Q1 2024 Credo Technology Group Holding Ltd Earnings Call
Speaker 1: Ladies and gentlemen, thank you for standing by. At this time, our participants on a listen only mode. Later, we conduct a question and answer session. At that time, if you have a question, you'll need to press the star 11 on your push button, phone. I would now like to turn the conference over to Dan O'Neill. Please go ahead, sir.
Speaker 2: Good afternoon, and thank you for joining us on our first quarter earnings call fiscal 2024.
Speaker 2: Joining me today is in Crito, our Chief Executive Officer, Bill Brennan, and our Chief National Officer, Dan Plumman.
Speaker 2: I'd like to remind everyone that certain comments made in this call today may include forward-looking statements regarding expected future financial results, strategies, and plans, future operations, and the work it's in which we operate in other areas of discussion.
Speaker 2: These foreign-looking statements are subject to risks and uncertainties that are discussed in detail in our documents filed with the SEC.
Speaker 2: It's not possible for a complete management to predict all risks. Nor can the company assess the impact of all factors on its business, or the extent to which any factor or combination factors may cause actual results differed materially from those contained in any forward-looking statement.
Speaker 2: Given these risks uncertainties and assumptions, the forward-looking events discussed during this call may not occur, the natural results could differ materially and adversely from those anticipated or implied.
Speaker 2: The company undertakes no obligation to publicly update forward-looking statements for any reason after the date of this call to conform these statements to actual results or to changes in the company's expectations except as required by law. The company undertakes no obligation to publicly update forward-looking statement for any reason after the date of this call to conform these statements to actual results or to change the company's expectations.
Speaker 2: Also during this call, we were pertinent to certain non- GAAP financial measures, which we considered to be important measures of the company's performance.
Speaker 2: Non- GAAP financial measures are provided in addition to, not as a substitute for, or superior to.
Speaker 2: financial performance prepared in accordance with US GAAP.
Speaker 2: The discussion of why we use non-gape nature measures and reconciliation between our gap and non-gape nature measures.
Speaker 2: is available in the earnings release we issue today, which can be accessed using the Investor Relations portion of our website.
Speaker 2: I'll now turn the call over to our CEO . Bill?
Speaker 2: Thank you, Dan, and thank you all for joining our Q1 Fiscal 24 Earnings Call. I'll begin by providing an overview of our Fiscal Q1 results. I'll then highlight what we see going forward in the Fiscal 24. Dan Fleming, our CFO , will follow my remarks with a detailed discussion of our Q1 financial results and share the outlook for the second quarter. We would then be happy to take questions.
Speaker 2: For Q1, Credo reported revenue of $35.1 million. Additionally, we reported non-GAAP gross margin of 59.8%. Our Q1 results and future growth are driven by the accelerating market opportunity for high-speed connectivity solutions. Our electrical and optical connectivity solutions deliver leading performance at port speeds ranging from 50 gigabits per second up to 1.6 terabits per second. While we primarily serve the data center Ethernet market today, we continue to extend into other standard-based markets as the need for higher speed and more power-efficient connectivity increases exponentially. The changing workloads in the data center, specifically with regards to the onset of generative AI applications, are driving the demand for higher bandwidth and higher density networking. This plays directly to Credo's strengths. All of Credo's connectivity solutions leverage our core CERDYS technology and our unique customer-focused design approach, enabling Credo to deliver optimized, secure high-speed solutions with significant benefits in power efficiency and cost.
Speaker 2: FIDO continues to see increasing customer engagements across our product and IP solutions, which include active electric cables, or AECs, optical DSPs, laser drivers, and TIAs, line card PHYs, CERTIs chiplets, and CERTIs IP licensing. I'll now review our overall business to give more perspective.
Speaker 2: Vito continues to see increasing customer engagements across our product and IP solutions, which include active electric cables, or AECs, optical DSPs, laser drivers, and TIAs, line cart PHYs, CERTIs chiplets, and CERTIs IP licensing. I'll now review our overall business to give more perspective. Thanks regarding our AEC business.
Speaker 2: Credo remains a pioneer in the AEC market. Industry analysts forecast increasing AEC market penetration as port speeds increase for intra-rack connectivity. Our AEC solutions offer significant benefits compared to both passive direct-attached copper cables, which are physically cumbersome for signal integrity at higher speeds, and active optical cables, or AOCs, which are significantly higher power and higher cost.
