Ambarella Inc (AMBA) June 2, 2026 Conference Transcript

Okay, great. Good afternoon. Welcome back to this afternoon session at the BFA Global Tech Conference. I'm Vivek Arya from BFA's semiconductor semi-cap equipment team. I'm really delighted and honored to have Fermi Wang, the Chief Executive Officer of Ambarella, join us. And like always, I'll start with a few of my questions, but please feel free to raise your hand if you'd like to bring up something. Fermi, welcome back. Really delighted to have you at our conference again. Thank you. Really looking forward to this fireside. Before we get into kind of the nitty-gritty of the quarter, maybe help us, Fermi, in kind of framing your edge AI opportunity. Which are the areas that you think Ambarella's value proposition kind of best stands out? How are you investing in those areas? What is the right way investors should think about Ambarella at this point?

I think we definitely focus on edge AI, as you said, but i think really what we are offering is a very extensive extensive roadmap on the silicon side and very mature software stack for our customer who whoever doesn't matter what kind of application they want to they can program the application on top our video processor as well as ai inference engine and quickly turn into a product so that extensive roadmap mature software is what really differentiates against our competitor at this point and you we can of course go through details we have better power efficiency, we have much better video quality. Those are also important, but just look at the breadth of our offering from the silicon point of view and the mature software in terms of models and other things, SDK point of view, I think that's definitely our main differentiation.

Got it. Now, investors would say, well, there's a lot of alternatives in the market. There are many companies who, whether it is Qualcomm or NVIDIA or others, who kind of play up and down the stack, right? As low power as, you know, being in a mobile device to obviously as high power as being in a data center server. So how would you help us kind of, you know, rank Amborella, right? Your attributes, your differentiators versus the Qualcomm and NVIDIAs of the world.

Right. So I think, you know, for that, I want to emphasize that, you know, when we design Silicon, we design, we talk about this algorithm first. for when we design this any silicon we think about application we think about how to implement most efficient architecture from both silicon software point of view to address that application instead i think our competitor thinking about programmable architecture gpus or app processor to serve a totally different kind of workload so from that point of view that's where we can really optimize not only power efficiency, die size, performance, all of that around just target embedded AI, I think that's a major difference. Obviously, we're much smaller, but if you look at why a company with a $3 billion, $4 billion market cap can compete with NVIDIA and Qualcomm, it's really about technology we're offering.

And if you were to help us segment the two big areas, right, automotive and IoT that Ambarella plays in, And what is the right kind of formula we should think about projecting growth for the next three to five years?

So maybe let's talk about this year first. You know, last year we talked about IoT growth faster than auto. But this year, although the growth rate is similar, but I think we just talk about auto, we have a solid growth this year. And in fact, we're going to have a record revenue for automotive this year. And that just shows you that although that we, you know, a lot of people focusing on our atomic driving market, but our other automotive market has really become a solid growth engine for us, including financial fleet. In that financial fleet, there are many things, including telematics or fleet management, as well as other, you know, DMS and type of location. And this is an area that really grows nicely to us. and then about on IOT side is really where I have several important growth engine for us, everybody talking about robots, well everybody agree that it's a segmented it's going to take a while to grow but if you really look at down the road I fundamentally believe that when I retired it's going to be a robot taking care of me, not my son from that point of view, I really wish and I think I want to do everything I can to make this product become a viable to everybody. But I also believe with a GNI technology and the right city architecture, we'll get there. So, but however, we'll take time to there. But if you look at short-term, that in the robotic location, I think the biggest opportunity for us short-term is drones. And we are seeing a lot of a consumer drone and commercial drone opportunity out there, which really differentiate based on, first of all, you need to be really good at perception. You need to be good at fusion and the decision-making, which is really similar to the technology we developed with time driving. So that's one area we feel excited. The other thing I really feel excited on the AGI side is, of course, there are a lot of different applications, but there's one new application we call the AGI infrastructure. It's really that people are going to aggregate a lot of different sensors and using a box to really upgrade the existing infrastructure to general AI level of AI performance. Just to give you an example, we talked about this before. In this hotel floor, there's, I don't know, 20 different, let's call it traditional cameras. Maybe one, some of them has AI performance, some don't. But to upgrade those camera to be Gen AI ready, it's not easy, you need to yank out all the camera, or you can plug in appliance that aggregates all the video feed into that box, and suddenly all the camera can be enabled by Gen AI running the AI on the client. So there are many different applications popping up in the last few just months, a few quarters that we think has a lot of growth potential. But I think the key is today, all the investments focus on data centers and the age, it really takes time. For example, how are you going to run a really large language model on a chip which consumes two to five watts and deliver high performance running billion parameters of ChatGP type of small LN models on a 2-watt to 5-watt chip and starting for $30, $40. That is a challenge, and we provide a silicon solution and the customer on their way to pour their solution on top of that. So we're enabling a market which does not exist before because the limitation of silicon architecture and models just didn't exist until just recently.

