Earnings call transcript Q3 2023

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Operator

Ladies and gentlemen, thank you for standing by. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session. [Operator Instructions]

I would like turn the conference over to Dan O'Neil. sir. ahead, go Please

Dan O'Neil

thank XXXX for Third and on us our Fiscal Quarter you afternoon, joining all today Good Earnings Call.

from Dan Financial today Executive me Credo Brennan, Bill Joining our Officer, and Fleming, Officer. Chief our are Chief

to I'd statements results, this forward-looking today and in detail comments other risks call we plans, and of remind are future like These expected markets may areas future operate, filed are in everyone which to that regarding certain discussed made our that in statements, subject with strategies, include forward-looking operations, SEC. discussion. the uncertainties and and in documents

to not can any of combination may company's the It's all in factor management cause nor the factors to differ statement. forward-looking actual assess contained all extent impact those of risks, business, the materially which for company any its from factors or to possible on results predict the or

for assumptions, call materially and events undertakes risks, forward-looking discussed uncertainties, these as forward-looking date to to actual no in adversely obligation or from of this and results expectations these and statements actual any to implied. law. statements those anticipated reason during The Given to results, after publicly changes company's the or occur, this required company the could update by call except the not conform may differ

These financial financial we is Also, or release and financial measures during performance. our website. for this discussion measures of in GAAP available to financial performance A in of be consider today, non-GAAP we the portion and and which as can we Relations with be important which call, prepared to issued an non-GAAP our of earnings superior not measures, refer substitute addition, US all accessed we Investor use accordance company's GAAP. non-GAAP in the will reconciliations are between financial measures a using non-GAAP measure the to, certain to provided why

Bill? turn our the call over I'll CEO. to that, now With

Bill Brennan

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

outlook, I'll Credo the us third trends Credo's We Ethernet customer call, for updated high-speed and is along with FY solutions growth. and our our first market. have pure-play our a this 'XX company. industry connectivity future that During built discuss the optimistic about quarter results engagements

current and include, integrated or Chiplets circuits, low-power Our high-performance of electrical IP. and portfolio cables solutions ICs, property active connectivity or or AEC, intellectual SerDes

better IP of solutions application-specific leverage unique optimized portfolio, our and cost. deliver SerDes to and with product enabling power our All secure, high-speed us efficiency solutions

XX electrical per solutions optical terabits gigabits connectivity per applications X.X at currently and second. to address second up ranging Our both port from speeds

operators, and Our hyperscale and customers center Ethernet include data ODMs, optical networking ecosystem. the in manufacturers, equipment OEMs others module

market the as the expand While exponentially. we more need into today, power-efficient serve and connectivity primarily other continue increases for Ethernet to standards-based speed higher we markets

and million, $XX.X growth than of revenue reported of sequential X% Credo QX, growth XX%. more For year-over-year a representing

Additionally, non-GAAP were gross for and Both guidance we reported gross QX. margin revenue within margin XX.X%. of our

customer reduced products. Prior X-K largest demand an to for to ago. the our their I update the like on near-term two briefly discuss We business, X-K because our filed weeks progress with we our would filed giving our forecast

the We reduction performance is our position at source maintained continue to reasons believe that this and to unrelated we've to our sole due customer.

connectivity XXXX. the in overall The consistent data forecast, and in We along technology ever need with our increasing. market. headwinds reduction remain revenue power will and infrastructure This collaborative fiscal believe across problem-solving the trends strongly macroeconomic speed, QX the market for in is fundamental efficiency impact the

XG hyperscalers, as optimistic well growth remain and about we and unchanged, our in customer our given largest ongoing remains model our carriers. opportunities, advanced programs financial engagements as several long-term Our with other

business, update on an beginning on moving with Now our to overall AEC.

continues by growth driven to pioneered product which category and solutions, During a we industry our AEC our was gain acceptance. QX, broad

short solutions unique for AECs products. to and for the migrating our feature of reasons, tailored are including various a of customers AEC in-rack limitation solutions set of cable list growing alternative Our

other network higher physical and benefits rates and better DACs center to over our compared AECs data AOCs to attributes As power, offer offer operators integrity speed or migrate and cost signal lane and greater, of AECs compelling XX-gig across reliability.

