Ambarella’s (AMBA) Outlook Hit By Worsening Supply Chain Issues As It Zooms In On CV Opportunity
3:11 pm Wednesday, June 01st, 2022
Bolstered by strong demand for its computer vision (CV) chips, Ambarella (AMBA) extended its remarkable winning streak against analysts’ EPS estimates, but its soft Q2 revenue guidance is keeping a lid on shares. The company has exceeded earnings expectations in every quarter over at least the past five years, thanks in part to an improving margin profile related to the expansion of its CV products.
Both of the main end markets for these chips — IoT and automotive — are progressing through powerful mega trends that are generating robust demand for AMBA. Unfortunately, supply chain disruptions tied to pandemic-induced lockdowns in China continue to impact its video processor business, which experienced a 20% sequential drop in revenue this quarter. Importantly, the supply of CV SoCs (system on a chip) has not been impacted, enabling the company to capitalize on new product cycles within the enterprise and public security camera markets. AMBA didn’t disclose a specific Q1 growth rate for its CV products, but CEO Fermi Wang stated that “CV revenue grew significantly, both sequentially and yr/yr, representing about 40% of total revenue.”
Strength in CV chips is expected to continue with AMBA reiterating its forecast of CV sales accounting for about 45% of total revenue in FY23. In addition to a security camera upgrade cycle that incorporates image and data processing capabilities, the emergence of advanced driver assistance systems (ADAS) will drive strong growth in AMBA’s automotive business.
However, until the supply chain situation gets ironed out, AMBA won’t be operating at full strength. The company shared a few key insights about this issue last night.
This suggests that the disruptions were more wide-spread than analysts’ had projected. Relatedly, AMBA stated that the lockdowns in China disrupted customer production schedules and orders placed with the company. Simultaneously, logistical bottlenecks applied further pressure on Asia’s supply chain.
On the positive side, China is reportedly easing its lockdown measures, including in Shanghai. Additionally, demand outside of China remains very strong, with AMBA stating that its customers are selling almost everything that they can build.
The main takeaway is that it’s a mixed picture for AMBA at the moment due to the severe supply chain issues in China. Looking out beyond the next quarter or two, however, the view brightens considerably as its CV chips approach nearly half of its total revenue. This will push its margins higher, potentially at the same time that the supply chain improves.
