Ambarella Q1 2027 Earnings Call Transcript

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Provided by Quartr
May 28, 2026

Key Takeaways

  • Positive Sentiment: Revenue and profitability beat guidance in Q1, with revenue of $100.4 million, non-GAAP gross margin of 59.9%, and non-GAAP EPS of $0.11, while Q2 revenue guidance calls for $105 million to $111 million.
  • Positive Sentiment: Management said edge AI demand remains strong and highlighted a new phase of growth driven by long-term customer agreements that should improve revenue visibility and create more predictable recurring business.
  • Positive Sentiment: The company announced a major Hanwha long-term agreement that could exceed $800 million over more than 10 years, covering co-development and sourcing across multiple end markets including physical security, robotics, and industrial applications.
  • Positive Sentiment: Automotive set a quarterly revenue record, and management expects automotive growth to outpace the broader market, helped by commercial fleet telematics and safety applications.
  • Neutral Sentiment: The company built up inventory and cash usage increased to support new product ramps and protect against supply-chain tightness, with cash and marketable securities falling to $277.8 million and inventory days rising to 145.
AI Generated. May Contain Errors.
Earnings Conference Call
Ambarella Q1 2027
00:00 / 00:00

Transcript Sections

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Operator

Please be advised that today's conference is being recorded. Now it's my pleasure to hand the conference over to the Vice President of Corporate Development, Louis Gerhardy. Please proceed.

Louis Gerhardy
Louis Gerhardy
VP of Corporate Development at Ambarella

Thank you, Carmen, and good afternoon. Thank you for joining our first quarter fiscal year 2027 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 first quarter fiscal year 2027. 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.

Louis Gerhardy
Louis Gerhardy
VP of Corporate Development at Ambarella

We're under no obligation to update these statements, and 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. Access to our first quarter fiscal year 2027 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. Before starting the call, we hope to see you at some of the following investor events scheduled during our second fiscal quarter. June 2nd, we'll be at the Bank of America TMT Conference in San Francisco. June 23rd at Northland's Virtual Equity Capital Markets Growth Conference.

Louis Gerhardy
Louis Gerhardy
VP of Corporate Development at Ambarella

June 23rd and 24th, we'll be hosting investor meetings in Baltimore and Boston. August 18th at Rosenblatt's Age of AI event. For your calendar planning in our third fiscal quarter, please note we are a sponsor at the AI Infra Summit in Santa Clara on November 15th-17th, and we hope to see you there, where we will lead the physical AI track with a number of edge AI product demos in our exhibit area. Fermi will now provide a business update for the quarter. John will review the financial results and outlook. Then we'll be available for your questions. Fermi?

Fermi Wang
Fermi Wang
President and CEO at Ambarella

Thank you, Louis, and good afternoon. Thank you for joining our call today. During our first fiscal quarter, we delivered on our key financial guidance, revenue, gross margins, and operating expenses. Most importantly, we continue to extend our edge AI platform leadership with technology and product innovation, addressing existing and emerging use cases. As a recognized edge AI leader, we are entering a new and significant phase for our market development with the execution of long-term customer agreements, which can drive a more predictable revenue stream while also offering lifetime revenue potential far in excess of what we have realized in the past. Let me provide a few comments about the current market environment. In Q1, we delivered revenue at the high end of the normal season range and slightly above the midpoint of our guidance.

Fermi Wang
Fermi Wang
President and CEO at Ambarella

Demand signals and the long-term secular growth outlook for edge AI remain very strong. I'm very optimistic about our ability to serve it, in particular, as AI workloads become more complex. IoT applications were about three-quarters of our total revenue and were seasonally down with our enterprise security camera market growing in the high single digits sequentially offset by a double-digit sequential decline in our consumer IoT business. Our automotive revenue established a new all-time revenue record with very strong double-digit growth led by the rapid emergence of AI within the large and growing commercial vehicle telematic market, as well as automotive safety applications. After a multiple year build-out of AI training capacity in data centers, the AI market is increasingly focused on AI inferencing. Within the inferencing market, the processing is becoming more distributed.

Fermi Wang
Fermi Wang
President and CEO at Ambarella

In other words, processing is moving to the edge and the physical AI layers of the network hierarchy. As the edge market evolves to GenAI and agentic AI in particular, our positioning become even stronger, I would like to explain more about this. First, before talking about Ambarella's unique positioning, let me remind you of the advantage edge AI efforts relative to the data center. Edge AI processing reduce latency, lower power consumption, minimize communication expense, and improves privacy and security. Why is Ambarella's edge AI platform so well-positioned? First, Ambarella's edge AI platform is comprehensive and well-established, yet expanding and under constant evolution to adapt to new AI trends. We believe a broad and highly programmable edge AI platform is required to address wide number of use cases. Enabling customers to be more efficient by reusing software and scaling their business.

