.7% versus 63.3% in fiscal twenty twenty four. Non GAAP operating expense increased 6.5% for the year versus 4% in the prior year. Ending cash and marketable securities totaled $250,300,000 up from $219,900,000 at the end of the prior year. For fiscal Q4, revenue was $84,000,000 above the high end of our prior guidance range, up 1.7% from the prior quarter and up 62.8% year over year.

John Young
John Young
Chief Financial Officer at Ambarella

Sequentially, automotive revenue declined and IoT increased in the mid single digits. Non GAAP gross margin for fiscal Q4 was 62% slightly lower than the midpoint of our prior guidance range primarily due to product mix. Non GAAP operating expense in Q4 was $48,700,000 below the low end of our prior guidance range of $49,000,000 to $52,000,000 driven by continued expense management and the timing of spending between quarters, we remain on track to our internal product development milestones. Q4 net interest and other income was $2,400,000 comparing to our prior guidance of $1,800,000 the increase was from a one time government grant in The United States. Q4 non GAAP tax provision was approximately $1,000,000 and fiscal twenty twenty five non GAAP tax provision was approximately $2,100,000 We reported a non GAAP net profit of 4,800,000 or $0.11 earnings per diluted share in Q4 and a non GAAP net loss of $6,800,000 or $0.16 or $0.16 loss per diluted share for fiscal twenty twenty five.

John Young
John Young
Chief Financial Officer at Ambarella

Now I will turn to our balance sheet and cash flow. Fiscal Q4 cash and marketable securities increased $23,700,000 from the prior quarter and increased $30,400,000 from the same quarter a year ago. Cash and marketable securities benefited primarily from working capital improvements during the quarter. Receivables days of sales outstanding decreased from thirty eight days in the prior quarter to thirty three days, while days of inventory increased from 94 in the prior quarter to ninety seven days. Inventory dollars declined 5.9% sequentially and increased 18.5 from a year ago.

John Young
John Young
Chief Financial Officer at Ambarella

Operating cash inflow was $25,400,000 for the quarter and for the full year we generated operating cash of $33,800,000 Capital expenditures for tangible and intangible assets were $4,200,000 for the quarter and $10,400,000 for the year. Free cash flow was $21,200,000 for the quarter and $23,500,000 for the year. This represented the sixteenth consecutive fiscal year of positive free cash flow. We had one logistics company representing 10% or more of our revenue, WT Microelectronics, a fulfillment partner in Taiwan that ships to multiple customers in Asia, came in at 60.9% of revenue for the fourth quarter and 62.9% for the full fiscal year 2025. I'll now discuss the outlook for the first quarter of fiscal year twenty twenty six.

John Young
John Young
Chief Financial Officer at Ambarella

The new product momentum that Fermi described is expected to enable us to post better than normal seasonal results in fiscal Q1 despite the stronger than expected fiscal Q4. Q1 revenue is expected to be in the range of $81,000,000 to $87,000,000 with auto down sequentially and IoT flat to slightly up sequentially. We expect Q1 non GAAP gross margin to be in the range of 61% to 62.5%. We expect non GAAP OpEx in the first quarter to be in the range of $50,000,000 to $53,000,000 with the increase compared to Q4 driven by new product development costs as well as increased employee related expenses beginning in the new year. We estimate net interest income to be approximately 1,800,000 our non GAAP tax expense to be approximately $600,000 and our diluted share count to be approximately 43,400,000.0 shares.

John Young
John Young
Chief Financial Officer at Ambarella

Thank you for joining our call today. And with that, I will turn the call over to the operator for questions.

Operator

Thank you. Our first question is going to come from the line of Quinn Bolton with Needham and Company. Your line is open. Please go ahead.

Quinn Bolton
Quinn Bolton
Senior Analyst at Needham & Company

Hey guys, thanks for taking my question. Congratulations on the nice results and outlook in the sixteenth year of positive cash flow. I guess for me, John, I guess I wanted to start, I think you said in the prepared script that CV5, CV7 would account for more than half of the growth in fiscal 'twenty six. Wondering what's the other half of revenue growth? Is that the older CV2 family?

