Ambarella, Inc. (AMBA) Earnings Call Transcript & Summary

Good day, and thank you for standing by. Welcome to the Ambarella's Fourth Quarter Fiscal Year 2023 Earnings Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Louis Gerhardy, Corporate Development.

Thank you, Katherine, and good day, and thank you for joining our fourth quarter and fiscal year 2023 financial results call. On the call with me today is Dr. Fermi Wang, President and CEO; and Brian White, CFO. The primary purpose of today's call is to provide you with information regarding the results for our fourth quarter and fiscal year 2023. 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're 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, including the annual report on Form 10-K that we filed on April 1, 2022, for fiscal year 2022 ending January 31, 2022, and also the Form 10-Q filed on December 9, 2022, for the third quarter of fiscal year 2023. Access to our fourth quarter and fiscal 2023 results press release, transcripts, historical results, SEC filings and a replay of today's call can be found on the Investor Relations page of our website. Fermi will now provide a business update for the quarter. Brian will review the financial results and outlook, and then we'll all be available for your questions. Fermi?

Thank you, Louis, and good afternoon. Thank you for joining our call today. We achieved a significant milestone during the fiscal 2023 in our ongoing transformation to an edge AI company. On the technology and product execution front, we broadly sampled the first of our third-generation edge AI SoC, CV3-AD, commenced mass production of our first 5-nanometer SoC, CV5, introduced our centralized 4D imaging radar, and took an important step towards the commercialization of our automotive software stack IP. On the business front, we announced strategic partnerships with global automotive leaders such as Bosch and Continental, and the customer interest and activity with our edge AI products continue to grow. As of the end of the fiscal year, we have cumulatively shipped more than 13 million computer vision SoCs to more than 325 unique customers with more than 230 customers -- 230 customer products in production, an increase of more than 50% from a year ago. CV represented more than 45% of our fiscal 2023 revenue and there was a factor driving our firmwide SoC average selling price up. In fiscal 2024, we expect CV to continue to grow in absolute dollars to represent about 60% of total revenue. This is expected to continue to drive our ASP higher. Fiscal 2023 was not without its challenges. And as the year progressed, cyclical and economic headwinds became more significant, negatively impacting our revenue results and outlook. Despite the challenges in the second half of fiscal 2023, we reported record annual revenue of $337.6 million, up about 2% year-over-year. With our technology leadership and scalability of it increasingly recognized by customers globally. We don't believe the current softness has anything to do with the technical competitiveness of our new technology and products. And we remain committed to build out a complete edge AI portfolio of SoCs and the software. I would like to highlight some of the customer engagements that caused us to be so encouraged about our long-term outlook. During Q4, we took 2 important steps towards the commercialization of our software IP. First, and building upon Continental's November announcement that it would offer ADAS solutions based on Ambarella's CV3 AI central domain controller. On January 4, we announced Continental and Ambarella were extending their cooperation to include the full software stack development for ADAS and autonomous driving applications. The 2 companies will jointly develop scalable end-to-end hardware and software solutions with Ambarella software IP embedded in Continental's full stack. Second, we announced in December the world's first centralized 4D image radar architecture. Combining Ambarella's Oculii adaptive AI radar software and the efficient CV3 AI domain controllers enables the central processing and fusion of raw 4D imaging radar data with other sensor inputs, including camera, LiDAR and ultrasonics. We believe this breakthrough architecture provides great environmental perception and safer path planning in AI-based L2 to L4 autonomous driving systems. Business development momentum with our CV3 family was strong in the quarter 2. In December, Bosch announced it plans to adopt the CV3 family of AI central domain controllers for the realization of the next-generation ADAS functions. Bosch requires efficient and flexible high-performance computing as well as the scalability to enable software stack to be reused from Level 2 to Level 4 applications. Bosch stated that they are adopting Ambarella's CV3 family because it is the perfect fit to accelerate time to market and to create a scalable solution for their customers. During CES, we announced CV3-AD685, the first production SoC in the CV3 family of AI central domain controller for Level 2 to Level 4 vehicles. The third generation CVFlow AI engine in CV3-AD685 includes neural network processing that is 20x faster than previous generation of CV2 SoCs, along with additional general vector processing capabilities to provide the overall performance required for full autonomous driving stack processing, including computer vision, 4D radar, deep fusion and planning. We are proud to note next-generation transformer network have been successfully deployed by customers on to CV3, which highlights the flexibility and