Ambarella, Inc.

Ladies and gentlemen, thank you for standing by, and welcome to Ambarella's fourth quarter fiscal year 2021 earnings conference call. At this time, all participant lines are in a listen-only mode. After the speaker's presentation, there'll be a question and answer session. To ask a question during the session, you will need to press star then one on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star then zero. I would now like to hand the conference over to your host today, Lewis Gearharty, Corporate Development. Please go ahead.

Thank you, Sarah. And good afternoon, everyone. Thank you for joining our fourth quarter and our fiscal year 2021 financial results conference call. On the call today is Dr. Fermi Wong, President and CEO, and Casey Eichler, CFO. We're dialing in today from different locations. I'll be covering Casey's prepared remarks, and then Casey will be online for Q&A. The primary purpose of today's call is to provide you with information regarding our fourth quarter and our fiscal 2021 results. The discussion today and the responses to your question will contain forward-looking statements regarding our projected financial results, financial prospects, market growth, and demand for our solutions, among other things. These statements are subject to risks, uncertainties, and assumptions. Should any of these risks or uncertainties materialize, or should our assumptions prove to be incorrect, our actual results could differ materially from these forward-looking statements. We're under no obligation to update these statements. These risks, uncertainties, and assumptions, as well as other information on potential risk factors that could affect our financial results, are more fully described in the documents we file with the SEC including the annual report on Form 10-K that we filed on March 27, 2020 for fiscal year 20, ending January 31, 2020, and the Form 10-Q filed on December 9, 2020 for the third quarter of fiscal year 21. Access to our fourth quarter and fiscal 21 results press release, historical results, SEC filings, And a replay, as well as the prepared transcripts of today's call, can be found on the investor relations portion of our website. With that, I'll turn it over to Dr. Fermi Wong.