Fermi Wang
Fermi Wang
President and CEO at Ambarella

Our software platform is now open and easy to use and supports a wide variety of AI models with more than 200 different AI model architectures reaching production. We have cumulatively shipped more than 46 million edge AI SoCs, and we have 12 edge AI SoC already available with up to hundreds of TOPS-like performance. Another reason Ambarella is so well-positioned for GenAI and agentic AI at edge is that our software tools and AI SoCs integrates all the accelerated computing system functions into a single platform. In the data centers, the functions such as data aggregation, AI acceleration, CPUs, and other system functions are usually a collection of discrete SoCs from different vendors. However, at edge, to be successful, our AI SoC integrate all the functions. Fusion, perception, AI acceleration, CPUs, encoding, and other system function into one single chip.

Fermi Wang
Fermi Wang
President and CEO at Ambarella

Our differentiation is not just in proprietary processing elements and advanced VSI integration, but also in the proprietary algorithms, full edge AI stack software, and edge AI agentic frameworks that tie the entire system together. As workloads become more complex, such as with GenAI, multimodal reasoning, and autonomous agent-based workflows, our deep expertise across the full accelerated computing stack optimized physically for edge deployment become increasingly rare and the strategic value in the industry. In other words, as our customers need more performance in their edge AI applications, there are an extremely limited number of companies that can do this, and even fewer that are proven and established. We are now becoming recognized as one of the very few companies that can tie this all together as edge AI workload get more complex.

Fermi Wang
Fermi Wang
President and CEO at Ambarella

We are entering a new phase of edge AI and the physical AI market development, where we are engaged in multiple discussion with customers who want to enter deeper relationships, including multi-generational commitments. This can take the form of long-term agreements or LTA that involves our standard products and/or our semi-custom AI SoC optimized for customers' particular workload. Relative to our current customer relationships, LTAs will enable long-term partnerships that may include a structured contract involving volume and pricing, typically over five years or more. Over the long run, we expect that LTAs to be an important driver of revenue growth, improve visibility, resulting in less volatility, and improve the predictability of our revenue. Our first LTA example involves our first two nanometer chip and the semi-custom edge AI SoC, which we tape out in January, and this product is named CV8.

Fermi Wang
Fermi Wang
President and CEO at Ambarella

This AI SoC will serve both consumer and enterprise applications in the IoT endpoint market. For this long-term agreement, we agreed to develop semi-custom ASIC for customer who want to support a certain complex AI workload. We will sell this AI SoC as a standard product to a variety of other customer in other markets. This afternoon we announced another material LTA, this time with Hanwha in South Korea for the enterprise CapEx side of IoT market. With Hanwha, this LTA is for the sourcing and co-development of Ambarella's Edge AI technology across Hanwha's product lines and the industry, including physical security, operational automation, life sciences, robotics, and other industry market.

Fermi Wang
Fermi Wang
President and CEO at Ambarella

The agreement has a potential revenue in excess of $800 million over a period exceeding 10 years, and it represents one of the largest agreements in Ambarella history, and one of the first agreements of its kind in the Edge AI semiconductor market. The multi-generation nature of this relationship is expected to enable both company to plan jointly across technology roadmaps, accelerate product development cycles, and bring new category AI-enabled product to market at scale. This relationship will involve standard AI SoCs we will sell in a variety of market to our customers. Beyond these first two LTAs, we are engaged in discussion with other companies. Today, I will also provide an update on robotic Edge infrastructure and automotive markets, which represents material market opportunity for us.

Fermi Wang
Fermi Wang
President and CEO at Ambarella

I am very pleased to share that we now have a 15+ robotic design wins, including Aero drones, with lifetime revenue exceeding $100 million with more than 30 customers in our robotic pipeline. Our AI SoC combines high-performance AI inference, advanced computer vision, and ultra-efficient power consumption into a single edge-optimized architecture. It represents the foundation platform for robotic systems to run vision, language, action, VLA models in drones. CV5 enabling platforms such as the Antigravity A1, enabling capabilities including 8K imaging, real-time perception, autonomous navigation, obstacle avoidance, SLAM, and on-device AI inferencing without relying on constant cloud connectivity for these functions. A strong evolution from flying cameras into autonomous aerial robots. Ambarella's CVflow AI accelerator architecture allows manufacturers to deliver lower latency decision-making, improve latency, longer flight time, and more advanced autonomy at the edge.

Fermi Wang
Fermi Wang
President and CEO at Ambarella

The robotic market is fragmented, and we are realizing design wins across a variety of other robotic applications, including industrial automation, autonomous mobile robots or AMRs, delivery robots. Our AI SoC evolves from providing perception, sensor fusion, and edge AI processing to also offer decision-making and the full autonomy needed for real-time robotic awareness and action. This convergence of high-quality imaging and AI acceleration and edge autonomy running VLA models efficiently, position us as a key enabler of the broader physical AI and embodied AI ecosystems. As I mentioned earlier, our automotive business established an all-time quarterly revenue record in Q1, and is on pace to establish a new fiscal year record. Third-party research firms indicate global automotive product is expected to decline 1%-2% this year. With semiconductor content per vehicle rising, market research firms also anticipate the automotive semiconductor market growth 10%-15% this year.

