- Earnings call transcript Q2 2023

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Operator

Ladies and gentlemen, thank you for standing by and welcome to the Credo Semiconductor Second Quarter Fiscal Year 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session. [Operator Instructions] I will now like to turn the call over to Dan O’Neil. Please go ahead, sir.

Dan O’Neil

afternoon. Good joining second our quarter. for our call today XXXX fiscal us you earnings on for Thank

in of Chief and like and Joining may plans, not uncertainties strategies Brennan, contained the extent comments that forward-looking materially Officer; in on cause our management our nor are statements factors any documents our markets today made any future Chief Officer. the other the me from which differ statements today from we for are those discussion. to future which statements. Executive operations, company with and discussed to Credo It's on factors this to or regarding These Dan in impact the may SEC. that the expected remind business forward-looking all combination and all of everyone risks risks detail actual to can its the are or areas call Bill company's in factor to predict Financial filed results operate certain I'd include possible assess Fleming, results, of forward-looking financial subject

be Given these financial measures discussed occur we in call measures is we this the during materially the earnings that, certain discussion prepared we non-GAAP of now publicly to conform statements results our issued accessed to this these not this be I'll events to These for financial performance actual will reason the risks, of A date statements portion assumptions, in non-GAAP any to not to except are by we refer measures, expectations implied. using our differ non-GAAP those to turn today, may company's and undertakes why and reconciliations in after as which Relations law. in to results could for call, over from the substitute an changes important and available company's consider the or to anticipated actual no With non-GAAP financial required with or accordance release Also GAAP. performance. obligation can forward-looking and adversely call superior call or during company uncertainties measure between The GAAP update U.S. website. provided and Investor to the of the as a measures and use which addition our Bill? CEO. of financial forward-looking financial

Bill Brennan

for Thank you, Good joining thank Dan. you everybody call. afternoon and to the

Dan our solutions need markets standards speed future results exponentially. Credo's higher pure I'll connectivity After for the connectivity I During moving financial increases is or into QX conclude, circuits ICs, company. Chief and fiscal expectations speed review first Financial high play Officer We provide as market the active of we or extending families will prospects. this share Fleming, based other call, electrical results about service are our a chiplets. our Today, forward. why AECs and Credo product excited and built integrated and ethernet detailed our our review cables remain for a include

as primarily consist SerDes Our solutions intellectual property licensing. or IP

growth deliver enabling the from This that solutions to cost. optimized, centers. data and IP the starting Credo with ecosystem XX% and and of high October and on our the per leverage solutions, a with led sequentially. our customers progress our connectivity increase and brief an of with in I'm fastest year-over-year SerDes application currently companies suppliers quarter, XX% of speeds electrical these up unique has across infrastructure Our million report update solutions second, we specific portfolio, applications both pleased to our to rates better solutions efficiency X.X us All give product continues per ranging growing high XX address port various $XX.X second. power one the industry, secure at speed and terabits optical to that I'll AECs. in hyperscale and the of be provide revenue gigabits achieved record semiconductor to now to

continued been of and strong cable XXX XX to pioneer AOCs this assumption copper execution cables we In-rack, place. lane the would times The power, are has been constraints. speeds when the low as optical with opportunity speed broad due or deliver AOCs. category. Credo to family deliver AECs, size signal than obsolete to product historically reliability made saw half of product better half take cost DACs second, DACs, and single AECs develop as connections DACs For industry with per their dead, gigabits passive increased have a integrity that become that physical an the

to compelling the innovate rack dollar offer forecasting customers the market that switch rack server analysts also saw are grow on Industry functionality to to five now to architectures. our enables years. four opportunity in We to multi-billion AECs a next and

as enabled new broaden architecture of they tour ramp the the continue with customer first Credo by We deployments dual volumes to AEC. our

ramp the ’XX in developing completed to for speed has solutions stringent with customer. qualification the of future happy solve second multiple roadmap and that expect We deployments. we're hyperscale Credo the our their higher continue I'm to calendar AEC to report

and ’XX. our We expect to end expect the ramp meaningful of begin fiscal this near contribution year revenue fiscal in

move and customer developing as engaged speeds. rack addition, AEC their switch In applications, gig XXX generation in are server solutions for advanced single this they to rack with lane next we

for also developing currently hyperscale with further port customer architectural yet gig market, we're engaged with our XXX two another traction in rack a application customer the future have in switch third and hyperscale We qualification a in for AECs deployments. broadened we're

primary AECs in data and including well as carriers, XG we've ODMs, to clearly centers, sold the Although as hyperscalers networking customers, our ecosystem. others of OEMs focus dozens are ethernet our

the have first AEC in solution leader at XX Finally, Credo per This be introduced terabit Credo generation. as second enabler critical to OCP, market. terabit for a very is proud second per connectivity which X.X industry's reinforces switch the will the the