Thank you, Louis. And good afternoon, everyone. And thank you for joining us today. Our multi-year visual AI investment is the major factor in the accelerated business momentum we are reporting. Fixed-year 2021 revenue of $223 million was down 3% from the prior year, with the CV growing significantly, exceeding 10% of total revenue for the year, with the video processor business down around 10%. Fixed-year 2021 came with many challenges, the pandemic, geopolitics, and an increasingly tight supply chain. And these factors remain to varying degrees today. I'm pleased with how we have managed this environment. And as I look into fiscal year 22, my goal is to maintain a high level of execution and leverage our leadership position with our differentiated and proprietary visual AI silicon. Q4 finished the year on a strong note with revenue 4% above the high end of our guidance range driven by CV, with the number of production CV projects doubling sequentially. Embraer's highly focused video and image processing R&D investment crossed over a cumulative $1 billion in Q4, with almost half of this amount directed to our proprietary AI technology development. In fiscal year 21, validation of this investment was strong. as more than 175 unique CV customers purchased engineering parts and or development systems, including more than 40 reaching production volumes in the year. By the end of the current quarter, we expect to have shipped more than 2 million CV SOCs on a cumulative basis, with more than 300,000 CV SOCs shipped into the automotive market. I am extremely proud of our new product execution, as demonstrated by the introduction of our flagship CV5, the first in a family of 5nm AI region processors. As we look into fiscal year 2022, our guidance contemplates supply-side challenges, growth in the organization, an expanding product portfolio, and the development of a number of increasingly diverse markets. We remain confident the visual AI market is still in its early stages, and we continue to expect CV to be at least 25% of total revenue for the year, with the video processor business posting moderate growth. I will now provide an update on our customers and markets. At the beginning of the year, we introduced our CV5, an artificial intelligence AI vision processor capable of recording 8K video or full 4K video streams. The new SoC will enable the development of intelligent automotive camera systems, consumer cameras, and robotic cameras. It combines Umbrella's powerful CV flow AI engines with dual-arm A76 CPUs, to provide the performance necessary for a wide range of AI-based algorithms. Fabricated in the most advanced 5 nanometer process technology, we believe CV5 sets a new industry benchmark for power consumption, consuming approximately 2 watts of power while encoding 8K video at 30 frames per second or 5 watts at 60 frames per second. In January, Umbrella held its annual customer technology event during what would have been the live consumer electronic show. Our virtual event was held over a two-week period and included the individual live hosting of over 200 worldwide customers, spanning automotive, consumer, robotic, and IoT markets. Featuring over 30 technology demonstrations, with an emphasis on advanced AI applications. The event was a great success, allowing us to keep engaged not just with existing customers, but to meet many new ones that might not otherwise have been able to travel to Las Vegas for a live show. During the quarter, at the Amazon re-event show, AWS announced their new Panorama SDK with support for Ambarella CVFlow SoCs. The Panorama SDK allows device manufacturers to easily build edge computer vision devices for a wide array of use cases across industrial IoT and other segments. Ambarella was chosen as one of the only two initial semiconductor partners to build an ecosystem of hardware accelerated edge AI devices with our solution targeting intelligent camera designs. I would now like to take the opportunity to describe some of our customer-related highlights from the quarter, starting with the automotive market. Today, we announced that Motional, a global leader in driverless technology, has selected Umbrella's CVFlow family of AI processors. The processors work with Motional's network of LiDAR, camera, and radar sensors to enable the vehicle's safe operation in diverse and challenging road conditions. Moshino is leading the industry in making driverless vehicle a reality. The company recently became among the first in the world to put driverless vehicle on public roads and announced a landmark agreement with Lyft for the largest deployment of robotaxi on a major ride share network. The company's driving record included navigating more than 1.5 million miles in diverse environments and providing more than 100,000 public rides with zero at-fault incidents. It has also led the establishment of industry-leading safety standards, having co-published the Safety First for Automated white paper. Embraer's CV4 SOC will be part of the central processing module emotional stragglers vehicle, providing image and computer vision processing for cameras in the sensing suite, including the front-facing cameras. The CV4 AI engine will enable emotional AI algorithms to perform complex computer vision tasks, such as object detection, classification, and image segmentation with industry-leading power efficiency. Adra's advanced image processing will allow the vehicles to operate in challenging lighting conditions, including low light and high contrast situations, while the SoC's H.264 encoding will enable logging of video data from old cameras in a vehicle. In the Chinese automated market, the world's largest, we have won a number of driver monitoring and the combination with driver monitor monitoring plus in-cabin monitoring designs in passenger vehicles. These designs are with leading automotive OEMs and are expected to enter into mass production this year. The designs leverage Embraer's CV flow AI processing to enable driver safety functions, such as detecting distracted or drowsy drivers, as well as our HOC ability to process RGB IR images. The designs are based on our CV25 SOCs, as well as our new CV28 SOC, which we announced in the fourth quarter of last year. Also during the quarter, Ford introduced a dealer-fit dash camera for its European model based on Umbrella's A12AX automotive SOC, designed by Falcon Electronics, the small form factor wide-angle HD cameras. fits into the rear view mirror zone of the white wing screen without obstructing the driver's view and integrates with Ford's SYNC 3 screen and the voice control. And in China, Zhiyun Venture, FAW Volkswagen, introduced its new CC passenger car with a dealer-fit HD DVR based on Embraer's A12A SOC. Also during the quarter, a major home monitoring camera maker entered into mass production of a new class of intelligent camera based on our CV flow SOCs. And we're beginning to see significant CV growth in home security cameras. Customer's requirement for cameras with higher quality alerts realized with advanced hardware designs and more sophisticated algorithms for object detection, motion detection, and package protection are driving the adoption of umbrella Siri Flow SoCs. In January, alarm.com released its touchless video doorbell, eliminating the need to physically press the doorbell button. The doorbell recognizes when a person stands on your doormat and sends a mobile alert, allowing you to see and talk to your visitor from wherever you are. Based on Ambrose X5L, it includes 150-degree vertical field of view to allow viewing of packages, full HD resolution, IR night vision, and HDR processing. Also during the quarter, Logitech launched its CircleView wired doorbell. The first consumer doorbell includes Apple HomeKit secure video. The doorbell leverages users' existing iCloud storage for video recording without paying a separate subscription, and provides a similar viewing experience with the Home app on iPhones, Apple Watch, or other Apple devices. The doorbell is based on Ambrose 85LM SoC. In the professional IP security camera market, Umbrella has continued to benefit from customers migrating from high-cylinder control solutions and from widespread adoption of SoCs based on our CV-flow AI architecture. During the quarter, Dahua, the world's second-largest security camera maker, continued its migration to Umbrella with multiple product launches. For intelligent transport systems product, our CV2 SOC is being used for three, five, and nine megapixel ITS cameras. In IP security cameras, our CV22 and the CV2 SOCs are now shipping for four and eight megapixel designs with advanced analytics. And also Korean market leader Hanwha Taekwondo further extended its portfolio of umbrella-based IP security cameras, including a new three-channel multi-directional camera based on our CV22 CVFlow SoC, a new full-channel panoramic camera based on our flagship CVFlow CV2 SoC, and a new five megapixel corner mount model based on our H3L63 SoC. Also during the quarter, IDIS, Korea's second largest camera supplier introduced three new camera families based on our CVFlow CV22, H5L, and H3L SOCs. The new cameras include fisheye, 5 megapixel, and 8 megapixel models and leverage intelligent codec capability to reduce network bandwidth and storage requirements. In Europe, German IP camera specialists Delmire introduced its new Panamera S camera based on CV22. By combining several lenses and the sensors with different focal lengths, the Panamera S is able to capture remote and the middle areas with the same high resolution of the things in the foreground. We are continuing to see opportunities in new class of sensing cameras. spending multiple vertical applications, such as access control, occupancy monitoring, and retail analytics. During the quarter, Genius Pro, a leading provider of 3D time-of-flight sensor systems, introduced a people-counting camera targeting transport and building monitoring applications. Based on our CV25 CVFlow SoC, it includes both a visible CMOS sensor and a TOF sensor. with CV25 performing sensor fusion and AI processing to provide high-accuracy people counting. In summary, we are leveraging our successful video processor heritage into the development of a highly optimized video AI family of SOCs. In essence, our addressable market expanding beyond human viewing applications to include the install base of machines that can now use our CVSLCs to visually perceive the environment and make decisions, leading to higher levels of autonomy and eventually automation. The adoption of our expanding family of visual AIS silicon into increasing diverse markets, including pure machine sensing, was demonstrated by the emotional announcement today. is in an early stage, but is taking shape. And as this adoption drives revenue growth, we expect to continue to deliver positive earning leverage to shareholders. In our earning calls on June 4th, 2019, we provided guidance on the anticipated shape of the first three waves of CV revenue. We stated wave one, professional security, will become material in calendar year 20. Wave two, home security, will become material in calendar year 21, and wave three, automotive, will become material in the calendar year 22, 23 timeframe. We achieved our wave one goal in the last year, and I am confident we are on track to achieve wave two and three in their prospective timeframes. The last CV wave automotive is spreading on track as we have indicated with our communication last quarter on our automotive revenue funnel. And in fiscal year 22, driven by CV, we anticipate our auto business will grow at a rate that is significantly higher than the other business. This is important as our automotive SEM is estimated to be About two-thirds of total SEM in fiscal year 2022, or more than $3 billion, going to almost $7 billion in fiscal year 26. The megatrends for security, safety, and automation are very favorable. And to address this secular growth forces, we continue to build our team globally to support the rising interest in our CVSOC. from existing and new markets. I would like to thank all of our employees for their contribution to our leadership position in the market and for their execution in this turbulent environment. And thanks to all our other stakeholders for your continual support. I will now turn the call over to Louis who will give you more details about how we are seeing and expect for the business. Thank you.

