Ambarella likely to be hurt by market concerns in Q2

Ambarella (NASDAQ: AMBA) is set to release its earnings results for the second quarter of fiscal 2020 on Thursday after the market closes. The results will be hurt by global tariff issues, possible export restrictions, and macroeconomic condition changes as well as falling contribution from drones and wearables.

The top line is generated primarily from sales of specialized video and image capture devices such as wearable sports cameras, automotive aftermarket cameras, IP security cameras and cameras incorporated into unmanned aerial vehicles (UAVs) or drones. However, these markets are likely to be weak and revenues from these could show a significant decline.

The company expects to expand itself within the camera markets with video and image processing SoC solutions, particularly in the professional IP security and home security and monitoring camera markets, as well as emerging markets such as the OEM automotive and robotics markets. This could increase the research and development expenditures, which in turn will hurt the bottom line.

As of April 30, 2019, the company had cash, cash equivalents and marketable debt securities of about $366.2 million. The company believes that its existing cash balances will be sufficient to meet its anticipated cash requirements through at least the next 12 months. Ambarella expects operating and capital expenditures to rise in the future due to headcount growth, business activities expansion, and implementation and enhancement of information technology platforms.

Analysts expect the company’s earnings to plunge by 92% to $0.02 per share and revenue will drop by 16.70% to $52.03 million for the second quarter. The company has surprised investors by beating analysts’ expectations in all of the past four quarters. Majority of the analysts recommended a “hold” rating with an average price target of $47.38.

For the first quarter, Ambarella reported a wider loss due to higher research and development expenses. Revenue fell by 17% year-over-year hurt by the recent order pull-ins from security camera customers in China, triggered by geopolitical factors. The company continues to build the foundation for the multi-billion dollar growth opportunity in the AI and computer vision (CV) market.

Read: Bilibili Q2 earnings review

For the second quarter, the company expects revenues in the range of $51 million to $53 million and adjusted gross margin in the range of 57% to 59%. Adjusted operating expenses are anticipated to be in the range of $29.5 million to $31.5 million for the second quarter.

The company expects mass production revenue in the current quarter from its second CV device, CV25. With multiple CV devices now in production, more CV design wins, and new technology and products in development, Ambarella sees three CV revenue waves taking shape: first in the professional security camera market, followed by the consumer security camera market and the automotive market.

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