Credo Technology Group Holding (CRDO) 29 Nov 232024 Q2 Earnings call transcript

Ladies and gentlemen, thank you for standing by. [Operator Instructions]I would now like to turn the conference over to Dan O'Neil. Please go ahead, sir.

Good afternoon, and thank you, all, for joining us on our fiscal 2024 second quarter earnings call. Today, I am joined by Credo's Chief Executive Officer, Bill Brennan; and Chief Financial Officer, Dan Fleming.I'd like to remind everyone that certain comments made on this call today may include forward-looking statements regarding expected future financial results, strategies and plans, future operations, the markets in which we operate and other areas of discussion. and management subject in from and may assumptions, the assess our those during possible the are may discussed that combination adversely SEC.It's the statements or risks, differ implied. the for detail results actual all extent or factors in documents company's business impact forward-looking factor these of discussed to cause risks, forward-looking materially anticipated of statements.Given the the on factors uncertainties in uncertainties events risks this contained not differ are not actual any nor all These any can occur, predict its company and forward-looking or to filed materially which results those with to call to from and could undertakes except required no we to this of for to or to consider the publicly the company's will measures, we update important of performance. changes to results to certain to the during call after reason refer non-GAAP obligation measures which actual as forward-looking financial in any by expectations The law.Also statements this date call, conform be statements these company company's and These with superior provided are financial addition as in in or non-GAAP substitute a U.S. for to to prepared measures performance financial not accordance GAAP. using A between release to our earnings we discussion measures our Investor financial measures call now over of reconciliations portion available why can turn Relations website.I in the will issued accessed we and GAAP be financial how the use CEO. of non-GAAP the which is and our non-GAAP today, Bill?

financial call. Dan provide an my third and our of share outlook our I'll fiscal the everyone remarks, I'll views After QX quarter. to joining on results the with of a our Welcome our then QX overview results. our 'XX Dan. CFO, our review will you, earnings discuss fiscal for detailed Fleming, Thank fiscal outlook. QX start

of gross million then take reported be XX.X%. questions.For to $XX second non-GAAP quarter, of will and revenue margin Credo We happy the

Our drivers and the the us solutions.We SerDes growth for expectations are customer-focused connectivity active with X.X future licensing, these by infrastructure energy-efficient QX connectivity core port TIAs, including results laser target design up second driven market.Each or DSPs, opportunity to market IP address solutions, unique and enabling of to and chiplets cables, per electrical accelerating speeds spectrum and solutions AECs, optical PHYs, needs leverage our high-speed SerDes a broad our Card digital technology Line SerDes throughout approach. of and terabits our

bandwidth, delivers solutions advantage speeds.Within we've efficiency center optimized to Credo result, has and energy-efficient XXX moves AI with a demand proliferation networking. leading-edge for high-speed stages ramping our higher gig the collaborating production. market of expands as with per past the density higher that increasing Generative platforms a several more application-specific the been dramatically by market demand applications.For energy As on is AI system lane seen years, of This today, costs, Credo and now data customers our are and driven various the in

business overall the majority our the AI more driven in I'll by In Credo fact, be future.Now of applications will for foreseeable detail. revenue review

in infrastructure various positioning First, also business. for end applications.Credo hyperscale deployments. module targeting this multiple been and the pleased plays has and in networking design disruptive market and discuss with [ Fibre In customers making I'll providers market. optical the role for movements stages ] customers, with end in XG the we've XXX DSP upcoming with Credo service customers gig and optical XXX a we're quarter, the to global quarters, continued gig our market. OEMs Channel additional I'm progress traction optical shipping to we gaining the in add hyperscale in Credo

