Earnings Call Transcript - AMBA Q3 2020

Operator, Operator

Ladies and gentlemen, thank you for standing by and welcome to Ambarella's Q3 Fiscal Year 2020 Earnings Conference Call. I would now like to hand the conference over to your speaker today, Louis Gerhardy, Corporate Development. Thank you. Please go ahead, sir.

Louis Gerhardy, Head of Corporate Development

Thank you, Gigi. Good afternoon and thank you for joining our third quarter fiscal 2020 financial results conference call. Our speakers will be Dr. Fermi Wang, President, and CEO; and Casey Eichler, CFO. The primary purpose of today's call is to provide you with information regarding the results for the third quarter of our fiscal 2020. 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 subject to risks, uncertainties, and assumptions. Should any of these risks or uncertainties materialize or should our assumptions prove to be incorrect, our actual results could differ materially from these forward-looking statements. We are under no obligation to update these statements. These risks, uncertainties, and assumptions, as well as other information on potential risk factors that could affect our financial results, are more fully described in the documents we filed with the SEC, including annual report on Form 10-K filed on March 29, 2019 for fiscal 2019 ending January 31, 2019, and the Form 10-Qs filed on June 7, 2019, and on September 6, 2019, for the fiscal year 2020 ending January 31, 2020. Access to our third quarter fiscal 2020 results press release, historical results, SEC filings and a replay of today's call can be found on the Investor Relations portion of our website. I'll now turn the call over to Dr. Fermi Wang.

