Ambarella Q4 2025 Earnings Report

Ambarella EPS Results

• Actual EPS: $0.11
• Consensus EPS: -$0.01
• Beat/Miss: Beat by +$0.12
• One Year Ago EPS: N/A

Ambarella Revenue Results

• Actual Revenue: $84.02 million
• Expected Revenue: $78.04 million
• Beat/Miss: Beat by +$5.98 million
• YoY Revenue Growth: N/A

Ambarella Announcement Details

• Quarter: Q4 2025
• Date: 2/26/2025
• Time: After Market Closes
• Conference Call Date: Wednesday, February 26, 2025
• Conference Call Time: 4:30PM ET

Ambarella (NASDAQ:AMBA) is a fabless semiconductor company that develops low-power system-on-chip (SoC) solutions for video processing and artificial intelligence at the edge. Its technology is designed to help devices capture, process, analyze and transmit high-quality video while reducing the need to send data to cloud-based systems.

The company’s product portfolio includes its CVflow family of AI vision processors, video processors and related software. These solutions support computer vision and machine learning applications in security cameras, automotive systems, advanced driver-assistance systems, robotics, industrial equipment and consumer devices.

Founded in 2004 and headquartered in Santa Clara, California, Ambarella serves customers and markets globally through its semiconductor products and technology partnerships. The company became publicly traded on the Nasdaq in 2012. Ambarella is led by President and Chief Executive Officer Fermi Wang, who co-founded the company.

Ambarella Q4 2025 Earnings Call Transcript

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.

Presentation

[Operator]

Good day, and thank you for standing by. Welcome to Ambarella's Q4 and Full Fiscal Year 2025 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during this session, you will need to press star one one on your telephone. You will then hear an automated message advising you your hand is raised.

[Operator]

To withdraw your question, please press star one one again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Louis Gerhardy, VP, Corporate Development. Please go ahead.

[Louis Gerhardy, VP for Corporate Development at Ambarella]

Thank you, Michelle. Good afternoon, and thank you for joining our Fourth Quarter and Full Year Fiscal 2025 Financial Results Conference Call. On the call with me today is Dr. Fermi Wang, President and CEO, and John Young, CFO. The primary purpose of today's call is to provide you with information regarding the results for our fourth quarter and full year fiscal 2025.

[Louis Gerhardy, VP for 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.

[Louis Gerhardy, VP for Corporate Development at Ambarella]

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're under no obligation to update these statements.

[Louis Gerhardy, VP for Corporate Development at Ambarella]

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 file with the SEC. Before starting the call, we hope to see you at one of the following investor events.

[Louis Gerhardy, VP for Corporate Development at Ambarella]

Bernstein's Third Annual Technology, Media, and Telecom Forum tomorrow, February 27th, in Palo Alto. Susquehanna's Virtual Annual Technology Conference on Friday, February 28th. Morgan Stanley's Technology, Media, and Telecom Conference, March 3rd, in San Francisco. Loop Capital's Conference, March 11th, in New York City. Cantor's Global Tech Conference, March 12th, in New York. And the Roth Conference, March 17th, in Southern California.

[Louis Gerhardy, VP for Corporate Development at Ambarella]

Access to our fourth quarter and full year fiscal 2025 results press releases, transcripts, historical results, SEC filings, and a replay of today's call can be found on the investor relations page of our website.

[Louis Gerhardy, VP for Corporate Development at Ambarella]

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, President and CEO at Ambarella]

Thank you, Louis. Good afternoon, and thank you for joining our call today. Ambarella finished fiscal 2025 with strong results and a positive outlook. Edge AI is clearly established as our key revenue driver, enabling us to grow and overcome the cyclical economic and geopolitical challenges in the last year.

