Earnings Call Transcript - AMBA Q4 2021

Operator, Operator

Ladies and gentlemen, thank you for standing by. And welcome to Ambarella's Fourth Quarter Fiscal Year 2021 Earnings Conference Call. At this time, all participant lines are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your host today, Louis Gerhardy, Corporate Development. Please go ahead.

Louis Gerhardy, Corporate Development

Thank you, Sarah. And good afternoon, everyone. Thank you for joining our fourth quarter and our fiscal year 2021 financial results conference call. On the call today is Dr. Fermi Wang, President and CEO; and Casey Eichler, CFO. We're dialing in today from different locations. Consequently, I'll be covering Casey's prepared remarks, and then Casey will be online for Q&A. The primary purpose of today's call is to provide you with information regarding our fourth quarter and our fiscal 2021 results. 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're 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 file with the SEC, including the annual report on Form 10-K, that we filed on March 27, 2020, for fiscal year ‘20 ending January 31, 2020, and the Form 10-Q filed on December 9, 2020, for the third quarter of fiscal year ‘21. Access to our fourth quarter and fiscal '21 results press release, historical results, SEC filings and a replay as well as the prepared transcripts of today's call can be found on the Investor Relations portion of our website. With that, I'll turn it over to Dr. Fermi Wang.

Fermi Wang, President and CEO

Thank you, Louis, and good afternoon, everyone, and thank you for joining us today. Our multi-year visual AI investment is the major factor in the accelerated business momentum we are reporting. Fiscal year '21 revenue of $223 million was down 3% from the prior year, with computer vision (CV) growing significantly, exceeding 10% of total revenue for the year with the video processor business down around 10%. Fiscal year '21 came with many challenges, including the pandemic, geopolitics, and an increasingly tight supply chain. And these factors remain to varying degrees today. I'm pleased with how we have managed this environment. As I look into fiscal year '22, my goal is to maintain a high level of execution and leverage our leadership position with our differentiated and proprietary visual AI silicon. Q4 finished the year on a strong note with revenue 4% above the high end of our guidance range, driven by CV, with the number of production CV projects doubling sequentially. Ambarella's highly focused video and image processing R&D investment crossed over a cumulative $1 billion in Q4, with almost half of this amount directed to our proprietary AI technology development. In fiscal year '21, validation of this investment was strong, as more than 175 unique CV customers purchased engineering parts and/or development systems, including more than 40 reaching production volumes in the year. By the end of the current quarter, we expect to have shipped more than 2 million CV SoCs on a cumulative basis, with more than 300,000 CV SoCs shipped into the automotive market. I am extremely proud of our new product execution, as demonstrated by the introduction of our flagship CV5, the first in the family of 5-nanometer AI vision processors. As we look into fiscal year '22, our guidance contemplates supply chain challenges, growth in the organization, expanding product portfolio, and the development of increasingly diverse markets. We remain confident the visual AI market is still in its early stages and we continue to expect CV to be at least 25% of total revenue for the year with the video processor business posting moderate growth. I will now provide an update on our customers and markets. At the beginning of the year, we introduced our CV5 and artificial intelligence (AI) vision processor capable of recording 8K video or full 4K video streams. The new SoC will enable the development of intelligent automotive camera systems, consumer cameras, and robotic cameras. It combines Ambarella's powerful CVflow AI engines with dual arm A76 CPUs to provide the performance necessary for a wide range of AI-based algorithms. Fabricated in the most advanced 5-nanometer process technology, we believe CV5 sets a new industry benchmark for power consumption, consuming approximately 2 watts of power, while encoding 8K video at 30 frames per second or 5 watts at 60 frames per second. In January, Ambarella held its annual customer technology event during what would have been the live Consumer Electronics Show. Our virtual event was held over a 2-week period and included the individual live hosting of over 200 worldwide customers, spanning automotive, consumer, robotic, and IoT markets. Featuring over 30 technology demonstrations with an emphasis on advanced AI applications, the event was a great success, allowing us to keep engaged, not just with existing customers but to meet many new ones that might not otherwise have been able to travel to Las Vegas for a live show. During the quarter, at Amazon re:Invent Show, AWS announced their new Panorama SDK with support for Ambarella CVflow SoCs. The Panorama SDK allows device manufacturers to easily build edge computer vision devices for a wide array of use cases across industrial IoT and other segments. Ambarella was chosen as well with only 2 initial semiconductor partners to build an ecosystem of hardware accelerated edge AI devices with our solution targeting intelligent camera designs. I would now like to take the opportunity to describe some of our customer-related highlights from the quarter, starting with the automotive market. Today, we announced Motional, a global leader in driverless technology, has selected Ambarella’s CVflow family of AI processors. The process will work with Motional's network of LiDAR, camera, and radar sensors to enable the vehicle's safe operation in diverse and challenging road conditions. Motional is leading the industry in making driverless vehicles a reality. The company recently became among the first in the world to put driverless vehicles on public roads and announced a landmark agreement with Lyft for the largest deployment of robotaxis on a major rideshare network. The company’s driving record includes navigating more than 1.5 million miles in diverse environments, and providing more than 100,000 public rides with zero at-fault incidents. It has also led the establishment of industry-leading safety standards, having co-published a Safety First for Automated White Paper. Ambarella’s CVflow SoC will be part of the central processing module in Motional’s driverless vehicle, providing image and computer vision processing for cameras in the sensing suite, including the front-facing cameras. The CVflow AI engine will enable Motional's AI algorithms to perform complex computer vision tasks, such as object detection, classification, and image segmentation with industry-leading