Thank you, Fermi. I will review the financial highlights for the fourth quarter and the full fiscal year 21 ending on January 31st, 2021 and provide an outlook for our first quarter of fiscal year 22 that ends on April 30th, 2021. We will be discussing non-GAAP results and ask that you refer to today's press release for a detailed reconciliation of GAAP to non-GAAP results. For non-GAAP reporting, we've eliminated stock-based compensation expense, adjusted for the impact of taxes. Despite the pandemic, geopolitical and supply chain challenges, revenue in fiscal 21 decreased 3% to $223 million, as strong CV product ramp offset much of the headwinds. For the year, Security camera revenue represented about 60% of revenue with a balance roughly split between auto and other. For fiscal year 21, non-GAAP gross margin was 61.4%, up from 58.5% in fiscal year 20, driven primarily by the richer product mix as two of our professional security camera customers in China had an anticipated reduction in their safety stock. Non-GAAP operating expenses increased 10%, primarily due to a 10 million increase in R&D. Our cash flow from operations was 30.8 million for the year, and with no debt, net cash and marketable securities totaled 440 million. Driven by CV products, Q4 revenue of 62.1 was 4% above the high end of our guidance range of 56 to 60 million. These results represent an increase of 11% from Q3 and an increase of 9% when compared to the same quarter a year ago. Auto revenue increased more than 20% sequentially and year-over-year. Security camera sequential growth was about 20% and began to grow again on a year-over-year basis after the anticipated trough in Q3. Other revenue experienced a seasonal decline. Non-GAAP gross margin for Q4 was 61.4%, slightly above the high end of our guidance range of 59% to 61%. As anticipated, gross margin declined 129 basis points from the prior quarter to the product and customer mix in the quarter. Non-GAAP operating expense for the fourth quarter was $33.4 million compared to $32.4 million in Q3, This was slightly above the high end of our guidance range of 31 to 33. Other income was about $600,000, primarily representing interest income on our cash and marketable securities. Non-GAAP net income for Q4 was $5.1 million, or $0.14 per share compared to $3.3 million, or $0.09 per share in the third quarter. The non-GAAP effective tax rate in Q4 was 4% as the distribution of profits shifted towards lower rate jurisdictions. In the fourth quarter, non-GAAP earnings per share were based on 37.6 million shares. Total headcount at the end of the fourth quarter was 785, with about 81% of employees dedicated to engineering, most of whom are focused on software. Approximately 69% of our headcount is located in Asia. In Q4, we generated positive operating cash flow of $12.5 million. Total accounts receivable at the end of Q4 were $25 million or 37 days of sales outstanding. This compares to accounts receivable of $24.1 million or 39 days outstanding at the end of the prior quarter. Net inventory at the end of the fourth quarter was 26.1 million compared to 23.7 million at the end of the previous quarter. Days of inventory decreased to 93 days in Q4 from 102 days in Q3. We had two 10% plus customers in Q4. WT Micro, a fulfillment partner in Taiwan who ships to multiple customers in Asia, came in at 68.4% of revenue, and Ciccone, a Taiwanese ODM who manufactures for multiple customers, primarily US-based, came in at 13.8%. I will now discuss the outlook for the first quarter of fiscal year 22. We continue to have strong design activity in all of our markets. As you've heard, the semiconductor industry supply chain has become increasingly tight. and it's now very difficult to support customers who place orders inside of our lead times, which have been increasing. In addition, the Texas freeze impacted one of our vendors' operations, and while they are in the process of recovering, we do not yet know the final impact. To the best of our ability at the current time, our guidance contemplates these supply-side dynamics. Despite these challenges, with multiple CV programs ramping production, We expect to perform better than the typical downward seasonal trend in Q1, with revenue anticipated in the 67 to 70 million range, or up 8 to 13% sequentially. Auto revenue is anticipated to increase more than 20% sequentially, with security up in the low to mid-teens sequentially, and other down about 20% sequentially. We continue to monitor the outstanding geopolitical challenges, including the risk of dual supply chain and what that means for our ability to continue to supply our customers in China. In our prior earnings calls, we estimated two professional security camera customers in China had pulled in roughly $10 million of video processor revenue from fiscal year 21 and to fiscal year 20. We believe this video processor inventory correction is largely complete with these two customers combined representing a low teens percent of our total revenue in Q4. As discussed in our November 23rd earnings call and as Fermi described today, Dahua commenced mass production of multiple products in Q4 with several of our CV SOCs utilized. We estimate Q1 non-GAAP gross margin to be between 59.5 and 61.5, compared to 61.4% in the fourth quarter. Our guidance considers some higher costs and expenses that we're incurring to expedite orders and secure more capacity. We expect non-GAAP OPEX in the first quarter to be between 34 and 36 million, with the increase from Q4 primarily coming from an increased engineering headcount, payroll tax accruals, and other engineering expenses. The Q1 non-GAAP tax rate should be modeled at 10% versus 4% in Q4. We estimated our diluted share count for Q1, the approximately 37.8 million shares, Ambarella will be participating in the Morgan Stanley TMT Conference tomorrow, March 3rd, Barenberg's American Innovation Seminar on March 4th, Baird's Vehicle Technology and Mobility Conference on March 10th, and the Roth Conference on March 15th, and Bank of America's Auto Summit on March 30th. Please contact us for more details. Thank you for joining our call today. And with that, I'll turn the call over to Sarah for Q&A polling with Fermi and Casey available.

