Ambarella Inc (AMBA) September 9, 2026 Conference Transcript

Welcome today to our Citi TMT conference. My name is Kelsey, one of the analysts here at Citi covering USMEs. We are very excited here today to have Fermi Wang, CEO of Umbrella, here with us to discuss more about the company and to share the outlook. Perhaps to level set, Fermi, could you give us an overview of the company's heritage, portfolio, and also what opportunities you are the most excited here today?

Thank you, Kelsey. And first of all, thank you for joining us today. Um, Embraer is a fabulous semiconductor company starting in 2004, and throughout the years we're being, uh, starting, focusing on digital video application now, uh, in the last 10 years, really focus on building solution for edge AI processing. Basically, what we're saying is that we're building a SOC that integrates, uh, not only just an inference engine, but also image processing pipeline, CPUs, and the peripherals so that we can become an SOC for the whole system. And there are so many different verticals we are targeting at. Anything related to the edge device, which requires AI inference, we are basically in there. The biggest markets like enterprise security to the portable video to the telematics for automotive. And now we are talking about robotic application. In the latest Erling Code, we talked about how to penetrate edge infrastructure with new partners like CapGen and I and Magneta. So basically, we are really focusing on H-E-A-I for the last 10 years. And hopefully, the market will start taking off as people expected. But definitely, that's really what we are focusing on.

On that front, what are you seeing today that gives you that confidence that we are sort of reaching an inflection point for H-E-A-I? I mean, we have seen a lot of news flow on acquisitions that big, big analog companies acquiring smaller edge-related companies. So could you talk about that a little as well?

So first of all, I think our comfort is based on our engagement with our customers. In fact, all of the customers we talk to, they all want to put more and more AI performance into the edge device. It's now, you know, 10 years ago, it started with a CN type of neural network. Now they've moved to transformer, then moved to large language model. All of that are available in our silicon hardware software platform. So, and the one thing that become very obvious in the last 12, 24 months is everybody want to continue to increase the AI performance on their device, mainly because of the larger language model. So, however, age AI or physical AI people have been really talking a lot about it, but the biggest problem for this market today is there's no one vertical like coding for data centers, right? Today, majority data center revenue is generated by one big application, but there's no such application at that age. So that's where, you know, our strategy always focuses on multiple different possible verticals, and hopefully that one of them will grow. You talk about the acquisition, this ADH just announced a deal, which acquired a startup company for $1.5 billion, which has little revenue and their AI performance. By the way, the AI performance we offer at Umbrella is in a family between one top to a thousand top. And based on the public information I can find for that company is really about sub one top to one top type of performance. So, yes, they are AGI company, but it's just a little bit overlap. And we are generating $400 million revenue versus Sun. So I really think that's indication that AGI is happening, and a lot of companies say, I need a roadmap, and they try to find a way by using acquisition to fill the gap.

Right. On that front, could you characterize Umbrella's key differentiates?

Mm-hmm. Obviously. So every time we try to build on a design win, the biggest differentiation for us is always performance per watt. That performance can be AI inference performance per watt, or video processing performance per watt, or other related functions per watt. So at the end, it's power efficiency. We understand that, in fact, most of our customers, when they build their first-generation product, but they use a GPU to do it because it's easy to program, it's widely available to do that. But when some of the application they are using is really running to the barriers of power consumption because some of the applications just require battery life or using a very limited power dissipation solution. So from that point of view, power efficiency is the most important differentiation for us. But second one is really that because our heritage is on digital video application, Our digital video processing technology is better than I think most of our competitors, maybe all the competitors out there. So that's another huge differentiation. But the third, I think a lot of people ignore, is really, if we look at our product portfolio, we have 15 AI SOCs that we offer to our customer. But on top of that, there's a unified SDK called Cooper that covers the whole product line. Basically, if you design one product based on our chip using Cooper, you can easily move the same application to different silicon without too much of a modification. And that software architecture, I think, is critically important for our customer who has multiple part lines to build and they don't want to reinvent the software from one product to another.

Got it. How should we think about, as we compare, in NVIDIA, they have their related Qualcomm, NVIDIA, Synaptics, related offerings. How should we think about you relative to that?