[Fermi Wang, President and CEO at Ambarella]

We achieved record AI revenue in Q4, as well as for the full year fiscal 2025. In the fourth quarter of fiscal 25, our revenue increased 2% sequentially and exceeded the high end of our guidance range by 5%. Our 5nm SoC products led the results, with new product revenue wave 1 from the CV5 family, leading the charge. And for the first time, we generated production revenue from the CV7 family, or new product revenue 2. Our fiscal 25 revenue increased 26% year-over-year, with both units and the average selling price rising.

[Fermi Wang, President and CEO at Ambarella]

Edge AI was about 70% of our total revenue. 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.

[Fermi Wang, President and CEO at Ambarella]

First, financially, revenue growth was restored, and in the second half, we returned to non-GAAP profitability. Fiscal 2025 represented our 16th consecutive year of positive free cash flow. Second, we executed on our R&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.

[Fermi Wang, President and CEO at Ambarella]

AI 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 portable consumer electronics.

[Fermi Wang, President and CEO at Ambarella]

Looking into fiscal year 2026, we anticipate mid to high-teens revenue growth, despite the higher base of the much stronger than expected Q4. With uncertainty related to government policy decisions, we have built conservatism into our outlook for the second half of fiscal 2026.

[Fermi Wang, President and CEO at Ambarella]

While we do not expect to be directly impacted by tariffs, we suspect some customers are evaluating their own supply chains, as well as the elasticity of demand for their products. Turning to developments in the broad AI market, the breakthroughs with more powerful, efficient, and open-source reasoning models was an exciting industry development in January.

[Fermi Wang, President and CEO at Ambarella]

We expect open-source reasoning models such as DeepSeek-R1 to enable more advanced decision-making and intelligence in all tiers of AI processing hierarchy, including our target market at the edge. While breakthroughs like this bring new levels of compute efficiency, the implementation of new reasoning models at the edge is expected to require incremental AI compute power.

[Fermi Wang, President and CEO 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 edge AI 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.

[Fermi Wang, President and CEO at Ambarella]

We already successfully brought up the DeepSeek-R1 model on CV7 and N1 product families, and we are showing them to our customers.

[Fermi Wang, President and CEO at Ambarella]

There is a growing trend towards performing more AI processing at the edge, as cloud-based processing has a higher total cost of ownership, latency challenges, high power usage, data security, and privacy concerns. Edge AI processing is now being enabled with the introduction of a smaller and more optimized model.

[Fermi Wang, President and CEO at Ambarella]

We introduced our N1-655 Gen AI SoC at CES this year with a high AI processing performance to support the latest transformer network and popular multi-modal VLMs and large language models. N1-655 consumes only 20W of power and targets applications such as on-premise AI box, the autonomous mobile robots, security network video recorders, and retail analytics.

[Fermi Wang, President and CEO at Ambarella]

At the show, we demonstrated N1-655 running CLIP and LLaVA type of vision model with data inputs, including text, video, and speech, all running locally on an AI box without the need for internet connection.

[Fermi Wang, President and CEO at Ambarella]

In the enterprise security market, Motorola introduced a small form factor V200 body-worn camera based on our H3R 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 H6R SoC and offering 12-hour operation.

[Fermi Wang, President and CEO at Ambarella]

Motorola also introduced its H6A fisheye camera based on our 5-nm CV72 and offering 360-degree viewing, 11MP resolution, and AI-powered video and audio analytics. Japanese enterprise security leader i-PRO, formerly Panasonic, introduced its new line of high-zoom bullet cameras targeting long-range monitoring of highways, parking lots, and stadiums. Based on our 5-nm CV52, the cameras are pre-installed with nine edge AI applications.

[Fermi Wang, President and CEO at Ambarella]

We are very pleased to announce our first win with the HID division of ASSA ABLOY, a global leader in the access solution market.

[Fermi Wang, President and CEO at Ambarella]

HID has deployed its U.are.U camera identification system based on our CV22 to deliver fast, accurate, and secure facial recognition. Powered by AI-driven multispectral image and advanced presentation attack detection, it enhances user convenience while reducing fraud risks, even in high-security and challenging environments.

