Video-processing chip specialist Ambarella Inc. (NASDAQ: AMBA) won't formally announce its fiscal third-quarter results until Dec. 1, 2016. But after key Ambarella client GoPro (NASDAQ: GPRO) released its own
IMAGE SOURCE: AMBARELLA, INC.
More specifically, GoPro's quarterly revenue fell 39.9% year over year, to $240.6 million, well below analysts' consensus estimates for $314.1 million. To blame, according to GoPro CEO Nick Woodman, were "production issues that resulted in lower-than-expected launch volumes" for both its new HERO5 Black camera and Karma drone -- two products in which Ambarella's chips have presumably found a home. Woodman also warned, "[W]e anticipate difficulty catching up to meet forecasted demand during the fourth quarter."
What's more, GoPro followed that report earlier this week with a
And because Ambarella is a key supplier to GoPro, the two companies' results have been inextricably linked in the minds of investors. Ambarella shares would often rise or fall in tandem with what GoPro had to say each quarter -- a relatively unsurprising pattern considering that, before last year, Ambarella collected as much as 30% of its total annual revenue from the action camera specialist.
Perspective is in order
But things are quite a bit different now.
As demand for GoPro's aging camera lineup began to wane last year, causing its revenue to plunge and inventory to pile up, earlier this year Ambarella management confirmed that
The situation was looking up as of Ambarella's last quarterly report in September, when the company not only beat expectations on both revenue and earnings but also forecasted a return to year-over-year revenue growth for the holiday season. However, Ambarella management
Wearables still matter, but...
Keeping in mind we're currently in Ambarella's fiscal third-quarter 2017, Ambarella CEO Fermi Wang elaborated:
While future revenue was impacted by the wearable sports camera market and Sony sensor supply issues, we expect to retain some growth in Q3 [...] for the holiday season. With strong design momentum in security IP cameras, home monitoring cameras, and with new opportunities in the OEM automotive and the virtual revenue applications, we believe we are well positioned for continued growth driven by multiple markets.
In other words, Ambarella is finally enjoying strong-enough momentum in its supplementary markets that it's able to achieve modest growth even without the helping hand of its previous bread-and-butter wearables segment.
At the same time, that's not to say Ambarella would complain if wearables rebounded as many investors have come to hope. But GoPro's recall and production issues certainly won't do Ambarella any favors to that end. I won't be surprised, then, if Ambarella continues to opt for its decidedly cautious view of the wearable camera market going forward. But in the meantime, I'm not convinced GoPro's weak quarter is cause for concern for Ambarella shareholders today.
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