Thank you. As a reminder, to ask a question, you will need to press star, then 1 on your telephone. To withdraw your question, please press the pound key. Our first question comes from the line of Matt Ramsey with Cowan. Your line is now open.

Yes, thank you very much. Good afternoon, guys. I thought it was interesting, a couple of points on your prepared script for me that you had talked about, number one, the very large number of engagements. I think you mentioned, what, 175 now of folks that have taken engineering samples for CD-based products. And then you also sort of talked about this movement from from sort of phase one of CV adoption into what you guys talked about of wave two that might extend into home security. So maybe you could help us break down the number of the engagements, I think that 175 number by whether we're in wave one or two or three and what the customer concentration and mix looks like of those engagements. That would be really helpful. Thank you.

Yeah, thank you, Matt. In terms of the customer engagement, I would say that from the security camera, both for professional consumer, the total number of those customers are probably a little more than the automotive, but it's quite balanced. And so that, in fact, you can see that we talk about 40 customers in production. I would say majority of that is in professional security camera. And we are seeing some of the consumer security camera going into production. I also mentioned there are a few automotive camera customers in production and driving our CV revenues. So I think that's probably, from the design point of view, I would say you can use probably half a professional, half auto. But from a production point of view, I think the majority is a professional security camera at this point.

Got it. Thank you for that. I guess in... Casey, script as delivered by Lewis. You guys talked about the guidance for the current quarter being above what would typically be down seasonally, and were kind enough to give the split of what's driving the quarter's revenue. Casey, if you have any thoughts about seasonality for the remainder of the year, as you see it now, is it typical? Is it affected by supply constraints? I'm just trying to understand off of what was a guide that was considerably higher than I think a lot of us had modeled. How should we think about seasonality and your visibility through the remainder of this fiscal year just kicking off? Thank you.

Over the last couple of years, there's been a lot of dynamics that haven't been typical as in the past. We had wave one is now kind of in full force, and wave two is coming in at the end of last year and coming into this year, and that I think will drive The change in dynamic that we talked a little bit about around our business in China is also an impact. But on the other side of that, we're trying to look at the first half and the second half of the year and see what the dynamics are there. We're going to try to continue to keep you guys updated as we move forward. I don't know that we're going to have the same type of seasonality. We had a little stronger year, quite frankly, in the consumer side last year than we were expecting. We wouldn't expect to see that this year, but we'll have to see. As you know, we've said over the next five years or so that's going to be declining or continue to decline. It happened to perform a little better than we thought last year. So I don't know that I would think about the traditional cycle going forward this year, but I think I would look at the dynamics that not only we're reporting, but others are reporting and try to factor that in. We also now have, as Fermi talked about, a pretty broad pipeline of activity and automotive that's starting to emerge, and that's new to us as well. So we're pretty excited about all of those dynamics, but I don't know that I would call it typical to our historical balance, if you will, over the quarters.

Thank you very much, guys. I'll get back to you.

Thank you. Our next question comes from the line of Tor Vanberg with Stiefel. Your line is now open.

Yes, thank you, and congratulations on the strong results. Question for Fermi. On the emotional design win, could you elaborate a little bit on that? Are you the exclusive for front-facing camera here, and should we assume that this is a multi-year design win, meaning you're sort of locked in for several years?

First of all, I think that our chip is responsible for all of the video function perceptions and which including the video processing as well as neural network functions and also serve both for the front camera as well as all the other cameras surrounding the car so I do and in fact we have a with this current design we have to use multiple chip car and in terms of the length of the design cycle I think For the whole lifetime of the shipment, we believe it's multiple year. And because I think that for any vehicle, you should expect, I would say, anywhere between four to six of shipment. We haven't heard from the emotional give the guidance how long this product will last. But I believe that any vehicle should have that kind of period of service time.