[Fermi Wang, President and CEO at Ambarella]

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.

[Fermi Wang, President and CEO at Ambarella]

During the quarter, FAW introduced its Hongqi H5 PHEV, including Level 2 ADAS, implemented with a 1V1R ADAS system based on our CV22AQ. VW's joint venture with FAW introduced a pre-installed dash cam in its Magotan passenger vehicle based on our A12AQ.

[Fermi Wang, President and CEO 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 CV28AQ. In December, we earned our first driver monitor win in Hyundai Kia passenger vehicle. The pre-installed system is provided by LG Electronics, based on our CV25.

[Fermi Wang, President and CEO at Ambarella]

In January, Ford Trucks was announced as the first customer for French Tier 1 Gauzy, who is providing its AI-powered smart vision camera monitor system using our CV2FS.

[Fermi Wang, President and CEO at Ambarella]

In summary, this quarter's list of 10 representative customer engagements highlights the increased breadth of our edge AI revenue globally. This includes a range of enterprise and consumer-driven IoT applications, and a variety of automotive applications such as Level 2 ADAS, driver monitoring, rearview, and exterior left and right side mirrors.

[Fermi Wang, President and CEO at Ambarella]

Cumulatively, we have shipped more than 30 million units of edge AI SoCs, with each SoC integrating our proprietary CVflow deep learning AI accelerator with our proprietary video processor. A vast majority of this installed base is represented by our CV2 family of computer vision processors, while we expect continual growth.

[Fermi Wang, President and CEO at Ambarella]

Our new 5-nm products, which command an above-average ASP, represent our key growth driver, with revenue expected 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 the fourth quarter, with three customers purchasing production quantities. Combined, these first two waves are expected to represent more than half of our incremental revenue in fiscal 2026.

[Fermi Wang, President and CEO at Ambarella]

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 edge AI business intersects multiple industries where the mega trends of safety, security, and automation intersect.

[Fermi Wang, President and CEO at Ambarella]

As a result, in this dynamic environment, we carefully evaluate new opportunities to maximize our return on investment. Our goals for fiscal 2026 are to sustain a high level of innovation and execution to continue to lead the edge AI market. We intend to drive a positive operating leverage with revenue growth and a high focus on operating efficiency. The development of 2nm technology for our next-generation edge AI processor is critical.

[Fermi Wang, President and CEO at Ambarella]

In summary, in the new year, we intend to build upon the positive momentum we have established with our AI strategy, technology, and products. With that, John will now discuss the Q4 and the full year fiscal 25 results and the outlook in more detail.

[John Young, CFO at Ambarella]

Thank you, Fermi. I'll now review the financial highlights for the fourth quarter and full fiscal year 2025 ending January 31st, 2025. I will also provide a financial outlook for our first quarter of fiscal year 2026 ending April 30th, 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.

[John Young, CFO at Ambarella]

For non-GAAP reporting, we have eliminated stock-based compensation expense, along with acquisition-related and restructuring costs adjusted for the impact of taxes. Fiscal year 2025 revenue increased 25.8% to $284.9 million.

[John Young, CFO at Ambarella]

Automotive revenue increased mid-single digits, and IoT, led by new 5-nm products, was up more than 30% year-over-year. For fiscal year 2025, non-GAAP gross margin was 62.7% versus 63.3% in fiscal 2024. Non-GAAP operating expense increased 6.5% for the year versus 4% in the prior year. Ending cash and marketable securities totaled $250.3 million, up from $219.9 million at the end of the prior year.

[John Young, CFO at Ambarella]

For fiscal Q4, revenue was $84 million, above the high end of our prior guidance range, up 1.7% from the prior quarter, and up 62.8% year-over-year. 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.

[John Young, CFO at Ambarella]

Non-GAAP operating expense in Q4 was $48.7 million, below the low end of our prior guidance range of $49 million-$52 million, driven by continued expense management and the timing of spending between quarters. We remain on track to our internal product development milestones.

