Is Ambarella Inc (NASDAQ:AMBA) is reportedly under threat of losing the chip socket in GoPro Inc (NASDAQ:GPRO) cameras to Qualcomm, Inc. (NASDAQ:QCOM). But what are the chances of Ambarella being displaced as the provider of video chips used in GoPro’s future HERO camera?
It is speculated that Qualcomm is trying to sweet-talk GoPro to use its chipset in the HERO5 camera that will launch later this year. That would mean GoPro is ditching its long-time supplier of wearable camera chips.
But these are not just street rumors because even Ambarella’s management has commented about it. Ambarella CEO Fermi Wang, told shareholders months ago that they were aware Qualcomm was trying to take one of their customers, which is believed to be GoPro. But he expressed confidence that Qualcomm would not succeed, adding that Ambarella was ready to compete with Qualcomm.
Wang’s confidence about retaining the GoPro socket is predicated on the assumption that they provide better quality video chip technology than Qualcomm. That largely explains the reason GoPro has stuck with Ambarella as its preferred chip supplier. It is another reason GoPro’s cameras stand out in the wearable action camera market.
Can GoPro trade quality for cost?
But there is still one thing that could make Qualcomm successful in winning over GoPro from Ambarella Inc (NASDAQ:AMBA). Qualcomm could lure GoPro to its side with low-cost chips because it is desperate to grow sales at a time when its core smartphone market appears to be cooling. Given that GoPro has in recent times been struggling with shrinking top line and bottom line numbers, an opportunity to save could be tempting.
But in accepting low-cost chips from Qualcomm, GoPro will be trading quality for savings. GoPro is stuck between a rock and a hard place here with a tanking stock and the need to maintain quality.
A key customer
GoPro accounts for about 30% of Ambarella’s annual sales, thus making it a large customer who could trigger devastating losses at Ambarella if it chooses to go to Qualcomm.