Speaker 2: Today, our largest customer deploys our AECs for both general compute and AI applications. Additionally, we continue to design custom AEC solutions to solve for their next generation deployments, including their first internally developed 100 gig per lane AI deployment.
Speaker 2: At our second hyperscale of customer, our production ramp for both general compute and AI programs remains on track, with expectations for continued growth throughout this fiscal year and fiscal 25.
Speaker 2: We also continue to make progress on their next generation platforms, with Credo receiving commitments from multiple 100 gig per lane ABC programs.
Speaker 2: We attribute much of our success to our existing customers to our system-level approach to the agency market. We're not going to give you jump cards today anymore, just getting your Courtney for full
Speaker 2: approach enables us to quickly respond to customers' requests and deliver innovative, feature-rich AEC solutions tailored to our customers' specific
Speaker 2: This approach has led us to making further progress with additional hyperscalers who are in various stages of evaluation and qualification where he exceeds.
Speaker 2: We've also seen a growing number of Tier 2 data center operators and service providers adopting Credo AEC solutions.
Speaker 2: We have earned meaningful revenue from these customers to date and expect this customer category to grow in the future. In summary, we are happy with our progress with customers and we are encouraged by the accelerating market demand for 50GB and 100GB lane rates.
Speaker 2: for inRAC connectivity.
Speaker 2: Regarding our optical solutions,
Speaker 2: Within this market, we remain a disruptor. We leverage our core series technology and customer-specific approach to deliver a compelling combination of performance, power, and cost.
Speaker 2: FIDO's optical solutions comprise DSPs, laser drivers, and TIA's for 50 gig through 800 gig port applications, including optical transceivers and AOCs.
Speaker 2: We expect AI deployments to drive a large optical opportunity given the high-density rack-to-rack connections with AOCs or optical transceivers in the back-end RDMA network within a cluster.
Speaker 2: I'm pleased that during Q1 we started the ramp of our 400 gig optical DSP for a US hyperscaler. Our optical manufacturing partner is delivering 400 gig AOC solutions.
Speaker 2: for an AI deployment at this hyperscaler. We expect the reduction ramp will continue throughout our Fiscal 24 and into Fiscal 25.
Speaker 2: We're also seeing demand restart from data centers in China. While too early to create meaningful expectations, Frito stands to benefit its spending returns in this market.
Speaker 2: Grido has designs in progress with several optical manufacturers and hyperscalers targeting next generation 800 gig and 400 gig programs, and we expect ongoing progress in winning production commitments.
Speaker 2: Beyond the hyperscalers, we see additional optical opportunities with networking OEMs and service providers.
Speaker 2: We remain engaged with many partners and prospective customers for fiber channel, 5G, OTN, and PON applications.
Speaker 2: The optical market seems to have turned a corner in the last couple of quarters. We aim to announce and demonstrate new optical solutions at upcoming optical trade shows later this calendar year and we remain optimistic about our prospects for our optical solutions business.
Speaker 2: Within our Line Cart 5 business,
Speaker 2: We're an established market leader with our line chart price solutions for port speeds up to 1.6 terabits per second. We think our overall value proposition becomes even more compelling as the market is now accelerating for 100 gig per lane deployments.
Speaker 2: During the first quarter, we saw design engagements increasing, specifically with our Screaming Eagle 1.6 terabit per second 5.
Speaker 2: We have strong customer feedback that we have again achieved a leading combination of performance, signal integrity, and power efficiency, and we've already had success in winning design commitments from leading networking OEMs and ODMs.
Speaker 2: We've also made significant development progress with our customer-sponsored next generation 1.6 Tbps MaxSec PHY, which we believe will extend our MaxSec leadership well into the future for applications requiring encryption.
Speaker 2: Going forward, we expect to remain a leader in this category given our core technology differentiation and deep collaborative relationships with leading networking OEMs and ODMs, as well as hyperscalers directly.
Speaker 2: Regarding our Serdes IP licensing and Serdes Chiplex business.
Speaker 2: While we see quarter-to-quarter variability in revenue for our SerDes IP licensing business, our customer traction and funnel remain consistently strong.
Speaker 2: We've seen a breadth of wins in this category, including 50 gig and 100 gig lane speeds at process nodes ranging from 5 nanometer to 28 nanometer.
Speaker 2: applications include networking, AI, 5G, as well as a wide range of other applications.
Speaker 2: In addition to IP, we've also developed Serde's Chiplex solutions. With two high-profile lead customers reaching production, Fido is beginning to see meaningful revenue in our fiscal 24.