So you're talking about three types of competitors. NVIDIA is obviously, you know, they can deliver really high performance. That's their strength. But like I said, GPU's power consumption has been well-documented problem. And we think that if our customer who really want to have a power-efficient solution, GPU is not the best solution. So from that point of view, kind of, we carve out that based on power efficiency. Qualcomm is a little different. Qualcomm is definitely more efficient than the GPU, but however, when they compare to our approach, we still have a significant power efficiency. But on top of that, we continue, but because they are closer, so we definitely have a lot of overlap with Qualcomm. So we always view Qualcomm as the biggest competitor to us. Synaptys is different. Synaptys just, they came in to play this AGI two years ago always by acquiring product line, and their coverage is really from one top to maybe 10 tops type of location. So yes, there are some overlap, but it's not a lot. So from my point of view, we don't run into synapses that much, but when we go out to compete, we run into NVIDIA and Google Cloud all the time.

Got it. So the IoT segment currently is roughly about 75, 78% of total revenue today. Consumer, sorry, security and consumer video, roughly about 45% wearables, 10%. Would you walk us through the key demand drivers for each of these ad markets?

Enterprise security and the...

Yeah, so consumer video.

Consumer video. So enterprise security is really our largest application that we've been addressing for is really for the security camera in the past. But I think that that market starts changing. The way it changes is that a lot of security cameras become serving different purpose. when we talk to H infrastructure companies, I just give you an example that, for example, in the Starbucks, you have a mini camera serve as a security camera in the pan. Now people say, I want to link, connect all the security camera to a box, and in that box, you run an LN so that now that box can tell you how many people comes in, how many people stay there, how many online, and how much time each one of them spends in the store, what they buy, and how they pay for it, whether the cafe shop is clean. So suddenly, LLN can start providing customer marketing data as well as operation data. So that changed. But you're using the same security camera hardware. So from that point of view, I think that the driver in the past was purely security, today we're starting seeing a lot more marketing-driven solution for that. That's one. On the consumer video side, in the past, after iPhone was introduced, cell phone basically replaced all of the steel cameras. But now there's a new trend, right? In fact, people building really high-end video capture device, handheld stabilized handheld device and start selling at a very expensive price but the volume is at the order of 10 million units a year so that's those high-end video capture device become a new category that we are addressing that category can including all the 360 degree camera and the high-end sports camera um pocket there is no handheld stabilized camera drone camera they old packet into that. That market by itself, we estimate anywhere between 10 to 20 million. So, and ASP is pretty high because you not only you need a high-end video processing, but also you need to be able to run AI, a lot of AI on that. So from that point of view, it become a sweet spot for us. So that's another driver for the consumer side.

And wearables is about 10%.

Yes. any growth driver yeah well in fact in the past wearable is really for police uh low enforcement now we are seeing a lot more for example a lot of our customers talking to us that you know the uh retail stores all over the the people serve in that store wearing the wearable camera start documenting the conversation and providing extra angles of security so wearable camera go way beyond low enforcement and we are starting seeing that and right now that market is really limited by power how much power you can power consumption can be made available in that camera and how long your uh uh the life the battery life you can have those so that's really played to our strengths however i really think we are still at it at the early stage of this wearable because i think when wearable camera become uh really expand to all of the service category that everybody should wear one so that they can start collecting become not only for security camera but like collecting the uh marketing data the you know purchasing the purchasing habit all the uh customer data can be also become very quite quite quite interesting for for the people who use those kind of wearable cameras. So I think wearable cameras start from the law enforcement and now turn into a marketing tool and it will continue to evolve from there.

Is there a way to think about the growth rates for these three end markets?

Those markets, obviously, enterprise securities grows at a certain rate because they're very mature and i think that the consumer market is really growing fast in the last few years and wearable definitely growing in a much faster pace so but however the the base is small and there's also similar market like robots robotic application people talk about it all the time but the base is so small most of the customer there is a small mid-sized customer although the growth rate is high but the base is low um but another one that we talk about in this time when we disclose our same discussion is really the edge infrastructure which will believe that people will build uh each box uh or h appliance in the past most of them just have a huge powerful cpu in there in the future will be cpu plus a lot of ai inference engine so that will become an interesting market, and we think that's definitely another huge growth area for us.

Would you talk about how that will play out? Is that on our phones?