efficiency of the architecture of autonomous driving and potentially other applications in the near future. We had a highly successful CES 2023 with more than 200 customer meetings, and we demonstrated a wide range of automotive and IoT solutions, including many joint demonstrations with our automotive Tier 1 and the software partners. Our CV3 won a CES 2023 Innovation Award in the Embedded Technologies category. We offered demo rides in our latest EVA cars, featuring a single CV3 central domain controller performing all perception, classification and the path planning functions and the processing both camera and the RADAR data. The EVA car included 15 cameras and 9 radars with industry-leading power efficiency. And together with Continental, we demonstrated a single CV3 connected to 6 8-megapixel cameras and the 4 3-megapixel cameras, while running multiple neural networks on each video stream, utilizing about 10% of the CV3-AD processor. Other CES highlights included Kodiak Robotics, which exhibited its self-driving truck integrating Ambarella's CV2AQ AI vision processor in the sensor pods on both sides of the truck for the camera perception processing. Autobrains and Seeing Machine demonstrated a combined front ADAS and driving monitor solution running on a single CVFlow SoC. The companies' joint offering provides automakers with a streamlined single box multi-camera solution, including up to 8-megapixel forward-facing camera and a 5-megapixel in-cabin camera. And in February, China-based Hyperview, an autonomous driving technology company, announced that it had selected Ambarella CV3-AD family to develop a high-performance computing autonomous driving platform. The development will pair CV3 with Hyperview's software stack to provide production-ready perception, automated driving and parking solutions. Hyperview has previously achieved mass production with multiple Chinese OEMs, and we are pleased they have chosen to incorporate CV3 into their new products. I will now discuss some of our customers' product introductions during the quarter. We are extremely excited to announce our first 4D image radar project will soon be entering mass production at Geely's Lotus Technology unit. Geely intended to leverage the Lotus technology and brand into market for higher-value passenger vehicles. Lotus announced its Eletre pure electric SUV, which includes 2 4D image radars based on Ambarella's Oculii radar technology, one in the front and one in back, providing high-resolution imaging capable of detecting and tracking vehicles within 300 meters and the production within 100 meters, and accurately measuring the speed and the distance of objects. After announcing a CV3 relationship with Bosch Mobility, we were excited to extend the relationship to the CV2 family of SoCs. During CES, Bosch introduced its new connected RideCare platform and the companion fleet camera. Based on our CV25 AI processor, the product was honored as a CES 2023 Innovation Awards Best of Innovation honoree in the in-vehicle entertainment and safety category. Amazon Ring, at the show, also introduced its Ring Car Cam based on our H22 chip. The Car Cam features dual-facing cameras and can monitor the car's interior as well as on the road. Garmin also announced the CV25-based dash cam live camera at CES. The camera provides 140 degrees, 1440p HD views and includes live view, theft alerts and location tracking. In the enterprise security camera market, European market leader, Axis, introduced a number of camera based on our CV25. The M3088-V compact dome camera is an 8-megapixel design with WDR processing and the support for analytics with deep learning at the edge. And the new small form factor M1055 and M1075 box cameras target small stores and residential care applications and feature edge-based deep learning and the 1080p video. Korean market leader, Hanwha, introduced 3 new enterprise class models in its 9000 camera series all based on our CV2 AI vision processor. The 4K models include box, bullets and panoramic designs and feature AI-based analytics, including object classification, license plate recognition, and car make and model recognition. Korean-based IDIS also introduced its 6281HX speed dome camera based on our S3L vision processor and featuring 30x optical zoom capability. These representative engagements illustrate how we are successfully leveraging our state-of-the-art video processing heritage into larger, more diverse and higher-quality markets for high-bandwidth processors and software for machine sensing applications. A majority of the early growth we have seen with our edge AI products to date has been for new product cycles in existing IoT markets like access Axis and Hanwha and enterprise security camera engagements I just discussed. But we are encouraged with our early success in critical new areas like the CV3 family of central domain controllers for Level 2 to Level 4 mobility applications. CV3 in a single SoC synergistically leverage the functionality Ambarella has created over the years, camera and the radar processing, deep learning AI and automotive software stack IP. While we are experiencing near-term pressure on our revenue from cyclical and economic factors, we firmly believe our secular growth opportunity remains very positive, and we remain focused on leveraging our leadership position in edge AI. AI is just beginning to transform to so many industries and we expected AI adoption to accelerate over the coming years in the AI edge inference market that is our area of focus. Now I will hand it over to Brian. Thank you.