Fermi Wang, President and CEO

Thank you, Louis, and good afternoon, everyone. Before I discuss our results, I will provide an update on geopolitical factors that may continue to impact our business. During the quarter, we provided an update on the impact to our business from the entity list published on October 9. While this brought clarity to some trade issues, we continue to see a wide variety of geopolitical risk outstanding, including foreign policy, trade, and IP matters. Factors potentially disruptive to our business include changes to tariffs and entity lists, market share shifts between our customers, supply chain issues, potential export regulations on advanced technologies and the potential for customers in China to take actions to reduce their dependency on U.S. components. On the other hand, our largest competitor in the security camera SoC market, HiSilicon (Huawei), is facing challenges, which is helping us gain share outside of China. As you can see, multiple factors, both positive and negative, are contributing to a wide range of potential outcomes for us. We continue to demonstrate strong progress toward our strategy to transform from a pure video processing company to an AI and computer vision company. During Q2, our entire CV family contributed to the early ramp in our CV revenue with mass production shipments continuing in automotive and security camera markets. CV design activity remains strong. In Q3, we generated pre-production CV revenue including engineering parts, evaluation kits and development boards for more than 50 customers across all applications and geographies. Our Q3 fiscal year 2020 revenue of $67.9 million was above the high end of our guidance range and the revenue increased 20% from the $56.4 million in the prior quarter. We saw strength in our traditional video processing markets, driven by our automotive business. Security camera revenue was driven by strong underlying consumption as recently reported by several of our large customers, as well as inventory restocking at our customers in China and share gains. I will now talk about our progress in our target markets, starting with security. At the China Public Security Expo held in October, we demonstrated a number of event imaging and AI technologies that are enabling the next generation of IP security and robotics applications. This included using a single RGB-IR sensor fusion software to eliminate mechanical IR filters and to recover information under near-IR illumination. We also demonstrated person detection using AI-based processing running on our CV25 SoC to enable fast system boot and reduce power consumption in battery-powered applications. We also demonstrated our new robotics SDK running multiple new networks and stereo processing concurrently on a single CV2 SoC to provide full-frame-rate object detection, classification, tracking with depth measurements and segmentation. We believe the new SDK will enable our customers to develop solutions for a wide range of new machine learning applications in warehousing logistics, Industry 4.0, new retail and both consumer and industrial robots. At the GSX 2019 security show held in September, Hanwha Techwin, a leading supplier of IP video security solutions, announced its new P&L series of AI cameras based on Ambarella's CV22 CVflow SoCs. The new cameras run network-based algorithms to recognize different types of vehicles, faces, license plates, and other objects, offering greatly enhanced video analytics accuracy versus previous generations. The camera is available in both 4K and 5-megapixel resolution models. Also at the GSX show, Bosch introduced multiple new IP cameras based on Ambarella SoC solutions. This included its intelligent iSeries cameras, including new FLEXIDOME and the VINEON camera models with embedded video analytics standard, and the new AUTODOME starlight 7000i cameras that include intelligent video analytics, the ability to track and zoom on moving objects, 4K resolutions and present H.264 video compression, making them ideal for applications such as city and highway surveillance. During our last earnings call, we discussed Motorola Solutions' and Avigilon's introduction of the H5 AI camera line based on our CVflow SoCs. During the current quarter, Avigilon further extended its portfolio with the introduction of its new H5A camera line based on Ambarella's H5 SoCs. Focusing on simplicity, flexibility and cost-effectiveness, the new cameras come in multiple resolutions and incorporate visual motion detection and advanced AI technology to notify operators of unusual events that might otherwise have been missed. In November, security start-up Bricata announced its new dome series comprising eight new cameras, including both indoor and outdoor models with a range of resolutions up to 4K. The Ambarella-based dome series is eight times more powerful than the previous generation, enabling industry-leading edge-based analytics, including advanced vehicle and person detection. In the home monitoring segment, market leader Ring introduced its indoor camera, a compact plug-in design that you can see here and use to speak to people in your home from your phone, tablet or Apple device. Based on Ambarella's H2LM SoC and priced at only $60, the cameras provide notifications whenever motion is detected based on customized motion zones. Multiple indoor cameras can be connected via Ring's app to provide complete home coverage. In China, Hikvision's consumer division EZVIZ introduced its Lookout DP1 HD video smart home door viewer based on Ambarella's H3LM SoC. Replacing the peephole in the door, the battery-powered camera allows the homeowner to view