Fermi Wang
Fermi Wang
President and CEO at Ambarella

We expect our automotive revenue growth to outpace these figures due to our success in commercial fleet telematics and safety applications. The commercial fleet telematics market offers continued and exciting growth prospects as there is an installed telematics base in excess of 100 million vehicles growing around 10% CAGR, but only about 10% of this installed base is so far AI-enabled. We are aligned with industry AI telematics leaders who are also increasingly demanding AI SoCs that can take on not only more sensors, but more complex AI workloads. Our platform of 12 edge AI SoCs is very well-suited to help them scale in this market. I will also provide an update on the build-out of our indirect sales channel that we announced to augment our existing direct-to-customer business.

Fermi Wang
Fermi Wang
President and CEO at Ambarella

The development of our indirect sales channel is important to not only help us address fragmented robotic market, but also to provide support for our emerging edge infrastructure business. We have already onboarded half a dozen ISVs in vertical industry like retail, industrial automation, transportation, healthcare, and smart cities since our launch of our developer zone at the CES in January, with more ISV expected to be on board by the end of this fiscal year. In March, for the first time ever, we have booth at embedded world in Nuremberg, Germany, where we did live demonstration highlighting how Ambarella AI SoC software stack and developer tools deliver a competitive advantage across a wide range of AI applications, from AI agentic automation and orchestration, to physical AI systems deployed in real-world environment. One of our existing design partner to demonstrate a real-time industrial quality inspection solution on CV72 and N1-655.

Fermi Wang
Fermi Wang
President and CEO at Ambarella

Multiple new ISVs partners will present in our booth, including one who demonstrated retail AI solution for in-store and drive-through optimization. Another ISV demonstrated continuous training for high-speed rail network, and the third demonstrating warehouse robot solutions. In March, we also hosted an invitation-only exhibition at ISC West, showcasing how edge AI is powering the next generation of intelligent security and physical AI systems. At the center of our exhibit was our newly launched CV7 edge AI vision SoC, delivering advanced imaging and on-device AI processing alongside the N1-655 edge AI SoC, enabling edge infrastructure for low-power, high-performance enterprise security applications. One of our ISV partners demonstrate a smart city security solution based on CV75 and N1-655 solution. I will now briefly summarize our representative customer engagement in Q1, and it is notable for the first time, all of the example are based on our edge AI SoC.

Fermi Wang
Fermi Wang
President and CEO at Ambarella

Three from our CV2 family and eight from our new CV7x family. In the enterprise security, while physical security remain the principal driver of this market, we are seeing our customer develop AI application software that enable their product to provide operational efficiency to a business. Examples including predictive maintenance, supply chain optimization, and automated customer support. We expect operational efficiency in the long run become an important new growth offshoot of what we refer to as enterprise security today. In particular, as GenAI and agentic AI is deployed at the edge. We achieved important milestone in March when i-PRO, formerly Panasonic, announced the first edge endpoint camera to run GenAI locally based on the transformer capability in our CV72 AI SoC.

Fermi Wang
Fermi Wang
President and CEO at Ambarella

We also have the number of other CV75 and the CV72 wins in the quarter, including IDIS in South Korea, Axis in Sweden, now part of Canon, IQSIGHT, formerly Bosch, in Germany. With major communication equipment company in the Americas. Notably, we had an additional CV72 win with CPRO in South Korea that also utilized our AI imaging signal processing software. We also won a CV22 platform with CPRO that had another CV5 win with the major communication equipment company in the Americas. In the industrial market, we earned another AI-based barcode reader project based on CV28. This time with Hanwha Vision, who is expanding his reach beyond the traditional physical security market. In the automotive market, our safety and the telematics customers engagement activity remains strong.

Fermi Wang
Fermi Wang
President and CEO at Ambarella

For example, we are pleased to announce Lytx, an industry leader in the commercial and public sector telematics market, has designed CV75 and the CV72 into multiple platforms. For the in-cabin pre-installed safety market, we have CV72 win with South Korean-based Tier 1, Yura, and a CV22FS win for a Western OEM in China. Our new product momentum remains very strong, both in terms of fiscal 2027 revenue generation, as well as new product that have not start to generate revenues. While our 10 nm CV2 family of AGI processor for CNN application continue to land design wins and grow. Our new 5 nm CV75 and CV72 capable both advanced CNN and the transformer-based GenAI, as well as agentic AI, are in a steep production ramp and are expected to drive material incremental revenue this year.

Fermi Wang
Fermi Wang
President and CEO at Ambarella

On top of this, we continue to expand our new CV7 AI processor to enter production by the end of the year. In the first half of fiscal 2028, or less than a year from now, we expect our 2 nm CV8 AI SoC to commence production. All these new products I have described, as well as all the new unannounced AI SoCs we have in development, target more sophisticated AI workload and command average ASP well above our currently $15 SoC ASP in Q1. As you can tell, we have a lot of technology product market and the customer development activity going. I would like to summarize this quarter's call with three observations. First, the AGI market is just getting started, and the momentum is building in multiple areas. Second, Ambarella is clearly an AGI technology platform and a product leader, and we are already well established.