For example, today, if you go to any retail store, if you look at their back end, in the store, they have probably a huge box, huge Intel CPU box sitting there for inventory, or for the pricing, or for the cash exchange. And most people said, okay, I have that CPU box, but I need to add a lot of AI too. That's where we think opportunity is. Almost every industrial PC or kind of age CPU box in the past, when they try to upgrade to the AI performance into it, that becomes opportunity for.

Okay, got it. So I know that you guys read, You guys had a relationship with Hanwha and signed an LTA deal of about $800 million. Could you share what prompted a move to the LTA deal and why now?

So, in fact, this process initiated by Hanwha. I think Hanwha is a huge Korean group that has many, many different subgroups. The subgroup we worked closely was called Hanwha Vision, which is the security camera division. In the past, we sell our chip to Hanwha Vision, but Hanwha Vision also developed their own silicon for the H video product. And they approached us because as a whole group, Hanwha decided they have to have a unified H-AI strategy. They want to have one hardware, one silicon, one platform for the whole group. That makes a lot of sense. But, however, they try to evaluate who can build, help become a partner on that. The requirement is very simple. It has to be very power efficient. They need a vision processing. They need a very powerful AI inference engine. And they need to access 2nano, 4nm process node. If you look at the combination of that, Embraer become one of the very few candidates to talk to. So we talked to them. We quickly come to the conclusion that it's beneficial for both sides to have collaboration. Obviously, there's other business discussion to come at the end, but at the end, it's really that we help Hanhua to build a family of chips that they can use internally and also give them certain benefit. In return, they're basically helping, basically give us back and making sure that we can become the dominant supplier, semiconductor supplier to the AGI strategy.

Are there any other opportunities where I see these kind of long-term agreements will happen?

Absolutely. In fact, you know, when you look at the data center market today, almost all the large companies are looking for their customer chip. Everyone wants to build their own chip. And because they can afford it, Google, Amazon, they all can build their own chip. But when you come to the HAI market, there are a lot of large corporations. But if they want to do a custom chip, they will find out that the economy doesn't work out for them because the size is not as big a data center. The price is not as big. So the best case is if they want to build a custom chip themselves, they found out that to build two nanometer chips is too expensive. service, they cannot justify. So this is where the semi-cousin chip business model comes in. We believe that we can help those large corporations build the chip they can use, but in exchange, we can sell the same chip to other market that they don't care. So I believe that just like in the data center, many large corporations want to control their silicon roadmap, that applies to HAI market. So when HAI market become bigger, I expect more and more large corporations to say, how can I control my own silicon roadmap? But then I think that will add to our opportunity to grow in this business.

Got it. I'll pause there for an opening up to the floor. Do you have any questions?

Yes. Go ahead.

Just wait for the microphone.

Thank you so much. So your SLC platform clearly in the competition especially on the energy perspective have you received any validations from automotive OEMs specifically like your software layer on top of that?

We don't have any design we can announce but however we gone through many cycles of evaluation So from the auto OEM's point of view, we have announced level four, level five truck deal, like Aurora. And also we announced automotive OEM, sorry, tier one, like Conti and Bosch. They are partnering with us. We obviously continue to talk to potential partners in that. So that's on the autonomous driving side. But our total revenue, 30% of our total revenue comes from automotive. that's come from other areas like telematics for commercial vehicle telematics several large companies in the telematics using our solution today and also that electronic mirrors look at ADAS DVRs we have a significant design win so in fact Q2 we have a record automotive revenue but All of them come from the one side of this, atomic driving, we still need to get all design wins from big OEMs. Any other questions? Yes. Yeah. Between the OEMs, sorry, the driver. So first of all, we start serving this AGAI with our, we call CV2 family chips, 10 years ago. we start developing that that family chips really focus on you know relatively simple consider compared today is cn type network face detection object detection those simple tasks that's where we start then starting five years ago transformer type of of a network come in and larger language will happen that's where you start tricking figuring fast pace of ai performance requirement and every time there's a new model coming out that trigger more ai demand just one example robotics right now talking about using vlm and vla now vlx just look at the performance requirement among those models it's tremendously different and every time the model changes we we cost more engage say okay how are you going to handle this so from that point of view different applications definitely have different paths of the ai performance requirement but all of them is on the path of getting higher and higher. In fact, we talk about X7, which is our accelerator product just in this earning call. The reason for that is when we talk to our existing customers, say, okay, the LLM changing so fast. And in the past, every time we build a product, the product exists for the market for four to five years. Today, nobody believes that for one product we define for one this year, four years down the road, the same LN still works. So I think then it becomes, how are we going to address that problem? Because the performance requirement is so big. So the easiest way for today is we design a baseline product with one of our SOC chip, and we leave an option to add our X-ray chip like X7 into that port when it's required. So you design in a fundamental Howard and so forth and also add option that you can increase the performance. And those kind of options was not required in the past. And the only reason for that is really that nobody can predict how fast LRM evolved in the next five years. So that's just a great example of the conversation we have with our customers.