SerDes of energy costs. performance, technology combination efficiency leveraged and compelling system a fundamental is Our provide to

gig optical modules and OFC and interoperability problems and necessary customers' for the optical of related cost innovation.At the optics the address error architecture, the critical as in and based also to was especially architecture the production. we feasible of percentage linear the year, achieving an referred The unsustainable on industry important maintaining this optical pluggable in generations. our widely yields Additionally, the LPO plausibility DSP module to architecture to as March this direct discussion drive. solving for sometimes for functionality linear not DSP has the concluded high bit call challenges market engineering eliminating action conference increases that focus or rate XXX as in be of market material there functionality.The is all X.XT and Much optical a industry is LPO, the LPO performance ensued to on power has year, industry to will well standards through volume

architectural introducing However, release at mean following subsequently that call ways Receive not Optical, this action response OFC the to LRO look innovative or be industry innovation.Today, does a issued drastically was Credo our through Credo's will to press DSPs. the reduce DSP and unanswered. cost Linear power to

evaluation of our pioneering their will ramp for yields AEC pitfalls an that's example as continues eliminating for already components addresses functionality system AI the AEC architecture our maintains DSP LRO innovative system. directly deployments.Regarding by this by Our new in up hyperscalers, interoperability enabling product of optimized products the be LPO products the path XX%, DSP equalization view and effectively energy reduces faced customers maintaining to Credo same an Credo our testing.While the power optical device I out, LRO by Credo time, critical innovation that optical and to challenges gig in the cost architecture and latest the end functionality the XXX category a optical optical leader. solutions, and as hyperscale ways the and eliminate any ] And We've to the circuitry.Our by to a [ only the -- receive high market DSP especially in revenue development lowers production. optical of unneeded volume the transmit optimized standards Dove the provide at be DSP by DSP shipped lead many and XXX and among capability path. cost address This DSP LRO boards performance

hyperscale While success the by is to business connectivity.We make benefits and networks, compute cluster data cables, opportunity networking lane expansion initial for both to in AI the we significant the AEC to an progress driving and the cables acceleration X general optical the networks in and our with given seen that for AECs, bandwidth deployments.Due speeds passive continue for been our in single AEC appliances, our compared our back-end AEC in made AECs XXX to copper shipments And leadership.We has continue both AECs we strong in-rack first. center relationships fundamental active an qual our AI see gig solutions. density gig close in deployments connecting for prominently front-end another XXX networks, industry featured AOCs, again, to making, networks with required have market front-to-end or need customers, to are introduced leading to customers sheer back-end their customer expand and conferences our respective the with demonstrated in initial edge back-end especially the working and gig with in XXX maintain and pleased and in with production in solutions encouraged development we also base and in one we've of our at to QX, I'm AEC that and Credo we're our November.Years say hyperscale first continue

the for XXX operators seen gig among and and Additionally, need X we've service Tier increased data AECs XXX gig providers. center

service Card to to PX Credo these AECs October. optimize recent customers by using PX highlight the announced switching As by for Open engaged The sum system AI confident with Line for solutions, leader from meaningful network architects pluggable in value speeds in patch the system, established the for believe and PHYs and Credo.I'll providers several between one freedom decouple a hardware. pluggable to we the core power our demand as optical costs and announcements the revenue of at the group, extraordinary as the combined and continued distribution optics ports. AEC up, routing revenue of Compute our will increasing solutions enabled PHY combination contribute and AEC grid gearboxes encryption. a greater an drive future.To which business, panel include MACsec retimers, AECs our Conference that the varying is well hyperscalers to market data in meaningful market enables Line PHY regarding also networking and We're applications, proposition that with with the of Card remain multi-tool and bandwidth Credo's expansion.Now will and driven result efforts switching customers PX, Credo

our winning Screaming licensing customers.Regarding hyperscale of our momentum strategically is proposition commitments segment customer-sponsored performance advantage the now businesses, market OEMs energy our chiplet the of Credo's as lines, lane IP building XXX design in is networking business business. and in our from which our cost. customer our even about and important for for to Our PHYs for MACsec integrity SerDes system value market the efficiency to overall that and across IP excited gig We next-generation more accelerating a and PHY. We're prospects optimized remain thread part common licensing X.XT for SerDes all SerDes compelling Eagle signal derives per base, Credo's competitive business for becomes deployments.According this this leading X.XT product is remains and

to and [ data speeds, span We across our and X-nanometer in networking IP now.During of distances initial and SerDes solutions for a secured licensing we complete XX-nanometer to portfolio ] applications several process IP have of the XXX fab applications. is from with gig SerDes XXX a gig center QX, nodes wins range X-nanometer reach

our for to customers' customers, a wins chiplet enthusiastic Our solutions. testament success.We're also team's recurring to prospects contributing the about new and execution include and our our

