What changed in this filing

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Item 1A. Risk Factors

2022-12-09 compared with 2022-09-08 · 59 added, 47 removed, 878 unchanged (11% of the section changed)

8 unchanged sentences

These risks include, but are not limited to, the following:

The COVID-19 pandemic could adversely affect our business in a material way, including closure of our offices or the facilities of our suppliers or customers.

The COVID-19 pandemic could adversely affect our business in a material way, including closure of our offices or the facilities of our suppliers or customers, as well as the disruption of supply chains and normal customer ordering patterns.

Our customers incorporate components supplied by multiple third parties, and a supply shortage or delay in delivery of these components could delay orders for our solutions by our customers.

Shortages in, or increased costs of, wafers and materials could increase the manufacturing times for our products and adversely impact our ability to meet customer demand, reduce our gross margins and lead to reduced revenues.

Global economic and political conditions, including possible trade tariffs and trade restrictions, may have an impact on our business and financial condition in ways that we currently cannot predict.

In addition, longer manufacturing lead times could lead to temporary periods of increased customer demand as customers seek to increase their inventory levels, which may be followed by periods of reduced demand as customers seek to reduce their inventory to normal levels.

Our customers may cancel their orders, change production quantities or delay production for a variety of reasons.

If we fail to accurately forecast demand for our solutions, revenue shortfalls and/or excess, obsolete or insufficient inventory could result.

Global economic and political conditions, including higher inflation and trade restrictions, may impact our business and financial condition in ways that we currently cannot predict, including reduced demand for our solutions.

Our primary inventory warehouse is located in Hong Kong and may be affected by political, social and economic conditions in Hong Kong.

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Even if we begin a product design, a customer may decide to cancel or change its product plans, resulting in no revenue from such expenditures.

Our customers may cancel their orders, change production quantities or delay production.

If we fail to accurately forecast demand for our solutions, revenue shortfalls and/or excess, obsolete or insufficient inventory could result.

We depend on a limited number of customers and end customers for a significant portion of our revenue.

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We have had to impose remote or work from home conditions for varying periods of time in many of our offices, including the United States, China, Italy, Japan, South Korea and Taiwan.

If such remote or work from home conditions continue for an extended period of time, we may experience delays in product development, a decreased ability to support our customers, reduced design win activity, and overall lack of productivity, which could harm our financial results.

If such remote or work from home conditions were to continue for an extended period of time, we may experience delays in product development, a decreased ability to support our customers, reduced design win activity, and overall lack of productivity, which could harm our financial results.

Approximately 360 of our employees are located in Taiwan and approximately 220 employees are located in China, and lengthy closures of these offices could significantly disrupt our software engineering and customer support operations.

In addition, we and our suppliers, third-party distributors and customers have been, and are expected to continue to be, disrupted by quarantines and restrictions on certain employees’ ability to perform their jobs, office closures or restrictions, disruptions to shipping infrastructure, or other travel or health-related restrictions.

In the first half of fiscal year 2023, we have experienced, and we expect to continue to experience, a significant disruption of orders by customers, as well as logistics throughout the Asia supply chain, as a result of the COVID-19 pandemic and measures taken to control spread of the virus.

Depending on the continuing magnitude of such effects on the operations of our suppliers, third-party distributors and our supply chain, our product shipments could be delayed, which could materially adversely affect our business, results of operations and financial condition.

Such continuing disruptions may also adversely affect our customers’ ability to manufacture their products, which in turn could reduce their demand for our products.

In addition, decreased consumer demand from the impact of pandemic lockdowns in China has contributed to decreased revenue in consumer-related markets, including home IP security, automotive aftermarket and consumer markets.

During fiscal year 2023, we have experienced, and we expect to continue to experience, a significant disruption of orders by customers, as well as logistics throughout the Asia supply chain, as a result of the COVID-19 pandemic and measures taken to control spread of the virus.

During the first half of fiscal year 2023, we experienced a significant increase in the manufacturing lead time for our products, including supply constraints for certain chips from Samsung Electronics Corporation (“Samsung”), which disrupted the normal ordering patterns of our customers and harmed our revenue, but which may have in turn led to increased customer demand for our products in order to increase their inventory levels.

