Ambarella, A Diversified Play On Specialty Semiconductors
Ambarella (NASDAQ:AMBA) made a name for itself providing chips and technology for GoPro’s (NASDAQ:GPRO) popular line of digital, connected, cameras. Unfortunately for both companies, the GoPro narrative did not play out quite as we thought. GoPro is still a great company, don’t get me wrong, but it never became the household name it was expected to grow into. On the flipside, Amberella’s story is a wee bit different. It’s taken a little bit of time but this company is well-positioned for the coming digital revolution I like to call 5G.
What does 5G have to do with Ambarella? 5G is a faster, more data-rich network for mobile and remote internet connection. It will enable things like real-time use of the IoT, something we’ve been waiting for for a long time. The IoT exists today, yes, but it pales in comparison to what 5G will allow. Connectivity and data-transmission speeds are holding it back in oh so many ways. Along with the IoT will come a growing need for digital visualization and the chips to power it. That’s where Ambereall comes in.
Ambarella Moves Lower After Reporting Q2 Earnings
Shares of Ambarella moved lower after the Q2 report but not because the news was bad. It’s another case of too-little-too-late in the reporting cycle after virtually every S&P 500 company reported better than expected results. On top of that, the bar wasn’t all that high after 10 of the 11 analysts lowered their targets and there is history to account for as well. Ambarella has beaten consensus for top and bottom-line results 100% of the time over the past 12 quarters.
So, top-line revenue came in at $50.1 million. That’s an 11.2% decline YOY, a little more than -8.0% sequentially, but beat consensus by a 0.1%. Mitigating that is the 1st half tally, up 1.1% due to strength in the 1st quarter. Moving down the statement, adjusted gross margins improved 280 basis points despite an increase in operating expenses. On the bottom line, GAAP earnings are a loss of $-0.43 while adjusted earnings show a slight profit, both better than consensus by a nickel.
“The healthy customer and product mix supported by strong operational execution all contributed to gross margin above the high end of our long-term model,” said Fermi Wang, President and CEO. “We are encouraged by the growing acceptance of our visual AI products, despite the economic consequences of the pandemic and the continuation of the geopolitical risks,” said Fermi Wang, President, and CEO. “We remain confident 10% of our total revenue will be earned from CV products in the fiscal year 2021. Moreover, our automotive sales funnel is beginning to build, with more than three dozen unique automotive customers assessing and/or developing CV-based products during Q2.”
The company was able to offer guidance for the following quarter. Revenue is expected to grow mid to high-single digits on a sequential basis. Revenue and earnings both projected in a range bracketing the consensus.
A Buying Opportunity In Amberella
Shares of Ambarella began moving up about two weeks but got a little bit ahead of themselves. Profit takers began trimming their positions even before the 2Q report was released and now shares are down again in the premarket action. The good news is that price action is still above near-term support levels and appears to be offering a nice point of entry. Price action may fall as far as $52 over the next day or so but I would expect to see support begin to show itself quickly. Longer-term, Ambarella will likely retest its pre-COVID highs by the middle of 2021 if not sooner.
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