Valens Semiconductor's Q3 2025: Contradictions Emerge on Automotive/CIB Margins, Pro AV Recovery, Tariff Pressures, and A-PHY Adoption

Date of Call: November 12, 2025

Financials Results

• Revenue: $17.3M (Q3 2025), above guidance $15.1M–$15.6M; vs $17.1M in Q2 2025 and $16.0M in Q3 2024
• EPS: GAAP loss $0.07 per share (Q3 2025), same as Q2 2025 and vs $0.10 loss in Q3 2024; Non-GAAP loss $0.04 per share (Q3 2025) vs $0.04 Q2 2025 and $0.03 Q3 2024
• Gross Margin: 63% GAAP (Q3 2025), vs guidance 58%–60%, vs 63.5% in Q2 2025 and 56.4% in Q3 2024; CIB 69.1% (Q3 2025) vs 67.8% Q2 2025 and 70.3% Q3 2024; Automotive 43.2% vs 50.5% Q2 2025 and 36.8% Q3 2024; Non-GAAP gross margin 66.7% vs 67.2% Q2 2025 and 60.7% Q3 2024

Guidance:

• Q4 2025 revenue expected $18.2M–$18.9M (seventh consecutive quarter of growth)
• Q4 2025 gross margin expected 58%–60%
• Q4 2025 adjusted EBITDA loss expected $4.6M–$4.2M
• Full-year 2025 revenue expected $69.4M–$70.1M (midpoint ≈20% growth vs 2024)

Business Commentary:

* Revenue Growth and Market Demand: - Valens Semiconductor Ltd. reported revenue of $17.3 million for Q3 2025, significantly above its guidance of $15.1 million to $15.6 million. - This growth was driven by strong customer demand exceeding expectations in the Pro AV market, marking the sixth consecutive quarter of growth.

• Cross-Industry Business Unit Performance:
• The Cross-Industry Business Unit accounted for $13.2 million or approximately 75% of total revenue in Q3, with a notable increase in revenues from Pro AV and industrial machine vision.

• The growth was attributed to successful adoption of its VS3000 chipset in high-end products and the market's first end-to-end camera-to-processor MIPI A-PHY platform from D3 Embedded.

• Automotive Market and A-PHY Adoption:

• Revenue from the automotive segment was $4.1 million, comprising 25% of total revenue, with ongoing engagement in evaluation processes with multiple OEMs.

• The company's leadership in the A-PHY standard was bolstered by new product launches, including the upcoming release of the IMX 828 image sensor from Sony, enhancing its potential for further market penetration.

• Gross Margin and Financial Performance:

• 
• Q3 2025 gross margin was 63%, above the guidance range of 58% to 60%, with a non-GAAP gross margin of 66.7%.

• The financial performance was supported by improved product mix and operational efficiencies in the Cross-Industry Business Unit, despite challenges in the automotive segment related to manufacturing line transitions.

• Medical Endoscopy and Market Penetration:

• Valens Semiconductor secured design wins with three OEMs for the launch of VA7000-based disposable endoscopies, including the first 4K Resolution colonoscopy.
• The adoption of its technology was driven by addressing key market needs, such as reducing video loss during endoscopies and enabling single-use devices, as well as the growing trend towards minimally invasive surgeries.

Sentiment Analysis:

Overall Tone: Positive

• Management emphasized outperformance: "We delivered revenues of $17.3 million, significantly above our guidance" and "GAAP gross margin for Q3 2025 came in at 63%, better than the guidance." They reiterated multi-market momentum (Pro AV, industrial vision, medical, A‑PHY automotive design wins) and provided growth guidance for Q4 and full-year 2025 despite ongoing adjusted EBITDA losses.

Q&A:

• Question from Neil Young (Needham & Company, LLC): You asked about the sequential drop in automotive gross margin — is the manufacturing line transition/product-version mix a one-time event and should we expect improvement in 4Q? Also, what are the puts and takes for 4Q gross margin guidance, and what's driving the strength in CIB/Pro AV (tariff impact) and relative growth vs automotive into 4Q?
  Response: Management said the automotive margin decline was largely a one‑time issue (product-version mix and a manufacturing-line transition) that should improve next quarter, and that tariff headwinds have eased, supporting stronger CIB/Pro AV demand.

• Question from Sujeeva De Silva (ROTH Capital Partners, LLC): Can you color the Pro AV upside this quarter and how sustainable it is? Also, what factors are pacing or gating broader MIPI A‑PHY adoption across auto and non-auto and what could accelerate adoption in 2025–2026?
  Response: Management said Pro AV strength was broad-based across matrices, conference rooms and projectors with growing conference-camera demand, and that MIPI A‑PHY adoption is being driven by higher-resolution bandwidth needs and EMI immunity across automotive, medical and industrial markets, positioning Valens well.