How would you kind of urge investors to think about Ambarella's growth rate opportunity over, like, is it a 10%, 15% kind of growth opportunity? Is it a 15%, 20%? The reason I ask the question is that, you know, traditionally, more consumer-based products have grown at a slower pace, and now when we think about, you know, AI, people always think about 30%, 40%, 50% kind of growth rate. So help us, you know, help calibrate us on what is, over the next three to five years, what is Amborella's growth rate opportunity?

You know, 30%, 50% is talking about data centers, but there's no AGI market that grows that fast. When we look at our SEM, our SEM right now grows at 18%. 18%. 1.8%. So that's really the limiting factor. Do I believe they're going to grow faster in the future? But, however, we haven't seen that turning curve yet. And I think we are waiting for many things to happen, our silicon, our software, our customer software, the models, everything needs to come together and enable new applications. So I think we haven't reached that point. But today, you know, our this year guidance is 10 to 15%. Next year, our street, I think our analysts are looking at 15% growth. That's reflecting the reality. But if you look at the same, we think that can definitely, we should grow faster than the same in the near future.

Got it. Okay, makes sense. Are there certain product categories? So auto is easy to understand, right? And you mentioned all the growth in ADAS and AV and whatnot. But when it comes to IoT market, right, which is your larger, what are kind of the form factors that you think will help you outgrow your SAM?

Well, let me just give you various examples. That one of our customers, their form factor is a box, maybe just this big, and they need to put in AKP60 video running AI performance on the 4-watt system power. Just think about that, right? It's challenging enough for any kind of silicon, but we are probably one of the very few can deliver that kind of performance at a power envelope. But this is not one unique application. This is really, when you look at any AGA application, most of them are battery-powered. So it's not just a form factor limitation. It's really that, you know, how long you can run that equipment is based on the power efficiency of your silicon, your system, and the battery size, right? The battery size is fixed, and then you have to really control your silicon, which has to run a billion-parameter GNI model. While give others, you know, for some product have to be two to two hours. Some product has to be eight hours, for example, the wearable camera. So this is really the limitation. How you drive performance per watt is going to be the key matrix for AGI applications.

Recently on your earnings call, you mentioned that you had signed a long-term agreement with Hanwha. So can you walk us through what kind of led to that agreement? What kind of products are included? When will we start to see the benefit of that agreement?