visitors remotely on a touchscreen display and communicate with them using two-way audio. In the police camera category, Motorola Solutions announced its new WatchGuard V300 body-worn camera, the first in the law enforcement industry to remain operational beyond the 12-hour shift, featuring Ambarella's low-power H2LM SoC. The camera includes a 5K sensor and full HD recording and it can also be integrated with WatchGuard's in-car video systems. Now, I will update you on our progress in automotive markets. Ambarella is working with Mercedes-Benz to develop its edge platform for their Cargo Recognition and Organization System called CoROS. The newly developed CoROS assistant actively supports parcel delivery drivers with camera-based object tracking and machine learning software. A camera assistant in the cargo space automatically recognizes registered parcels using barcodes and the symbols on the packages. This is done in fractions of a second, replacing manual time-consuming scanning and sorting of each shipment. Ambarella's CV2 was chosen due to its excellent imaging, monocular and stereovision processing options, and powerful AI processing capabilities. We are seeing strong interest in Ambarella CV4 AI chip from companies that provide aftermarket fleet management solutions for commercial vehicles. Traditionally, video solutions for commercial vehicles comprised cameras with limited or no active driver assistance or monitoring features. With Ambarella's portfolio of CVflow AI chips, fleet management solutions can now deploy AI-based applications such as front ADAS, active driver monitoring assistance and blind-spot detection. The CV4 solution has been chosen by multiple providers in Asia and the USA, and is expected to go into production in 2020. At the AutoSens Brussels 2019 Automotive Conference held in September, Ambarella partnered with Ausemi and AI software start-up IRIS to demonstrate a fully integrated in-cab monitoring assistant including both driver and occupancy monitoring functions. The multi-camera system utilized Ambarella's CV2AQ and CV4 SoCs to process real-time, high-quality RGB-IR video and Onsemi global shutter and RGB-IR image sensors. The IRIS AI software performed the complex body and facial analytics, passenger activity monitoring and object detection, all running concurrently on the CV2AQ. The demonstration won awards for the best automotive safety assistant and most innovative in-cab application. At the Tokyo Motor Show held in September, Ambarella partnered with a leading Japanese car manufacturer and Sony sensor group to demonstrate a new electronic night assistant based on Ambarella's CV22 CVflow SoC and Sony's IMX490 image sensor. The electronic night assistant demonstrated outstanding image quality under a number of challenging low light and high contrast lighting conditions. In automotive OEMs, Chinese automaker Chery introduced its Tiggo 8 SUV featuring an integrated digital video recorder. Supplied by Chinese Tier 1 supplier Skyworth, the recorders are based on Ambarella's A12A automotive SoC and support HD video recording. In the consumer market, we also enjoyed a couple of interesting product introductions during the quarter. In October, drone market leader DJI introduced its lightest and smallest model ever, the Mavic Mini, weighing just 249 grams. The $399 drone does not require FAA registration and achieves over 30-minute flying time. Its camera is based on Ambarella's H22 SoC providing 2.7K video at 30 frames per second and 12-megapixel photos, higher than the full HD video of the previous Spark model. Also during the quarter, Insta360 introduced its GO camera, a wearable model weighing only 30 grams and offering full HD video recording. Based on Ambarella's A12 SoC, the camera includes video stabilization to keep footage steady and uses AI-powered FlashCut to find your best shots automatically. In summary, despite the geopolitical and economic headwinds, we remain highly confident and have made the right decision with more than $350 million invested to date into video-based AI. We remain fully committed to driving our CV solution into expanding classes of edge endpoint devices. We are leveraging our video processing expertise as well as our established base of customers to serve not only the traditional human viewing market but also the machine-based market, a large incremental opportunity. The multi-billion-dollar expansion in our SAM originates not only from the new product cycles in our existing markets like security cameras but also from new machine vision markets including automotive, smart cities, Industry 4.0, logistics, robotics and more. As we approach the end of the year, we are looking forward to the Consumer Electronics Show in January. During this event, we will be demonstrating our fully autonomous vehicle EVA, short for Embedded Vehicle Autonomy, driving in a variety of challenging conditions. We will also be demonstrating our latest solutions for ADAS, driver monitors, electronic mirrors and in-cabin monitoring in collaboration with our software partners. And then we will show new solutions for robotics, home monitoring, access control, and logistics all enabling AI-based applications and the performance of CV4 SoCs. We hope to see many of you there. At the end, I want to thank Ambarella's 756-strong team for their focus and execution during this very exciting phase of development. And thanks to all our other stakeholders including customers, vendors, and shareholders for your continued support. Now, I will turn the call over to Casey for the third quarter financial details and guidance for our fourth quarter of fiscal 2020. Thank you.

