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spk16: Thank you for standing by and welcome to Umbrella's second quarter fiscal year 2022 earnings conference call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star 1 on your telephone. As a reminder, today's program is being recorded. I would now like to introduce your host for today's program, Lusca Hardy, Corporate Development and Investor Relations. Please go ahead, sir.
spk04: Thank you, Jonathan, and good afternoon. Thank you for joining our second quarter fiscal year 2022 financial results conference call for the three months ending July 31st, 2021. With me today on the call is Dr. Fermi Wong, President and CEO, and Casey Eichler, CFO. The primary purpose of today's call is to provide you with information regarding the results for the second quarter of our fiscal year 2022. The discussion today and the responses to your questions 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 business operations and financial results, are more fully described in the documents we filed with the SEC, including the annual report on Form 10-K, filed on March 31st, 2021 for fiscal year 2021 ending January 31st, 2021. And the form 10Q filed on June 8th, 2021 for the first quarter of the fiscal year 2022. Access to our second quarter fiscal 2022 results, press release, historical results, SEC filings, and the transcript of our prepared remarks And the replay of today's call can be found on the investor relations portion of our website. Fermi will now offer a business update, and then we'll review the financial results. And then, Fermi, Casey and I will be available for your questions. With that, I'll turn it over to Dr. Fermi Wong.
spk11: Thank you, Louis, and good afternoon. Thank you for joining us today. We are pleased to report significant market and financial momentum as our AIoT transformation continues to play out. Q2 revenue was above the high end of our guidance, up 13% sequentially and 58% on a year-over-year basis. Our Q3 outlook is also well above the consensus estimate, led by computer vision, CV, news product cycles in existing markets, as well as our penetration into entirely new markets. CV continues to drive our blended ASP higher, and the positive operating leverage we inherit in our model was apparent with non-GAAP operating margin increasing 450 basis points, sequentially reaching 16.9%. Cyclical forces continue to constrain our performance. Wafer supply from Sensors Austin, Texas wafer fab following the Texas freeze earlier this year reached a low point in Q2. While we are seeing a recovery from this Texas FAB and expect the recovery to continue in the second half, we do not anticipate a material improvement in the industry-wide supply chain challenges. CV Momentum continues to rapidly build. Since introducing our CV SOC family to the market, we have had more than 240 unique customers purchase engineering parts and or development systems. with almost 60 unique customers achieving production status in the first half of this year. Even at this early stage of our transformation, we are realizing a revenue mix that is of higher quality and with more diversification. A majority of our revenue is now driven by enterprise CapEx, public infrastructure spending, and the consumer durable goods investment. For example, our automotive and IoT camera business, mostly security camera stick, both decisively achieved record quarterly revenue levels, while our non-focused other revenue, mostly discretionary consumer leisure goods, represented 10% of revenue, or a record low. Now I will now update you on target market progress. In June, we announced the extension of our AI region SOC portfolio with the introduction of our new CV5S and the CV52S SOCs. Based on the CV4 architecture, the 5 nanometer SOC target IoT security applications with Linux OS, a new SDK including multi-imager and small phone factors. This new SOC camera support application requiring 360 degree coverage, low-range viewing, advanced encoding, and the AI performance to more accurately identify individuals or objects in a scene. During the quarter, eight weeks after receiving first silicon, we shipped our first CD5S development systems and software development kit to customers. This is a significant accomplishment at such an advanced note, and I'm thankful for the strong execution for our hardware and software teams that made this happen. Also in June, in advance of the annual IHC West trade show in Las Vegas, we held a virtual event that was attended by over 50 leading customers worldwide. The event featured over 20 demonstrations, including a first look at the new CV5S in a multi-imager system and our latest access control reference design based on our continuing partnership with Lumenton and On Semiconductor. We have already secured multiple design wins for the new CV5S, as well as new customers in the access control market. Motorola's solution has become one of our largest customers, and we are pleased to see their announcement. They intended to acquire OpenPath, a technology leader in access control system, further validating the existing opportunity in this growing market segment. Motorola's video security portfolio now includes IP camera makers of Vigilon, Telco, and IndicoVision, as well as Edisix, a UK-based police body-worn