Recently, some customers have indicated they are reducing their inventory levels as lead times for semiconductor chips and other components used by customers begin to shrink, which may reduce such customers’ demand for our products in future periods.

Higher inflation may exacerbate these risks.

In addition, decreased consumer demand from the impact of pandemic lockdowns in China has contributed to, and may in the future contribute to, decreased revenue in consumer-related markets, including home IP security, automotive aftermarket and consumer markets.

There can be no assurance that any decrease in sales resulting from the COVID-19 pandemic will be offset by increased sales in subsequent periods.

Moreover, if there is a significant COVID-19 outbreak that impacts Samsung Electronic Corporation’s ability to manufacture our SoCs or our third-party contractors’ ability to assemble, test and ship our products, we could experience delays or reductions in our ability to ship products to our customers.

Moreover, if there is a significant COVID-19 outbreak that impacts Samsung’s ability to manufacture our SoCs or our third-party contractors’ ability to assemble, test and ship our products, we could experience delays or reductions in our ability to ship products to our customers.

These effects, alone or taken together, could have a material adverse effect on our business, results of operations, legal exposure, or financial condition.

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As restrictions began easing across the world, an increase in demand for products containing semiconductor chips exacerbated bottlenecks in the supply chain, resulting in a global semiconductor supply shortage impacting our industry, which has resulted in a lengthening of the manufacturing lead time for our products and impacting the normal forecasting and ordering patterns of our customers.

With respect to our suppliers, we have in the past experienced supply constraints for certain chips from Samsung and we may in the future experience similar issues.

With respect to our customers, to the extent customers face supply chain issues with respect to other components needed to pair with our products in order to produce their end products, such customers may delay future orders of our products or hold inventory of our products for longer periods of time.

While we are continuing to work closely with our suppliers and customers to minimize the potential adverse impacts of the supply shortage and longer lead times, we have experienced increased volatility in our business.

Recently, some customers have indicated they are reducing their inventory levels as lead times for semiconductor chips and other components begin to shrink, which may reduce such customers’ demand for our products in future periods.

The global supply shortages and uncertainty in customer demand and the worldwide economy in general may be exacerbated by the impacts of high inflation, and we may experience increased volatility in sales and revenues as a result.

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If the demand for silicon wafers or assembly material exceeds market supply, our supply of silicon wafers or assembly material could quickly become limited or prohibitively expensive.

The semiconductor industry is currently experiencing significant shortages of manufacturing capacity, which has resulted in a lengthening of the manufacturing lead time for our products.

The semiconductor industry is currently experiencing significant shortages of manufacturing capacity, which has resulted in a lengthening of the manufacturing lead time for our products and which has at times harmed our revenue due to supply constraints for certain chips.

If this capacity shortage continues for an extensive period of time, it could negatively impact our ability to meet our customer’s demand for our products and have an adverse impact on our revenue, results of operations and customer relationships.

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If we are unable to purchase wafers at favorable prices, our results of operations and financial condition will be adversely affected.

It is also possible during this time of supply chain capacity shortage that customers may place orders for our products that exceed their actual demand, which may lead to us manufacturing a surplus of products and could have a negative impact on our results of operations and cash reserves.

It is also possible during times of supply chain capacity shortages that customers place orders for our products that exceed their actual demand, which may lead to us manufacturing a surplus of products and could have a negative impact on our results of operations and cash reserves.

Our primary inventory warehouse is located in Hong Kong and may be affected by continued political, social, health and economic conditions in Hong Kong.

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Congress in May 2020 that Hong Kong no longer maintains a sufficient degree of autonomy from China to warrant special treatment by the U.S.

While such certification does not have an immediate impact on Hong Kong for trade or other purposes, this action represents an escalation in political and trade tensions involving the U.S, China and Hong Kong.

In addition, the Bureau of Industry and Security, or BIS, has imposed additional restrictions on exports and reexports of U.S.-controlled items to Hong Kong by removing preferential treatment that Hong Kong used to receive and imposing more stringent licensing requirements similar to those applicable to China.

In addition, the Bureau of Industry and Security, or BIS, has imposed restrictions on exports and reexports of U.S.-controlled items to Hong Kong by imposing stringent licensing requirements similar to those applicable to China.

It is possible that the U.S.