Casey Eichler, CFO

Thank you, Fermi, and good afternoon, everyone. Today, I'll review the financial highlights for the third quarter of fiscal '20 and provide a financial outlook for the fourth quarter of fiscal '20. During the call, I'll discuss non-GAAP results and ask that you refer to today's press release for a detailed reconciliation to GAAP to non-GAAP results. For non-GAAP reporting, we have eliminated stock-based compensation expense and adjusted for the impact of taxes. Our Q3 revenue of $67.9 million exceeded the high end of our guidance of $63 million to $67 million. These results represent an increase of 20% from Q2 and an increase of 19% when compared to the same quarter of the prior year. In Q3, all markets increased sequentially, led by strength in the automotive OEM and aftermarket. Non-GAAP gross margin for Q3 was 58.1%, similar to the preceding quarter. Gross margin was slightly above the high end of our guidance of 56% to 58% due in part to a richer mix of automotive business in both OEM and aftermarket. Non-GAAP operating expense for the third quarter was $29.3 million compared to $29.7 million in Q2 after backing out R&D grants related to prior periods. This was below our guidance range of $30 million to $32 million as engineering hardware expenses were below budget. Other income of $1.9 million primarily represented interest income on our cash and marketable securities. Non-GAAP net income for Q3 was $11.3 million or $0.32 per share compared to $7.3 million or $0.21 per share in the second quarter. The non-GAAP effective tax rate in Q3 was 6.6%, slightly better than our guidance of 10% due to a higher than expected benefit from employee stock option exercises. In the third quarter, the non-GAAP earnings per share were based on 34.8 million shares as compared to 33.9 million shares in the prior quarter. Total headcount at the end of the third quarter was 756 with about 81% of the employees dedicated to engineering, most of whom are focused on software. Approximately 70% of our total headcount is located in Asia. In Q3, we generated operating cash flow of $21.9 million. Cash and marketable securities were $400.8 million, up from $375.8 million at the end of the second quarter. We did not repurchase stock during the quarter under the $50 million repurchase program authorized through June 30, 2020. Total accounts receivable at the end of Q3 were $21.6 million or 29 days sales outstanding. This compares to accounts receivable of $27.9 million or 46 days outstanding at the end of the prior quarter. Net inventory at the end of the third quarter was $19.8 million compared to $17.4 million at the end of the previous quarter. Days of inventory decreased to 59 days in Q3 from 67 days in Q2. We had two 10% plus revenue customers in Q3. WTI Microelectronics, a fulfillment partner in Taiwan who ships to multiple customers in Asia, came in at 63.2% of revenue, and Chicony, a Taiwanese OEM who manufactures for multiple customers primarily based in the U.S., came in at 15.7%. I will now discuss the outlook for the fourth quarter of fiscal '20. Our fourth quarter fiscal '20 guidance is consistent with current street consensus. We expect total revenue for the fourth quarter to be in the $55 million to $59 million range. Q4 is typically a seasonally slow quarter and we anticipate automotive and security to be down sequentially with other revenue flat to slightly up sequentially. We continue to expect other revenue comprised primarily of consumer electronics products to remain volatile and decline as a percentage of revenue over the next two to three years. The geopolitical and economic environment continues to generate a significant amount of uncertainty with our customers' outlooks and supply chain. Needless to say, forecasting is difficult. We estimate Dahua and Hikvision combined pulled in approximately $10 million of revenue into fiscal '20 that otherwise would have been in fiscal '21. As a reminder, we typically experience a sequential decline in the first quarter ending in April and a rebound in our second fiscal quarter. We estimate Q4 non-GAAP gross margin to be between 56.5% and 58.5% compared to 58.1% in the third quarter. We expect non-GAAP OpEx in the fourth quarter to be between $29.5 million and $31.5 million. The Q4 non-GAAP tax rate should be modeled at 10% versus 6.6% in Q3 and 9.1% in Q2. The tax rate has normalized from Q1 levels as our increased level of profitability enables tax losses in certain jurisdictions to be utilized. We estimate our diluted share count in Q4 to be approximately 35.2 million shares. Ambarella will be participating in the 41st NASDAQ Investor Conference on December 3, in London; the Deutsche Bank Auto Tech Conference on December 10, in San Francisco; the Nomura 101 Conference at CES on January 6; and the Needham Conference in New York on January 14. Please contact Louis for more details on these events. Thank you for joining our call today. And with that, I'll turn the call over to the operator for questions.

Operator, Operator

And our first question is from Matt Ramsay from Cowen. Your line is now open.

Matt Ramsay, Analyst

Thank you very much, guys. Good afternoon, everyone. I wanted to ask a couple of longer-term questions for me. One of the - and I know there'll be some focus on the pull-ins from the Chinese customers. But in your other markets, you talked a little bit more in the script today about robotics than I heard you guys talk about in the past and we've known, it's been a long-term opportunity for the company. But now that you're calling it out more on the earnings call here, I wondered maybe if you could talk a little bit about the types of engagements, the breadth, maybe the time to revenue from the engagements that you have in the robotics market. And then I have a follow-up. Thanks.