camera supplier, and WatchGod, a supplier of police vehicle cameras. All of these companies are Umbrella customers. Umbrella's CD4 AI Vision SoC continues to gain share in the professional IoT security camera market. with most major manufacturers have chosen our CVSLCs. During the quarter, European giant Bosch introduced its first three families of cameras based on Embraer CVSLCs. Bosch introduced the 5000i based on our CV22 and the 7000i and the 8000i based on our CV2SLCs. By winning the three major platforms at Bosch, the scalability of what CV-SoC portfolio is demonstrated. In addition to our SoC share gains in professional security outside of China, last quarter we spoke about opportunity to gain market share within China, and we announced two new customers today. We're announcing two additional customers, Maosite and Fushan. First, Maosite introduced its CV25 based AI pro bullet network camera family available in 2.5 and 8 megapixel version, and including advanced analytics, people counting, face detection, and ultra low light operations. Second, FooShine introduced a non-contact facial recognition temperature major system based on our CV28M SOC. The tablet device can recognize people with max arm and use steel sensors. Also during the quarter, Canada-based March Networks introduces new VA series IP camera based on our CV flow processes. Our chipsets make them fully compliant with the US National Defense Authorization Act, or NDAA, and the power of the camera's advanced video analytics. Now turning to the automotive market. We continue to make progress in the fleet management market due to the efficiency of our CV SOC as well as the advantage of our open platform. which allow OEMs and tier ones to create differentiated, multifunctional products. Last quarter, we announced four examples from the Shanghai Auto Show. And this quarter, we are pleased to announce three additional wins, Keep Trucking, Yandex, and Solera. Earlier in August, fleet management leader Keep Trucking announced it was partnering with Umbrella to deliver its new AI dash cam for front ADAS, driver monitoring, and telematics. The AI-DASH can use a single CB22SLC to simultaneously provide AI and image processing for its dual camera system, which integrate one camera for the front ADAS with incident recording, and the second RGBIR camera for the drive monitoring system with recording. This morning, we announced Yandex, a major internet service and a product company, introduces a Signal Q2 driver monitoring camera for its ride-sharing partners, powered by Umbrella CV25 SoC. The Yandex EMS camera will be deployed across the Yandex taxi partner fleet consisting of over 700,000 vehicles starting in 2022. And it's also being offered to other delivery fleet companies. Also during the quarter, Solaris Omnitracks division announced its next generation fleet solution using smart drive technology with our CV25 SOC. This combo system simultaneously process data from two sensors, monochrome and the RGBIR to enable DMS and the recording functionality. In the passenger vehicle market, Chinese car maker Dongfeng introduced its new EU law MaxCar featuring a driver monitoring camera based on an umbrella CV25AQ processor. With this market progress, you can see we are winning because of our efficiency, both in terms of performance per watt and performance per dollar. And our open platform and the flexible architecture, which allow our customer to capture software value and introduce differentiated multi-featured combination systems. In conclusion, we are leading a significant shift in how cameras are used and providing the corresponding stat function increase in processing performance. In addition to human vision viewing, all through the lens of a camera, data can be collected and then processed in our SOC, enabling new level of safety, security, and efficiency through partial or complete level of automation across multiple industries. This processing we provide is occurring in purpose-built IoT H8 points, not in servers, where fundamentally different and more expensive SOC architecture are used. The global economic picture is strong. New stimulus programs are in the works, like infrastructure build in the US. Supply-side technical dynamics are extended. But to be clear, the inflation you are seeing with umbrella, what gets us most excited is how we are driving AI into numerous IoT endpoints, verticals, and how we are demonstrating we can capitalize on this tremendous growth opportunity to drive shareholder returns. The demand for deep learning the AIoT endpoint is a new and a critical phase of the digital transformation that is just beginning to impact to so many verticals. Our confidence in our long-term prospects is high. We expect to achieve record revenue in fiscal year 22, ahead of the $316 million revenue in fiscal year 15. And we remain comfortable that CV revenue will be at least 25% of total revenue this year. Before we get into the financials, I would like you to mark your calendars For our capital market days, we plan to host at our Las Vegas CES location on Tuesday afternoon, January 4th. This event will allow us to more thoroughly discuss the inflection we are seeing and provide a corporate strategy update. With that, I will ask Louis to review the Q2 financials and provide the Q3 outlook.