power efficiency. Ambarella’s advanced image processing will allow the vehicles to operate in challenging lighting conditions, including low-light and high-contrast situations, while the SoC’s H.264 encoding will enable logging of video data from all cameras in the vehicle. In the Chinese automotive market, the world's largest, we have won a number of driver monitoring in combination with driver monitoring plus in-cabin monitoring designs in passenger vehicles. These designs are with leading automotive OEMs and are expected to enter into mass production this year. The designs leverage Ambarella's CVflow AI processing to enable driver safety functions such as detecting distracted or drowsy drivers, as well as our SoC's ability to process RGB-IR images. The designs are based on our CV25 SoCs as well as our new CV28 SoC, which we announced in the fourth quarter of last year. Also during the quarter, Ford introduced a dealer-fit dash camera for its European model based on Ambarella's A12 AX automotive SoC, designed by Falcon Electronics. The small form factor, wide-angle HD cameras fit into the rear-view mirror zone of the wide windscreen without obstructing the driver's view and integrates with Ford’s SYNC 3 screen and voice control. In China, joint venture FAW-Volkswagen introduced its new CC passenger car with a dealer-fit HD DVR, based on Ambarella's A12A SoC. Also during the quarter, a major home monitoring camera maker entered into mass production of a new class of intelligent cameras based on our CVflow SoCs. Ambarella is beginning to see significant CV growth in home security cameras. Customers' requirements for cameras with higher quality alerts realized with advanced hardware designs and more sophisticated algorithms for object detection, motion detection, and package protection are driving the adoption of Ambarella’s CVflow SoCs. In January, Alarm.com released its touchless video doorbell, eliminating the need to physically press the doorbell button. The doorbell recognizes when a person stands on your doormat and sends a mobile alert, allowing you to see and then talk to your visitor from wherever you are. Based on Ambarella's S5L, it includes a 150-degree vertical field of view to allow viewing of packages, full HD resolution, IR night vision, and HDR processing. Also during the quarter, Logitech launched its Circle View wired doorbell. The first consumer doorbell includes Apple HomeKit security. The doorbell leverages users' existing iCloud storage for video recording without paying a separate subscription, and provides a seamless viewing experience with the Home app on iPhone’s Apple Watch or other Apple devices. The doorbell is based on Ambarella's S5LM SoC. In the professional IP security camera market, Ambarella has continued to benefit from customers migrating from high silicon solutions and from widespread adoption of SoCs based on our CVflow AI architecture. During the quarter, Dahua, the world's second-largest security camera maker, continued its migration to Ambarella with multiple product launches. For intelligent transport systems product, our CV2 SoC is being used for 3, 5, and 9-megapixel ITS cameras. In IP security cameras, our CV22 and CV2 SoCs are now shipping for 4 and 8-megapixel designs with advanced analytics. And also Korean market leader further extended its portfolio of Ambarella-based IT security cameras, including a new 3-channel multi-directional camera based on our CV22 CVflow SoC, a new full channel panoramic camera based on our flagship CVflow CV2 SoC, and a new 5-megapixel mount model based on our H363 SoC. Also during the quarter, Idis, Korea's second largest camera supplier, introduced 3 new camera families based on our CVflow CD22, HL H3 SoCs. The new cameras include 5-megapixel and 8-megapixel models and leverage intelligent Kodak capability to reduce network bandwidth and storage requirements. In Europe, German IT camera specialists introduced its new Panamera camera based on CV22 by combining several lenses and sensors with different focal lengths that Panamera is able to capture remote and the middle areas with the same high-resolution of the things in the foreground. We are continuing to see opportunities in a new class of sensing cameras, spanning multiple vertical applications such as asset control, occupancy monitoring, and retail analytics. During the quarter, Genius Pro, a leading provider of 3D sensor systems introduced a people counting camera, targeting transport and building monitoring applications. Based on our CV25 CVflow SoC, it includes both a visible CMOS sensor and a TOF sensor, with CD25 performing sensor fusion and the AI processing to provide high accuracy people counting. In summary, we are leveraging our successful video processor heritage into the development of a highly optimized video AI family of SoCs. Our addressable market is expanding beyond human viewing applications to include the installed base of machines that can now use our CV SoCs to visually perceive their environment and make decisions, leading to a higher level of autonomy and eventually automation. The adoption of our expanding family of video AI silicon into increasingly diverse markets, including pure machine sensing was demonstrated by the Motional announcement today. It's in the early stage but is taking shape. As this adoption drives revenue growth, we expect to continue to deliver positive earning leverage to shareholders. In our earnings calls on June 4, 2019, we provided guidance on the anticipated shape of the first 3 waves of CV RAM. We stated wave 1 professional security will become material in calendar year '20. Wave two, home security will become material in calendar year '21 and wave three, automotive will become material in the calendar year '22, '23 time frame. We achieved our Wave 1 goal last year, and I am confident we are on track to achieve wave 2 and 3 in their respective time frames. The last CV wave automotive is sprinting on track as we have indicated with our communication last quarter on our automotive revenue funnel, and in FY '22, driven by CV, we anticipate our auto business will grow at a rate that is significantly higher than the other business. This is important as our automotive is estimated to be about 2/3 of total in FY '22 for more than $3 billion, growing to almost $7 billion in FY '26. The mega trends for security, safety, and automation are very favorable. To address this secular growth force, we continue to build our team globally to support the rising interest in our CV SoC from existing and new markets. I would like to thank all of our employees for their contribution to our leadership position in the market and for their execution in this turbulent environment. Thanks to all our other stakeholders for your continued support. I will now turn the call over to Louis, who will give you more details about what we are seeing and expecting for the business. Thank you.

