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Could Intel's Latest AI Partnership Hurt Ambarella?

Last month, Intel (NASDAQ: INTC) purchased computer vision start-up Movidius in a bid to beef up its RealSense depth-sensing cameras with AI capabilities. In late October, Movidius inked a major deal with Hikvision, the world's biggest surveillance company, to install its low-power Myriad 2 VPUs (visual processing units) into its security cameras.

A Myriad 2 reference board (L) and a Hikvision camera (R). Image source: Company websites.

The new chips will help Hikvision's new cameras analyze activity in real-time using artificial intelligence. Hikvision CEO Hu Yangzhong declared that there were huge "gains to be made when it comes to neural networks and intelligent camera systems." He also noted that "embedded, native intelligence is a major step toward smart, safe, and efficiently run cities."

Hikvision controls about 30% of the global market for security cameras. It's also one of chipmaker Ambarella's (NASDAQ: AMBA) biggest customers. So as Intel and Movidius seal a major deal with Hikvision, should Ambarella investors worry about the company eventually losing a top customer?

What computer vision means to Intel

Over the past few years, Intel's primary goal has been to diversify away from its slow-growth PC and data center businesses with new investments in Internet of Things (IoT) modules, non-volatile memory, and new technologies like depth-sensing cameras with built-in artificial intelligence.

In the drone market, Intel partnered with AT&T (NYSE: T) to test automated drone flights across AT&T's LTE network, and combined its Atom chips with RealSense cameras to create a reference design for drone makers. In the VR and AR markets, Intel introduced Project Alloy, a "mixed reality" headset which is powered by Intel's sixth generation Core processor and RealSense depth-sensing cameras. The device, which is similar to Microsoft's HoloLens, projects computer images on top of real-life objects.

Intel's Project Alloy. Image source: Intel.

In the connected car market, Intel acquired smaller companies like the computer vision start-up Itseez and Yogitech, a company that ensures that the chips powering driverless vehicles are operating properly. It also partnered with BMW and Mobileye (NYSE: MBLY) to develop new technologies for self-driving cars. Therefore, Intel's expansion into the security camera market is another adjacent move which complements those other efforts.

How could this hurt Ambarella?

Movidius and Ambarella aren't really direct competitors. Movidius generally produces lower-powered VPUs for IoT devices, while Ambarella produces higher-powered image processing chips that process high-detail images.

Therefore, the two chips generally work in tandem in many devices, like DJI's Phantom 4 drone. Ambarella's chips process the images and video captured by the sensor, but Movidius' VPUs allow the Phantom 4 to fly autonomously and avoid obstacles. The chips also work together in security cameras -- Ambarella's SoCs process the details, while Movidius' VPUs analyze the movements.

But looking ahead, Intel would likely benefit from producing "all-in-one" reference designs that use its Core CPUs for image processing, its RealSense cameras for "seeing", and its Movidius VPUs for analyzing the viewed objects. That bundle could lock Ambarella out of the lucrative computer vision market.

Ambarella is clearly aware of that threat -- that's why it acquired the computer vision firm VisLab last year for $30 million. It also plans to launch a dedicated computer vision chip by the end of this year. If Ambarella plays its cards right, it can leverage its reputation as the "best in breed" manufacturer of image processing SoCs to secure its spot in the budding computer vision market. But if it waits too long, major customers like Hikvision and DJI could be lured away by Intel's all-in-one solutions.

The key takeaways

Movidius and Ambarella's technologies currently complement each other, but this could change next year as Intel expands more aggressively into the computer vision market. Another major threat is Qualcomm (NASDAQ: QCOM), which has been aggressively courting major Ambarella customers like DJI and GoPro with its Snapdragon-powered computer vision platforms. 

The next few years could be tough for Ambarella as it tries to hold those larger rivals at bay with new image processing and computer vision chipsets. But they could also be fruitful if Ambarella maintains its lead as the "best in breed" chipmaker in image processing and computer vision solutions.

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Leo Sun owns shares of AT&T and Qualcomm. The Motley Fool owns shares of and recommends Ambarella, GoPro, and Qualcomm. The Motley Fool owns shares of Microsoft. The Motley Fool recommends Intel. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.