Thanks, Fermi. I'll review the financial highlights for the fourth quarter and full fiscal year 2023. I'll also provide a financial outlook for our first quarter fiscal year 2024 and in April 30, 2023. I'll be discussing non-GAAP results and ask that you refer to today's press release for a detailed reconciliation of GAAP to non-GAAP results. For non-GAAP reporting, we have eliminated stock-based compensation expense and acquisition-related costs adjusted for the impact of taxes. Fiscal year 2023 revenue increased 1.7% to $337.6 million. IoT revenue was a little more than 3/4 of total revenue and declined slightly for the year. Auto revenue increased over 10% to represent a little more than 1/4 of total revenue. For fiscal year 2023, non-GAAP gross margin was 63.9%, up 50 basis points from 63.4% in fiscal 2022. Non-GAAP operating expenses increased 17.6% for the year with almost 1/4 of the incremental OpEx coming from Oculii that was acquired in Q4 fiscal year 2022. Ending cash and marketable securities totaled $207 million, up from $171 million at the end of the prior year. For fiscal Q4, revenue was $83.3 million, in line with the midpoint of our prior guidance range, flat to the prior quarter and down 8% year-over-year. Non-GAAP gross margin for fiscal Q4 was 63.5%, consistent with our prior guidance range of 63% to 64%. Non-GAAP operating expense for the fourth quarter was $46 million, an increase of 6% from the prior quarter, but at the low end of our prior guidance range of $46 million to $49 million. The lower operating expense was driven by expense management actions we took as our revenue outlook softened on customer inventory adjustments. Q4 net interest and other income was $1.8 million. Other income was higher than our original forecast, driven primarily by an investment gain. Our non-GAAP tax provision was a benefit of $200,000 or minus 2.3% of pretax income. This was $600,000 better than our original forecast, driven by the mix of pretax income across tax jurisdictions. We reported non-GAAP net income of $8.9 million or $0.23 per diluted share. Now turning to our balance sheet and cash flow. Fiscal Q4 cash and marketable securities increased $8 million to $207 million. DSO increased slightly from 54 days to 57 days, driven by the timing of shipments, while days of inventory decreased from 124 to 116. Cash from operations was $5.1 million, and capital expenditures for tangible and intangible assets was $2 million. Free cash flow, defined as cash from operations less CapEx, was $3 million. We had 2 logistics and ODM companies represent 10% or more of our revenue in Q4. WT Microelectronics, a fulfillment partner in Taiwan that ships to multiple customers in Asia, came in at 50% of revenue. Chicony, an ODM who manufactures for multiple IoT customers, was 11% of revenue. Now I'll discuss the outlook for the first quarter of fiscal year 2024. While customer feedback on the level of end demand remains healthy, customers are aggressively managing down their inventory. Consequently, we have experienced a more pronounced slowdown in bookings, along with customer requests to push out the timing of shipments and backlog. For fiscal Q1, we estimate our revenue to be in the range of $60 million to $64 million, or down approximately 26% sequentially at the midpoint. We expect this to be well below the level of end consumption, supporting drawdown of customer inventory. Visibility beyond our fiscal Q1 is limited. However, we currently do not expect that future quarter revenue would need to decline below the level of our Q1 guidance for customer inventory management purposes. We expect non-GAAP gross margin to be in the range of 62% to 64%, down approximately 50 basis points sequentially, driven by lower volumes. We expect non-GAAP OpEx in the first quarter to be in the range of $47 million to $49 million, with the increase compared to Q4, driven by the annual reset of payroll taxes and R&D for new product development. We estimate net interest income to be approximately $750,000. Our non-GAAP tax expense to be approximately $600,000, and our diluted share count to be approximately 39.9 million shares. Ambarella will be participating in Susquehanna's Technology Conference on March 2nd and Morgan Stanley's TMT Conference on March 7th. Please contact us for more details. Thank you for joining our call today. And with that, I'll turn the call over to the operator for questions.