Credo disruptive solutions we delivering moving all product optical that Now our category, solutions, for optimized on cost. are and solutions reach, power as to our speed, focuses do across

applications XXX several XXX XXX AOCs, optical gig with DSPs we single span the XX great gig, enthusiasm. Our been XX and speeds, gig lane and announced breadth gig, TIAs [DOV] include new and XXX optical and quarter, gigabits lane solutions In including drivers second products, they've October and gig, and in optical XXX the customer XXX laser of per with modules. per DSPs, and gig met with XXX found including XX our (ph) gigabits drivers modules integrated both

design customers the wins PON our has a partners. To-date, have optical XG, specifying engaging and model customer through X the successful focusing development data to These a the center, include module customers fiber as optimal been In channel module base grown Tier we've with the or Credo’s to end include solution. directly, of and engagements to OEM. manufacturing go-to-market that joint is strategy on our addition customer our pull by means with JDM hyperscalers end end two to JDM

taking are applications we With customers the center had I'll XX data anticipated somewhat, than note our opportunity of with gig, longer teaming partners across customers. now module on from our range a We directly optical of material and qualification the including solutions. all year engagements that several XG to ago. new initial data line our we rent that, end XXX sight pursue customers process engaging actively center we remains XXX revenue environment gig, gig but now the I'm in jointly with see a gig progress ramp with to to have win and our and current as shifted same. XXX wide as pleased volume

and market our announcing cost. distinct We of we increasing the continue business. customer on will over efficiencies forward the share customer given role power and in to traction, of play optical look time structure deliver the we optical our combination the growth wins gain in we and Based to meaningful in the performance,

established has Card retimer needing as XX solutions our speeds. PHY Card gearbox gig This applications and PHYs ethernet security MACsec Line PHY Regarding as for gig at Line high and lane encryption, leadership for well solutions, solutions. per XXX includes Credo

networking customers leading Our and ODMs. OEMs and again hyperscalers include

connections. the for gig, Card speeds come to lane signaling speed that PHYs copper Line challenges single increases demand integrity with higher to due As increased the XXX

driving our terabits reception, and A show its October XXX the MACsec PHYs. we deployments. X.X combination announced in trend Also This We has PHY reach long for per Osprey performance in also Eagle our encryption per second their XXX with in to screaming one for of great lane received a see demand a of showing use toward October, from OCP MACsec the bandwidth. market solution, increased due retimer meta critical efficiency. power was highlight device demand greater gig of product of DSP

and need like Chiplet positioning design I'd and gain in off ODMs with minus nanometer give Credo We application. to customer compete IP nanometer are XX% three to to on the solid and customers it solutions, of our expect on which finally, current many has OEMs and solution process refer our over Credo’s SerDes SerDes we power kicking have efficiency it received the as on one position, what in gig positive sampled feedback and This required the extended offers continued business. Credo and to We've from SerDes four XXX advantage, market a nanometer. on four very an power product highlights IP nanometer and five will to announcement our engagements. market. five N competitors to Based nanometer confirms advantage our update licensing XX% engagements, our the share means the our that depending growth move to leading reach competition And and already we

multiple to leader the delivering Tesla the We're their chiplets Core industry lower Credo’s lower early need market the chiplet in with supercomputer its in to also carbon Credo are Notably, footprint, is electricity certified for production SerDes and every seeks Dojo As N selected use. technology on program. customers. an

call opportunities use give Dan about longer accretion in excited to highly we contributing million to This the we least to on in where near revenue, in to standardize markets. remain mid-term prospects more now of forward, at QX. In our second fiscal broad consortium is Going Credo’s term a in on due $XXX and CFO, production in servers. representing inside UCIE ‘XX. prospects deeply light emerging and the we're strong than for guidance on current member focused details and delivering growth, our Today, led our summary, XX% over coalescing Fleming, to the I'll chiplets achieve engaged of opportunities we're fiscal Intel chiplets encouraged solutions to our more we turn to and we're quarter the about continue consortium. remain provide compared expect ’XX and

Dan Fleming

fiscal of fiscal QX review for our Bill, good ’XX you, outlook results and afternoon. will ’XX. and Thank first our I then discuss QX

million a in place continued This by with record product products, share expansion you following sequentially As in in achieved the a the product driven non-GAAP XX% XX% XX% face at strong and of of our basis on at reminder, revenue wave million, driver the year-over-year. QX, an financials Sequential and be of we a otherwise that The $XX.X quarter, outlook record up discussed growth economic which of growth to $XX.X growth of uncertain up the landscape. a our I'm fundamental revenue strong highest a noted. of quarter revenue up reached in XXX% adoption. growth was led HSBC will and remains also unless another up year-over-year. by geopolitical sequentially was for AEC pleased speeds

our business, of quarter-to-quarter, Our but pre-existing remains our million largely $X.X to specific results revenue IP may IP QX. IP in vary reminder, from by driven of deliverables contracts. business strategic a as a generated part

