Ambarella (NASDAQ:AMBA) Q2 2020 Earnings Call

0:00 Good day, ladies and gentlemen, and welcome to the Imbrella second quarter fiscal year 2020 earnings conference call. At this time, all participants are in a listen-only mode. Later, we'll connect the question and answer session, and instructions will follow at that time. If anyone should require operator assistance during the call, please press star and then zero on your touch-tone telephone. As a reminder, this call is being recorded. I would now like to introduce yours for today's conference, Mr. Louis Gerhardy, head of corporate development and investor relations. You may begin. Thank you, Skylar. Good afternoon, and thank you for joining our second quarter fiscal 2020 financial results conference call. Our speakers will be Dr. Feng-Ming Wang, president and CEO, and Casey Eichler, CFO.

0:49 The primary purpose of today's call is to provide you with information regarding the results for the second quarter of our fiscal 2020. The discussion today and the responses to your questions will contain forward-looking statements regarding our projected financial results, financial prospects, market growth, and demand for our solutions, among other things. These statements are subject to risks, uncertainties, and assumptions. Should any of these risks or uncertainties materialize, or should our assumptions prove to be incorrect, our actual results could differ materially from these forward-looking statements. We are under no obligation to update these statements. These risks, uncertainties, and assumptions, as well as other information on potential risk factors that could affect our financial results, are more fully described in the documents that we file with the SEC.

1:45 including the annual report on form 10-K filed on March 29, 2019 for fiscal 2019 ending January 31, 2019 and the form 10-Q filed on June 7, 2019 for the first quarter of the fiscal year ending January 31, 2020. Access to our second quarter fiscal 2020 results press release Historical results, SEC filings, and a replay of today's call can be found on the investor relations portion of our website. We'll now turn the call over to Dr. Feng-Ming Wang. Thank you, Louis, and good afternoon, everyone.

2:30 Before I discuss our results, I will provide an update on geopolitical factors that may continue to impact our business. New and or higher tariffs, market share shifts between our customers, and supply chain issues continue to be potentially disruptive. And as several of our customers in China continue to face the risk, they may be added to a U.S. government entity list, which could limit or restrict our shipment to them. At the same time, our largest competitor in the security camera semiconductor market, HiSilicon, a unit of Huawei, is facing challenges that are helping us gain market share. As you can see, there are multiple factors, positive and negative, that yield a wide range of outcomes for us.

3:21 We continue to demonstrate strong progress toward our strategy to transform from a pure video processing company to an AI and a computer vision company. During Q2, three customers, including one in the automotive market, generated a mass production CV revenue. CV designing activity remains strong. In Q2, we generated pre-production CV revenue from more than 40 customers ordering engineering parts, evaluation kits, and or development boards. Driven by demand for our core video processing portfolio, our confidence in our fiscal year 2020 outlook has increased despite the geopolitical uncertainty.

4:10 Our Q2 fiscal year 2020 revenue of $56.4 million was above the high end of our guidance range and the revenue increased 20% from the $47.2 million in the prior quarter. Three factors are driving the strong outlook in our core business. First, underlying demand at our largest security camera customer in China has improved, as noted by these customers in their recent earning reports. Second, this solid demand outlook for security camera is being fortified by our global market share gains. And third, there is some inventory restocking in China. I will now talk about our progress in our target markets starting with security.

4:58 We are seeing professional security camera makers increasing orders for shipments in the second half of the year. We are continuing to gain market shares at the customer outside of China as well as as a Chinese customer for camera models to be exported to Europe and the US. We are also seeing widespread adoption of our CV solutions in a professional security camera market with both large established player as well as with a new group of emerging private players. We are excited to announce that Averagelon, a Motorola solution company, will be releasing its new H5A AI-powered camera line in the coming weeks. The new camera line lays the foundation for Averagelon's next generation of intelligent video solution and will offer a new era of AI innovation in video security.