Speaker 2: One of our lead customers is Tesla, and as they've publicly presented, Frito is their connectivity partner for their Dojo supercomputer, delivering Surtees IP for their D1 ASIC and Surtees triplets for off-tile connectivity.
Speaker 2: We're receiving increased interest in our series of Chiplets from additional customers and prospects, which supports industry expectations that Chiplets will play an important future role in the highest performance designs.
Speaker 2: To sum up, we're happy with our results in fiscal Q1 and we're encouraged about demand drivers for the balance of here and beyond.
Speaker 2: Frito's position as a market leader for high-speed connectivity solutions has been years in the making, and the market acceleration towards high bandwidth solutions at low power with more networking density placed into our strengths.
Speaker 2: We continue to expect sequential growth throughout fiscal 24. We believe our growth will be led by multiple customers across our range of connectivity solutions, which would result in a more diversified revenue base as we exit fiscal 24.
Speaker 2: I'll now hand the call over to our CFO Dan Fleming who will provide additional details. Thank you.
Speaker 2: Thank you Bill and good afternoon. I will first review our Q1 results and then discuss our outlook for Q2 of fiscal 24. As a reminder the following financials will be discussed on a non-DAP basis unless otherwise noted.
Speaker 2: In Q1, we reported revenue of $35.1 million, up 9% sequentially and down 24% year over year. Our IP business generated $2.8 million of revenue in Q1, down 51% sequentially and down 73% year over year.
Speaker 2: IP remains a strategic part of our business, but as a reminder, our IP results may vary from quarter to quarter, driven largely by specific deliverables to pre-existing contracts.
Speaker 2: While the mix of IP and product revenue will vary in any given quarter over time, our revenue mix in Q1 was 8% IP, below our long-term expectation for IP, which is 10 to 15% of revenue. We expect IP as a percentage of revenue to come in within our long-term expectations for fiscal 24.
Speaker 2: Our product business generated $32.3 million of revenue in Q1, up 22% sequentially, and down 10% year over year.
Speaker 2: Our team delivered Q1 gross margin of 59.8% at the high end of our guidance range and up 160 basis points sequentially due to product mix.
Speaker 2: Our IP gross margin generally hovers near 100% and was 94.8% in Q1.
Speaker 2: Our product gross margin was 56.8% in the quarter, up 703 basis points sequentially, and up 551 basis points year-over-year due principally to product mix.
Speaker 2: Total operating expenses in the first quarter were $27.4 million within our guidance range and up 1% sequentially and 21% year over year.
Speaker 3: Our year-over-year OPEX increase was a result of a 30% increase in R&D as we continue to invest in the resources to deliver innovative solutions.
Speaker 3: Our SG&A was up 8% year over year as we built out public company infrastructure.
Speaker 3: Our operating loss was $6.4 million in Q1, compared to operating income of $5.3 million a year ago.
Speaker 3: Our operating margin was negative 18.3% in the quarter compared to 11.5% last year due to reduced top line leverage.
Speaker 3: We reported a net loss of $4.7 million in Q1, compared to net income of $5.0 million last year.
Speaker 3: Cash flow from operations in the first quarter was $24.6 million, an increase of $36.8 million year over year, due largely to large receivables collected in the quarter.
Speaker 3: CAPEX was $5.3 million in the quarter, driven by R&D equipment spending.
Speaker 3: And free cash flow was positive $19.3 million, an increase of $36.8 million year over year.
Speaker 3: We ended the quarter with cash and equivalents of $237.6 million, an increase of $19.8 million from the previous quarter.
Speaker 3: This increase in cash was a result of large receivables collected during the quarter.
Speaker 3: We remain well capitalized to continue investing in our growth opportunities while maintaining a substantial cash buffer.
Speaker 3: Our accounts receivable balance decreased 43.5% sequentially to $28.0 million, while days sales outstanding decreased to 73 days, down from 140 days in Q4 due to collection of several large receivables.
Speaker 3: Our Q1 ending inventory was $40.8 million, down $5.2 million sequentially.
Speaker 3: Now, turning to our guidance, we currently expect revenue in Q2 of fiscal 24 to be between $42 million and $44 million.
Speaker 3: up 23% sequentially at the midpoint.
Speaker 3: We expect Q2 gross margin to be within a range of 58 to 60 percent.
Speaker 3: We expect Q2 operating expenses to be between $27 million and $29 million.