Fermi Wang, President and CEO

Yes. Thank you for pointing that out because you are right, this is the first time we have highlighted our robotics application in our conference call. The reason for that is this is the first time we disclose we have a robotics SDK available for our customers. As you know in the past, we never claimed that we are a programming platform that the customer can buy and program themselves. Our strategy is always to understand what customers need and provide the AI and video functions required to deliver the functionality for their applications. Therefore, we really need to provide a complete SDK. Today, we highlighted that we have the first generation of SDK available. In there, we now provide multiple new networks that are required for the majority of robotic applications, and we also have mono and stereo processing, integrated low-light capabilities, and all of that can run concurrently on CV2A SoC, which I think is a great technical achievement. So from a technology point of view, we're making clear that we are ready to support our customers, and you can see that this SDK matured after working with multiple robotic customers for different applications. We target smart manufacturing, smart city and logistics applications. If you look at the details of our SDK, you can see that this kind of robotics SDK can be applied to both commercial as well as consumer applications. In terms of revenue, we are at the beginning of design-win activity and we hope to close design wins soon, so we are saying probably this is a roughly 12-month-away revenue opportunity for us. Nonetheless, it's very important for us to highlight that we have a robotics SDK targeted for robotic applications. Most customers will find that our SDK has a majority of the functional features they require and they can quickly port their application and start testing performance, power consumption and all the benefits we're offering.

Matt Ramsay, Analyst

Thank you, Fermi, that perspective is helpful. As my follow-up, I wanted to ask a question on the automotive business. Often I hear focus on what you guys are shipping today and towards the data recorders and then sort of the really long-term focus on ADAS and autonomous. And I wanted to ask about a deal that I think you announced just on this call with Mercedes-Benz for an in-cabin application, maybe you could talk a little bit about what that engagement is and what that opportunity represents? Thank you.

Fermi Wang, President and CEO

Right. So this is really more of a commercial vehicle application and the function is that in a delivery van situation, when parcels have been brought into the cabin today, you use a manual process to log and manage the parcels. With our solution, a camera installed in a van can quickly scan those boxes, determine the size, and with the barcode we can capture the recipient information as well as other markings on the package. Then you can quickly manage and place the right parcel where the driver needs to pull it out; that can be done in fractions of a second. So this shows how many manual processes in the delivery industry can be automated by cameras and that can be done purely by one CV2 chip running multiple cameras. This is really a commercial in-cabin application and we work with the OEMs directly to put the solution together. We provide the SDK, and they work with us closely to put their application on CV2. The in-cabin lighting condition is constrained and we have stereo, mono, advanced video processing and integrated CPU in one chip to provide all the functions needed for the delivery truck. We are excited about this opportunity and believe this is one of several design wins we will talk about in the future.

Matt Ramsay, Analyst

Thanks, Fermi. Just one little quick follow-up on that and then I'll jump back in the queue. So are you saying this in-cabin application with Mercedes-Benz was you working directly with that OEM that developed the software on your CVflow architecture. Am I reading that right? Thanks.

Fermi Wang, President and CEO

That's correct.

Operator, Operator

Our next question is from Adam Gonzalez from Bank of America. Your line is now open.

Adam Gonzalez, Analyst

Congrats on the strong quarter and thanks for taking my question. I think I just wanted to clarify you had called out a $10 million number for the pull-ins from 2021 in security. I - just doing some quick math, it seems like that's been a pretty big chunk of the upside that you've seen in the last couple of quarters in terms of your revenue performance relative to the Street expectations. Am I thinking about that right? Or has the market share factor been more of a factor in fiscal '20 relative to the inventory pull-in? Thanks.

Fermi Wang, President and CEO

Yes. What we're trying to do is characterize the situation. Obviously, a lot of people have asked this question; we don't have perfect visibility. What we think is that some amount of revenue shifted from fiscal '21 into fiscal '20. We made some assumptions and tried to get an understanding from our customers. What we're trying to say is that for the two years combined, we estimate about $10 million pulled in from fiscal '21 to fiscal '20.

Adam Gonzalez, Analyst

And is that still a risk moving forward or after the update you provided on October 9, do customers have some degree of comfort around the need to build inventory in future periods? Or is that just a thing of the past? Thanks.

Fermi Wang, President and CEO

We stated in our press release on October 9 that we were comfortable there was no material financial impact for Q3 and Q4. So we still think that's the case. The uncertainty is in fiscal '21 — how customers will consume the backbook and when they will consume it, and how that will impact fiscal '21, which is not clear to us.