Very good. Congrats on that, Wynn. And a follow-up for Casey, Lewis talked about some pressure on gross margin because of higher input costs. Is this sort of it for now, or could there be some further pressure as we move throughout the year on the COGS?

Yeah, we're going to have to look at what happens as well as, you know, for supply and what we've talked about, what Fermi talked about in the call. I do think that as we do more and more development in 5 nanometer, that does increase the development cost and increase the CAD tool cost and some of the other costs around being on the cutting edge. And so I think right now I'd stay generally in the range of where we are today. but we're going to continue to make sure that we have the right products at the right time, and that means we have to accelerate, as we talked about, not only hiring, but our development in some of these markets.

Great. Thank you.

Thank you. Our next question comes from the line of Andrew Buscaglia with Barenburg. Your line is now open.

Hey, guys. Thanks for taking my question. I wanted to, you know, this emotional announcement this morning is interesting. It kind of dovetails with what Amazon announced with their Zoox platform and robo-taxis. I was hoping you could talk a little bit more about that specific market and what you think, you know, this is kind of starting to become a trend and, you know, with automotive, you know, I guess, where do you see growth coming from? Or what's the growth trajectory like for robo-taxis, both, I guess, Over the next couple of years, I know maybe it's not something we'll count on this year, but can you talk more about that? It seems like you guys are becoming kind of a bit of a pattern.

Yeah, so our feeling is that I think the level five is level four, level four car, consumer cars continue to be challenging on the technology side as well as on the regulation side. But we do see that people continue to develop technology toward that direction. And we believe with this emotional announcement, the release, the first step that a truck, not a commercial vehicle, or is a commercial vehicle going to that direction? I think that's definitely probably an easier way to get this technology into production. And I do believe that this is going to become an important sector. And I think that eventually that's a, the most important market for us in the longer term. So we continue to invest heavily into this market and continue to invest heavily into our technology to enable our customer to do this kind of development. And I think this is critically important, particularly on the perception portion, that for visual perception, I think that it doesn't matter whether it's level two plus, level three or level five, I think the visual perceptions continue to become more and more important and people continue demanding higher performance for all of those applications. So that definitely is good news for Umbrella. But also importantly, we believe that although the ADAS market level 2 and level 2 plus is a near-term opportunity for us, but we believe that later down the road, this type of level four, level five cars will become probably the mainstream of business when the technology and the regulation are set for this market.

Very interesting. And the commentary on DAWA getting some projects, was that surprising to you in Q4? And what does that mean, I guess, going forward for DAWA and your other big uh, player and security HIC vision. Do you see something changing here where these guys are coming back in a more meaningful way to you?

Well, I, I think I won't say it's a surprise to us, but for in Q4, but it definitely, it's a change from the trend we have been seeing for the last two years, right? We talk about that, um, there's a deal supply chain, like China and non-China deal supply chain happening. And then we do see that, uh, the trend continues, but however, the, uh, the, uh, Huawei or HiSilicon situation help us to change that dynamic a little bit. And I do believe on this high-end CV market, we are, when people, when HiSilicon is not there, even in China, we have a very good position to provide solution to our customers. And that's, Dahua is a great example. So while I continue to worry about the new supply chain development, in China, but I do see that because our differential technology, we got a chance to get into our Chinese customer, including Dahua and several others, by using our CV chip for their AI cameras.

Interesting. Thank you.

Thank you. Our next question comes from the line of Kevin Cassidy with Rosenblatt Securities. Your line is now open.

Thank you and congratulations on the great quarter. You had changed your outlook on the human vision or the video products growth for this year from flat to growing. Can you say what's changed there? Is it that these products have a longer tail than expected or demand is up or are you just getting more designs?

Well, I think there's multiple phases, but one of the things is that we did talk about that Hikvision.org gradually digested their inventory level and came back to hold more video solutions. That really is a positive surprise to us. And also that in this year, we do see there's a lot of customers that, for example, we take over some of the market share. from our competitors that we talk about also help with that direction. And I think this two thing definitely is the major reason that we change our guidance a little bit.

Okay, great. And also you mentioned on the virtual CES, you said 200 customers. Can you tell us what would be the normal number of customers you'd have in Las Vegas at your booths?

Well, last year we are around 170. This year is around 200 plus. So that's probably in that range.

Okay. So constant increase in interest and your pipeline is filling up.

Yes.

For new designs. Great. Thank you. Thank you.

Thank you. Our next question comes from the line of Joe Moore with Morgan Stanley. Your line is now open.

Great. Thank you. Fermi, you talked about the wins in China driver monitoring. It seems like in the European market that there's a much quicker path to revenue on driver monitoring than there is on ADAS. Is that also true in China? Could that revenue materialize sooner than you might see in some of these other opportunities?

