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spk10: Good day, and thank you for standing by. Welcome to Amborella's third quarter 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 the session, you will need to press star 1-1 on your telephone. I will now like to hand the conference over to your speaker for today. Stuart Fairharty, you may begin.
spk07: Thank you, Tawanda, and good afternoon. Thank you for joining our second 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 primary purpose of today's call is to provide you with information regarding the results for our second quarter of fiscal year 2023. 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. then we're under no obligation to update these statements. These risks, uncertainties, and assumptions, as well as other information on potential risk factors that could affect our financial results, are more fully described in the documents we file with the SEC, including the annual report on Form 10-K that we filed on April 1, 2022, for fiscal year 2022, ending January 31, 2022, and the Form 10-Q filed on June 8, 2022 for the first quarter of fiscal year 2023. Access to our second quarter fiscal 2023 results, press release, transcripts, historical results, SEC filings, and a replay of today's call can be found on the investor relations portion of our website. Fermi will provide a business update for the quarter. Brian will review the financial results. Then we'll all be available for your questions. With that, turn it over to Farming.
spk14: Thank you, Louis, and good afternoon. Thank you for joining our call today. Q2 results were mostly as expected. Revenue was down 10% sequentially and up 2% versus the year-ago quarter. CV revenue increased significantly on a year-over-year basis, driving our blended average selling price above $10. We have accumulated more than 10 million CV SOCs, including more than 20% into the automotive market. And we remain on track to achieve our prior estimate that CV will represent about 45% of our total revenue for the year. In Q2, we observed the worst from both the China lockdown and the 14 nanometer shortage. and the incomplete kits remain a bottleneck for many of our customers. Collectively, we shall see some improvements from these factors in the second half, but our recovery outlook is tempered, but some customers are now reducing their inventory levels, in particular, a lead-time contract. In July, we commenced a global roadshow to leading automotive Tier 1s and OEMs with a live demonstration of our CV3 SOC. As a reminder, CV3 is our first central domain controller integrating in a single monolithic die all of Embraer's core competencies, including perception processing from cameras, radars, sensor fusion, and the path planning, as well as our functional safety and application software. Just one month after the SOC came out of the fab, we demonstrated full functionality across multiple live cameras to many global automotive OEMs and tier ones. The superior performance and efficiency as well as the scalability of our SOC roadmap were clearly recognized and well received, leading to many follow-on development discussions. Now we expect to be able to share more about some of these customers' engagements by the end of the year. We are also proud to announce that CV5, our first 5 nanometer SOC, entered production in Q2 at least a quarter ahead of expectations. We have three IoT customers that each purchased production volume in Q2, and we are engaged with many other companies developing their first CV5 products. I will now provide some examples of our market development activity, where production has already or is expected to commence this year. Toyota introduced its 16th generation 2023 Toyota Crown model, featuring a two-channel digital video recorder based on an umbrella of the CV25AX AI processor. Capable of recording from both the ADAT system and the electronic mirrors, the car recorder is supplied by Japanese Tier 1 Denso 10. BMW began shipping two dash cameras models, the events car, I 3.0 and the 3.0 pro providing both the front and the rear view recording based on umbrellas, H 22 video SOCs. The dash cams will be sold in over 80 markets with the Chinese word version, also including electronic toll charging features in June. China-based FAW Hongqi introduced its latest generation of B-class cars. The H5 sedan includes a L2 AFAS system based on our CV22AQ automotive SOC and is supplied by Tier 1 Newsoft. Also in June, China-based Dongfeng introduced its Hongjing SUV. The SUV includes an occupant monitoring system based on our CV28AQ. and supplied by Tier 1 BCS. And in August, Israel-based Sepia announced Chery's SUV will integrate Sepia's driver-sense DMS running on Embraer's CV28 AI processor. The integration of the CV28 and the driver-sense software utilize neural networks to offer robust driver monitoring capabilities. I will now talk about some of the new IoT product announcements. Johnson Controls introduced its fourth-generation Illustra Flex camera series, including Minidome, PTZ, and Bully models based on our CV28S AI SOCs. Also during the quarter, Ubiquiti announced its AI Bully camera based on our CV25S AI SOC. The 4-megapixel camera includes smart detection of people and vehicles. Korean IP camera maker IDIS launched four new 8-megapixel and 6-megapixel PTZ cameras based on our CV28 and the CV22 SOCs. The cameras are designed for wide area surveillance operations with the capability to identify objects