Louis Gerhardy, Corporate Development

Thank you, Fermi. I will review the financial highlights for the fourth quarter and the full FY '21, ending on January 31, 2021, and provide an outlook for our first quarter of FY '22 that ends on April 30, 2021. We will 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've eliminated stock-based compensation expense adjusted for the impact of taxes. Despite the pandemic, geopolitical and supply chain challenges, revenue in fiscal '21 decreased 3% to $223 million, as strong CV product ramp offset much of the headwinds. For the year, security camera revenue represented about 60% of revenue, with the balance roughly split between auto and other. For FY '21, non-GAAP gross margin was 61.4%, up from 58.5% in FY '20, driven primarily by the richer product mix, as 2 of our professional security camera customers in China had an anticipated reduction in their safety stock. Non-GAAP operating expenses increased 10%, primarily due to a $10 million increase in R&D. Our cash flow from operations was $30.8 million for the year and with no debt, net cash and marketable securities totaled $440 million. Driven by CV products, Q4 revenue of $62.1 million was 4% above the high end of our guidance range of $56 million to $60 million. These results represent an increase of 11% from Q3 and an increase of 9% when compared to the same quarter a year ago. Auto revenue increased more than 20% sequentially and year-over-year. Security camera sequential growth was about 20% and began to grow again on a year-over-year basis after the anticipated trough in Q3. Other revenue experienced a seasonal decline. Non-GAAP gross margin for Q4 was 61.4%, slightly above the high end of our guidance range of 59% to 61%. As anticipated, gross margin declined 129 basis points from the prior quarter due to the product and customer mix in the quarter. Non-GAAP operating expense for the fourth quarter was $33.4 million, compared to $32.4 million in Q3. This was slightly above the high end of our guidance range of $31 million to $33 million. Other income was about $600,000, primarily representing interest income on our cash and marketable securities. Non-GAAP net income for Q4 was $5.1 million, or $0.14 per share compared to $3.3 million or $0.09 per share in the third quarter. The non-GAAP effective tax rate in Q4 was 4% as the distribution of profits shifted towards lower rate jurisdictions. In the fourth quarter, non-GAAP earnings per share were based on 37.6 million shares. Total headcount at the end of the fourth quarter was 785, with about 81% of employees dedicated to engineering, most of whom are focused on software. Approximately 69% of our headcount is located in Asia. In Q4, we generated positive operating cash flow of $12.5 million. Total accounts receivable at the end of Q4 were $25 million or 37 days of sales outstanding. This compares to accounts receivable of $24.1 million or 39 days outstanding at the end of the prior quarter. Net inventory at the end of the fourth quarter was $26.1 million compared to $23.7 million at the end of the previous quarter. Days of inventory decreased to 93 days in Q4 from 102 days in Q3. We had two 10% plus customers in Q4. WT Micro, a fulfillment partner in Taiwan, who ships to multiple customers in Asia came in at 68.4% of revenue; and Chicony, a Taiwanese ODM, who manufactures for multiple customers, primarily U.S.-based, came in at 13.8%. I will now discuss the outlook for the first quarter of FY '22. We continue to have strong design activity in all of our markets. As you've heard, the semiconductor industry supply chain has become increasingly tight, and it's now very difficult to support customers who place orders inside of our lead times, which have been increasing. In addition, the Texas freeze impacted one of our vendors' operations. While they are in the process of recovering, we do not yet know the final impact. To the best of our ability at the current time, our guidance contemplates the supply side dynamics. Despite these challenges, with multiple CV programs ramping production, we expect to perform better than the typical downward seasonal trend in Q1 with revenue anticipated in the $67 million to $70 million range or up 8% to 13% sequentially. Auto revenue is anticipated to increase more than 20% sequentially, with security up in the low to mid-teens sequentially and other down about 20% sequentially. We continue to monitor the outstanding geopolitical challenges, including the risk of a dual supply chain and what that means for our ability to continue to supply our customers in China. In our prior earnings calls, we estimated that 2 professional security camera customers in China had pulled in roughly $10 million of video processor revenue from FY '21 into FY '20. We believe this video processor inventory correction is largely complete with these 2 customers combined, representing a low-teens percent of our total revenue in Q4. As discussed in our November 23 earnings call, and as Fermi described today, Dahua commenced mass production of multiple products in Q4, with several of our CV SoCs utilized. We estimate Q1 non-GAAP gross margin to be between 59.5% and 61.5% compared to 61.4% in the fourth quarter. Our guidance considers some higher costs and expenses that we're incurring to expedite orders and secure more capacity. We expect non-GAAP OpEx in the first quarter to be between $34 million and $36 million, with the increase from Q4 primarily coming from an increased engineering headcount, payroll tax accruals, and other engineering expenses. The Q1 non-GAAP tax rate should be modeled at 10% versus 4% in Q4. We estimated our diluted share count for Q1 to be approximately 37.8 million shares. Ambarella will be participating in the Morgan Stanley TMT conference tomorrow, March 3; Berenberg's American Innovation Seminar on March 4, Baird's Vehicle Technology and Mobility Conference on March 10, and the ROTH Conference on March 15 and Bank of America's Auto Summit on March 30. Please contact us for more details. Thank you for joining our call today. And with that, I'll turn the call over to Sarah for Q&A polling with Fermi and Casey available.