spk04: Thank you, Fermi. I will now read the financial highlights for the second quarter of fiscal 22. ending July 31st, and provide a financial outlook for our third quarter of fiscal 22, ending October 31st. I'll 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 have eliminated stock-based compensation expense adjusted for the impact of taxes. In Q2, the industry-wide supply chain challenges remain significant. And in this period, we believe we experienced the worst of the wafer shortfall from the Texas freeze as previously forecasted. However, our operations team and manufacturing partners worked diligently to support the strong and broad-based demand, and they successfully minimized disruptions for our customers. Our revenue of $79.3 million was 5% above the high end of our guidance, representing a sequential increase of 13% from Q1 2020. and a 58% increase from the year-ago quarter. Automotive revenue increased about 10% sequentially, security grew more than 20% sequentially, and other product revenue was down more than 20% sequentially. Non-GAAP gross margin for Q2 was 62.8%, slightly below the 62.9% in the preceding quarter. We incurred some higher costs to manage the supply chain challenges, but the pricing environment and the mix remained relatively stable, sustaining gross margin above the high end of our long-term model. Non-GAAP operating expense for the second quarter was $36.4 compared to $35.4 million for the previous quarter. OpEx was slightly below the midpoint of our guidance as G&A was lower than forecasted. We continue to demonstrate strong positive operating leverage. with operating margin on a non-GAAP basis of 450 basis points sequentially, reaching 16.9%, up from 2.2% a year ago. Other income of $218,000 reflects the low interest rate environment. The non-GAAP net income for Q2 was $13.1 million, or $0.35 per diluted share, compared with non-GAAP net income of $8.9 million, or 23 cents per share in the first quarter. In the second quarter, the non-GAAP earnings per share were based on 38 million diluted shares. Total headcount at the end of the second quarter was 827. That's up 9% from a year ago, with about 81% of employees dedicated to engineering. Approximately 68% of our total headcount is located in Asia. Total accounts receivable at the end of Q2 were 38.3, or 44 days of sales outstanding versus 34.5 million or 44 DSOs at the end of the prior quarter. Net inventory at the end of the second quarter was 42.1 million compared to 33.1 million at the end of the previous quarter. Days of inventory increased to 115 in Q2 from 102 the prior quarter on a sequential basis Work in progress was up sequentially to support the rising demand, while the finished good inventory was down and at two-year lows. Our Q2 operating cash flow was a positive 14.4 million, or about 18% of revenue. This compares with an outflow of 4.5 million the prior quarter. Cash and marketable securities were 449.2 million, up from $435.5 million at the end of the first quarter. We had two 10% plus customers in Q2. WT Microelectronics, a fulfillment partner in Taiwan who ships to multiple customers in Asia, they represented 62% of revenue. And Chikoni, the Taiwanese ODM who manufactures for multiple customers, was 16% of revenue in the quarter. Dahua and Hikvision combined represented a high single-digit proportion of our revenue. I will now discuss the outlook for our third quarter of fiscal 22. During the second half of the year, we expect output from Samsung's Austin, Texas, wafer fab to continue to recover from the February freeze. Nevertheless, we continue to experience a variety of industry-wide supply chain challenges. While extended lead times for wafers and substrates persist, Our outlook is also constrained by shortages of other companies' components on our customers' bill of material. Based on these factors and our best judgment at the current time, we expect total revenue for the third quarter ending October 31, 2021, to be in the range of $88 to $92 million. Revenue from automotive and IoT cameras, primarily security today, is expected to increase about 10% sequentially. Other revenue off a low base is expected to have a seasonally strong quarter, but still down on a year-over-year basis. We estimate Q3 non-GAAP gross margin to be between 61% and 63%, compared to 62.8% in the second quarter. While we're seeing some higher costs to manage the supply chain, the healthy mix and relatively stable pricing environment may cause our gross margins in the short term to temporarily exceed the high end of our long-term model of 59% to 62%. We expect non-GAAP OpEx in the third quarter to be between 36 and 37.5 million. The Q3 non-GAAP tax rate should be modeled in the 3% to 6% range. And we estimate our diluted share count for Q3 to be approximately 38.3 million shares. Ambarella will be participating in the Jefferies one-on-one conference tomorrow, September 1st, Credit Suisse's Asian Technology Conference on September 7th, Deutsche Bank and Collier's conferences both on September 9th, Evercore Autotech and AI Forum on September 21st, and Barenberg's CEO Conference in New York on November 9th. And as Fermi noted, please mark your calendar for our Capital Markets Day on September January 4th at our CES location in Las Vegas. Thank you for joining the call today. And with that, Jonathan, I'll turn it back to you for the Q&A session with Fermi and Casey.
spk16: Certainly. Ladies and gentlemen, if you have a question at this time, please press star then 1. If your question has been answered and you'd like to remove yourself from the queue, please press the pound key. Our first question comes from the line of Gary Mobley from Wells Fargo Securities. Your question, please.
spk02: Hey, guys. Let me extend my congratulations on strong results, but as well the fruition of the transformation of the company, good execution. And my question relates to the progression of your quarterly revenue. You just grew revenue $9 million sequentially. You're expecting to grow $11 million in the current quarter sequentially. And so I have no doubt that the demand is strong, but Are those sequential increases largely a function of a strong demand backdrop, a strong backlog, and as well better access to foundry capacity? And related to that, could you give us some sort of metric as it relates to unfilled backlog as at the end of the July quarter compared to the prior quarter?
spk11: Right. So, first of all, Continued revenue increase is due to the strong demand on our CVE portfolio. If you look at our revenue goals this year over last year, I think CVE is a majority of that growth. Last year, we did $25 million CVE revenue, and this year we do 25% total revenue from CVE. And you can calculate the difference. And that basically comes from two different reasons. One is we talk about this, our CV ASP is twice higher than the video processor. So even just replacing the previous product, we are getting more revenue from that. But more importantly, I think CV takes us into two things. One is new product cycles in the existing market. For example, our security camera. A lot of the old video-only products are replaced by AI-based video cameras. And also we are reaching into new markets. We talk about access control, we talk about in automotive, we have DMS, we have all kinds of multifunctional device that we're penetrating into. So this combination of those, all the things on the CV side basically provide the majority of growth. From the supply side, You know, Texas foundry was a problem in Q1 and Q2, but you will recover on second half, like Louis said, and that will become less impact. And we still be impacted by, you know, other components shortage for all, because when all customers want to build their products, It's not just our supplies. Everybody else's supplies matters. So I think that's going to be a continual limiting factor. But however, you know, I don't see that become Q3, Q4's more significant than Q2 impact from this point of view. Follow-up? Go ahead.