plays sponsorship. QX, enthusiastic energy Credo chiplets optimizing Credo the gig the that can at results. future.In strong a breadth performance SerDes and for QX system in given play expectations demand for solutions that This we we're We the an about dramatically that will business designs remain chiplet important win XXX market with in companies few costs. X-nanometer conclusion, aligned while secured role includes increasing directly next-generation During is the of one bandwidth. the Credo's to industry strengths, fiscal highest efficiency delivered speeds, highest the connectivity provide and necessary the of our also customer

to range our announce half pleased supports customer can be that continued more growth second our which base connectivity found fiscal on solutions.Lastly, report, expect embark Credo we we 'XX, on diversified first a that As published across yesterday, ESG website. I'm a of diversified

today details. a report. comments, built is help across energy reiterated the spectrum, we efficiency to be my into leaders leaders continuing our ESG our Thank to and you. Fleming, pursuing DNA is in efforts.At our with our As is financial our enable very be and key well. time, of will aspire to part pleased several we our forward times positive as how look Dan strive to We and Credo provide customers ESG I'm CFO, goals, additional this

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

As discussed a XX% unless QX, revenue the will we a be year-over-year. sequentially on XX% and non-GAAP following otherwise of down reminder, noted.In financials $XX up million, reported basis,

$X.X mix business or from as of QX, of mix to up in new and Our XXX% million XX% deliverables our remains our quarter above in business, vary revenue XX% any part product our QX generated revenue is contracts.While a by a may IP vary expectation largely reminder, IP, was IP revenue. in for our which IP, strategic pre-existing sequentially but XXX% revenue quarter-to-quarter, year-over-year. driven specific XX% of up results long-term and over to will IP IP of the time, given

revenue We QX, expect up XX% product million be year-over-year. long-term within to percentage $XX.X XX% of a sequentially revenue 'XX.Our of for and our generated fiscal as in expectations IP business down

were of end in X XX% customers greater our than QX. top Our each revenue

each the In at top of guidance end increasing product illustrates high of up margin team represented X which revenue fact, base.Our of points QX diversity delivered our end our sequentially. different line, range our and gross customers the a basis XX XX.X%

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

year-over-year.Total points the the to low XXX and items, Our X% year-over-year. of and million, product expenses minor XX second points our sequentially sequentially quarter, down basis due the mix margin some down at product in was operating up gross $XX.X in quarter guidance and up were range, end XX.X% basis inventory-related X%

was solutions. deliver resources increase XX% an in R&D OpEx innovative the we of continue to Our in year-over-year increase as invest to result a

to Our compared X% loss of million $XXX,XXX year-over-year.Our year income operating SG&A ago. $X.X up a QX was operating in was

$X.X of The loss sequential second operating quarter represented improvement a million.

million, opportunities equipment $XXX.X million, flow capitalized an million, first of R&D to days to of Our in XX% year. reported positive quarter receivable million top sales days $X cash free $X.X sequentially operating last due of year-over-year.We substantial million a driven was of remain a CapEx quarter $X the income reduced of to X.X% in to while the continue and last million, spending our of Cash in the balance million $X ended in second increase increase equivalents in maintaining investing QX quarter. effort.Our compared X.X% margin $X.X quarter, increased was due the while year We reduction quarter. in million net the of was QX. with an year-over-year from in to quarter the line $X.X an and growth from negative net of million outstanding XX days, down $X.X to operations largely income well from XX accounts was million $XX.X flow $X inventory by decreased leverage.We $X.X cash increase million to compared cash net

was our to inventory $XX $XX.X in of million, the fiscal expect be currently ending $XX We at revenue $X down midpoint. turning million, million million between up guidance. XX% sequentially.Now sequentially 'XX to QX QX and Our

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

share We to expenses expect fiscal to QX shares.We play be And year million to approximately continue be weighted QX expected. as are average and count to see $XX 'XX $XX we pleased million. out million between expect diluted XXX operating

While we rapid expectations, to driven AI broad-based new shift engagement. has and upside to our see near-term prior workloads some customer the

fiscal our 'XX alluded rapid We this expect as and will to. us that revenue shift beyond, to enable diversify Bill throughout year

product we the gain remain as summary, to programs visibility continue better quarters ramping in customers ] sequential forecast we as we and sequential and due expect to move [ new regard fiscal mix However, 'XX, to growth to existing with forward we as new at our customers.In through improving upcoming and modest and ramp, gross expenses. operating expanding conservative scale growth, year margins revenue and increasing

driving open quarters.And As we operating I that, look for to forward with coming leverage a up the result, in it will questions.

from Goldman [Operator Instructions] of Toshiya line Our of the Hari comes first question Sachs.

