Ambarella Has 'Material Upside Opportunity' In Xiaomi's Action Camera

In a report published Sunday, Pacific Crest analyst Brad Erickson commented that China-based Xiaomi Inc. aspires to create the action camera market in China. As such, Ambarella Inc (NASDAQ: AMBA) should benefit as consumers flock to the category in a similar manner as seen in North America and Europe.

Ambarella is a developer of semiconductor processing solutions for video that enable high-definition, video capture, sharing and display. The company has an agreement to supply components to Xiaomi for its action camera.

Erickson continued that Xiaomi's action camera sales on Tmall are not yet meaningful, but are selling above the listed retail price by 40 percent to 50 percent in most cases due to a lack of availability for the product. As such, the analyst suggested that the company has longer-term pricing power with customers.

The analyst added that Xiaomi's initial channel strategy is "measured" but will likely ramp up further. Investors can benefit by investing in Ambarella as the company has a "material upside" opportunity in Xiaomi.

Shares of Ambarella remain Outperform rated with a price target raised to $78 from a previous $76.