AECs AECs our our switch expect for innovate can solution as customers use most for for within or architectures multibillion-dollar Additionally, to AECs become offer four Industry servers market applications, well a compute and prevalent as years, analysts become on in both five to connectivity. functionality in-rack disaggregated rack AI/ML as the racks.

shipping roadmap future our we'll on to AEC to both volumes engage we strength this on of term, near and While server relationship. continue racks with reduced the compute remain be and the for programs the them confident we largest customer AI in in

to I'm Credo their ramp stages the the expect still of with detailed And hyperscale production of begun developing, that second our the in fiscal early line happy volume XXXX. contribution is we report customer. although has ramp meaningful time

with rack to server customer switch their this and engaged next-generation as single also speeds. developing solutions AEC they applications, We're for rack lane in deeply move XXX-gig advanced

two applications, flight to XXX-gig switch we make We're AECs. XXX-gig and additional using as other customers both continue Additionally, rack AI progress and for with hyperscalers well. with in server rack

remain hyperscalers opportunities operators XG center primary in we're and While other carriers. our meaningful focus, with engaged data

manufacturers, to of Credo a to across solutions, category this breadth differentiated Regarding solutions XX-gig securing through laser optical our as products with our through far, progress and directly with In development XXX-gig disruptive joint DSPs, module models. optical leverages the for technology on hyperscalers wins deliver port also market. TIAs applications. deliver we optical We've SerDes seen as thus well both drivers success

environment, in market. disruptor revenue the role While the in of our ramp time play shifted the production achieve optical current to to has we continue the volume

our Enabled has XXX-gig DSPs technology, time with conference and family products. introduced port provides in compelling we and success gain confident San Diego there. our come share OFC remain cost. the considerable demonstrations the power a forward and our over to be combination we'll XXX performance, look where optical we're you of recently at due XXX-gig will markets XXX strong next Dove have of we seeing DSP with by initial I SerDes many optical superior week Dove for Our showing several Credo our will to confident differentiation. presence

Moving Line Credo Card leadership and our Card market hyperscalers Line PHY networking to to ODMs. solutions, across continues in OEMs extend Ethernet the and our PHY

high needing MACsec Our for well encryption speeds. PHYs security as as gearbox and solutions lane applications XX-gig XXX-gig include retimer at and solutions

recently Eagle and category. Our PHY Card is product long-reach which performance highlights announced this our retimer and X.XT leadership screaming gearbox in Line DSP power a

we've PHY I in that Line the power-efficient the market most using will solutions note the XX-nanometer process. delivered Card

compete result to creating to expect decrease market cost XX% to advantages As significant as a we for power competition X-nanometer forcing and and we a time to to in our achieve move to X-nanometer, Credo. move

business. now on an to like would SerDes and update I licensing IP SerDes give our chiplet

by were revenue lead attributable to Ethernet results QX electronics and consumer XX-gig our customer licensing. Our bolstered

sales While the funnel our IP business our is rules recognition variable robust. IP cycle, is customer and due to

confidence in growth we to customer have feedback. too Here our due prospects

would Customers and the the considering X-nanometer and minus if highlights to depending need X-nanometer customers have X-nanometer achieve XX% to compared IP reach competition on of XX% their process move to competition. our to offers advantage shared of application. the our that means which X- Credo's power X- N our efficiency to advantage, IP solutions again power one XXX-gig SerDes a This

opportunity SerDes Finally, suggests a trends will of meaningful chiplet SerDes long-term us. opportunity, chiplet become for market regarding including advancement market the the the that UCIE consortium

our evidenced market this the Our including and leadership Intel. revenue wins position chiplet in production is SerDes by with category in Tesla multiple

power and on In that's better summary, the us demanding Credo afforded remains speeds market focused in a our higher opportunity by efficiency. laser large differentiated solutions

