What is Ambarella?
Posted in Trading on May 24th, 2017
Is Ambarella a household name? Among the semiconductor industry, Ambarella is fairly new. It was founded in 2004. In comparison, Intel was founded in 1968. Texas Instruments was founded in 1951. By their definition, Ambarella is the leading developer of low-power, high definition and ultra high definition compression and image processing solutions. It is an interesting company, where we can see potential in their development of image processing. However, the competition in the semiconductor field is fierce.
You Use Ambarella, But You Don’t Know It
There are four main categories that Ambarella sells into.
- Drone cameras. DJI and many other brands most likely use Ambarella (AMBA) in their cameras. Because of the low-power and high definition support, it is ideal for drones.
- Wearable cameras. More police departments in the US is requiring their officers to wear cameras while on duty. Also, many enthusiasts buy sports camera to attach while they are out, doing their thing. There are great many videos on YouTube where people are sharing their awesome experiences skiing, skateboarding, riding their motorcycle, surfing, mountain-climbing, sky-diving, and many more. With high definition in a small form factor, no wonder GoPro has become really popular.
- Automotive video cameras. Most police vehicles in the US have dashboard cameras. I see more people are attaching cameras in their automobiles. This is to record events that happen while driving, like accidents. In a litigious society like the US, it is prudent to record what happened for evidence in court. I have seen many videos where a person will intentionally run out and pretend to be hit by a car. Also, many funny and interesting videos are posted on YouTube, from drivers who happen to be at the right time, recording with their dash cameras.
- Security IP cameras. There are several benefits to having a security camera. Besides detecting intruders, one may use it to check online who is at the front door, or who is stealing your packages. Even with high-speed internet, video compression takes up a lot of bandwidth. Seeing what is going on in your house, in high definition, in real-time, will greatly ease anxiety or worry while on vacation or running errands.
Citron Research conducted a review on AMBA in 2015. Citron Research is known for providing analysis on over-valued stock. After the initial report, AMBA stock reached a peak little over $115 per share. Then afterwards, it crashed below $40 within 6 months, far earlier than the 18-month price target given by Citron Research.
The crash also coincided with GoPro’s (GPRO) decline. Reporting disappointing earnings, GPRO seemed like there was lack of growth after the initial enthusiasm. Supplying to GPRO represents around 30% of Ambarella’s revenue. This could be disastrous if GPRO were to go under, severely impacting any chances for immediate growth.
Why Am I Interested in AMBA?
- AMBA has risen above the 200-day moving average (MA). If one were to use the 200-day MA as basis for entry signal, two weeks ago. It had a breakout in March, but fell below several days later. With stop loss rules, one who bought in March would have sold with a little loss, and waited until May for the re-entry signal.
- AMBA revenues are increasing in recent quarters, while operating margin and free cash flows are at all time highs. AMBA is spending more on research and development, indication of reaching out to new markets beyond GoPro.
- Semiconductor industry has been hot for the last couple of years. Growth will be a big factor, as more semiconductors are needed for new technologies. There may be potential to integrate Ambarella’s technology into autonomous driving, virtual reality (VR), and augmented reality (AR). AMBA technology is also used in TV broadcasting, based on a minor note on their website.
- AMBA has acquired VisLab in 2015. VisLab develops computer vision and intelligent automotive control systems. AMBA is becoming more serious about autonomous driving and advanced driver assistance systems (ADAS). Mobileye also develops ADAS, and is being acquired by Intel. With this in mind, I can see the possibility of AMBA being bought out, if Ambarella’s technology has significant impact to autonomous vehicles.
This is not a recommendation for anyone to invest in Ambarella. AMBA technology is being used in many devices, unbeknownst to many. As technology changes, semiconductor companies need to change with it in order to grow and survive. It does seem like AMBA is making steps toward new trends. Reflecting in the stock price, the stock has gone from relative recent lows of $49, and is now above $62. If one were to use the 200-day moving average as an entry or exit signal, one should take caution if AMBA drops below $59. Hopefully, the stock will continue to trend higher, as with many other technology and semiconductor stocks.
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