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spk02: Thank you for standing by and welcome to AMBER Relatives Q1 fiscal year 2023 earnings conference call. At this time, all participants are on a listen only mode. After the speaker's presentation, there will be a question and answer session. To ask the question during this session, you will need to press star then 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 turn the conference over to your speaker for today, Lewis Gearharty. You may begin.
spk18: Thank you, Tawanda. Good afternoon, and thank you for joining our first quarter fiscal year 2023 financial results conference call. On the call with me today is Dr. Fermi Wong, President and CEO, and Brian White, CFO. The purpose of today's call is to provide you with information regarding the results for our first quarter, the fiscal year.
spk25: So what makes this special? I mean, there are wind turbines out there. There are vertical axis wind turbines out there. What is special about this one?
spk12: So we've got the ability, unlike anyone else out there right now, because of our patented technology, to reduce our size in high winds. So it lets us reduce our exposure to the wind and keep right on producing full power through storms that you normally have to be shut, that other turbines have to be shut down for, or it destroys them. Wow.
spk25: Yeah. Well, what about the noise? Often when you drive out into the country and there's those big wind farms, when you...
spk12: what are you doing listening there's no noise even in 20 25 30 mile an hour winds every test we've done so far no noise right wow it's because our whole geometry everything about our design is different than wind turbines out there and that's all i'm going to say about it we're very different in the way we capture wind so this is sort of like A work of art.
spk25: You just started from scratch and made this work of art. It's very pretty to look at. And I'm not an artist, but if you get artsy people around this, can you imagine what all they would do with it? Like painting all these things around it that look awesome close up?
spk12: Nobody that talks to us ever says, oh, that's ugly. I wouldn't want that. Everyone says, that's beautiful or that's so cool, that's so awesome when they look at it. And it is. It's beautiful. It's because we built Harmony from the ground up. Nobody has small-scale wind turbines because they're terrible. Pretty much.
spk25: Pretty much from what we've seen, the only people that use small-scale wind turbines on a regular basis are people in the boating community. But they're even calling us saying, this doesn't work. This is not the right application. They break. They're noisy. These big propeller-type wind turbines that are scaled down to something that they're using on the boats just isn't right for that application. So this is exciting because this introduces something completely new that meets all those needs.
spk12: Yeah, I mean, shrinking down the big boy technology that nobody wants near their home or their neighborhood anyway because it's ugly, it's noisy, it's dangerous. Why would they think that shrinking that down and selling it to the public is going to be a good idea, you know? It just, it's not.
spk25: Well, it's what was available.
spk12: You have to start from the ground up and build something the right way. Beautiful, quiet, easy to look at, and functions well. Starts in low wind. It functions in high wind. I mean, we've got everything that people want, all the check boxes that they want when they're looking for a product. Guess what? We built that into Harmony. Take care, guys. Harmony Turbines. We now have the power to change the world.
spk28: Less than 4% of the National Cancer Institute's budget is actually dedicated to pediatric cancers.
spk22: And because of that gross underfunding, children's cancer is often treated with adult treatment options, which is often so toxic for their little bodies.
spk28: Memorial Sloan Kettering has played a pioneering role in the development of many different forms of immunotherapy for cancer.
spk26: And it involves redirecting the immune system, which we all have as part of our body's defenses against infections, redirecting it towards cancer cells and cancer tissues.
spk27: It's breakthrough. Our immune system is fighting cancer. not chemotherapy, not radiation, which are very evasive and have an impact on the quality of your life.
spk21: we were able to access the drug that's used for, the immunotherapy used for neuroplastoma. And that treatment was, I think that treatment saved Connor's life.
spk27: It really is amazing how immunotherapy and giving to immunotherapy can impact a child's life. This is very exciting.
spk26: The results are bright and it is the fuel for the passion of all the scientists and doctors at MSK.
spk28: It may sound strange to say, but this is a really exciting time to be an oncologist. We're seeing the dividends of years of investment in research really paying off. And so that's why we have to continue to push on the gas pedal and continue to invest in the research that will change the course and the outcomes for children in the future.
spk27: When you change a kid's life, you change the future.
spk18: 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 financial results, are more fully described in the documents we filed with the SEC, including the annual report on Form 10-K that we filed on April 1, 2022, for fiscal year 2022, ending January 31, 2022. Access to our first quarter fiscal 2023 results, press release, transcripts, historical results, SEC filings, and a replay of today's call is on the Investor Relations portion of our website. Fermi will now provide a business update for the quarter, and Brian will review the financial results and outlook, and we'll be available for your questions.
spk07: Okay, thank you, Louis, and good afternoon. Thank you for joining our call today. During our first quarter, we announced the passing of Cassie Eckler, who has been our CFO since 2018. Cassie's positive demeanor was an inspiration to many of us, and we are thankful to have experienced his leadership. On March 28th, we announced the appointment of Brian White as Umbrella's CFO. After two months, we're excited about the leadership and the experience Brian brings as we scale the company for the significant opportunities ahead. Our Q1 revenue was essentially as expected. Fly sequentially and up 29% year over year. CV revenue grew significantly both sequentially and year-over-year, representing about 40% of total revenue, and our video process of business declined about 20% sequentially. Our blended average selling price continued to rise. During Q1, the pandemic flare-up in China and the resulting lockdown disrupted customer production schedules and orders placed on us, as well as logistics in a greater Asia supply chain. A majority of our customers' products are manufactured in this region and are subject to impacts from China-related supply chain disruptions. We are seeing a similar degree of impact across both our automotive and IoT businesses, further complicating the pre-existing kitting issues we have discussed before.
