Ambarella – Bringing Sight To Computing
04 March 2020
Bottom line:
Ambarella is a leading player within the computer vision space. With a clear different business model (open-source) vs. its competitors (Intel and Nvidia notably) it has refocused on the automotive and security segments by investing over $350mn in its computer vision platform over the last 5 years.
Ambarella beats competitors on product performance and offering width rather than on products’ cheapness.
Focusing On Computer Vision
A fast-growing market opportunity
Ambarella is focusing on security and automotive (now 60% of sales), projected to be the fastest-growing end-markets for Computer Vision (CV) chips.
- The installed base of security cameras should grow at 12% CAGR between 2020-2024.
- Autonomous vehicles net addition are expected to grow at 22% CAGR (2019-2023) and reach more than 740k new units a year by 2023.
The leading player within the computer vision (CV) space
Ambarella’s computer vision processors bring enhanced performances and higher flexibility to its customers, outperforming competitors such as Intel and Nvidia.
- On a performance-adjusted basis, its chips are up to 5x less power-hungry.
- Based on an open platform, its solutions are easier to embed in client's systems (e.g., surveillance systems, advanced driver-assistance systems, etc.)
A niche market rewarding performances
Performance in data elaboration stands up as the most important competitive factor in the computer vision segment, while pricing is not as key as for many other semiconductor products.
- CV-specific chips sell on average at about 2x standard chips prices.
- Intel’s chips – one of Ambarella’s biggest competitor – don’t perform as well and don’t come with the same offering.
A Well-Defined Market Potential
Autonomous driving requires Computer Vision
Driving assistance systems need cameras to capture the environment surrounding the vehicle. Computer vision helps in analyzing inputs and producing a timely response.
- The serviceable addressable market (SAM) in the automotive segment is expected to growth from $1.5B in 2018 to more than $5bn by 2025.
- Highly automated and fully autonomous cars will use up to nine camera modules, requiring an increase in CV chips deployment
Surveillance systems’ growth pulled by China
China is the most important surveillance camera market globally. Besides, the two main worldwide cameras and surveillance system players are headquartered there
- More than 50% of security cameras are installed in China.
- Hikvision and Dahua, with 38% of the global installed base, are the largest security cameras manufacturers.
Valuing performance above price
Applications relying on computer vision require real-time data elaboration, and superior chip efficacy, Speed and power consumption are the key variables when choosing one product vs. another. As such, this market is not as commoditized as many others in the Semi’s business
- Ambarella’s CV chips range covers almost every application, a clear distinctive advantage vs competitors.
- Ambarella’s ASP (average selling prices) range from $10 to around $50, for its high-end CV2 chips.
The Automotive Open Source Solution
Needing alternatives to a closed source ADAS
Mobileye (a subsidiary of Intel) is the leader in advanced driver-assistance systems (ADAS). Its ADAS combines hardware and software – but original equipment manufacturers (OEMs) prefer to deploy proprietary software.
- Mobileye has a 70% market share in ADAS.
- The autonomous vehicle market is very competitive, and OEMs see proprietary software as a competitive edge.
Ambarella as the best open-source ADAS solution
Ambarella offers just the hardware component for ADAS, thus allowing its automotive clients to source other parts (notably software) independently. Compared to other open sources chip providers, Ambarella offers better performances and a broader range of products.
- Nvidia’s Xavier and Ambarella’s CV2 chips were tested at the CES 2020. They had comparable computational speed, but Ambarella’s CV2 had significantly lower battery consumption (6 watts vs. 32 watts for Nvidia’s Xavier).
Intel lagging behind
Ambarella’s chips perform better than its main competitors, a critical factor for applications that require real-time responses. An “outsourced foundry” approach gives Ambarella the flexibility to pick and choose the best available technology.
- Ambarella’s chips are faster because based on a 10nm node, thanks to its foundry agreements with Samsung and TSMC.
- Intel uses a 28nm node and is currently limited by its existing foundries
Security Cameras
Surveillance cameras need Ambarella’s computer vision
Computer vision allows surveillance systems to detect threats in real-time. Chips interpret the frames gathered by cameras and permit software to give a prompt response. Major surveillance systems worldwide are deploying CV systems by exploiting Ambarella’s expertise.
- The company announced design wins with 9 of the top 10 global camera makers and expects 5 of them to scale to mass production in the current quarter.
Open source surveillance systems
Ambarella’s best in class chips provide an open source opportunity to a market where HiSilicon (owned by Huawei and the main player in surveillance systems) is offering fewer flexible solutions, like what Mobileye does in the automotive space.
- The Chinese leaders in surveillance systems (Hikvision and Dahua) already rely on Ambarella’s solutions for 10% of their domestic business.
The Chinese opportunity
The U.S.-China trade war is turning out as a good opportunity for Ambarella. Design wins may arise because of Huawei being blacklisted.
- HiSilicon may be dropped by U.S. hardware producers to respect U.S. sanctions, opening new commercial opportunities for Ambarella, as it happened with Hanwha Techwin.
- Hikvision and Dahua have a significant export business (around 30% of sales) and may face strong headwinds if they rely just on HiSilicon as a supplier.
Catalysts
- Hikvision and Dahua entity list removal. Ongoing talks between the U.S. and China may enhance the outlook for Ambarella. Companies placed on the entity list are restricted from accessing certain U.S. technologies.
- Design wins in the automotive space. Ambarella is expected to reveal further partnerships with automotive players and OEMs during its upcoming earnings announcement (March the 3rd 2020). The CEO spoke about being close to winning some of them during its latest earnings call.
- Deployment of the recently announced 3D sensing platform. Ambarella announced a partnership with Lumentum and ON Semiconductor in January 2020, for the development of intelligent access control systems and smart video security products (e.g., smart doorbells and door locks).
Risks
- Trade war impact on Chinese surveillance market. Further restrictions on technology transfer coming from ongoing trade talks would slow down Ambarella’s security segment’s growth.
- Complete removal of Huawei restrictions by the U.S. HiSilicon has been particularly affected by the U.S.-China war and benefited Ambarella. HiSilicon would regain some lost market share.
- Inventory normalization. Hikvision and Dahua invested 10MM of additional inventory to anticipate trade war risks. This may push forward the need of supplementary material.
Sources:
AtonRâ Partners, Gartner, IHS Markit, Morgan Stanley Research, WSJ
Companies mentioned in this article:
Hangzhou Hikvision Digital Technology Co Ltd (002415 CN), Hanwha Corp (000880 KS), Huawei (not listed), Intel (INTC US), Lumentum (LITE US), NVIDIA (NVDA US), ON Semiconductor (ON US), Samsung (005930 KS), TMSC (2330 TT), Zhejiang Dahua Technology Co Ltd (002236 CN)
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