quarter. long-term mix over revenue IP, QX was in which as vary revenue will the of timing IP of is time, our to well for in therefore X% quarter our given expectation IP during recognition XX% the shifted and IP below deliverables mix and product of While revenue revenue the IP XX% any

of We margin below long-term percentage XX.X% revenue quarter, come the came fiscal guidance our above range. revenue for product at our our and mix continue between to expect in IP to in gross as to expectations the year. Due a this IP

second basis year-over-year, XX expansion importantly, is our XX.X% to was guidance $XX X.X we product scaled growth. up strong up margin million growth. leverage the more for within were organization the principally our expenses operating gross up However, and the sequentially Total product This in percentage and as points due points from year-over-year. our in margin range XX% quarter product quarter,

leverage our as foreseeable note to twice below our grow we revenue considerably important this it's fast our top We the this, think is expect year-over-year at considerable expect I as that business. future. XX% growth. continue deliver will in the With that to OpEx line generally to for least

a by year-over-year driven increase XX% Our increase in OpEx was R&D.

As innovative deliver we the in continue to resources, invest to solutions.

continue We company Our in million out build operating we public XX% year-over-year, an $X.X QX, of but infrastructure. SG&A of up $X.X million delivered improvement down income sequentially. was as to XX% year-over-year,

the percentage million X.X% the $X.X was revenue gross but margin We $X.X profit. an of of second basis improvement year-over-year, quarter, mix flow an operating lower income in quarter in points an XX% million $XX sequentially, $XX.X QX, an million XXX Our of due delivered that increase resulted in increase Cash year-over-year million, cash points of million, and million from quarter the CapEx year-over-year, down mask sequentially. million operations from production to increase quarter, down and of first an and negative a XX.X of was to the $X.X in result in net $XX.X support $X.X million quarter. in sequentially. of million revenue cash equivalents was continued $X.X increase spending. million working growth. and decrease by increase $XX.X million, our line was the flow ended with $XXX.X free sequentially. year-over-year cash This capital a top $X.X investments driven And We decrease an of was of of

Our million, days $XX.X to while to decreased to XXX-days XX-days, in X.X% QX. decreased from sequentially outstanding down accounts receivable balance sales

QX continue inventory as $XX.X was million, up we ending million, product $XX.X ramp. Our sequentially our

Now guidance and to fiscal be QX the turning sequentially XX% quarter, the we and year-over-year. in currently for million midpoint expect to $XX ’XX $XX between X% third up million, at revenue our

XX%. of gross within We margin XX% be QX a expect to to range

finally, And QX average expect weighted million QX be it between open count that, expect approximately with $XX million. And to be questions. $XX shares. diluted XXX share I we We for to will and expenses operating up

Operator

with Thank & question Bolton you. [Operator Needham from comes Instructions] Our line Quinn first Company. the of

Quinn Bolton

strong hyperscale of you continue the the of looking if thought? your on that wanted you like switch for wondering a can these it as the the hoping segregated relationships, about Congratulations chassis expand on sort results. you Several think I questions, -- and Bill, rather second Is AEC guys. on I well the applications you this third you couple the the applications at I fourth to I Hey, mentioned business. product guess, sounds for application was and expand your hyperscaler, to in mentioned talk guys server as but than growth the to think could hyperscaler? distributed switch applications switch start

Bill Brennan

Yes.

hierarchy opportunities server AECs we the say racks for as really me Let that have well. two switching within the and

the switch opportunity we and are largest we racks chassis forecasters see that that market, a or market the call to market the that, So server it's show in disaggregated racks five probably comparison what to one.

switches those chassis pulling those vertically means between out and connections of rack, which become them Now switching internally basically connected what filled sticking the or the a segregation, in rack, popular, switches been with between stacking most a over chassis it's the big really big less. To is which within traditionally architecture, the choice a a meters switches connections in backplane X.X the with backplane. has

increase and is switching to gig that for moving picked been switch XXX lane going the as but make with And expect decision naturally over their racks, that We're they pursue, good. gig that compared that architecture center have those that speeds data is customer about are own encouraged solution time up. customers to to using or fully our getting so fact the each that chassis we XX it's

Quinn Bolton

Understood.

those of extend know evidence designs? are at just that non-standard the question sole those which I Are NIC that using you're remains you Credo quarters? for Second any least few application, on source foreseeable first with, Or that or landscape hyperscale to for would second proprietary believe the you cables? working future, those to the ToR competitive of seeing you're cables comfortable I customers hopefully the a the do looking pretty source feel couple