[Operator Instructions] Our first question comes from Joseph Moore with Morgan Stanley.

Great. Thank you. I wonder if you could talk about what the next quarter look like kind of by end market. Your revenues are down to levels that you saw when CV was a pretty small portion of revenue. So it seems like your units are down a lot. Is that true in pro surveillance and consumer surveillance? Is that true in auto? Can you just give us a sense of that end market mix?

I think I will -- I think Brian will talk about the percentage of the total revenue. But I want to make some comments. First of all, I think the inventory correction impact IoT a lot more than auto. So I think that our percentage of revenue tend to auto a little bit. But however, our CV growth continued to maintain, but also I think inventory also impacted CV revenue. But however, like you said, I think total unit number on the video processor is impacted. I think for the reason -- there are multiple reasons. One definitely is because of inventory correction, the more CV are on the video processor side. And also, I think that the -- currently, the 2 Chinese customers had been into Hanwha from 3% last year to 0% this year. The unit number continues to drop. And the third thing is, as you can -- you have seen that we have been really focusing on growing our CV silicon, and we haven't really invested on the low end, the video processor's chip road map. So I think that combination of 3 is the reason that we're seeing the video processor unit number going down.

Yes. Joseph, just to add, embedded in our Q1 revenue forecast is an assumption that automotive revenue stays approximately flat quarter-over-quarter, which means that all of the sequential decline in revenue is attributable to our IoT business, where we're seeing the significant inventory management actions being taken by our customers.

Okay. That's helpful. And then just as a follow-up. As you look at that IoT business, I feel like the last couple of quarters, you felt like there was inventory reduction there. Do you still think that was the case? And obviously, that's intensifying in the April quarter. But do you think you ship below consumption for the last couple of quarters?

Yes, I think so. For example, one of our -- we continue to talk to all of our customers on the IoT side. But one of the IoT customers, a big one, basically telling us that they forecast their revenue will grow based on our product line, based on the product line they're using our current silicon, that -- those product line will -- revenue will grow double digit this year. But when we look at the revenue from this product line, we are seeing a double-digit revenue decline on our side. So you can see that definitely there is a mismatch between our customers' growth and our revenue guidance. So I think that definitely is a sign of the inventory correction, and that will -- that's the reason we guided down to Q1.

We have a question from Ross Seymore from Deutsche Bank.

Just one question and one clarification. The question side of things, where do you think true end demand is? If you're going to be down, I don't know, 35% sequentially in the IoT side of things, it's seemingly somewhere around $40 million, plus or minus. How do you guys judge what true end demand is relative to that number?

Yes. I think like I said as an example I just gave in a previous question, I think our customers are seeing double-digit growth in their product line, and we've seen double-digit decline on the revenue from our chip side, so I think there's definitely a 30%, probably a little bit more than that, in terms of the true demand differences.

