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Ambarella's (AMBA) Q3 Earnings & Revenues Top Estimates

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Ambarella (AMBA - Free Report) reported third-quarter fiscal 2021 non-GAAP earnings of 9 cents per share, handily outpacing the Zacks Consensus Estimate of 5 cents. However, earnings slumped 71.9% year over year.

Meanwhile, revenues of $56.1 million beat the consensus mark $54.1 million but declined 17.4% year over year. Softness in the automotive and other markets hurt Ambarella’s top-line growth in the reported quarter, partially offset by year-over-year improvement in the security-camera business.

Nonetheless, the company’s third-quarter revenues marked 12% growth sequentially mainly on increase in automotive and other business revenues. However, the company witnessed a sequential decline in Security business revenues.

The momentum in AI business continued as CV revenues represented slightly more than 10% of the total third-quarter revenues. Ambarella witnessed an increase in blended average selling price (ASP) owing to the solid demand for CV SoC which carries higher ASP compared with non-CV solutions.

Customer & Market Details

Ambarella had two customers that contributed more than 10% in the reported quarter. WT Microelectronics, a fulfillment partner serving multiple customers, accounted for 62% of the company’s revenues. Chicony, a Taiwanese OEM which manufactures for multiple customers, contributed 18%.

Moreover, the company noted that it continues to gain SoC share in the professional security-camera market outside China. Momentum in Ambarella’s CV flow SoCs in professional IP cameras across all geographies continued in the reported quarter.

Operating Details

Ambarella reported non-GAAP gross margin of 62.7%, up 460 basis points (bps) year over year in the third quarter. The gross margin figure came in better than management’s guidance of 60-62% range. On a GAAP basis, gross margin advanced 440 bps to 62%.

The healthy customer and product mix supported by impressive operational execution aided gross-margin expansion during the third quarter.

Total operating expenses on a GAAP basis flared up 10.3% year on year to $51 million. On a non-GAAP basis, operating expenses were $32.4 million, toward the higher-end of management’s guided range of $31-$33 million. Sequentially, non-GAAP operating expenses rose 7.3% due to higher employee expenses outside the United States as normalcy resumed as well as additional chip-development costs.

Research & development expenses shot up 12.6% year on year to $36.6 million. In addition, selling, general and administrative expenses of $14.5 million were up 4.9% year over year.

Total headcount at the end of the third quarter was 766, with about 81% of the employees dedicated to engineering. Roughly 69% of Ambarella’s total headcount is located in Asia.

Balance Sheet & Cash Flow

As of Oct 31, 2020, Ambarella had cash and cash equivalents & marketable securities of $423.6 million compared with $410.7 million as of Jul 31.

During the third quarter, the company generated an operating cash flow of $13.1 million.

Ambarella’s board approved an extension of the current $50 million repurchasing program for an additional 12 months ending Jun 30, 2021. Currently, $49 million is available under the program.

Guidance

For fourth-quarter fiscal 2021, revenues are expected between $56 million and $60 million. Non-GAAP gross margin is anticipated to be 59-61%. Non-GAAP operating expenses are projected at $31-$33 million.

Management anticipates security-camera revenues to be up in the low double digits sequentially. Automotive revenues are expected to increase at least 20% on a year-over-year as well as sequential basis. However, Other revenues are expected to decline quarter on quarter.

Ambarella also stated that the rate of order push-out and cancellations has slowed down, and design activity has started to recover.

Moreover, Ambarella expects CV products to contribute 10% of revenues in fiscal 2021. Additionally, the company forecasts CV products to account for about 25% of its total revenues in fiscal 2022.

Zacks Rank & Stocks to Consider

Ambarella currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader technology sector include Arrow Electronics (ARW - Free Report) , Texas Instruments (TXN - Free Report) and STMicroelectronics N.V. (STM - Free Report) . You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The long-term earnings growth rate for Arrow, Texas and STMicroelectronics is currently pegged at 8.5%, 9.3%, and 5%, respectively.

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