Bill Brennan

speaking think question that So generally data still that I multiple the there's customers center sources. want

can we've recognize an part feeling the haven't to So about idea different more team entertain to natural large able racks that to which the more The specific to that engineers even be of fabric they center live My the team of it's with absolutely is functions added intelligent, in. functionality been the AEC. we able that and that's customers that become solutions. optical that of that they for world to think functionality built, or and is data this having requests more as a AEC add

we're their perspective. the make So jobs If open end from working for their switch engineers the business. within that make with better ideas innovations the we'll way to data have we're rack ideas, centers a or those rack from as a server easier, entertain

I've moat that's and of as that really to the team for Now selling the copper a fact It's competitive chip competitively, door system a that about we've if doing full that this innovation. got not manufacturer opens we've talked kind the established the integration. cable

the we that, to a yes, demos we will cable naturally anything see the that competitors the still see We've with our think of boards are the market. wanting heard static And naturally customers I they eval does. competitors, our hooked that's in what about and connected I So passive we We've describe they'll that cables. in cable to secondsource. customers. we've And to attention labs wild competitors' haven't enter seen seen seen copper think where have to up not demos

I contrast really think from far October, to a in are when at competitors. leadership, it hyperscaler. the was our other And Conference think the of measure actual these So at we qualification I great a that, in OCP look especially

progress largest the per the router avoid ubiquitous each ports, the to XXX of on and speed the last We the the showed gig were lane is anybody the XX or from end-to-end that XX number second year-over-year, deployment seeing clear we is And wider built This of we've show attended not XXX to-date, made our showed that a the year going of made with cables. with of floor. This gig lanes. that that three world's the were note conference we from AECs up could router. I purple think purple, rack color eight lanes terabits year, gig. of which faster benefit with

we at the per so of per that same we rack gig single a terabits And AEC and in lanes introduced terabits XXX or same demonstrated XX bandwidth, second X.X that XXX this show, capacity second deployment. our

show we're just was and competition. And so that this you demonstrations our can of ahead far we one it, if of to many see was many, just it anybody clear physically gave that

Quinn Bolton

Great. you color, Bill. that all Thank for

Operator

Thank question with Goldman Toshiya line you. And our next the Hari from comes of Sachs.

Toshiya Hari

afternoon. Good questions. taking my Thanks much so for

one across well. for too really enterprise or you adoption you seen on OEMs behavior, any to whether Have some business? the for First and projects Or Bill, instance the really are the tweak based projects you reiterating guide, in fiscal strategic But too AEC get you've be that your year pushed sensed of guys fact the out hyperscalers or Thanks. curious for going if ‘XX? even you're your customers important it’d is downsized? of the change doing any large clearly customer full-year into

Bill Brennan

see I our customer that is what in think base Yes, we different really two threads.

the these base serve globally. optical. hyperscalers macro And CapEx And over past on wide in China. a next have Chinese kind situation ramp seen shift customers. hyperscale aware volume a about reduction the in that We quarter. We've within question no the a generation don't a the seen think delay necessarily in that's our and I everybody is customer high There's well of of to

of And second slight so that bending may hyperscalers, be curve. a heard U.S. really although part the there we've the is the and

that production ramped to slowing reached I the haven't better anyone but still might will a we've a ramp these decrease generation will different, customers of the and generation us, little that the with because bit product heard that be spending point engaged haven't the of going is see and current year-over-year. are so we very significant. than growth, saturation with, for every growth it technology. is new We is looks reiterate production we the next it ramp we're that that with we And so

base data share. centers in a anything, still better to competition to if to so market services fierce And win amongst deliver their order there's customer

see for a consistent even performance. to a better to better than And get an productivity, so critical like that environment becomes And this generation we very very, macro at there able to better to level, is pull next that differentiate. be technology get

customers So we're that we bullish ramping. still remain quite on the

We haven't shifts. any major seen

Toshiya Hari

and as the of second That's follow-up, great. ramp you contrast with you. meaningful recognition your ‘XX. vis what toward year customer end business, these in but was and you fiscal ramp my compare can't you're year in I talked far you've AEC a And a the that Thank you then understand then hoping expecting specific first about in customer year the on revenue this the I so customer. fiscal give with ’XX vis experienced too with customers, second could the fiscal

of talked But about potential ’XX would that on into fiscal be us the pricing think you you've year super uplift in set given if just I complexity. level kind twenty there helpful? a Thank can thoughts you. your

Bill Brennan

been seeing I a that As year. stringent what we that pleased ago, think We relatively we've a of samples -- second now And unique this customer in very last delivered a in cable with finished a sense samples engaged December we've we've we've year the of them. qualification. for built contrast, with from over been

architecture, green ramping it was necessarily so on really schedule Their light over is soon but a past the several the has with changing. wasn't servers quarters, and first full enabling were as our the And been a that consistent that contrast they're new our there it's as solution ready. customer,

of a it and an they in and to fashion. do we high next kind wasn't of customer the were that what architecture over better better them saw space had and much floor much, to generation gave was much utilization of it it of they and deployments cut orderly it kind But an so server, So passing of trying shift volume naturally like equipment. is utilization trying to the stream dual

compared objectives were. to it was a delayed, little so their what first And bit

this contrast new is customer, big a brand that the the of generation. kind second is that's So

extremely so there's deploy -- about. pull and And that something extremely time, strong to small that's on we're pretty deploy encouraged so

Operator

from And with Bank question Vivek Arya our comes of line next the of America.