And then I guess as far as the end market stuff, that was helpful that you gave the color for the sequential guide with automotive being flat. But the clarification part of my question, Brian, and maybe I just wrote this down wrong. But for last year and maybe the fourth quarter, if you want to give that sequentially. Can you just remind us what the percentages were? Because I thought you said over 75% was IoT and over 25% was automotive. And obviously, those 2 don't make sense together.

Yes, sure. No, the comment was a little bit less than 75% was IoT and a little bit more than -- or was related to automotive. For the full year, we stated that automotive revenue was up about 10% on a year-over-year basis, while IoT declined slightly. If we look at the fourth quarter, both of those end markets were relatively flat sequentially as was our total revenue between Q3 and Q4.

And we'll move to our next question. It comes from Matt Ramsay with Cowen.

This is [indiscernible] on for Matt Ramsay. I had a quick question. So in regards to your announced partnerships with Conti and Bosch, what's the initial reduction by your OEM customers? And any expectations on when you [indiscernible].

I can't hear you well, but I think I understand the question. I think you're asking for our OEM customer engagement for CV3. If that's true, let me tell you. I think after the Bosch and the Conti announcement, we definitely try to engage OEMs through them, but also trying to engage OEM by ourselves. In fact, now we have 2 weapons to engage with customer, one is using CV3 as a domain controller; also using a 4D imagery centralized radar solution to approach OEMs. So we have been successfully having discussions and also potential engagement with OEM on both fronts. And you can see that the engagement is really probably, I would say, starting 3 months ago, after we sample CV3. So I think that we -- I definitely feel encouraged and very happy with the progress we made and also the number of people we're engaging, but we have -- we don't have any public announcement yet.

Got it. And I know in regards to the inventory correction, probably not looking to guide beyond the first quarter, but any color that -- like what do you see in terms of the trajectory of the recovery beyond the first quarter for the [Technical Difficulty].

Yes, we haven't really guided beyond Q1. But just like we said on the script, I think that we think Q1, from an inventory correction point of view, I think it's a low point. And based on the discussion we had with the customer in terms of their projected revenue, the inventory level and our lead time, I think that we -- that's the best guess we have at this point.

We have a question from Vivek Arya from Bank of America.

Fermi, I'm curious, the announcements you made with the Tier 1s, how exclusive are they? Like does it prevent them from engaging with your competitors in the semiconductor side? And when is the earliest that you think we will see any tangible benefits from those announcements? Is it anywhere in the next 1, 2, 3 years? Or is it like in the '26 plus kind of time frame?

Right. So first of all, I don't think there is any exclusive relationship with any Tier 1 announcement that we had. But however, I'd like to point out any engagement that, for example, Continental will want to work with our software stack. And also -- so that alone is a huge commitment on both sides, both need to put a significant resource. So although we don't have a legal exclusivity, but from a collaboration point of view, I think definitely, this Tier 1 has been identified by us that's an important partner for us, and they probably also think that CV3 can help them in their road map. In China, for example, the Hyperview is a similar situation. They have been using our competitor solution. But when they look at CV3 and they think that's a solution that can really differentiate. And the bounce of that software development they need to put on to commit to the project is significant. So I think although there's no exclusivity, but I think, definitely, it's a huge commitment for both sides.

Vivek, it's Louis. Just to add that we've said in the past that calendar year '26 would be the first full year of revenue for CV3, and that hasn't changed. We've also talked about, now that we've gotten into accounts like Conti and Bosch with CV3, we look to also promote CV2, which could potentially generate revenue earlier and we did -- Fermi did announce a CV2 and specifically CV25 win with Bosch Mobility, which is our first CV2 family win with Bosch Mobility.