Operator, Operator

Our first question comes from the line of Matt Ramsay with Cowen.

Matthew Ramsay, Analyst

Yes. I thought it was interesting, a couple of points on your prepared script for me, that you had talked about, number one, the very large number of engagements. I think you mentioned, what, 175 now folks that have taken engineering samples for CV-based products. And then you also sort of talked about this movement from sort of Phase 1 of CV adoption into what you guys talked about of Wave 2 that might extend into home security. So maybe you could help us break down the number of the engagements, I think that 175 number by whether we're in wave 1 or 2 or 3 and what the customer concentration and mix looks like of those engagements?

Fermi Wang, President and CEO

That would be really helpful. Yes, thank you, Matt. In terms of customer engagement, I would say the number of customers for security cameras, both professional and consumer, is probably slightly higher than for automotive, but it's quite balanced. We mentioned 40 customers in production, with the majority being in professional security cameras, and we are seeing some consumer security cameras also moving to production. Additionally, there are a few automotive camera customers in production contributing to our CV revenues. From a design win perspective, I would estimate roughly half of the wins are in professional and half in automotive.

Matthew Ramsay, Analyst

I understand. In the script presented by Louis, it was mentioned that the guidance for the current quarter is expected to exceed what is usually seen in a down season, and you provided details on what is contributing to the quarter's revenue. Casey, do you have any insights on seasonality for the rest of the year as you currently see it? Is it typical, or are there supply constraints impacting it? I'm trying to clarify how the guidance appears to be significantly higher than many of us anticipated. How should we approach the notion of seasonality with the visibility you have for the remainder of this fiscal year as it begins?

Casey Eichler, CFO

Yes. In recent years, we've experienced dynamics that are quite different from what we typically see. Wave 1 is currently in full swing, and wave 2 began at the end of last year and is continuing into this year, which I believe will influence the changes we've discussed regarding our business in China. Additionally, we are trying to analyze the dynamics of the first half of the year compared to the second half, and we aim to keep you informed as we progress. I’m uncertain if we'll see the same seasonality as before; last year, the consumer side performed better than we anticipated. We don't expect that to continue this year, but we will have to wait and see. We have previously indicated that over the next five years, we expect a decline, although last year's performance exceeded our expectations. Therefore, I wouldn’t rely on a traditional cycle for this year. It’s important to consider the dynamics we're reporting along with those from others. Also, as Fermi mentioned, we have a new and extensive pipeline of activity in the automotive sector emerging, which we are quite excited about. However, I wouldn’t categorize these changes as typical compared to our historical quarterly balance.

Operator, Operator

Our next question comes from the line of Tore Svanberg with Stifel.