Vivek Arya

for my a taking a like no had question. I'm of brainer I one, surface? the positive. AEC hyperscaler the third for also and for engagements seems first Thanks mentioned the adoption curious, you on is Bill main like fourth two the that XXX the seems upwards of Is with get? think you the that XXX or Is ramp pushback sharp you it certain that of a What just it time? What inflection matter Is do gig? drives speed? a it gig multiple customers? actually

Bill Brennan

there's with you I functionality, people why special, AEC our we've added think job think with is really One which two were a to customer to the and real solution. could you've something catalyst that's DACs. get you the first seen lanes, if clearly that about cause done doing ramp catalysts first XX seen differentiation big and that's

Our a of well as functionality second customer is combination as speed.

challenges to, And want staying world for talking the they fight customers large form to don't of that of gig number with so signal the we're as goes integrity a factor the lanes to XX and DAC.

And catalyst. other so is speed the

And AECs to so -- a If to decision we at the to occur. of, rugged more the power, a see going XX market Others of lane almost for the point. not the becomes Because DACs, in way going decision where don't per a they're half half that reliable, battle the some kind more generation use with being, has a see this solution cost, way very crossover that's gig connections, the big and we we've where default really short AOC, deployment that. see challenges they they're in-rack board. and so making seen across it fight a will than

a it's of towards function -- XXX which is progress we As gig, just time.

to DACs just that, choose the and total AECs ownership, the with it cost aren't becomes OpEx about versus the the down question because of we've break just number For I of AECs, hands idea. fact there throw of installers over. a CapEx fact established cables it think that that routing If tight look is a a is advantage, a and space. will going you them the People huge And right? and AECs game you better no in at the very huge sure, now that

rugged much design. So it's a more

Vivek Arya

maybe And because is to the $X sales do for expectation of, seems IP a the what think my Got QX? million than you more follow-up, curious million you $X of $X because up I'm expectations, that for QX, about for shortfalls up IP $X in million, it. your kind QX, made expect had something for this the were in like you shift. And I upside you've it, below but once make you're to in it on side. to million mentioned done product that

and So is of into the QX happened IP look the to QX you. just that how missing what that comes revenue revenue QX the we from Thank at just should missing that part Or QX? IP from QX?

Bill Brennan

Yes, thanks.

for is no for change is here full-year. IP in revenue note to expectation the that our thing important the there So

quarter-to-quarter about the of lion's the revenue is database. and way revenue which delivery at variability our is in XXX words, rules But mind we revenue value it our XX% target, And be revenue year IP be the work contract also to driven recognize to we long-term the to this plus the a where IP the of in And full-year, other mix the it of year bear that mix. have exactly revenue fiscal in we've above been So expected talking. overall expect for for of we ’XX that we've XX% IP. talked of when what contracts about for is our lot on point revenue comes around license the the historically by most to recognition largely ASC share that

from end ’XX on swings of the be quarters, of course higher ways. QX and fiscal of two QX So the ’XX happen fiscal but last revenue IP, to that we both of contribution

we've that a things and of product course as expand One critically continued our of gross increased margin that our we perspective volumes. track is margin has the gross product shipment from to

fact, up XX it was the product In basis points gross margin.

So helps. with we for the margins quarter to Hopefully, and we're for full-year. exactly where our be we're the quite that expect pleased

Vivek Arya

Thank you, Bill.

Operator

with Shannon Craig-Hallum. next question And of comes our from line Richard the

Richard Shannon

follow-up the my it Am I'm Hi, for product Dan, guess, very help If slightly? And were that the I product that can numbers down the product I topic Thanks our down NRE to took and I from gross guys. like dynamics exclude margins actually us my margins. calculation, the if of taking you looks understand right here slightly. running this want questions. on I so, calculating if right?

Dan Fleming

come Yes. sold I can much at into little the too that if more a margin gross vary revenue quarter-over-quarter. bucket, look that other And wouldn't at We that. product into elements to holistically. our of similar IP bit look goods quite read you cost bit a the

So from a gross that increase we product perspective a view this margin as in our our the way as continues at down just that a product product should right, stage, in that particular at where to did it our volume have an we if slight company, little look the But this NRE overall margin. is margin. uptick are you're quarter, excluding gross tick bit you

Richard Shannon

increase Okay. grow that if should mix think expect And very to is NRE slightly, margins those then people forward again fair? we gross AEC is assuming are that most excluding going as here, if especially we go your product to I

Dan Fleming

fair. that's Yes,

long-term being what of XX% that model remainder will our XX% margin to gross from gross in long-term revenue be XX% just that overall mix the -- remains and to And model. margin to the same, is Our IP, reiterate XX% so product. a perspective,

the into And stated you scale. ’XX increase factors FY of of that for margins we increasing past ramping that in really well. three-plus-year We than margin a comments gross difference as we initially out purely One in ’XX long-term? we've expect faster been to if AEC expand year the expected. read as kind Bill's the There this is what subsequent that has notable product and fiscal the view So are some of year will model.