spk24: We understand the direct link between sustainable operations, corporate stewardship, and long-term financial success. That's why we are committed to our inclusive culture and the communities in which we live and work. Williams will be there.
spk01: Visit Israel, and you'll be startled by how many colors you'll see. I don't mean the colors of the buildings or landscape. I mean the colors of the people. Black, white, olive, brown, and everything in between. Israel is a true United Nations. That's because Israel is a nation of refugees from everywhere. And more than half of them are from, are you ready? Arab countries. Over 850,000 Jews were expelled or fled from the Middle East and North Africa following the Arab countries' attack on Israel when it gained its independence in 1948. For over 2,000 years, these Jews had lived in the Arab countries of Morocco, Algeria, Tunisia, Libya, Egypt, Yemen, Syria, Lebanon, and Iraq. and in the Muslim but non-Arab countries such as Turkey and Iran. Today, they form over half of Israel's Jewish population. Many of these Jews from Middle Eastern lands look, well, just like other people from Middle Eastern lands, of darker complexion with dark hair. Other Jews migrated from North Africa. So why is their story so unfamiliar to most people? The most important reason is that they didn't remain refugees for long. but refugees they most certainly were. The vast majority forced to leave their homes, possessions, and businesses behind. In other words, they came to Israel with nothing. Some 650,000 of the Jews forced to flee North Africa and the Middle East became citizens of Israel. The other 200,000 fled to the United States and other Western countries. To give you an idea of how few Jews remain in Arab countries, consider these numbers. There were 150,000 Jews in Iraq in 1948. Today, there are less than 10. There were 140,000 Jews in Algeria. Today, there are less than 50. There were 75,000 Jews in Egypt. Today, less than 20. The pattern is the same across North Africa and the Middle East. Now, contrast these forgotten Jewish refugees with the most celebrated refugees in the world, the Palestinians. How is it that the Jewish refugees are not even an afterthought, but the Palestinians are the longest-lasting, most lavishly supported refugee population in the history of the world? The answer is purely political. After Israel gained its independence in May of 1948, the surrounding Arab nations attacked the new Jewish state. As a result, about 700,000 Arabs living in Israel fled. Many left because of the war, and many did because they were told by Arab leaders to leave the Jewish areas. The idea was that they would return once the Jews and their state had been destroyed. Khalid al-Azam, the Syrian prime minister in 1948 to 1949, admitted this Arab role in persuading Palestinians to leave. In his memoirs, he wrote, Since 1948, we have been demanding the return of the refugees to their homes. But we ourselves are the ones who encourage them to leave. That's how the Arab, later renamed Palestinian refugee crisis was created. In 1949, the United Nations formed UNRWA, the United Nations Relief and Works Agency for the Palestinian Refugees, the largest and only long-term UN agency that was ever formed to deal with just one group of refugees. Seventy years later, it still exists and still calls the Palestinians and their children and their grandchildren refugees. It has an annual budget of over a billion dollars, funded mostly by the US and the European Union. How much did the Jewish refugees who were expelled from the Middle East and North Africa receive from the UN? How much did Israel receive to help toward their resettlement? How much does it receive today? The answer to all three questions is the same, zero. So the next time you hear someone talk about the Palestinian refugees, ask them why they never talk about the Jewish refugees. And the next time you hear people talk about Israel being settled by Europeans, ask them if they've ever seen an actual picture of Israelis in color. I'm Dumisani Washington of Christians United for Israel for Prager University.
spk07: Last quarter, we reported a supply constraint for our 14 nanometer video processor SOCs. At this time, we continue to expect the Q2 impact to remain at about $5 million. We are now confident we will see a Q3 and Q4 improvement in supply of 14 nanometer video processor SOCs. As previously noted, the supply of our computer vision SOCs has not been impacted. We are very excited to announce in late May we received first silicon for CB3, our first central domain controller processor. And we have successfully brought up the key functional blocks on this 10 plus billion transistor SOC. There's more bring up work to be completed, but we are confident that this first wrap will be sampled over the summer to key customers and it will demonstrate significant performance and the power leadership. As a reminder, CB3 will be a family of SOCs that we expect to command a selling price between five times to 20 times our current corporate ASP. We remain focused on capturing the significant revenue opportunities in front of us. New 5 nanometer products are on schedule. With the CV3 close sampling and the CV5, our first 5 nanometer SOC is expected to commence mass production in the second half of the year. We continue to expect our CV revenue to be about 45% of revenue this year, and this richer mix is expected to drive our blended average selling price higher. Interest and activity around our products and technology remains very strong. I will now provide some examples of our market development activity. In the automotive market, during the last quarter, Umbrella announced its success in sensing applications, an entirely new market for the company, in applications such as ADAS and driver monitoring, as well as new viewing markets like electronic mirrors. At the Japanese OE and Honda, two of their joint venture companies introduced EV models using our H32EQ SOC, for multi-function electronic mirrors plus drive recorders. Dongfeng Honda's EN-S1 EV and the GAC Honda's EN-P1 EV both use this solution. Also during the quarter, Isuyu, a Japanese OEM, introduced through a joint venture company its new MU-X SUV. Based on our CV22AQ SOC, the ACOB enables an intelligent driving assistance system utilizing a front-facing camera supporting land departure warning. We remain optimistic about the vehicle in-cabin monitor system opportunity for us. In June, we expect GV to announce a new passenger vehicle utilizing our CV28AQ for driver monitoring. Dongfeng, one of the largest commercial truck OES in the world, shipped its new DF760 truck utilizing a single CV22 AQSOC to support the multiple cameras and the multiple functions for driver monitoring, around vehicle monitoring, and blind spot detection. In AIoT market, our small home business, which we have referred to as CV Wave 2, we are pleased to announce Vivint, was another major CV customer. In May, Vivint announced four new products, including outdoor, indoor, and doorbell cameras and a spotlight. All of the cameras implement our CV SOC to execute Vivint's intelligent AI algorithms for a variety of people and package detection and tracking functions. The spotlight uses the VIST detection algorithm of the outdoor camera to