5:54 Based on Umbrella's CV22 CVFlow AI processor, The new cameras feature Avogadro's next-generation video analytics that leverages the chip's neural network-based video processing and advanced image capabilities to help recognize and classify different objects with extremely high accuracy. And in July, German engineering giant Bosch honored Umbrellas with its prestigious Bosch Global Supplier Award for their energy and building technology business. The award recognizes Umbrella's performance in the manufacture and the supply of products and services, notably in the area of innovation, quality, cost, and logistics.

6:42 This year, Bosch awarded 47 of its 43,000 suppliers, representing its top suppliers across an array of industries and in 15 different countries. Embraer has been a supplier of SOC for Bosch IP cameras for over 10 years. During the quarter, leading Korean security camera supplier Hanwha Taekwung released its new Q series of camera with models ranging from 2 mega and 5 mega resolution and in box, mini-dome, and multi-PTV form factors. All of the new models are based on Embraer's H3L HEVC SOCs are first wings in professional models at this customer.

7:28 Hanwha has stated that they will use Embraer's CVFlow SoC as they introduce new camera with integrated AI capabilities. At the AFSEC International Security Show held in London in June, new professional IP camera maker Viya introduced its VcamDorm and Panamera. panoramic cameras based on Umbrella's CV-22 CV-flow SOCs. With embedded video and audio analytics powered by AI algorithms, VIAL's end-to-end surveillance solution can detect threats in their earliest stage and perform fast and effective investigations. And in August, U.S.-based Hakata introduced its new Umbrella-based CM-61 camera design to give customers the flexibility to add 4K video coverage everywhere. The solution's hybrid cloud architecture supports ease of installation and the usability while minimizing the bandwidth of usage without sacrificing 4K quality or performance.

8:36 And in the consumer home monitoring market, which we previously mentioned is the second wave of our CV revenue, we see increasing demand for camera solutions with greater intelligence as customers demand cameras with small motion detection that notify user only in the event that something interesting is happening. In future, such camera will also be capable of identifying people as well as classifying objects and that this level of intelligence will increasingly require dedicated AI hardware in the cameras. We also see cameras being offered as part of a broader IoT eco-systems that support a similar integration with other devices in the home.

9:22 During the quarter, usbasealum.com introduced its V723 and the V523 intelligent outdoor and indoor cameras based on Ambrose H5L SoCs and offering Wi-Fi connectivity, full HD video and night vision. and Samsung SmartThing introduced its SmartThing camera, home monitoring camera based on Umbrella's S2LM SOC. Selling for $90, it offers full HD video, wide-angle operation, HDR processing and two-way audio. LifeShield, an ADT company, introduced its LifeShield HD video doorbell which integrates seamlessly with its security systems.

10:07 Based on Umbrella's H2L SoC, the camera offers voice support for Amazon Alexa, allowing it to control alarm systems, adjust lightings, and managing thermal scans via voice commands. We are also seeing new opportunity for cameras being integrated into smart locks. During this quarter, Hikvision's consumer division, EasyViz, introduced its DL30VS smart lock with a built-in 720p wide-angle camera and night vision capabilities. Based on Embraer's A3LM SOC, the locked camera can detect when intruders are lurking and take a snapshot or record a video clip to send to the homeowner.

10:53 In summary, for IP security camera market, our sales are expanding both professional and the consumer markets are growing. as we take market share and as we continue to make excellent progress in designing our CV flow SOCs into a next generation of AI cameras. I will now update you on our automotive market progress. In July, leading Korean automotive tier one, Hyundai Motors, announced that it had developed a camera monitoring system using cameras and monitors to replace the vehicle's rear and the side view mirrors. The system enabled vehicles to achieve greater fuel economy by eliminating the drag of the side mirrors while the camera's wide field of view enhanced driver safety by reducing blind spots.

11:46 And Varela's A9AQ automotive SOC provides the image processing for all three vehicles of the video channels. We are also seeing increasing interest in our computer vision SOC from companies that provide a fleet management solution for commercial vehicles such as trucks and dirt boxes. Existing camera solutions for commercial market typically lack intelligent features and can only run analytics in the cloud. With Embraer's CVFlow portfolio of AI chips, The solution providers can now deploy AI-based applications such as front ADAS, active driver monitoring system, and blind spot detection in the vehicles.