So in year now if an bit optical initially somewhat out again has taking in look FY you ’XX expected than a impact to from implicit an And impact. our with a we little margin FY ramp of that longer ’XX.

for FY gross full-year similar fiscal is corporate to margin going overall, So our ’XX. is what to be it ’XX in the probably of

Richard Shannon

talked big even Ethernet and is here can thought your PCIexpress I you've question kind maybe exist of or standard growth one and picture a those. when dominant and contributing USB us lot both But a you cable Okay, perfect. your opportunities for detail, opportunities you're outlook? Obviously, more to of opportunities, that protocol give there. on recently you've Dan. picture on AEC in past to just supporting meaningfully process those with for start Thanks Bill, technologies the obviously your about big Maybe and think a you. alluded that of products

Bill Brennan

Gen enter in a way X. For to PCIe, moves the market when market our intent the to is really big

earlier when product a build to generations point is course, expect we compatible the really get cycles we're big expect we a the X. Of to to with in get to that's going market earlier way. what we'll is traction Gen But and that enter prior

we hopefully ’XX, so that on it's ‘XX in see back world and and decibels get goes the And the on being servers timeframe. really things schedules, faster. dependent And the the track

PCIe a for market opportunity. the measured view server as of a overall very can and it We this within UCI also the from equipment. our So retimer large opportunity PCIe I'll within and the market view say that be

USB front, we or probably we giga’s (ph) lanes XX two PAM see X. that the gig same It's per that XX timeframe it's [CIO] of of On second XX the kind the or see probably timeframe same that opportunity. the

AEC and AECs at at the or look for segments both opportunity, same see relates we a we it's standards to opportunity the it within both us to as opportunity, for way extension Ethernet. definitely natural look that very Now that

tell I'll straight you -- probably design go market to that one a building will consumer reference company be will probably model. USB, for cables not the Now the the

Operator

Suji Thank you. of Difficulty]. question [Technical the next Desilva, comes line our And from

Unidentified Analyst

Dan. Bill. Hi, Hi,

way it's revenue on engineering breakout a Dan. the read activity of two indicator you So I -- would perhaps for the that from of, services the lead three specifically see smaller be that line? with product but would as you hyperscalers know that four The that to kind in hyperscalers, of would to grow? are a growth question you part indicators where have revenue go Is to those, revenue, one or

Dan Fleming

dollars not and quite it necessarily them. company, from day nature It as just grow of quarter-over-quarter. able some we've solutions. And as we’ve NRE chips it’s bit our capture a we've the don't solutions in expect I absolute revenue, to speaks it way, that to for read to would developed that vary from really -- And can longer term, been customers dollars. one innovative IP our we a like

really -- not read wouldn't anything for such I indicator it's So it a as lead that. as

Unidentified Analyst

Okay. Bill. for Thanks Dan. And question then perhaps the second

think, beyond it heard hyperscaler vast Is -- number kind your of a kick is part in You for the to non-hyperscale I could the that I being $X heard that customers? billion, talked offering majority correct there or billion about correctly. initial of you that to AEC evolve TAM the meaningful as these I $X

Bill Brennan

Yes.

to the forecasting multi-billion to timeframe. in market four really clarify, the year I that market five Just are and dollar forecasts it's referenced a

Unidentified Analyst

Four year, five okay. to

Bill Brennan

converted a revenue revenue I I that the speed, as would are and customers, at kind if the think contribution the hyperscaler same look can of We're market there's going we the outside of even see in of us. moves XG significant the different But one near-term with that quickly that opportunity there. major that's engaged to drive as look the an carriers engagements we've we there Yes, I of say as hyperscalers, they consider definitely to going think, market I I be from into can enterprise the hyperscalers. that hyperscalers first be size higher the magnitude say growth. that's what markets already collectively, about of the But like for can standpoint. order total

think we the the But add quickly. the hyperscalers significant in that can don't revenue primary is again are -- for us. the others engaging focus very, guess, drive with collectively I many to is board there across on I revenue near-term, So our very

Unidentified Analyst

Bill. Thanks Okay.

Operator

next Vijay from you. And with Thank our line Mizuho. comes Rakesh the of question

Vijay Rakesh

and Bill Dan. Hi, Yes.

quick a up side. with in made it I Just you question product well light, came looks like on the the quarter, IP the it know, but

give or was, it was color? wondering to specific some And it where was optical, customers or some you cable us in if can strength Just the markets?