Our importantly all N minus one is a process us maybe electricity distinct increasingly power. most in Power efficiency of customers advantage lower multiple our Credo important products. help across and advantage of use but through gives can axes, consumption competitive our

disappointed the our adjustment the disruption near-term the we're about in Clearly, given largest customer. outlook with

our as prospects feedback discussed, the from as additional from fuel optimism the developments just However, in future. and that our about customer other customers the well growth I

We remain and customer solution for bandwidth to the committed ever-increasing and expansion connectivity collaboration, solutions. to needs our higher power-efficient address more continued portfolio of the innovation close

provide to open At this the you. additional over the time, Fleming, Thank for then I'll We'll line details. who call our questions. Dan will CFO, turn

Dan Fleming

Thank XXXX. QX outlook and good XXXX and our I'll you fiscal discuss first fiscal for review Bill, our QX afternoon. of results then

As a a non-GAAP on be financials following noted. basis otherwise discussed unless will reminder, the

range, continued traction by reported up $XX.X reached In within of we and driven XXX% XXX% million which our QX, $XX.X business, revenue sequentially X% up was guidance IP up up sequentially our year-over-year. QX, in Sequential growth year-over-year. in and million XX%

IP IP as reminder results may pre-existing to our business, remains a specific contracts. largely quarter-to-quarter our deliverables vary from by driven part a strategic of but

revenue. and for is above IP vary of revenue over in our which mix QX quarter product our expectation mix the XX% time, given XX% to of any in IP, will was IP XX% revenue long-term While

fiscal as our IP of expectation in long-term year. expect to the for continue We percentage come to current revenue above a

up product Year-over-year year-over-year. of product AEC generated QX, revenue XX% growth million by and in driven in business growth. revenue principally Our $XX.X was XX% down sequentially

a of With quarter, basis up sequentially. points our guidance team within delivered result margin IP XXX XX.X% gross this strong range and our

near gross XX.X% hovers IP generally Our QX. margin was and XXX% in

gross in revenue basis XXX down principally XX.X% was points mix. basis product margin to XXX due year-over-year Our quarter, points sequentially the down and

were our in revenue Total our $XX.X up year-over-year below the XX% growth. guidance third midpoint and expenses quarter million year-over-year the operating below XX% of considerably

to to was deliver in XX% resources year-over-year solutions. the continue increase we invest OpEx by driven increase Our as a needed innovative R&D, in

built we public company up of Our We million QX, SG&A of $X.X and XX% year-over-year was sequentially. as non-GAAP $X.X infrastructure. income out in operating improvement an year-over-year, up delivered million XX%

year-over-year top Our resulted line operating in gross profit. due was improvement sequentially higher an XXX growth eight up quarter the margin points percentage basis points that to of in XX.X% and

$X.X of of a mask in an We And million quarter sequentially. $X income largely increase quarter, Cash decrease third cash flow sequentially QX, XXX% and million, delivered by used increase and million, million $X.X free $X.X sequentially. flow a in $X.X was CapEx inventory. driven million by of million million $X the to and negative $X.X production of year-over-year decrease in million in million was spending. operations up decrease a of of due year-over-year $X.X a year-over-year $X.X decrease was net the an

capital cash ended investments. from $X.X a in second quarter result capital the $XXX working decrease of We of of and was with and expenditures quarter. cash million equivalents the million, a decrease This

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

Our was $X.X $XX.X QX up million, million sequentially. ending inventory

Now between million in XXXX and at sequentially turning down currently our revenue million, midpoint. expect XX% QX of the $XX to fiscal to guidance. We $XX be