and recognize face at distance of up to 300 meters. Japan-based ITRO introduced a new 2-megapixel machine vision camera and at manufacturing sites and based on our CV22AISOC. The camera performs automatic visual inspections and supports up to 100 different object types, for example, detecting the presence of cables and the connectors, different colors, or the presence or polarity of electrical components. Also in Japan, JVC introduces new PZ2510 video conferencing camera focusing on live broadcast and recording applications such as concerts and lectures. Based on Andorra's CV22AI SoC, the camera supports full 4K P60 video streaming, face detection, automatic tracking, and a wide viewing angle. In other IoT markets, Insta360 introduces two new products based on our H22 video SoCs. The Insta360 Sphere is an accessory for drone and works by placing one camera above the drone and one below to create a similar spherical image. In the smart home IoT market, Insta360's Link is an AI-powered 4K video conference device using a three-axis gimbal design and powerful AI tracking, automatic zooming, and framing to ensure that the presenter is always center stage. This representative engagement, a majority of which are based on our higher value CVSLCs, provide insight into the early and the continuous success of our strategy. We have successfully leveraged our human viewing perception processing expertise into the larger machine sensing markets, addressing megatrends such as security, safety, and automation. These machine sensing unit opportunities are incremental and much larger than the human viewing market we have and will continue to serve. Furthermore, we are demonstrating we can capture more value in these sensing applications from incremental processing functions such as radar and other sensor perceptions, sensor fusion, and planning functional safety and application software. CV3 ties all this functionality together. So we are confident that we are implementing the right strategy and demonstrating early signs of success. Despite the current market turmoil, we will continue to drive our organic R&D investment to fully realize this market opportunities leveraging our leadership position in an AI endpoint market. With that, Brian will now provide our prepared financial comments.
spk15: Thanks, Parmi. I'll review the financial highlights for our fiscal second quarter and provide a financial outlook for our third quarter, ending on October 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 Q2 was $80.9 million, slightly above the midpoint of our prior guidance range, down 10% sequentially and up 2% year-over-year. As expected, supply chain-related disruptions were the primary factor in the sub-seasonal performance. and both IoT and auto revenue declined sequentially. Non-GAAP gross margin for fiscal Q2 was 64.5%, above the high end of our guidance range of 63% to 64%. Our gross margin outperformance was driven by a higher mix of NRE revenue than originally expected. Non-GAAP operating expense for the second quarter was $44.2 million, compared to $39.8 million in Q1. This was 700,000 above the midpoint of our prior guidance range of 42 to 45 million, driven primarily by engineering materials for new products. Our non-GAAP tax provision was 361,000, or 4.5% of pre-tax income, and we reported non-GAAP net income of 7.6 million, or 20 cents per diluted share. Now I'll turn to our balance sheet and cash flow. Cash and marketable securities decreased by approximately $3 million, as unusual working capital benefits in the prior quarter reversed and metrics normalized. You'll remember that in the prior quarter, accounts receivable benefited from a front-end revenue skew and inventory declined. For fiscal Q2, DSO increased to 43 days from 28 days, and days of inventory increased from 117 to 125. We had two logistics and ODM companies represent 10% or more of our revenue in Q2. WT Microelectronics, a fulfillment partner in Taiwan that ships to multiple customers in Asia, came in at 59% of revenue. Shikoni and ODM, who manufacture for multiple IoT customers, was 13%. I'll now discuss the outlook for the third quarter of fiscal year 2023. While we expect some improvement in the second half from the broad supply chain disruptions, we have started to see some customers reduce the amount of inventory they're willing to carry into year end, in particular as component lead times contract. Our guidance to the best of our knowledge at the current time contemplates these challenges. We estimate our Q3 revenue to be in the range of $81 to $85 million, or approximately flat to up 5% sequentially. We estimate Q3 non-GAAP gross margin to be between 63% and 64%. We expect non-GAAP OPEX in the third quarter to be in the range of $44 to $46 million, with the increase compared to Q2 coming primarily from increased headcount and sales activities taking place during the quarter. We estimate net interest income to be approximately $400,000, our non-GAAP tax rate to be in the range of 4% to 6%, and our diluted share count to be approximately 39 million. Ambarella will be participating in Deutsche Bank's Technology Conference on September 1st, Credit Suite's Virtual Asia Technology Conference on September 6th, Citi's Technology Conference on September 8th, and UBS's Virtual Future of Mobility Conference October 3rd. Please contact us for more details. Thank you for joining our call today, and with that, I'll turn the call over to the operator for questions.