Quinn Bolton
Quinn Bolton
Senior Analyst at Needham & Company

Or are there other drivers of the business? And I assume, but wanted just to see if you would confirm that the vision processors or the human camera processors, you would expect that business continue to decline at a gradual pace in fiscal twenty twenty six?

Fermi Wang
Fermi Wang
Chief Executive Officer at Ambarella

Yes. Quinn, you know our business very well. Everything you say is correct. First of all, half of the growth fiscal twenty twenty six is from CV5 and CV7. And our old VP, video process product will have a slow decline.

Fermi Wang
Fermi Wang
Chief Executive Officer at Ambarella

We expect maybe 10%, fifteen % annual decline rate from now to the end. But also CV2, we continue to expect growth and healthy growth from our existing product line. For example, we talk about that one of our telematics customer ramping up their products last quarter and it really drives the significant growth on CV2 family. So I think all of that so CV2, CV5 and CV7 drive the growth and VP will continue to have a constant slow rate of decline.

Quinn Bolton
Quinn Bolton
Senior Analyst at Needham & Company

Perfect. And then just a follow-up, it sounds like in both the January and the April guide, you've got auto down sequentially. Just wondering, is that sort of a reflection just of inventory correction still taking place in that end market? Is it just lackluster demand given some of the macro events and perhaps tariff uncertainty? Or is it just sort of timing of when some of your new pipeline projects go to production? Just any more color on auto would be helpful.

Fermi Wang
Fermi Wang
Chief Executive Officer at Ambarella

Right. First of all, on the auto Q4 and the Q1 guidance, although we say it's a little down, but the decline rate is very small. So in fact, that decline has nothing to do with the previous rounds of inventory correction. Although that you are right, although none of our customer indicates that they are accumulating inventory because of the current all of the new government policy, but we do see there are some concerns about how the tariff will have indirect impact to us, direct impact to our customer. So that's where we're putting some of the conservatism in our second half guidance.

Quinn Bolton
Quinn Bolton
Senior Analyst at Needham & Company

Got it. Okay. Thank you, Fermi.

Fermi Wang
Fermi Wang
Chief Executive Officer at Ambarella

Thank you.

Operator

Thank you. And one moment as we move on to our next question. And our next question will come from the line of Joe Moore with Morgan Stanley. Your line is open. Please go ahead.

Joseph Moore
Joseph Moore
Managing Director at Morgan Stanley

Great. Thank you. Jeremy, I wonder if you could just talk about the general investment in ADAS these days. You're seeing Tesla's FSD has done well. The God's Eye thing at BYD got people's attention.

Joseph Moore
Joseph Moore
Managing Director at Morgan Stanley

And I know those aren't your opportunities, but has that stimulated kind of incremental investment interest in the ADAS space from other OEMs?

Fermi Wang
Fermi Wang
Chief Executive Officer at Ambarella

Right. So we continue to see a strong demand on the ADAS side, particularly Level two plus That didn't change. But the only change is the flavor of the OEMs demand become they become very cost sensitive. We talk about this trend also that we call value products. So that if you look at OEMs, they want to upgrade the product from level two to level two plus Some of them want to upgrade even to level two plus or level three.

Fermi Wang
Fermi Wang
Chief Executive Officer at Ambarella

But at the same time, they are very sensitive with the cost. So from that point of view, I think our CV3 family that can help them to address the bond concerns is definitely continue to be viewed positively in the market.

Joseph Moore
Joseph Moore
Managing Director at Morgan Stanley

Great. That's helpful. And then I noticed that the Neo win on electronic rearview mirrors, I know that's a market you've sort of been talking about for a long time. Are you starting to see more adoption there? And do you expect that to be a more significant growth area going forward?

Fermi Wang
Fermi Wang
Chief Executive Officer at Ambarella

I think we see multiple design wins. We only talk about we continue to expect growth in that area. But the ASP that we talk about is really just from this high single digit to low teens. So the growth rate, although in that particular segment, growth rate will be high, but the material impact to our total revenue is limited. But continue but I think this is we treat that as a way to get into OEM designs.