Well, there are two things I would like to mention here. First of all, we mentioned that our CV flow ASOC will have shipped more than 300,000 units to automotive market. And majority, if you look at the market, one is really the fleet market, the fleet management market. The other one is the OEMs. And if you look at application, majority of that 300,000 chips is going to the ADAS market. But however, I do see that in China and in Europe, we see many DMS and the in-cabin monitoring solution or design ways popping up. And we have won several of them. And also we mentioned that some of them will be in production in China this year. And that's why you see we're talking about at this point. So I think what I'm trying to say is DMS, in-cabin monitoring, ADAS will continue to be our short-term revenue opportunity for our automotive market. while we continue to prepare solutions for level two plus and above.

Okay, that's helpful. Thank you. And then separately on the emotional win, how does that relate to the funnel? And I guess, you know, both is that in the funnel at all? And then, you know, as you guys talk about the funnel and the revenue profile of the wins that you're getting, how are you thinking about level four or five types of wins when it's so long until the revenue would actually start to kick in?

Right, so it's definitely in the funnel, and we are talking to customers including promotional about their guidance and also their expectation into production. So we definitely have a good idea. They're thinking on their production date and in terms of volume, so it's in our funnel. But like you said, this is a longer-term project that we have been working on for more than four years on this particular project. and we expect that although the revenue is not going to be immediately high in this year, but we do see that when it's ramped up, it will give us very good returns in terms of investment. But at the same time, when we talk about our revenue funnel last year, we include everything we have visibility, so you can imagine that emotional, was part of that funnel, what we discussed last quarter.

Great, thank you. Congratulations on the announcement.

Thank you.

Thank you. Our next question comes from the line of Vivek Arya with Bank of America. Your line is now open.

Good question. For me, I'm curious, what is the CV attached rate per car? I think you mentioned about 300,000 shipments, cumulative shipments. I'm curious how many cars does that correspond to? And were these shipments replacing what you were selling to the same customer before? Or are these new applications or new customers? I was just hoping for some more color on that.

Right. So like I said, for the ADAS or in-cabin or DMS type application is one car or one chip per car. So the 300,000 chip means 300,000 cars. In terms of whether this is replacement, I think it's not because in the past, when we sell video processor, it's really for the DVR. And for the 300,000 automotive CV chip, we sold that into the ADAS market as well as DMS market. And I think that's a brand new market for us, so it's not a replacement for our video processor chip.

Got it. The next question, I think you gave the contribution from DAWA. I forgot whether you gave it for both DAWA and Hikvision for Q4. If you could just repeat what the contribution was in Q4, what you're expecting for Q1, and in general, how should we think about them in terms of contribution for this fiscal year?

Right. So we talk about DAWA and Hikvision combined is like a low middle teams, low teams total revenues for us this year, sorry, in Q4. And moving forward, I think Dahua will continue to be a strong customer for us because we talk about they not only clean up their inventory, but also their CV revenue is ramping up. Hikvision, on the other hand, I think it's going to be a smaller customer moving forward because While they continue to digest the video processors, we haven't got design wind from Hikvision on the CV side. Moving forward, I continue to see that the China security camera market is important for us, and Dahua will be leading our customer in there.

Thanks very much.

Thank you. Our next question comes from the line of Ross Seymour with Deutsche Bank. Your line is now open.

Hi, guys. Congrats on the strong results and guidance. Thanks for letting me ask a question. I wanted to dive into the automotive side. Fermi, you've had a couple really good quarters in a row. I just wanted to blend what you're doing this year where you said it's going to be the fastest growing area with the first, second, and third wave sides of things. So how would you describe what's driving the growth now and the transition that's still driving strong growth in fiscal year 22 before you get to the true wave three, which would be next year? So How do you see your business transition over that period of time and yet still deliver this strong growth?

Right. So I think the strong growth coming from the multiple areas, first of all, the first wave of CVE helps tremendously. You can see that our CVE revenue growth, last year we said $25 million. This year we said it's going to be more than 25% of total revenue. And if you think that, you know, today the analysts putting our – whole year revenue around $280 million. So 25% of that was roughly $70 million. So just CV alone grew from $25 to $70. And the growth mainly is in professional security camera and also ramping up our second wave of our CV revenue, which is consumer IP can. During the meantime, we continue to ramp up our more CV revenue uh, design wins on consumer IP can as well as different vertical markets. We talk about access control. We talk about, uh, you know, um, uh, people counting markets. So there are different markets that we're going after with our traditional, uh, security camera design. And so that continues to give us a growth. At the same time, we talk about our automotive, automotive market continue to have a stronger, uh, growth. I think that combination of current, uh, uh, video-only solutions. For example, the DVR market continues to grow fast in Japan, Korea, and China. And also, we just reported we have a design wing at Ford and Volkswagen. So you can see that even in the U.S. and Europe, we're adopting DVR solutions, which is really how I believe that we are the market leaders in that particular market. So that continues to give us automotive growth. At the same time, we just report that we have cumulatively shipped more than 300,000 CV chips into automotive. That also is indication that we're doing well and that we are on track to deliver our Wave 3 in the coming year, 2022 and 2023.

Thanks for providing that bridge. I guess one for Casey. I know you said seasonality doesn't come in on the revenue side so much, and there's lots of puts and takes there. But if we shifted down to kind of your general feeling on OPEX for the year, how are you thinking about that? Are there any big puts and takes to think about? How do we think about it relative to revenue growth, et cetera?