Speaker 3: We expect Q2 basic weighted average share count to be approximately 150 million shares.
Speaker 3: We are pleased to see FY24 continue to play out as expected. While we see some near-term upside to our prior expectations, the rapid shift to AI workloads has driven new and broad-based customer engagement.
Speaker 3: We expect that this rapid shift will enable us to diversify our revenue throughout fiscal year 24 and beyond, as Bill alluded to.
Speaker 3: However, as new programs at new and existing customers ramp, we remain cautious about the back half of our fiscal year until we gain better visibility into forecasts. In summary, as we move forward through fiscal year 24, we expect sequential revenue growth, expanding gross margins due to increasing scale and improving product mix.
Speaker 3: However, as new programs at new and existing customers ramp, we remain cautious about the back half of our fiscal year until we gain better visibility into forecasts. In summary, as we move forward through fiscal year 24, we expect sequential revenue growth, expanding gross margins due to increasing scale and improving product mix, and modest sequential growth in operating expenses.
Speaker 3: As a result, we look forward to driving operating leverage and returning to double-digit operating margins by Q4. And with that, I will open it up for questions.
Speaker 1: And thank you. At this time, I would like to remind everyone in order to ask a question, press star, then the number 11 on your telephone keypad. We'll pause for just a moment to compile the Q&A roster.
Speaker 1: And one moment for our first question.
Speaker 1: And our first question comes from Tosia Hari from Goldman Sachs. Your line is now open.
Speaker 1: from Toshiya Hari from Goldman Sachs. Your line is now open.
Speaker 4: Hi, good afternoon. Thank you so much for taking the question. Just one question from me. Bill, I was hoping you can talk about the revenue drivers for the current quarter. You're guiding revenue of 23%. It's really nice to see you guys reiterate the sequential growth in the back half as well. You talked extensively about your AEC business, obviously, your largest customer, your number two customer.
Speaker 4: You seem to talk up the tier two customers there as well, and then you sounded quite good on optical. So I was hoping you could rank order the drivers, again, for the current quarter on a sequential basis, and what you're most excited about as you go into the second half. Thank you.
Speaker 2: So I can say that we're seeing strength really across the board with all of the product lines that we've got, you know, from, you know, from AECs to optical to line cart flies, even SIRTI's chiplets.
Speaker 2: It's hard for us to rank order in such a short period of time. We really see things
Speaker 2: we see things generally moving in the positive direction. I'll say that if we look at the year, I think we've been pretty clear thus far to say that our AEC business is not gonna grow this year. And that's really due to the fact that our largest customer had a big reduction in the forecast that they have for the current year.
Speaker 2: With that said, our other AEC business is growing quite rapidly, as well as our other product lines. And so, you know, we see significant growth year over year if we subtract the number from our largest customer. So we feel pretty good about, we feel pretty good about, you know, the way that demand is shaping up. I think we've got growing visibility for this year.
Speaker 2: And again, I see us really benefiting with the acceleration in lane rates generally, it's really positively impacting all of our businesses.
Speaker 4: Sorry, one quick follow up. Thank you. Thank you for that bill.
Speaker 4: Just the optical DSP business, you talked about the 400 gig opportunity with the US hyperscaler and the production ramp in fiscal 24 through 25. You also talked about China coming back a little bit. Again, I know it's a relatively small percentage of your business today, but how should we think about the contribution from your DSP business over the next 12 to 18 months?
Speaker 4: DSP business. You talked about the 400 gig opportunity with the US hyperscaler and the production ramp in fiscal 24 through 25. You also talked about China coming back a little bit. Again, if you can, I know it's a relatively small percentage of your business today, but how should we think about the contribution from your DSP business over the next, call it 12 to 18 months. Thank you.
Speaker 2: Right, so I've said in the past that one of my benchmarks for this business is when do we achieve 10% of our overall revenue? And I've signaled that we don't expect that to happen this year, but we've got all of the activity that would suggest we'll see that in FY25. With that said, I feel good about where we are, the fact that we're executing to the ramp. We are seeing signs of life in China. We're qualified at multiple hyperscalers there, and as spending returns in that market, we will see benefit. Now as far as what Dan's got built in for the year, it's not a big number for China. It's a relatively small number.
Speaker 2: But I think this year we'll do a good job in approaching that 10% threshold. And then, you know, we're, I think we're on track for next year. Thank you. And thank you.
Speaker 1: And one moment for our next question.
Speaker 1: And our next question comes from Quim Bolton from Needham & Company. Your line is now open.