spk02: Go ahead. I was just going to say, my follow-up's related. And so if you have more supply coming on against a backdrop of strong demand, And I know your other business might be seasonally soft in the fourth quarter. All those things considered, do you think you can grow your fourth quarter revenue sequentially?
spk11: We haven't provided guidance yet. But however, like you said, our traditional consumer business has a seasonality in there, the play industry, we need to consider that. But I do believe that our CVE revenue continues to be strong, not only just for this year, but will continue to be strong in the near future. Because like I said, we see a huge amount, you know, design wing activity. We talk about, you know, 200-plus customers, you know, purchasing our CVE silicon, rapid design silicons. And also only 60 of them are in production right now. So you see there's a big momentum on the CVE side. So I, you know... I will prefer to look at as a long-term business that's going to continue to be a strength on the CV side for us.
spk02: Understood. Thank you.
spk16: Thank you. Our next question comes from the line of Joe Moore from Morgan Stanley. Your question, please.
spk12: Great. Thank you. My question is on driver monitoring. You guys had a number of questions. Key wins there from Keep Trucking and Yandex and a couple others during the quarter. And that seems like something that can start to be in production vehicles fairly soon with you guys having a good presence. Can you kind of talk about where we are with OEM penetration of driver monitoring and when that might become a more material part of your revenue? Sure.
spk11: Right. So I think you're talking about the fleet management, that's what we call it. And most of it is commercial vehicles. And first of all, I think that that market is sizable. I think the existing market is the vehicle is roughly 50, 60 million units and grow at 10% a year. And we believe that the old design we just mentioned this time and in the previous time, The majority of them will be in production this year and renting out next year. So you should start seeing revenue this year, and hopefully we can see a lot more next year.
spk12: In terms of passenger vehicles, it's part of the European NCAP standards already. It seems like there should be some adoption in luxury passenger vehicles relatively soon.
spk11: Well, first of all, we talk a lot about our Chinese design wins already. But for the European and U.S., we are not allowed to talk about it. But I definitely think that's a focus area that we continue to work hard to make sure that we make progress there.
spk12: Great. Thank you very much.
spk16: Thank you. Our next question comes from the line. Matt Ramsey from Cowan. Your question, please.
spk17: Thank you very much. Good afternoon, guys. My first question... For me, it's pretty obvious from the strong results and the momentum that you guys are seeing that one of the thesis points around high silicon being challenged in terms of their own production as one of your main competitors, that you guys are picking up more and more design wins from, you announced, I think, a couple of new security customers from China on the call today, talked about the momentum with Motorola and all of their subsidiaries and a lot of folks that are shipping into international camera markets. And I guess my question, the first question is, do you concur that that's actually playing out? And I guess what inning of that seed change and you taking some of those wins are we in? And I guess second part of the question is, have you seen new competition starting to pop up in And what does the competitive landscape look like for CV now with the industry digesting that high silicon might be permanently impaired? Thanks.
spk11: Right. First of all, your observation on the high silicon and our momentum in China, outside China, is correct. And, you know, even in the past when we compete with high silicon, High Vision Dahua uses our silicon for export business mainly, right? It's not a surprise for us that we continue to have strongholding on the outside China. But inside China, we start picking up some market, like we talk about Dahua, we talk about now four new Chinese 3D camera customer using our solution for CVs. So I think momentum is right. In terms of competition, I can tell you that there are probably I don't want to exaggerate, maybe 20, 30, you know, different company, startup or existing company try to compete and try to grab a share that Heiseking left. But however, I would say majority of them are fighting at the very low end, you know, the $2, $3 ASP type of solution. And on the CV side, all of them are focusing on low end. And I haven't seen anybody build a platform that we do, right? When we talk about our flow of SOCs, we talk about six different silicon cover, a very wide range of performance, a wide range of ASPs. We see strong competition on the low end side. We see very little everywhere else. So I think that... It continues to be our strategy that we want to leverage our platform and to cover the most important customers to convince them to use us from the bottom to the top. And it's also our strategy to continue to maintain our leadership on the middle and high end moving forward.
spk17: Got it. No, that's a really helpful caller for me. As my follow-up question, it's pretty remarkable to see operating margin in the guidance for your October quarter above 20%. I think it was down about 5% in the October quarter a year ago. And obviously, there were some COVID headwinds back then. But I guess my question is, how do you feel like the company, I guess the question for all three of you guys is, how do you feel like the company is staffed and funded right now, both from a sales, marketing, biz dev point of view, and obviously from an R&D point of view, as it sounds like the company continues to expand and attack some of these markets, and what kind of margins are we talking about as we continue to get leverage? Thank you.