spk10: Thank you. As a reminder to ask a question, you will need to press star 1-1 on your telephone. Please stand by while we compile the Q&A roster. Our first question comes from the line of Matt Ramsey with Cowan. Your line is open.
spk05: Thank you very much. Good afternoon, guys. Congratulations for me on sampling CV3. I wanted to ask if you could give us a few updates and anecdotes as to how the sampling is going with customers, maybe how many customers have formally sampled, what those engagements have been like, and sort of the early performance feedback on the part relative to what you guys had modeled and just how the software portals to CB3 are going with the customer samples. Thanks.
spk14: Right. So, first of all, we demoed to maybe roughly 2,000 of customers, including tier 1s and OEMs. I think there are three important takeaways from the demos. First of all, all of the customers are very impressed that we give a very thorough demo four weeks after the chip come back from the fab. The demo we gave was, you know, a live board with CV3 sitting in the middle, and we're taking multiple camera live video. And those live video goes into CV3, and we do our standard image processing for all of the cameras. And the process of video went to both our compression engine as well as the CV flow engine. And the CV flow engine running multiple different neural networks that's important for the autonomous driving. And all the video went through that neural network processing, and the end result was the process of video plus the neural network results are displayed on a TV monitor. So you can imagine that this is a very thorough demo, which pretty much touches over all of the important data paths of this big guy. And we can do that in four weeks after the chip came back, It shows you that not only we have a stable chip, but also our fundamental software side is good enough and solid enough to give a live demo. And I think all our customers are surprised and glad to see that. The second thing that's most important is the performance, like you said. In fact, before we demoed CV3, we told all our customers the performance expectation they have. And, in fact, we hit those expectations right on, and we didn't surprise them with our real chip. And, in fact, that's a big surprise to them because they used to see people giving a higher projection on the paper presentation, and when the real chip shows up, the performance is a little lower. But in our case, we definitely delivered as we advertised for Series 3. That's the second takeaway. The third takeaway is power consumption. We also give our customer a projection, a potential power number, and we hit the power number we talk about. So in summary, basically we show people that we have a chip that can run multiple times CV performance than our competitors at a small portion of power consumption, which is a light demo, which is not a PowerPoint presentation anymore. So I think that really hit our customer's given a very good impression about our CV3. And the next important milestone is to provide our hardware and SDK, software SDK for our customer to do software development and also porting their neural network. So I think that's something in progress, and we are engaging customers as we're speaking. So hopefully that will continue to be able to report more. And as I said in my script, we believe that we will be able to give you more updates on our customer engagement by the end of the year.
spk05: Thank you for all that for me. That's really helpful, and congratulations on the progress. As my follow-up, Brian, I wanted to ask about some of the customer kidding issues and your commentary about the potential for customers to want to hold less inventory in into year end um any way to quantify what what that impact is to maybe the second half of the fiscal year and and um if you have any color on which geographies which specific end markets um you're seeing that inventory um coming down or folks being willing to take less inventory any any anecdotes there would be really helpful thanks guys sure well we gave you our outlook for revenue for fiscal q3 we're not going to
spk15: center out into Q4 at this point, but in terms of where we're seeing this type of feedback, it's with customers in various areas, so it's not specifically targeted to a single exposure. I think we're in a situation where customers have been experiencing supply disruptions for quite some time, right? And those disruptions are beginning to abate to some extent. Things are getting a little bit better. But they're also looking ahead to some of the economic risks that could be on the horizon and the uncertainties associated with that. And so there's, I think, a return to a focus on inventory management that maybe didn't exist for a period of time, particularly as we head into the end of the calendar year. So we are getting some requests for push-outs from various customers, and we're reflecting that in the guidance we provided.
spk10: Thank you. Please stand by for our next question. Our next question comes from the line of Joseph Moore with Morgan Stanley. Your line is open.