[John Young, CFO at Ambarella]

Q4 net interest and other income was $2.4 million. Comparing to our prior guidance of $1.8 million, the increase was from a one-time government grant in the United States. Q4 non-GAAP tax provision was approximately $1 million, and fiscal 2025 non-GAAP tax provision was approximately $2.1 million.

[John Young, CFO at Ambarella]

We reported a non-GAAP net profit of $4.8 million, or $0.11 earnings per diluted share in Q4, and a non-GAAP net loss of $6.8 million, or a $0.16 loss per diluted share for fiscal 2025. Now I will turn to our balance sheet and cash flow.

[John Young, CFO at Ambarella]

Fiscal Q4 cash and marketable securities increased $23.7 million from the prior quarter and increased $30.4 million 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 38 days in the prior quarter to 33 days, while days of inventory increased from 94 in the prior quarter to 97 days.

[John Young, CFO at Ambarella]

Inventory dollars declined 5.9% sequentially and increased 18.5% from a year ago. Operating cash inflow was $25.4 million for the quarter, and for the full year, we generated operating cash of $33.8 million. Capital expenditures for tangible and intangible assets were $4.2 million for the quarter and $10.4 million for the year.

[John Young, CFO at Ambarella]

Free cash flow was $21.2 million for the quarter and $23.5 million for the year. This represented the 16th consecutive fiscal year of positive free cash flow.

[John Young, CFO at Ambarella]

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.

[John Young, CFO at Ambarella]

I'll now discuss the outlook for the first quarter of fiscal year 2026. 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 million-$87 million, 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%-62.5%.

[John Young, CFO at Ambarella]

We expect non-GAAP OpEx in the first quarter to be in the range of $50 million-$53 million, with the increase compared to Q4 driven by new product development costs as well as increased employee-related expenses beginning in the new year.

[John Young, CFO at Ambarella]

We estimate net interest income to be approximately $1.8 million, our non-GAAP tax expense to be approximately $600 thousand and our diluted share count to be approximately 43.4 million shares. Thank you for joining our call today, and with that, I will turn the call over to the operator for questions.

[Operator]

Thank you. As a reminder, to ask a question, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. We ask that you please limit yourself to one question and one follow-up. One moment for our first question.

[Operator]

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

[Quinn Bolton, Senior Analyst at Needham & Company]

Hey, guys. Thanks for taking my question. Congratulations on the nice results and outlook and the 16th year of positive cash flow. I guess, Fermi, 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 26.

[Quinn Bolton, Senior Analyst at Needham & Company]

Wondering, what's the other half of revenue growth? Is that the older CV2 family, 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 home and security camera processors, you would expect that business to continue to decline at a gradual pace in fiscal 26?

[Fermi Wang, President and CEO at Ambarella]

Yeah, Quinn, you know our business very well.

[Fermi Wang, President and CEO at Ambarella]

Everything you say is correct. First of all, half of the growth fiscal 2026 is from CV5 and CV7. And our old video processor product will have a slow decline. We expect maybe 10%-15% annual decline rate from now to the end. But also CV2, we continue to expect growth and healthy growth from our existing product line.

[Fermi Wang, President and CEO at Ambarella]

For example, we talk about one of our telematic customers ramping up their products last quarter and really driving 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 consistent slow rate of decline.

[Quinn Bolton, Senior Analyst at Needham & Company]

Perfect. And then just to follow up, it sounds like in both the January quarter and the April guide, you've got auto down sequentially.

[Quinn Bolton, Senior Analyst at Needham & Company]

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, President and CEO 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.

[Fermi Wang, President and CEO at Ambarella]

Although that you are right, although none of our customers indicate that they are accumulating inventory because of 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.

[Fermi Wang, President and CEO at Ambarella]

So that's where we put in some of the conservatism in our second-half guidance.

[Quinn Bolton, Senior Analyst at Needham & Company]

Got it. Okay. Thank you, Fermi.