Fermi Wang
Fermi Wang
President and CEO at Ambarella

I think our positioning is getting even stronger as AGI workloads get more complex, and there become fewer and fewer companies capable of integrating all the edge-accelerated computing functions into a single chip. Third, customers are recognizing the first 2 points and now want to engage with us more broadly and more deeply. For example, LTA agreements can build stronger relationships and get us design into new markets like robotic, while the indirect channel sales ecosystem bring us more scale. In conclusion, as all this comes together, we intend to drive shareholder value with strong revenue growth and a more diversified and predictable financial models that offer material operating leverage potential for our shareholders. With that, John will now discuss our Q1 results and Q2 outlook in more detail. John?

John Young
John Young
CFO at Ambarella

Thank you, Fermi. I'll now review the financial highlights for the first quarter fiscal year 2027, ending April 30th, 2026. I will also provide a financial outlook for our second quarter of fiscal year 2027, ending July 31st, 2026. 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 and acquisition-related expenses, adjusted for the impact of taxes. For fiscal Q1, revenue was $100.4 million, slightly above the midpoint of our prior guidance range of $97 million-$103 million. Down 0.5% from the prior quarter and up 16.9% year-over-year. On a sequential basis, automotive revenue driven by commercial vehicles experienced a strong above seasonal double-digit percent increase, while IoT revenue was seasonally down.

John Young
John Young
CFO at Ambarella

Non-GAAP gross margin for fiscal Q1 was 59.9%, slightly above the midpoint of our prior guidance range of 59%-60.5%. Non-GAAP operating expense in Q1 was $56.4 million, slightly below the midpoint of our prior guidance range of $55 million to $58 million. Q1 net interest and other income was $2.1 million. Q1 non-GAAP tax provision was approximately $740,000. We reported a non-GAAP net profit of $5 million, or $0.11 per diluted share in Q1. I'll turn to our balance sheet and cash flow. Fiscal Q1 cash and marketable securities were $277.8 million, decreasing $34.8 million from the prior quarter, but increasing $18.4 million from the same quarter a year ago. The sequential decrease in cash and marketable securities was primarily due to an increase in our inventory levels to better service our customers in the face of a number of new product cycles.

John Young
John Young
CFO at Ambarella

Receivables days sales outstanding of 35 in Q1 was flat with the prior quarter, while days of inventory increased from 99 to 145 days. Operating cash outflow was $25.6 million for the quarter. Capital expenditures for tangible and intangible assets were $4 million for the quarter. Free cash outflow was $29.6 million for the quarter. During the first quarter of fiscal year 2027, we repurchased 47,798 shares of our stock for total consideration of $2.4 million, or an average price of $51.04 per share. During the second fiscal quarter, Ambarella's board of directors authorized a new $50 million repurchase program valid through June 30th, 2027, replacing the program that expires on June 30th, 2026. The repurchase program does not obligate the company to acquire any particular amount of ordinary shares. It may be suspended at any time at the company's discretion.

John Young
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 60.7% of revenue for the first quarter. I'll now discuss the outlook for the second quarter of fiscal year 2027. We forecast a seasonally strong fiscal second quarter, with revenue in the range of $105 million-$111 million, or $108 million at the midpoint. Sequentially, both auto and IoT revenue are expected to increase, with growth in both consumer and CapEx-driven markets. We expect fiscal Q2 non-GAAP gross margin to be in the range of 59%-60.5%. We expect non-GAAP OpEx in the second quarter to be in the range of $56 million-$59 million.

John Young
John Young
CFO at Ambarella

We estimate net interest and other income to be approximately $1.9 million, our non-GAAP tax expense to be approximately $800,000, and our diluted share count to be approximately 44.3 million shares. Thank you for joining our call today. With that, I will turn the call over to the operator for questions.

Operator

Thank you so much. As a reminder, if you do have a question, please press star one one on your telephone and wait for your name to be announced. To remove yourself, press star one one again. Our first question is from Ross Seymore with Deutsche Bank. Please proceed.

Ross Seymore
Ross Seymore
Managing Director at Deutsche Bank

Hi, guys. Thanks for letting me ask a question. You mentioned earlier about the auto side growing faster than the end market itself. I think you said that end market would be 10%-15%. In the past, you've given full year fiscal year revenue guidance. I think you said 10%-15% on your last call. How are you thinking about that for this year now?

Fermi Wang
Fermi Wang
President and CEO at Ambarella

Oh, yeah. I think for the whole year, we're still thinking it's probably 10%-15%. We are not changing that. The automotive is stronger, grows faster than the other market.

Ross Seymore
Ross Seymore
Managing Director at Deutsche Bank

Okay. On the LTA side of things, maybe the one that you announced tonight in the 8-K with the $800 million over time, more conceptually, how are you thinking about those? Are they going to be guaranteed revenues? I think you said the word potential revenue. How do we build that into the estimates as we think forward for the company?

