Like the high-definition cameras his customers sell,Ambarella
Chief Executive Fermi Wang has an ultrasharp focus.
Newly publicAmbarella (
) is a leading developer of low-power, HD video compression and
image processing semiconductors. Its products are used in all
sorts of cameras, including wearable sports cameras, security
IP-cameras, digital still cameras and automotive video recorders.
Ambarella technology is also used in TV broadcasting with TV
programs being transmitted worldwide using Ambarella compression
Its system-on-a-chip, or SoC, designs HD video processing,
image processing, audio processing and system functions onto a
single chip to deliver very high video and image quality, various
functions and low battery power consumption.
Ambarella made its stock market debut in October and has
enjoyed an impressive run ever since with two quarters of
double-digit sales and earnings growth. In its most recent fourth
quarter ended Jan. 31, profits surged 80% to 18 cents a share,
while sales climbed 28% to $31.5 million.
Wang says the GoPro wearable sports camera line is the hottest
seller among products using Ambarella's chips. GoPro's cameras
let skiers, surfers and other sports enthusiasts record their
activities as they experience them. Ambarella is the sole
supplier of video chips to GoPro. When GoPro's sales go up, so do
Ambarella's, says Wang.
Another fast-growing market for Ambarella is in IP (Internet
Protocol) security cameras, such as the ones you find in airports
and banks. This market contributed strong margin and sales gains
in the fourth quarter.
But judging from Wang's growth strategy, he isn't resting on
his laurels. He has a sharp focus on gaining more mileage from
the company's technology.
"We continue to focus on applications where we can add value,"
he told IBD. "In addition to that, we need to pay attention to
adjacent video markets where we can leverage our current
technology and expertise."
One hot prospect is a new type of wearable camera.
Ambarella has developed a reference design for a new category
of wearable cameras the size of a quarter, Wang says. The
wearable cameras can be used for a variety of applications, such
as police and firefighters, for people who want to record
continually while on vacations or even brides who put them in
their bouquets to record their trips down the aisle.
As Ambarella is able to analyze the data captured in the
video, customer-service people at large department and other
stores might wear them to record customer transactions, and to
analyze how much time customers spend looking at certain items,
Wang isn't the only one focused on Ambarella's growth. So are
investors. Ambarella's stock price has nearly doubled since it
came out of the gate.
Stifel, Nicolaus & Co. analyst Kevin Cassidy says
Ambarella got a "fairly subdued" reception in the market when it
came out with its IPO, and its initial pricing was low at $6 a
Following two good quarters, he adds, investors have gotten
more "comfortable" that the company will be around for a
Ambarella's strength lies in its experienced team and
technology, says Wang.
"Our strength is our founding team that has been working on
video products and video design for more than 20 years," said
"The core technology is the image and video processing
algorithms. They allow us to build a central processing unit
architecture to provide outstanding video quality and compression
efficiency and lower power consumption" for our customers, he
He attributes Ambarella's strong growth to the fact that
Ambarella focuses on markets where it can "differentiate" its
products from others and where it can use its expertise in video
Analysts polled by Thomson Reuters expect Ambarella to see a
5% increase in earnings per share to 83 cents a share in the
current fiscal 2014 fiscal year.
They see it gaining momentum after that with a 30% jump in
fiscal 2015 and a 46% rise the following year.
"The secular trend toward video content continues to evolve
and spread, and the company is optimistic about growing along
with it," said Deutsche Bank Securities analyst Ross Seymore.
"The common link is the desire to create high quality video and
Seymore says Ambarella is "executing very well." He estimates
revenue will rise 23% this year after a 24.5% gain last year.
Ambarella is one of the leaders, if not the leader, in the
video processing systems-on-a-chip arena, analysts say.
Cassidy says some companies incorporate Ambarella's
capabilities in its chips to do other things, but they're not
solely focused on developing video processing systems on a
He says Ambarella's closet competitor isTexas Instruments (
), which has a division that sells a camera chip.
But he says it isn't a big portion of the semiconductor
Cassidy expects Ambarella to continue to cash into new market
"As a technology continues to evolve, the market leader can
stay ahead of competitors by being first to market in the next
standard or feature," he noted in a report.
Among the new areas for potential product differentiation is
the wearable camera.
"While sports cameras such as Ambarella-enabled GoPro are
popular for unstaged action video, we see a trend toward smaller
form factor, lower-power video cameras on glasses or labels or
other clothing to open new applications for event video recording
outside of sports," he wrote.
Ambarella doesn't make its chips. It uses manufacturers that
make silicon chips for other semiconductor outfits.
Ambarella sells its designs to original design manufacturers,
or ODMs, and original equipment manufacturers, or OEMs, globally.
It generates revenue from the sale of its HD video and image
processing SoC solutions to OEMs and ODMs.
Axis Communications and Hikvision are among Ambarella's
customers in the IP camera market. And GoPro is a key customer in
the sports camera arena.
Most of its costs are in R&D, says Cassidy. Once Ambarella
designs a chip, that same one can be used in a GoPro camera and a
surveillance camera, and as they go into volume production they
take the profits and go onto the next R&D project, he