I had X questions.

revenue on year. Dan, fiscal I growth the one the First to clarify, wanted you sequential think mentioned just outlook. I throughout

across assuming, color a Bill, of I'm I quite is by outlook part. bit as level, April, pretty And the calendar second the sequentially. the about quantify that if constructive the you calendar So part, would At growth product business 'XX then sounds that your you key as I your well. you're But and and X can try guess to you gave first be into up a think high what AEC top optical SerDes are, helpful? guess the that's business expecting 'XX, drivers and line.

Yes.

your modest on pleased to prepared So as we in stated as $XX previously, 'XX the with question, generally the 'XX, remarks, we're our year. 'XX. And was at this on to XX%, year quarterly QX fiscal stated up But line speaking, guide regard growth our we we fiscal with at growth midpoint, our midpoint. first call very expect million our sequential top

'XX. for our year fiscal So no in expectation the change key there is takeaway overall

question, second said. would Dan the has I what for And just reiterate

we much we fiscal at our 'XX, very out look expected. like playing it's As

no really there. change So,

what And considered on We AECs, should growth. it's be cylinders. driven by think, we're optical, factors, expect, chiplets. multiple sequential all fast firing been Really, I

about provided the Bill, calendar could…? how customer it's into And you overall But many if the if I or I sorry thinking product engagements, 'XX 'XX, next and you've lines, early you moving wasn't on year, color fiscal realize are parts. across you based clear, all business got

Yes.

providing point not year we're now at So right any this fiscal 'XX. for guidance formal

long to expect revenue, engagements in engagements it these fire. have. the of will you we continue Bill customer time of mentioned, the takes lot we a But growth imagine, throughout a lots that have all year. we which as However, of And based turn we've on into as the the meaningful stated, meaningful happen can irons do to as of course

in really you you my then high And what in a Dan, as product noted gross there? your off curious And as the But about base July. think follow-up I -- decline headwind think remarks, going you margins margins, ahead, more then sequential down margins you gross to on of look your talked the quarter I in into think customer going diversification October drove were as helps gross helpful? base calendar neutral how margins to couple said. forward, I drivers gross And be would speak next the quarters, costs of are the And something foundry over 'XX? the if you expanding potentially can there? your a And what your from sequentially that

Yes.

product at impacted movements kind most from know, very Generally was margin.But up quarter-over-quarter the product correctly gross so change now QX read important was items important is that minor you from So product speaking, It's we're there lot there's substantially our long-term QX. question. recall, to sequentially at we points margin to thing In inventory-related much some into mix are slight our down and a of right these too gross probably which you scale from QX, expectation. XXX thing, no was QX had basis that – changes QX, also if the because easy to quarter-to-quarter. that there that the as or

not years next expectation to will to margin to out play to quarter-to-quarter, out, to And gross 'XX continue quite well. over range. Our that it's 'XX, seeing is year from upcoming play through although and expand as the fiscal linear that the you're from XX% XX%

Tom Our next O'Malley question comes of from of Barclays. the line

I just wanted said you on to something clarify the call.

ramping about previously talked customers with that have AEC. guys you're X You

referring you've those customer development before? with you make that about with I guys talking You are XXXG you're about talked in to sure, are Or in want about? one developments to that still talked new qualification XXXG. one just and processes

these the displayed part the kind think of month. shows AI you customers, I ] AECs appliance Maya I we've so displayed think [ prominently got. their as that additional Microsoft big could see you the really so of we've developments them rack. of a X that in those was the Both first are Credo alluded Ignite in-rack, past. November -- But -- and prominently to had hyperscale

that's re:Invent sometime X we qualification as part at gig more show as Amazon see -- the of really floor, then XXX additional, in an as qual those maybe we're past announced a one we've in also, And customer-specific the look our demonstrations.And or show conference so. together So month shown. give expecting has something And demos And solution and lane and take on quarter, the the you products right and publicly completed the so other messaged been plan or XXX you'll speak. X if XX we're the is per the hyperscaler. one be having upcoming to as gig re:Invent the with, long-term for another of in gig we're is now putting

are And on you XXXG just previously I beginning about were [indiscernible]. to in the where talked seeing in the back know ramp? side you the that that the you optical have upside a get understand you've additional were Chinese past? from you're customers customers near the customer, guys traction you from? had in the Like then new term, strength is coming seeing talked looking that Or about me help the the side, just some there can -- just you in optical DSP of

