Based in Santa Clara, CA, Ambarella (AMBA) scheduled a $60 million IPO with a market capitalization of $259 million at a price range mid-point of $10 for Wednesday, October 10, 2012.
Ten IPOs are scheduled for the week of October 8. Full IPO calendar available here.
S-1 filed September 26, 2012.
Manager / Joint Managers: Morgan Stanley/ Deutsche Bank Securities
Co Managers: Stifel, Nicolaus Weisel/Needham.
AMBA is in a fast-paced industry where yesterday's products can be gone tomorrow. An example is pocket video products which accounted for 40% of revenue in 2011 and now account for 1% of revenue.
Also, AMBA pays a 10% tax rate which makes it more difficult to compare with competitors which are fully taxed.
Quarterly revenue and profits are somewhat erratic, which suggests both are not very predictable.
AMBA is a small $60 million IPO, which means it is difficult to get wide institutional support. And because AMBA's business is not very predictable (pocket video products, for example), with very little actual "branding," we are neutral on the IPO and believe AMBA may price below range.
AMBA is a leading developer of semiconductor processing solutions for video that enable high-definition, or HD, video capture, sharing and display.
AMBA's system-on-a-chip, or SoC, designs fully integrate HD video processing, image processing, audio processing and system functions onto a single chip, delivering exceptional video and image quality, differentiated functionality and low power consumption.
WT Microelectronics Co., Ltd., (WT)
WT, which serves as AMBA's non-exclusive sales representative in all of Asia other than Japan. For the fiscal years ended January 31, 2010, 2011 and 2012, approximately 84%, 91% and 80% of AMBA's revenue, respectively, was derived from sales through WT.
AMBA's platform enables the creation of high-quality video content in wearable sports cameras, automotive aftermarket cameras, Internet Protocol, or IP, security cameras, digital still cameras, or DSCs, telepresence cameras, camcorders and pocket video cameras, collectively referred to as the camera market.
In the infrastructure market, AMBA's solutions efficiently manage IP video traffic, broadcast encoding, and IP video delivery applications.
In fiscal year 2012, 75% of revenue was attributable to solution sales into the camera market and 25% of revenue was attributable to solution sales into the infrastructure market. For the six months ended July 31, 2012, 72% revenue was attributable to solution sales into the camera market and 28% of revenue was attributable to solution sales into the infrastructure market.
AMBA sells to original design manufacturers, or ODMs, and original equipment manufacturers, or OEMs, globally. In general, AMBA refers to ODMs as customers and OEMs as end customers.
In the camera market, video processing solutions are designed into products from leading OEMs including GoPro, Robert Bosch GmbH and affiliated entities and Samsung Electronics Co., Ltd., or Samsung, which source AMBA solutions from ODMs including Ability Enterprise Co., Ltd., Asia Optical Co. Inc., Chicony Electronics Co., Ltd., DXG Technology Corp., Hon Hai Precision Industry Co., Ltd. and Sky Light Digital Ltd.
In the infrastructure market, AMBA solutions are designed into products from leading OEMs including Harmonic Inc., Motorola Mobility, Inc. (owned by Google, Inc.) and Telefonaktiebolaget LM Ericsson, which source AMBA solutions from leading ODMs such as Plexus Corp.
TEN % PLUS TAX RATE
AMBA is incorporated in the Cayman Islands and conducts business in several countries such as the United States, China, Taiwan, Hong Kong, South Korea and Japan, and is subject to taxation in those jurisdictions.
A substantial percentage of operations are conducted in lower-tax jurisdictions, hence the low tax rate
AMBA expects shifts in consumer use of video capture to continue to change over time, as more specialized use cases emerge and video capture continues to proliferate.
Pocket video market wiped out
For example, in fiscal year 2011, pocket video revenue represented 40% of total revenue. The proliferation of smartphones and their ability to capture high-quality video and still images significantly impacted this market, decreasing pocket video cameras' contribution to 15% of total revenue in fiscal year 2012 and 1% of total revenue in the first half of fiscal year 2013.
Conversely, revenue derived from the wearable sports camera market, the IP security camera market and the market for automotive aftermarket cameras supported total revenue growth in fiscal year 2012 despite the sharp decline in pocket video revenue.
AMBA solutions are typically characterized by a life cycle that begins with higher average selling prices and lower volumes, followed by broader market adoption, higher volumes and average selling prices that are lower than initial levels.
AMBA typically experiences seasonal fluctuations in quarterly revenue with the third fiscal quarter normally being the highest revenue quarter.
As of July 31, 2012, AMBA had 13 issued and allowed patents in the United States plus eight additional continuation patents, three issued patents in China, one issued patent in Japan and 38 pending and provisional patent applications in the United States.
AMBA expects competition in current markets to increase in the future as existing competitors improve or expand their product offerings and as potential new competitors, such as Broadcom (BRCM), NVIDIA (NVDA), Qualcomm (QCOM) and Samsung, enter these markets.
Currently, competitors range from large, international companies offering a wide range of semiconductor products to smaller companies specializing in narrow markets.
As of July 31, 2012, AMBA had 425 employees worldwide, 81% of whom are in research and development. Headquarters are located in Santa Clara, California. AMBA also has research and development design centers and business development offices in China, Japan, South Korea and Taiwan.
PRE-IPO 5% SHAREHOLDERS
Benchmark Capital Partners IV, L.P.18%
Entities affiliated with Walden International, 14%
Matrix Partners VII, L.P., 10%
Wintech Microelectronics Holding Limited, 7%
USE OF PROCEEDS
AMBA expects to net $43 million in IPO proceeds from the sale of 4.9 million shares. Shareholders expect to sell 1.1 million shares.
Proceeds are allocated for general corporate purposes, including working capital and capital expenditures
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.