Could you talk a little bit about robotics and humanoids? I think this is a theme that people are just betting on or thinking that's going to be coming. How close are we, or what are some of the customers promising?

So first of all, robotic and human noise is quite different. In fact, here is my personal opinion. I think human noise, from a technology point of view, is more difficult than level five autonomous driving. Right. And Elon Musk promised us in 2015, we will have level five cars in 2016. And in 2026, we still don't have that. Let's just show you that the best engineer team, that best engineer talent still haven't really resolved the level five atomic driving car. I'm not saying humanoid is going to take 10 years to do it, but if that, if I'm right, if that problem is harder than the atomic driving car, it will not happen next year. it will take more time to evolve. So from today to when the humanoid become available, we're going to see multiple generations of different type robots performing different function at different AI performance level. And just that's an opportunity we should focus on instead of trying to really put our eyes on the home run opportunity. So our approach is we engage with a humanoid company. We have a couple of design wins in that category, but the volume is not really I won't bet that's going to change materially about our financial performance but that's really to try to prepare everything on the roadmap we have so we won't miss an opportunity when it happens Could you talk about your foundry strategy you've indicated recently that Samsung capacity is getting tighter Could you remind us how do you work with FAPS is it all across the board and is there any risk to you securing more if demand exists? we have a strong relationship with Samsung Fab. And there's one fact whether people are familiar with. There are so many design houses there in private and public. We are the only one that's exclusive with Samsung. And that has been one of the things that we think is the right thing for our size of company because think about this we are doing two nanometer chip well our first full nanometer chip will be in production if we stay with tsmc we won't be able to get much allocation because there are a lot of big guys in front of us so staying with samsung that as long as they can give us a technology that we need for our market we are happy that they can give us more attention and go get better allocations from that point of view i think we are um happy with the not only the allocation, but also support. So I'm not saying we'll get everything we got, but every time the conversation is that if we have a demand we talked to early enough, Samsung will find a way to work with them. So that relationship definitely matters. I think that's just like any other business. When you have a good relationship with your supplier or your partners, the conversation is easier. I really think this is a time that I hope that we'll take advantage of that because the overall semi-conductor supply chain becomes extremely tight. Not only foundry, packaging, testing, everywhere it becomes tight. And we hope that the relationship we have with our suppliers, that we have been exclusive not only with Samsung, but with OACs, that with this kind of strategy partnership, we can continue to get a little better treatment than others. Got it. You've guided to 10% to 15% revenue growth for fiscal 27. how do you think about the growth drivers we've discussed today what's going to drive upside, downside or the range of outcomes well upside we talk about this whole thing it's really about HAI the downside is only one, it's memory this is well documented and the problem is when I talk to our customer for Q3 we're comfortable with the current forecast with a little bit uncertainty but in Q4 when I talk to our customer they told me that none of their memory supplier can even give them commitment about allocation for November, right? They don't even know how many memory or what's the price they don't get in November. How can they commit to us? So that's the biggest variable, in my opinion, the biggest uncertainty that I think everybody's dealing with, not just us, everybody's dealing with.

How do you see that as you look out to next year?

I don't think it will end this year. It will definitely go to next year. Who knows how long, but hopefully it will be too long because otherwise it's going to eventually impact it.

I believe you've noted that the SOC ASP for companies was about $15 in fiscal 26. How should you expect ASP to shift?

