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Ambarella (AMBA) Q2 Earnings & Revenues Beat, Decline Y/Y

Zacks Equity Research

Ambarella Inc.’s AMBA second-quarter fiscal 2020 earnings and revenues beat the Zacks Consensus Estimate.

However, on a year-over-year basis, both the top- and the bottom-line results witnessed a decline.

Ambarella’s revenues in the fiscal second quarter of $56.4 million surpassed the consensus mark of $52 million but declined 9.7% year over year. Solid demand for the company’s core video processing portfolio was a positive. However, sluggishness in the automotive market weighed on the top line.

The company’s non-GAAP earnings came in at 21 cents per share. The Zacks Consensus Estimate was pegged at 3 cents. However, the figure decreased 16% from the year-ago quarter.

Ambarella, Inc. Price, Consensus and EPS Surprise

Ambarella, Inc. Price, Consensus and EPS Surprise

Ambarella, Inc. price-consensus-eps-surprise-chart | Ambarella, Inc. Quote

Quarterly Details

During the quarter, automotive revenues remained flat and other product revenues decreased sequentially while revenues from security cameras increased.

Ambarella is experiencing strong underlying global demand for its security cameras. Some level of restocking by Chinese customers also boosted the security camera business.

However, challenging macroeconomic environment is severely affecting the company’s customer supply chain.

CV portfolio is also attracting new customers and helping it expand customer base.

In the fiscal second quarter, the company had two 10% plus revenue customers. WT Microelectronics, a fulfilment partner in Taiwan, represented 55% of revenues while Chikoni, a Taiwanese ODM (original design manufacturer) came in at 21%.

Operating Metrics

On a non-GAAP basis, the company reported gross margin of 58.1%, which was 330 basis points below the year-ago quarter’s figure.

On a sequential basis, non-GAAP operating expenses came at $27 million compared with $29.9 million in the previous quarter.

Balance Sheet

Ambarella ended the fiscal second quarter with cash and cash equivalents & marketable securities of $375.8 million, up from $366.2 million in the previous quarter.

Outlook

For third-quarter fiscal 2020, revenues are expected between $63 million and $67 million. Non-GAAP gross margin is anticipated within 56-58%. Non-GAAP operating expenses are anticipated in the range of $30-$32 million.

The company envisions automotive, security and other revenues to increase sequentially. It predicts consumer electronics revenues to be persistently soft, declining as a percentage of revenues over the next two to three years.

Moreover, the company is focused on incorporating Big Data analytics in video HD endpoint devices and AI in security camera. This is expected to increase Ambarella’s total addressable market manifold.

Management expects to return to growth in the second half of 2019. However, global tariff issues, export restrictions and unfavorable macroeconomic conditions are some concerns.

Zacks Rank & Other Stocks to Consider

Ambarella currently has a Zacks Rank #2 (Buy).

A few other top-ranked stocks in the broader Computer and Technology sector are Keysight Technologies Inc. KEYS, Perficient, Inc. PRFT and Cirrus Logic, Inc. CRUS, each flaunting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth for Keysight, Perficient and Cirrus is projected to be 10%, 10.75% and 15%, respectively.

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