spk11: Right. So first of all, I think you already noticed that in the last 12 months, we have to start ramping up our business development staff, particularly in the U.S. and Europe. And we hired a brand new team in Europe. We hired a new automotive company sales team in U.S., and we continue to size up our Asian sales team, particularly for automotive business. So from the business development point of view, we have, you know, been hiring for the last 12 months. On the R&D side, if you look at our headcount, we go from 700-plus last year to 800-plus this year to give you a good indication that we're also ramping up our engineering resource, which already is part of our R&D expenses in Q1, Q2, and continue to be in the future. Our strategy is we're going to continue to invest more in terms of CV technology as well as more development cycles into our next generation phase product. And also, at the same time, continue to develop the advanced nodes. We are a 5 nanometer. I believe there were multiple 5 nanometer chips were coming out from our roadmap. And we need to start with a We need to go to four and three nanometers, and it's already an investment we need to do. But by saying that, I also want to emphasize that I think that we continue to have a leverage on our operating margin is a very important factor when we look at how we're managing our business. So I think that we are in a position that we can continue to increase and improve our engineering and the business development investment while continuing to see leverage on the operating margin point of view.
spk17: Thank you for all that, Fermi. Congratulations on the progress, guys.
spk16: Thank you. Appreciate it. Thank you. Our next question comes from the line of Torres von Berg from Stifel. Your question, please.
spk01: Yes. Thank you, and congratulations on the strong results. I just had a question on the guidance. So just to make sure I understand this correctly, so basically $90 million at the midpoint, that assumes all the sort of industry-wide shortages that are going on. So if there is some easing there, there could be some potential upside. Is that how I should read it?
spk19: Yeah, that's our best judgment right now, and we think that's the right guidance to have today. But as you commented, and I think Fermi has as well, there's still a lot of activity going on up and down the food chain, and we have to keep an eye on that as well.
spk01: Very good. And as my follow-up, could you elaborate a little bit more on CV5? I mean, it sounds like from a product development perspective, it's been a big success, very strong execution. When should we expect to see some production revenue and ramps? for the CV5 product line?
spk11: Right. First of all, CV5 is very important because it's going to be, it is our most advanced technology, not only because of , but also from the performance point of view. So this chip not only can do 8K video at 2 watt power, but also we can integrate multiple camera into the silicon and so that we can serve multi-camera solution for automotive for security. So basically, this is really for anybody who wants to have a high-end system, this is a perfect chip for them. And we have already secured multiple design wins with this chip. And I believe that first half next year, we'll see people start ramping up into mass production and material revenue coming second half next year.
spk01: Sounds good. Congratulations again.
spk11: Thank you.
spk16: Thank you. Our next question comes from the line of Ross Seymour from Deutsche Bank. Your question, please.
spk06: Hey, guys. Thanks for having me ask the question, and I echo the congrats to the strong quarter and the strong guide. I just wanted to get into the supply side again. Is the tailwind from the Texas fab coming back online a meaningful driver of the upside in the October quarter? And do you expect that to be done in the October quarter? And I realize there are shortages elsewhere, but I'm just trying to localize that one dynamic.
spk11: I believe that the tax foundry impact in Q4 will be minimal. I don't think it's totally end, but I don't think that's going to be a severe impact to us. And also, I would also add that throughout this process, you know, we work closely with our foundry partner, Samsung, try to address those problems. And I think throughout this productive exercise, we know exactly where we're at. We communicate to a customer. you know, proactively. So although it's a crisis, but also definitely show not we have a great supplier, but also show to our customer that we are trustworthy and partner with them by continue communicating the problem and working with them to solve their problem.
spk19: The other thing I'd reiterate again is those are the things we control. The things we don't control are parts for other people that we have to kind of modify whatever parts they're getting restrained on as well. So we're doing a great job. Our team's doing a great job of considering the things we can control, but there's obviously always things that we can't control as well. So that's why we have some caution to it.
spk06: Thanks for the color on that. And for my follow-up, I just want to return to the seasonality framework. And for me, you mentioned earlier about considering the consumer slash other category as we look into the fiscal fourth quarter. But if you put all the puts and takes into your two main categories, the IP security cameras and the automotive side of things, Is seasonality even an issue in there, or given the fact that more supply is coming on, shortages in a bunch of different places, a ton of new product design wins that you have and new product launches, et cetera, are those ladder dynamics just overwhelming any seasonality in your core businesses as we look into the fiscal fourth quarter, or is seasonality a consideration that we need to have?
spk19: Yeah, I think you're right. As we look forward, we've been saying that we think that part of that business that you talked about at the end was going to go over over the next two to three years, slowly decline. Now, it does have some seasonality. It can be up and down. But really the focus point is what you started with. That's really where we're focused right now today. That's where we're getting the growth and the opportunities. And the traditional business, I think we'll have some quarters up and some quarters down. But overall, they'll be continuing to deteriorate over the next two to three years.