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Our target markets may not grow or develop as we currently expect and are subject to market risks, any of which could harm our business, revenue and operating results.

We are focusing our development resources on addressing computer vision applications, primarily in the professional IP security and home security and monitoring camera markets, the OEM automotive and robotics markets, with our computer vision solutions.

We are focusing our development resources on addressing computer vision applications, primarily in the IoT and automotive markets.

The application of computer vision functionality in these markets is relatively new, and we may be unable to predict the timing or development of these markets with accuracy.

For example, a slower than expected adoption rate for computer vision technology in the IP security camera market could slow the demand for our new solutions.

Similarly, a slower than anticipated adoption of electronic mirrors, advanced driving assistance systems and autonomous driving functionality could reduce demand for our new computer vision solutions.

The COVID-19 pandemic has had a negative impact on the global economy and may decrease or delay development of new markets and new programs in emerging markets.

If our key target markets, such as automotive cameras, IP security cameras and cameras for robotic applications, do not grow, grow slower, or do not develop in ways that we currently expect, demand for our computer vision, video and image processing SoCs may not materialize as expected, and our business and operating results could suffer.

For example, a slower than expected adoption rate for computer vision technology in IP security cameras could slow the demand for our new solutions.

If our key target markets, such as IoT and automotive cameras, do not grow, grow slower, or do not develop in ways that we currently expect, demand for our computer vision, video and image processing SoCs may not materialize as expected, and our business and operating results could suffer.

Our customers may cancel their orders, change production quantities or delay production.

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Our SoCs are incorporated into products manufactured by or for our end customers, and as a result, demand for our solutions is influenced by the demand for our customers’ products.

Our ability to accurately forecast demand can be adversely affected by a number of factors, including inaccurate forecasting by our customers, miscalculations by our customers of their inventory requirements, changes in market conditions including reductions in market activity due to the COVID-19 pandemic, adverse changes in our product order mix and fluctuating demand for our customers’ products.

Our ability to accurately forecast demand can be adversely affected by a number of factors, including inaccurate forecasting by our customers, changes in market conditions including reductions in market activity due to the COVID-19 pandemic, adverse changes in our product order mix and fluctuating demand for our customers’ products.

Recently, some customers have indicated they are reducing their inventory levels, which may reduce such customers’ demand for our products.

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In fiscal year 2022, the customers representing 10% or more of our revenue were WT Microelectronics Co., Ltd., formerly Wintech Microelectronics Co., Ltd., or WT, our distributor, and Chicony Electronics Co., Ltd., or Chicony, a direct ODM customer, which accounted for approximately 62% and 13% of total revenue, respectively.

For the six months ended July 31, 2022, the customers representing 10% or more of revenue were WT and Chicony, which accounted for approximately 58% and 12% of total revenue, respectively.

For the nine months ended October 31, 2022, the customers representing 10% or more of revenue were WT and Chicony, which accounted for approximately 59% and 12% of total revenue, respectively.

We believe that our operating results for the foreseeable future will continue to depend on sales to a relatively small number of customers and end customers.

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Our research and development expense was $167.3 million, $140.8 million and $129.7 million in fiscal years 2022, 2021 and 2020, respectively.

For the six months ended July 31, 2022, our research and development expense was $99.0 million.

For the nine months ended October 31, 2022, our research and development expense was $151.9 million.

We expect to increase our research and development expenditures as compared to prior periods as part of our strategy of focusing on the development of innovative computer vision, video and image processing solutions with increased functionality, and as we target new markets, such as the automotive OEM and robotics markets.

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Average selling prices of semiconductor products in the markets we serve have historically decreased over time, and we expect such declines to occur for our solutions over time.

Our gross margins and financial results will suffer if we are unable to offset reductions in our average selling prices by reducing our costs, developing new or enhanced SoC solutions on a timely basis with higher selling prices or gross margins, or increasing our sales volumes.

Our gross margins and financial results will suffer if we are unable to offset reductions in our average selling prices by reducing our costs, developing new or enhanced SoC solutions, such as our new CV-based solutions, on a timely basis with higher selling prices or gross margins, or increasing our sales volumes.

Additionally, because we do not operate our own manufacturing, assembly or testing facilities, we may not be able to reduce our costs as rapidly as companies that operate their own facilities, and our costs may even increase, which could also reduce our gross margins.