Fermi Wang
Fermi Wang
President and CEO at Ambarella

Right. First of all, we already have a run rate with Hanwha for the last 15 years. We know we only take a percentage of their current market share. We expect with this LTA, we're going to gain market share on their annual run rate, as well as this is a multi-generational commitment on both sides. We're going to talk about at least two generations of silicon that will be co-developed between these two companies. I think from that point of view, we believe that it's a long period time of commitment as well as getting market shares from Hanwha. At the same time, if you look at our current ASP, although our corporate ASP is $15 per hour, CV ASP is a lot higher than that. If you put all the things together, that's how we calculate this potential $800 million.

Louis Gerhardy
Louis Gerhardy
VP of Corporate Development at Ambarella

Yeah, Ross, just a little background on Hanwha. It's a major multinational conglomerate with more than $60 billion in annual revenue. It's involved in aerospace, defense, robotics, physical security, life sciences, industrial, ocean solutions, chemicals, a lot of different things, and retail services.

Louis Gerhardy
Louis Gerhardy
VP of Corporate Development at Ambarella

An important part of this relationship in the intermediate to long term is moving beyond what has just been the physical security relationship that Fermi described as our current run rate. We can gain share on that business, but at the same time, the press release talks about, in addition to physical security, things like operational automation, life sciences, robotics, other industrial markets. That's another very important angle of this relationship.

Ross Seymore
Ross Seymore
Managing Director at Deutsche Bank

Great. Thank you.

Operator

Thank you. One moment for our next question. It comes from Tore Svanberg with Stifel. Please proceed.

Tore Svanberg
Tore Svanberg
Managing Director at Stifel

Yes, thank you. Maybe a question to follow up on the LTA and not the Hanwha one specifically, but how should we think about these sort of folding in here over the next few years? Obviously, these could be quite large. I'm sure you can say yes to all of them. Is there also going to be potentially some OpEx sharing with some of these customers that you sign LTAs with? Any more color you could offer us as far as how we should think about the magnitude and how it's going to be funded over the next few years? Thank you.

Fermi Wang
Fermi Wang
President and CEO at Ambarella

First of all, I think I want to go a little higher level in saying most of the LTA discussion is based on two things. One is really, when you look at all the fast AI trend and our customer continue to look at the new AI model, they implement higher performance, require lower power efficiency. To meet this kind of AI demand, while for the most AGI application, power efficiency is probably the most important thing. It's getting harder and harder to build a platform of silicon that can address all of these new applications. I think that trend really help our customers think about how to partner with somebody that can build a platform of a silicon that can help them not only on the enterprise security, but also other associated market they are trying to address.

Fermi Wang
Fermi Wang
President and CEO at Ambarella

I think that's probably how the LTA started. In this kind of LTA, most of the discussion will involve NRE, but also will develop a product mutually beneficial. I think those are two things that we definitely want to make sure that we develop a software platform that can go across our current silicon platform that offer a complete roadmap to our customer. In exchange, they were willing to help us to fund those platform with NRE, particularly not only on the silicon side, but also on the software side.

Tore Svanberg
Tore Svanberg
Managing Director at Stifel

That's very helpful. That was my follow-up, and maybe related to that platform approach, Fermi. Just thinking about the competitive landscape, obviously there's big processor companies, there's obviously analog companies and so on and so forth, but how flexible can your software platform really be? Because obviously the use cases at the edge are going to be quite different from use case to use case. Thank you.

Fermi Wang
Fermi Wang
President and CEO at Ambarella

I think our unique architecture, you remember that we have been talking about algorithm first. Let's say, call it the hardware accelerator, like our image processing and our CVflow AI accelerator has been really passed many battles and been proved to our customer. It's not only power efficient, but also programmable enough to adapt to many different applications, different AI models. For example, just talk about our CVflow architecture can do 200 different model architecture, not 200 models. We're talking about 200 model architectures, we took all of them into production. Just show you how flexible our accelerator is. More importantly, with the latest agentic AI approach, you need to integrate everything together. In that, including not only the ISV and the CVflow or CVflow encode, H.264 encoder.

Fermi Wang
Fermi Wang
President and CEO at Ambarella

On top of that, you need to integrate a complete SoC for CPU and also I/O and DRAM activity to provide very not only power efficient, but also cost efficient solution to our customers. That's where we are basically having a reputation to deliver those kind of products consistently in the last 20 years. When we look at the competitive landscape, we see NVIDIA, we see Qualcomm, obviously, but I really don't see any other people coming out with, one, a complete silicon platform that we have 12 edge AI SoC can go from very low performance to few hundred TOPS performance with power efficiency. On top of that, all the silicon was covered by one unified software development SDK that our customer, if they develop one product on one SoC, can easily go to different SoC, providing a different price or performance point on their product platform.

Fermi Wang
Fermi Wang
President and CEO at Ambarella

This kind of flexibility and the width of our product format, I don't think there are many people can match.

Tore Svanberg
Tore Svanberg
Managing Director at Stifel

That's a great call. Thank you.

Operator

Thank you. One moment for our next question, please. It comes from the line of Quinn Bolton with Needham & Company. Please proceed.