illuminate intruders and to follow them as they move around the property. In the IoT market, the largest portion of our CV revenue has so far been realized from new product cycles in our enterprise and the public security camera business, where the trend continues with a vast majority of our customers' design activities involving our CVSLCs. During the ISC West security exhibition in March, almost every major security camera company was demonstrating new products based on our CVSOCs. There were also many public demonstrations at ISC West of companies entering the access control market with systems based on our reference designs. The access control market is a great example of how our CV portfolio allows us to reach entirely new markets we did not serve before. And access control is one of the areas where we are showing encouraging early customer wins. In access control, Motorola Solutions announced the new OpenPad Pro Series Video Intercom Readers based on our CV25 SoC. The reader combines video, audio, and enterprise co-routing. Motorola has made a number of acquisitions in the last few years to leverage its IoT camera expertise into new verticals, and OpenPad is one example. We are proud to report that most of the camera companies acquired by Motorola are using umbrella SOCs, and we are eager to help them grow their business. Also in access control based on our CV22, Real Networks announced SaferScan, a touchless biometric system with anti-spoofing based on the fusion of the structural light and the cameras to ensure the most accurate results. During the show, targeting the enterprise and public markets, Hanhua Tech Wing announced two new AI-powered multi-sensor cameras based on our CV2 SoCs and featuring deep learning-based object detection and classification. Also in the enterprise and public IoT market, iPro, only part of Panasonic, introduced its new multi-sensor S-series camera, which is based on our CV2 SoC, offering deep learning intelligence at the edge with pre-installed AI applications and the ability to add third-party applications. In the public safety fleet market, iPRO also launched a 4K panoramic front camera based on CV22 with the foam factors and thermal budget to be mounted behind the rear view mirrors on the windshield. Factory automation is another greenfield market opportunity and during the quarter, iRipple introduced two products based on our CV2AISOC, a stereo 3D factory automation camera with precise measurement capability, and a co-reader with high resolution and deep learning abilities. In other IoT market, Insta360 introduced the ONE RS action camera, the innovative consumer camera is based on our H22 SoC and can shoot 4K 60 video, take 48 megapixel photos, and includes AI-driven editing to make stitching 360-degree footage simple. Recapping this announcement, a majority of the projects I just described are CV-based. In this product, our state-of-the-art video processing expertise is leveraging into new locations where the camera, instead of just enabling great human viewing experience, is sensing, collecting data, and then making decisions. A lot of incremental and specialized processing is needed to do this most efficiently and are highly bandwidthed. CVflow AI SOC provide this for an increasingly diverse set of IoT sensing applications. About half of these products I described represent the new product cycles in existing markets, and the other half represent entirely new markets for us, such as automotive sensing, factory automation, and access control. We are in the midst of a very strong shift in design activity to our CV SOCs, Long term, we expect to earn a higher ASP with CV products and the combinations of higher ASP and UD volume is expected to drive a premium growth. We are confident that our strategy address the mega trends for security, safety, and automation, enabling our customers to innovate and transform their own business. Our rapidly expanding AI product portfolio serves the diverse secular growth opportunities emulating from these trends. Now, Brian will review our financials.
spk08: Thanks, Farming. I'll review the financial highlights for our fiscal Q1 and provide a financial outlook for our second quarter of fiscal year 2023, ending on July 31, 2022. 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 and acquisition-related costs adjusted for the impact of taxes. Revenue for fiscal Q1 was $90.3 million, in line with the midpoint of our prior guidance flat to the prior quarter and up 29% year-over-year. As expected, a sequential increase in IOT revenue offset a decline in automotive. Both IOT and automotive were up strongly on a year-over-year basis. Non-GAAP gross margin for Q1 was 63.8%, slightly ahead of the midpoint of our prior guidance range. Non-GAAP operating expense for fiscal Q1 was $39.8 million, down $500,000 from the prior quarter. Non-GAAP operating expense was $2.2 million below the midpoint of our prior guidance, driven by the timing of new product development activities. Our non-GAAP tax provision was $900,000, or 4.8% of pre-tax income, and we reported non-GAAP net income of $17.1 million or 44 cents per diluted share. Now I'll turn to our balance sheet and cash flow. Cash increased 30 million to 201 million, driven by strong operating cash flow of 34 million. Fiscal Q1 cash flow was aided by decreases in both inventory and accounts receivable. Inventory decreased 4 million from 128 to 117 days. and accounts receivable decreased $16 million from 45 to 28 days. The substantial decrease in accounts receivable was attributable to a front-end skewed revenue profile in the quarter. We had three logistics and ODM companies represent 10% or more of our revenue in Q1. WT Microelectronics, a fulfillment partner in Taiwan that ships to multiple customers in Asia, came in at 57% of revenue. Ciccone and ODM, who manufactures for multiple IoT customers, was 11%. And Hokuto, a logistics partner who primarily supplies multiple automotive customers in Japan, was about 10% of revenue. I'll now discuss the outlook for the second quarter of fiscal year 2023. As Fermi described, the external environment remains complex and dynamic. The supply chain, already stressed with persistent kitting issues, is now also facing the rolling pandemic impacts in China. Our guidance to the best of our knowledge contemplates these challenges. We estimate our Q2 revenue to be in the $78 to $82 million range. We're down approximately 11% sequentially at the midpoint. We estimate Q2 non-GAAP gross margin to be between 63 and 64 percent, relatively flat to the prior quarter. We expect non-GAAP OPEX in the second quarter to be in the range of 42 to 45 million. The sequential increase in OPEX is driven by the beginning of an advanced 5 nanometer automotive grade CV SOC development project. Our fiscal Q2 forecast for Ambarella's non-GAAP tax rate is 4% to 6%, and we estimate our diluted share count to be approximately 38.7 million shares. Ambarella will be participating on June 1st in Craig Howland's Virtual Investor Conference, June 2nd at Cowen's TMT Conference, June 8th at Bank of America's TMT Conference, and on June 9th at Rosenblatt's Virtual AI Scaling Conference. Please contact us for more details. Thank you for joining our call today. With that, I'll turn the call over to the operator for questions.