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Deterioration of the financial condition of our distributors or customers could adversely impact our collection of accounts receivable.

For the six months ended July 31, 2022, the customers representing 10% or more of revenue were WT and Chicony, which accounted for approximately 58% and 12% of total revenue, respectively.

As of July 31, 2022, accounts receivable with WT and Chicony were approximately $16.2 million and $10.5 million, respectively.

For the nine months ended October 31, 2022, the customers representing 10% or more of revenue were WT and Chicony, which accounted for approximately 59% and 12% of total revenue, respectively.

As of October 31, 2022, accounts receivable with WT and Chicony were approximately $25.4 million and $8.9 million, respectively.

We regularly review the collectability and creditworthiness of our distributors and customers to determine an appropriate allowance for credit losses.

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Moreover, the semiconductor industry has historically been cyclical in nature, reflecting overall economic conditions as well as budgeting and buying patterns of consumers.

For example, the semiconductor industry is currently experiencing significant shortages of capacity, which has resulted in a lengthening of the manufacturing lead time for our products and could be impacting the normal forecasting and ordering patterns of our customers.

For example, the semiconductor industry recently experienced significant shortages of capacity, which has resulted in a lengthening of the manufacturing lead time for our products and could be impacting the normal forecasting and ordering patterns of our customers.

Recently, some customers have indicated their intent to reduce their inventory levels as capacity shortages improve, which may decrease such customers’ demand for our solutions in future periods.

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Sales to customers in Asia accounted for approximately 88%, 88% and 90% of our total revenue in fiscal years 2022, 2021 and 2020, respectively.

For the six months ended July 31, 2022, sales to customers in Asia accounted for approximately 83% of our total revenue.

For the nine months ended October 31, 2022, sales to customers in Asia accounted for approximately 84% of our total revenue.

Because most of our end customers or their ODM manufacturers are located in Asia, we anticipate that a majority of our future revenue will continue to come from sales to that region.

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Our marketable securities portfolio could experience a decline in market value, which could materially and adversely affect our financial results.

As of July 31, 2022, we had approximately $100.0 million in debt security investments.

These investments consisted primarily of money market funds and debt securities of corporations.

As of October 31, 2022, we had approximately $99.7 million in money market funds and debt security investments.

The debt security investments consisted of commercial paper, debt securities of corporations or corporate bonds, asset-backed securities and U.S.

government securities .

We currently do not use derivative financial instruments to adjust our investment portfolio risk or income profile.

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We depend on these third parties to supply us with material of a requested quantity in a timely manner that meets our standards for yield, cost and manufacturing quality.

Availability of capacity within our supply chain has tightened recently, which could limit the volume of products we can produce and negatively impact our business and operations.

Availability of capacity within our supply chain has tightened recently, which has at times limited and could in the future limit the volume of products we can produce, negatively impacting our business and operations.

Moreover, because each SoC is fabricated in only one manufacturing facility, or single sourced, any disruption to a facility could cause significant delays in the production or shipment of the products produced in that facility that could not be easily offset by having such product(s) produced in another facility.

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We sell a significant percentage of our solutions through a single distributor, WT, which serves as our non-exclusive sales representative in Asia, other than Japan.

Approximately 62%, 63% and 60% of our revenue was derived from sales through WT for the fiscal years ended January 31, 2022, 2021 and 2020, respectively, and approximately 58% of our revenue was derived from sales through WT for the six months ended July 31, 2022.

Approximately 62%, 63% and 60% of our revenue was derived from sales through WT for the fiscal years ended January 31, 2022, 2021 and 2020, respectively, and approximately 59% of our revenue was derived from sales through WT for the nine months ended October 31, 2022.

We anticipate that a significant portion of our revenue will continue to be derived from sales through WT in the foreseeable future.

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If such sales do not occur in the time frame anticipated by these distributors for any reason, these distributors may substantially decrease the amount of product they order from us in subsequent periods until their inventory levels realign with end-customer demand, which would harm our business and could adversely affect our revenues in such subsequent periods.

Our reserve estimates associated with products stocked by our distributors are based largely on reports that our distributors provide to us on a weekly or monthly basis.

