Ambarella, Inc. (AMBA) Earnings

Management highlights

### Edge AI Market Positioning and Strategy - As AI inferencing shifts to distributed edge deployment to reduce latency, cut power/bandwidth costs, and improve data privacy/security, Ambarella holds a strong leadership position in Edge AI for physical and agentic applications. - The company has shipped over 46 million cumulative Edge AI SoCs, with 12 production SoCs supporting up to hundreds of TOPS performance, and a unified open software platform supporting over 200 AI model architectures, enabling software reuse across product lines. - Unlike discrete data center component ecosystems, Ambarella integrates all required functions (perception, AI acceleration, CPU, encoding, system IO) into a single SoC, paired with full-stack proprietary software and agentic frameworks, a rare and valuable capability as AI workloads grow more complex. - Long-term Agreements (LTAs) with multigenerational customer commitments (typically 5+ years) are a new strategic focus, expected to drive more predictable, less volatile revenue and long-term growth. ### Key Customer and Product Milestones - Two LTAs have been secured to date: the first is for the 2nm CV8 semi-custom SoC taped out in January 2026, serving consumer and enterprise IoT endpoints; the second is a >$800 million potential revenue 10+ year LTA with Hanwha (South Korea) covering co-development and sourcing of Edge AI technology across Hanwha's physical security, automation, life sciences, robotics, and industrial product lines. Additional LTA discussions are ongoing with other potential partners. - The robotics segment has secured 15+ design wins (including aerodrones) with over $100 million in lifetime projected revenue, and a pipeline of more than 30 customers. Design wins span industrial automation, autonomous mobile robots (AMRs), delivery robots, and include work on perception and decision-making capabilities for humanoid robots (undisclosed). Most robotic design wins are for 5nm products, with some 10nm and 4nm designs also secured. - New product ramp and roadmap are on track: 5nm CV75 and CV72 (supporting CNN, GenAI transformer, and agentic AI workloads) are in steep production ramp and expected to deliver material incremental revenue in FY27; the new CV7 AI processor will enter production by end of calendar 2026; the 2nm CV3-AD AI SoC is scheduled to begin production in H1 FY28. All new products target more complex AI workloads with average selling prices (ASPs) well above the current Q1 corporate average of $15 per SoC. - Q1 design wins were concentrated in the Edge AI product line: 3 from the 10nm CV2 family and 8 from the new 5nm CV7x family, spanning enterprise security, industrial, and automotive end markets, including i-PRO's first locally run GenAI edge security camera based on the CV72. ### Channel and Ecosystem Development - The company is building out an indirect sales channel (ISVs, channel partners, system integrators) to complement its existing direct sales model, to address the fragmented robotics market and support the emerging edge infrastructure business. - Six US-based independent software vendors (ISVs) across retail, industrial automation, transportation, healthcare, and smart cities have been onboarded since the developer zone launch at CES 2026, with a target of doubling this number by end of FY27. Expansion to Japan and Europe is planned.

Guidance

- Full-year FY27 revenue growth guidance is maintained at 10% to 15%, with automotive revenue expected to outgrow the broader automotive semiconductor market (which is projected to grow 10-15% in 2026 despite a 1-2% decline in global automotive production). - Q2 FY27 (ending July 31, 2026) revenue is guided to a range of $105 million to $111 million, with a $108 million midpoint, reflecting expected sequential growth in both automotive and IoT revenue across consumer and CapEx-driven end markets. - Q2 FY27 non-GAAP gross margin is projected to be between 59% and 60.5%, consistent with the long-term target range of 59% to 62%. - Q2 FY27 non-GAAP operating expense is guided to a range of $56 million to $59 million. - A new $50 million share repurchase program was authorized by the Board of Directors, effective through June 30, 2027, replacing the expiring prior program. There is no obligation to repurchase any specific amount of shares, and the program can be suspended at the company's discretion. - Seasonality for FY27 is expected to follow historical patterns, with no unusual factors projected to alter typical seasonal trends.

Segment performance

Total revenue for Q1 FY27 was $100 million, down 0.5% sequentially and up 16.9% year-over-year. IoT applications accounted for approximately 75% of total revenue: the enterprise security camera sub-segment grew 8-9% sequentially, while the consumer IoT sub-segment saw a double-digit sequential decline, resulting in an overall seasonal downturn for the IoT segment. Automotive revenue set a new all-time quarterly record, with strong double-digit sequential growth led by the commercial vehicle telematics and automotive safety markets. WT Microelectronics, the Taiwan-based logistics and fulfillment partner for Asian customers, accounted for 60.7% of Q1 revenue.

Risks & headwinds

- Forward-looking statements (including revenue projections, LTA revenue potential, and product launch timelines) are subject to inherent risks, uncertainties, and incorrect assumptions that could cause actual results to differ materially from expectations. Additional risk factors are detailed in the company's SEC filings. - Customers are facing higher DRAM and flash prices and potential component shortages in H2 2026, which increases engineering support requirements for Ambarella as customers adjust designs to optimize DRAM utilization or switch suppliers. - While supply commitments are secured for near-term needs from foundry partner Samsung, the company does not have long-term wafer supply contracts, and tightening supply conditions could create potential delivery risks for future volume commitments under LTAs.

Analyst Q&A

• Q: Full-year revenue guidance was previously 10-15%, and automotive is growing faster than other segments. Is this guidance still maintained? How should the potential $800 million Hanwha LTA be incorporated into revenue estimates? /

  A: Management maintains the full-year 10-15% revenue growth guidance, with automotive growing faster than the company's other business segments. Ambarella already has an existing 15-year commercial relationship with Hanwha, and the LTA is expected to grow Ambarella's share of Hanwha's annual silicon procurement across at least two co-developed silicon generations. The $800 million potential revenue figure is calculated based on higher CV product ASPs compared to the corporate average, covering new markets beyond Hanwha's existing physical security business.

• Q: What is competitive differentiation for Ambarella's Edge AI platform, and how flexible is the software for varied edge use cases? /

  A: Ambarella's proven power-efficient CVflow AI accelerator architecture supports 200 distinct AI model architectures in production, demonstrating its broad programmability. The company offers 12 Edge AI SoCs spanning low to hundreds of TOPS performance, all covered by a unified software development kit that lets customers easily port designs across different performance/price point SoCs. Competitors like NVIDIA and Qualcomm do not offer a comparable complete, unified silicon and software platform for edge deployment.

• Q: What is driving the recent inflection in growth for the commercial fleet telematics market? /

  A: The overall telematics market has ~100 million installed units growing at a 10% CAGR, with only 15-20% of the market currently using AI and AI video, which adds incremental ARPU for telematics providers. Growing demand for more complex AI workloads and support for multiple sensors is increasing ASPs for edge AI chips in this market, and Ambarella is gaining share with leading players like Lytics, which designed in the CV72 and CV75 for multiple new platforms this quarter.

• Q: Has DRAM/storage shortage impacted Ambarella, and why did inventory increase so much sequentially? /

  A: Ambarella is indirectly impacted by higher DRAM/flash prices and potential H2 shortages, as customers adjust designs to optimize DRAM usage or switch suppliers, requiring additional field engineering support from Ambarella. Inventory was built up because Ambarella was running lean inventory levels in prior quarters, and the company chose to prudently build inventory to support upcoming new product ramps amid tightening supply conditions communicated by foundry partner Samsung.