Quinn Bolton
Quinn Bolton
Analyst at Needham & Company

Hey, guys. Thanks for taking my question. I guess I wanted to follow up Fermi on the Hanwha LTA. In the press release, it talked about the internal SoC that Hanwha continues to design. I wonder, it sounds like you're co-designing multiple generations of chips. Is there an opportunity to get a bigger percentage of share away from that internal SoC, or you think that internal SoC continues to hold a portion of Hanwha's requirements? Then I've got a follow-up.

Fermi Wang
Fermi Wang
President and CEO at Ambarella

I think it's a mutual intention that they're going to use more of this co-developed platform into more product lines. We fully expect we're getting more market share from Hanwha with this new development.

Quinn Bolton
Quinn Bolton
Analyst at Needham & Company

Excellent. Fermi, you guys have talked about the fleet telematics market for a number of years, and it feels like it may finally be starting to inflect. On the script, you mentioned an installed base of over 100 million units, with less than 10 of that being AI. What do you think is driving the inflection? Is there anything you can point to in particular that's driving the pretty strong growth here in the first and second quarter?

Louis Gerhardy
Louis Gerhardy
VP of Corporate Development at Ambarella

Yeah. Hey, Quinn, it's Louis. Just in terms of the market opportunity, telematics, there's about 100 million subscribers, and third-party research firms like ABI or Gartner see it growing maybe 10% CAGR. Within that 100 million subscriber base, maybe only 15%-20% of the market is using AI and AI video as an additional ARPU generating feature in their platforms. What you have is the overall telematics market growing. You've got AI video growing into that, and at the same time, there's demand for more sophisticated AI workloads and multiple sensors, which is causing our ASP, the demand for more sophisticated edge AI chips to go up. Those are the dynamics that we're facing, and we're doing a very good job with share.

Louis Gerhardy
Louis Gerhardy
VP of Corporate Development at Ambarella

For example, this quarter, we announced Lytx, as Fermi mentioned, multiple platforms with CV72, CV75, which is they're one of the leaders of this market. Any follow-ups on that?

Quinn Bolton
Quinn Bolton
Analyst at Needham & Company

No, that's great. Thank you, Louis. Thank you, Fermi.

Louis Gerhardy
Louis Gerhardy
VP of Corporate Development at Ambarella

Sure.

Operator

Thank you. Our next question comes from the line of Joe Moore with Morgan Stanley. Please proceed.

Joe Moore
Joe Moore
Managing Director at Morgan Stanley

Yes, thank you. I wonder if you could talk about, are you guys impacted at all by shortages of DRAM or storage in any of the surveillance markets or consumer markets? Just you seeing any impact from any of that?

Fermi Wang
Fermi Wang
President and CEO at Ambarella

Yeah. First of all, obviously, just like everybody else, we are impacted, but not directly. We are impacted indirectly. In the last quarter, when we talk about this, we definitely talk about our customer facing much higher DRAM price and flash price, as well as potential shortage in the second half. That situation didn't change. The biggest direct impact to us is most of our customer are handling this DRAM shortage by doing, first of all, they are trying to source different DRAM supplier or to cut down the DRAM utilization per product. Basically, how to optimize the DRAM utilization in a chip so that they can use a smaller DRAM size. All those activity require we put in our FAE support to help our customer. We're happy to do that because that's definitely something we need to do to help our customer.

Fermi Wang
Fermi Wang
President and CEO at Ambarella

At the same time, I think that's probably the biggest direct impact to us on the engineering resource requirement.

Joe Moore
Joe Moore
Managing Director at Morgan Stanley

Okay, thank you. As a follow-up, the inventory, you sort of described it supporting product ramps, but it was a pretty big increase. Can you give us any more color, make us feel comfortable with that amount of inventory build? Thank you.

Louis Gerhardy
Louis Gerhardy
VP of Corporate Development at Ambarella

Hi, Joe. Yeah. If you look back in the last couple of quarters, we were running kind of lean. Over the last few quarters, we have looked at kind of the opportunities that are coming to us with the strong growth that we had last year. We wanted to position ourselves in the right product categories to be able to continue to serve our customers. Going from a fairly low number of days of inventory at points in last year, we wanted to build a bit of inventory heading into this year to be able to do that.

Fermi Wang
Fermi Wang
President and CEO at Ambarella

Joe, it's Fermi. Just want to add another color on this. Samsung has officially informed us that their supply is getting tighter. Obviously, we have secured our supply, but we feel that it's prudent for us to build up a little inventory just in case we run into a different supply issue. From that point of view, I think you also heard that the supply chain become a problem for everybody. We just try to be prudent to build up some inventory just in case.

Joe Moore
Joe Moore
Managing Director at Morgan Stanley

Makes sense. Thank you so much.

Operator

Thank you. Our next question comes from the line of Kevin Cassidy with Rosenblatt Securities. Please proceed.

Kevin Cassidy
Kevin Cassidy
Analyst at Rosenblatt Securities

Hi, thanks for taking my question, and congratulations on all the great progress. Along those lines, you're building out the indirect sales channel. I think you mentioned six groups hired. Maybe if you could describe these a little better geographically, and then also, do they have application engineers? Yeah, I'll just stop with those questions.

