On its FQ2 CC, Amabarella (AMBA +10.5%) guided for FQ3 revenue of $43M-$45M, largely above a $43.3M consensus. The image-processing chipmaker also forecast net income of $8M-$9M and a diluted share count of 30.7M; that implies EPS guidance of $0.26-$0.29 vs. a $0.27 consensus.
The company's FQ2 beat was fueled by surging security camera SoC demand, particularly from Chinese OEMs who are doing brisk business at home and are beginning to expand overseas. For the first time, security camera chip sales exceeded all other camera chip sales combined.
Ambarella notes the security camera industry's ongoing transition from analog/CCTV systems to high-def/IP-based hardware is driving growth, as is strong design win activity for its A5s SoCs.The company is counting on its (4K-supporting) S2 SoCs to maintain its momentum.
Demand from the automotive and consumer sports camera markets was also strong, with buyers in the latter market increasingly interested in higher resolutions/frame rates. Popular sports camera maker GoPro is an Ambarella client.
Demand for higher-margin encoder/transcoder chips used in video broadcasts (found in pay-TV networks) remained weak due to soft spending from U.S./European service providers. That, in turn, contributed to Ambarella's gross margin drop. Demand is expected to improve in 2H.
Needham has lifted its PT to $21 from $20, and declares its thesis Ambarella is "well positioned in multiple, well-protected and growing end markets" to be unchanged.