Tore Svanberg, Analyst

Congratulations on the strong results. Question for Fermi. On the Motional design win, could you elaborate a little bit on that? Are you the exclusive for front-facing camera here? And should we assume that this is a multiyear design win, meaning you're sort of locked in for several years?

Fermi Wang, President and CEO

First of all, I think that our chip is responsible for all of the video function perceptions, which include the video processing as well as the network functions and also serve both for the front camera as well as the other cameras surrounding the car. And in fact, we have to use multiple chips for this current design. In terms of the length of the design cycle, I think for the whole lifetime of the shipment, we believe it's multiple years. I believe that for any vehicle, you should expect, I would say, anywhere between 4% to 6% of shipments. We haven't heard from Motional how long this product will last, but I believe that any vehicle should have that kind of period of service time.

Tore Svanberg, Analyst

Very good. Congrats on that win. And a follow-up for Casey. Louis talked about some pressure on gross margin because of higher input costs. Is this sort of it for now? Or could there be some further pressure as we move throughout the year on the cost of goods sold (COGS)?

Casey Eichler, CFO

Yes. We're going to have to look at what happens as well as for supply and what we talked about, what Fermi talked about in the call. I do think that as we do more and more development in 5-nanometer, that does increase the development cost, increase the CAD tool costs and some of the other costs around being on the cutting edge. And so I think right now, I'd say generally in the range where we are today, but we're going to continue to make sure that we have the right products at the right time, and that means we have to accelerate, as we talked about, not only hiring but our development in some of these markets.

Operator, Operator

Our next question comes from the line of Andrew Buscaglia with Berenberg.

Andrew Buscaglia, Analyst

I found the Motional announcement this morning intriguing. It seems to align with what Amazon revealed regarding their Zoox platform and robotaxis. Could you provide more insights into that specific market and your thoughts on it becoming a trend? Also, in terms of automotive, where do you anticipate growth coming from? What does the growth trajectory look like for robotaxis in the coming years? I know it may not be a definitive projection for this year, but could you elaborate on this? It appears that you are establishing a pattern.

Fermi Wang, President and CEO

Yes. Our feeling is that I think the level 5 full autonomy for consumer cars continues to be challenging on the technology side as well as on the regulation side. However, we do see that people continue to develop technology to that direction. We believe that with this Motional announcement, the release is a first step for commercial vehicles going in that direction. I think that's definitely probably an easier way to get this technology into production. We believe that this sector is going to become an important one, and I think that eventually, it's going to be the most important market for us in the longer term. So we continue to invest heavily into this market and our technology to enable our customers to do this kind of development. I think this is critically important, particularly on the visual perception portion. It doesn’t matter if it's level 2+, 3, or 5; I think the visual perceptions continue to become more and more important, and people are continuing to demand higher performance for all of those applications. So that's definitely good news for Ambarella. But also, importantly, we believe that while the ADAS market level 2 and level 2+ is a near-term opportunity for us, we believe that later down the road, this type of level 4 and level 5 cars will become probably the mainstream business when technology and the regulation are set for this market.

Andrew Buscaglia, Analyst

Interesting. And the commentary on Dahua getting some projects. Was that surprising to you in Q4? And what does that mean, I guess, going forward for Dahua and your other big player in security, Hikvision? Do you see something changing here where these guys are coming back in a more meaningful way to you?

Fermi Wang, President and CEO

Well, I think I won't say it's a surprise to us, but it definitely is a change from the trend we have been seeing for the last 2 years, right? We talk about a new supply chain, a China, non-China new supply chain happening, and we do see that the trend continues; however, the Huawei or high silicon situation helped us to change that dynamic a little bit. I believe that in this high-end CV market, when people see that high silicon is not there, even in China, we have a very good position to provide solution to our customers. That why is a great example. So while I continue to worry about the new supply chain development in China, I do see that because of our differentiated technology, we got a chance to get into our Chinese customers, including Dahua and several others, by using our CV chip for their AI cameras.

Operator, Operator

Our next question comes from the line of Kevin Cassidy with Rosenblatt Securities.

Kevin Cassidy, Analyst

Congratulations on the great quarter. You had changed your outlook on the human vision or video product growth for this year from flat to growing. Can you say what's changed there? Is it that these products have a longer tail than expected or demand is up? Or are you just getting more designs?

Fermi Wang, President and CEO

Well, I think there's multiple phases. One of the things is that we did talk about that the Hikvision and Dahua will gradually digest their inventory level and came back to other more video solutions. But really, it's a positive surprise to us. Also, this year, we do see there's a lot of customers that, for example, we take over some of the market share from our competitors, which has also helped that direction. I think these 2 things definitely are the major reasons that we changed our guidance a little bit.