Fermi Wang
Fermi Wang
Chief Executive Officer at Ambarella

For example, we talk about Korean company, the largest Korean automotive OEM using that using our solution for the eMuros. That just help us to open the door to those major OEMs.

Joseph Moore
Joseph Moore
Managing Director at Morgan Stanley

Great. Thank you.

Operator

Thank you. And one moment as we move on to the next question. And our next question is going to come from the line of Christopher Rolland with Susquehanna. Your line is open. Please go ahead.

Aren Nakpil
Equity Research Associate at Susquehanna International Group

Hi. This is Aaron Nakpil in for Chris Rolland. Thanks for taking the question. So the mid to high teens guide for fiscal year twenty sixteen seems very conservative. So I mean essentially we're modeling flat to down for the remaining three quarters.

Aren Nakpil
Equity Research Associate at Susquehanna International Group

And I know you mentioned building conservatism into the second half, but is there anything else beyond government uncertainty that you're factoring in? And how does this play out between auto and IoT?

Fermi Wang
Fermi Wang
Chief Executive Officer at Ambarella

Well, I think we'll provide more colors on this, but I think that it's just I do believe that the first half to second half based on current guidance is not as high. The growth on the first half to second half is not as high as before, but that definitely it reflects our customers' conservatism and also our conservatism reflecting the potential government policy change, right? We are all waiting for how the for example, the tariff at the Mexico or Canada that will impact will impact our customers' manufacturing side. So those are kind of factored in. But I think overall, I still feel very strong feel comfortable our growth rate from our customer our customer product point of view.

Fermi Wang
Fermi Wang
Chief Executive Officer at Ambarella

We talk about CV5, CV7. We think that the growth rate will continue and CV2, like I said before, will continue. So I think overall, although there's some conservatism there, but I it's really reflecting on the policy side, not on our product side.

Aren Nakpil
Equity Research Associate at Susquehanna International Group

Understood. And Bob, over the next like two to three years from a geographic perspective, which regions do you expect to outperform, underperform given your pipeline?

Fermi Wang
Fermi Wang
Chief Executive Officer at Ambarella

I still consider that U. S. Is our largest customer, so our largest geography and we did well in Japan, Korea and Europe. And China, we maintained 15% total exposure from the consumption point of view. So I think from the point of view, we'll continue to focus on The U.

Fermi Wang
Fermi Wang
Chief Executive Officer at Ambarella

S, EU and the Japan Korea market and we expect that they continue to do well for us. Thank you.

Operator

Thank you. One moment as we move to the next question. Our next question is going to come from the line of Ross Seymore with Deutsche Bank. Your line is open. Please go ahead.

Ross Seymore
Ross Seymore
Managing Director at Deutsche Bank

Hi guys. Thanks for asking the question and congrats on the strong results. Getting into the full year guide, again, I can understand the policy conservatism for me you just answered. Does that hit one side of your business more than the other? Or if you're going to grow that kind of mid to high teens, is there a significant delta in your mind between kind of the IoTAI side and the automotive side?

Fermi Wang
Fermi Wang
Chief Executive Officer at Ambarella

No, I don't think it's market dependent. It's really about geography. I think the people that are manufacturing in China, Mexico and Canada, definitely they start looking for options, right, and waiting for the final results. So I think that's really geography dependent, not the market dependent.

Ross Seymore
Ross Seymore
Managing Director at Deutsche Bank

Got you. So the conservatism that you have on the two well, let me just ask the question in a different way. With that given conservatism, do you have a significantly different growth rate expectation for the IoTAI side versus automotive? Last year you said one was up over 30%, the other was up mid single digits. Is that ratio going to continue or does the automotive side start to catch up?

Fermi Wang
Fermi Wang
Chief Executive Officer at Ambarella

Go ahead.

