Ambarella Inc (AMBA) 2015 Q3 法說會逐字稿

Good day ladies and gentlemen, and welcome to the Ambarella's third-quarter FY15 earnings conference call.

(Operator Instructions)

As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, Deborah Stapleton. Please go ahead.

Thank you. Good afternoon, and welcome to Ambarella's third fiscal quarter 2015 financial results conference call. Thank you for joining us today. Our speakers will be Dr. Fermi Wang, President and CEO, and George Laplante, CFO. The primary purpose of today's call is to provide you with information regarding our fiscal third quarter.

The discussion today and the responses to your questions will contain forward-looking statements regarding our 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 are under no obligation to update these statements.

These risks, uncertainties and assumptions, as well as other information on potential risk factors that could cause our financial results to differ, 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 4, 2014 for the 2014 fiscal year, the Form 10-Qs filed on June 6, 2014 and September 8, 2014, and the Form 10-Q for the third quarter of FY15 that will be filed shortly. Access to our third-quarter results press release, historical results, SEC filings and a replay of today's call can all be found on the Investor Relations portion of our website. I will now turn the call over to Dr. Fermi Wang.

Thank you, Deborah. Good afternoon, everyone. We are very pleased with our Q3 financial results, reporting revenue over $65.7 million, up 43% from the same quarter last year. In addition to our outstanding financial performance, we also delivered significant product innovations during the quarter. I would like to discuss some of our product and market highlights, and then I will turn it over to George for more in-depth discussion of our third-quarter financial performance and our guidance for Q4.

During the third quarter, Ambarella achieved two major new technology milestones, as we introduced our first product to implement a new H.265, or HEVC video compression standard, and also to encode H.264 Ultra HD video at a 60 frame per second or 4Kp60. The HEVC standard provides a significant bitrate reduction versus previous video compression standards, and it will be an important enabler of a higher resolution video delivery, including Ultra HD

[Embedded] with constrained applications such as IP cameras and the broadcast infrastructure, it can increase network [utilization] and a reduced cloud storage costs. In consumer applications such as sports or quadcopter cameras, HEVC can enable higher video quality, faster video upload times, and higher resolution video streaming. Ambarella's full implementation of HEVC delivers up to twice the compression efficiency of our current H.264 SOCs.

Ambarella's 60 frame per second Ultra HD encoding doubles the frame rate and the performance of our existing solutions to provide a high speed live action recording in sports and quadcopter cameras with smooth slow-motion capabilities. In IP cameras, it provides high resolution, high-speed capture, for example enabling traffic cameras with outstanding license plate recognition, or enabling a simple camera to generate Ultra HD video with multiple secondary streams.

In October, Ambarella announced its state-of-the-art S3 HEVC IP camera SoC, the industry's first to include support for the new video standard at 4K's of resolution. The S3 can encode HEVC video at up to 4Kp30 resolution, and it can also encode H.264 up to 4Kp60 to provide compatibility with existing network infrastructure. It includes a new generation of image sensor pipeline for advanced noise reduction, as well as advanced HDR, or High Dynamic Range processing. The S3's wide-angle lens dewarping capability enables cameras with 180-degree, or 360-degree panoramic viewing and digital pan-tilt-zoom capability. In summary, we are very excited by our latest HEVC and high frame rate innovations, and by the possibilities for new products enabled by them.

On the revenue side, in the wearable sports camera market we enjoyed strong Q3 sales driven primarily by market-leader GoPro. GoPro introduced three new camera models, including the Hero Pro Black and the Hero Pro Silver, both based on Ambarella's A9 SoC family, as well as the $129 entry-level Hero model, based on Ambarella's A7L SoC. The Hero Pro Black offers high resolution 4Kp30 and a 2.7Kp50 video and high frame rate 1080p120 video, while the Hero Pro Silver pairs photo-quality video and the photo capture with the convenience of a built-in touch display. The $129 Hero model makes it simple to capture and share your life's activities, and is built directly into a locked, waterproof housing. It features high-quality 1080p30 and 720p60 video.

