Ambiq Micro, Inc. (AMBQ) Earnings Call Transcript & Summary

Okay. We're going to get started. Good afternoon. I'm Tim Arcuri. I'm the semi and semi equipment analyst here at UBS. Very pleased to have Ambiq with us, and we have Scott Hanson, who's the Founder and the CTO. And we have Humi Esaka, who is the CEO. So thanks to you both.

Thank you so much. Happy to be here.

So I just wanted to start since you guys are recently to the public market. So I thought, Scott, maybe you can run through just give us 5 minutes of just the story, why you started the company, what the competitive advantage is, what the moats are would be great.

Yes. Yes, yes, absolutely. So first of all, happy to be here today, been a great day of interactions. Ambiq was a company that I founded 15 years ago with the objective of putting intelligence everywhere, right? And when I say that, I really mean putting chips and everything that goes with it everywhere in our clothing and the paint in the walls and the roads that we drive over, everywhere. And this coincides really nicely with what I think is probably the most exciting technology or computer revolution we've seen. And that is really the dual revolution of AI breaking out in the data center, but then breaking out of the data center and out to all these devices around us. And so the key problem is when you start taking AI and intelligence and you put it in your clothing and the paint in the walls everywhere else, it requires energy, right? And that's the core problem that we solve. So we build chips, we build microprocessors that consume 2 to 5x less power than what's out there. And we've got a proprietary technology platform that we call SPOT, this was my PhD research back at the University of Michigan. We spun it out. We founded Ambiq. And we're using that technology to reach 4 primary markets. So the first one of those is what we call personal devices. It's what I'm wearing on my wrist here. It's anything body worn, it's AR glasses, it's smart rings. And frankly, that's where a lot of the volume is today. That's a space where they were early adopters of intelligence everywhere, of AI everywhere. But the other 3 markets that are key to us are medical and health care, industrial and smart home, smart buildings. And look, the common thread with all of those seemingly disparate markets is they all want intelligence. They all want compute where none was possible. And it's this central problem that we solve. So we've done quite a bit of volume in these spaces collectively, closing in on 300 million units shipped. And that's set the scene strong technology platform, strong customer base, strong macro tailwinds. Set the scene for a very strong 2025 for us. So every quarter, we've grown sequentially. We just guided Q4 that was 35% higher than consensus. I know there was some -- a lot of questions about exactly what drove that. And there's a couple of factors behind that growth this year and behind the Q4 growth in particular. So number one, we're seeing a diversification of the types of personal devices that our customers are driving. Two named and notable customers adding a third. We, of course, have many other customers, but 3 that have now been disclosed, and we've got a fourth coming soon. So we're seeing a diversification of those customers and the types of devices they build. But probably the more important thing is the lines are blurring between what used to be consumer electronics devices like the ones I'm wearing and health care devices. And that's evidenced by the fact that you can use HSA and FSA funds to buy these devices today. So that's driving volume. We -- as I mentioned, we had 2 big name customers last year in addition to a bunch of smaller customers. We added the third customer this year, and they were a big driver of revenue for us in the fourth quarter, driving some of that 35% upside in particular. And we believe after looking closely and talking with them, that should be a sustained trend. So really excited about what 2025 represented. One of the other exciting trends we're seeing towards the tail end of '25 is a diversification of the types of customers that we serve. So if until now, we've been kind of personal device-oriented company, we're seeing a lot of designs pop up in things like water leakage sensors that get used in an industrial setting, machine health monitors that are used to detect imminent failure. smart headsets that are using voice recognition to understand various commands. And so what that sets us up for is really strong growth for the coming years. So as I look as CTO, let's say, what excites me is what comes next, right? And there are 2 really exciting growth drivers from my perspective. One is that diversification. And I talked to our Head of Sales before coming here. Tim, I knew you weren't going to let us get away with sharing no new data. So one data point I'll share is as we look at the 2027 funnel, if I look at specifically designs that are going into production in 2027, 25% of those are nonpersonal device products, and that's in terms of dollar value. So this is a good trend, okay? I would like that, as I was telling a lot of investors earlier today, I wish it was this year that I was telling you that, but these designs take time, right? It takes time for industrial and medical devices to ramp. And what I like is the trajectory that, that suggests. So those markets come with higher margins. They will be driven in large part by our existing Apollo family that we've got today that will continue to expand. The other major growth driver for '26, '27 -- or for '27 and beyond, in particular, is our new AOI product. So we have -- this is our first NPU and AI-first product. So our existing product portfolio is kind of general purpose microprocessors that happen to be used extensively for Edge AI. Atomiq was designed from the ground up for AI. So it's got a neural processing unit. It's got DRAM in package. I'm really excited about this. This is where I spend a lot of my time -- and what I'll tell you is that, that product tapes out in the latter half of next year. So this is one that is deep in design. We're engaged with customers. We've got our first customers kind of lining up time lines for when they need samples. Samples will go to first alpha customers end of next year, early 2027, first customer ramps in '27 and then meaningful revenue in '28. So really excited about how that mix leaves us for the next couple of years. And with that said, I guess I'll pause. That's the Ambiq story at a high level. Happy to answer any questions you have to.