Yes.

the partner U.S. serving engaged So ramp hyperscaler. generally, we continue with that with, the to we're

China. life So also signs in happen in base going seeing customer that for several ramp is of next further quarters. the to our We're

hyperscalers got -- And China. we've in we're or X we've got so from demand X that actually seeing

hyperscaler the about. U.S. talked new about, really is talked of that into the any that baked we've we've as that not numbers far As

we the be would ultimately so time And impact in that 'XX if that, revenues can that close fiscal expect we will -- frame.

line from Stifel. [Operator next Svanberg comes of Tore the Our of Instructions] question

me? hear you Can Yes.

Please proceed. sir. Yes,

Yes.

[indiscernible] announced HALO question Sorry Yes, first licensed about just Bill, you that. the this was product afternoon. that on my

that longer say term. is very, something You market I very revenues for is that did term. should this the But generate near hungry think costs lower also

So product are here far could that in be looking we production? what as frame kind of as at time when

thoroughly to message by tested are are that to first going our I hyperscale boards into be that built think be the shipped going eval So We samples we've lead shipped customer. is modules. that that

] really tZERO is And now. so [

so XX production. going the typical module And and qualification the to optical an And and is hyperscale development with for of qualifying the the time module end building on order get then the based customer. months that's on really through

kind something about months at case look we we're talking of XX as order so on And now. from best scenario, the of

could it So 'XX. our fiscal impact

I the behind -- I'm some now follow-up, know Or still half some of there wondering, customer we headwind is my first year, as that side. your quarter, you? still look is headwinds, that is largest And on general digestion lingering there the was there? obviously, at inventory compute effect as the from completely the just

lead about general I front-end Well, customer networks at think the as ours, the application this of is as we AI. as well think compute

kind applications the contributing course, of both the result that of built as the a up earlier so was the And year. these there's are -- digestion of in of pivot inventory of to

we I got look develop exactly as got our still 'XX. on, we've at that really turns back for so And wait And fiscal it conservative think 'XX, good in fiscal in to sense we've a I that being to think when visibility. we're

for our which question, the Paribas. BNP line Ackerman comes from Karl of of next Standby

I X questions, may. if

back-end Just see connections links. address How I for the non-DSP why And adoption calendar the a is based the and introduce solution off guess, AEC in previous address do you based solutions network 'XX? networks? AEC but solutions today an you that are one, you back-end both of for question, to first from DSP-based as follow-up a introducing non-DSP question not

given me the is take on the path continue. solutions are, DSP, which transmit DSP Really, on transmit for receive having kind might The activity let only. on what part today the really optical That path first we've of is it of a we the that traditional whether a got call question. that path there's the to So approach, the receive DSP a announced X path we and well that as product the on eliminating going optical link. the as was full

be link. would typical say of DSP that a so on that, half optical And might you the

really that X DSP completely way. the been the big to we're And solutions it that not saying than they are really the being ever XX% level. out that a promoting.We achieves if of see that upfront believe play more market, is don't eliminating something that's so going in those it have Analysts

interoperability back-end transceivers. [ to in really covering have that able ] that. all that's rack-to-rack optical tight networks. are have to And So typical less they're people DSP for in cluster, really quite those especially connections, or just the putting or manage highly together and is are are a various really solutions the AECs valuable today. you'd ultimately not key to be over well in-rack whether a within troubleshooting X-medium And LRO to There and really the AECs, solutions. rack-to-rack be yielding And link to connections customers. was are control very part where the in entire going we as AOCs of regarding for that's question believe and that and we the the are and is your market applicable production.Second scenario connectivity as absolutely building situation Typically, AECs also

quarters? is expect market to For IP primarily time, as transitioning more consumer. IP This it do to to my data to few center pivot But a today your consumer that end transition the over your will over the the is ramps, next center-focused I you of it's follow-up, business business. tied PAMX mix application. want or data How towards idea