It will continue to go up. In fact, the reason is just we talk about. AI performance continues to increase. and that means we have to build bigger die so that we can deliver better AI performance. Therefore, people understand they have to pay more to get AI. So the ASP is going up. It's not that we're going to increase the gross margin. Our gross margin probably stays the same. It's just that with the ASP growth is proportional to the AI performance growth.

Got it. And just to make sure, so if the foundry were to increase pricing and you're able to pass on that to customers?

I have no choice. I know that our customers are going to hate me for that, but we have to. But just like my supply chain just increased price to me, and I was extremely unhappy with it, but that's just a fact that we have to deal with.

Got it. We haven't touched on automotive yet. That's roughly about 30% of our total revenue.

So you did mention a little about the drivers, telematics, safety. how should we think about a growth prospects and what are you which area are you targeting for content expansion we definitely believe the few markets that we target at will continue to grow, we're going to grow with the market so from that point of view I think automotive revenue should grow that also reflects on our same discussion I think the biggest wildcard for us is I still want to get some design win on the automotive OEM or consumer via on the on the level two plus level three cars i think that's the biggest wild card we have talked about this for years but we haven't really delivered that but that is where i think we haven't we still continue to focus our current engineering resource on hopefully we can deliver on that what is the kind of content step that we can expect you know any consumer card this design win we're talking about a few hundred million dollars per design one so that is meaningful for our uh revenue stream so like as you move from l2 to l3 is there like a rule of thumb think about what is the potential content increase the content increase increase for sure but however l2 plus has volume more a lot more volume than l3 so l2

plus definitely is where the biggest opportunity for us moving forward okay got it um and could you provide us with an update on the design wins you mentioned about 13 billion um of automotive opportunities um is umbrella better position with western or chinese oems right now it's western you know we know that for chinese oems they want to select the domestic solutions but for us really that Western OEM is our target.

However, we still stay in China. The reason for that is we believe that for the AI applications, China innovate fast, and they have a lot of ideas how to use silicon to move into different product lines. And that we want to stay in China to understand how the new application popping up, what kind of technology requirement, And that will continue to help us to position our silicon worldwide. So we're still optimistic to stay in China for that. But also we believe with current supply chain being so divided that China for China, then there will be different supply chain for Western. But however, I think for Chinese customers who want to do export business, they also realize they need a totally different supply chain. That's our opportunity. So there are two reasons for us to stay in China.

Okay, and in terms of like the near-term growth for auto, which region is it coming from right now?

It's all Western.

Okay, got it. Could you work us through a typical timeline from design win to revenue production? Is there a sort of design win from automotive to revenue?

Right, so it's different from application, right? For telematics, those non-ASO type of application, 12 to 18 months is good enough. For the OEN type of atomic driving car, usually three years, four years. However, I really think that becomes a problem for Western OE. China, you know, turning the product line every 18, 24 months, while we still stay at three, four years. That definitely created a problem for us. So I think, although I still think all the design wing on the Western OEM, we're still looking at three, four years to production. I think as an industry, we need to start considering how to move faster.

Okay, got it. And just to be clear, the majority of the revenue from auto today is coming from Western.

And so as we think about, so you mentioned a little, geographical geopolitical risk China localization how is that changing relative to a year ago is that getting worse and are there any areas where you think that you're a better position to grow with I think it's similar to last year I don't think it's getting worse or grooving I hope we don't get any worse than right now however I really think that when we do business the only thing we ask is predictable environment i hope if they stay today like today it's okay because at this i'm dealing with predictable future not try to worry about all the changes all the time yeah so based on the conversations i've had so far with investors what are the top three things umbrella is often misunderstood unappreciated well i think everybody understands then we are focusing on AGI, and the biggest question is, what's one vertical, one application that's going to drive, be the first one to drive Hansel revenue food? We don't have an answer for that, and also we don't have a timeline for how fast the AGI is going to develop. I think everybody is looking for an indication of the timing and the application, but unfortunately we just don't have a solution.

Okay, got it. Any key message for investors to take away from?

I think it's really that we spent 10 years to build the AGI applications, and we believe we have very differentiated technology for AGI and physical AI. And I also strongly believe when the markets start taking off, we'll be one of the few that are going to stay and take advantage of it.

Thank you. Thank you, Fermi, for joining us.

Thank you very much.