Bill Brennan

So it discussed has was customer lead been a we've strength in in AEC as you that the would that expect. past. our with And

Vijay Rakesh

the And fiscal ’XX, the your your those as Got do side, ’XX would become development that JDM to similar of it. program, bigger calender joint margins distribution or to at have you you look mix expect a on the direct then sales?

Bill Brennan

a referring is about selling model, really when components. we JDM Definitely, Typically the optical would joint or even to to that be a involved talk model, the what selection in development hyperscaler module be we the under other would we're manufacturer. of DSP the

and forward is look the do kind we Really, back expect if for DSP say to we I model or go how I view from this Credo. market, where more development making, more hyperscaler of JDM gets expect the at kind up Credo of customer model so be the in the that If and from as progressing. we customers, in end three And we involved decision popular JDM first, engaging we Credo. succeeded we've component a the our perspective selected been it where that, the that

all high Tier gained second to Now deployments. Xs. high here, we've to phase being China, volume hyperscalers We're with volume two kind the among due of but talking the ramp traction first looks directly in delayed, on in of them the

driver, focus power XXX the and XXX well more might more on with more DSP in we the include optical hyperscalers seems the it so is as fruit, major there's U.S. gig high I multiple call, running to the becoming feel see a the going sight it sense. but even a that hanging better more confident if and Tier give XXX to the as with combination optical we're makes and are TIA. got And that important to programs solution a benefit officially I recently, it And have companies OpEx and cost. in performance, a mentioned low so that last engage refresh and And hyperscaler on we the of X in like it's and CapEx will an integrated can volumes.

deployments. would than of then phase kind a entering them. That's And sight. to of this few basically next that's third more of we're to for on we so and stages benefit cost with opened about kind the I existing a up or the of XXX will kind generation contract their additive that is of that that that that now And line The fact left say conversations, power be gig, offer compelling performance time. and we've volume same high the

gig market market. the time the good for to Our and devices is XXX gig for XXX

well testing received. been so very by been done that's And first the the has customer base

or enough is The the XX nanometer building So in very clearly we're cost because performance advanced like good five. and in they a a more clearly good the is see compelling clearly seven enough. versus process power is sense,

through that I gig on programs, our first given wins credibility so we've we're the engagements XXX and to the pursuing engagements for the the And market as established existing three market takes fact come that off. expect

Vijay Rakesh

restrictions quick feels your because you question. come didn't know have constraints, going have commentary. China like again you of it many Got the and it is And looks it. up all a just supply And like back COVID on that. really -- I actually into resolved been

in or restriction? terms of doing what getting So what you whole be in think, Philippines, of I to talk terms this there Vietnam about doing talk you're can or supply you're might diversifying your around chain,

Bill Brennan

we where So in to if with that product a of we in surefire than going I current they signaled progress China, ourselves mode about way that alternative land our a be ramp. making China. going the we've in for locations that location We're last can well. That's something we've we as a in my matches And inventory. that base is to what kind year XX-days to customer the for on dependent are think chain. less sure disruptions feel we're got will good face production of need customers and today. in that build We've is supply not in be I our that's looking that made the that, expectation until in continue in Even as

Vijay Rakesh

lot. Got it. a Thanks Great.

Operator

Thank question Tore you. with Svanberg comes next of And Stifel. our line the from

Tore Svanberg

record Thank question. Bill. you, have Thank related Dan. non-AEC Yes. the on Congrats results, you, a I

years? how think And few opportunity. that you for further talked about You about out, is I out chiplets UCIexpress recognize next do over we the as think but the should about playing kind this and of we this licensing,

Bill Brennan

chiplets of we product, that’s because we -- those. building think all, first of I a Well, as kind and classified selling we're

think our has so XX% the articulated. in of, the fits And to that long-term Dan relates range it guidance, to I as IP, kind XX%

very in of I the we see chiplets. For mean, were on ahead the UCIe -- early the we chiplets, far competition. of rest by this We're

of that early. disaggregation saw now we play kind on we're move but this out, really horizon, didn't very Given It towards big we USIe see the believers. that

really to Intel If has doing in look think you they they're are near-term. are popular today, consortium be going at driven that and in at I look chiplets relatively the volume what you high --

server, to move speeds this I gig And and you XX more a within XX see look that the as server gig, popular. if So in can eight future. chiplets more can you become to think to XX per

And so math. with very the opportunity. you that -- large It's be kind do of can becomes going to revenue a volume, it

Tore Svanberg

not sure was priority So think confidence mean like priority into hyperscalers priority CapEx, the some exciting. the I And information, could particular the CapEx? sounds to you and customer? obviously very fall this the about about sort end like we hyperscalers a and you for second I'm timing we highest just Is little of would give us CapEx how of there's the really think that AEC that it? some there. cutting in mean, hoping launch, a then on when should the I I to bit That's that's lot follow-up have background more expected