12:31 Our CV flow solutions have been chosen by multiple providers in Asia and the USA with one generating mass production revenue in Q2 and others expect to be entering production by the end of the year. We continue to win car-recorder designs as Asian automotive OEMs increasingly offer this feature in new car models as a pre-installed option. During the quarter, Chinese car-maker Geely introduces new Emerson GS and GL models featuring full HD car-recorder based on Embraer's A12 automotive SOCs. Additionally, Gray World Motors introduced its Way VV6 SUV with a one-camera and three-camera DVR option based on Imbra's A12A and H22A automotive SOCs, and a new electric car, the OIA-R2, featuring a recorder based on A12A.

13:33 In the aftermarket dash camera category, Korean supplier Thinkware announced its QXT Mega Recorder based on Imbra's A9AQ automotive SOC. the first 4-channel Full HD car recorder in Korea. Additionally, Thinkware introduced its Z500 Plus 2-channel dash camera based on Embraer's A12 SOC. Also in Korea, Find Digital introduced its GX200 and GX2000 model based on Embraer's A12 SOC featuring Quad HD front and Full HD rear recording, smartphone connectivity, and Auto 9 vision. In summary, we're just starting to realize our vision to enable big data analytics in video-aged endpoint devices or AI in the camera.

14:26 As this play out, we expect to see multi-billion dollar increases in our addressable market. Our CV solution integrates our state-of-the-art video processing heritage with our recently deployed deep neural network AI processor. It is evident now that customers who are experienced with our video processors are able to efficiently migrate to our CV solutions. And our CV portfolio is also attracting new customers and expanding our customer base. We are unscheduled to realize the three waves of CV revenue articulate our last earning call and we are pleased to see the improvements in our Q3 forecast Our core video processing products.

15:15 There are many distractions in the market today and I am thankful Embraer's global team is keeping up the strong pace of execution. And also thanks to all of our stakeholders including our 754 employees, customers, vendors, and shareholders for our support. Now I will turn the call over to Casey for the second quarter financial details and guidance for our third quarter of fiscal year 2020. Thank you, Rami. Good afternoon, everyone. Today I will review the financial highlights for the second quarter of fiscal 2020 and provide a financial outlook for the third quarter of fiscal 2020 as well as full year. During the call, I'll discuss non-GAAP results and ask that you refer to today's press release for a detailed reconciliation of GAAP to non-GAAP results.

16:06 For non-GAAP reporting, we have a limited stock-based compensation expense adjusted for the impact of taxes. Our Q2 revenue of $56.4 million exceeded the high end of our guidance of $51 to $53 million. These results represent an increase of 20% from Q1 and a decrease of 10% when compared to the same quarter of the prior year. In Q2, on a sequential basis, security revenue increased, Automotive was relatively flat and other revenue was down. Non-GAAP gross margin for Q2 was 58.1% compared to 59.6% in the preceding quarter and was slightly above the midpoint of our guidance of 57 to 59%.

16:54 Non-GAAP operating expense for the second quarter was $27 million compared to $29.9 million for the previous quarter. This was below our guidance of This was below our guidance range of 29.5 to 31.5 due to R&D grants of $3.2 million for fiscal year 19 and the first half of fiscal year 20. We will be including this benefit on a quarterly basis in our operating expense guidance in the future quarters. Other income was $2.2 million and primarily represented interest income on our cash and marketable securities. The non-GAAP net income for the second quarter was $7.3 million or $0.21 per share compared to $266,000 or $0.01 per share in the first quarter.

17:45 The non-GAAP effective tax rate in Q2 was 9.1%. In the second quarter, the non-GAAP earnings per share were based on 33.9 million shares as compared to 33.5 million shares in the prior quarter. Total headcount at the end of the second quarter was 754, with about 81% of our employees dedicated to engineering, most of whom are software engineers. Approximately 70% of our total headcount is located in Asia. In Q2, we generated positive operating cash flow of 8.1 million. Cash and marketable securities were 376 million, up from 366 million at the end of the first quarter. We did not repurchase stock during the quarter under the $50 million repurchase program authorized through June 30, 2020.