[Fermi Wang, President and CEO 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.

[Joe Moore, Managing Director and Senior Equity Analyst at Morgan Stanley]

Great. Thank you. Fermi, 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. 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, President and CEO at Ambarella]

Right. So we continue to see a strong demand on the ADAS side, particularly Level 2+. That didn't change. But the only change is the flavor of the OEMs' demands, they've become very cost-sensitive.

[Fermi Wang, President and CEO at Ambarella]

We talk about this trend also that we call value products. So that if you look at the OEMs, they want to upgrade the product from Level 2 to Level 2+. Some of them want to upgrade even to Level 2++ or Level 3. But at the same time, they are very sensitive to the cost. So, from that point of view, I think our CV3 family that can help them to address the bond concerns is definitely continuing to be viewed positively in the market.

[Joe Moore, Managing Director and Senior Equity Analyst at Morgan Stanley]

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

[Fermi Wang, President and CEO at Ambarella]

I think we see multiple design wins or we only talk about we continue to expect growth in that area. But the ASP that we talk about is really just from the 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.

[Fermi Wang, President and CEO at Ambarella]

But I think we treat that as a way to get into OEM designs. For example, we talk about Korean company, the largest Korean automotive OEM using our solution for the e-mirrors. That just helps us to open the door to those major OEMs.

[Joe Moore, Managing Director and Senior Equity Analyst 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]

Hi. This is Aren Nakpil in for Chris Rolland. Thanks for taking the question. So, the mid to high teens guide for fiscal year 26 seems very conservative. So, I mean, essentially, we're modeling flat to down for the remaining three quarters. 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, President and CEO at Ambarella]

Well, I think we'll provide more color on this, but I think that it's just I do believe that the first half to second half, based on our current guidance, is not as high. The growth from the first half to second half is not as high as before, but that definitely reflects our customers' conservatism and also our conservatism in reflecting the potential government policy change, right?

[Fermi Wang, President and CEO at Ambarella]

We are all waiting for how, for example, the tariff at Mexico or Canada that will impact our customers' manufacturing sites. So, those kind of factor in. But I think overall, I still feel very strong, feel comfortable our growth rate from our customer product point of view.

[Fermi Wang, President and CEO 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 in there, but it's really reflecting on the policy side, not on our product side.

[Aren Nakpil, Equity Research Associate at Susquehanna]

Understood. And if I have a follow-up, over the next two to three years, from a geographic perspective, which regions do you expect to outperform, underperform, given your pipeline?

[Fermi Wang, President and CEO at Ambarella]

I still consider that the U.S. is our largest customer, so, our largest geography. And we did well in Japan, Korea, and Europe.

[Fermi Wang, President and CEO at Ambarella]

In China, we maintain 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.S., EU, and Japan-Korea market, and we expect that they continue to do well for us.

[Aren Nakpil, Equity Research Associate at Susquehanna]

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, Managing Director and Senior Equity Analyst at Deutsche Bank]

Hi, guys. Thanks for taking my last question, and congrats on the strong results. Getting into the full-year guide, again, I can understand the policy conservatism, Fermi, 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 doubt in your mind between the IoT/AI side and the automotive side?

[Fermi Wang, President and CEO at Ambarella]

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

[Ross Seymore, Managing Director and Senior Equity Analyst at Deutsche Bank]

Gotcha. So the conservatism that you have on the too 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 IoT/AI 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, President and CEO at Ambarella]

Go ahead.

[Louis Gerhardy, VP for Corporate Development at Ambarella]

Hey, Ross. It's Louis. For fiscal 2026, IoT should continue to grow faster than auto, but auto is expected to grow year-over-year as well.

[Ross Seymore, Managing Director and Senior Equity Analyst at Deutsche Bank]

Gotcha.

[Ross Seymore, Managing Director and Senior Equity Analyst at Deutsche Bank]

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?