XX will on at for probably expect be PAMX, the that IP production.I IP we've consumer, X gigabits consumer our And market. that to Ethernet a is we'll of one for that second, our time our business, that PCIe today the solutions gig the XXX that or market And business CIO years gig that continue to look talked our be Ethernet. in on before able of X engaged be XX, don't future, I part we out from gig gig and XX for some license as per market. expect XX long-term. going large business links about very that to ramps as perspective, a and we of strongly. talk I order XX bring We've is also that's to X to primarily about IP moving so, it And big to believe

Our the next standby, comes question, Mizuho. of please line Rakesh of Vijay from

do included the panel, how all using it? is X PPP, pluggable I how is all -- ramping, on the it guess? patch you that the your see that in Or and Just -- the are AEC customers --

Yes.

up the you I'll question a line, leading answer something So conjunction a PX little with saying that developed provider. on that in the broke this but by was service was

their they So ZR about switch spoke or to they were ports. routers optics as connecting challenges

also power developed them solve control in to And become sense with and networking a with a was multi-tool application really developing so this their problems mind, be associated to solution that in and cooling knowing this different it access. would able and plane

we switching talk And wants use. also different so really that speeds optics the well.When speeds situation to where -- router about from a our lead customer applications is the the where this there's a seeing fits that service customer provider, are but port we're

XXX They a the gig gig ports So ZR fastest ZR. switch use could XXX versa. optics gig but with switches, XXX gig could customer connect XXX or still move vice ports, to

So standpoint, speed smaller can switches ZR envelope lower in use seamlessly ports on want system and in really that sense sense, some cost, routers for and with switches.Also, a lack cooling power useful optics gearbox this because this a tool from optics. connect advanced different to really customers PX speed and a is thermal different a distribution the

a So stranded of have you would ports. lot

that the take you switch. from So thermal management can away sense, in a

that with engineers some we up of of introduced applications. a a the that with. connected the multi-tool at this multiple were OCP. putting and great be there's surprised at solution. came at booth to some We of surprised they as different that ideas ideas at this by AECs OCP like type that came our out so, the We're And We realized optics directly basically enables

about of we of we this product, in a the terms think So AECs. think generally, and about it when combination PX

the we AEC more for be basically developed So a to catalyst PX demand.

on content PX guess, server better ] ports, or…? in stranded the AEC so the the utilizing does I the your double with top-of-rack And [ actually

think with service contact. this the be applications. hard pick many, These we prove is think one It's relative nice customer, is our many are will the new think that But there's say. up. I really a out thing providers, we significant. our point on to lead content can And lead customer, is this reference we as don't -- application that an

customers, think And how you out, how were then last on XX% if say, quarter? you working fiscal the you many on? calendar 'XX, be would And in to there question any let's XX% were the exiting on thoughts your do look customers many

Yes.

as QX, So customers. additional Recall is an XX% had see end customers. we we ], we added end live had show you'll last to quarter, X, for Q our -- disclosure [ when

the we So to X throughout disclose the was -- was the Generally, XX% Microsoft. obviously, largest we you'll expand our year. continue who importantly, see XX% Most one don't are. base But XX%. customers our one customer

end One customers as one -- end our customer, those of of is you'll the new customers a X in see disclosure.

we'll but So of the of to question, the end guess I year, X. how many your would the at it's latter hard maybe answer part have

ROTH question comes from MKM. line [Operator Suji Instructions] of the Our next Desilva of

you the size? guys having in chips you'd reasons market about the of of perhaps? seeing Is AEC be the you faster one meeting versus chip-based competitive might talk question what a able maybe that And AEC some with efforts, these racks in the Are landscape. can in guys you plus to share think you're demo you're I'm you? provide time-to-market? on My cable is wondering

market. deliver mean, system the sure, for -- in-rack really we market. to And been asking for able working I established expect do we fundamentally, of way making a company, going we've of facto XXX% more as -- this better to for we're competitors. are more I seeing de be And company, time what in category don't is organization our short maintain we're responsible are feature way we have to saying organized, special a we're The product consistent we're that to competitors as do chip see connections, applications, functions. more although see And we AECs. the that that for a AEC customers for and high-volume becomes think built