18:40 Total accounts receivable at the end of Q2 were $27.9 million or 46 days sales outstanding. This compares to accounts receivable of $26.5 million or 50 days sales outstanding at the end of the prior quarter. Net inventory at the end of the second quarter was 17.4 million compared to 17.6 million at the end of the previous quarter. Days of inventory declined to 67 days in Q2 from 85 days in Q1. We had two 10% plus revenue customers in Q2. WT Microelectronics, a fulfillment partner in Taiwan, came in at 55% of revenue, and Chikoni, a Taiwanese ODM, who manufactures from multiple customers came in at 21%.

19:31 I will now discuss the outlook for the third quarter of fiscal 2020. For Q3 fiscal 2020, we are raising our revenue guidance above the current street consensus. We expect total revenue for the third quarter to be in the 63 to 67 million dollar range. We anticipate all market segments led by automotive but including security and other to increase sequentially. We continue to expect other revenue comprised primarily of consumer electronics products to remain volatile and decline as a percentage of revenue over the next two to three years. Although forecasting is difficult in the current environment, we continue to expect our revenue to increase in the second half of the year when compared to the first half, with fourth quarter revenue experiencing the normal seasonal sequential decline.

20:22 The global economic and political environment is generating a significant amount of uncertainty with our customers outlook and our customer supply chains. Three key factors are impacting our gross margin results and our outlook. Our professional security camera business is experiencing strong underlying demand globally. Combined with some restocking at our Chinese customers, they are growing faster than the market and with their purchasing power as the number one and number two suppliers globally, this puts pressure on our gross margin. To support our increased revenue outlook and to manage supply chain challenges from geopolitical factors, we may also experience increased costs as we accelerate orders to our suppliers.

21:08 In addition, rising tariffs may have a greater impact on our customers' ability to sell their products incorporating our higher margin devices. Based on these factors, we estimate Q3 non-GAAP gross margin to be between 56% and 58% compared to 58% in the second quarter. We expect non-GAAP OpEx in the third quarter to be between $30 million and $32 million. We expect to continue to provide positive operating leverage as revenue increases. The Q3 tax rate should be modeled at 10% versus 9.1% in Q2 and 36% in Q1. The tax rate has started to normalize from Q1 levels as our increased level of profitability enables tax losses in certain jurisdictions to be utilized.

22:00 We estimate our diluted share count for Q3 to be approximately 34.4 million shares. Ambarella will be participating in the Doherty & Company Institutional Investor Conference on September 5th in Minneapolis and the 26th Annual CLSA Investor Forum on September 12th in Hong Kong. Please contact Louis for more details on these events. Thank you for joining us on our call today. And with that, I'll turn the call over to the operator for questions. Ladies and gentlemen, if you have a question at this time, please press the star, then the number one key when you're touched on telephone. If your question has been answered or you wish to remove yourself from the queue, please press the pound key. Our first question comes from Joe Moore with Morgan Stanley.

22:45 Your line is now open. Great. Thank you. Congratulations on the good results. I wonder if you could talk about the Chinese inventory accumulation. You referenced it again. Any sense for how much that's contributing to the top line last quarter and this coming quarter and how long you expect that to continue to happen? Well, like Casey said, I think the upside that we have seen right now is a combination of our Chinese customer accumulating inventory as well as their business getting stronger. and at this point, it's hard for us to differentiate between these two, but however, we continue to believe that our Chinese customer will continue to build our inventory until to a level they feel comfortable. And that reflects on our Q3 forecast, but also because they are, Ongoing businesses also have strong demands, and that's why we provide this higher revenue forecast for Q3.