Louis Gerhardy
Louis Gerhardy
Vice President of Corporate Development at Ambarella

Hey Ross, it's Louis. For fiscal twenty twenty six IoT should continue to grow faster than auto, but auto is expected to grow year over year as well.

Ross Seymore
Ross Seymore
Managing Director at Deutsche Bank

Got you. And then I guess just if I could sneak in one more, you guys talked about getting good leverage. Can you just parse out a little bit the gross margin trend versus the OpEx side as we try to figure out how you get to the leverage?

John Young
John Young
Chief Financial Officer at Ambarella

Yes. So we expect I would say the high level is that we are focused on monitoring and controlling OpEx as much as possible. We've been talking about gross margin moving down into the long term model range. We're guiding to that and we've shown that in Q4. But we do expect with the revenue growth the primary driver is going to be revenue contributing at those still healthy margins to drive improvements in operating leverage.

Ross Seymore
Ross Seymore
Managing Director at Deutsche Bank

Perfect. Thank you.

Operator

Thank you. And one moment for our next question. Our next question comes from the line of Tore Svanberg with Stifel. Your line is open. Please go ahead.

Tore Svanberg
Tore Svanberg
Managing Director at Stifel Financial

Yes. Thank you and congratulations on the results. Praveen, can we just take a step back here, especially when we start thinking about open source reasoning models? I mean, Deepfake probably wasn't positive for everybody, but I think Preborella probably a pretty positive development. So could you just, again, take a step back, elaborate a little bit on how important this is for Amborella?

Tore Svanberg
Tore Svanberg
Managing Director at Stifel Financial

Because obviously, this will probably accelerate adoption of smaller models and certainly also AI at the edge. So any more color you could share with us, that would be great.

Fermi Wang
Fermi Wang
Chief Executive Officer at Ambarella

Yes. Let me elaborate a little bit what we have done with DeepSig model in our product portfolio. We I talked about we successfully bring that put up that model on our N1, N1665, CV72 and CV75. The N1 is a 50 watt chip and the CV75 is 1.5 watt chip. Of course, we run different versions of DeepSeq R1 models on those chip, but the 1.5 watt chip can run a 1,500,000,000 parameters DeepSeq R1 model, I think that's significant.

Fermi Wang
Fermi Wang
Chief Executive Officer at Ambarella

And also that really means that at Edge, we can get a better and better model and more different reasoning model running on Edge and that will expand the possible application. But more importantly, I think that the open source type of the model will enable our customer to fine tune the model easier than before, so they can really quickly adapt their model to their vertical location and both of that will help us to expand. And I think that significance for us is that we found out that we can run the 1,500,000,000 parameter model on the 1.5 watt chip that really opened door for us to look at what other application that we can enable in the future with that. Definitely that we need to talk to our customer, which we are doing right now and to understand the potential impact to our business development.

Tore Svanberg
Tore Svanberg
Managing Director at Stifel Financial

Yes. That's great perspective. And as my follow-up, could you give us an update on the two nanometer development? Any sort of benchmarks or timelines we should keep an eye on?

Fermi Wang
Fermi Wang
Chief Executive Officer at Ambarella

Right. First of all, two nanometer, we expect we get and we only not only get evaluated, but also we get some test chip out to evaluate the performance. We are confident that this technology will give us significant improvement on the power consumption and also the die size saving. With that, we are gradually doing two projects already on the for the IoT devices. One is for our traditional camera market, the other one for the L1 type of project.

Fermi Wang
Fermi Wang
Chief Executive Officer at Ambarella

So you can see that we want to using the benefit of a two nanometer on the power consumption side to continue to give us even more leverage of a high end and the low end products based on two nano. We expect to tape out the chip sometime late this year and also get simple back early next year and we hope our customer can go into production at the end of twenty twenty six.

Tore Svanberg
Tore Svanberg
Managing Director at Stifel Financial

Great. Thank you for that color and congrats again.

Fermi Wang
Fermi Wang
Chief Executive Officer at Ambarella

Thank you.

Operator

Thank you. And one moment for our next question. Our next question is going to come from the line of Kevin Cassidy with Rosenblatt Securities. Your line is open. Please go ahead.