spk17: Great. Thank you. Following up on that last question on the customer inventory stuff, when you talk about lead time contraction, is that your lead time or is that lead time for other components? And then I have a follow-up.
spk14: I think, you know, Joe, we're talking about both, but I can talk about our own lead time changes. You know, at the peak, our lead time was at roughly 40 weeks. Now we are talking about roughly at 30 weeks. And before COVID, our normal lead time was 24 weeks. So I think we are gradually going back to normal, and that's basically talking about our lead time. But I think we also noticed some of the components, other components of our partners also are showing the lead time contractions.
spk17: Okay, that's helpful. Thank you. And then in terms of thinking about October, I know you normally get kind of a seasonal ramp in the consumer-centric businesses, both in surveillance and other consumer. And you're coming off of a quarter where your revenues were depressed by the foundry issue. So are you still seeing that kind of seasonal impact and it's being offset by these other issues that you're talking about? Or is the impact that's hitting you kind of more on the more seasonal products? Can you just kind of describe, you know, it seems like there's a pretty big fall off in something if you're getting that normal seasonal ramp. I just want to make sure I understand.
spk14: Right. So, Joe, I think, first of all, those three supply chain issues we have been talking about, although it's kind of reduced, but it didn't go away. Even for say, we believe it will persist, but, you know, to a lesser degree. On top of that, we just talked about the inventory reduction of the customers. I think those two things are probably the major factors. And also, I think this is a really unique year. I think with all the supply chain situation that we're monitoring, geopolitical situation, I have to say I don't think that our normal seasonality applies this year.
spk17: Got it.
spk14: Okay, thank you.
spk10: Thank you. Please stand by for our next question. As a reminder, ladies and gentlemen, that's star 1-1 to ask the question, and we ask that you limit yourself to one question and one follow-up. Our next question comes from the line of Vivek Arya with Bank of America. Your line is open.
spk12: Thanks for taking my question. I actually have a clarification and two quick questions. Brian, you mentioned there were some NRE revenues that helped to improve gross margins. I've I was hoping you could quantify how much in incremental NRE in Q2 and what's embedded in your Q3 outlook.
spk15: Yeah, so we don't normally break that out specifically, but just to give you an idea, NRE for the company typically runs in the 1% to 2% of total range, and in the second quarter range, Total NRE was kind of low to mid-single digits in terms of millions of dollars of revenue. And, you know, it's going to be lumpy as we go forward, but as we look at the near term, you know, Q3, fiscal Q3, for example, we see that normalizing and returning back to kind of a typical run rate. But I think as we go out further in time and we have more activities associated with CV3 and so on, it's possible that that starts to become a slightly larger portion of the overall revenue mix. We're not quite there on a sustained level yet.
spk12: Got it. And on the inventory reduction by your customers, Is that more on the automotive side? Is that more on the IoT side? Because on the automotive side, when I look at the results and outlook for most of the other automotive exposed semiconductor suppliers, they seem to have been pretty strong, at least in the near term. Obviously, I understand that every company is supplying different kinds of components, so it might not be exactly apples to apples. But I'm curious, where are you seeing the somewhat softer demands signals? Is it more automotive or more IoT?
spk14: No, I think you're right. We see a little inventory reduction on the automotive customer. In fact, they are 25% of total revenue. But the balance of the business on the security IoT side, particularly security camera side, we do see our customer trying to reduce their inventory.
spk12: And then finally, your overall inventory kind of stands out, right? Because it has now reduced for the fourth quarter, which is kind of an anomaly in the sector where inventories are up for most of the semiconductor suppliers. What is the right way to view the lower level of inventory on your balance sheet? Is it a signal of your demand outlook for the next two to three quarters? Is it something else? What is the right way to look at your being able to manage with lower levels of absolute dollars of inventory?
spk15: Inventory has declined the last couple of quarters in dollar terms, but if you look at the second quarter, it actually was up in terms of days because COGS was down in the quarter. We went from, I think we were about 117 days of inventory in Q1 and we were about 125 in Q2. So that's a relatively elevated level in terms of days of inventory for the company, but we've been running at a higher relative inventory level because of all the supply disruptions to try to buffer ourselves from some of those gyrations. So, you know, if you think about it longer term, if we can get all of these supply issues behind us and get to something more of a normalized state, I would expect we should be running under 100 days of inventory in the future.