Adam Gonzalez, Analyst

And if I can just slip in one more question. I'm just wondering if you had an update from many of your top security camera customers on what their AI-based camera target will be over the next couple of years?

Fermi Wang, President and CEO

You're talking about professional security cameras? Based on current information, we believe the design-win activity is largely decided. We've talked about this in prior calls and we are on track to deliver mass production with many of those customers this year, and the balance will follow next year. From that point of view, we need to continue to help our customers go into production. We mentioned several customers today; in the past we've talked about Avigilon and Hanwha Techwin and other customers, and in the future we'll talk about additional ones that are ready to move forward. I believe that the majority of current professional security camera customers will use our AI solutions and most of them will be in production by the end of next year. As for penetration of AI-based cameras overall, that's a little more difficult to estimate. Based on current data, customers with AI cameras in production are performing better than forecast, so AI has momentum, but professional security AI cameras, particularly outside China, are still in the early stages. I'd like to see a couple more quarters of run rate before providing a penetration estimate, but all our customers are eager to introduce AI-based cameras.

Operator, Operator

Our next question is from Ross Seymore from Deutsche Bank. Your line is now open.

Ross Seymore, Analyst

Congrats on the results. The $10 million pull-in that you talked about Casey, just not to get too granular on it, but any clue of when you expect that unwind to occur? Is it inclusive of your January quarter guidance? Or do you think it's more of a fiscal '21 dynamic? Any sort of clues on that sort of linearity would be great.

Casey Eichler, CFO

No, I think it's more of a fiscal '21 situation. Going into next year, it's impossible to tell if they're going to hold it or burn it off in a quarter or over the year. My assumption is that over the course of fiscal '21, they'll probably get back to more normalized inventory levels. But again, that's not an exact science; I see it getting burned off into fiscal '21.

Ross Seymore, Analyst

And then did you see any change in those customers' behavior when they got added to the entity list specific to Ambarella, of course? And then once you guys put out the 8-K that you could continue shipping, was there volatility around that? Or did it happen in such a short period of time that you really couldn't notice?

Casey Eichler, CFO

I think they felt relieved when they realized we could continue to ship. But I think one clear trend is they are putting plans together to focus on non-U.S.-based component suppliers. So that's a trend we need to continue to watch.

Ross Seymore, Analyst

And then my final question on this topic then I'll go away is, you guys also have been targeting customers outside of China for all the reasons we have already discussed. Any sort of metrics on the success and gaining design wins there? And if you've seen those customers themselves start to gain market share?

Fermi Wang, President and CEO

Based on our data, we believe our non-Chinese customers have gained market share in the U.S., but it's less clear outside the U.S. That's what our current data shows. It reflects that in the U.S. more customers have concerns about HiSilicon solutions.

Casey Eichler, CFO

Just to add to that, a clear example is Hanwha Techwin which Fermi talked about over the last couple of quarters. That's a customer that moved from HiSilicon to Ambarella and is also moving forward with our CV products. I think that's a clear example that we picked up some market share and that they'll be a good player in the market.

Ross Seymore, Analyst

Thanks for those details. I sneak one housekeeping one and maybe for you, Casey. In the past, you talked about normal seasonality, I think on your last quarterly call for the January quarter. Is there such a thing as normal seasonality for your April quarter?

Casey Eichler, CFO

Yes. Both the January quarter and the April quarter are down roughly 12% to 15% year over year seasonally. We've guided to what we thought we would see in January, and I think we'll probably see the normal 12% to 15% decline in April as well. We then tend to have a stronger Q2 and Q3. Historically, those quarters rebound pretty substantially from the low in April.

Operator, Operator

Our next question is from Joe Moore from Morgan Stanley. Your line is now open.

Joe Moore, Analyst

In terms of the in-cabin monitoring and I guess it's probably similar to Mercedes, you guys seem to be getting quite a lot of wins there and I guess with some of the European in-cabin standards that stuff comes into production fairly quickly. Can you talk about when you might see actual revenue coming from those wins? And it seems to be predominantly CV2, so at the more expensive products there that seems like a fairly sophisticated sale for you. So can you talk a little bit more about that?