Very helpful. And for my follow-up, actually, I had a 2-parter. One, just a clarification with Brian, on receivables, have been kind of creeping up over the last few quarters. Just wondering if there's anything more to read into that? And then the main question for me for you, when you look at your automotive revenue, I believe you said 10% last year. Was that in line or different than your expectations when the year started? Because I'm contrasting that with the automotive revenue growth that we saw from a number of other semiconductor companies that was in the range of anywhere between 20% to 45% last year. So just if you take a look back at your automotive revenue growth last year, was it in line with what you thought or what the puts and takes were?

I'll start with your question on DSO and then turn it over to Fermi. You're right. So the last couple of quarters, Q4, Q3 saw an uptick in DSO increase in accounts receivable. And that was really driven by the timing of revenue shipments in those quarters. So fiscal Q4 was a very back-end loaded revenue shipment quarter for us. Consequently, we had a high level of AR at the end of the quarter, driving up that DSO. And we had a fairly similar situation in Q3 as well. So I think that corresponds to some of the softness that we've seen on the revenue side. And as that plateaus and hopefully begins to lift off in the future, we should see a return to a more normal level of DSO.

In terms of the automotive growth, I think at the beginning of the year, our plan definitely grew more than 10% at the end -- that we show at the end. I think the biggest reason is that in the first half, that automotive markets continue to see impact by the shortage of supply, and we reported a lot of our customer in Japan and in China to that impact on that. So I think that's the reason we didn't deliver the 20-plus percent automotive growth that we planned early last year.

We have a question from Tore Svanberg with Stifel.

Yes. I had a question about the announcement you had with Samsung for 5-nanometer, and obviously, your first CV product in production with the 5-nanometer. I was just hoping you could elaborate a little bit more on timing. How much of your work with Samsung already under this node? And any more color you could offer on that announcement would be great.

You are talking about the announcement we had with Samsung Foundry on the CV3-AD chip that we use Samsung Foundry for that automotive CV3 chip? Or you're talking about CV5 production?

No, no, I'm talking about the AD685 chip.

Yes, yes. So what we did was we announced that we -- at the CES, we announced our first CV3-AD685 chip, which is the first production with the SoC for CV3 family, and we announced that our sensor will be the foundry for the chip. And right now, this is not our first 5-nanometer sensor foundry chip. We already have a 5-nanometer chip called CV5 that we assemble -- in fact, go into production of Q3, Q4 last year, and we are ramping up the production on that. So from the process node maturity, I think we're happy with it. I think the yield is right at the level we are expecting. And also, we expect that CV3 chip or the whole family probably going through on the 5-nanometer for the next 2 to 3 chips.

Got it. So the 685 is -- I mean, when would that be sampling?

I think we expect to sample the chip early -- I would say, early this year.

Very good.

The second quarter of this year, sorry.

Got it. And just as a follow-up. Obviously, the software stack IP is a pretty big deal. I mean, obviously, you talked about the partnerships with Bosch and Continental. But as you continue to develop that software stack, are you starting to see some potential revenue streams nonhardware related?

Non-auto related? Can you ask?

Yes. So is there a possibility you could actually just sell the software stack to some partners without selling CV3?

Well, I think first of all, for the 4D image radar we just announced with Geely, right, that's our software running on the TI chip, which is a unique opportunity because that project started before the acquisition was -- before the acquisition. After the acquisition, when we look at the combined technology being Oculii and the CV -- and our CV3 domain controller, we believe the centralized radar is probably more meaningful and probably provide better benefits to our customers. So we are focusing on centralized radar right now. So from a 4D image radar, I think all the software revenue will be associated with our own chip. We don't have a plan to run the software stack on other chips.

And our next question comes from David Kelley with Jefferies.

This is Gavin Kennedy on for David Kelley. Nice to hear your team achieved more than 45% overall CV mix in this fiscal year. And I believe you said you expect 60% mix next year. Can you provide us with more details on the key drivers here? And then related, can you remind us of your thoughts on expected ASP trajectory?