Yeah, so I'd say, you know, SG&A is all fairly consistent with the exception that, as we've talked about in the past, we are investing in the sales and marketing area in Europe, obviously. building out our capabilities there and so that has been some additional expense or will be some additional expense for the year. Really, our continued driver is going to be on the engineering side. like I talked about with the 5 nanometer and the other costs related to doing these advanced technologies. There aren't many people bringing chips out at a pace that we are. The Chan and his team are doing successfully last year and continuing into this year. And that doesn't come without cost. And that cost is we have to continue to build our engineering team, not only in the U.S., but in in Europe and in Asia, as well as we need to continue to invest in making sure that we can tape out leading-edge chips to take advantage of the success that we're having right now. Those are really going to be the drivers. The engineering side, that's pretty consistent, except for it's just getting more and more expensive. On the sales and marketing side, that's a little bit new. It's not a huge investment, but we are making sure that we have the opportunity to take advantage of all markets globally.

Perfect. Thank you.

You bet.

Thank you. Our next question comes from the line of Quinn Bolton with Needham & Company. Your line is now open.

Hey, Fermi. Congratulations on the nice results. I wanted to ask sort of a longer-term question in the security surveillance market. You know, lots of puts and takes there. you're gaining share at Dalwa and some of the tier twos. You seem perhaps a little less optimistic about winning CV at Hikvision. I guess, you know, and then, and then Hisolikin is, is obviously can't, can't secure, you know, new, new semiconductor supply. So I guess when you put all that together and you look at over the next couple of years, do you think you're positioned to, to gain share in security? Do you hold it flat? Just, just to kind of, what are your thoughts over the next couple of years about, whether you can grow your share of that security camera market.

Right. I think that in the next few years, the biggest transition for the security camera market is going to be transition from a video solution to the CV solution. And we believe that we are in a very good position from a technology point of view to provide the best solution to the market, both China and non-China customer. Outside China, I'm confident that we'll be number one provider by far. And in China, because of due supply chain, we continue to see a competitor coming on the low end side to compete on the CV solution, but on the middle and high end side, we are probably the best solution even inside China at this point. So I'm hopeful that we will continue to get market shares in the security camera market when the transition continues. And it's hard for me to predict how fast the CVE revenue is going to ramp up. But, you know, just look at, you know, we talk about 2 million units of CVE chip shipment at the end of Q1. And the majority of that in a professional security camera And I expect that the growth rate will continue to increase in a big percentage. So I'm hopeful that we're going to see a similar transition just like 10 years ago when the security camera transition from analog to digital. We're going to see a very similar transition from video to AI in the next couple of years.

Thanks, Fermi. And then one for Casey. Just, you know, as things get tight, investors always worry about double ordering. I'm wondering if you could give us any thoughts and if you're seeing any change in customer order behavior, whether, you know, as lead times are stretching out, are these customers more comfortable placing orders with longer lead times with cancellation penalty, meaning that, you know, these are pretty sticky orders? orders, just any comments you can make about your confidence in the orders that are coming in would be greatly appreciated.

Sure. Well, as you've heard me say in the past, in environments like this, CFOs sleep like a baby, go to sleep and you wake up every two hours crying. It's just really dynamic. And we go out, we have to dial up our activity with our customers, we have to continue those discussions, we have to be talking to our suppliers. And we have to try to map that together as best we can. As you've heard from everybody this quarter, that has come into play in the last quarter. And I anticipate that we're going to continue to deal with that for the first half of the year. But to your question really is how much of that is going to carry out into the second half of the year to where people aren't ordering for capacity in the first half, but just making sure that they have enough to make it through the end of the year. And we're going to get better visibility like everybody over the next quarter. But right now certainly we're all dealing with those issues. Our partners have been very good and have been very supportive, but it's also a very difficult environment. as you've heard. And so we're going to continue to make sure that we're communicating with our customers, trying to make sure they understand lead times and how we can best support them in what's going to be probably a challenging quarter or two. And then to your point on the back end, you see how much of that was capacity and how much of that was inventory. Great.

Quinn, this is Fermi. I just want to add one more answer on that. Personally, you know, we all gone through this kind of environment in the past I have no doubt that our customers try to build up inventory to protect themselves, which everybody should do under this environment. So it's our job to talk to our customers regularly to understand their true demands and trying to work together to prevent a different kind of problem down the road.

Thank you.

Thank you. Our next question comes from the line of David O'Connor with Exxon, BNP, Paribas. Your line is now open.

Great. Thanks for letting me ask a question. Maybe one or two follow-ups from my side. Firstly, Fermi, you talked about wins at that way. less so at Hikvision. You say that's taking longer or not as confident about that. Is there any particular reason why wins at Hikvision is taking longer? That's my first question. And then maybe a question for Casey on the supply chain. You mentioned it's tight. Have you secured enough capacity to continue to grow quarterly through calendar 21? Thank you.

Right. Let me answer the question about Hikvision first. I think that the steel supply chain situation is definitely a concern for HEC region, and I can sense that it's very sensitive to them that they want to secure a non-U.S. component as a higher priority. I think that's probably the biggest problem we're dealing with at this point. Casey, you want to answer the second half?