During the third quarter we enjoyed strong revenue growth for our IP security camera business, as expected. The professional IP camera market continued to grow rapidly especially in China, as traditional analog CCTV cameras are replaced by digital IP cameras. Requirements for early entry-level IP cameras are moving from 720p to full HD or 1080p resolution, while mainstream cameras are now requiring higher megapixel capability and HDR processing. This requirements are helping drive design wins for our new S2L SoC family.

In higher-end cameras, demand for the 4K Ultra HD capability of advanced analytics and the wide-angle viewing continue to increase sales of our S2 SoC family. At the October China Security Show held in Beijing, many of the world's leading security camera suppliers demonstrated 4K Ultra HD and panoramic viewing cameras based on Ambarella's S2 camera SoCs. These included Bosch of Germany, Dahua and Hikvision of China, and Panasonic of Japan.

In addition to strong sales growth in professional IP camera markets, we continue to see new opportunities in home monitoring and IP security cameras applications. This include cameras from retail consumer brands as well as service providers offering home monitoring cameras as part of a security service. During the third quarter, AT&T introduced new camera models based on Ambarella SoC as part of its AT&T Digital Life security package. The package includes 24/7 professional monitoring, and includes cameras with the ability to view live or recorded video and to take snapshots based on motion. The indoor [broad view camera model also includes 180-degree wide-angle viewing.

In summary, we anticipate continuous growth in IP security cameras from both the professional and the consumer markets. We expect to see additional opportunities from telecom, cable and the security service providers as they offer more home IP camera solutions. As we discussed last quarter, we are also seeing increase of use of quadcopters or drones for shooting video. This application represents an opportunity for Ambarella to quite literally take video recording to new heights as user demanded the highest quality Ultra HD video and the megapixel photography.

During the third quarter, market-leader DJI introduced its Inspire One quadcopter featuring an integrated 360-degree video camera for ultimate aerial film making. The Inspire One leveraged Ambarella's A9 SoC to shoot up to 4K Ultra HD video and to capture 12 megapixel photos. Both the quadcopter and integrated camera can be remotely controlled from over one kilometer away.

The Inspire One's comprehensive mobile application enables users to control the camera setting, including ISO, white balance and exposure, to optimize photography and video recordings. We anticipate continued revenue growth from consumer markets based on strong sales of wearable sports camera and quadcopters. We also see opportunities for small form factor wearable cameras, driven by vertical applications such as policing and personal security.

In the automotive after-market, Ambarella continues to provide camera SoC solutions for video camera recorders for dash cams. During the third quarter, Ambarella sales increased both sequentially and year over year based on the growing China domestic market and our expanding market share in Korea. During the Moscow INTERAUTO 2014 show and the Hong Kong/China Sourcing Fair, Ambarella successfully demonstrated our latest single dual-channel reference device based on our A7LA SoC families. The A7LA SoCs include Wi-Fi connectivity of advanced video analytics, HDR processing, and multi-camera viewing. Looking forward, we anticipate continued revenue growth from the automotive after-market based on the designing momentum for our A7LA SoC family.

In conclusion, we are extremely pleased with our third quarter execution and the financial results. During the quarter we saw the introduction of a number of Ambarella-based Ultra HD cameras in security, sports and the quadcopter markets. We also introduced our first HEVC solution, the S3, heralding future generations of highly efficient, high quality intelligent IP cameras. We see continued strength in all of our currently served camera markets, and expanding opportunities in wearable, home security, quadcopter and automotive applications. With that, I will hand it over to George to discuss our financials.

Thank you, Fermi, and good afternoon, everyone. I'll start today with a discussion of the financial highlights for the third quarter of FY15 ending October 31, 2014. I will then move onto the financial outlook for Q4 of FY15 that ends on January 31, 2015. And I'll conclude with an update of our target model.

During the call, I'll discuss 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, as adjusted for income taxes. As we have discussed in the past, the Company has seasonality to both its revenue and gross margin. So I will include year-over-year comparisons for certain key operating metrics to assist in the understanding of changes in our business.