Kevin Cassidy
Kevin Cassidy
Senior Research Analyst at Rosenblatt Securities

Yes. Thanks for taking my question and congratulations on the great results. Maybe just to expand on that with the two nanometer development, is that going to be a product similar to the N1665 or are you going to be focused more on some of the CV devices?

Fermi Wang
Fermi Wang
Chief Executive Officer at Ambarella

I said we have two chips, one for one type of product, the other one is for the camera product. So we are trying to use two nanometer to address the two different markets.

Kevin Cassidy
Kevin Cassidy
Senior Research Analyst at Rosenblatt Securities

Okay. And you mentioned DeepSeq, but there are some countries that are saying that they don't want to use DeepSeq. Is that just as an example and are there other low cost LLMs that you're testing with?

Fermi Wang
Fermi Wang
Chief Executive Officer at Ambarella

Yes. I fully expect that our U. S. AI company is going to start introducing similar type of model after they learn how the deep seek was done. And I think this is a trend of market, not just one company.

Fermi Wang
Fermi Wang
Chief Executive Officer at Ambarella

So DeepSeq for us is really to use that for demo purpose and also to get to engage customer. But I fully expect we're going to see more and more of this kind of model from American AI companies.

Kevin Cassidy
Kevin Cassidy
Senior Research Analyst at Rosenblatt Securities

Okay, great. Thank you.

Operator

Thank you. One moment for our next question. Our next question is going to come from the line of Suchi Desilva with Roth Capital. Your line is open. Please go ahead.

Suji Desilva
Managing Director, Senior Research Analyst at Roth Capital Partners, LLC

Hi, Fermi, John, Lewis. So just to understand from a geopolitical perspective, can you describe the risk you think there is in your chips having to be replaced in China or customers making that decision to de risk the geopolitical or whether you think that's not a significant risk given the what's been happening last few months?

Fermi Wang
Fermi Wang
Chief Executive Officer at Ambarella

Right. So first of all, in China, we have been talking about this for four, five years now. I think in China, our Chinese customer will use Chinese component as long as there is a viable options to them. And that has been that's why we work away from Chinese enterprise security camera market five years ago. This also applied to automotive market and also any other market in China.

Fermi Wang
Fermi Wang
Chief Executive Officer at Ambarella

So from that point of view, our strategy in China is we use that market to really to understand the market situation. Also, the opportunity for us in China is really twofold. One is the product that we offer in China that we don't see a comparable solution from Chinese components. Second one is a lot of our Chinese customers, particularly automotive customers talking about export business, where they do need a non Chinese market Chinese solution. So those are our opportunities in China and that's where we think we're going to focus on.

Fermi Wang
Fermi Wang
Chief Executive Officer at Ambarella

But outside China, I think we don't see any problems supplying our chip to any other potential customers.

Suji Desilva
Managing Director, Senior Research Analyst at Roth Capital Partners, LLC

Okay.

Suji Desilva
Managing Director, Senior Research Analyst at Roth Capital Partners, LLC

Thanks, Rami. That's appreciated. That's helpful. And then also on the non auto side, the talk about the enterprise security camera market. Is that going to accelerate in 2026?

Suji Desilva
Managing Director, Senior Research Analyst at Roth Capital Partners, LLC

Or are you kind of hitting a point where it's grown very strongly and now it's kind of stabilizing into the kind of full year growth rate?

Fermi Wang
Fermi Wang
Chief Executive Officer at Ambarella

First of all, I think the market will continue to grow in two things. Although the unit number of growth is there, but the biggest growth was from the ASP growth. Look at we are selling CV25, CV22 at ASP level, but our current CV5, CV7 that just went into production have a higher ASP. So I think that both of them will drive, but ASP will be the main driver for our growth.

Suji Desilva
Managing Director, Senior Research Analyst at Roth Capital Partners, LLC

Okay. All right. Thanks, Verma.

Operator

Thank you. Our next question is going to come from the line of Gus Richards with Northland. Your line is open. Please go ahead.