spk12: Thanks very much.
spk10: Thank you. Please stand by for our next question. Our next question comes from the line of Gary Mobley with Wells Fargo. Your line is open.
spk06: Hey, guys, thanks for taking my question. I appreciate the disclosure about how your blended ASP is now trended above $10, but maybe you can give us some baseline, maybe in terms of thinking about it on a quarter-over-quarter basis, year-over-year basis, and how that compares to your unit growth.
spk14: So, I think what we can say is that since we introduced our CV product line or ASP continue to grow, and we expect the growth will probably continue, and when we get a CV3 or CV3 family of products into production, the ASP will continue to expand. I think the unit number-wise, I think this is a two separate issue. In fact, where we lose the majority of our unit number is with high-convection Dahua. The ASP is very low, which is probably the lowest ASP business in the last several years, and we basically lost that business. And so that also helps to improve our ASP, company-wide ASP. But I will say that overall, our ASP growth will continue basically because of our CVFlow product line.
spk06: Okay, thanks for that, Kala, for me. And I wanted to confirm that the Samsung 14 nanometer supply issue, the link, I wanted to confirm that the Samsung 14 nanometer supply issue, the lingering impact in the July quarter was, as you approximated, $5 million. And I wanted to be clear that that's no longer a headwind looking into the October quarter. Is that right?
spk14: Well, I think, first of all, the $5 million in July quarter is true.
spk06: And in October quarter, is that right?
spk14: Well, I think, first of all, the $5 million in July quarter is true. And in October I think much less, but we only consider when we give that guidance.
spk06: OK, alright, thank you guys.
spk10: Thank you. Will you stand by for our next question? Our next question comes from the line of Blair Bossa with our actor. Your line is open.
spk13: Hi, yes, great. Thank you. I just had a question on CB5. I can see it's now entered into mass production ahead of the schedule. But just on this, could you talk us through how you see the adoption of CB5 over the next 5 to 12 months, just so we can think about sort of the revenue curve over the next year? Do you see expected to see a sharp adoption, and could it be an important growth driver for the business? any color on how to think about this or how to size the revenue stream would be helpful.
spk14: Right. I think you should consider CV5 as our next generation high-end CV4 engine. And the target application is high-end enterprise-class security cameras, the enterprise video conferencing system, as well as some home applications, high-end home applications. And Almost all of our security cameras, if they do high-end products, they are looking at the CV5, and some of them, like I said, one of them will take that into production this quarter, and multiple will take that into production second half of this year. So I think CV5 revenue, I think, will start second half of this year and run by next year. It definitely helps us on the ASP expansion as well as helping us to maintain our gross margin.
spk13: Okay, great. Thank you. That's helpful. And then I guess this is a follow-up. In terms of the two segments I see in automotive, I know you mentioned they declined sequentially in the quarter. Could you give us any color about how to size them in the quarter? What they did is essentially failed. And then I suppose just to add to that, looking at the Q3 guidance, could we expect something similar for the October quarter? Thank you.
spk15: Can you repeat the question?
spk13: Yeah, so I guess just in terms of the two segments, if you look at IFT and automotive, I was just hoping for any more color about the size of them in the quarter, what they did as a potential sales. And then just to add to that, for the Q3 guidance, could we expect something similar in the October quarter?
spk07: Yes, this is Louis speaking. auto and iot you know roughly the same you know when you consider everything included including the nre and the outlook for q3 is to have both of these areas growing sequentially thank you thank you please stand by for our next question
spk10: Our next question comes from the line of Ross Seymour with Deutsche Bank. Your line is open.
spk08: Hi, guys. Thanks for asking a question here. On the automotive side, it seems like it's been at about that 25% of revenue range now, given the answer to your prior question. It seems like for three quarters in a row. When do you expect that to really accelerate? I know it takes longer in the CV stuff. The majority of that's been impacting to the benefit of the IoT side, but How do you think about the growth rates of the two segments, and specifically automotive? When should we expect, you know, either a stair step up or a bigger ramp, given all the design wins that you've highlighted in the preamble for me?