Fermi Wang
Fermi Wang
President and CEO at Ambarella

Right. First of all, there are many in the United States right now, obviously, but we are definitely trying to go to Japan and Europe to expand the ISV, but today all six of them are U.S.-based. In terms of size of those ISVs, it's really from large to small, but more importantly is really about what's their current engagement with the end customer. We're looking at ISV can add value, can easily pull their software onto our platform, and so they can go to their existing customer with our solution. Those are ISV we're engaging. More importantly, they are really enabling applications that we have not touched in the past. Overall, from that point of view, we are happy with the progress that we made in a short period of time since we announced this at CES.

Fermi Wang
Fermi Wang
President and CEO at Ambarella

I think six of them is just a beginning. I think our goal is to double that in this year, and hopefully we can continue to build our momentum based on that.

Louis Gerhardy
Louis Gerhardy
VP of Corporate Development at Ambarella

Yeah, Kevin, it's Louis. In addition, for this indirect effort, in addition to the ISVs we just talked about, there's significant effort building out channel partners and even system integrators as part of this effort. This is really important to help us serve markets like edge infrastructure that need a lot of technical support or very fragmented markets like robotics. A lot of efforts going into the ISV channel partners and even system integrators.

Kevin Cassidy
Kevin Cassidy
Analyst at Rosenblatt Securities

Okay, great. Yeah, that was going to be part of my follow-up question of how much of a, I hate to use the term, but the cookie cutter approach can it be that someone can go in with a lot of the solution already and help out a customer. Is that the idea?

Fermi Wang
Fermi Wang
President and CEO at Ambarella

Yeah.

Louis Gerhardy
Louis Gerhardy
VP of Corporate Development at Ambarella

Yeah, you might have multiple ISVs working on one project. If I understood the question right, it's not just always something right off the shelf, cookie cutter, as you said. You might have ISVs, you might have channel partners, and you might have system integrators all involved on one project. I think it's pretty far from being cookie cutter. It's very sophisticated software. As these workloads get more complex, you need that whole indirect ecosystem to play a role in many of these designs we're pursuing.

John Young
John Young
CFO at Ambarella

Kevin, just to add. Part of the decision making engaging with some of these ISVs is seeing the expertise that they have in different verticals. Some of them they have expertise across multiple verticals, it's really trying to take a holistic approach to that engagement and cover as many verticals as we can with folks who specialize.

Kevin Cassidy
Kevin Cassidy
Analyst at Rosenblatt Securities

Okay, great. Thank you.

Operator

Thank you. Our next question comes from the line of Christopher Rolland with Susquehanna. Please proceed.

Christopher Rolland
Christopher Rolland
Analyst at Susquehanna

Thanks so much for the question, guys. My question is, I think a few quarters ago you talked about doing some infrastructure, putting your chips basically into servers. I think it was for security camera applications, but potentially other. Have you had any other further engagements there on the infrastructure side?

Fermi Wang
Fermi Wang
President and CEO at Ambarella

Yes, we do. Edge infrastructure continues to be a focus, and we have N1-655. We have not only engaged with customer, we also have design wins that we're working on. The first product will probably come out, I would say, second half of this year. In the same time, we are definitely building a roadmap to continue to address this opportunity. We haven't talked about our next generation chip and also the potential updates on that. I think next time we should give you more updates on the edge infrastructure. That's meant to be a very important direction for us.

Louis Gerhardy
Louis Gerhardy
VP of Corporate Development at Ambarella

Yeah, just to put it in perspective.

Christopher Rolland
Christopher Rolland
Analyst at Susquehanna

Thanks.

Louis Gerhardy
Louis Gerhardy
VP of Corporate Development at Ambarella

Based on the products we have now, it's a couple hundred million dollar SAM for things like AI vision box. As we come out with more products and build out this indirect ecosystem that, as we mentioned, will help the edge infrastructure business, you'll see us update the SAM appropriately when we have more products here. Definitely a high focus area, and it's part of that indirect channel we were just talking about.

Christopher Rolland
Christopher Rolland
Analyst at Susquehanna

Great. Thank you, Louis. Thank you, Fermi. For my second question, just the robotics opportunity. I think last quarter you mentioned warehouse robotics. Any other engagements there? If you could talk about humanoids and engagements there, that'd be interesting, too.

Fermi Wang
Fermi Wang
President and CEO at Ambarella

Right. We talk about different applications this time. In fact, last time we talked about the warehouse design win, and now we are definitely in extensive engineering development cycle with that. More importantly, on top of that, we have a multiple design wins in this quarter in the span of many different applications. I talk about it in my script. I think the most important thing is now we focus on that for any robots, there are multiple different solutions today. One is just purely video, the other one is perception. Three, the third one is using fusion to put a different sensor together. Fourth one is really become the controller or decision maker for this whole robot system. Our design win is in all these areas, but more focused on the perception side because our expertise on the video and also fusion side.

Fermi Wang
Fermi Wang
President and CEO at Ambarella

I think it's across different applications and also focus on perception and also decision making part of the robotic solution. There are some of the humanoid type of applications in that design wins, but we are not in a place to talk about just yet.