spk02: Thank you. Ladies and gentlemen, as a reminder to ask the question, you will need to press star 1 on your telephone. To withdraw your question, press the pound key. Again, that's star 1 to ask the question. We ask that you limit yourself to one question and one follow-up. Please stand by while we compile the Q&A process.
spk23: What should the future deliver? Progress? Innovation? Discovery? Or simply stability? Security? Protection? You shouldn't have to choose. Gold. Your strategic advantage. Visit goldhub.com
spk02: Our first question comes from the line of Joe Moore with Morgan Stanley. Your line is open. Great. Thank you.
spk10: What if you guys could talk about the issues in China in the coming quarter? Can you tell how much of it is a, you know, is there any demand side issues in there? Is it all supply side? And, you know, you mentioned it's broad across multiple customers. Is it sort of, you know, Chinese customers manufacturing China and multinationals? Just any kind of more color you could give us. on what the dynamics are of the challenges there?
spk07: So what we saw was that at the end of March and early April, when we started seeing the China lockdown in Shenzhen and Shanghai, and almost at the same time we started seeing our global customer base start pushing out their Q2 demand. And we believe the reason that we were given was that with the kidding issue persists and also that lockdown make the kidding issue a lot worse for our global customer base, particularly for those who are manufacturing in China or in the greater Asia locations, and they were impacted the most. And that's the scale that we are seeing. In terms of demand, you know, at this point, particularly outside China, I would say that most of our customers are still telling us they can sell almost everything they can build. So I think the demand, at least outside China, is pretty solid in my opinion. We believe we will continue to monitor this progress through this lockdown situation. And we all heard that the Shanghai lockdown will probably expire on June 1st. We are looking forward to see any updates on the market and from our customer point of view.
spk10: Okay, that's helpful. Thank you. And then in terms of the incomplete kitting issue, is that an issue that people aren't ordering Ambarella parts because they're waiting to get other things, or is that an issue that they have inventory of Ambarella parts because they can't get those other things? Like, can you tell how much of this is going to be an inventory burn-off that's required versus just, you know, a pent-up demand?
spk07: Well, I think a portion of that is definitely there's a – some kind of inventory in the city, in the channel. But I do believe this lockdown is really when the customer find out that they really cannot allocate enough other parts, particularly like power, pandemic, the Wi-Fi, and particular microcontroller for automotive. I think that they decide to push out. their Q2 demand to our future quarters. So I think that the inventory situation is like what we discussed before, but this time I think that a lot of the push out is based on the kitting issue, particularly the new kitting issue which is amplified by this lockdown situation.
spk10: Great. Thank you.
spk02: Thank you. Our next question comes along of Ross Seymour with Deutsche Bank. Your line is open.
spk19: Hi, guys. Thanks for letting me ask the question. Brian, welcome to Ambarella. I just want to ask about the duration side of this equation. I know lockdowns and what COVID is going to do and China is going to do is kind of beyond my pay grade, and maybe you guys don't have great visibility into that. But what's your assumption beyond the July quarter, whether it be the Samsung side getting better, as I think you alluded to, Fermi, or the persistence of the lockdown headwinds?
spk07: Well, I think the major impact from the last quarter is the lockdown headwinds. And the Until even today, we don't have a visibility, you know, how fast this recovery will look like. But you mentioned the Samsung situation, Samsung 14 nanometer, we still expected a $5 million impact to us in July quarter, but we expected that Q3, Q4, the 14 nanometer supply will improve. So I think this time we are really talking about, you know, this China lockdown causing a lot of issues. for all customers.
spk19: And I guess as a follow-up question to get into the model, you guys are now just having the two segments, the IoT and the automotive side of things. Can you give us any color about the size they were in the quarter, either as percentage of sales, what they did sequentially? I know you said up and down, but any numbers around that? And then is there a difference in the guidance for the July quarter between the two segments?
spk08: So in Q1, automotive represented about 25% of our revenue with IoT at 75%. As we look into Q2, we expect both of those segments to be down approximately equally in percentage terms. So both down into double digits sequentially.
spk19: Got it. Thank you.