Our Q3 2015 revenue of $65.7 million represents an increase of 42.8% over the $46 million of revenue in the same period in the prior year. Camera market revenue is estimated to be 96% of Q3 revenue compared to 87% for the same period in the prior year. Wearable sports and professional IP security camera markets demonstrated strong growth in the quarter, both sequentially and year-over -year. The launch of the three new camera models by GoPro underpinned a very strong wearable sports camera build for the holiday season. Our professional IP security revenues continue to grow faster than projections for the IP security market, driven by strong results from Asia.

The year-over-year revenue growth in consumer IP security was strong, but remains a small percentage of our overall security market revenues. Although IP security continued to have the highest unit shipments in the quarter, sports cameras generated the highest revenue dollars due to the increased ASPs associated with the strong mix of higher performance sports camera revenues.

Q3 automobile market revenues increased both sequentially and year-over-year, reflecting growth in both Korea and China. The automotive market in Russia, where higher-end dash cam products are more popular, remained soft in the quarter due to weak economic conditions in Russia. Third-quarter infrastructure revenues were down compared to the previous year and remain below preceding quarter as system manufacturers continue to experience soft markets in most regions.

Non-GAAP gross margin for Q3 of FY15 decreased sequentially to 63.4% compared to 65.1% in the immediately preceding quarter and 63.8% in the third quarter of the prior year. As discussed on our last call, gross margin in the preceding quarter was high due to the mix of revenues associated with shipments of our 4K versions of the S2 and a large volume shipment of A9 chips into the UAV, or quadcopter market, creating a difficult sequential comparative.

Non-GAAP operating expenses for third quarter were $18.7 million compared to $17.5 million for Q2 of 2015 and $16.8 million for Q3 of the prior year. The increase in OpEx from the previous quarter resulted primarily from increased costs associated with chip development, including the 14-nanometer chip projects.

Non-GAAP net income for Q3 2015 was $22.1 million, or $0.68 per diluted ordinary share, compared with non-GAAP net income of $11.1 million, or $0.37 per diluted ordinary share for the same period in the previous year. The non-GAAP effective tax rate in Q3 2015 was 4%. The quarter benefited from a low tax rate due to the release of tax reserves of approximately $510,000, or about $0.02 per diluted share, that were no longer required due to the expiration of the statutory audit period. In the third quarter the non-GAAP earnings per ordinary share are based on 32.4 million diluted shares as compared to 30.4 million diluted shares for Q3 of 2014.

Looking at the first nine months of FY15, our revenue of $153.6 million and non-GAAP net income of $41.8 million represents increases of 30.5% and 67.2% respectively over the results of the same period in the prior year. Total headcount at the end of Q3 2015 was 515 compared to 507 at the end of the previous quarter, with about 357 employees dedicated to engineering. Approximately 76% of our total headcount is located in Asia, primarily in Taiwan and China.

We ended Q3 with cash and marketable securities of $186.3 million, adding $17 million of cash from operations in the quarter. Total accounts receivable at the end of Q3 2015 were $41 million, or about 57 days sales outstanding. This compares to accounts receivable of $26.8 million, or 53 days sales outstanding, in the prior quarter. Net inventory at the end of Q3 was $14.8 million, or about 53 days, compared to $13 million, or about 64 days, at the end of Q2. Accounts receivable and inventory remain in line with Company targets.

Ambarella uses WT Microelectronics as its logistics supplier for distribution to the majority of our ODM and OEM customers. For the quarter ended October 31, 2014, sales to WT represented 51% of our revenue compared to 60% for the same period in the previous year. Chicony Electronics, a manufacturer of camera products for multiple OEM customers as well as for their own distribution, represented 41% of revenue for Q3 of FY15 compared to 25% for the same period in the prior year. WT and Chicony were the Company's only 10% customers.

I would now like to discuss the outlook for Q4 of FY15. We expect revenues for the fourth quarter of FY15, ending on January 31, 2015, to be between $57 million and $60 million. This represents an increase of between 43% and 50% over Q4 of last year. Q4 camera revenues are estimated to remain strong through the quarter, ending between 94% and 96% of total revenue for the quarter compared to 90% in the fourth quarter of the prior year. Q4 professional and consumer IP security revenues are expected to have solid improvement, both sequentially and year-over-year.