Gus Richard
Gus Richard
MD & Senior Research Analyst at Northland Capital Markets

Yes. Thanks for taking the questions and congratulations on strong results and outlook. For me, I just was hoping you could talk a little bit about where you see the growth edge versus data center and within the edge, you've always been heavy on imaging applications. Are you starting to broaden out beyond that and what opportunities at the edge do you see to be the most exciting outside of imaging and enterprise?

Fermi Wang
Fermi Wang
Chief Executive Officer at Ambarella

Right. We are right now 100% focused on edge. Data center is pretty well established and NVIDIA has a really strong dominance on that market, we don't believe that that should be our first target. We are focused on Edge and there are multiple with our current market, definitely the IoT is definitely one focus market and also that the new market like with the CLIP or vision language model or even the current LipSig type of model will enable new application. That's definitely a focus area.

Fermi Wang
Fermi Wang
Chief Executive Officer at Ambarella

But there's a new area, which is people trying to use building edge server, AI edge server to accumulate multiple different type of strings, either video string or non video string and to apply a centralized AI processing at the edge. That's definitely the market that we're looking at and try to understand how we can participate. I think that our L1655 is a great candidate for that. And obviously, we need to build a roadmap based on our new next generation CVflow architecture to address that.

Gus Richard
Gus Richard
MD & Senior Research Analyst at Northland Capital Markets

Got it. Thanks. That's helpful. And then you've had some long standing partnerships with Continental Bosch and you've got a relationship with Rivlin, which is now working with D Dub. And I was just wondering if you could talk a little bit about how those automotive partnerships, if you will, are evolving and do you see any opportunity over the next year or two?

Fermi Wang
Fermi Wang
Chief Executive Officer at Ambarella

Yes. First of all, we continue to bid on different RFQs with our partner. County is our strong partners, both on hardware and software and Bosch is our hardware side, our partner. We continue to bid on multiple different opportunities. Although that recently we were informed that we lost a major Western OEM passenger car because I think the in that particular car competition, we work with Tier one in there.

Fermi Wang
Fermi Wang
Chief Executive Officer at Ambarella

And the feedback we got was that our technology and product were viewed very favorably and also our price is competitive. But at the end, when we face at the final round of bidding, when we face the incumbent supplier, we were told that our scale so the scale benefit that the existing supplier can offer create the differences. So from that point of view, although we lost that one major Western OEM, but we continue to commit to invest in the automotive products and we definitely are looking for alternative way to continue to sell our products and technology into automotive markets.

Gus Richard
Gus Richard
MD & Senior Research Analyst at Northland Capital Markets

Got it. Thank you so much.

Fermi Wang
Fermi Wang
Chief Executive Officer at Ambarella

Thank you.

Operator

Thank you. And I would now like to hand the conference back to Fermi Wang for closing remarks.

Fermi Wang
Fermi Wang
Chief Executive Officer at Ambarella

And thank you guys. Thank you for joining our call today. If there's any follow-up, please give me or Louis a call. Thank you.

Operator

This concludes today's conference call. Thank you for participating and you may now disconnect. Everyone, have a great day.

Executives
    • Louis Gerhardy
      Louis Gerhardy
      Vice President of Corporate Development
    • Fermi Wang
      Fermi Wang
      Chief Executive Officer
    • John Young
      John Young
      Chief Financial Officer
Analysts
    • Quinn Bolton
      Senior Analyst at Needham & Company
    • Joseph Moore
      Managing Director at Morgan Stanley
    • Aren Nakpil
      Equity Research Associate at Susquehanna International Group
    • Ross Seymore
      Managing Director at Deutsche Bank
    • Tore Svanberg
      Managing Director at Stifel Financial
    • Kevin Cassidy
      Senior Research Analyst at Rosenblatt Securities
    • Suji Desilva
      Managing Director, Senior Research Analyst at Roth Capital Partners, LLC
    • Gus Richard
      MD & Senior Research Analyst at Northland Capital Markets
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