During that time, AMBA was reporting blistering growth as demand for its chips soared, thanks to its exclusive partnership with wearable camera maker GoPro (GPRO). As GPRO's cameras soared in popularity, so too did demand for AMBA's high-def chips. Simultaneously, IP security cameras were surging, particularly in China, and AMBA was also seeing strong growth in the auto OEM market as car makers added dashboard cameras.
Later into its growth cycle, the emergence of drones and quad-copters provided yet another catalyst. Again, its relationship with GPRO proved to be fruitful as the camera maker dove into the quad-copter market.
But, almost as quickly as its fortunes piled up, its growth quite suddenly evaporated. It began with GPRO, which suffered from myriad of issues, including inventory mis-management, product launch delays, and ultimately, the dramatic drop-off in demand for its cameras. Unfortunately for AMBA, GPRO's incredible success and popularity proved to be fleeting as new versions of its sports cameras failed to stimulate consumer interest. Unlike mobile phones, consumers just weren't very interested in upgrading to the latest version of GRPO cameras.
While GPRO's fall from grace accelerated, AMBA also couldn't fully capitalize on the quad-copter craze as the market leader in the space, DJI, decided to use its own semiconductor products. Consequently, another key growth catalyst effectively fizzled out for AMBA, and its growth rates tanked. After generating high double-digit top-line growth from 2012-2015, revenue growth slipped to low double and single digit rates in 2016 and 2017, and finally, into negative territory over the past four quarters.
With that backdrop in mind, we come to AMBA's next earnings report, which is set for tonight after the close. In its Q2 report on August 30, it provided downside guidance for Q3, forecasting revenue of $55.5-$58.5 mln versus the $73.4 mln consensus. At the mid-point, this would equate to another yr/yr decline, this time -19%. Adding fuel to the fire, it also said it expects gross margin to slip further to 59.0-60.5% from the 61.4% it reported in Q3. The primary reason for the margin compression is that most of AMBA's growth is coming from IP security cameras in China -- which carry lower ASPs than its other products.
It did not provide guidance for EPS, but, the Street is expecting AMBA to report earnings of $0.09/share, down significantly from $0.75 in the year ago period.
So, clearly a major turnaround isn't anticipated for this quarter, based on its own guidance and analysts' estimates. However, that doesn't mean AMBA is completely devoid of any catalysts. For example, the company is especially bullish about its opportunities in computer vision (CV) applications in the auto, security, robotics, and AI markets. In its earnings press release last quarter, management stated that its strategy to focus on these markets is already starting to bear fruit. Going forward, it expects that computer vision products will become a larger portion of the overall security camera market, as they replace existing, outdated cameras. Consequently, computer vision products should also become a larger portion of AMBA's total revenue, helping to offset the ongoing weakness seen in the consumer-based areas.
To conclude, while things look bleak for AMBA at the moment, there is some hope going forward. Not only is it seeing some initial success in CV products, but, it is now starting to lap some very easy yr/yr comparables. And, given the very bearish sentiment on the stock, the risk/reward starts to look a little more enticing.