By Mike Herman
GoPro Inc (NASDAQ:GPRO), or Camera on a Stick, is the latest craze in recording and sharing your experiences in sports. You cannot surf the web for five minutes without running across some wild, amazing or funny video someone shot while hiking, scuba diving or zipping down a zip line. Inside these tiny high definition cameras you will find the latest in digital video and audio technologies, all packed neatly on a set of semiconductor chips for documenting your latest adventures.
GoPro just reported fantastic growth. Their tiny wearable cameras are flying off the shelves and selling well, and competition has not yet impacted margins. That is great news for GoPro’s suppliers, most notably Ambrella. Ambarella Inc (NASDAQ:AMBA) Amabrella manufactures the key components of the GoPro cameras, as well as many others.
From Ambrella’s website: “We are a leading developer of low-power, high-definition (HD) and Ultra HD video compression and image processing solutions. The company’s products are used in a variety of professional and consumer applications including security IP-cameras, sports cameras, wearable cameras, flying cameras and automotive video processing solutions. Ambarella compression chips are also used in broadcasting TV programs worldwide.”
In short, Ambarella semiconductor chips, as well as many of their competitors’ products, are everywhere. Of the major markets they supply, none is mature or shrinking. Security video cameras, drone video cameras, wearable video cameras, automotive video solutions, every one of these areas are tapping into the latest video technology in order to make life more interesting, fun but more importantly, provide a greater sense of security and safety.
This fairly new shift of the use of video technology from personal photography and passive documentation to a more active role of the video camera used as a safety or work tool, is an important lifestyle shift that has created explosive demand. And not just run of the mill demand: When this level of importance is placed on one’s security and is used at the work place daily, the need for the best quality and latest innovations becomes a priority, making these electronics devices somewhat consumable. Electronics tend to have a relatively short life, and it is conceivable that someone with a need to run a wearable video camera for most of their working day will likely need to purchase new equipment at regular intervals, say every six to eighteen months.
Beyond body cameras, security cameras for home, business and mounted on police vehicles are here to stay, not to mention major metropolitan areas like much of New York City are under constant video surveillance. Drones have become much more widely used but will only become more common as the FAA develops rules for the use of the air space for deliveries. And for me the biggest area for expansion beyond body cameras is automotive uses such as Advanced Driver Assistance Systems (ADAS) and 360-degree view cameras and mirrors. I believe as these systems prove their mettle in accident prevention and as drivers become more reliant on them they will become a key reason for folks to invest in a new vehicle.
Investors in this space are likely to focus on several high-quality semiconductor companies and consider, but in my opinion, Ambarella is a top pick.