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

expect between million. and $XX $XX QX operating million to We expenses be

year expect year fiscal to weighted XXXX. QX And expect XXX to be shares. fiscal approximately XXXX flat revenue we finally, We compared be count diluted million average share to

will And questions. open that, for with I it up

Operator

Sachs. And question Hari first come [Operator Certainly. our Goldman Instructions] from will Toshiya of

open. is line Your

Toshiya Hari

much had so you Thank for taking afternoon. I good I may. the if Hi, question. two,

an largest time a Is better The in want that you're you is your you Bill, seeing cancellations going the it fundamental first I just on customer. from it inventory change a still sole in one risk of But the line push outlook Is the your customers' think simply I to driving forward? confident what's mentioned any prepared their of them? remarks you're understand change projects, there. infrastructure in and or that dynamic? are here? near-term source

Bill Brennan

Sure.

inventory So customer it's is working One of believe is a with. they're We a working that this through. two clearly fundamentally we're that complex things. combination

their in pockets there's more bringing the up that of inventory past normal This I to think level. behavior other built is with inventory within constraints a of supply years. a And I change combined saw that our were over of supply chain. down levels coming few we they're off the think

factor. that's think first I So the

confident to We nothing programs there's we're will there's use really pretty factor additional we The that that qualification pushouts with seen a suggest in feel of we to pushouts issues AECs and our been is with position products. longer no they've customer. factors. pretty sole with that. I this that due that technical our key source second confident And various that have no feel delays reiterate programs,

it think new push-outs well and I as delays. boils inventory down SKU to So really as

Toshiya Hari

XXXX my matter. second Dan as for outlook, that the then question Got or Bill on it. And maybe fiscal for

for a to guiding you're range outlook. million X-K, the Prior in the revenue. low Street was So modeling I flattish revenue to somewhere think the $XXX

clearly, pretty change there's a been there. significant So

I the materializes the customer you revenue would just that about break talked Can of some dynamics of I of in and XXXX, you will, would the sub-components, a the push, guess sort it's are the you if if change individual how half you about largest hope that I think thinking fiscal of second out that? but drivers that

you AEC have well. And customer then fiscal second IP talked Line robust your obviously as business, a ramping business about XXXX. Bill you in Card

the about fiscal So can you talk think you XXXX? as through components individual

Dan O'Neil

address that let Toshiya, me initially. Yes.

So it you'll quarter. XX% in in we revenue the up so, of XX% our from our or a see starting QX, as our largest Q was was day which largest in what with customer customer, our file in prior

the So, forecast I still the of on because So obviously reduction, that upswing, that trajectory new mentioned right? customer was with trajectory this changes. that

is just previously had largest two we macroeconomic to applying -- of reduction FY to third related XXXX about then across and We see. this weeks customer that we board, the described ago, factors about that this increased conservatism just based on we're two-thirds it due a

customer a you remains if customer the do math, FY very large still So our largest in XXXX.

fiscal where full -- throughout year course if ramping analyst of The But to that's quite for now comfortable helpful. we're XXXX, estimates year. the second we the right with hyperscaler the expect see

Toshiya Hari

quick that, as the one-third baking in your your Dan. one The outside product conservatism XXXX the side cut, to primarily or you is customer? And IP business of sorry, are of year in follow-up that fiscal well, largest

Dan O'Neil

It's -- consider should it just the board. of across kind you

Toshiya Hari

Okay. so much. Thanks All right.