23:52 I do believe that with the uncertainty of this two customers might get onto the entity list, they will definitely try to build to an inventory level to their comfortable. Got it. Okay. And then it seems like with the Vigilante announcements and the others, you're starting to see real Thank you very much. Now we are believing five of them will get into the mass production stage at the end of this year so that we do see revenue coming out this year.

24:47 But I think the material revenue contribution will come for next year, particularly on the professional security camera side. And that definitely helped us to get a better gross margin as well as market share. Great. Thank you very much. Thank you. Our next question comes from Matt Ramsey with Gowan. Your line is now open. Thank you very much. Good afternoon, guys. I guess, Fermi, you talked on the call about a number of different design wins and engagements that you guys have for the computer vision program. Obviously, some are in China. Many are not. Maybe you could just talk a little bit, and Casey, obviously, chime in where you can, but how do you feel about the pipeline for CV in terms of What percentage of that might be in China versus outside?

25:40 Thank you. I see. First of all, I said really the answer is different from markets to markets. So let me repeat some of the things we said. First of all, we said there are three CV customers in production with us at this time in Q2 and Q3. And I would say, you know, one is in outside China, two are inside China. But if you look at, I also talk about, we have 40 revenue customer, CV revenue customer this quarter, and almost all of them are in a security camera, as well as in security camera, majority of them is outside China.

26:28 and the auto, I would say half and half. But I think that's definitely the split we're seeing. But one thing I have to say is that the momentum on the CV design that people are trying to find the pre-production chip or evaluation board, that activities continue to be strong for us. Thanks for that, Fermi. I guess there's a follow-up question for me. I think, Casey, in your prepared script, you had mentioned that the guidance for the third quarter would be led by automotive. Maybe you could talk a little bit more specifically about which programs you see ramping and the split across maybe e-mirrors and different types of cameras that are going into automotive that might be driving that revenue for the third quarter.

27:15 Thank you. On the product side, I'll let Fermi talk about that a little bit. But clearly, the revenue today is being driven in the automotive space by our vision-based or our video-based products. As we talked about in automotive, the ability to get mass production revenue off of CB is a longer-term story, and that's why we talked about the first two ways being the professional security or surveillance. and the consumer home that we talk about. But I think it's kind of in the vision base that initially we were led by the aftermarket in the video recorders and that's now getting adopted more and more in the OEM as we talked about. And so that certainly is leading the revenue in the auto space is the recorder business. But we are seeing traction across the announcements that, again, Fermi's talked about in the eMIR space. cabin monitor, driver monitoring, and the fleet type of opportunities that we just announced during the quarter.

28:17 So I think it'll become more broad-based, but today it still is primarily driven by the video recorders. Right. As you can see that in our announcement, we mentioned several design wings with Chinese and Japanese OEMs for recorders. But we also mentioned that we have a mass production product with the driver monitor system for the aftermarket business. And that's basically for fleet management with the CV revenue. So I think that also we announced that Korean company doing e-neuro with us. So although majority of the revenue, Q3 revenue come from recorder, especially OEM recorders, but also we start talking about revenue coming from other portions of the OEM Business.

29:24 Yeah, I think if you look back over a longer period of time, say three to five years, you would see that Q4 is usually down in the low double digits, somewhere between 12% and 15%. That's just based off of the last few years. So I would expect we'd see that similar type of activity in our Q4 as well. But as you point out, sometimes you're surprised by other activity. It's not always the case, but that would not seem to be unreasonable in my mind for an estimate of Q4. Our next question comes from Adam Gonzalez with Bank of America Maryland.

30:11 Your line is now open. Hi, yeah, thanks for taking my question and congrats on the strong results. For me, on your prepared remarks, you outlined the three factors that are driving your better outlook for Q3 and the year. I know it's hard for you to decipher, at least from a quantitative perspective, what, you know, how much is from inventory restocking versus just market share gains, but just qualitatively, can you help us understand, you know, which is the biggest factor? Is it inventory restocking? Is it Thank you very much. and also, but the share gain, although it's more than a short-term result, in fact, I think the share gain has a more longer-term impact to our revenue in the future, especially several of our customer while switching from our competitor solution to us and you will take time for them to go into production, but cumulatively in the long-term will help us more for our revenue growth.