spk16: Thank you. Thank you. Our next question comes from the line of Suji De Silva from Roth Capital. Your question, please.
spk13: Hi, Fermi. Casey Lewis. Congrats on recovering to record revenues in the long road back, no pun intended. So a couple of follow-ups. On the auto semis fleet management, rather, a 50 to 60 million unit opportunity, what do you think AMBA's share opportunity there could be, and what's the competitive landscape for fleet management?
spk11: Right. So first of all, I think the biggest variable is how fast this – video, AI-based video camera will penetrate into this market, right? Right now, majority of the market still doesn't have any video in there. So I think the biggest question is how fast the penetration rate is going to be. I think that's a good question. We don't have an answer on that. But from the competitive landscape, I think the biggest competitor we're seeing is Qualcomm. They are selling their solution with 5G in there. So however... But with our power consumption, our much better video quality, our computer vision performance, we continue to achieve much better performance on this market. So I think that we're competing with Qualcomm on this market. But at the same time, this market is relatively small. I hope that penetration rate will increase dramatically in the future when this technology becomes more widely available and being required by regulations. Then that will change the reading market dynamics.
spk13: It's very helpful for me in terms of color.
spk04: Yeah, go ahead. Hey, Suji. It's Louis. I was just going to add, you know, the installed base, as Fermi said, is 50 to 60 million, you know, commercial vehicles in the world. And it's a market where there's a monthly reoccurring revenue for the service providers. And typically it's for telematics-type applications. And they view ADAS as very attractive because they can get incremental monthly revenue from by offering ADAS features, whether it's monitoring the driver or front-facing ADAS camera or both in the case of some of the announcements we've made. So this is an existing market, and they're just adding additional services on top of the telematics service they already offer. Okay, that's exciting.
spk13: I'll bring it to you for them. And then a follow-up on the CV5S, 52S products, multi-imager. I just want to understand, Fermi, the architectural difference here Your prior products could take in multiple video feeds, but that seems different from what you've done here. Is this maybe two separate CV stacks handling different images independently versus before they were all feeding into one? Is that the difference here or just trying to understand the difference?
spk11: Well, it's really about, you know, total seed performance, right? In the past, we can take in four, you know, 1080p 30 videos. Now we can take in four 4K videos. So we basically quadruple the video performance without increasing the power consumption. And basically, and all you can look at, you still want the, you know, 2K video, then we can take in 16 cameras. And which really becomes, if you look at the current autonomous driving, people talking about more and more video into one chip. But also, even for security camera, there are other people working on, you know, multi, a multi-sensor, multi-imager system for the security camera system. So I think this really played very well for those customers who want to build a high-end system because they want to continue to scale the size of the image as well as number of strings going to the chip.
spk13: Okay, very helpful. Thanks, guys. You bet.
spk16: Thank you. Our next question comes from the line of Quinn Bolton from Niedermann Company. Your question, please.
spk07: Hey, guys, I just wanted to offer my congratulations, but then follow up on the automotive CV opportunity last quarter. I think you said you had surpassed 450,000 cumulative units. Wondering if you could give us an update on that figure, or if you can't, could you maybe just comment whether that rate is accelerating, and then I'm going to follow up.
spk11: Well, we can definitely offer you a number later, and we'll make it public. We don't prepare a number, but definitely the trend continues. It didn't stop. Also, for example, last time we talked about our automotive revenue well doubled from last year to this year. I think that forecast continues to hold, and we believe that we can deliver that. So just to give you another indication, our automotive revenue continues doing well right now.
spk07: Great. And the second question is sort of related. With the fleet management wins, you know, starting production this year, going into higher revenue next year, it sort of feels like perhaps that wave three opportunity you've talked about maybe starting earlier, In CB for professional, you certainly have some pretty good traction, but I haven't heard as many consumer camera applications. So I'm kind of wondering, are you seeing Wave 3 perhaps becoming a bigger opportunity and perhaps surpassing the Wave 2 consumer camera opportunity here over the next year or two?
spk11: Well, this year, when you talk about, you know, Amazon doing a consumer IP cam, and there are others coming up that we haven't announced yet. So we still feel comfortable that our Wave 2 will be there. But you are right, our Wave 3, we are ahead of schedule, and we do believe that we can deliver a better result than we promised in the past. Great.
spk07: Thank you.
spk16: Our next question comes from the line of Kevin Cassidy from Rosenblatt Securities. Your question, please.
spk05: Yeah, thank you, and congratulations on the great results. Yeah, I was going to ask about the Wave 2. You know, last quarter you talked about Ring introducing two new cameras based on CV. And I wonder just how that launch is going, and can you talk about your pipeline going into the October and even into this January quarter for home security?