Operator

Bolton will moment our come & from Quinn One next next our Company. of question. for Needham And question

open, Your Quinn. line is

Quinn Bolton

you the still customer questions guys. opportunity at months your the meaning the you for steady at Hey, that customer. changed the of largest guess six has you would thought think AECs that I do around there? say follow-up to get to do wanted state on set you you get revenue ago, think end can I day,

compute largest instances? like some in be confusion guess there with your connected of servers What your InfiniBand a applications it just may versus Ethernet question, cables. the standard application of seems today applications I AI customers' related for are percent or And for

Bill Brennan

in the first. our part their The where answer is AECs the of portion server me the being Let used are applications compute understand – so it, we deployments. second as

would slightly the different those servers. InfiniBand We're with there. Intel InfiniBand, that line as from us the as and opportunity processors up And an so – a well AMD for of there's really not that connect nicks is protocol. standpoint

related are are a able are standpoint we not that are the AECs negotiate, not qualified. Our something there speeds something built specifics support to but to From speed we've course InfiniBand. the would that pure just to be of protocol

you way we're could. If market is spending we And the of a view speculate your But not cable? about we Yes, it we future to it's you right now could the cycles market closed wanted and in build that Quinn, on. that InfiniBand repeat the part something pretty will the first question?

Quinn Bolton

the the opportunity reach InfiniBand the got an Just ago, you SKUs revenue months – let what me or follow-up steady internal a that you back at estimate you AECs forecast customer at could customer just six which that an on of of if think come I've annualized changed part a first given question but to state had push-out has mentioned? and that the

Bill Brennan

I had look the confidence we is I And can And I would say, hand. that backlog think had I – two the short-term mean, was ways. in I I that fundamental is something short-term on look, that were at think, I that look Clearly, at this we're forecast look long-term. the I I by our and the things at with don't Well, learning change change. strategy bolstered deployments. way hand then

maybe portion ago, spend. server aligned it to pretty their for that three I opportunity was would deployments compute our be about And the way near-term the that, of so felt six the months with

the look they're shift And don't that but the right standpoint how change in really that's short strategy. the there's I kind so over mid-term, now, a planning will to fundamental think of of from that something

the ramped, the white functionality question no to answer build quite solutions, term. that, I role in go first selling long functionality would cable at first a which I customer adopted that market say frankly, solution customer. the why switch could to that, that, really is plays into able fundamentals are other way other of all back our and the say cable any why that's accomplish. we're AECs the And reasons And then given that innovative there's the our I'll main being our And two cable we're is

that The faster speed passive just go And we've XX there's lane minimum talking talked seeing we're conversion a pure as times DACs a head-to-head advantage copper fundamental AOC. when than other much situation an AOCs, cables. is rates at we're and competitive being we're lower We're lower become reliable is more with obsolete about And reason this important with DACs about thing. a power a cost, solution. much most reliability AECs, the at maybe

largest playing more see as customer our And time, expand of move to is compute so really our way, they it will over from factoring out spend. an AI at just I opportunity the that in

I they'd all will to or speeds XXX-gig deployments for AI then see a be be a per I see and very term XX-gig and long compute really XX-gig where strong between the as opportunity think whether racks, the of we'll lane robust server ultimately TAM. correlation from AEC us move

Quinn Bolton

sounds just I with occur? the connected of today today to versus because that. InfiniBand What so guess, connected may is change are AI Ethernet Bill you're to in have playing InfiniBand AI an percent it not you follow-up like racks architecture InfiniBand it sounds with on like

looks probably been would even pretty there to benefits they've of though that ramp. AECs have on I thought the nicely mix come shifting for numbers one margins product like gross Maybe the know but for are up Dan that Dan. AECs, I then just to look over AEC despite would quarters have quickly to -- it volume the down And my even have me some ramped couple AEC past but you're and

AEC sense margins? mix quarters? it the over past to going So with Because with shift the down like of give themselves looks even have couple you the AEC AECs can come that what's margins specifically on us some

Dan O'Neil

So your just me by let product start margin question. addressing

related what mix you'd QX. are So one that my imagine it our higher as script mix the Revenue I But a overall percentage of is earlier really revenue in being there because AEC. mentioned factors. of was a was in revenue number key

fact that some AEC scaling has would mitigates gross So the than average benefit lower simply that margin of the get. we a corporate our

in six has item increasing second product our nicely you quite the due that to expanded QX. slightly over down scale, actually but to prior alluded revenue the margin product sequentially was overall But like quarters

gain of So that that mitigated some might expected. you have

then general that our margin to mention declined And XXXX. recently is forecast thing fiscal in for just the with QX last product finally, for year

you reserves, inventory when such against So comparing your things as calculate forecast. you're math the because changes