directly with when time working We're are the that comes. the crunch ones having hyperscalers. the we're so ones daily And conversations

for function this that market I sure, will that out, ultimately way we of that That's out. And a think being I I hyperscale play And function advantage.And got hope so a share we've just experience think maintain the with of having And think play long-term. directly. that a that's more first. will model better a so I delivers than XX% a time-to-market our customers

other then the racks. they And is the where my and are in question customer base on

the customer but Microsoft a of perhaps talked you clarify little they You demoing rest like they're racks. Amazon the and And bit waterfall base, you? of behind so, seem out And the them? folks that? may other substantial can ahead if for leads, the maybe close are do customers trying the how just in Or to figure really have about those guys technical

Yes.

following of fourth the takes And a from timing number quarters. quarters. upcoming standpoint, customer I these new It ramp for that to the a would be think third probably I expect customer would then the deployed. in time X by be X would platforms to

really So the -- I X course, of sense. decided that market, of one a is one, these where it's, to each architectures the take customers the they've different first think in customers

they've to say wouldn't just it's that or ahead I standpoint technology from others. chosen a quickly than more the So move that forward they're necessarily

of Our Richard next [Operator the comes from line question Instructions]. of Shannon Craig-Hallum.

Can you hear me now?

proceed. Please sir. Yes,

next said for I'm but and customers a comments in sure different have each the largest in prepared your you supporting remarks. I product XX% the a on your correctly, had not based it top question you were I I think caught line. all -- came if X, one including Dan, X, you

can one -- if product X primarily what you of customers lines specifically each can next first delineate one wonder but were guess I first the the is, think purchasing? which well, all I we

covers of lines broad kind It product Yes. the gamut our of actually.

So starting time, obviously, QX, largest Card being as you would with -- traction we the -- have can PHY we business Line strong, we've in there, a is described has long quarter. been one so for assume AEC. Microsoft be been that last the DSP, Optical gaining our But

So as -- chiplet our quarter business and it we then well. last described

all at materially that this covers of product of lines kind time. are different that point So the contributing in

[ talked XX%, DSP would the was I ]? did you add say you this XX% that it remarks and the you see? have Or about in customers past, it Since you in is customers assume X say X but of context it -- the if in prepared didn't your the

Yes. haven't where said, could And being at that, we I you it's what near that, mean, it's is. if there. expectation assume we've not it changed our

you expect is a have expect next with X large their XX% this ramp optical occurring year, trips as we'd upon that hyperscaler, And production fiscal revenue build where for for or XX% quarter first We a or DSP. it more based our to target is schedule. might at our be year of

my you on I grow here. quarters it with margins had time gross the couple fair you're and think steady? I as the product somewhat continued it -- is Difficulty] AECs, the been volatility on -- We've line it is line? margins product would gross specifically a I upwards coming [Technical question in product has Or still here, margins. think but guess, gross second growth guess Maybe is that has to directionally over somewhat to of that the volatile of, from

our I last gross of -- most That due with expect our last the of lines opposed more story of gross scale. been have in Microsoft in part fiscal large year, over bit been all This will really mix has year the product Yes. margin reset. margin, scale. year really as about to fluctuations product long-term, to a a would -- grow our increasing

levels approaching again. we'll we're come of Although year in revenue, the where exiting will factor now record that that at a be point scale

XX% stay the So I XX% uplift margin. to really would well of kind board expect achieve target to in on across that as as overall we some as AECs gross

& of the question comes next Quinn Needham Our of Bolton Company. from line

about up for I just re:Invent wanted your Ignite the follow to and Amazon. both Microsoft on Conference comments

accelerator racks. You talked XXX Maya the about

in think network number of back-end then in Are at the like us of Maya a AECs for give as re:Invent, sense of well some as racks? lower many content us the speed architectures? XX is cables, you similar to were for those I XXX can the that AI some you Amazon what talking for it's as the Or might purple look and just see. But rack? Microsoft AEC blog, as lots there of network, multi-hundred-gig in about some can looking front-end sense give we certainly great the

Yes.