So first of all, for people who are not familiar, Hanwha is a Korean company. that sells $60 billion US revenue per year. It's a huge company. And they have retail, they are banking, they have drones, they have robots, you name it. They have quite a diversified product portfolio. I think what they are trying to do is, I think their chairman look at this and say, we need to come to have an AGI, but he doesn't want to allow each of their group develop their own AGI. So they say, how do we have a solution that we can have a unified solution for the AGAI moving forward. And one of the groups is called Hanhua Vision, which has been our customer for the last 15 years selling enterprise security camera. So they were assigned by the, because they really, the first group inside Hanhua trying to deploy AGAI solution. So they were assigned to evaluate a solution that can be accepted as a group level AGAI. solution and for us so basically they are asking for uh product portfolios wide enough to address multiple different opportunity and also so far mature enough that can quickly enable different location i think that's really our strength like the first question asked at the beginning that was the reason they chose us but at the same time we would like to work with them because they present huge revenue opportunity for us. But more importantly, I think that working with a company like Hanhua really gives us not only the scale, but also how easy to forecast our revenue in the future. We talk about working with different companies. You really have a better way to forecast revenue. So all those things are the reason that we want to work with Hanhua. So I think there is definitely a strategy value for both sides to come to the conclusion on this. And the other thing I think driving this decision is really for anybody who want to, any company who want to build their own silicon, in fact, Hanwha was doing their own silicon before, the cost just become prohibitive when you go to 4 nanometers and 2 nanometers. For data centers, it's easier to justify. But when you come to AGAI, the silicon price is, you know, anywhere between $20 to $50. Trying to build their own silicon, paying $100 million just to do one silicon for two nano, doesn't make sense. So I think there are many reasons. And in fact, this is our second, this kind of agreement that we achieved in the last 12, 18 months. And there are more engagement that we talk about. It's really the same concept. People want to have a differentiation on their product line. They don't want to pay for their own silicon, but they want to have some secret sauce in the silicon, and we can help them to build that. And with that, we get a better relationship with the customer and a more guaranteed revenue. It's a win-win for both sides.

And I think you mentioned, is it $800 million over 10 years? How do you see that profiling over the next 10 years?

Hanwha Vision is a customer today. I can say that their revenue with us is roughly mid-single-digit percentage of total revenue. So from that point of view, they are not the largest customer for us, but a sizable customer. But however, from there, there are multiple ways to scale up our revenue. First of all, like I said, they are doing their own silicon. We only have less than 50% total market share. For us, we can probably assume that we're going to get a better market share moving forward quickly. And also that all the new chip we're going to get is going to be higher ASPs. And that's something that should happen in short period of time. More importantly, I think, most of the other Hang Hwa Group can use Hang Hwa Vision's camera to plug into their product. For example, today, it's not about the phone factor of the camera anyway. is really about what kind of software and model you runs on it. So any Hanwha Vision's camera, if you swap out the models and the software running on it, which we can easily enable, you can enable retail application, you can enable drone security, you can do many things, even with the same form factor that Hanwha Vision generates. So we think that there's a quick pass through revenue also to help other, enable other application by using Hanwha Vision's existing pipeline. But then the last one is really this multi-generation commitment for both sides. So we will help them to build a solution they can use for multiple generation. When the second generation come up, we definitely can address even bigger time or same for Hanwha. So that's really the progression of getting more revenue from Hanwha.

So just for the near term, do you think that is kind of already reflected in this and next year expectation or could that be upside too?

I don't think that's been factoring just because consuming will just talk about it. But we probably need to start thinking about how to reflect that in our future. But the next year is really about really gain shares on the existing product line, right? So I won't say it will immediately reach to a higher level, but next year we should see some positive impact to our total revenue.

The 10% to 15% growth rate for me, is that constrained by supply in any way? You know, there's a lot of cost inflation, right, in many of the end markets that you serve from memory or other things, right? So how much of this 10% to 15% is gated because of supply or other inflationary aspects?

It's definitely not limited by our supply. It's really the market condition, particularly on memory side, that continue to bother almost all our customers. You know, our annual guidance from Q1 to Q2 didn't change. That reflect that every consider all of the possible scenarios, we think that's a prudent way to give the guidance. But we continue to tell the customer. In fact, customer gives a very consistent feedback. They still can buy memory just because it's extremely expensive. What that means is in the future, they probably have to pass those actual costs to their customer. So from that point of view, how does that impact the demand and also whether people can continue to secure deer and supply moving forward? I think those questions, we don't know the answer yet. So that's definitely something we factor that into our consideration.

This is a little bit of a very near-term question. We saw that when your results were kind of in line, you got it somewhat better, you outlined this LTA. there was a lot of volatility with the stock the next day. You know, market has 50 different reasons for being volatile. What do you kind of ascribe that to? And what do you think is kind of underappreciated and missed by investors?