Wearable sports cameras are expected to improve year-over-year, as the impact of the new product launches at GoPro continue into the quarter, but decline sequentially. We expect automotive revenues to increase both sequentially and year-over-year in Q4. The automobile market revenues reflect increases in Korea and China, partially offset by continued softness in the Russian market.

Infrastructure will be flat sequentially and down year-over-year. Although we anticipate continued strength through the end of this fiscal year, we believe year-over-year growth rates will be more in line with our target model as we move through the first half of FY16 as the holiday push subsides and inventories are normalized. We estimate Q4 non-GAAP gross margins to be between 62% and 64% compared to 63.4% in Q3 of FY15 and 64.1% in Q4 of the prior year. Camera margins are expected to be flat compared to the previous quarter as the mix shift to higher resolution, higher margin chips is offset by lower margin China-based security business.

We expect non-GAAP net income for the fourth quarter to be between $15 million and $17 million. We are using an estimated non-GAAP annualized effective tax rate of 8% for net income amounts. We estimate our diluted share count for Q4 to be approximately 33 million shares. In looking at our target model, we are keeping our targeted annual revenue growth rate between 20% and 25%, which is driven primarily from the mix of markets we are currently servicing. Although we have potential for new revenue sources as a result of the new opportunities we have discussed, the timing and amount of impactful revenue from these markets remains uncertain.

Gross margins for the year are targeted between 59% and 62%, with the first half expected to be higher than the second half due to the potential of higher concentration of consumer-based business in the second half. OpEx is expected to remain flat as a percent of revenue as we absorb the initial step increases in cost associated with 14-nanometer tape outs. This will leave operating margins in the mid-20%s as a percent of revenue. I would like to thank everyone for joining our call today, and now I will turn it back to the operator to manage the Q&A session. Operator?

(Operator Instructions)

Ross Seymore, Deutsche Bank.

Hi, guys. Congrats on a strong report and guide yet again. George or Fermi, can you just talk a little bit about where the surprises occurred versus your guidance in both the revenue side of the equation and the gross margin, as you guys have been pretty consistent beaters on both of those? So just wondered where the surprise was this quarter.

I think two areas, and not necessarily, I think, really a surprise. But just more aggressive purchasing both in the Asia security market, as well as the high end of the sports market. So those two areas drove revenues a little higher than we had anticipated. On the margin side it's really just a mix issue. We had a strong quarter with our A7L product, both in sports as well as in automotive. That has replaced some lower margin older chips in several of the cameras that are out there, which actually ramped up quicker than we anticipated.

I guess as my follow-up question, that mix dynamic with your new products, you've talked many times in the past how new products carry better gross margins. How should we think about that trend as we think about FY16, or calendar 2015 as a whole? Is that a year where you expect ASPs and gross margins to a tailwind in that regard? Or are there some dynamics we need to appreciate?

I think there's, in the early phases of the year, the early part of the year, I think there is some tailwind to these products. I think mix changes, the potential for mix change in the second half related to consumer-based business might bring those margins down a bit in the second half of the year.

Great. Thank you, and congrats again.

Thank you.

Suji De Silva, Topeka Capital Partners.

Thanks. Hi, guys. Can you remind us the seasonality typically for the April quarter following the January quarter fall-off?

The April quarter is usually relatively flat to Q4, but it can be up or down. And that's usually driven more by product introductions and things like that versus any seasonality in Q1. So you'd normally see that plus or minus on Q4 by a small percentage.

Okay, great. And one of the markets that's getting a lot of press today -- these days is the wearable market for public safety. Can you help us size that market, and what kind of share you (technical difficulty) get, and are you in major products like Taser Axon, things like that? Just to understand.

This is Fermi. I think like what we said last time, and we are shipping these kind of products in Asia for several quarters now, especially in China. We started seeing RFQs from US OEMs aggressively in the last several months, and currently Taser -- sorry, Taser is shipping standard definition video that is not ours, but we do believe they are transition to high definition. And hopefully that we can have a chance to pick it up. But we believe most of the US OEM going to ODM from Chinese ODMs, and that will give us opportunity to win those business.