Sure. Obviously, in an environment like this, you're always trying to secure an appropriate amount of capacity, but it's also very fluid. And so, you know, where we're trying to, you know, make sure we have the capacity that we need, not only for the first half, but the second half of the year, things change and environments change. For example, what happened in Texas in the last few weeks, is certainly something that's a dynamic that no one expected and impacts across the semiconductor environment. And so I think that we're doing the right things to secure the capacity we need for our customers. But it is fluid, and things like that can't happen.

Got it. Thank you.

Thank you. Our next question comes from the line of Tristan Guerra with Baird. Your line is now open.

Hi, good afternoon. Just following up a little bit on the supply shortage, are you constrained in your current quarter guidance, which sounds like it's supply-based relative to the demand and what you otherwise would be able to ship if there was no constraint? And is there a way to quantify this and maybe also for the full year, you know, since I'm assuming you probably have wafer contract for the rest of the year, you know, how much you think you have security in supply growth versus, you know, what the demand is.

Right. So, in Q1, I don't think we are supply constraint and because, first of all, I think, you know, we buy wafer from Samsung and I think They are very good partners and continue to supply to us. And also, in fact, the biggest shortage out there is packaging and substrate. Our partner there is ASE in Taiwan. And also, we have strong relationships. So in Q1, our guidance is not constrained by the supply. However, there is a curveball just being thrown at us, is that all of you have probably heard that the Samsung Texas Foundry It was shut down because of the extreme weather. I believe that the factory has gone back to operational, and they got the water and electricity, and we are working closely with Samsung to size up the impact to the delivery, and if there's any, that would be probably in a Q2 timeframe, but we haven't really got visibility on that yet. We will continue to work with our customer and also suppliers to make sure that we don't become the bottleneck for our customers.

Okay, that's great, Kohler. And given the environment of PCB substrate price increases, are you able to pass on some ASP increases to your customers as well, or could that also be a factor we should be looking at in terms of your gross margin outlook for this year?

Well, I think our cost on the substrate definitely increased, but we have not passed it on to our customer yet. I don't think that's – well, it's not a high-priority tax for us yet. Also, all the guidance we give you in Q1 includes all of the costs we just mentioned.

Okay, great. Thank you.

Great.

Thank you. Our next question comes from the line of Suji De Silva with Roth Capital. Your line is now open.

Hi, Fermi. Hi, Casey Lewis. So I appreciate the computer vision revenue amounts and the guidance, but can you help us in the mix there of wave two consumer versus wave one professional? Would the ratio there, when it ramps up, be similar to the video, which was one-third consumer, two-third professional, if I recall, just to get a sense of the relative size of those two?

Yeah, at points fully ramped up, I think the ratio will continue to be similar in that range. And also today, just because wave one just completed and wave two just started, I think the revenue split is still heavily favored professional security at this point.

Okay, great. Any other questions? You gave pipeline data in the past few quarters. Do you have any update to those numbers at this point, or are you going to do that intermittently?

No, for the revenue funnel, we talked about that. We're probably going to give you an annual update.

Okay. All right, great. Thanks, guys.

Thank you. Thank you.

Thank you. Our last question comes from the line of Richard Shannon with Craig Hallam. Your line is now open.

Well, thanks, guys, for taking my questions. I'm going to follow up on the professional security question. Fermi, you mentioned kind of yearly guidance, thinking about 280 top line of the quarter, that's about 75 being from CV and most of it being professional security. That suggests it's going to be a good portion of professional security for the year, like maybe a quarter or a third, roughly speaking. Do you have visibility on whether CV becomes more than half of professional security this year or soon thereafter? And then just kind of following on that as we think longer out, do you think the cycle of video to CV, is that a similar timeframe as you have seen from analog to digital in the past?

Right. So we haven't given guidance about the CV percentage of a professional security camera. We'll consider that. But, you know, if you do the math, I think we're getting a higher percentage, and it's definitely become very meaningful for a professional security camera with our CV revenue today. That's definitely its growth because our video processor, like I said last year, our video processor business has gone down only by 10%, but our CV revenue growth this year is going to be a lot more than that. So I do believe that we will continue to maintain video processor revenue while we're growing our CV revenue. In terms of, sorry, I forgot the second part of the question.

The trend from video to CV, do you see that happening in a similar kind of cadence as analog to digital we've seen in the past?

I agree. I think that's the case. In fact, I just mentioned that I think the transition from the video to CV, particularly in a professional security camera, we're already seeing it. I think that transition will be fast and will continue to accelerate it in the next couple of years. In fact, One indication is the majority of the new projects that our customers kick off with us, they are all CV-based. So I have no doubt that you're going to continue to see this trend in the next couple of years. When we transition from the analog camera to video camera, there's three years ramping up very fast. I'm not sure we are in that phase yet, but I won't be surprised if we start seeing that phase very quickly.

Okay. Thank you for that detail. I'll pass along. Thank you.

Thank you.

Great.

Thank you. There are no further questions. I will now turn the call back to Dr. Finley Wong for closing remarks.

Yeah. I would like to thank all of you for joining us today, and I'm looking forward to see you next time. Thank you.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.