Speaker 2: Hey, Bill. Congratulations on the nice results. I wanted to see if you could give a little bit more color on what you see going on at the largest customer. Obviously, they had a big forecast change back in February , wondering if the forecasts have held fairly stable since that time. And I think if I caught it right in your prepared remarks, you mentioned AECs not only for general compute, but also AI at your largest AEC customer. And I'm wondering if you could share some more details there. I thought the AI opportunity with your largest AEC customer is really more of a calendar 24, maybe even calendar 25 opportunity. So wondering if things have pulled in on that front.
Speaker 2: So generally at our largest customer, we're still hard at work executing to the backlog and forecast that we've got. We're doing a good job there. But mainly it's because of the nature of our Kelsey Laput window push and then with life
Speaker 2: information that we've gotten as to how they're using our current generation of
Speaker 2: We talked about AI deployments also, you know, with the need for front-end networks. And, you know, we've learned that there are certain AI deployments at this customer that are using our switch cable as part of that front-end network. And so it's a relatively significant portion of the AECs that we're shipping today are going into AI applications.
Speaker 2: in addition to general compute. I think it's no secret that there has been a pretty big shift in their spend that we've seen over the last six months. And as I look long term, I think we're well positioned from the standpoint of both general compute and AI. I've talked a lot about a program that we've been working on for more than a year. And this is an internally developed program that's moving straight to 100 gig lanes. They're going to use AECs for interact connectivity between the appliances and the top of rack switches for the backend network.
Speaker 2: then I expect us to participate in both the back-end and front-end network of those clusters as they're deployed. And for next generation general compute, as they move to 50 gig lane speeds, I think we're well aligned with this
Speaker 2: And maybe just two quick clarifications there. Was that AI, internally developed AI, is that still kind of, should we be thinking kind of later in calendar 24, early calendar 25, any update on timing? And can you guys share what percent of revenue the largest customer was in the July quarter?
Speaker 5: I'll let Dan answer that.
Speaker 3: Yes, so from a 10% customer basis, which you'll see in a couple days when we file our queue, is that we had three 10% customers.
Speaker 2: the largest of which was 41%. And so that largest customer has remained the largest customer over recent history. So obviously there's still a material contributor to our overall revenue mix. And then as far as your question about timing, the timing on these new programs is really hard to nail down. I can say that it's very highly prioritized within our customer and we're very, very active in executing on that design and qualification.
Speaker 2: so I think we've signaled that you know it's possible for it to you know for the early part of the ramp to happen within this fiscal year but it's really
Speaker 2: overall round. Okay, and then for Dan, you know, congratulations on the gross margins, especially coming at the high end of the range with the IP mix being fairly low this quarter. You talked about margins benefiting from product mix, but sounds like AECs are still pretty, you know, pretty significant contribution to product revenues. Can you give us any more color on what's driving that margin strength within the product group?
Speaker 3: Well, it really is. It goes back to the theme that you'll be picking up on here, which is
Speaker 3: You know a lot of the current trends really are emphasizing the uptick uptick in the need for 50 and 100 gig lanes And we're seeing that benefit across all of our product lines. You know we spoke if I were to call out a few Even though they might not be 10% of the overall revenue mix both optical and chiplets contributed materially in the quarter Line card has always been a strong performer for us So so there's just broad based Favorable product mix that we experienced within Q1 and as you rightly point out you know our overall gross margin was 60%
Speaker 3: And we achieved that while IP was only 8% of our revenue mix. So we're quite pleased with the performance of our operations group and the entire organization to achieve that.
Speaker 3: to achieve that while IP was only 8% of our revenue mix. So we're quite pleased with the performance of our operations group and the entire organization to achieve that. Yeah, nice job. Thank you.
Speaker 1: And thank you. We have one moment for our next question.
Speaker 1: And our next question comes from Matt Ramsey from TD Cowan. Your line is now open.
Speaker 6: Thank you very much. Good afternoon, guys. I guess my – for my first question, there's a lot of things that I've picked up in the commentary over the last 20 minutes that seem pretty positive. Three different 10 percent customers, the guidance being what it was, sort of above consensus and the expectation to grow for the remainder of the fiscal year.
In fact, as others tried to compete others never achieved qualification and were sole source of that program.
And that trend continued so every every one of our high volume relationships every one of our high volume discussions the engineers understand there is an opportunity for innovation.
Our team is well organized to achieve those differentiated features that make.