spk02: Thank you. Our next question comes from Quinn Bolton with Needleman Company. Your line is open.
spk20: Welcome, Brian. I guess for me or Brian, just, you know, it seems like it's a dynamic environment out there with the rolling lockdowns in China. And I guess my question is, it sounds like customers have been delaying orders here in the near term because of these kidding issues. Do you guys have any sense, based on your customer conversations, whether you expect that to extend beyond the July quarter period Or do you think that as the rolling lockdowns hopefully come to an end, that orders, you know, start to pick back up?
spk07: I think, you know, when we talk to our customer, we got a lot of uncertainty from them because they still don't know how fast this lockdown situation will improve. We believe that if the lockdown and the kidding issue not getting any worse than right now, we believe believe Q3 revenue should be better than Q2 and maybe even have better recovery in Q4. But that's under a lot of assumption that how this kidding issue and the lockdown issue will continue or not.
spk20: Got it. That's helpful. And then I guess maybe for me, a longer-term question. I know you guys have been talking about the opportunity around level T+. design wins. I know you haven't announced anything to date, but do you feel like you're making progress? Do you think you're getting closer to potentially a large level two plus win that I believe in the past you've said you expect to hopefully secure at least one, if not multiple, level two plus wins this year?
spk07: Right. So, you know, I think that throughout all the discussion, a lot of people keep asking about our CV3. And we believe that by announcing a CV3 that is up and running and we have brought up multiple functions in there. have a high confidence that we will sample the CV3 with software over the summer. I think this will really give our customer a sense how real this project is and what kind of performance and the power number that we can prove in a real silicon that just show up in a presentation. So I think that with the CV3, we are very optimistic about that we continue to make progress with the key tier 1 OES on this design.
spk20: Thank you.
spk02: Thank you. Our next comes from the line of Matt Ramsey with Cowan. Your line is open.
spk11: Yes, good afternoon. Thank you very much. Fermi, I guess I wanted to follow up on what you were just talking about there with CV3. And maybe you could give us a sense of what the steps are from here. So it sounds like you have first silicon back. You have some bring up being done in the lab. obviously more software and BIOS and other work that you'll need to do to get everything fully up to where you can sample the customers in the summer. And what I'm interested in is just the next steps beyond that, where you guys could start to engage with customers with CB3, demonstrate stuff live in labs, and what the timeline could look like to potentially start to convert some of these, I guess the part of the automotive funnel, that you're going after into one business? So like what kind of timelines are we looking at to where we could see something announced with CV3, and what are the steps that are kind of in front of you to get there? Thanks.
spk07: Right. So I think, you know, maybe just talk about how much we have done with CV3. CV3 silicon came back to our lab seven days ago. In a short period of one week time, we basically brought up all the fundamental blocks and making sure that the chip is not only alive, we can stop doing sulfur integration. And we start verifying all the performance number and power number recorded to our customer in the past. And we are getting our confidence level getting higher and higher every day. So after the sampling to our customer, the near-term goal for us is to bring up our VizLab software as well as Oculize software running on CV3 so we can do a system level demo. It's not only just demo to show the competency as well as ability of this so it can deliver to our customers. a major milestone because if you talk to all the OEMs that today the biggest question for them is not only just whether your silicon can perform but also whether you have sulfur that can match, can you can really leverage and to deliver the best performance. And that we have both of this lab a complete sulfur stack for atomic driving all the way to level four. as well as centralized radar processing capability. I think that's our next important milestone in the near future to demo it, and hopefully that we're still targeting year 25, 26 SOP with our customers.
spk11: Got it. Thanks for that, Fermi. That's helpful. Just a real quick sort of follow-up to that one before my second question. I guess the quick follow-up is... Through the summer, any sense of how many customers you anticipate sampling CB32? I'm just trying to understand a little bit more about the breadth of the engagement. And then I guess my follow-up question for Brian, any way that you can try to size the impact of all the logistics issues in China on the guidance for July, or I assume it's just $5 million for the Samsung impact, and then if there's any quantification of what you guys think that impact is in dollar terms, that'd be helpful. I know that's a hard one to do, but thank you guys. Appreciate it.
spk07: Yeah, in terms of the CB3 sample, I will believe it's a double-digit customer.
spk08: Yeah, and in terms of the impact associated with the supply chain disruptions in China, I think our guide is down about 11% at the midpoint, and that would That's really all attributable to that factor.
spk18: Thank you very much.
spk02: Thank you. Our next question comes from the line of David Kelly with Jefferies. Your line is open.
spk15: Good afternoon and thanks for taking my questions. I believe you noted CB Mix for the year is still on track for 45% of sales. Can you talk about the lockdown and supply chain disruption specific to CB, if you're seeing any less or more impact there and maybe demand trends, you know, throughout the last couple months?
spk07: Yeah, I think that this lockdown and the kitting issue impact both IoT and automotive equally, but also apply to a video processor and computer vision chip equally. and we don't see particularly which product line got impact more than the others. But I also, we believe that the kitting issue right now is really, you know, it can happen to any product line because it's really, for example, both video processor and as well as computer vision need a power pin make or Wi-Fi or, you know, microcontroller to complete a product.
spk15: Okay, got it. That's helpful, and I might have missed this. Apologies in advance, but can you provide a bit more color on kind of the drivers of the OPEX cadence here into the second quarter guide?
spk08: Yeah, we said that OPEX would increase coming into the second quarter, which is really driven by a new CV five nanometer project that's beginning, and that's starting to kick into the OPEX.