spk11: You know, one thing I can say is Amazon is one of the largest customers because of their CV product line. I think that's definitely a true statement that we didn't say it, but I think that's one thing to highlight here. And also we believe that our consumer IP can design wing momentum is there. We are waiting for customer to be going to production this year and also more going to production next year. So I will say that our wave two revenue is already materialized because of Amazon's design wing. and also that they'll be more accurate later this year and early next year.
spk05: Okay, great. And, you know, congratulations. I've been able to increase your inventory in this market. Is most of that CV product? Is the difference because it's a higher-priced product that the days of inventory are higher?
spk11: Yes, that's definitely the public reason because you can see that, you know, the way we are growing our CV revenue, even at the same unit number, our cost doubled. So that definitely adds to the total costs dollar sign wise in terms of our inventory. But also, I have to say that, you know, that also is a sign that we believe that we can continue to have a strong demand on our product lines. And that's why we continue to build up our inventory. And, of course, the third thing is that we continue to worry about whether this industry-wide show supply will continue. And it's prudent for us to build up more revenue, more inventory, just in case that the shortage persists. So the combination of that is the reason we build up those revenues, those inventories.
spk05: Right. Yep. I think that's very prudent. Thank you.
spk16: Thank you. And due to time constraints, we ask that our participants from the forward simply ask one question and then move on to the next questioner. Our next question comes to the line of Andrew Buscacaglia from Varenberg. Your question, please.
spk09: Andrew Buscacaglia Good evening, guys. Andrew Buscacaglia Hi. Andrew Buscacaglia So I just want to follow up on the security side. Actually, so maybe two-part if you can't answer. I don't mean to cheat on the new rule here.
spk11: Go ahead.
spk09: You've got time. Go ahead. Okay. So security, yeah, so your gross margin, you know, you're kind of tracking towards the higher end or above the higher end of kind of that range. Can you update us on some of those bigger professional guys coming back in a more meaningful way this year? I think you alluded to that gross margin kind of backtracking eventually again. And then maybe like, you know, I thought 10% sequential growth in security seems a little bit low considering you have this home security stuff coming. Can you talk a little bit more about that? Like, I would think 10% Q2 would be, I think that would be a little bit higher number of sequentially.
spk11: Well, first of all, I think that in China, I don't think hydrogen will come back anytime soon. I think that we have talked about this before. And one thing that we talked about last time is, you know, on the high-end security camera, we were impacted by the substrate. And we continue to see that impact. Although the impact is not as big as Texas, but we did talk about the substrate supplier shortage definitely impact our CV revenue on the security camera, and that impact continue to be there. So, and that also reflect on our revenue forecast on our high-end market. So, that just give you information about why to continue is a problem for us.
spk19: Okay. And again, it can be based off of other supplies that our customers need as well. And so part of it is an impact that we have, and part of it is the other customers.
spk11: Right. From the gross margin point of view, I think we continue to see that although we believe in the long term, our revenue, sorry, gross margin guidance continues to be 59 to 62, but because our momentum on the AI, our CV solution has just been introduced recently, and we continue enjoying the you know, first to, again, gross margin, but eventually I think you will go back down to 59% to 62% as our long-term guidance.
spk09: Yeah, okay. All right, got it. Thank you.
spk16: Great. Thank you. Our next question comes to the line of Brian Rettenberg from Imperial Capital. Your question, please.
spk08: Yeah, so I'll keep mine to one. So on the security and automotive, can you break down, that was 90% of your total revenue. Can you break down the difference between the two? What's growing faster? Maybe give us a little trends, especially on the security side is where I'm more focused on what you're seeing.
spk04: Hey, Brian, it's Brian, it's Louis. So the automotive business was in the low 20% range, and that's a business we've said is going to more than double this year. And so that clearly has the largest SAM for us, and we're demonstrating we can take advantage of that large SAM, and it's growing at the fastest rate. For security, security is in the mid-60% range as a percent of our total revenue. Think of Two-thirds of that driven by what we call professional. That's enterprise CapEx driven as well as public infrastructure spending. And then the other third of the mid-60% is coming from the smart home, durable goods, products like the Amazon devices that Fermi referenced earlier.
spk08: Great. Thank you very much.
spk16: Thank you. Our next question comes from the line of David O'Connor from XpandP. Question, please.
spk15: Great. Thanks for squeezing me in. Sticking to one question, maybe just one on the 240 customers you talked about, Fermi, on CV, 60 of them, I think, in production in the first half. What's the expectation for the second half? How many of those remaining customers do you expect also to be in production in the second half? Thank you.
spk11: Well, first of all, I think we're going to continue to add to this 240 number because we are going to continue to go into new markets. And even in the existing market, we still continue to talk to new customers. So that 240 number definitely will continue to grow. And I believe, you know, that this... I don't have a concrete number to say, but I think it's going to be, for example, last time we disclosed the number, we were at 45. Now we're at 60. So, in fact, that's a pace we're looking at from a historic point of view. I would say that the pace will continue.
spk16: Thank you. Our next question comes from the line of Martin Yang from Oppenheimer. Your question, please.