Their rack design that much more valuable.
I think that that's going to be a long term advantage for us and it's going to continue to be a competitive moat.
As it relates to putting together a 400 gig kind of standard AUC or an 800 gig standard AUC I think that's where we're going to start.
Seeing competition make progress, but again I think thats, a smaller volume part of the market.
Yes, no I appreciate that bill.
Bill.
For my follow up it seems the opportunity in front of you for your discrete optical DSP is broadening.
And can address optical active optical cable solutions, but I'm just curious what are the margin implications as youre discrete 400 gig DSP business ramps in the next couple of quarters. Thank you.
Yes, we haven't.
The guidance, we've given with regard to how our products.
Kind of lay across the gross margin spectrum.
We expect optical in the near and long term to be at the higher end of our of our product portfolio.
Not too dissimilar from Standalone optical companies that you've seen in the past and tracked in the past.
Our line card Phy business.
It's kind of right in the sweet spot as it is some of these other emerging.
Product groups like.
Chip lifts in our AUC as a category is generally speaking below that target margin and just for level setting.
There has been no change to our long term target model, our long term gross margin of 63% to 65% is our expectation as these product lines mature and as we execute to our plans.
Thats with IP contributing 10% to 15%.
Of the overall product mix.
Thank you.
And thank you.
One moment for our next question.
And our next question comes from <unk> de Silva from Roth <unk>. Your line is now open.
Hi, Bill Hi, Dan I wanted to clarify some comments you had in the prepared remarks around I think you said tier two customers and you're making progress I just want to understand are you referring to customers beyond your first two hyperscale customers 345, and six or referring to a second tier of cloud customers and if the if it is the latter is it is a traditional or.
Newer AI and AI type application.
So.
We've mentioned before that.
We've engaged with multiple customers that are using our <unk> and these are not hyper scaler. These would be considered tier two and also we've had success with service providers as well.
So we mentioned that because the product category is I think really becoming quite solidified when a new customer.
It comes in and is looking at our solutions it becomes almost like an automatic defective decision just based on the fact that you can't really manage signal integrity or.
Basic physical size with passive copper and optical.
Ed.
Different equation on power double the power doubled the price and so it becomes a very easy decision.
One of the.
The announcements that we made in the last month or so it was the work that we've done with Intel on there.
On their habana getting too.
Cluster that they've developed and that's a great example of a customer that debt.
Quickly made the decision to make.
Make these intra rack and rack to rack connections the three meter type connections with the agencies.
A video.
That they did with us and it's on our website for you to look at that as one example of this type of customer we've talked in the past about Comcast and within there they're infrastructure they've got the need for.
For <unk> and if you look at the big routers that are part of their infrastructure became a very easy decision for them to.
Implement with Accredo Aac's. These are the types of examples but.
We continue to work with what you would consider the Hyperscale and we continue to make progress.
So we're at different stages of <unk>.
Of evaluation development different stages of engagement, but not not at the point, where I can report.
Adding a.
Third large customer.
Okay. That's definitely helpful. Thanks, and then just to clarify sort of the landscape you're selling into where some.
<unk> Ethernet and Theres, some theres certainly some infiniband out there I mean, just the notion that you guys might at some point certainty in front end market or that wouldn't be a future opportunity and you expect Ethernet to take share versus an event that just color here. Some basic color would definitely help us. Thanks.
Yes, I think that Nvidia has done just a fantastic job.
Not sure if we've seen too many back to back quarters like what they reported and so theres no question that that near term Infiniband is seeing great success for this the backend networks within the Nvidia clusters.
With that said we're involved in many many AI next generation deployments all of which are Ethernet and I think if you if.
You rely on the market forecasters.
They see a very clear coexistence between Infiniband and Ethernet long term.
I think you can measure it by dollars you can also measure by ports and the expectation I think is that the number of ports and Ethernet is going to exceed that infiniband sometime in the next few years.
So I think that we remain very bullish on an Ethernet within clusters Theres no question about the amount of activity and then there.
There is no surprise in the sense that.
The market is not going to be satisfied with.
<unk>.
The sole source provider.
With that said from.
From the standpoint of our ability to do Infiniband Theres no limitations. So I can say in the optical space. We work with companies that are delivering both Ethernet and Infiniband solution solutions in.
As far as the AUC standard would go.
It wouldn't be a huge leap for us to develop those cables that we feel like there's a market opportunity.
Very helpful. Bill Thank you.