So expect prior us you just reserve would a to in position quarters take greater fundamentally. than

of factors So combination in drove those those decline that a really margin sequentially. -- product

Quinn Bolton

it. Got

it have we change in reserves have quarter forecast So higher January missed. given might might the inventory -- some been sounds the like that there inventory reserves

the Okay, great. a versus sense is don't And infrastructure you AI then Bill if have of today what of I part InfiniBand Ethernet? know

Bill Brennan

I tell robust think there's but a the can't that, But thoughts protocol perspective. pipeline can InfiniBand has AI across you the I are you industry I be first can an from specific of -- there's extremely applications about my I mover tell that for been space. Ethernet

Quinn Bolton

Perfect. Thank you.

Operator

Stifel. our Tore for And question. Svanberg One of from next next moment our comes question

Your line is open.

Tore Svanberg

kind to events. of Bill you. a it's is recent Thank due but a this Yes. question, bit of like longer-term

strategy inventory? cable perhaps of vertically you're you system think manufacturing perhaps is? the have more to semiconductors sell bit sale then and building Could cable outsourcing little your term a integrated the led is larger And as the there in customer the selling to So longer that AEC. or you of the whole a that

Bill Brennan

racks were that special -- many general of I for think don't would generally somebody our being a Credo. I think inventory that The scenarios were hold the model being impact for to lead it I bottom-line was think amount one a sourced of we sense. component And really that the model think built. I is that were the there that would in kind say any don't I I of wouldn't guess would -- say. So, I would

it organization, a go take ultimately, part second qualification, necessity for us system. that of question, before definition the four the was and development, fulfillment, AEC we've or really support complete your ownership and and The years a talked was back about following us think group ago build five to production. necessary of to was responsible engineering, I we And for vertical a fully for it

success with -- important first I customers maintain our got. was And that going ownership have customers selling that of idea to market. that multiple of includes we of semiconductor our cables they passive thinking the I a Credo think the think be that today the system. critical to for wherewithal the highly we've a it's that to to that The complex and makes a complete and would bring us company copper solution long-term

I quickly that we think that had was the our we first idea and shifted strategy.

is a about talked there model certain And think in where the we model. cases there going selling about is. reference solution when so design it sense AEC think complete the different than And we've a long-term make I us to idea would

and today. way a role the This be one it justify that we the case-by-case same change. But production solution do the of in in we we support would it would certify basis that volumes we design and stand it. where would it development would support is not And up behind bring on will in where would the our

full the had stacking business that company not really a to And scenario will this. think margin is the of exists, we've to through chip in and future. itself able that achieve a model out So, selling to play scenario a will that be copper but chance eliminates shift we a cable in us a

Tore Svanberg

my update That’s question us could going on second XX line from And you really just to X-nanometer. time is a give helpful.

look the X-nanometer But across business right? product obviously, you You bit expect Line various different PHYs, units, IP but talked the at different is in when should a mentioned you it we little lines? about the Card when if products

Bill Brennan

our the flight have next and the developments all is got occur XX we'll months. And in products something XX product to segments. will probably we're that The X-nanometer within So, today. we've tape-outs actively upcoming of this in for really across quarters on board the

Tore Svanberg

Very good.

last question. one Just

you Will think of on some but fiscal about did we think chiplets that focus should highlight others the How a there's I grow non-communications ASC, IP, declining? XXXX? actually for business customers. especially lot with with the that

Bill Brennan

I We at us. it business say something to our There's of XX% revenue. remains XX% that, growing don't has our would Well, model stated no to change our long-term beyond that's in which see IP been strategic that.