Great. Congratulations on the strong results [today]

Kevin Cassidy with Stifel.

Thanks for taking my question, and congratulations on the great results. You had mentioned more tape-out, or 14-nanometer charges. Are you doing -- can you say how many different masks you are running?

Well, we are still -- we haven't tape-out yet. So we are in the process of taping-out. Usually in this tape-out process from the beginning of design to really tape-out take anywhere between five to six quarters. We haven't tape-out anything at yet. But as you can imagine, we will probably in the process of taping out 14-nanometer chips, in the pipeline we'll probably tape-out multiple in the given times.

If you remember, Kevin, we start amortizing the tape-out costs when we start the project. So we are amortizing tape-out costs now for chips we have not yet taped-out.

Okay, great. Also you had mentioned that AT&T is offering some Ambarella-based. Do you know what percentage of the cameras that they're offering are based on Ambarella?

These just announced. We haven't seen the number yet. So it's hard for us to estimate it.

Okay. All right. Congratulations again. Thank you.

Jay Srivatsa, Chardan Capital Markets.

Thanks for taking the question. In terms of the color you had given for 2015, year 2015, could you talk to us a little bit about what the dynamics are? Are you seeing kind of slowdown in the IP market, or is it a combination of this wearable as well as the IP growth being very strong this year that you expect a slowdown? Give us some color on how each of those segments is going to play out in your view.

I think we're going by market information on a couple areas. For instance, we still believe we will grow faster than the market in security. We believe the sports camera market, listening to GoPro, they're quoting somewhere in the low20% growth rate next year. We don't believe our automotive market will be as fast as our overall corporate market, so it will be below. And then our infrastructure market from a dollar standpoint's going to be flat, and so that will be declining as a percent.

So the mix next year of our current markets with security on the high end and automotive on the low end of the camera markets. What happens in these new markets I think is the wild card we're still evaluating. When will these new markets actually ramp to revenue levels that actually impact our overall revenue? That's still difficult to forecast

Okay. With that backdrop, maybe you can clarify your thinking behind the gross margin guidance. Is it related to competitive pressures, or is it related to just the wearable markets continuing to dominate your revenue profiles? Give us some color there, please.

The consumer markets are going to potentially put pressure on our margins on the downside, particularly in the second half. So we're working those into our second half forecast. So we'll see margins decline over the first half and then sort of flatten out in the second half.

Okay. Last question. Fermi, in the past you've talked about Hisilicon and how they continue to play really at the lower end of the market. Has any dynamics changed competitively in China, and how do you see 2015 playing out?

First of all, I think Hisilicon continue to show us new chip. They just recently announced a chip which is half the performance of the chip that we just announced called A3. So I don't think the overall dynamic change between us and Hisilicon. I think they continue focus on lower market, and we are trying to win the business and leveraging our highest and high-end and (inaudible) [mainstream] solution for our low-end products. So I think the overall dynamic is still there. I think Hisilicon, because they are part of Huawei, we just have to assume that they're going to continue to be there. We need to deal with it.

Thank you.

Charlie Anderson, Dougherty & Company.

Thanks for taking my questions, and congrats on the quarter and guidance. I wonder if you could talk a little bit about the consumer security market. You said it still is a small percentage for security for you. I wonder if you could maybe give us a little bit more color on that? Is it at 10% of IP security for you? And maybe kind of compare and contrast the October quarter versus the January quarter for that business.

It's actually below 10% still, significantly below. The growth rate is good. We're actually probably seeing a little bit of a bubble because of the holiday season in that market. We would expect that to probably flatten out for the quarter or two, and then second half of next year is where we're hoping to see strength in that market.

I don't know if you have sort of early returns yet from AT&T, but maybe any idea on take rates from the customer as you roll this out to additional customers? How many cameras per household, what percentage of households, just any color you are getting from some of the OEMs on that.

Like I said, we just start -- the products are being shipped. So we haven't gotten any indication in terms of follow-up orders. So that's why it's hard for us to make a prediction right now.

Got you. Thanks so much.

Quinn Bolton, Needham & Company.