And thank you.
Okay.
One moment for our next question.
And our next question comes from tore Svanberg from Stifel. Your line is now open.
Yes. Thank you.
Congratulations on that 400.
You win.
Bill on that topic, it's kind of interesting because the 400 gig market is still in its early days, but we keep hearing from the industry that 800 gig is now ramping so.
Could you talk a little bit about your design wins and your ramps there I mean, obviously now you've got this one win in 400 gig thats going to ramp, but what about 800 when would that start to contribute more meaningfully to revenues.
So I think we need to look at the overall opportunity and maybe break it down between front end front and backend networks. So I think from our front end network perspective.
The slower port speeds are still going to be very popular for a while.
We see the market moving to 800 for the for the back end networks in AI clusters that are moving 100 gig lane rates.
No.
<unk>.
The expectation for us on 800 gig is that we.
We probably see that as an FY 'twenty five.
Type of opportunity.
Great and I also had a follow up on the question about the sort of caution for the second half of fiscal 'twenty four.
There's a lot of irons in the fire here and I'm. Just wondering is that caution kind of more tied to housing.
How these ramps go I'm, especially thinking about your second largest AUC customer I mean are you are you concerned that it's going to grow I'd like for next few quarters and then it digests any any further color you could add there would be.
Would be great. Thanks.
Yes.
I'd kind of smile.
Thinking about the.
The expectation that we set and talking about cautiousness, because if we look at the quarter to quarter growth rates I think they're pretty exceptional as we.
As we climbed back to an equal level of our larger level, then we picked up prior to the big reset.
So I think just beginning of the year I think we had.
Plenty of challenge to maintain that kind of a growth rate.
And I feel good about.
Now we look right now I feel good about the fact that exiting this year I expect us to be more diversified not just on a customer basis, but also on a product line basis.
So.
I kind of smile because.
We can take what is an exceptional story and we've got to make sure that the treadmill doesn't get sped up to the point where.
Expectations are too high so I would just say that cautiousness is really wrapped in an incredible story of very fast growth quarter to quarter.
Great and then on the the second ASC customer ramps I think you said thats already in production.
Is it now sort of the main part of the ramp or does that come a little bit later.
It comes a little bit later.
These programs there is various stages of qualification early production pilot production and then really a significant ramp and as we've signaled we've been.
Yes.
Somewhat measured and what we've included in this year and it looks like it's going to shape up as to be a much larger FY 'twenty five ramp.
It sounds good thanks for the color really appreciate it.
Sure and thank you.
And one moment for our next question.
And our question comes from Brett Simpson from R&D Research. Your line is now open.
Yes, thanks, very much David I wanted to just ask on Saturdays Chiclets.
Can you, maybe just talk a little bit about how you see the landscape here over.
Over the next couple of years and I think you call that Tesla is a.
A.
Initial launch customer for <unk> chip, let's I think they've been talking publicly about sort of installing 100 extra flops cluster over the next sort of five or six quarters can you, maybe just talk a bit about it.
What specifically credo is doing within with this project and more broadly just talk about how you see at.
<unk> Io for Credo, particularly now that TSMC is starting to get more and more involved in <unk> and looking at AI customers here. Thank you.
Sure. So we're happy with the relationship that we've got with Tesla. This has been multiple years that we've been working with them.
I'll first start with the fact that they licensed our 100 gig per lane <unk> IP in each one of the <unk> chips, they've integrated 576 of those 100 gig lanes. So when we think about total throughput. That's 57 six terabits per second for each one of their deal on Asics.
This is why we were so attracted to working on something that was so advanced.
And it was even a long time ago. When we talk about 51, two terabits per second switches.
We talk about still that's that's not expected for for some time.
So I think from a series IP standpoint. This is a great example of the type of work that our team can do and collaborating with leading edge design team.
If you look at their tile designed there is 25 of the D. One asics that are early in a five by five matrix and surrounding the tile.
<unk> connectivity.
And there's 40 of our chip lifts on each each one of their titles and the triplets are three two terabits per second.
Also 100 gig per lane on each side one side is <unk> two.
To manage the day to day connectivity and then op chip is a longer reach are off tile is a longer reach.
And so they have been public in talking about ramping and so thats, where we see meaningful revenue. The second customer that we worked with is Intel and for their 12, eight <unk> switch which is in production now also.
We did.
Triplet designed for them also three two terabits per second a little bit different interconnect between died this was solid.
Color.