To the extent that these data are inaccurate or not received in a timely manner, we may not be able to make reserve estimates for future periods accurately or at all.

Recently, some end customers have indicated they are seeking to reduce their inventory levels, which may reduce such customers’ demand for our products, including products purchased through our distributors, in future periods and harm our financial results.

Camera manufacturers incorporate components supplied by multiple third parties, and a supply shortage or delay in delivery of these components could delay orders for our solutions by our customers.

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In December 2020, certain affiliated entities of our customer Shenzhen Dajiang Baiwang Technology Co., Ltd., or Dajiang Baiwang, were added to the Entity List.

While the addition of such customers to the Entity List negatively impacts our ability to ship items subject to BIS regulations to these listed entities, we have determined that we are able to ship some SoC products to the listed entities in compliance with applicable law.

Notwithstanding our ability to continue to supply some SoC products to the listed entities, these customers may seek to obtain similar or substitute products from our competitors that are not subject to these limitations, or to develop similar or substitute products themselves.

In October 2022, BIS imposed additional restrictions on transactions with Dahua involving items subject to BIS export regulations.

These export regulations negatively impact our ability to ship items subject to BIS regulations to these listed entities.

Notwithstanding our ability to continue to supply some SoC products to some affiliates of the listed entities, these customers may seek to obtain similar or substitute products from our competitors that are not subject to these limitations, or to develop similar or substitute products themselves.

We also cannot be certain what additional actions the U.S.

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Beyond the BIS actions relating to Hikvision, Dahua and affiliates of Dajiang Baiwang, general trade tensions between the United States and China have been escalating, which has, in our view, created and will perpetuate an uncertain business environment.

Additionally, the U.S.

government announced new controls restricting the ability to send certain products and technology related to semiconductors, semiconductor manufacturing, advanced computing, and supercomputing to China without an export license.

In many cases, these licenses are subject to a policy of denial and will not be issued.

While our current products are not restricted by these controls, such controls could impact our ability to export products to China in the future.

It also is possible that the Chinese government will retaliate in ways that could impact our business.

If additional tariffs or trade restrictions are imposed on our SoC solutions or the products of our customers, or trade restrictions are imposed on our ability to conduct business with certain customers, there could be a negative impact on our operations and financial performance.

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McCain National Defense Authorization Act for Fiscal Year 2019 negatively impacts Hikvision and Dahua’s ability to sell products into the U.S.

security camera market and could decrease their demand for our solutions.

security camera market and decrease s their demand for our solutions.

Similarly, changes in export classification requirements, such as those proposed by U.S.

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trade policy could trigger retaliatory actions by Russia, its allies and other affected countries, including China, resulting in a trade war.

For example, in addition to controls imposed on China discussed above, following Russia’s invasion of Ukraine, the United States and other countries imposed certain economic sanctions and severe export control restrictions against Russia and Belarus, as well as certain Russian nationals, which caused us to terminate certain business relationships in those countries.

These sanctions and restrictions have continued to increase as the conflict has further escalated, and the United States and other countries could impose wider sanctions and export restrictions and take other actions in the future that could impact our business.

Furthermore, if the conflict between Russia and Ukraine continues for a long period of time, or if other countries, including the U.S., become further involved in the conflict, we could face significant adverse effects to our business and financial condition.

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Changes in effective tax rates or adverse outcomes resulting from examination of our income tax returns could adversely affect our results.

Our future effective tax rates could be adversely affected if our earnings are lower than anticipated in countries where we have lower statutory rates and higher than anticipated in countries where we have higher statutory rates, by changes in the valuation of our deferred tax assets and liabilities, tax effects of share-based compensation, or by changes in tax laws, regulations, accounting principles or interpretations thereof.

Our future effective tax rates could be adversely affected if our earnings are lower than anticipated in countries where we have lower statutory rates and higher than anticipated in countries where we have higher statutory rates, by changes in the valuation of our deferred tax assets and liabilities, transfer pricing adjustments, including the effect of acquisitions on our legal structure, by tax costs related to intercompany realignments, tax effects of share-based compensation, expiration of or lapses in tax incentives, or by changes in tax laws, regulations, accounting principles or interpretations thereof.