31:27 Got it. And then on seasonality for Q4, I know you just mentioned it's down 12% to 15%, but in the past, I think that's really been driven by your outside consumer exposure. Now that that's kind of a less meaningful part of the business, just wondering what's driving that steep sequential decline in Q4 specifically? Well, first of all, the consumer security camera is still consumer business. That's one thing. And also professional security camera, at the end of the year, usually they'll show some weakness. That's our experience. and so I think we still expect that typical seasonality to us this year. Got it, thanks. And if I can just speak one more in.

32:12 I saw that R&D was down quite a bit in Q2. I'm just wondering what caused that and how we should expect that to, you know, moving forward. Yeah, so as I mentioned, we had an R&D grant that totaled about $3.2 million in the current quarter. That was accumulation. As you remember, at the end of last year, we took a similar grant, and we – We did that through fiscal year 2018. As we went through and calculated 19, started getting the benefit of 18, and looked at 20, we were able to book 19 and the first half of 20 based off of our starting to utilize the grant.

33:01 and our ability to look forward. So now I think we have an ability to see how that's going to play out and we'll be able to record that on a quarterly basis. So the guidance I gave for Q3 incorporates anything that would come and I'll do that continually into the future quarters. But this is, if you will, a bit of a catch-up as we move forward. You won't see that and so that's why the R&D is going back or the OpEx is going back to normal levels. Great. Thank you. Our next question comes from Quinn Bolton with Minim and Company. Your line is now open. Hi, guys. This is Michelle. I'm for Quinn. Thanks for taking the question. So I guess first, on the AI-based professional camera market and the market size calendar 2019, I believe you guys have said before that Hikvision, is the largest player there and they shipped about a million units in 2018 and they were targeting 3 million this year.

34:03 So I was just trying to see is that still in line with, you know, or, you know, is that still their expectation? Are you guys hearing anything different there? Any idea to, you know, kind of get a unit perspective that would be good? You're talking about Hikvision's forecast for the AI-based camera, right? Exactly, yeah. Yeah. So, you know, when we talk about, I think that 1 million units was history, so last year numbers, I think that's done. I think they are still looking at the significant growth. They haven't given us a new update on that, but I think they are probably on track to get to that level. Maybe a little less, maybe a little more, but I definitely think the growth from last year to this year in terms of AI camera is significant for Hikvision. Okay. And they still haven't given any sort of target for 2020 as well, right?

34:53 We haven't seen any yet. Okay. And then just another one on the Chinese automotive market. Have you guys seen any design activity changes with the automotive OEMs in China there due to trade tensions or maybe any other signs that Chinese OEMs are becoming increasingly cautious in Right. You know, due to the trade relation? From the, just purely from the trade point of view, I don't think we have, we got any feedback from our automotive OEM or TN customer in China. I don't think they care that, well, I don't think they emphasize on that point or we haven't seen any resistance on design wins using external solutions so far. I think the majority of the resistance comes from our China security customers, especially the two being mentioned by potential to be put on the entity list.

35:58 In general, in automotive Chinese market, I really think that the biggest impact is the growth this year was Relatively weak compared to the history data. And so that a lot of people trying to figure out how to move to a new direction, add differentiation to the car. And I really think that the CV function, CV features could be, is one direction that many Chinese OEMs are focusing on. So that's definitely something we see. And like I said, I don't see any of that as a concern because of the trade. Okay, and one last one. Have you, maybe, have you guys seen any indication of additional enforcing at Hikvision or DAWA, you know, given the threats of being added to the entity list?

36:49 No, there's no, we don't see any other enforcement that we have, other than what we have talked about. So, it's the same thing, but I think the pressure is still there. It's really about our customer want to make sure that they prepare for the worst and that's why they continue to pulling the products from us. Okay, all right, that's all for me, thanks. Our next question comes from Charlie Anderson with Faraday and Company. Your line's now open. Yeah, thanks for taking my questions and congrats on the strong results and guidance. So just wanted to look into the 40 customers or so that are pre-production revenue at this point. I wonder if maybe you could speak to some of the on-market applications you're seeing from some of those customers.

