HD Video – Ambarella’s Chip That Makes It Happen

Drones are capturing HD videos from never-before-seen vantage points. GoPro cameras continue to amaze sports enthusiasts with new images of the game, while cars’ safety improve from rear-view and all-view cameras. Behind each of these examples is an HD video processing chip developed by Ambarella, who’s investment in technology will continue to pave the way for improved HD videos.

The digital transformation has introduced High Definition (HD) video into our everyday lives and HD video’s importance continues to rise. From action sports, to unmanned aerial vehicle (drone) camera shots, to rear view car cameras, HD video allows users to capture high quality images from previously unimagined angles, and harness that footage for a variety of purposes. Behind many of these systems’ HD cameras are processing chips developed by the Santa Clara, California based company Ambarella. As the demand for HD video products continues to rise, specifically video captured by drones, Ambarella is well positioned to benefit as the premier supplier of these processing chips.[1]

 

Ambarella’s business model has established an economic moat surrounding the supply of HD processing chips. The company stands far and away ahead of its competition, namely Intel and Qualcomm, in terms of video processing quality, power, and compression. Ambarella cites its competitive edge stemming from the fact that it was the first company to identify and capture this niche HD camera processing chip market with quality, dependable products. Most of its competitors are trying to convert cell phone chip or computer chip technology to meet this HD camera need. [2]  Its operating model allows Ambarella to offer 18 variations of chips for clients, and each chip is able to be customized to nearly 30 specifications. The customization allows the chips’ price point to meet the budget of the client, dependent mostly on the ultimate product destination for the particular chip. [3]

 

The action sports camera company GoPro exemplifies Ambarella’s value proposition to the consumer. Depending on which GoPro model the chips will be used for, GoPro specifies different quality parameters for Ambarella’s chips. The rise in popularity for GoPro cameras over the past 10 years has fueled the demand for Ambarella chips, however, the growth prospects for Ambarella continues to evolve and improve for the company beyond GoPro’s market. [4]

 

One avenue for strong growth lies in the drone camera market. The uses of HD cameras on drones continue to increase, and Ambarella has established a strong customer base with the camera providers who equip the drones. Uses for drones include agricultural surveillance flights to monitor crop growth, security surveillance flights, and land surveys in difficult to reach geographic areas. Movie producers have also use HD equipped drones in areas that are inaccessible by helicopters for filming.[5] The volume of HD equipped drones is expected to increase dramatically in the near future, as the price for consumer drones is set to decrease. The margins on drone HD processing chips have been described by Ambarella as “healthy” and will continue to benefit from the increased in drone revenues.

 

Ambarella is also optimistic about its future position in the HD video in-car market. HD video will continue to be utilized within cars for safety features, such as rear view and all view cameras, as well as aid in the development of self-driving cars. Ambarella has invested heavily in HD video processing specifically for the car industry and seeks to be the first and market leader in future car HD technology. The company has positioned itself so that the heavy investment in R&D will allow it to maintain its edge over current and future competitors. The timeline to recognize dependable revenue from this investment may still be 3-5 years away, but Ambarella is confident that it will have the technology available at the time to provide the finest chips for the assignment. [6] (665 words)

[1] Ambarella Annual Report. (2015). Ambarella 2015 Summary Report. Retrieved from  http://investor.ambarella.com/financials.cfm

[2] Dr. Fermi Wang, CEO, and George Laplante, CFO. “Ambarella Inc.” Deutsche Bank 2016 Technology Conference.” 14 Sep 2016. Retrieved from http://investor.ambarella.com/events.cfm

[3] Ambarella Annual Report. (2015). Ambarella 2015 Summary Report. Retrieved from  http://investor.ambarella.com/financials.cfm

[4] Dr. Fermi Wang, CEO, and George Laplante, CFO. “Ambarella Inc.” Deutsche Bank 2016 Technology Conference.” 14 Sep 2016. Retrieved from http://investor.ambarella.com/events.cfm

[5] Unknow, (2015, 26 Sep). Welcome to the Drone Age. The Economist. Retrieved from http://www.economist.com/news/science-and-technology/21666118-miniature-pilotless-aircraft-are-verge-becoming-commonplace-welcome

[6] Dr. Fermi Wang, CEO, and George Laplante, CFO. “Ambarella Inc.” Deutsche Bank 2016 Technology Conference.” 14 Sep 2016. Retrieved from http://investor.ambarella.com/events.cfm

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4 thoughts on “HD Video – Ambarella’s Chip That Makes It Happen

  1. Good post. I had definitely heard of Ambarella’s competitors you mentioned, Intel and Qualcomm, but not Ambarella. Given that Ambarella’s competitors are these bigger-name companies, presumably with a lot of financial and human capital resources, what’s preventing them from catching up to Ambarella in terms of technology? The competitors might be able to reverse engineer some of the really competitive features that Ambarella uses, and turn up the heat on the competition for HD camera chips. Do you think a reason they’re not doing this is because this is a relatively small market compared to the markets they’re already serving? If so, based on the projected future growth of this market you mentioned, it seems like it might be wise for the competitors to step up their efforts so they don’t fall too far behind in this important technology.

  2. Great post! Although I’m very familiar with GoPro cameras, I’ve never heard of Ambarella and their behind-the-scenes technology. In the last year, GoPro stock has been in decline. Does Ambarella have a diverse enough client mix to avoid being damaged by GoPro company performance? Beyond the in-car market, does Ambarella have line of sight to other potential product needs for HD cameras? Part of Ambarella’s success has been their ability to be first to market over Intel etc. As we move into an AI generation, I would be worried Ambarella product could not pivot fast enough to beat Intel etc. in new potential markets.

  3. Fitting with Ambarella’s strategy to extend into the automotive markets, the company acquired VisLab in June 2015 (http://investor.ambarella.com/releasedetail.cfm?releaseid=920364). Looking back on it, that seems like a really sharp move given the ability to integrate automotive computer vision perception into drone applications and also the emergence of the automotive technology market. I like where Ambarella is going but given the larger players entering the automotive and drone spaces, the company will likely have to accelerate its R&D efforts to continue to compete.

  4. Really interesting post and business! I think the potential applications for HD cameras are huge, as you listed in the post. Zooming in on drones for a second, I’m undecided on how to think about privacy and the required regulation to safely and effectively govern the use of drones for personal and commercial use. There are some obvious no-no’s around looking into people’s homes without their permission but I find the lines quickly become blurry. Especially given the constant development in HD camera technology, which is providing cleaner imaging from further distance – I know this something Australia is currently grappling with –> http://www.news.com.au/technology/gadgets/australia-drone-laws-to-be-relaxed-this-year-but-experts-warn-of-safety-threat/news-story/293de111202282e4a7c35533a12b397d

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