Hi, Fermi and George. Congratulations on the strong results and guidance. George, you mentioned in the commentary about sports cameras sort of an uptick in ASPs as GoPro has adopted the A9 in the high-end models. Can you give us some sense what kind of ASP uplift you're seeing here in the second half of the calendar year? And then I've got a couple of follow-ups.

Yes. If you compare to the previous holiday season their high-end camera, we're averaging probably 25% to 30% ASP improvement on the high-end compared to last year. So it's a significant increase.

Would the entire sort of sports camera segment sort of follow that uplift, or is it blended across the entire business, maybe up more in the, say, 10%, 20% range?

Yes. It's not a blended number. That's just the number for the high-end. If you took a blended number, it pulls it down quite a bit because they have the $129 product, and then they have their White end product. So those ASPs are significantly less. So yes, it would pull it down quite a bit as an average across the whole sports camera.

Okay but still up year on year?

Definitely still up because yes, the majority -- they still ship higher volumes at the higher end.

Got it. Great. And then just on the security camera market. I think in some of your slide deck you'll talk about the market being -- approaching 70 million units. Can you give us some sense on two factors. One, of the roughly 70 million market, how much of those units today are IP cameras versus older analog cameras? Have we crossed over, is IP camera now the majority of unit shipments, or is that still ahead of us? And then second, where would you estimate your market share to be in the IP camera segment exiting the year?

Right, so I think the first question is, we believe that it hasn't crossed over yet but it's very close. If you talk to different customers already have different opinion. If you ask the same question last year, everybody said that IP camera is still much lower than analogue camera, but this year I think the opinion changed. I won't be surprised next year if the cross-over will happen that IP camera will be more than analogue, but still that's still have a growth because the market by itself continue to grow. In terms of market share, it's very hard to predict because there's a lot of vertical integrated players like Sony, Panasonic Access use their own chip, Sensor has their own chip. But we do believe that we have a higher market share than both TI and Hisilicon at this point.

Great. And then lastly, any comments on the quadcopter market as you look into the January quarter? I would expect that might tick down seasonally, but that was one market I don't think I heard you give any sort of outlook for.

Right. We haven't [carved out] that market to talk about separately because it's still very small revenue compared to other bigger market, but from a growth point of view, I think they are really having very healthy growth for the last several quarters already, and also we can see that they are a lot of momentum and the discussion around this product line. So I think I won't be surprised that next year we're going to continuously healthy growth for this kind of product.

Great. Thank you.

Brad Erickson with Pacific Crest Securities. Brad, your line might be muted. Joe Moore, Morgan Stanley.

Hi, thank you. I wondered if you could talk a little bit about the longer term prospects in automotive OEM? Where sort of it's been, I guess, 1.5 years since you started introducing the kind of multi-camera solutions that might be appealing to the OEMs. I know these are multi-year design cycles, but when do you think -- are you engaged with those guys now? And I know you don't -- there's nothing that we can forecast in an out year, but is this something that could evolve over the next year where we could start to talk about revenue opportunities in that space?

Right. So from the revenue opportunity point of view, I think it's still far away because as you know, that design cycle is so long. But what I can say is we have spent significant marketing dollars and efforts on this market, and we continue to see good feedback from the Tier 1 OEMs and for our current video products, mainly, for example, the surround view or using digital video to -- for other possible automotive applications, and for OEM market. From a marketing point of view we are making progress, but it is this is such a long design cycle I just don't want to commit to any revenue forecast at this point.

Yes, understood. Thank you very much.

(Operator Instructions)

Ross Seymore, Deutsche Bank.

Hi, guys. Just wanted to sneak in one follow-up. One clarification, George. When you gave the long-term guidance, one, I assume that's FY16 specifically. The real question is, when you talked about the long-term growth rate being in the, I believe you said, 20% to 25% range, is there something strange that's going on through the course of next year? Because it seems like to get to that level if the April quarter is flat, which you guided to, the first half of the year would be up somewhere in the 40% range. Is there something strange that would happen that would bring it down that far in the back half of the year?

Yes. Right now we are not forecasting the second half of the year to have the significant growth that we had over this year. So if you were to look at this year's growth rates of 45%, and 45% to 50% in Q4, we don't anticipate that next year. We are actually seeing growth rates in the second half be slightly lower.

