Valens Semiconductor Ltd. Q2 FY2025 earnings call

Go-to-market strategy

• Target integration into high-end products; penetration takes time as customers evaluate, integrate into high-end models, then volumes increase.

Q2 2025 highlights

• VS3000 chip saw surge in new products, e.g., Crestron's DM Essentials line, INOGENI's 3-horse switcher, etc.
• Machine vision: A-PHY offering attracted interest, partnership with D3 Embedded for camera to processor platform.
• Automotive: VA7000 chipset momentum, demonstrations at Auto Shanghai, MIPI Alliance Annual Meeting mentions, interoperability testing in Asia.
• Medical endoscopies: Progress in Europe and Japan, initial feedback from industry leaders.

In Q2 2025, the cross-industry business unit (CIB) generated revenue of $12.8 million, accounting for approximately 75% of the total $17.1 million revenue. The automotive segment contributed $4.3 million, making up about 25% of total revenue. Q2 2025 gross margin for CIB was 67.8% and for automotive was 50.5%. Compared to Q2 2024, CIB's gross margin decreased due to product mix change, while automotive's gross margin increased due to cost optimization.

Q3 2025

• Revenue expected to be in the range of $15.1 million to $15.6 million.
• Gross margin expected to be in the range of 58% to 60%.
• Adjusted EBITDA loss expected to be in the range of $7.4 million to $6.8 million.

Full year 2025

• Revenue guidance revised to $66 million to $71 million due to tariff impact, still a 14% to 23% increase from 2024.

• Tariffs: Have led some customers to lower their forecast for the second half of the year, affecting revenue outlook.

Q: You mentioned that the downward revision to both the 3Q and full year revenue guide is primarily tied to tariffs. Could you help us understand how the pressure is distributed across the 2 segments? Specifically, is one segment, CIB or automotive seeing a more pronounced impact in 3Q?

A: We are selling semiconductor to electronic and automotive industries. They are the one who are impacted by the tariffs because their products are produced in countries which are tariffs exposed, and this is the reason we are exposed. It's not that our chips are under tariffs, it's our customers who integrate our chips are those who are in the tariffs, and this is valid both for automotive and for audio-video.

Q: With the 3Q outlook and the revised full year guidance lower to $66 million to $71 million, it looks like 3Q should be the bottom. And with some of the tariff policies starting to take shape, are you seeing any improvements in orders and bookings compared to 30 days ago? And which business do you see that rebound accelerate in 4Q?

A: We do not provide allocation between the different segments, not in terms of revenue as well as other parameters. We provide the numbers for the overall company. I would say that in both segments, we see kind of a temporary weakness for the third quarter and kind of a better visibility for the fourth quarter. And altogether for the year, we reduced the guidance as already indicated.

Q: Any color on the auto 3 OEM design wins? What the next milestones are that we should be watching for?

A: Yes, I can provide some information. And yet, I can't tell the names, but I can say it's very prestigious companies, and it creates a positive noise in the industry that such respective companies selected us purely on quality and our capability to do more than others and the uniqueness of our solution. And we hope that we know -- we hope we know that we will generate more attention and we do with other OEMs. Of course, we don't -- we cannot disclose anything which is in the process only after we have something formally, but we're working with it and leveraging this success of these 3 OEMs.

Q: I just wanted to ask, obviously, tariff uncertainty has caused customers to reduce near-term forecast. But have you seen any change in their product development plans, anything that might affect your longer-term opportunity in the machine vision market?

A: We don't see a particular change in what the companies are looking to develop. We -- even the opposite, we see that they are very stick to the land and the development of the market, the same development, maybe the speed changes, maybe the tariffs have some influence, but the companies are looking ahead, I believe, with the same focus and the same product road map and going to the same customers of their customers.

Q: In the prepared script, Gideon, you mentioned the Snapdragon Ride platform, and I wasn't sure. Could you just expand on what you're doing with that platform? Are you part of that reference design? Was it just a demo to show interoperability? Any other information you could provide would be helpful.

A: Yes. We show and it's very important for us to show not only that our chips have an advantage. We show how simple it is for the customers to integrate. And some of the advantages for Valens is that integrating the VA7000 propose to customers is very fast and creates stability also very fast.