probably at we'll any product we're based in that the forecasts Short-term outperform that that But looking giving. reduction don't shift there's on business. the way I think we're fundamental the in

we that high-speeds. in the success in think processes see I future that we will advanced have

I protocols think offer those well, we will unique have success as we really solutions markets. for because with other

Tore Svanberg

I guess Chiplets. I more specifically was about talking

So it have at but sounds of fiscal driver like that's any you in XXXX? more a growth probably all fiscal XXXX will

Bill Brennan

No.

a is really it think point off. will be takes the driver. XXXX as think market And that the inflection Chiplet UCIe I I fiscal

original that UCIe as as And directly the from it where enter XX I is lane so we're idea to rates -- maps PCIe to Chiplets And the move well. the guess, market. to going that's XX

Tore Svanberg

much. very you Thank helpful. Very

Operator

Suji One moment Capital. Desilva from question. for ROTH And of next our question next our comes

Your open. line is

Suji Desilva

Hi, Bill. Hi, Dan.

rough So first or uniform many whether understand others those how you're question a if across to customer, AEC certain in give understand ballpark impacting you the really that the programs at us kind programs of are impact lead was the programs, can idea, weren't? to

Bill Brennan

the different that using mix our we're that components the four they're SKUs different of And think are as at the in within I rack of probably servers to order that on SKUs Nick-to-ToR the consistent. the that So change number the SKUs involved there's and to AECs from different they're but using, it's look we five.

would think anything something I I there's that's could point to suggest there's don't fundamental that that changing.

that The think SKUs delayed. been planned high-volume first SKUs other the I And have ramped. were

Suji Desilva

you perhaps the the fourth us or Would quarter, of Bill. back-end quarters along with linear a guided of if Thanks, shape or from inventory the the question And XXXX then, linearity it current All recovery? the Thanks. sense kind of be as recovery digestion? right. wondering give and other more could you fiscal some the loaded

Dan O'Neil

Yeah.

throughout or terms that either our a expect we QX. be the of linear million. stated it be revenue So to in steady $XX million from $XX a Recall QX relatively our perspective, progression. year bottom -- to guided should QX we we

get QX, kind of flat So that growth if pretty strong sequential year-over-year, in year. to the you to to similar it throughout view shows something

of So year very expect exit at do the high-rate revenue. we a to

Suji Desilva

Okay. Thanks All Bill. right. Dan. Thanks

Operator

One And come our question of of next question. moment Arya next for Bank our America. Vivek will from

line Your is open.

Vivek Arya

question. taking Thanks for my

in fiscal about AECs XXXX, the know XX% roughly? perfectly ballpark. don't much imagine I in right, the XX%, mix. of if think but How AECs sales I of are fiscal roughly, mix probably I So do I'm it's XXXX, in that represent

Dan Fleming

Yes.

we guidance. as to down flat kind year-over-year, but depends the I So change of from could lot more and a guidance we would now, little closer given to the but – on that. get But of FY expect specific haven't of it hyperscaler, bit, really on specific right second be that shape curve to the a that get to entering XXXX give and

Vivek Arya

Because very the ramp in a then you when -- back I half. All right. at mentioned steep look

is the at half So that growth coming the non-AEC also when that significantly, the anything mainly half. Is else fiscal that you look from year-on-year of that in at timeframe? big of there Is part business right, of or versus in the ramp, ramp your XXXX the kind second first grow hyperscaler? the second can AEC

Dan Fleming

Yes.

the So short recovers a the to year. that point answer that lower QX be at It's yes. and largely in throughout QX related. We'll is and AEC

Vivek Arya

XXXX? roughly And say it. gross you're fiscal that is for and about year to my are revenues margins what your next quick Dan follow-up Got OpEx happens sort flattish, of thinking if let's

Dan Fleming

Yes.