Okay. Thank you.

Brad Erickson, Pacific Crest.

Hi. Thanks for taking my questions. Let's see if I can work my phone correctly this time. Given the customer concentration with your largest action camera customer, can you talk about how you're feeling about that relationship looking out into next year, particularly from a pricing and margin standpoint?

I think the relationship with GoPro is continue to be strong because we continue working closely (inaudible) next generation products for next year. And I think there are a lot of activity going, although there's nothing concrete that we can report at this point. But I think that I can say that we're healthy. When it come to the pricing negotiations, it's always, as you can imagine, is ongoing process and has to -- it's always people try to get the best out of it. So I think from that point of view, it's just normal process that we have to go through to reach an agreement later.

Got it. That's great. Can you kind of talk about, in the IP surveillance market in China, how that opportunity looks in terms of the high end, particularly where I imagine you're doing very well? How is the mix likely to change going forward, or maybe put differently, which portions of that market are you seeing sort of the biggest opportunities here going forward, and when I say portions, I mean segment high end, low end, mid tier?

Right. So if you look at -- if you -- we kind of define low end as the 720p, which is very, very competitive market and where Hisilicon I know is competing a lot in there. So where we define mainstream is really the resolution is above, specifically around 1080p or higher, and below, way below 4k resolution. In that range, that I believe that's going to be mainstream next year, and we have very strong product line and also design win cycles in there. So I believe we're going to be -- we're going to do very well in that mainstream market. On the high-end side is really when you talk about 4k market, there's no competitors yet competing with us. So I think we're going to have a relatively easy time in that market. But from growth point of view, I think the mainstream going to continue providing (inaudible) growth in terms of dollars, revenue dollars for us.

Got it. That's helpful. And then finally on the quadcopters, a lot's been said around that market recently. Can you just kind of talk about what your expectations for pricing of those devices, kind of from your perspective how that could develop in 2015? Obviously a lot of these things are priced north of $1,000 at this point. Where might we see prices on the consumer side of that fall as early as 2015? Thank you.

We expect the ASPs in the quadcopter market to be on the high end of our camera ASPs. First of all, it will be the -- right now the high end chips, the A9 chip is going to be popular, and we should be at the high end of the ASP range for those chips in that market.

Got it. Thank you.

Jay Srivatsa, Chardan Capital Markets.

Thanks for taking my follow-up. Fermi, can you speak to us on where things are with the Google Helpouts? I know you had a demo earlier this year at the Consumer Electronic Show. Any development there, and what's your sense in terms of how they're progressing with their initiative here?

I don't think there's any progress on that project right now. So I think Google, I probably need to decide how to take on this project moving forward with it.

Okay. And then in terms of WT, looks like as a percentage of revenue it dropped quite a bit sequentially. Have you looked at alternative sources here, or is just a drop in this quarter related to some of the products for WT?

WT is just a logistics supplier. They don't distribute products in the sense of selling. So it's just a mix of what customers. And if you could look, Chicony jumped up this quarter. They do a lot of the consumer cameras, so they normally are higher in the third quarter. The WT relationship is very good. They do a very good job of logistics for us, but again they do not do any marketing or selling of the product. So we are still dealing directly with the end customers in all cases.

Okay. And then last question. George, in terms of your commentary on the second half of next year, what gives you the confidence that it's going to be sequentially down from Q1 -- I mean, from the first half? Is it related (multiple speakers)

(Inaudible) say sequentially, not from a dollar standpoint, from a percent standpoint. Year-on-year percentages won't be as high in the second half as they were the second half of this year. You have a large impact of product launches, three major projects went out this second half of this year, which brought that growth rate up pretty significantly. And we wouldn't anticipate, or right now we are not anticipating, that same impact next year.

Got it. Thanks for the clarification.

I'm not showing any further questions at this time. I'd like to turn the call back over to Fermi Wang for closing remarks.

Thank you, and thanks for joining us today. And I want to send a special thanks to all our employees for their continued dedication and hard work. Goodbye now.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program, and you may all disconnect. Everyone have a good day.