Ambarella Alert: Deutsche Bank Likes Component Business, But Fears GoPro-Related Weakness

• Ambarella Inc AMBA shares are down 3 percent over the past one month.
• Deutsche Bank’s Ross Seymore maintained a Hold rating for the company, with a price target of $60.
• While Ambarella’s business is likely to rebound in 2H16, weakness related to GoPro Inc GPRO justify the Hold rating, Seymore stated.

Analyst Ross Seymore said that a meeting with Ambarella’s CFO George Laplante at CES affirmed a decline in all of the company’s segments in F1Q, with a greater-than-seasonal drop in Sports due to GoPro.

“Positively, recent press reports of GPRO sell through augur well for AMBA’s inventory reduction, but the co remains unclear as to the direct impact on the reduction’s magnitude and duration,” Seymore wrote.

Drones and Automotive are expected to be the next drivers. Ambarella continues to be confident in its performance lead within Drones, which currently represents more than 10 percent of its revenues. The company believes there is greater potential in the technology’s commercial application than current consumer uses.

“The co believes technology from its recent VisLab acquisition can be used in Drones as well as (and likely before) in Automotive applications,” the analyst said. While Ambarella remains confident in its traction and differentiation in Automotive, revenues from ADAS are still 4-5 years away.

At CES, Ambarella launched its H2 chip, featuring 4Kp60 resolution, 14nm manufacturing, HEVC/AVC encoding, and sub-2-watt power consumption. The company is scheduled to sample the chip in April, with plans of commencing shipments to high-end applications in C1Q17.

“AMBA’s technology displayed at CES and its competitive dynamic reinforce our view of its technology leadership. We remain confident in the business’s rebound in C2H16, but, given choppy 1H fundamentals (GPRO weakness), we maintain our Hold.”