Did you say everything about Ambiq already? Do I have anything else?

I'm sure he's got something.

Humi, do you want to add to that?

No. Again, he said almost everything. So we're very excited. And when we did IPO back in July, -- we were cautiously optimistic about the Edge AI market. But today, I think we're very, very excited about the growth opportunity of our Edge AI market. I think it's growing much faster than even we expected. So we're very excited. And I think that we're looking forward to having '26 and '27 is a great year for us.

So when you win, who are you winning against? And what's the primary driver as to why the customer is choosing you?

So let's take in personal device markets today. So whether it's a watch or it's a band like this, we tend to win against companies that have a similar feature set. So the -- it's an ARM-based processor with a similar core, similar memory size, but the customer is looking at it going, okay, Ambiq is delivering 2 to 5x less power. One of our big 3 customers recently swapped us out for another chip. They got actually a 10x power reduction when they moved from the other chip to us. At a system level, this meant 3x better system power. And for them, that translated to more functionality, smaller battery size, longer battery life, that's compelling. That's really compelling.

And just -- so I've asked this before, but that particular case where they did swap it out and they got such a big benefit, why didn't they -- like why haven't they done that in everything they sell.

In the case of this particular company, they have, and we have a nice, let's say, road map of design wins happening -- coming Yes. And I would say with most of these customers, they have to start -- you got to start somewhere. It's a big effort to go and port the software. They got to start somewhere and prove that it's all good. I would say that the barriers there are improved now that we're a public company. So as a private company, you got to justify your existence. You got to justify what does your balance sheet look like and there's all these disclosures that are necessary. Well, we've got this new era of credibility that comes with being a public company.

Yes. I guess what I'm going with that is like why wouldn't all wearables use Ambiq processors if they can enable such a longer life.

Yes. Well, obviously, I agree with you. And there's a large number of companies that have made exactly that decision and they propagated us throughout their portfolio, and it's just a matter of every quarter, they launch a new product, and we're in it. At the low end, there are designs that we have not won, and that tends to be companies that are doing no processing on board, right? They're basically collecting data, sending it up to the cloud via radio. And that's kind of the old model. Actually, that's what all wearables used to look like until they realized we got to do some analysis here on the edge. We got to process this data here. And so what I see happening is that the barrier between what we win and what we don't win is moving in the direction of us winning more and more of these as they decide to add more intelligence, do more local compute. At the high end, give you an example in the AR glass space, we miss -- certain opportunities because, for example, we don't have camera support today. That will be fixed with the forthcoming atomic product, but you fix these things and they start adding you into more and more sockets. In that particular space, for example, we just -- actually one of our partner companies just launched a new AR glass product, but it doesn't have a camera. So there's some that we're boxed out of, but that's easy to solve. Again, that's why we raised money in the initial public offering to fund the development of some of these new products.

There's a very large consumer electronics company based in Cupertino that doesn't use you, can you just talk about that? Why would they not?

I'm going to let Humi speak to that because he has deeper experience.

Well, we talk to them frequently, especially our shareholders do talk to them frequently. And I think that they have a philosophy of they need to build -- they like to have all their own chips. So they would rather have -- I believe that our technology transferred to them. So as a startup, it was very difficult for us to handle their requirements. So we kind of stayed away from serving that company for now.