• Question from David Storms (Stonegate Capital Partners, Inc.): Year-to-date gross margin is ~63% but Q4 guide is 58%–60% — is that mix, seasonality, or macro conservatism? Separately, on Medical: with three product launches, what is the pacing for further launches and logistics for expansion?
  Response: CFO said the Q4 gross-margin guide reflects anticipated product mix and revenue drivers; CEO added medical momentum stems from eliminating EMI-induced frame loss, enabling single-use endoscopes and larger sensor-lens separation, with design-win momentum and mass-production targeted in the 2027–2028 timeframe.

Contradiction Point 1

Automotive Gross Margin Trends

It involves changes in the reported trends and expectations for automotive gross margins, which are critical financial indicators for investors.

Can you detail the automotive gross margin decline and discuss Q4 expectations? - Neil Young(Needham & Company, LLC, Research Division)

2025Q3: This was a one-time event due to a mix of different product versions and operational expenses related to manufacturing line transitions. Expect improvements in gross margin in the coming quarter. - Gideon Ben-Zvi(CEO)

What factors contributed to the Q1 automotive gross margin improvement? - Robert Lynch(Stonegate Capital Partners)

2025Q1: Automotive gross margins improved significantly in Q1. The improvement is due to ongoing efforts to optimize manufacturing costs and product mix. Initiatives to achieve cost reductions are ongoing, with sustainability dependent on market conditions. - Guy Nathanzon(CFO)

Contradiction Point 2

CIB Gross Margin Expectations

It involves changes in financial forecasts, specifically regarding CIB gross margin expectations, which are critical indicators for investors.

Can you explain Q4's gross profit margin guidance? - David Storms(Stonegate Capital Partners, Inc., Research Division)

2025Q3: Gross margin in the quarter was 82.3%, primarily due to a higher mix of lower margin products from our CIB segment. We expect to return to our historical gross margin range in Q4 of this year. - Guy Nathanzon(CFO)

What is the breakeven revenue and expected CIB/auto mix? - Sujeeva De Silva(ROTH Capital Partners, LLC, Research Division)

2025Q1: We expect gross margin in the quarter to be about 43%. This is primarily due to a higher mix of lower margin products from our CIB segment. We expect to return to our historical gross margin range in Q2 of this year. - Guy Nathanzon(CFO)

Contradiction Point 3

Pro AV Market Recovery and Sustainability

It involves the assessment and expectations regarding the recovery and sustainability of the Pro AV market, which is a key segment for the company's growth.

What's driving CIB's strength, especially in Pro AV, and should we expect higher sequential growth than in automotive for Q4? - Neil Young (Needham & Company)

2025Q3: Pro AV growth is driven by a mix of matrixes, conference rooms, and projectors, with a particular niche in conference cameras. - Gideon Ben-Zvi(CEO)

Which end markets in the cross-industry business show the strongest near-term demand? Are any end markets showing weakness? How should we view the segment's growth trajectory in 2025? - Neil Young (Needham & Company)

2024Q4: The traditional ProAV market has been weak but is seeing new opportunities like huddle rooms and connecting cameras to rooms, which are natural growth areas. - Gideon Ben-Zvi(CEO)

Contradiction Point 4

Tariff Impact on Segments

It highlights the inconsistency in the company's explanation of how tariffs affect its segments, which could impact investor understanding of the financial implications.

Can you elaborate on the automotive gross margin decline and outline the 4Q gross margin outlook? - Neil Young(Needham & Company, LLC, Research Division)

2025Q3: The semiconductor industry is affected by tariffs because our customers, who integrate our chips into their products, are producing them in countries exposed to tariffs. The pressure is similar across automotive and audio-video segments, as it's our customers who are exposed to tariffs, not our chips directly. - Gideon Ben-Zvi(CEO)

How is the tariff pressure distributed between the two segments (CIB and automotive), and which one is experiencing a more pronounced impact in Q3? - Neil Young(Needham & Company)

2025Q2: Tariff influences have become milder, making companies less reluctant to place new orders. The Pro AV market is recovering, with demand exceeding expectations. Growth in Pro AV is expected to continue, but specifics for 4Q are not provided. - Gideon Ben-Zvi(CEO)

Contradiction Point 5

MIPI A-PHY Adoption Pacing and Market Drivers

It involves the perceived drivers and pace of adoption for MIPI A-PHY, a critical technology for the company's growth in automotive and other markets.

What factors are pacing or gating MIPI A-PHY adoption in non-auto and auto sectors? - Sujeeva De Silva (ROTH Capital Partners)

2025Q3: MIPI A-PHY's adoption is driven by the need for solutions that can handle high bandwidth and resolution in cameras, reducing the impact of electromagnetic interference. - Gideon Ben-Zvi(CEO)

How is recent M&A in the in-vehicle connectivity market impacting the competitive landscape and A-PHY's position? - Wei Mok (Oppenheimer)

2024Q4: We have a clear strategic vision of where the 4ns are going, that consumers are going to use this high bandwidth and this high resolution. - Gideon Ben-Zvi(CEO)