Ambarella Inc at Morgan Stanley Technology, Media & Telecom Conference Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Joe Moore - Morgan Stanley - Analyst : So Fermi, maybe we could just start out. You have in a period where there's more enthusiasm for AI than we've ever seen. You guys have 60% of revenues coming from edge AI. You put that into -- I mean, you didn't really call yourself an AI company in the beginning, although that's what it clearly was even from that. So maybe you could just talk a little bit about what you guys do, and Edge AI world and how that fits into this overall AI ecosystem.

Question: Joe Moore - Morgan Stanley - Analyst : And this isn't like a trend following thing. I mean, this is a really true thing that the people doing image resolution in automotive, the incumbents are still mostly using heuristic algorithms to do that. And you guys very early on adopted the fact that that AI software was the way to resolve this, is that right? And can you just talk a little bit about that software approach that you have? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MARCH 04, 2024 / 10:10PM, AMBA.OQ - Ambarella Inc at Morgan Stanley Technology, Media & Telecom Conference

Question: Joe Moore - Morgan Stanley - Analyst : I have the problem too.

Question: Joe Moore - Morgan Stanley - Analyst : So I mean, I think we define a lot of the AI opportunity today by training in the data center, which is not a market that you have pursued. And it sounds like after some thinking about it, you're not pursuing inference in the data center either. So can you talk about the merits of what you are doing in the markets that you're focused on?

Question: Joe Moore - Morgan Stanley - Analyst : Okay. And then we've talked a lot about CV2 and CV3 over the last two or three years. But if you could put this kind of into perspective that now we're looking at transformer inference in particular, some of the complexity of that. Can you talk about the role of CV2 which is your existing revenue stream and then how CV3 evolves from there? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MARCH 04, 2024 / 10:10PM, AMBA.OQ - Ambarella Inc at Morgan Stanley Technology, Media & Telecom Conference

Question: Joe Moore - Morgan Stanley - Analyst : So maybe you could educate me a little bit on this, like in the sense of it seems like for a long time AI was focused on conversational neural nets. And the inference task was was not simple, but more manageable. You didn't need even in cloud, you need $25,000 cards to do inference that you migrate to transformer. And the inference task becomes several orders of magnitude more complex. And suddenly we're using this very expensive hardware. And I think the same thing is happening at the edge. Can you just maybe explain a little bit that transition?

Question: Joe Moore - Morgan Stanley - Analyst : Great. That's very helpful. And so I guess the process of turning all of this into revenue, which has been a little lumpier along the way CV2, can you talk about the growth profile that you still have? I mean, CV3, a lot of exciting opportunity, but still pretty far from revenue. But can you look at the IoT market and the automotive market as kind of the CV2 opportunity?

Question: Joe Moore - Morgan Stanley - Analyst : I apologize if this seems like negative meaning question I'm actually. I'm so enamored with the technology, and it's been hard to get to the revenue level that I thought you'd be at. So that's why I'm explaining it this way. But if you look at surveillance. I mean there was a very clear growth trajectory where you had video processing at a low ASP. You're replacing it with a eye at a higher ASP. And you did do that. You did continue to ramp that, but you had more headwinds in the legacy than I expected there to be. So maybe if you could just talk a little bit about that transition within surveillance and you mentioned how you can see that continuing to move forward, right? You've gotten past some impact to inventory correction, which we don't need to rehash, but can we just understand the bigger picture opportunity evolving?

Question: Joe Moore - Morgan Stanley - Analyst : If you do the work or the technology, it really got like everybody that you talk to talks about the breakthrough capability that you have, particularly with the right power envelope and things like that. So how much of that automotive problem that you talk about is the evolution of aid us in general being a little slower. It seems like the focus has been on battery-powered EV, that a lot of the innovation kind of got siphoned away and even now. I mean, you have these wins that you talked about with Continental and Bosch, which for anybody who hasn't seen them, you should see them at CES both of the last two years, you really intricate kind of 12 camera demos and things like that. But, you know, the timeframe of that being implemented in cars seems to have been pushed back so I know that's in your control, but how do you think about those dynamics?

Question: Joe Moore - Morgan Stanley - Analyst : Yeah. And you talked about China, when you say the focus has shifted to L2+. Is that also a comment on the Chinese market? And then just in general, it seems like the regulatory environment in China is much more pragmatic, it's is it safer than a human driver versus in the US, it needs to be completely safe.

Question: Joe Moore - Morgan Stanley - Analyst : And it's really interesting. I was looking I went to the Qualcomm automotive day a year or so ago, and they talked about the August progress knocking out Mobileye from some key accounts which sit on publicly, and they did that without really showing any technology breakthrough. And I actually ask them how are you knocking out an incumbent without a technology breakthrough. And the answer is kind of people want seamless integration with the infotainment system and they want it to look like an Android phone. So people don't just turn this over to [CarPlay] and things like that, which is kind of a depressing answer to me a little bit because it sort of says that the market the evolution has really slow down. So like do you see that changing at the promise of L3 or L4 is still really exciting to me? And is it really a regulatory environment enough just to sort of keep that from ever happening?