Kevin Cassidy, Analyst

Okay. Great. And also, you mentioned on the virtual CES, you said 200 customers. Can you tell us what would be the normal number of customers you'd have in Las Vegas at your booth?

Fermi Wang, President and CEO

Well, last year, we had around 170. This year is around 200 plus. So that's probably in that range.

Kevin Cassidy, Analyst

Okay. So constant increase in interest and your pipeline is filling up?

Fermi Wang, President and CEO

Yes.

Operator, Operator

Our next question comes from the line of Joe Moore with Morgan Stanley.

Joseph Moore, Analyst

Fermi, you mentioned the successes in China regarding driver monitoring. Is it accurate to say that the European market offers a faster path to revenue for driver monitoring compared to ADAS? Does this also apply to the situation in China? Could that revenue potentially be realized sooner than in some of the other opportunities?

Fermi Wang, President and CEO

Well, there are 2 things I would like to mention here. First, we mentioned that our CVflow SoC, we have shipped more than 300,000 units to the automotive market. The majority, if you look at the market, is really the fleet management market, the other 1 is the OEMs. If you look at the application, the majority of that 300,000 chips is going to the ADAS market. However, I do see that in China and in Europe, we see many DMS and in-cabin monitoring solutions; our design wins are popping up. We have won several of them, and some of them will be in production in China this year. That’s why you see we're talking about this point. DMS, in-cabin monitoring, and ADAS will continue to be short-term revenue opportunities for our automotive market, while we continue to prepare solutions for Level 2+ and above.

Operator, Operator

Our next question comes from the line of Vivek Arya with Bank of America.

Vivek Arya, Analyst

I'm curious, what is the CV attach rate per car? I think you mentioned about 300,000 shipments cumulative. I'm curious how many cars does that correspond to? And were these shipments replacing what you were selling to the same customer before? Or are these new applications or new customers? I was just hoping for some more color on that.

Fermi Wang, President and CEO

Right. For the ADAS or in-cabin or DMS type application, it's 1 chip per car. So the 300,000 chips means 300,000 cars. In terms of whether this is replacement, I think it's not, because in the past, when we sold a video processor, it was really for the DVR. For the 300,000 automotive CV chips, we sold that into the ADAS market as well as the DMS market. I think that's a brand-new market for us. So it's not a replacement for our video processor chip.

Vivek Arya, Analyst

Got it. The next question, I think you gave the contribution from Dahua. I forgot whether you gave it for both Dahua and Hikvision for Q4. If you could just repeat what the contribution was in Q4, what you're expecting for Q1? And in general, how should we think about them in terms of contribution for this fiscal year?

Fermi Wang, President and CEO

Right. We talked about Dahua and Hikvision combined is like low teens total revenue for us this year in Q4. I think Dahua will continue to be a strong customer for us because we talked about they not only clean up their inventory but also the CV revenue is ramping up. Hikvision on the other hand, I think it's going to be a smaller customer moving forward, because while they continue to use video processors, we haven’t gotten a design win from Hikvision on the CV side. Moving forward, I continue to see that the China security camera market is important for us and Dahua will be our leading customer in there.

Operator, Operator

Our next question comes from the line of Ross Seymore with Deutsche Bank.

Ross Seymore, Analyst

Congrats on the strong results and guidance. I wanted to dive into the automotive side. For me, you've had a couple of really good quarters in a row. Just wanted to blend what you're doing this year, where you said it's going to be the fastest-growing area with the first, second, and third wave sides of things. So how would you describe what's driving the growth now and the transition that's still driving strong growth in FY '22 before you get to the true Wave 3, which would be next year? So how do you see your business transition over that period of time, and yet still deliver this strong growth?

Fermi Wang, President and CEO

Right. The strong growth is coming from multiple areas. First of all, the first wave of CV helped tremendously. You can see our CV revenue growth. Last year, we said $25 million. This year, we said more than 25% of total revenue. If you think that today, the analysts are putting our whole year revenue around $280 million, so 25% of that is roughly $70 million. Just CV alone is growing from $25 million to $70 million, and the growth mainly is in professional security camera and also ramping up our second wave of our CV revenue, which is consumer. During the meantime, we continue to ramp up our more CV design wins on consumer as well as different vertical markets with our asset control; we talk about the people counting market. So there are different markets we're going after with our traditional security camera design. So that continues to give us growth. At the same time, our automotive market continues to have stronger growth. I think that a combination of current video-only solutions, for example, the DVR market continues to grow fast in Japan, Korea, and China. We just reported we are designing with Ford and Volkswagen. You can see that even in the U.S. and Europe starting to adopt the DVR solutions, which is really our market leadership in that particular sector. That continues to provide automotive growth. Also, we reported that we have cumulatively shipped more than 300,000 CV chips into automotive, which also indicates we're doing well and on track to deliver our wave 3 in the calendar year '22 and '23.