spk14: I really think that the next important milestone for us in terms of automotive revenue growth is that one major OEM take, ADAS, level two plus car into production, right? So that's really the key for us to provide the long-term growth. I think, you know, although automotive revenue will continue to grow, but I think the step function I'm looking for is really the, like I said, the major OEM take ADAS into the market.
spk08: Any sort of rough color when that may occur? Is that something that, you know, you think you have the design wins or is that going to be more CV3 dependent? So it's you know, a couple years out given the design cycles and any sort of rough color on that?
spk14: I think CV2 will give us some boost, but like we said in the past, right, and the CV3 because the ASP will really provide the biggest jump for us, but I think between now and the CV3 in production, you should continue to see our automotive revenue grow. Thank you.
spk10: Thank you. Please stand by for our next question. Our next question comes from the line of Tori Sandberg with Stifel. Your line is open.
spk16: Yes, thank you. I know you're not going to comment beyond Q3, but just thinking about the lead times and the sort of inventory adjustment, do you think that you'll be down to sort of the mid-20s lead times during the October quarter? Or when you talked about sort of going from 40 to 30, Uh, you know, that, that, that process started, uh, you know, a little bit later.
spk14: Well, I think 30 is now, and, um, who they will move to 2024, like before it was really depends on our supply chain. All right. So, um, I think it will take a while because there's still, I think on a high end process node, um, probably, um, 30 will be a stable for a while. So I won't expect that to happen, to go back to 2024 immediately. However, I think the trend is there, and I think our customer is really reacting to the trend, expecting that the lead time will go back to normal soon.
spk16: Very good. And as my follow-up, can you confirm that you're going to be updating us on your sort of vehicle revenue funnel 3.0 next quarter? And, you know, since you're obviously not going to share data right now, could you at least talk qualitatively about how that funnel continues to improve?
spk14: We definitely will give you an update on the 3.0 in November.
spk16: Okay. Any comment, quality, or am I jumping the gun here?
spk14: I think we are three months too early to talk about it.
spk16: All right. Very good. So, since you're not going to answer that question, I'll have one last one. So could you just elaborate a little bit on the supply chain dynamics? I know you talked about the 14 nanometer, but I also know there's been maybe some potential yield issues at 10 nanometer. Now that you are in production in 5 nanometer, how do you feel the yield improvements are going on with your current supplier? Thank you. Right.
spk14: So, you know, there are a lot of, you know, news articles about Samsung's 5 nanometer. But I think Based on our experience, when we started working with Samsung, 5 nanometer EO was a problem. But now we are ready for production, and in fact, we are in production in Q2. I can say that the EO is not a problem. It can continue to be improved, but I don't think that's a problem for us anymore because we have been working with our foundry supplier for many years, and for any advanced node, It's a similar experience at beginning that the yield is low, and we work together with our foundry partner to improve it. And I think at this point, I think this 5 nanometer yield is definitely in a normal range and can be further improved in the near future.
spk16: That's great perspective. Thank you.
spk10: Thank you. Please stand by for our next question. Our next question comes from the line of Suji De Silva with Ross Capital. Your line is open.
spk02: Hi, Fermi. Hi, Brian. You talked about the CV3 and some of the implementations there. You talked about some NRE, perhaps. Can you just talk about how the design cycle, how long the design cycle there is relative to prior products? I know it sounds more software intensive. And whether tier ones, auto tier ones, would be part of getting that established through the industry? Thanks.
spk14: You know... I think, first of all, the design, for any level 2 plus design wind, I think it's going to take probably three to four years to enter production in outside China. Inside China, maybe a little faster than that. But I think for the design wind momentum, I think we're talking to both OEM and tier ones. We think that both are very equally important. OEM wants to make a decision and try to control sulfur, but still they need a tier one to deliver the final product. We need to work closely with our tier one partner to deliver those final products. So I think that's why, you know, when we went out to demo CV3, we went out to both all the major tier ones as well as the major OEM to make sure they see the capability and the potential of CV3. And so when they talk to each other to make a decision on the design wins, that they will consider CV3.
spk02: Okay. Very much helpful. Thanks. And then on the Oculi acquisition radar, can you just update us on what expectations are for incremental fundamental contribution, revenue contribution, or how we should think about that over the next few quarters as you integrate that in?