spk10: Hi, good afternoon. Thank you for taking the question. My one question is on Bosch. That design wing with three platforms seems quite meaningful. Can you perhaps give us more context around the design wing? Did you run into any competitors, or how long did it take you to win that design?
spk11: Right. So first of all, for Bosch, You know, when we started this business 12 years ago, Bosch was the first customer to use our solution. And since then, we've built a very strong relationship with Bosch. And throughout the years, they continue to use our product in most of their product line. They also use other like Qualcomm for some other product line. But with the CV, I think right now, I think the street family series are the only product I have introduced for the CV product line, and they are all ours. So I think that our relationship with Bosch has been a long time, and I would say it's very strong because we collaborate in many different ways, and also I'm happy to see that They are going to do this three-families business CV product line, and I hope and I believe there will be more to come from Bosch.
spk10: Great. Thank you.
spk16: Thank you. Our next question comes from the line of Tristan Garrett from Baird. Your question, please.
spk14: Hi, guys. A question on your software. We're seeing sensor companies that are basically doing association with software, notably for L3, L4 applications. And I think you've mentioned in the past that the software that you used was really for demo purposes. So the question is whether, you know, what is your strategy in terms of software? Is that an opportunity later on in terms of... recurring revenue monetization, or are you going to be solely focused on the hardware front?
spk11: Right. So first of all, right now we focus on, I think you were talking about automotive level two, level three type of solution. Today, our solution is hardware only, but also we have shown many times that our software running our EVA car for demo purpose. We definitely believe that the software that we develop has value. And I think at our coming analyst day in January at CES, we will probably disclose more the direction and the strategy direction that we're thinking about.
spk14: Great. Thank you.
spk16: Thank you. Our next question comes from line of Derek from Collier Securities. Your question, please.
spk18: Hey, guys. Congrats on the quarter. I wanted to bring it back to in-cabin monitoring quick, specifically around that infrastructure bill. Are you guys hearing from customers or seeing that bill sort of impact OEM design plans at all? And generally, if this moves forward quickly here, would you have the capacity to secure supply for that opportunity, just given the tight supply environment? you know, are those products more constrained in your portfolio at all? Any commentary there would be great.
spk11: Great. First of all, we get involved a lot in cabin design activities, and I think this is definitely a direction that becomes very, it's a very hot topic at this point. And we're involving discussion not only in Europe and U.S., but also in China, Korea, Japan. Our strength is Really for in-cabin monitoring you need a great video quality because the lighting condition is not ideal. And also you need to do CV performance So you need a very power-efficient solution. And also, more importantly, I think that in-cabin cannot be just a one-function product moving forward. In-cabin need to be integrated with driver monitoring as well as ADAS as a one-unit box that integrates all the interior and exterior functions so that you can have a global picture of what's happening around the car. So I think this, from the direction point of view, I think we have a great position offering to this market. In terms of supply, I have to say that based on my observation, Samsung supply to their customer better than TSMC can. I think TSMC is a lot more capacity constrained at this point than Samsung. So we, outside of this Texas foundry problem, although it's tight, Samsung has never shown supply on our demand. So I will believe that we continue to tell the sensor about the delivery to us on the 10 nanometer and the 14 and 20 nanometer supply. I don't see any constraint other than the tax of boundaries at this point.
spk18: Appreciate the color. Thanks, guys.
spk16: Thank you. Our final question for today comes from the line of Richard Shannon from Craig Hallam. Your question, please.
spk03: Thanks, guys. Fermi, your last response here, actually two responses ago here about solutions that need not only in-cabin monitoring but DMS, ADAS, et cetera, and the importance of putting those together. Are you seeing any other competitors that have any of those functionalities put together for all of them? We'd love to hear the prospects there, and if not or if it's limited, can you talk about the leverage you're seeing in the market by having and be able to put that capability together?
spk11: Right. So first of all, I think a lot of our competitors claim they have this similar solution, but if you look at the reality, that in terms of the performance requirement, power requirement, and also quality, video quality requirements, we definitely is on top. So this trend is more obvious in China because China is really, they don't have an infrastructure yet, so they are definitely willing to pay for the more integrated solution. So that's why we believe that if there's any multi-function device happen, it will happen in China first. and gradually moving to other spaces. But I also see a similar trend in Asia, like Japan and Korea. But China is definitely going to be the main driver for this one.
spk04: Okay, great. Thank you, Fermin.
spk11: Thank you.
spk16: Thank you. This does conclude the question and answer session of today's program. I'd now like to hand the program back to Dr. Fermin Wang for any further remarks.
spk11: Yes, thank you. and very proud of what our employees have achieved in the face of so many different challenges in recent years. And I am convinced years from now, if we look back at the fiscal year 22, this is going to be a major inflection point for Umbrella. And I am very excited about our future. And with that, I say thank you and goodbye for now.
spk16: Goodbye. Thank you. Thank you ladies and gentlemen for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.
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