spk15: Okay, perfect. Thank you.
spk02: Thank you. Our next question comes from Tristan Guerra with Bayer. Your line is open.
spk05: Hi, good afternoon. I know there's been some questions, obviously, already on the impact of the July quarter guidance, and you reiterated the mix of CV at 45 percent of revenue. Previously, we thought that CV revenue would double this year. Assuming that the lockdowns go away on June 1st, notably in Shanghai, how much of your second half concern about the top line rebounding sequentially would be, I guess, impacted by weak consumer demand in China? as opposed to component shortages like MCU and Wi-Fi? What do you think is the biggest bottleneck or uncertainty after the lockdown impact goes away?
spk07: Well, I think that when I talk to our customer, beyond Q2, we're going to Q3 and Q4. I think their answer is really about uncertainty. you know even they say they they relax the lockdown on june 1st but how fast the production line can go back to normal stage how quickly that the production can start working to full speed i think all of that need to be answered and that's not only just the component side but also our customer side so there is a still uncertainty in q3 and q4 in terms of china demand I really think that the China economy, as we see, is definitely weak, but we have roughly 15% of our CO2, 15% of our products are consumed in China. So I think we are right now more focused on to understand the demand situation outside China. Like I said in the previous answer, I think that outside China, I think our demand is still strong.
spk05: Okay, great. And then as my follow-up question, how should we quantify the WAP of CD5 in the second half, which I think you've said previously initially is going to go into consumer? Is that as well impacted by the current lockdowns, you know, or is this going to be material in terms of lifting your second half versus first half?
spk07: Right now, because also most of CEFI products are still in design phase, and the revenue will be happening in Q4. So I think that the lockdown or the development cycle are not severely impacted yet. We are watching it. We're still confident that several of our customer, AIoT customer, will take CEFI into production, particularly on the security camera side. and as well as consumer. We don't give consumer. We put only in the past consumer product into the AIoT. So I think multiple AIoT customers will take CV5 into production in Q4 and start ramping up from there.
spk05: Great. Thank you very much.
spk02: Thank you. Our next question comes from Andrew Scalia with Berenberg. Your line is open.
spk13: Hey, guys. I wanted to talk through maybe a dynamic you might be seeing in that if you have all these supply chain constraints your customers are seeing, I wonder if customers that have yet to really move forward with implementing AI in their products sort of speed that process up and move kind of to the next-gen AI stuff rather than kind of continuing to purchase and develop or maintain more so human viewing applications?
spk07: Yeah. So I think independent of this lockdown and also the kitting issue, we did see that most of our customers' new products are CV-based. Of course, there are still new projects based on video processor, new product, I mean. that kick off in the last four months. But in terms of percentage, we see higher and higher new CV-based product kick off in the last four months.
spk23: What should the future deliver? Progress? Innovation? Or stability? Protection? You shouldn't have to choose. Gold, your strategic advantage. Visit goldhub.com Yeah, okay.
spk13: Okay. Interesting. Um, can you, and maybe one for Brian, um, you know, you, you guys have having your, uh, press Lisa, a little statement about stock repurchase that you approved in an extension. I wonder if, you know, where their stock is and where evaluation is relative to all the CV development. If, if share repurchase becomes more of an area of capital allocation going forward.
spk08: I don't think that there's really a change to the strategy or thought process around repurchases. As you mentioned, the Board did extend the existing $49 million authorization for another year. We have had strong cash flow and we believe we have sufficient liquidity. We did consume around $300 million for the purchase of Oculi and the radar technology late last year. At this point, we still view the repurchase option as being an opportunistic alternative rather than something that has changed from a strategic perspective at this time.
spk13: Okay. Thank you.
spk02: Thank you. Our next question comes along with Kevin Cassidy with Rosenblatt Securities. Your line is open.
spk14: Thank you for taking my question. This quarter you had Hakuto, the Japanese automotive distributor, was a 10% customer. Last quarter they were a 12% customer. Do you expect them to stay as a large customer? And maybe what kind of service do they provide? And maybe if you could just give us a little more description of your relationship with them.
spk07: Yeah, so I think that for Hakuto, they are basically is our Japanese automotive distributor. And basically almost, I think, almost all of our Japanese automotive business is going through their service. Their service is just providing two things. One is logistics, basically making sure that chip is delivered properly and we collect cash for us. On top of that, another important function they perform for us is really providing inventory for their automotive customer. Because I think all of our Japanese customers, because they want to make sure there's no supply issue, so they require their distributor, in this case, Hakuto, to keep anywhere between six to eight weeks of inventory for their production. And they are definitely going to plan through this at the end of a project. So that's the main function. Well, because the Japanese auto business continue to, you know, grow for us, we believe Hakuta will continue to grow. But from quarter to quarter point of view, the up and down cannot be really managed because some projects ramp up, some projects ramp down. But if you look at a straight line, I believe our Japanese automotive business will continue to grow.
spk14: Okay, great. Thanks for that answer. And also, Akulai, could you? Give us a little more description of what progress you made in the past quarter.
spk07: So we didn't separate out the Oculi disclosure, but it's very consistent with what we said when we acquired it. We believe this year we're going to do roughly $3 to $4 million of business with Oculi. Most of it is still at the module level and NRE level. the first major production will happen next year in terms of the multi-customer. We haven't announced that product yet, so that's all we are doing. But however, at some time, I think all the things, everything I just said is based on Oculize business before they got acquired. After acquisition, one of the major goals is to integrate Atlas software into our CV family chip, particularly in CV3, so that we can provide integrated audio, sorry, the radar and the video solution to our customer. That has to be a main focus for us, and that will also be a long-term revenue source for us.