[Louis Gerhardy, VP for Corporate Development at Ambarella]

Yeah. 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, Managing Director and Senior Equity Analyst 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.

[Operator]

Please go ahead.

[Tore Svanberg, Managing Director and Senior Semiconductor Analyst at Stifel]

Yes. Thank you, and congratulations on the results. Fermi, can we just take a step back here, especially when we start thinking about open-source reasoning models? I mean, DeepSeek probably wasn't positive for everybody, but I think for Ambarella, probably a pretty positive development.

[Tore Svanberg, Managing Director and Senior Semiconductor Analyst at Stifel]

So, could you just, again, take a step back, elaborate a little bit on how important this is for Ambarella? Because obviously, this will probably accelerate the adoption of smaller models and certainly also AI at the edge. So, any more colors you could share with us, that would be great.

[Fermi Wang, President and CEO at Ambarella]

Yes. Let me elaborate a little bit what we have done with DeepSeek model in our product portfolio. I talk about we successfully brought up that model on our N1, N1-655, CV72, and CV75. The N1 is a 50W chip, and the CV75 is a 1.5W chip.

[Fermi Wang, President and CEO at Ambarella]

Of course, you run different versions of DeepSeek R1 models on those chips, but a 1.5W chip can run a 1.5 billion parameters DeepSeek R1 model. I think that's significant. And also, that really means that at edge, we can get a better and better model and even reasoning model running on edge, and that will expand a possible application.

[Fermi Wang, President and CEO at Ambarella]

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 that model to their vertical application. 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 1.5 billion parameter model on a 1.5W chip.

[Fermi Wang, President and CEO at Ambarella]

That really opened the door for us to look at what other application that we can enable in the future with that. Definitely, 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, Managing Director and Senior Semiconductor Analyst at Stifel]

Yeah. No, that's great perspective. And as my follow-up, could you give us an update on the 2nm development? Any sort of benchmarks or timelines that we should keep an eye on?

[Fermi Wang, President and CEO at Ambarella]

Right. First of all, 2nm, we expect and we already 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 aggressively doing two projects already for the IoT devices.

[Fermi Wang, President and CEO at Ambarella]

One is for our traditional camera market, the other one for the N1 type of project. So, you can see that we want to, using the benefit of 2nm on the power consumption side, to continue to give us even more leverage of a high-end and a low-end product based on 2-nano.

[Fermi Wang, President and CEO at Ambarella]

We expect to tape out the chip sometime late this year and also get samples back early next year. We hope our customer can go into production at the end of 2026.

[Tore Svanberg, Managing Director and Senior Semiconductor Analyst at Stifel]

Great. Thank you for that color, and congrats again.

[Fermi Wang, President and CEO at Ambarella]

Thank you.

[Operator]

Thank you. 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, Managing Director and Senior Research Analyst at Rosenblatt Securities]

Yes. Thanks for taking my question, and congratulations on the great results.

[Kevin Cassidy, Managing Director and Senior Research Analyst at Rosenblatt Securities]

Maybe just to expand on that, with the 2nm development, is that going to be a product similar to the N1-655, or are you going to be focused more on some of the CV devices?

[Fermi Wang, President and CEO at Ambarella]

I said we have two chips. One for N1 type of product, the other one is for the camera product. So, we are trying to use 2nm to address the two different markets.

[Kevin Cassidy, Managing Director and Senior Research Analyst at Rosenblatt Securities]

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

[Fermi Wang, President and CEO at Ambarella]

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

[Fermi Wang, President and CEO at Ambarella]

So, DeepSeek for us is really to use that for demo purposes and also to engage customers. But I fully expect we're going to see more and more of this kind of model from American AI companies.

[Kevin Cassidy, Managing Director and 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 Suji Desilva with Roth Capital. Your line is open. Please go ahead.

[Suji Desilva, Managing Director and Senior Research Analyst at Roth Capital]

Hi, Fermi, John, Louis. So, just to understand from the 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 what's been happening the last few months?