Yes. So I think the driver for the CV growth continue because I think even our CV2 family continue to grow. For example, we are showing a lot more customers and more products, as I mentioned in our script. So the CV2 family is going to continue to drive the growth of the CV revenue. On top of that, we announced CV5 will be in production -- already was production later last year and will ramp up revenue this year. So that will help on driving the CV revenue. On top of that, when we are assembling CV3, then you talk about IES and plus other CV3-related development IES. So those things combined what continue to drive the CV revenue. On the ASP side, like we said before, we continue to expect our ASP will continue to grow in the next several years because the CV5 ASP is higher, CV3 ASP is even higher. So that will continue to give us a very healthy growth on our ASP side.

Got it. And then switching gears. I think last quarter you expect -- you said that you expected operating expenses to ramp through fiscal year '24 given increased spending requirements to support chip development. Is this still the case? And if so, can you just walk us through your OpEx -- the OpEx drivers here?

Right. So in our guidance for fiscal Q1, you see it sequential increase of about $2 million from fiscal Q4. Over half of that sequential increase is associated with the reset of payroll taxes that impacts all companies at the beginning of a new calendar year. The remainder of that increase is related to increased R&D activity associated with the build-out of the CV3 product family. We're going to hold off on providing a full year outlook for OpEx at this point in time. I can tell you that we are very seriously managing our operating expenses in light of the soft revenue environment that we're in currently. We're doing that with a focus on preserving the timing of our new product introductions. So it's a paramount importance that we get our products out on time. But in any other area where we can squeeze expense, we're taking those actions. So it will be a little bit dynamic as we move through the year and as we get a better feel for how the revenue materializes. And so at this point, we won't be providing guidance on OpEx beyond Q1.

Our next question comes from Kevin Cassidy with Rosenblatt Securities.

Just some -- if you can provide more details around the inventory correction. And clearly, it's in the IoT products. But how much of it is the CV products versus the human interface, some kind of the older devices?

So I think it's definitely IoT is more severely impacted than the auto industry. But if you look at between the video processor and CV, I would say that the video processor is impacted more. I think that's the reason for people who have a traditional product, they haven't updated so that they usually feel comfortable to build a lot more inventory in the last 2 years. And that's where we're seeing that the video processor definitely has more inventory out there than the computer business chip.

That makes sense. Okay. And have your lead times stopped coming in? Or are there still improvements ahead?

We continue to improve. We're still looking at roughly 30 weeks on average because we have a 5-nanometer and 10-nanometer. Those lead time is definitely longer, much longer than 14- or 28-nanometer process node -- and low lead times dropped at 30 weeks on -- as well as 16-nanometer -- 14-nanometer and 28-nanometer lead times are a little shorter than that, and we'll continue to see the improvement from the foundry side.

Okay. Great. Maybe if I could ask just one more. You're still staying above your corporate target for gross margin. Will it be volumes as they come back that you expect gross margins to come back into that 59% to 62% range?

Yes, I think as we look forward to -- for the rest of this fiscal year, we would expect gross margin to be in a similar range as we delivered last fiscal year. In Q1, we're a little bit lower. Obviously, the revenue is down substantially. So we don't have a lot of fixed costs in the company so that the gross margin is not very volatile as it relates to volumes. But when they move significantly, we will see some impact. But I think we're likely to remain at the high end of that model range that you mentioned for the rest of this fiscal year.

And our next question comes from Brian Ruttenbur with Imperial Capital.

Yes. A couple of quick questions on the security side of the business. I assume the year fiscal '23 ended with roughly 60% to 65% of total revenue from security. Can you just confirm that? And then number two, if you could talk a little bit about the commercial demand in the market, what you're seeing and if you're seeing any let up in that area?