Something that you might do though in the future?

I'd love to. Yes.

Okay. Let's just talk about software tools and field support. On the software side, you focused on shortening customer design cycles with tools and reference stacks. Where are you putting the incremental R&D to sort of make Edge AI deployment on your platform simpler? And can you just talk about how you're just making it easier for customers to come to you and adopt the SPOT platform?

So we've got a big software platform that we developed over the last 10-plus years that is stable and growing, and we've got a big team building that. But where a lot of the new investment is going is on the AI side. So I would say our customers are falling into 1 of 3 bins. They're using AI effectively today. They're developing a next product or they're coming to us for help to add AI to a future road map product. And my goal is to have software tools that make any one of those customers successful and get to market quickly. So we have AI software being developed at 3 different levels. At the highest level, it's actual AI models that our customers can use, mostly as templates for what they want to build. We've got runtime engines, AI run time, which is kind of the execution engine for the AI model. And then below that, we've got kernels. These are basically the library functions to implement all the layers in the AI model. And we're developing all these things and iterating actually quite quickly. So think our AI team is basically iterating on almost a weekly release schedule, right? So it's a really fast-moving space. That's really hard to comprehend for a lot of chip people because we do -- they think about yearly cadence, not weekly cadence. So I would say post-IPO, that's where a lot of the spending is going to be. It's going to be growing that team. And unlike chips, it's adding people. It's not -- there's no giant CapEx that's required there. It's mostly just adding people. They can go out and build out this road map we've got in mind.

And so typically, in a consumer business, you have some seasonality, but you also have new customers ramp. So are there any sort of how to think about those 2 factors? Like will the new customer ramps just paced over any seasonal effects as we look into next year?

Well, usually, when you serve the consumer market, definitely Q2, Q3 peaks out and then get tone down a little bit for the Christmas and Thanksgiving time after the sales is done. But -- and we did plan to see Q4 going down based on that. But because of the fact that Edge AI market is growing so fast and new company, new application, new products is coming up. So at least at Ambiq, we are overcoming the seasonality and keep on adding more and more customer and more demand. So my charter to my sales team, they have proven that '25, we were immune to this seasonality, '26 I expect them to do the same.

Great. And Scott, you talked -- well, both of you talked for a while that you'd like to eventually license this and develop this as a licensable platform. That's a big lift. You have to invest a lot of money to get there. Can you just spend maybe a few minutes on that? I mean that seems to be really -- you could really take the company to a new level if you can license this.

Yes, big opportunity. We think about it in a 3- to 5-year time line, and it's -- we've broken it down into 3 phases. So if I was going to license, first of all, I would be looking at 2 primary markets. One is automotive. We've had a lot of outreach from there. H. Humi has deep experience in that set of markets, and we're excited about what we could do there. The other is data center. Clearly, a market that cares deeply about power and about energy per operation. And it's one, frankly, that is difficult for a company of our size to go after. So 3 phases for engaging those markets. First is I've got to prove that I can take our spot technology from 40 nanometers and 22 nanometers down to 12 nanometers, which is actually our first FinFET node. That is ongoing basically for him, for my boss over here, the CEO. That's the gate. -- prove that 12-nanometer spot works and works effectively. And then we can extrapolate to a 2-nanometer node or something beyond that. Phase 2 is to go engage in business development activities with these potential customers. Humi's basically sending off some of them right now. And we need to -- for any IP engagement, there's a hard IP piece of it, meaning it's tied to the technology node and then there's a soft IP piece. And so we need to talk to these various customers. We need to understand what nodes they're in and then go tailor the IP toward that, right? So there's going to be power management IP and there's going to be standard cells and CAD loads that all have to be tuned, not reinvented, but tuned for the specific node. And so Phase 2 is kind of figuring that out, starting the development, doing some test chips. And then three is the revenue phase. It's where we go and we choose 1 or 2 alpha customers and really get after it. So I'm -- personally, it's going to be one of my top focus areas for the next couple of years.

And when you think about how much money it's going to cost you with just the amount of money that you have to invest, the development cost, how do you marry that and be able to fund that alongside of keeping the existing customers happy?