[Fermi Wang, President and CEO at Ambarella]

Right. So first of all, in China, we have been talking about this for four, five years now.

[Fermi Wang, President and CEO at Ambarella]

I think in China, our Chinese customers will use Chinese components as long as there are viable options for them, and that's why we walked away from Chinese enterprise security camera market five years ago. This also applies to the automotive market and also any other market in China.

[Fermi Wang, President and CEO at Ambarella]

From that point of view, our strategy in China is we use that market 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 solution. Those are our opportunities in China, and that's where we think we're going to focus on.

[Fermi Wang, President and CEO 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 and Senior Research Analyst at Roth Capital]

Okay. Thanks, Fermi. That's helpful. And then also on the non-auto side, talk about the enterprise security camera market. Is that going to accelerate in 2026, 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, President and CEO at Ambarella]

First of all, I think the market will continue to grow in two things. Although the unit number growth is there, but the biggest growth will be from the ASP growth. Look at we are selling CV25, CV22 at the 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 and Senior Research Analyst at Roth Capital]

Okay. All right. Thanks, Fermi.

[Operator]

Thank you. And as a reminder, if you would like to ask a question, please press star one one on your telephone. And our next question is going to come from the line of Gus Richard with Northland. Your line is open. Please go ahead.

[Gus Richard, Managing Director and Senior Research Analyst at Northland]

Yes. Thanks for taking the questions, and congratulations on the strong results and outlook. Fermi, 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, President and CEO 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.

[Fermi Wang, President and CEO at Ambarella]

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 that IoT is definitely one focus market, and also that the new market with the CLIP or vision language model, or even the current DeepSeek type of model will enable new applications. That's definitely a focus area.

[Fermi Wang, President and CEO at Ambarella]

But there's a new area, which is people trying to use building an AI edge server to accumulate multiple different types of streams, either video stream or non-video stream, and to apply a centralized AI processing at the edge. That definitely is a market that we are looking at and trying to understand how we can participate. I think that our N1-655 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, Managing Director and Senior Research Analyst at Northland]

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 Rivian which is now working with VW. 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, President and CEO at Ambarella]

Yes. First of all, we continue to build on different RFQs with our partner. Conti is our strong partners both on hardware and software, and Bosch is our hardware side as our partner. We continue to build on multiple different opportunities.

[Fermi Wang, President and CEO at Ambarella]

Although, recently, we were informed that we lost a major Western OEM passenger car because different reasons. I think in that particular car competition, we worked with a Tier 1 in there.

[Fermi Wang, President and CEO 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 faced at the final round of bidding, when we faced the incumbent supplier, we were told that our certain scale benefits that the existing supplier can offer created the differences.

[Fermi Wang, President and CEO at Ambarella]

So, from that point of view, although we lost that one major Western OEM, we continue to commit to invest in the automotive products, and we definitely are looking for an alternative way to continue to sell our products and technology into automotive markets.

[Gus Richard, Managing Director and Senior Research Analyst at Northland]

Got it. Thank you so much.

[Fermi Wang, President and CEO 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, President and CEO 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. You may now disconnect. Everyone, have a great day.

Participants

Executives

• John Young, CFO
• Louis Gerhardy, VP for Corporate Development
• Fermi Wang, President and CEO

Analysts

• Joe Moore, Managing Director and Senior Equity Analyst at Morgan Stanley
• Tore Svanberg, Managing Director and Senior Semiconductor Analyst at Stifel
• Aren Nakpil, Equity Research Associate at Susquehanna
• Quinn Bolton, Senior Analyst at Needham & Company
• Ross Seymore, Managing Director and Senior Equity Analyst at Deutsche Bank
• Suji Desilva, Managing Director and Senior Research Analyst at Roth Capital
• Gus Richard, Managing Director and Senior Research Analyst at Northland
• Kevin Cassidy, Managing Director and Senior Research Analyst at Rosenblatt Securities