Ross Seymore, Analyst

I guess, 1 for Casey. I know you said seasonality doesn't come in on the revenue side so much, and there's lots of puts and takes there. But if we shifted down to kind of your general feeling on OpEx for the year, how are you thinking about that? Are there any big puts and takes to think about? How do we think about it relative to revenue growth, etc.?

Casey Eichler, CFO

Yes. I'd say SG&A is all fairly consistent with the exception, as we've talked about in the past, we are investing in the sales and marketing area in Europe. Obviously, building out our capabilities there, and so that has been some additional expense or will be some additional expense for the year. Really, our continued driver is going to be on the engineering side. Like I talked about with the 5-nanometer and the other costs related to doing these advanced technologies. There aren't many people bringing chips out at the pace that we are. Chan and his team have been successful over the last year and continuing into this year, and that doesn't come without cost. That cost is going to continue to build our engineering team, not only in the U.S. but in Europe and Asia, as we need to invest in making sure that we can take out leading-edge chips to take advantage of the success that we're having right now. So those are really going to be the drivers. And in the engineering side, that's pretty consistent except for it's just getting more and more expensive. On the sales and marketing side, that's a little bit new. It's not a huge investment, but we are making sure we have the opportunity to take advantage of all markets globally.

Operator, Operator

Our next question comes from the line of Quinn Bolton with Needham & Company.

Quinn Bolton, Analyst

Congratulations on the impressive results. I wanted to ask a broader question about the security surveillance market. There are many factors at play. You're making gains with Dahua and some of the Tier 2 companies, but you seem a bit less optimistic about competing at Hikvision. Considering everything and looking ahead over the next few years, do you think you'll be able to increase your market share in security, or will it remain steady? What are your thoughts on your potential to grow within the security camera market in the coming years?

Fermi Wang, President and CEO

Right. In the next few years, the biggest transition for the security camera market is going to be transitioned from video solutions to CV solutions. We believe we are in a very good position from a technology point of view to provide the best solution to the market, both for China and non-China customers. Outside China, I'm confident that we'll be the #1 provider by far. In China, because of the supply chain, we continue to see competitors coming on the low-end side to compete on the CV solution. However, on the middle and high-end side, we are probably the best solution even inside China at this point. I'm hopeful that we will continue to gain market share in the security camera market as the transition continues. It's hard for me to predict how fast the CV revenue will ramp up, but just look at our 2 million units of CV chip shipments at the end of Q1. The majority of that is in professional security camera, and I expect that the growth rate will continue to increase significantly. So I'm hopeful we're going to see a similar transition just like 10 years ago when the security camera transitioned from analog to digital. We're going to see a very similar transition from video to AI in the next couple of years.

Quinn Bolton, Analyst

And then one for Casey. Just as things get tight, investors always worry about double ordering. I'm wondering if you could give us any thoughts? And if you're seeing any change in customer order behavior, whether as lead times are stretching out, are these customers more comfortable placing orders with longer lead times with cancellation penalties, meaning that these are pretty sticky orders. Just any comments you can make about your confidence in the orders that are coming in would be greatly appreciated?

Casey Eichler, CFO

Sure. Well, as you've heard me say in the past, in environments like this, CFOs think like babies; they go to sleep and wake up every 2 hours crying. It's just really dynamic. We go out, we have to dial up our activity with our customers. We have to continue those discussions. We have to be talking to our suppliers. We have to try to map that together as best we can. As you've heard from everybody this quarter, that has come into play in the last quarter, and I anticipate we're going to continue to deal with that for the first half of the year. To your question, how much of that is going to carry out into the second half of the year to where people aren't ordering for capacity in the first half, but just making sure they have enough to make it through the end of the year. We're going to get better visibility like everyone over the next quarter. But right now, certainly, we're all dealing with those issues. Our partners have been very good and very supportive, but it's also a very difficult environment as you heard, so we're going to continue to ensure we're communicating with our customers, trying to make sure they understand lead times and how we can best support them in what's going to be probably a challenging quarter or two. To your point, on the back end, we'll see how much of that was capacity and how much was inventory.

Fermi Wang, President and CEO

Quinn, this is Fermi. I want to add one more answer. Personally, we've all gone through this kind of environment in the past. I have no doubt that our customers tried to build up inventory for technical reasons, which everybody should do in this environment. So it's our job to talk to our customers regularly to understand their true demand and try to work together to prevent different kinds of problems down the road.

Operator, Operator

Our next question comes from the line of David O'Connor with Exane BNP Paribas.

David O'Connor, Analyst

Great. I have one or two follow-up questions. First, you mentioned wins in that area but not as much at Hikvision. Is there a specific reason why wins at Hikvision are taking longer?

