Growth in drone popularity benefiting chip maker Ambarella
According to Market Watch,&nbsp;Ambarella, who makes chips that power a GoPro, is pushing into the industry of supplying the chips for high-end, commercial-grade drones. Ambarella currently supplies the chips for the built-in cameras in DJI drones and according to a company spokesman, currently 10% of the company's revenue in the last quarter came from the cameras of drones. Ambarella is expecting their revenues to increase as more investment is being made in the drone market.
Ambarella AMBA, +2.56% is mostly known today for making the chips that power GoPro’s GPRO, +0.84% wearable video cameras, and where one stock has gone so the other has followed. But Ambarella is pushing into a category that may offer a strong new area of growth: supplying the chips for high-end, commercial-grade drones.

Consumer drones have grown in popularity over the past few years with the introduction of hardware such as DJI’s Phantom in April and the release of a GoPro drone in July. But this year’s big drone announcements have less to do with the flying robot and more with the quality of the camera mounted on them.

“The killer app for drones is aerial photography and videography,” Chris Day, Ambarella VP of Marketing and Business Development, told MarketWatch at the InterDrone conference in Las Vegas. “There are so many different models, but one common denominator – high-quality video.”

Chinese drone manufacturer DJI last week announced at the InterDrone conference two new cameras for its Inspire 1 drone that allow for super high-resolution imagery. The X5 and X5R are micro four-thirds cameras, meaning they have larger sensors yielding better image quality. And Intel-funded drone maker Yuneec announced a drone with a camera that incorporates a Panasonic GH4 micro four-thirds camera. Both drone makers are stepping up their high-end offerings aimed at enterprise clients.

“We believe a drone without a camera is a toy,” said Kevin Cassidy, an analyst with Stifel Nicolaus & Co. “Ambarella has a technology for being able to capture video at a very high frame rate...even when you’re moving 20 mph at 50 feet in the air.”

An Ambarella spokesperson wouldn’t comment on whether Ambarella is making the chips powering DJI’s new X5 and X5R cameras, since the drones have not yet been shipped. But Ambarella currently supplies the chips for the built-in cameras in DJI drones and is known as the primary supplier of high-end video camera chips.

“10% of our revenue this quarter came from cameras on drones,” said Day. “A lot of people were surprised by that.”

Ambarella expects that percentage to grow in the next year.

“With the large investment being made in the market, we see growth potential,” an Amabarella spokesperson said.

Ambarella’s drone-related revenue figure doesn’t include GoPro cameras mounted on a drone (for instance, the 3D Robotics drones sold with a GoPro pre-mounted or, for that matter, the GoPro drone coming in 2016 that will come with a GoPro camera), since the GoPro can be used for other purposes. Ambarella would not comment on how much of their revenue comes from GoPro cameras.

For the past 10 years, Ambarella has been making semiconductors powering HD video. In 2009, the company connected with a young Nick Woodman, now CEO of GoPro at a CES show.

“Nick didn’t have any engineers at the time, but a great idea,” Day said. Ambarella worked with him to make the first GoPro.

Ambarella has been working with Chinese drone manufacturer DJI since its Phantom 2 series of drones. Getty Images

A little less than three years ago, the company met with DJI to work on their Phantom 2 line of drones.

Ambarella shares tumbled in early September after revenue outlook suggested GoPro wouldn’t launch new products for the holidays. Shares of Ambarella rose 6% Monday after a note from Cassidy maintained a buy rating and price target of $115 on Ambarella.