37:39 What are the more promising ones in terms of underlying volume? And then I've got to follow up. Yeah, I think the, you know, the 40 customers basically fall into that three waves of CV revenue we talked about last time. The first wave is professional security. You can imagine that out of that 40, it covers almost all the major programs Brainland, Professional Security Camera Brainland out there, plus several of the startup company focus on using CEV as a differentiation for the professional security camera. So that's a big chunk of the 40 people. And also we are starting some consumer security camera demands, and there are a few companies in that category. And then the auto side, there's a huge amount of of a company, but it's separate into multi-different categories.

38:33 There are some that are using CV purely for DMS, some that are using for cabin monitoring, some using for ADAS, some that follow your e-mail for the blind spot detection. So although there's quite a few automotive custom, but if you divide it into different category, you see several in each category in that. So among the 40 companies, I will say that the security camera and auto probably is equally splendid. Great. And then for my follow-up, Fermi, I wonder if you could just give us an update on the Heliglia partnership, kind of roughly where it's at in terms of responding to RFPs. Are you actively in that phase at this point and maybe timeline of when we might start to see some volume associated with that partnership?

39:20 Thanks. Right. So for the Heliglia, we continue to work together on porting more of their neural network AI algorithm onto our platform. I think the major milestone for this collaboration is because ADAS require ASO chip. So we believe that our current SOFR preparation on our current CV22 or CV2AQ chip is really preparing that the SOFR ready for our ASO chip when it comes out. So I think we continue to work on the SOFR algorithm development and as soon as the ASO chip come out, you should expect that The software will run on the ASO chip so we can demo to the OEM together.

40:06 And the demo to OEM continues to happen with our AQ chip, just that we have to come out with an ASO chip to get into the final production-ready solution. Got it. Okay. Thanks so much. Again, if you have a question, please text our MN1. Our next question comes from Suji Tisilva with Roth Capital. Your line is now open. Hi, Fermi. Hi, Casey. Congratulations on the strong results here. Just to be clear, Casey, on the inventory restocking, I just want to understand whether the relative impact of it was stronger in the reported fiscal second quarter or the guided fiscal third quarter. And just along with that, on the guidance for seasonal fiscal fourth quarter, are you no longer comprehending inventory restocking continuing into that time frame?

40:55 As Fermi, I think, referenced, it's hard for us to know exactly or have good visibility into that. I think that there's no question that they are going to restock and build some inventory for the reasons that we discussed earlier. I would agree with the order of priority that Fermi said in the earlier question, but it's a combination of both. It definitely affected this quarter and will affect next quarter as well. Where we don't have perfect visibility in the Q4, there could be some activity in Q4 as well, but I really think what you're going to see continue over the next few quarters is the strength that Hikvision and DAWA talked about in the market overall and the growth that they're seeing outside of all of this. I think the overall...

41:44 Home monitoring and surveillance market as well as the professional market are going to be pretty good. And so we should see pretty good growth in particular with some of the CB products coming online. Just to remind you, they do have two times the ASP as the comparable vision-only systems. And so I think that the restocking is a part of the current dynamic with the global tension that we see. but really I think the story as we get out into next year past the seasonal aspects that we talked about in Q4 is really going to be that revenue building not only in the vision-based products but primarily or in particular in the CV products as the second wave starts to come in in the consumer side.

42:31 Okay, understood, yeah. And then in the professional security market, I know you couldn't give the specific on maybe what Hikvision was expecting for AI professional cameras in 20 but Maybe more broadly, could you talk about in calendar 20 what you might think given all the programs you have and interest, what the attach rate for me is of AI potentially to professional security cameras and maybe a range of attach rates in the calendar 20 timeframe? I think it's hard for me to predict at this point because it really depends on the pricing and the marketing strategy for our current customers. But one thing I can say is we are seeing our customer growth More and more resource building CV based product, AI based product.