spk14: Right. So, first of all, we didn't break up Oculi radar revenue per quarter, but we gave a guidance to probably $3 million to $4 million this year. I think we're close to that. And we're going to continue to monitor the progress that we made with our current customer. And we did talk about there are a few design ways that we're working on. Hopefully, we'll see results in the next year and for the rainbow revenue. I think there's another very important milestone I think you should track is when we can demo Oculus software running on Series 3 Silicon, which will probably – the first silicon platform that can do sensor fusion with video data and the radar data at the same time. And like I said before, that's really important for us to provide not only just better perception and sensor fusion to our customer, but it provides huge bond saving to our customer too. So I think that also is an important milestone that we're trying to hit.
spk02: Thanks, Les.
spk10: Thank you. Please stand by for our next question. Our next question comes from the line of Kevin Cassidy with Rosenblatt. Your line is open.
spk03: Yeah, thank you for taking my question. Just as you're looking at the opportunities for CB3, is there a difference between consumer vehicles and, say, robo-taxis and shuttles? Is there a shorter time to market or Anyone that might be better suited for the CB3?
spk14: Well, I think for both consumer and the commercial vehicle, in outside China, the design cycle is probably similar because, you know, even for commercial vehicle, people also want to have an auto-grade silicon hardware, silicon and sulfur. Inside China, it's a little different, and people are more willing to introduce product and test it out in the market. So I think that's two different timing. And definitely, we will try to take advantage of the shorter design cycle in China, see whether we can quickly introduce some product there.
spk03: OK, thanks. And going back to the NRE question, is Oculi part of that NRE revenue?
spk14: Yes, it is.
spk03: OK, that's expected to go forward also?
spk14: I think, you know, now we are engaging with a new customer after we acquire them. Yes, we expect that we're going to see new revenue opportunities with radar also.
spk03: Okay, great. Thank you.
spk10: Thank you. Please stand by for our next question. Our next question comes from the line of Andrew Buscalia with Barenburg. Your line is open.
spk04: Hey, guys. Into the quarter, I think there is some optimism brewing around some decision-making moving forward with some automotive OEs. Just given we saw other announcements for some adjacent technologies, specifically VW. Yeah, so what, you know, I understand the inventory commentary, but what about your conversations with, you know, just generally in the automotive space around decision-making moving forward? Because these, as you said, these design cycles, you know, you would think we should start to see some movement near-term, despite, you know, what we're seeing around the latest on the inventory side.
spk14: So, you're talking about CV3 engagement? Yeah.
spk04: Yeah, CB3, you know, you're more so your latest technology, your latest chips that you're, yeah, specifically CB3.
spk14: Yeah. So first of all, the CB3 engagement, like I said, you know, we have done well with the first phase of demos and that we need to follow up with a lot of engagement on the engineering side to help customer to pull software, to pull the neural network and demo the system. So I think that's definitely important. important one. At the same time, we are developing a derivative chip in the CV3 family so that we can address different applications. For example, we are working on another silicon, 5 nanometer silicon for auto-grade chip, which is going to be enabling our customer going to production in 2025, 2024, 2025. And that's definitely the chip that we are working on. And we're going to continue to work on different derivatives of CB3 chips. And that is definitely an important investment strategy for us moving forward. I hope that answers your question.
spk04: Well, I guess that was more so, you know, in terms of being able to announce some design wins. Just that we're seeing some movement and we are seeing some decision-making move forward with some adjacent technologies. I guess, you know, where does CV fit in there? I would think that you would start to see some movement, you know, even despite these inventory pressures.
spk14: So I think, you know, like in our script, We talk about, you know, we believe we can give you more updates before the end of the year. There are two things we're going to give you an indication. One is in November we're going to give a final update, which will probably give you an indication how we're doing with OEM in terms of design wins, as well as we're going to talk about CVG engagement. Like we said, probably by the end of the year we will talk about that. So hopefully that will continue to provide you input.
spk04: Okay. Okay. Okay. And then maybe, um, when you're, when you're talking with customers around that, you know, specifically those sampling CB3, is there, is there regionally any, any sort of bias you're seeing more interest in, in one, um, region versus the other, but whether it be us, Europe or Asia or too early to tell.