Christopher Rolland
Christopher Rolland
Analyst at Susquehanna

Excellent. Thank you, Fermi.

Operator

Thank you. One moment for our next question. That comes from Martin Yang with Oppenheimer. Please proceed.

Martin Yang
Martin Yang
Analyst at Oppenheimer

Hi. Thank you for taking my question. First, couple of questions on LTA. Are you able to say or quantify how many other potential partners you have in your LTA discussion?

Fermi Wang
Fermi Wang
President and CEO at Ambarella

We only announced two. There's no other concrete information we can disclose at this point.

Martin Yang
Martin Yang
Analyst at Oppenheimer

Got it. Also on LTA, so for example, the one with Hanwha spanning over multiple years, do you need to also secure wafer supply from your foundry partner regarding those LTA agreement?

Fermi Wang
Fermi Wang
President and CEO at Ambarella

I believe that our relationship with Samsung, although we only try to secure a wafer commitment every year, but in the last 18 years, we never have any problem to secure the wafer we want for our customers. I expect that our wafer supply for 5.0 or 2 nm from Samsung will not be an issue for us, although there is a lot of discussion that Samsung is also gaining momentum on those process nodes. We don't have any long-term contract with any suppliers. That might be a question you're asking, but I don't think that's a contract we're going to sign with any supplier any time soon.

Martin Yang
Martin Yang
Analyst at Oppenheimer

Got it. Last question, also on LTA, do you view your relationship with Samsung and your design capabilities as a key value prop when you try to secure long-term agreements with other customers?

Fermi Wang
Fermi Wang
President and CEO at Ambarella

Absolutely. One long discussion with any customer on LTA is how you secure your wafers, particularly on the 4 nm, 2 nm process node. In fact, some of the time we have to really bring our supplier partners into a conversation to make sure our customers feel comfortable with it. By the way, I can say that today, Samsung announced at their official company-wide event talking about their 2 nm process, and they made an announcement that NVIDIA and Ambarella are the 2 nm customers that commit to their process node. That's official press release from Samsung.

Martin Yang
Martin Yang
Analyst at Oppenheimer

That's great. Thank you, Fermi.

Fermi Wang
Fermi Wang
President and CEO at Ambarella

Thank you.

Operator

Thank you. As a reminder, to ask a question, simply press star one one to get in the queue. That is star one one to get in the queue. Our next question is from Suji Desilva with Roth Capital. Please proceed.

Suji Desilva
Suji Desilva
Analyst at Roth Capital

Hi, Fermi. Hi, John. It's Suji. Quick question on robotics as well. I'm curious, you have a breadth of wins there. Are those across the board on your product portfolio, or does that category lean toward the leading edge products, the leading edge nodes? Just want to understand where robotics is intersecting your product portfolio.

Fermi Wang
Fermi Wang
President and CEO at Ambarella

All the products that we have designed win is our CV product line. Most of that is our 5 nm products. There are some 10 nm, but majority is 5 nm products. In fact, there are also our 4 nm products in there, too. This is really covering our CVflow architecture. That's the main reason people using us, but more focused on the 5 nm for the performance efficiency.

Suji Desilva
Suji Desilva
Analyst at Roth Capital

Got it. Okay. A question perhaps for John. Should we expect typical seasonality this fiscal year or this calendar year, or are there factors that might be swinging it differently than prior years?

John Young
John Young
CFO at Ambarella

Suji, I think the expectation is to continue to see the seasonality that we've seen in the past at this point.

Suji Desilva
Suji Desilva
Analyst at Roth Capital

Okay, great. Thanks, John. Thanks, everybody.

Operator

Thank you. Our next question is from Ross Seymore with Deutsche Bank. Please proceed.

Ross Seymore
Ross Seymore
Managing Director at Deutsche Bank

Hi, guys. Just one follow-up for you. Given the change in the business, more automotive this year relative to the IoT side, and then longer term, some of the robotics and IoT and edge AI, physical AI, everything you've talked about on the call, how do you see that impacting, either benefiting or being a little bit of a headwind to your gross margin in both the near term and long term from those dynamics, please?

Fermi Wang
Fermi Wang
President and CEO at Ambarella

Right. Ross, in fact, since three quarters ago, we start really watching our gross margin carefully. I think that today what I can say is based on all the things we just discussed, we believe that we are going to stay with our current long-term gross margin model, that's between 59%-62%.

Ross Seymore
Ross Seymore
Managing Director at Deutsche Bank

Got it. Thank you.

Fermi Wang
Fermi Wang
President and CEO at Ambarella

Thank you.

Operator

Thank you. This concludes our Q&A session, and I will pass it back to Dr. Fermi Wang for closing comments.

Fermi Wang
Fermi Wang
President and CEO at Ambarella

Thank you for joining our call today, and I really hope I can see you at some of our events this quarter. Thank you. See you next time.

Operator

This concludes our conference. Thank you for participating, and you may now disconnect.

Executives
    • Fermi Wang
      Fermi Wang
      President and CEO
    • John Young
      John Young
      CFO
    • Louis Gerhardy
      Louis Gerhardy
      VP of Corporate Development
Analysts
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