So the -- I think the security -- the total IoT revenue is roughly 75%, maybe a little below 75%. And that including both enterprise security camera, consumer security camera as well as other revenue we talked about, haven't break down that. So the total number of IoT is 74%. From the end demand side, like I said, most of our customers, especially enterprise customers, they continue to see revenue growth potential for this year. We talk to many customers, and they still are optimistic that they are going to grow 10% to 15% with the annual run rate for their product lines. So that's -- I don't think that end demand, at least from based on what we have seen, is not a problem at this point.

Okay. Are you seeing any let up in demand on the IoT on the consumer side or residential side on the security cameras? We're seeing a drop in that area, but we're seeing demand on the commercial security, IoT dramatically up.

So on the consumer side, that -- I think it's definitely lower, but it's not -- it does -- the drop doesn't explain what we are seeing from our customers drop of demand. So a drop of the PO to us. So I really think that on the consumer side, it's a little weaker than the enterprise side. But like you say, enterprise side, we haven't seen any drop at all.

Our next question comes from Quinn Bolton with Needham & Company.

I just want to come back, I guess, to Ross's question about how much you're undershipping, and Fermi, I think you said you thought you might be undershipping by as much as 30%, which would sort of imply -- revenue could be well more than $10 million higher, or consumption well more than $10 million higher than where you're guiding for fiscal Q1. I just want to make sure that I've got those numbers right.

The number is right, but that's for 1 customer. So what the average -- we cannot generalize that comment because we -- not a lot of customer is telling us where the inventory is or where's their projected growth is. But this 1 potential customer, we have a lot of visibility. So I think that we can -- from that 1 data point, we think that 30% is what we're looking at.

Got it. But that's 1 customer specifically. It's -- you don't necessarily want to generalize that?

Correct.

Got it. Okay. Longer term, obviously, I think a lot of the excitement around the stories around the automotive side. I'm just wondering, you only update your auto pipeline once a year. Are there any other milestones you think investors can track on your -- as you make progress to securing the CV3 design wins with either Continental or Bosch or OEMs directly?

Well, I think any announcement the customer -- need to get -- our customers' approval. And we probably need to think about whether we want to give people hint about design without mentioning names, but that's definitely a decision we do make. We haven't done that for -- throughout the whole 10 years as a public company, so we need to think about it. But I think that's why I think tracking our announcement and tracking our annual -- formal update is probably the best way at this point.

And our last question comes from Richard Shannon with Craig-Hallum.

I want to ask one kind of a 2-parter here on ASPs and growth here. I can't remember if you mentioned what the growth number was for fiscal '23. If you have that one, I'd love to hear it. And then kind of responding to your response and -- or coming back in response to another question here about how to think about it for this year, you just talked about growth. Can we think about an ASP growth in percentage terms similar to last year? Or how should we characterize that?

I think that 2 years ago, our ASP probably roughly around $10. And this year, we are above $10 by a healthy margin. So I think that growth, like I said, will continue. And I think this year, we're going to see a similar growth rate on the ASP side.

That's helpful.

Another part of the question?

No, I think you covered it, at least it sounds like. Yes, I think it's probably enough detail for there. Second question here, as we try to model this CV being 60% of sales in this current fiscal, you're up from 45%, which is pretty significant growth, I've been trying to model this between IoT and automotive. And could we see CV be a majority of your IoT business or a clear majority of your business this year? It seems like it would have to be.

Well, I think that's the right assumption. I think among -- we talked about we shipped 13 million CV associate cumulatively right now. And there's a very healthy portion of that is automotive. So I think that's one part of the answer. The other part of the answer is yes, I think that particularly on the enterprise security camera side, we definitely expect that a majority of our [ CV ] will be on the revenue side, majority of our CV -- majority of our enterprise revenue will be based on CV.

There are no other questions in the queue. I would now like to turn the conference back to Dr. Fermi Wang for closing remarks.

Yes. I just want to thank everybody who attend today's meeting. I will talk to you next time. Thank you.

This concludes today's conference call. Thank you for participating. You may now disconnect.