spk14: In fact, we, among the, uh, the 2000 customers all over, I think it's global. And we talk to almost every, every place. including China, Japan, Korea, Europe, and the U.S. So I think we probably talked to the target customer that we want to talk to in the last few weeks.
spk07: Yeah, Andrew, just to give you some more perspective on what's at play here, this is our first central domain controller. And so you go through a sequential process where we had introduced the product idea to customers in the last couple of years. And as Fermi described, We've gone through the demonstration process. Almost several dozen customers on a global basis have now seen the board and it operating live. And then the next step that we described is providing the SDKs and EVKs where they can begin to port their own software onto the chip. And as you move through this progression of steps, a series of steps, customers will feel more comfortable to make that decision. And we're still saying we expect to provide an update on where we're at by the end of this year. Okay.
spk04: All right. Thanks, Louis. Thanks, Bermie. Thank you.
spk10: Thank you. Please stand by for our next question. Our next question comes from the line of Richard Shannon with Craig Hallam. Your line is open.
spk09: Hi guys, thanks for taking my question. I think just one question for me and following up on the topic of C3 here. Well, I know the discussions and demos are very early stage here. For me, I'm wondering what you see in terms of future discussions and competitive and sourcing dynamics with large automotive customers. Do you expect them to be choosing one domain controller across the entire portfolio or do you expect them to possibly use two or more? In other words, is this an all or none situation or is there a kind of a split situation over time?
spk14: You know, it's interesting because a lot of companies that we talk to always start with, you know, they want to choose one because it's so free. But at the end, I think they all understand the risk of taking only one. So I think there's a chance that some people will take two, and also there's a chance that someone will take one. So between these two are possibilities.
spk09: Okay, great. Well, I look forward to getting an update on that, but thanks for that perspective. That's all from me for me. Thank you. Thank you.
spk10: Thank you. Please stand by for our next question. Our next question comes from the line of Tristan Guerra with Baird. Your line is open.
spk11: Hi, good afternoon. You've mentioned that the CV5 will start ramping the second half and into next year. Should we assume that CV5 is going to be material to your revenue this second half, and is it material to your Q3 guidance, or is it just initial shipments and then it becomes more meaningful next year?
spk14: I would say that the meaningful revenue will come from next year. This Q3 and Q4 will be a ramp-up time.
spk11: for several customers but I think meaningful revenue probably will probably more towards Q1 Q2 next year okay and then you've mentioned as my second question the some inventory deleveraging across customers both on the automotive and IOT side and I just wanted to Is there any color that you could provide specific to the China automotive market? How high are inventory levels right now? And have you seen push-outs or delays either in terms of deliveries or new projects? How is the situation there, and how do you expect it to evolve over the next several quarters?
spk14: You're talking about China market, right?
spk11: Yes, automotive market.
spk14: Yeah, China Automotive. So I think, you know, if you talk about China Automotive, I would say that you need to separate consumer versus commercial vehicles. I think China commercial vehicles are facing severe problems in terms of demand, which is smaller market. On the consumer vehicle, I think inventory, we haven't seen... That market is still facing show supplies, and so that's why we haven't seen any... revenue reduction, sorry, the inventory reduction in the Chinese consumer automotive at this point.
spk11: And when would you expect then this supply to get back in balance and would that create more of a slowdown on your existing revenue base to the automotive and market in China by then?
spk14: You know, I I'm not sure because I don't know exactly what's the inventory level of current customers. For our chip, right, I can imagine that some of them probably build a little bit of inventory. Some people will be conservative. So it's really going to be customer by customer discussion. For example, even for IoT, not all of our customers have inventory problems. Some people are more conservative in terms of building up inventory. the inventory reduction is more minor for them. But there are some customers that have been aggressive building our inventories throughout the last 24 months, and definitely there is a longer time for them to digest the inventory. So it's really customer-to-customer discussion. It's very hard to normalize it.
spk11: Okay. Thank you very much.
spk10: Thank you. Please stand by for our next question. I'm showing Kevin Cassidy in the queue. Sir, did you have a follow-up?
spk03: No, I didn't.
spk10: Okay, thank you. I'm showing no further questions in the queue. I would now like to turn the call back over to Dr. Wong for closing remarks.
spk14: And I would like to thank you for your time and your consideration today, and I'm looking forward to see you in the upcoming event. Thank you, guys.
spk10: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.
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