our we expect there versus are if scale. we be to scale lose is looked margin, So look things XXXX, And in – you the the obviously FY that to changing, we gross by is for negative all at how the expansion of different terms flat at that expectations prior right we margin relatively way year-over-year. we've get which it reason or we say

the we versus to thought. a like what revenue overall across kind had originally margin. board come the one-third reduction of say AEC Again, larger favorable to is though However, the overall has even become of that's down percentage And of things remaining IP mix. let's the

of So really those offset expectation. is our loss mix revenue the things favorable scale

we to expect So would gross margin. be XXXX FY to similar FY XXXX

Vivek Arya

And wise, OpEx Dan?

Dan Fleming

guided, the QX OpEx, we for So $XX midpoint our was guidance of million.

we bear annual couple a there that of is that's in an calendar So have mind things to year focal based. process

through OpEx kind of our as year. So a of and our perspective incremental adding that's number should kind QX not of headcount kind we're headcount-related maintaining our – heads overall from all-in be the

fiscal So variability there would year be expect. throughout be the quarter-over-quarter of consistent guide But should will our pretty remainder average on some we QX XXXX.

Vivek Arya

Thank Understood. you.

Operator

of [Operator Instructions] And Pu our Yang Paribas. from BNP next question comes

is open. Your line

Karl Ackerman

This is Ackerman Thanks discuss, whether other organic at the could I largest and Karl questions. previously, your considerations all if Yes. the of at announced ramps you taking Paribas. been offering AEC from I guess the pause the your three at qualification at impacted design my has hyperscalers or for customer? Bill Hi. BNP may. Two

Bill Brennan

don't What's own unrelated. their the two. between largely, they're think I of I happening largest in correlation any planning. see function a our customer, kind is of

that with The different second that and through, responsible that is qualifying SKU deploy. given coming overall hyperscalers it early customer sequence together. these think stages that the go is the that we're The there large in seems they I situation there's the a similar group is ramping, plan SKU and to for becomes and qualification for -- businesses of the pick when that engineers, available up is that complete, developing are it of

portion, be months. over now, I going several the We've made with together, think And forecast second is customer. the to qualification coming next detailed through the it our

that look back be got that's, look volume, we at a to generally, put why on want how we're until good aggressive a don't we we've visibility. it and And overly think can And program really conservative so of in stepped we've kind that but bit it, planning. we as more drive

Karl Ackerman

very reusable, obsolescence have inventory design about [ph] worry I is much. I -- the your at think an these Thank guess should you of current is about your that. for hyperscalers? guess or a charge is discuss in or that That’s risk I some across are that you if I your Thanks if question then I second, the guess then for you, Understood. could notice small is. products a I did impairment Dan, And engagements, revised fungible with you outlook? there quarter. how AEC curious, was we may. clear. what

Dan Fleming

Yes.

we reserve. inventory mention mathematical in any of on just expect equation reserve how did we a increased right our now. to internal So, -- obsolescence there -- risk and procedures, our and we've generally, we how kind don't a I That's be based inventory. our speaking

a impairment success during time, and made associated been $X.X been with different investments program we've lot years. the that with look terminated our that the we've million you over though, was of in we across fortunate, the extremely We've a of back that impairment, saw quarter. if we Speaking very -- the

a with made But ROI case, which to from happen the in to a -- this decision time. time move product, forward higher can different we

financial expect can that various long-term our very us you products continue tape as fiscal to So eventually, we look out. we toward us on ROIs following lead And at our target a strict model. this just discipline, will

Operator

there Thank no to are Mr. you. And to the Brennan. this further time. back like at I'd questions call turn

Bill Brennan

call. with we'll Thank Well, that, I'd everybody the thank end right. very you questions. appreciate the And like to All the I joining all much. for call.

Operator

call. conference This concludes today's

You now disconnect. may

Credo Technology Group Holding (CRDO) 1 Mar 232023 Q3 Earnings call transcript