Question: Joe Moore - Morgan Stanley - Analyst : Great. And then you mentioned radar. Maybe you could talk a little bit about Oculii, the acquisition that you guys did, which seems like it's potentially a breakthrough in terms of implementation of a radar. Can you talk about what traction you're seeing with that?

Question: Joe Moore - Morgan Stanley - Analyst : I mean, it seems like it's a no-brainer to implement radar that way, when you describe it?

Question: Joe Moore - Morgan Stanley - Analyst : Okay. So I guess in that context, you know, how do you guys think about about LiDAR? Obviously, it's lower L3 or L4 less later anyway, but are you still approaching Is there still some sensor integration has to take in light or do you think that LiDAR plus optical is adequate?

Question: Joe Moore - Morgan Stanley - Analyst : Great. And maybe you could talk a little bit about -- the progress that you're seeing in automotive today, we talked about 3 or 4. But you obviously have driver monitoring, digital rearview mirrors things you've been talking about a while? Where you're monetizing those?

Question: Joe Moore - Morgan Stanley - Analyst : Okay. And then in terms of your traditional IoT markets, can you characterize, you know, we've gone through an inventory correction that you talked about. It feels like we're through it. It feels like you guys saw it before, others and kind of have emerged from it before. Others, but you're still kind of along the bottom, right. So can you just talk can you characterize that for us? And do you think you have enough visibility to sort of feel really good about the growth from here.

Question: Joe Moore - Morgan Stanley - Analyst : Yes, then I would think I mean, the the fact that some of the peers have really struggled would actually help the sentiment for you guys talk a little bit. I hope we saw I mean, companies like Silicon Laboratories saw a lot of the same issues that you saw later on. So okay, that makes sense. And then where are you with us consumer surveillance, that's a market that seems like a lot of these AI features would really be relevant, but it's also really expensive for cameras at those price points. So can you talk about that?

Question: Joe Moore - Morgan Stanley - Analyst : And when you say the lost market share. I mean is that you still have some of the premium designs and the top doorbells, things like that you guys are still -- REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MARCH 04, 2024 / 10:10PM, AMBA.OQ - Ambarella Inc at Morgan Stanley Technology, Media & Telecom Conference

Question: Joe Moore - Morgan Stanley - Analyst : Okay, So you've the consumer surveillance that has some potential professional surveillance. You're past the bottom of the inventory correction with a good ASP lift. And then in cars, you're seeing a lift from some of the CV2 designs and then CV3 is more 2026. Is that the right timeframe to think about?

Question: Joe Moore - Morgan Stanley - Analyst : Okay. Okay. In your visibility into that at this point is good. I mean, when you I know you have a funnel, we could talk about how the funnel is derived from. I know you have some probability weighted. What's your probability weighting on some of you have any of those that are moving into the high probability at this point?

Question: Joe Moore - Morgan Stanley - Analyst : So I mean, you have you're talking about less than $100 million of trailing automotive revenue, a six year funnel of $2.4 billion which includes a fair amount of probability weighted stuff in the back half of that section?

Question: Joe Moore - Morgan Stanley - Analyst : Yeah. Okay. Okay, great. And then can we talk about other opportunities for outside of vision? You've not going to participate in cloud-based inference, but you've talked about inference at the edge, what does that mean and what what types of LLM types of opportunities might you see that Ambarella could participate in? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MARCH 04, 2024 / 10:10PM, AMBA.OQ - Ambarella Inc at Morgan Stanley Technology, Media & Telecom Conference

Question: Joe Moore - Morgan Stanley - Analyst : Okay, great. And then what other video applications you see? I mean, you talked about access markets, you talked about robotics market, which are those are you most excited about?

Question: Joe Moore - Morgan Stanley - Analyst : So do you have a question from the audience? Unidentified Participant Yeah, I wanted to get some clarification on your comments about inferencing at the edge and going on beyond existing video centric. You've mentioned power consumption, latency and privacy of data. What exactly would use case and appointment of systems are you are you referring to are you putting these into decided servers or what are they sitting next to give to build the detail out up -- REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MARCH 04, 2024 / 10:10PM, AMBA.OQ - Ambarella Inc at Morgan Stanley Technology, Media & Telecom Conference

Question: Joe Moore - Morgan Stanley - Analyst : And it seems like it's a very focused effort on things that you can do without things that you're going to be particularly good at that you don't have to invest hundreds of millions of dollars to compete with?

Question: Joe Moore - Morgan Stanley - Analyst : So that chip is essentially the CV3 with some of the automotive stuff stripped out of it?

Question: Joe Moore - Morgan Stanley - Analyst : Okay. Yes. Any other questions from audience? Can I actually ask a financial question and with the non-financial motivation, but your gross margins have always been really high and you always have legacy revenue. It seems like that's a little bit of a headwind. Have you thought about sacrificing some gross margin to preserve some of that. Is that a trade-off that you guys could make?

Question: Joe Moore - Morgan Stanley - Analyst : So we're not hamstrung by a low 60s gross margin loans.

Question: Joe Moore - Morgan Stanley - Analyst : Yeah. Okay. With that, we'll wrap it up and thank you very much.