Casey Eichler, CFO

Right. We haven't given revenue guidance on the in-cabin systems yet. However, for commercial vehicles, CV2 is more suitable because of the requirement for multiple cameras. For consumer cars, CV22 might be a better fit because most consumer vehicles do not require stereo and the performance requirement is more limited. That's the difference between commercial and consumer vehicles. We are trying very hard to win design-ins in those areas.

Joe Moore, Analyst

And then on the consumer surveillance side, is it reasonable to think about CV sort of announcements over the course of 2020, and then revenue in 2021; is that kind of the right timeframe or just maybe an update on what you're seeing on consumer surveillance?

Casey Eichler, CFO

Yes, I think that's the right time frame. There are multiple design wins we are bidding on and we are close on several of them. So the schedule doesn't change materially from that expectation.

Operator, Operator

Our next question is from Quinn Bolton from Needham and Company. Your line is now open.

Quinn Bolton, Analyst

Just wanted to start first on the CV ramp, especially in the professional security camera. It sounds like it's still probably a fairly low percentage of your security camera revenue, but you've talked now for a few quarters about some of the design wins going to production over the next 12 months. Can you give us any help shaping what you think CV might represent as a percentage of your professional security business say exiting 2019, and where it might go exiting 2020? Is that low single digits going to 25% of revenue, just any help with what you think that ramp might look like as a percent of your sales would be great.

Casey Eichler, CFO

The ramp in the last two quarters of the year will be single digits coming into next year. We have said CV revenue will be material next year and certainly more than 10% of revenue for next year, depending on how the consumer ramp comes in. The consumer ramp, as we said, will start in the second half of next year and that will define the size further. Sometime over the course of next year we'll be able to discuss specifics about CV as it becomes material.

Quinn Bolton, Analyst

And then shifting to China, thinking of your script, you had mentioned you're definitely seeing share gains outside of China among the customer base. Just wondering if you could come back and say, within the China market, how that competitive dynamic is shaping up for you, and any sense of your strength within the China customer base for domestic cameras versus export cameras?

Fermi Wang, President and CEO

In the past we did not focus heavily on the Chinese domestic market because it was largely a HiSilicon-dominated market. For export business, our concern now is many Chinese customers sourcing non-U.S. components. Our advantage is providing differentiated technology that few Chinese companies can match; that plays to our strengths in CV and video quality. At the lower end we expect more competition from lower-cost component suppliers, but I believe in the mid- and high-end, especially on AI and video processing, we are differentiated and should maintain a position for export business.

Quinn Bolton, Analyst

And then just lastly, you guys mentioned the fleet management opportunity, the aftermarket fleet management, but potentially ramping here in calendar '20. That seems like that's a pretty quick ramp. I'm just wondering if you could give us more detail because again that feels like that could ramp to revenue fairly quickly.

Fermi Wang, President and CEO

For fleet management, many solutions do not require automotive-grade chips or extended automotive qualifications. The typical design-to-revenue timeline for aftermarket fleet solutions is roughly 12 to 18 months, which is longer than consumer but shorter than most OEM auto projects. We have been working with several U.S. and Chinese companies on solutions that combine recording with AI for driver monitoring, ADAS, blind-spot detection, especially for multiple cameras around the truck. This plays to our strengths, but systems are more complex than consumer. The design timelines of 12 to 18 months are reasonable and we expect the first wave of revenue in the second half of next year.

Operator, Operator

Our next question is from Tore Svanberg from Stifel. Your line is now open.

Tore Svanberg, Analyst

Yes. Thank you and congratulations on managing through this volatile environment. First of all, I guess for Casey, inventory days 59. I know that's relatively normal for this particular quarter. But how are you thinking about managing your own inventories over the next few quarters, given all the uncertainty that's out there?