43:17 And I think next year I will probably expect customer building more CV skills than the video skills moving forward. So I have to believe that the attach rate will start ramping up next year. Next year, probably the first year, we're going to see material revenue from security camera customer, but I do believe that could be a very good ramp up for us. But again, there's no data to support it. It's really a God-fearing more than analytics. The point you're making for me is that the new SKUs coming out next year, the majority will now have CV, Inc. That's what you're saying?

44:03 That's what I'm saying, yes. Okay, that's very promising. All right, great. Thanks, guys. Congrats again. Our next question comes from Gus Richard with Northland. Your line is now open. Yes, thanks for taking the questions. Congratulations on the good results. Basically, China's implementing social scoring programs. The numbers I see are about 600 million cameras by the end of 2020, up from about 180 and 18. How much of this professional security camera demand is coming from China, in terms of internal consumption, and how fast do you think the overall market is growing? And I got a follow-up. Well, first of all, I think the Hikvision.org totally has strong demands for their products.

44:56 I think that our products that we ship to Haikyung Dahua are mainly used in their export business. And I think this market could probably provide your security camera continue to grow. I would say the high single-digit points, maybe Haikyung Dahua probably is higher than the market. So I think this is a trend we'll continue to see in a professional security camera. Okay, so the strong results are a function of market share gains primarily. Market share gains, yes. Yeah. And also, outside China particularly, that we are continue to see market share gains. Got it. And then, in terms of manufacturing at Samsung, it looks like only the EUV photo resist is going to be banned You know, in conversations with Samsung, your foundry, you know, what are they telling you in terms of availability and capacity moving forward?

46:01 Majority of our products are still in 28, 14, and moving to 10 nanometers. So we are not in an EUV yet. And when we talk to Samsung, they basically give a guarantee that our current product line will not be impacted by this Japan-Korean tensions. Got it. Thank you so much. Thank you. Thanks, guys. Our next question comes from Richard Shannon with Craig Holland. Your line is now open. Hi, guys. Thanks for taking my questions as well. Maybe kind of a multi-part question, the security market. I think you said you're engaged with nine of the top ten OEMs with expecting to ship five of them with CV this year. Maybe if you can talk about whether you expect any of the other four remaining ones to be shipping at some point next year, Any visibility on that? And then any discussion about competition?

46:53 You've talked about a few of the bigger public players out there, but wondering if still that's the competitive profile. Is there any new entrants you're seeing out there? Right. So for the balance of the TV design wing, we definitely believe all of the rest will probably go into production sometime next year. and that's our current visibility. And with the progress we made, I will be confident that all of them will be in production sometime next year. In terms of the competition on the CV side, I think High Silicon remains to be our biggest competitor. But while you know that NVIDIA was trying to be there and Intel bought the Movidius, but I really think that among all the competitors, Qualcomm also tried to come to this using their app processors.

47:40 But for the professional security or consumer security camera market, we continue to believe that HiSilicon will be our biggest competitor moving forward. Okay, just a quick follow-up on that for me. Do you expect any particular customer, especially in those top 10, to be using one or another solution, or do you think there'll be a mix of more than one supplier? Especially in TV solutions, to be specific. Yes. Well... I have to believe that all of them will try to have a few suppliers, but at this point, I think the design we announced so far, they're using our solution, but for example, I think some of our customers have their own solutions. Sooner or later, they will probably have their own CV chips and use, so they have a few stores, one for internal, one for us, so that's a possibility.

48:33 I think outside U.S. right now, I think we're in a very good position for this AI-based security camera, and eventually people will find out how to compete with us on the low end, but on the high end side, I think we're in a relatively good position. Okay, great. That's all the questions for me. Thank you. Thank you. At this time, I'm showing no further questions. I'd like to turn the call back over to Mr. Wang for closing remarks. and thank you, especially thank you for all of you to join us our earning call today and I will talk to you guys next time. Thank you and goodbye. Appreciate it. Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program. You may now disconnect.

49:19 Everyone have a great day.