So, but if you look at what happened before the earning, in the previous 40 days, our stock jumped $40 also. So, it kind of that people build out the expectation. I think everybody expecting that Semiconductor Company going to raise their guidance, right? So when we did that, I think that's probably reflect on the people buying short-term, selling short-term. So I really don't think those people who trade in that period reflect our long-term investor's view. I really think that for the people who are buying our stock, really appreciate really the, first of all, people need to appreciate the GNI direction because it's not, there's no home run in that GNI story today, But they have to believe that without technology, we will become one of the few players that survive through this, well, continue to play in this market when it becomes big.

As you look at next year, Fermi, are there opportunities for you to outgrow your SAM, or is it too early to kind of think about?

Well, I think there are a few things we should consider. First of all, we talked about our 2 nanometer chip, CV8, which is a much higher ASP than our company, corporate-wide ASP. So from the ASPE point of view, it should provide a growth areas. So definitely our CV7, our first full nanometer chip, what Rambob next year too. So from that point of view, it should help, right? So, but however, at the same time, the biggest challenge for me is to focus how fast our customer from Rambob those new products based on CV7, CV8, and what's the memory impact to that. So we haven't provided any guidance for next year yet, but I just want to give you the plus and minuses that we're considering right now.

Got it. It's fair. And I think you have another LTA for a semi-custom, right, at two nanometers. Can you help us understand what that is and when that will start to impact your financials?

Right. So we add a little bit more information this time. The chip is our first two nanometer chip called CV8. It was taped out in January, and we'll be back to our office in a few weeks. And that will be the first 2nm chip we're going to – all of the indications so far is that 2nm process will be able to ramp up in production second half of next year. In fact, second quarter next year. And that's our plan. We want to ramp up or test out our chip and making sure that our customer can, if they want to, they can be production second quarter next year. So that's a plan. And that is, that two nanometer chip is related to one of the customers willing to sign up a Lundin commitment with us. and so that they definitely help on the NRE side but also get some benefit from that, which we haven't disclosed in the detail yet.

I see, got it, okay. And then recently we saw your inventory dollars rose quite a bit. So how much of that is just because the supply chain is tight and you probably need to take product whenever you can versus preparing for some ramp over the next few quarters?

I think it's definitely both, but I will say one thing. Samsung just informed us that their funder's supply will be tight next year, particularly on the 490 and the 590 process node. The reason for that is definitely you see their announcement, they are seeing extra customer comes in. So from that point of view, Samsung basically informed us that with good intention that, hey, you know, I know that we have partnership, I want to really give you the best service, so give us your PO commitment so we can secure those commitments for you. So that's the conversation we have. So from that point of view, we think it's prudent to build up a little inventory just in case there's an upside for our customer and making sure that we can support some upside. But, you know, I really don't think our inventory of growth on the current point, you'll probably drop a little bit slowly, but definitely that's the range you're going to stay at for a while.

Got it. Okay. In general, are you seeing, you know, any other inflationary pressures? I think your gross margins are kind of at towards the lower end of the 59 to 62. How much of that is a reflection of kind of the cost inflation? How much of that is a reflection of, you know, just pricing, mix, mix, or any other product factors?

Mix is always the biggest one for changing our gross margin. But I think we guide to 59 to 62% as a long-term guidance. And this quarter, that we got at 59.75, which is the same as the previous two quarters. I really think that from the cost side, Foundry hasn't raised a price, but other supply chain raised a price. Not in a significant way, but definitely is consistent with the feedback you heard in the market. Supply chain definitely tightened up and they are raising price. It's just something we need to deal with. And our thought is that if the price goes to a point, we need to pass that to our customer, but we haven't reached that conclusion yet. But eventually, that is, if the trend continues, I won't be surprised that our supply chain is going to continue to be very tight in the next year.

I see. Beyond video as the modality, how do you think about other modalities as you look at AGI? Because I assume that as you think about robotics, something that could help all of us in our old age, it would require a lot more modalities.

Absolutely. In fact, we support many modalities already. Other than video, we support all of the audio, radar, GPS, LiDAR. We support almost all of that. But I just want to point out, there's no other modality require as much processing performance like video. So that's why if you use video as one of the modalities, the performance assistance is dominated by video requirements, particularly on AI performance point of view. Nothing else even comes close. So from that point of view, we basically try to address, because our customers come to us for video processing, although we didn't talk about our support for all other modalities that much, but in our SDK, we support almost all of that. In fact, even for all the AI models, we support a lot of non-video models like audio models, radar models, LiDAR models, and as well as the non-video LLM models. All of that are supported by our SDKs today.