Bill Brennan

about way that I it. the That's think

as something as For within talk as this that imperative well a program as view within the base. chain, is I our it strategic customer sure, they about supply

consistent feel going that any mainstream. happen with as be We're that might and signs the course, have schedule, can it's I cause it no that And our confidence So change But this more we not the go commitment to pretty can delay. get, seeing to But on a although pretty they have of not they're production. been their going from a things confident feels of is firm like we end. obviously, ramp. I the if when exactly make closer in to

Tore Svanberg

sort got build fair. Dan. based now quarter you should over in you to you comment about like lockdown said situation, until to inventory high last building of China days potentially XXX. whole the on get inventory situation inventory, very feel before you you that keep better for about would That's inventory Bill's the Dan, we feel just question did control? Last under expect days how you the

Dan Fleming

will now like a don't inventory, though our right they they small increase it with from in be in do looked a expect days of flat essentially that actually or increase. product quarter-over-quarter. are the Even increase were very growth We significant would line where Well, I if it quarter-over-quarter. it’s kind

ensure where cable with we comfortable we're don't we a we are, of back COVID mind, of amount in of that continue QX, kind lockdown inventory interrupted inventory, that of bearing excess that run when to our So had in we that situation in build demand. days to fulfillment an into of

term, wouldn't of major days to will course, down So deviation a we're Longer that inventory, from right maybe XXX inventory comfortable of with the I where now days settle any and future. expect perspective. off in but we are that's of

Tore Svanberg

Okay.

good. again. Congrats Thank Sounds you.

Dan Fleming

Thanks.

Operator

our comes of from Matt Cowen. line with the And next you. question Ramsay Thank

Lannie Trieu

This on Matt extend I well. congratulations wanted my as is Ramsay, Hi. for to quarter Lannie the for

hyperscalers? you Chinese optical of sight to to And how where solutions, confirm the customers back to product to line the the you that two qualification being volume there any first was due your push is as long are out is Going terms in mostly that could program of reps?

Bill Brennan

deployment. -- centers. timing really last to mean, a we to of in data first it And perspective, got my from hyperscaler it's volume. I specifics And Yes, shift it's when Chinese told there goes the were when the clarity quarter, I I when the is to will that high two on ramp. going that's are on confirm customers that haven't the going be during

the volume, that's will our bit think, the might I with even more a drive further really as if we've I And might to continue And so efforts high is hyperscalers, making shift how the long small I U.S. is clarity be -- it higher we're though that's we progress. make got and doing in volume. think going but that focus to on well. on say volume we be to that anything, that

Lannie Trieu

in earnings about believe I there That's past consumer of I Understood. Thank know PCIe, Any a we USB, should licensing. mentioned you. in you've customer progress? terms know for for updates helpful. that And calls,

Bill Brennan

hip-deep in the as license, consumer bandwidth gig important We're per IP company were lanes by Yes. XX PAM modulation. really is generation this USB for two selected large next XX this which executing gigabits on that and partner standard, we of

the anybody lower think fact it's the in is industry. architecture that We power our delivered I reflective unique. of than

doing we'll signed we more the move even we're this their really yes, wrapping and there a six great on So they it's as years finally really a samples due year ago to four back And their as that partner. But absolutely technical the own work ago. production. be would they hip-deep part diligence were select contract up a the next of little than they that confirmation us goes months to the then execution be to and and expect from we within

Lannie Trieu

Got it. Thank you so much.

Operator

from Thank Quinn you. Bolton our the And of next & question with comes Company. line Needham

Quinn Bolton

includes And that opportunities is Bill, the quick thanks then for you customer, us it. lead several CXL as also was past on the a sense to they've electricals? A the above market, does of for the if your Thanks. a follow-ups taking you look wondering could quarters? in since run PCIe PCIe CXLs, quarter? know Hi, for follow-up been couple I XX% give what of revenue Dan, first. percent

Dan Fleming

Yes.

or the as which Q XX% that file XX% it in a largest customer. was is a customers our what then three we in So, there had the day see was Quinn, quarter, XX% of so and XX% you'll two in we

the blanks But fill those customers are. pretty there, the specifics can So kind obvious. in case, of XX% who we it's you from of the don't disclose in

Quinn Bolton

Yes, okay. Thank you. Perfect.

Bill Brennan

your we include definitely Yes, CXL, of question talk on we about to PCIe, that collectively. answer kind

Quinn Bolton

Perfect.

Okay. you. Thank

Operator

no I'll at to Mr. questions this over you. turn the There back call are you. time. Brennan, Thank further

Bill Brennan

the and to thoughtful end like everybody all Thank joining for with you we much. I'd call. will the the appreciate that, thank call. I questions very

Operator

call. concludes today's conference This

disconnect. may You now

Credo Technology Group Holding (CRDO) 1 Dec 222023 Q2 Earnings call transcript