Fermi Wang, President and CEO

Right. Let me answer the question about Hikvision first. I think that the supply chain situation is definitely a concern for Hikvision. I can sense from talking to them that it's very sensitive to them that they want to secure non-U.S. components as a higher priority. I think that's probably the biggest problem we are dealing with at this point.

David O'Connor, Analyst

And to maybe a question on the supply chain. You mentioned it as well. Have you secured enough capacity to continue to grow quarterly through calendar '21?

Casey Eichler, CFO

Sure. In an environment like this, you're always trying to secure an appropriate amount of capacity, but it's also very fluid. We're trying to make sure we have the capacity we need for our customers. It is fluid and things like that can happen.

Operator, Operator

Our next question comes from the line of Tristan Gerra with Baird.

Tristan Gerra, Analyst

Just following up a little bit on the supply shortage. Are you constrained in your current quarter guidance, which sounds like it's supply-based relative to the demand and what you otherwise would be able to ship if there was no constraint? And is there a way to quantify this? And maybe also for the full year, since I'm assuming you probably have wafer contracts for the rest of the year? How much do you think you have security in supply growth versus what the demand is?

Fermi Wang, President and CEO

Right. In Q1, I don't think we are supply constrained, because, first of all, we buy wafers from Samsung, and they are a very good partner and continue to supply to us. In fact, the biggest shortage out there is packaging and substrate. Our partner there is ASC in Taiwan, and we have a strong relationship. So in Q1, our guidance is not constrained by the supply. However, a curve ball has been thrown at us; as you all have probably heard, Samsung's Texas foundry was shut down due to the extreme weather. We believe that the factory has gone back to operational, and they got the water and electricity back. We are working closely with Samsung to size up the impact to the delivery. If there's any, that will probably be Q2 timeframe, but we haven't really got visibility on that yet. We'll continue to work with our customers and suppliers to ensure we don't become the bottleneck for our customers.

Tristan Gerra, Analyst

Okay. That's great color. And given the environment of the PCB substrate price increases, are you able to pass on some ASP increases to your customers as well? Or could that also be a factor we should be looking at in terms of your gross margin outlook for this year?

Fermi Wang, President and CEO

Our cost for the substrate has certainly gone up, but we haven't passed those costs on to our customers yet. It's not a high-priority task for us at this moment. All the guidance we provided in Q1 includes the costs we've discussed.

Operator, Operator

Our next question comes from the line of Suji Desilva with ROTH Capital.

Suji Desilva, Analyst

I appreciate the computer vision revenue figures and the guidance. However, could you clarify the mix of consumer versus wave 1 professional? When it scales up, will it be similar to video, which was one-third consumer and two-thirds professional, if I remember correctly? This would help us understand the relative size of those two segments.

Fermi Wang, President and CEO

Yes, going to fully ramp up, I think the ratio will continue to be similar in that range. Also today, just because Wave 1 just completed and wave 2 just started, I think the revenue is still heavily favoring professional security at this point.

Suji Desilva, Analyst

Okay, great. My other question is, you gave pipeline data in the past few quarters. Do you have any update to those numbers at this point? Or are you going to do that?

Fermi Wang, President and CEO

No. For the revenue funnel, we talked about that we're probably going to give you annual updates.

Operator, Operator

Our last question comes from the line of Richard Shannon with Craig-Hallum.

Richard Shannon, Analyst

A follow-up on the professional security. For me, you mentioned kind of your early guidance, thinking about $280 million op line in the quarter, that's about $75 million from CV and most of being professional security. That suggests it's going to be a good portion of professional security for the year like maybe 0.25 or so, roughly speaking. Do you have visibility on whether CV becomes more than half of professional security this year or soon thereafter? And then just kind of following on that, as we think longer out, do you think the cycle of video to CV, is that a similar timeframe as you have seen from analog to digital in the past?

Fermi Wang, President and CEO

We haven't provided guidance on the CV percentage or total professional security camera figures yet. However, if you calculate it, I believe we are achieving a higher percentage, and it's become quite significant for professional security cameras with our current CV revenue. Our video processor business saw a decline of only 10% last year, but the growth in our CV revenue this year will far exceed that. I am confident that we will maintain our video processor revenue while also growing our CV revenue. I agree with that perspective. The shift from video to CV, especially in professional security cameras, is just beginning. I think this transition will be rapid and will continue to pick up speed over the next few years. One indication of this is that most of the new projects initiated by our customers are CV-based. Therefore, I am certain you will observe this trend continuing in the coming years. When we transitioned from video to analog to digital, we experienced a quick three-year ramp-up. I’m not certain we are in that phase yet, but I wouldn't be surprised if we quickly enter that phase soon.

Operator, Operator

There are no further questions. I will now turn the call back to Dr. Fermi Wang for closing remarks.

Fermi Wang, President and CEO

Yes. I would like to thank all of you for joining us today, and I'm looking forward to seeing you next time. Thank you.

Operator, Operator

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.