spk14: Okay, great. Thank you.
spk02: Thank you. Our next question comes from The line of Tori Venberg with Stiefel. Your line is open.
spk29: Yes, this is Jeremy calling for Tori. First, just a quick clarification. I think you mentioned a percentage of products of your revenue that is consumed in China. Was that 50% or 15%? One-five. One-five. Okay, that's what I thought. And then secondly, in terms of the inventories, it was down sequentially both dollars and days. Is this something that was intentional? Was this part of the impact of the FAD million constraint? Or is this something that you're kind of managing a little bit more on the long-term basis? Just help us understand your inventory strategy here.
spk08: Sure. It was really driven by our ability to get materials during the quarter as opposed to active effort to reduce inventory levels. Longer term, we'll look at targeting inventory levels at potentially lower levels. But in the current environment, we're trying to have sufficient inventory on hand to satisfy customers in a very dynamic environment. So that decrease was not driven intentionally. It was driven by our ability to get materials.
spk29: Great. Thank you. I guess maybe a little bit of a longer-term question, looking at some of the new market sets that you're just entering, whether it's automotive, factory automation, access control, or maybe just looking at the latter two since automotive seems to be its own category. Can you maybe weight which one you see ramping sooner and which one might have the larger TAM?
spk07: In terms of larger , I think the mobile robotics obviously is the largest one, in my opinion. But in terms of happening faster, in terms of revenue, I think access control is probably the candidate. But however, I think the point we try to make is that we continue to see new verticals that we can address with our CVSOCs. And hopefully, of course, we are focusing on all of them, but I think that we have a high hope on the mobile robotics because of the revenue potentials.
spk02: Thank you. Our next question comes from the line of Suji De Silva with Ross Capital. Your line is open.
spk04: Hi, Fermi. Hi, Brian. Nice to be talking to you again. Best of luck in the new role. Brian, on the OPEX, the R&D, you talked about the 5-nanometer project. I'm wondering, is there any kind of sizable tape-outs involved in the fiscal 23 timeframe, which may not recur, or is that kind of too aggressive assumption about a year-over-year trend?
spk08: Yeah. You know, when I look at street expectations for OPEX for the fiscal year, I think the consensus is somewhere around $171 to $172 million in total for the year. And that's probably in a reasonable range to think about. Okay.
spk04: And then one for Fermi. On the CV3, can you help us understand the design cycle there? Presumably, it's longer given the level of integration and effort on the part of the customer with radar and other things. Can you give a sense of how much longer that design cycle might be versus the other CV products as you start having customer sampling in the middle of the year?
spk07: Right. CV3 is designed for automotive markets. Just by definition, it takes longer. And CV3 particularly complicated because not only because of huge die but also very complicated sulfur integration. So I think we think that the four years design cycle is probably right. The first two years probably just on the sulfur and also integration. The last two years is really qualification and verification. So I think that design cycle is probably standard for automotive market. I think that will be CV3's design cycle.
spk02: Thank you. Our next question comes from the line of Gary Mobley with Wells Fargo Securities. Your line is open.
spk09: Hey, guys. Let me start out by saying Casey will be missed, but welcome to the call, Brian. I have just one multi-part question, and that relates to your Samsung relationship. Can you give us some color on what was the issue with respect to 14 nanometer constraints? And the reason I'm asking is just to try to assess the probability of future reoccurrence of the issue. And as it relates to perhaps some of your purchase obligations with, with Samsung, um, you know, given the weakness in revenue, is this going to be a situation where you're gonna be forced to maybe carry a little bit extra inventory than you hope for? Or, or is that even an issue? Thank you.
spk07: Yeah. Thank you. So for the 40 nanometers, although we didn't get a clear answer about exactly what happened, My gut feeling is that somebody took that inventory away from us by paying a lot of money. So I think that's the reason. Obviously, that's a problem I need to talk to Samsung about and definitely setting up meeting with their CEO trying to talk about not only the short-term problem but also the long-term collaboration. Particularly, for example, if we need to go into this automotive business negotiation with customers, that our foundry partner obviously play a major role in there. In terms of inventory level, I don't believe that we need to take on a lot more inventory than we have today. We don't plan that. So, you know, I don't think that's an issue that we need to worry about in the near future. Thank you.
spk02: Thank you. Our next question comes from the line of David O'Connor, ENP Paribus. Your line is open.
spk03: Great, good afternoon and thanks for taking my questions. Maybe one for Fermi and one for Brian. Maybe firstly on the Edge AI partnership with Lumentum, can you talk Fermi around the traction you're seeing on that and the strategy kind of going forward on the Edge AI? Do you have all the building blocks and software internally to kind of support all those different end markets or are we going to see more partnerships like this Lumentum partnership from you going forward That's my first question. And then maybe one for Brian on the ASP. I think at the start of the call you mentioned the CV3 family of SOCs with an ASP range of 5 to 20x, the corporate average. Can you give us just an example of the functionality type for that 5x versus the 20x? Is that kind of redundancy or is it an L3 versus L5? Just conceptually how we should think about that, the range of ASPs. Thank you.