A few months ago, we had heard the U.S. institute a lot of restrictions on Chinese drone manufacturers. Is that a source of upside? Have you already started to see some of that upside, or is that benefit still to come?

We haven't seen a lot of movement on the volume yet, but definitely this is going to help the U.S. drone market, I mean U.S. supplier in this market. So we're looking forward to see impact at this point, but so far we haven't seen a lot of major move Because the reason for that is this regulation change only impacts to the drones that haven't been shipped yet. There are a lot of drones that are in the market already get the FCC approval. They are not impacted by this new regulation. So maybe the next generation will come to start seeing impact.

How large can that market be? And I would imagine that they may have started to at least engage with you, right, from a design.

Absolutely. In fact, you know, in our script, we talk about this time we have 15 robot design wins, which includes several drone design wins in there. And cumulatively, we talk about $100 million of revenue pipeline in there. So definitely a significant momentum that we're seeing that. But however, just like I said, getting a drone into a production, particularly for the consumer drone or commercial drone, the design cycle is a little long, and we are just in the middle of that. And also, a lot of shipment today is not impact. So we are watching the after effect, after the regulation really become implemented in the market. It will be some significant impact, but we haven't seen the result yet.

I see. For me, maybe talk to us about what your software strategy is, right? because you have made a lot of investments on the software side. How is that providing stickiness to the platform? Or do the customers just want broad interoperability and then they are the ones who decide which models to run on which platform?

So that's a great point. Let me spend a little time on that. We spent five years to develop a platform called Cooper Platform. You know, it's a platform that almost 100% of customers are using today. And why is that? And the feedback is really pretty positive for a few reasons. One is that's a platform really help our customer easier to port not only their model, but our software onto our platform. For example, we continue to add function to it. we just add agentic function on that so people can use agentic tool to help to write software on that platform. And just because of that, it becomes much easier. So you can see that we continue to help our customer to get easier to pull software over. That's one. In that SDK, we support 200 model architectures, not 200 models. Like Yulo, we treat that as two different architectures. So we support 200 model architectures in it. So let's just see, consider how much, you know, from our customer point of view. Really, if they have any specific model they are considering, they will find similar model in our model garden, so to compare. Just to give you an example, how complete and thorough this software stack is. But more importantly, any customer using Cooper SDK to build one product on one silicon, when they try to move the same software to different silicon does maybe higher performance lower performance depends on the performance there it's extremely easy it's almost like recompile the software and it works and of course you you have to get a different uh performance based on the silicon you choose but the software developments quickly uh the effort is really significantly reduced so from the mature point of view and from scatterability point of view or other customers really appreciate this software is that they become the biggest that's one of the reasons Hanwha appreciate because they have used this Cooper SDK for the last five years and they see the progress they really think that's the way to go so from that point of view that also maybe that's another point we haven't touched on is really we believe that we need to go to indirect sales model because with a robotic application we cannot go direct support to all the possible robotic implication out there. The only way we can do it is enable our software partners and distributors or system integrators to integrate and support Cosmo from that. Our software need to support them and they use our software to support that. So the mature software of Cooper is critically important for that.

Got it. In the last some time that we have left, how do you think about your M&A strategy going forward? What would help Ambarella double your growth rate over the next several years. Are there white spaces? Because IGI is such a fast-growing market. So how do you think about your opportunity to accelerate via inorganic?

On the technology point of view, when I look at all the space we are in today, there's no really one big shining object I need to have to really complement to my technology. I don't think that exists, but we continue to look for algorithms that can help. But however, I really think that if I have to really invest, heavily that's indirect cell channel anything that can speed up that because that's where we can scale revenue quickly that's definitely direction we are um trying to uh trying to uh get uh more support or help um if there's a possibility makes sense terrific thank you so much for me really appreciate Thank you very much.