In its latest quarterly report, Ambarella (AMB), a designer of image processing and Hi-Def video compression semiconductors, inserted new language warning of “increased volatility” in sales and revenues in the “near future”. The company noted some of its customers have indicated they’ll reduce inventory levels as capacity improves. Ambarella expects demand from these customers to decrease in future periods.

This warning is especially troubling as Ambarella’s customer concentration risk is significant. In FY22, Ambarella’s top two customers accounted for 75% of revenue. Its top customer, WT Microelectronics, accounted for 62% of sales in FY22.

In February 2022, DuDil+ members received our Exclusive report detailing how Ambarella was strong-armed into a new distribution agreement with its top customer WT Microelectronics. The new deal was kept secret for months. While Ambarella refused to answer our questions about the deal, it did not deny the new terms are less favorable than the original.

Ambarella shares are down 50.8% since we published the report.