For example, changes in tax laws, including the U.S.

federal tax legislation commonly referred to as the Tax Cuts and Jobs Act of 2017, or Tax Act, as well as other factors, could cause us to experience fluctuations in our tax obligations and effective tax rates and otherwise adversely affect our tax positions and/or our tax liabilities.

In August 2022, the U.S.

enacted the Inflation Reduction Act of 2022 (“IRA”) which includes a new 15% corporate minimum tax as well as a 1% excise tax on fair value of corporate stock repurchases made after December 31, 2022.

We do not expect it to have a material impact on our financial statements.

The Tax Act requires complex computations not previously provided in U.S.

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While we have completed our accounting for the effects of the Tax Act, additional regulatory guidance may still be issued by the applicable taxing authorities which could materially affect our tax obligations and effective tax rate.

In addition, many jurisdictions and the Organization for Economic Co-operation and Development, or OECD, which represents a coalition of member countries, have announced support for a global 15% minimum tax.

We may be subject to these and additional taxes, which could adversely impact our effective tax rate and operating results.

In addition, our income tax returns are subject to continuous examination by the Internal Revenue Service, or IRS, and other tax authorities.

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Unfavorable tax law changes, an unfavorable governmental review of our tax returns, changes in our geographical earnings mix or imposition of withholding taxes on repatriated earnings could adversely affect our effective tax rate and our operating results.

Our operations are subject to certain taxes, such as income and transaction taxes, in the Cayman Islands, the United States, China, Hong Kong, Japan, Italy, South Korea, Taiwan and other jurisdictions in which we do business.

Our operations are subject to certain taxes, such as income and transaction taxes, in the Cayman Islands, the United States, China, Hong Kong, Japan, Italy, Germany, South Korea, Taiwan and other jurisdictions in which we do business.

A change in the tax laws in the jurisdictions in which we do business, including an increase in tax rates or an adverse change in the treatment of an item of income or expense, possibly with retroactive effect, could result in a material increase in the amount of taxes we incur.

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taxation notwithstanding our domicile outside the United States.

In addition, on October 5, 2015, the OECD released its final reports from the BEPS Action Plans.

The final reports include recommendations covering a number of issues, including country-by-country reporting, permanent establishment rules, transfer pricing rules and tax treaties.

In addition, over the last several years, the Organization for Economic Cooperation and Development (OECD) has been working on a Base Erosion and Profit Shifting Project and has been issuing guidelines and proposals covering a number of issues, including country-by-country reporting, permanent establishment rules, transfer pricing rules and tax treaties.

Many of these changes have been or are in the process of being adopted by numerous countries and could materially and adversely affect our provision for income taxes.

In 2021, more than 140 countries tentatively signed on to a framework that imposes a global minimum tax of 15%.

Additional changes to global tax laws are likely to occur, and such changes may adversely affect our effective tax rate, operating results, and cash flow.

In December 2018, the Cayman Islands passed the International Tax Co-Operation (Economic Substance) Law, 2018, which requires Cayman Islands companies carrying one or more relevant activity to maintain a substantial economic presence in the Cayman Islands.

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The semiconductor industry is characterized by vigorous protection and pursuit of intellectual property rights and positions, which has resulted in protracted and expensive litigation for many companies.

Certain of our customers have received, and we expect, particularly to the extent we gain greater market visibility, that in the future we may receive, communications from others alleging our infringement of their patents, trade secrets or other intellectual property rights.

We and certain of our customers have received, and in the future may receive, communications from others alleging our infringement of their patents, trade secrets or other intellectual property rights.

In addition, certain of our end customers have been the subject of lawsuits alleging infringement of intellectual property rights by products incorporating our solutions, including the assertion that the alleged infringement may be attributable, at least in part, to our technology.

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Inline XBRL Taxonomy Presentation Linkbase Document

The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended July 31, 2022, has been formatted in Inline XBRL and included in Exhibit 101.

The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended October 31, 2022, has been formatted in Inline XBRL and included in Exhibit 101.

Incorporated by reference to the Registrant’s registration statement on Form S-1 (No.

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AMBARELLA, INC.

September 8, 2022

December 9, 2022

/s/ Feng-Ming Wang

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President and Chief Executive Officer

September 8, 2022

December 9, 2022

Chief Financial Officer

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1A. Risk Factors