Casey Eichler, CFO

Inventory has come down over the last several quarters quite a bit. We are in a low-level range and we picked inventory up a little bit this quarter given the uncertainty and to ensure we could meet customer needs. We have good cash management and had a great quarter with over $400 million in cash. We need to make sure we can manage 14 to 16 week lead times and be able to react to our customers' needs. Generally, inventories are at about the right spot and we'll continue to forecast and balance that going forward.

Fermi Wang, President and CEO

I'd like to add that we're also working closely with our foundry partners. They have told us they have tighter wafer allocation than usual. My speculation is some customers who could not get enough allocation from their foundries moved orders earlier. We are also seeing tighter allocations on sensors. Our strategy is to ensure we have sufficient inventory to supply our customers in case there is urgent demand.

Tore Svanberg, Analyst

Very good. And Fermi, a question for you on CV. It sounds, based on your rhetoric that you're going to see some relatively material consumer CV revenue second half of next year. Could you maybe single out a few of the applications that you think will be ramping at that time?

Fermi Wang, President and CEO

In consumer, our strong customers in the consumer IP security camera space for home monitoring will drive a lot of that. The AI trend will continue there and many RFQs for AI-based cameras are targeted for the second half of next year.

Tore Svanberg, Analyst

Very good. Just one last question back to Casey. Casey, and I know you didn't guide the April quarter per se, but based on your answer, should we then imply that some of this $10 million pull-in might already start happening that quarter?

Casey Eichler, CFO

It is possible. As I said, I think it will probably be burned off during the full fiscal year because it's really hard to judge timing. It's difficult to pick a specific quarter. What I did guide to was the normal seasonal decline of roughly 12% in that quarter. The impact of inventory in that one specific quarter is tough for me to say right now.

Operator, Operator

Our next question is from Charlie Anderson from Dougherty and Company. Your line is now open.

Charlie Anderson, Analyst

Yes. Thanks for taking my questions and congrats on a strong quarter and guide. I wanted to start with — in light of the $10 million comment, just maybe if you could touch on the underlying growth rate within IP security. It sounds like the number of end users expanding, opportunity to pick up market share, you've got a product cycle that's ramping. So excluding that $10 million, what do we think of the growth rate going forward to any degree? And I've got a follow-up.

Fermi Wang, President and CEO

From a market point of view, professional security continues to grow in the single-digit percentages and consumer probably higher than that, and we generally follow the market. The $10 million number is our estimate based on customer feedback. We wanted to give as clear guidance as possible so people understand the situation.

Charlie Anderson, Analyst

And then for my follow-up on the R&D credit side, I wonder if maybe Casey, you could just update us on sort of what we expect for the total for the year, and then any view on that going forward in terms of impact? Thanks.

Casey Eichler, CFO

Are you talking about the Italian R&D credit that we discussed previously? That's going to run about $0.5 million a quarter. The last quarter had a catch-up in it, and that's what I called out earlier. A good estimate is about $0.5 million benefit per quarter and that's factored into our guidance.

Operator, Operator

Our next question is from Tore Svanberg from Stifel. Your line is now open.

Tore Svanberg, Analyst

Yes. Just a quick follow-up for Casey. As it comes to gross margin, we talked about, obviously, the mix eventually helping the gross margin through fiscal '21. Just wondering if you had any update on that.

Casey Eichler, CFO

Yes. As we get more CV revenue and more of it in the auto space, that will continue to help margins and could move us back toward the 59% to 62% range we have seen historically. In consumer, particularly in China, margin pressure is more significant because those customers are very large and price-sensitive. So depending on the quarter-to-quarter mix you see margin movement. The higher mix of consumer-china business in recent quarters is why margins were down a bit.

Operator, Operator

Thank you. At this time, I'm showing no further questions. I would like to turn the call back over to Dr. Fermi Wang for closing remarks.

Fermi Wang, President and CEO

And everyone, I'd like to thank you for joining us today, and I'm looking forward to talking to you next time. Thank you. Bye-bye.

Operator, Operator

Ladies and gentlemen, this concludes today’s conference call. Thank you for participating. You may now disconnect.