spk07: Right. I think let me answer the ASP problem. When we talk about CV3 5 times 20X ASP, I think that it's really referring to CV3 family of chips. In fact, CV3 is a chip that we tape out and we give examples, but we are planning to build a family of CV3 from the low-end to high-end. So, you know, low-end can be level two plus market, middle-end can be level three and high-end for level four. So you can imagine that ASP for each different market can be different based on the current price quote we're giving to a customer. We're seeing five times to 20 times of a selling price versus our current corporate ASP. And it's really about function performance, not about the redundancy yet. The other problem is you asked about Lumenton and our partnership with other sensor company. You know, when we introduced CV3, we mentioned that we want to be the domain controller, which means we have to integrate multiple sensor modality into our chip for different applications. For the, our partnership is really about integrated, structuralized into our solution for access control market. And we've done very well in terms of building a revenue design and winning design with them. And we are very happy with the partnership with them. They have been very helpful to help us to do, to solve a lot of, you know, design and production issues. And from the software point of view, we really identify all the software partner we need to have to provide this revenue design. Moving forward, I think there will be more and more this kind of cases we need to address, meaning more source sensor modality. We need to integrate, for example, thermal sensors, you know, LiDAR sensors, other sensors. We continue, we believe instead of acquiring all of them, but I think our approach will be working with partners like and to interface our CV3 chip to their sensor modules, and then we can add in values by providing sulfur solution on CV3. So that's our strategy, and we definitely continue to look for other sensor modality comments.
spk02: Thank you. Our next question comes from the line of Brian Ruttenberg with Imperial Capital. Your line is open.
spk16: Yes, thank you very much. You mentioned in your commentary about the traction you're getting on the security side with Vivid specifically. Can you talk about other traction you're getting on the security side in the quarter? And are you able to more easily procure chips for the residential security industry versus other verticals?
spk07: Yeah. So, you know, we call it consumer security camera or security camera for home. We announced Ring and Vivint as two major customers. We expect more in the future. In terms of supply chain issues, we see a similar impact for all the customers. For example, I think although Ring is a huge company, they really have a power to buy components. We also see them have some of limitation on the supply side. So I think the shipping issue and the supply chain issue impacting everybody just was different scale.
spk02: Thank you. Our next question comes from the line of Martin Yang with Oppenheimer.
spk06: Hi, good afternoon. Thank you for taking my question. So a question on CV3 potential customers that were sampled. Can you talk about the geographic breakdown and how that compares to your current automotive customer base?
spk07: I think it's going to be very similar. We're going to sample probably everywhere. You know, U.S., Europe, Japan, Korea, China. We all have some identified customers that we probably will sample to.
spk06: Thanks, Fermi. That's all from me.
spk02: Thank you. Next question comes from the line of Richard Shannon with Craig Hallam. Your line is open.
spk17: Well, thanks, guys, for taking my question. Fermi, first one for you. Maybe you could talk about the competitive dynamics that you're seeing so far and expect to see with a CV3 chip, both in terms of some of the new sensor modalities like radar generating, and also maybe compare that with the competitive dynamics with past chips going into less complex use cases. I'd love to hear your perspective there. Thanks.
spk07: Right. So I think, like I said, CB3 is really competing in many different verticals and have all kinds of different performance and price. That's why we believe CB3, we need to have a family of CB3 chip to address all the . You mentioned about radar side. I think, you know, there are a lot of radar company out there doing 4D image radar. like NASP, Infineon, and also there are some newcomers coming up with the solutions. I think what really differentiates our approach, Ocula has this algorithm-first approach to really try to minimize the number of antenna and the RF chip you need and to achieve similar radar performance. With that, that really allows us not only building a high-quality, cost-effective solution, but also make the centralized radar solution possible in the future, which means that also allows that we can really have a sensor fusion between video and the radar happening on the same chip. This is a unique offering that we think we will differentiate against everybody else. In terms of the CV3 domain controller competitors, I think that our biggest competitor is NVIDIA and Qualcomm. And we believe that when we can demo CV3, we will be able to show the performance and the power advantage that we talk about in our presentation. And we're waiting to – we are very eager to find a way to demo that to our customers.
spk17: Okay, perfect. I appreciate that perspective, Fermi. Maybe one for Brian here. As we think about the goal of hitting CV45% of sales this year, And I think it's a fair assumption to think that the IoT segment is higher relative to automotive. Would it be fair to think about that IoT segment already being or close to 50-50 CB already?
spk07: Sorry, can you say that which segment you're talking about?
spk17: Yes, so just wondering if the IoT segment already is or close to 50% of sales coming from CV already.
spk07: Right, so in fact, for the IoT portion, professional security camera, probably is close to 50%, but other IoT level is not yet. Think about, you know, last year we're only 25%, so we need to grow to 50% this year. So by the end of the year, I would say probably the professional security segment will probably close to 50%, maybe a little more, but other areas will be way below that.
spk17: Okay, perfect. That's what I was looking for. Thank you, Fermi. That's all for me. Thank you.
spk02: Thank you. I'm sure no further questions in the queue. I would now like to turn the call back over to Dr. Fermi Wong for closing remarks.
spk07: First of all, thank you for joining us this afternoon. Although the fiscal year 2023 is bringing some unexpected external challenge to us, but I'm really glad our CV momentum remains very strong. I'm particularly excited about the technology development progress we made with CV3 and the business development with CV5. This true financial leadership will provide significant opportunity for umbrella for all of our markets. And with that, I want to thank to all our stakeholders and especially our global-based employees who continue to support us. Thank you. I'll talk to you next time.
spk02: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation.
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