platform, Maya Credo the front-end network right is connected think absolutely comprised or got AECs. and speed. that back-end XXX you've the are network with AECs gig XXX On those lower is of it I gig lane The also per

when that as of in see back-end. introduced the Credo part you're keynote.I the could rack, number front-end they're as the they that well kind of of you AECs in total right for and as say visually Amazon, that utilizing So, for terms would also connections

of I the so some those nature be networks, of types think just going And between strong different the architectures. to there's similarities X

in referring I back-end these applications. the Bill, AI some to the think And network about had And of think talked you here. past, I you're

You kind next fiscal as of as early might until racks not and the like, in they year. ramp in to then fiscal of kind sounds maybe 'XX. It late early starting may until that sorry, announcement Microsoft 'XX be least at these not -- shift the

the think may it network? further give And an of that revenue from be do back-end think be Or so next than do volume you AEC you I'm the of when in you couple Could wondering, quarters? us that? you see still over kind could out update,

that or it's types qualification, built pilot and think spoken that fiscal into revenue our playing of way is this in types of on the out 'XX, ]. we've on the model volume build the that small expected, I calls we've [ really about we've that Well, based earlier

but ramp. meaningful fiscal going ramp.And are being would we it's we as about you conservative to necessarily see not exactly production to expect still so are what from into 'XX, somewhat look out So a when these

talked in of publicly it these so And was November. all nice about things to see

got a scale, that these a deploying thing at through. they've to it's However, work complicated volume

we And when the we're we -- when start, that's but so going linear necessarily pinpoint in about confident quarter. can't to exactly it's we does happen what when talk 'XX, ramp fiscal

Our Tore the Stifel. please from line next of standby, Svanberg of question, comes

I just had a follow-up.

said for I to versus XXx you also related I you've AI, is out, contribution how the to think you're of X Bill, AEC plays Quinn's that compute. the starting to guess on of sort past timing the the again XX looking the opportunity So business that side X clusters? the in side? AI sort primarily to general Or And the at question, front-end with of see of are on back-end that

Yes.

and general AI compute, So terms about about starting networks. I it think generally, networks as to we're we front-end back-end in versus talk think of

for rack be we to there's looks appliances, see of when front-end to a general going what very see compute. so And network we similar course, that AI a of

certain Serving for something common really out from compute perspective. the And way so AI. ratio a plays it and to general extent, the a that's is network front-end both

servers number a see might You larger general of interact. compute

compute I within connections appliance the networking the just on back-end to versus, where the AECs that rack there say, network see So opportunity for the network are XX But every overall Quinn talked rack big the -- X of say, little for X to with might about larger we we XX GPU networking back-end idea would back-end when cluster, appliances, might within per the front-end. earlier having increase a density.And about AECs the bit is dedicated network that's of a the really than a be that in rack the think be general front-end generally, AI. networks,

also And the we back-end that an talk about volume. of So part opportunity the the think network, to additional racks that's -- times switch we about are end to see overall X X about rack an can But actual we that's opportunity where then in to there. think appliance X being times volume. could front we there's when the when compared that XX

GPU that. you question are the SerDes starting Or just well? I have to is my market market, in the that's you moving as And the ask embrace GPU this to too and it obviously, IP. just relates given is for strong the that? to way question, early it of see first But direction But as your last the to chiplet GPUs market

on we're chiplets. for been standard efforts making PCIe. promoting with that the I that, UCIe the the that Intel think [ closely big that standard, a that, going be is has And us, I in ties think market that to ] for

And acceleration is that happening thing I across would speed one in so is the the note board. really

Gen so an X the for XX gig. also next-generation PCIe acceleration gig CSL-X been see we've market. And But I targeting XXX the PAMX

this what's that's And part speeds. AI in happening and the need is explosion with this market, so very much for faster of faster

the you're I of in to so thing that's see happened type that Ethernet. going same And think

network going networks. that really CSL, OCP at with as and presented PCIe we kind see well that connectivity we expansion protocol possibly possibility -- piece being for of the PCIe.And of back-end an You're vision happen the front-end had to a with this year, in as

really exciting we as accelerating. coming that there's future standard in the things So see

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

look Thank really you to questions. forward participation, following the Thank much We call appreciate for and we on the the very up backs. you.

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