White bus B O W. A bunch of wires on the on the day to day connection and then off.
Package was a longer reach cities. So we feel very good about that we're seeing more customer interest when we talk about the chip.
Business in general there's lots of different kinds of triplets, where really specializing in connectivity.
It's really Certes triplets R.
Our target.
And we see that generally.
We expect we expect it to be a large opportunity one of the things that we've talked about in the past as our efforts for pcie Gen. Six that effort is well underway, we see a big opportunity within within the servers, whether their compute or AI internally that network is managed.
With the Pcie.
Standard.
And so.
There is a bandwidth explosion, that's happening inside the box and so we see a large opportunity for for pcie.
<unk> as well as triplets and people have talked about the UCI E.
Standard is being a die to die interconnect.
Off package would be pcie so.
We're definitely.
I'm going to be in that market long term.
And just to follow up on this I mean, a lot of chipmakers still come about nextgen architectures for AI, where they're physically separating out the io from their main compute main accelerator.
Can you talk a bit about what that means for <unk>, how do you position for some of these next gen architectures.
Are you engaging with any of these sort of project at this stage.
Yes, I think that.
My understanding is what I just spoke about this UCI E standard thats being driven by.
Intel where part of that group, we're active and this is defining a standard where you can do chip to chip connectivity and then off chip you can manage it in different ways. We think the right approach is to go with fast connections that are that are off package and were going to bring the same kind of advantage.
As to that opportunity that we've.
That we brought to everything we've been involved with which is.
Faster connectivity with better power efficiency.
But thats that I think is what.
Maybe youre, referring to Thats, the way that I perceive it.
And maybe just a final one.
In terms of the guide for next quarter.
I wanted to just ask about some of the license source for your USB for V to your guide for any royalty revenues in the current quarter from some of these license ores or not thanks.
That's all kind of beyond the fiscal year at the current fiscal year, we haven't given guidance on that.
Okay. Thank you.
Thank you.
And one moment our next question.
And our next question comes from Vijay Rakesh from Mizuho. Your line is now open.
Yeah, Hi, Thanks, Bill and then just a question on the AI side, just wondering I know you talked about maybe a bigger ramp in clinical clinic, but.
You also talked about <unk> content.
Yes.
Getting <unk>.
Alright.
Any idea any thoughts.
Thoughts on how what percent of your cables now go into.
And then as we look out is there a ramp on AI with <unk> on the deal.
See opportunities on the AMD might be analytics address as well.
I can say that the opportunity is broad for us.
Anything Thats Ethernet I think we see.
That is a big opportunity.
As it relates to your question about overall percentages right now.
We are really in high volume production with one customer and we've got a second lined up that is at the early stages of ramp it's hard for me to.
It's a really project without detailed forecast, but my expectation is that both of those customers will eventually.
By our solutions.
For their for their AI platforms in in a significant way and so I would say.
I think general compute will continue to be large for us, but I think that AI will ultimately be where youll see the bulk of our.
Our cables really at 100 gig lane rates in the near future.
Got it.
Good to see you guys diversifying our charter 310% customers now.
Question on the optical Ics DSP side.
I think more.
Most people would probably have a flat calendar 'twenty four and a <unk> 25 is that how we should look at it or do you see.
Given the level of engagement on the optical side and it looks like things are going smoothly that that that could get pulled in.
Yeah.
Yes, I think I think we're comfortable with what we have.
What we've discussed in the past.
The activity that we've got right now is significant it's leading to production commitments, we're seeing ramps.
<unk>.
And I would say that.
I wouldn't really change the expectation I think FY 'twenty five is really where we expect to.
To get the kind of production traction that would allow us to hit.
That milestone I have talked about which is 10% of our overall revenue.
Got it great. Thanks, a lot.
And thank you.
And one moment for our next question.
Okay.
And our next question comes from Richard Shannon from Craig Hallum Capital Group. Your line is now open.
Well great guys. Thanks for taking my question.
I guess most of my questions probably on DSP optical side here you've talked about.
Kind of early stage ramp here with the single hyper scaler kind of two questions here what sense do you get of your share position here, you're a leader or fast follower and then to what degree are we seeing some follow on with either additional designs with that customer or additional hyperscale.
Ramping there.
Yeah for this first hyperscale or I would say that.
We're one of their.
One of one of their partners for the optical DSP hard for me to say, what what share we're going to have it that hyperscale or.
But I think it will be significant.
And with others I think we've got a lot of activity again, and it's really across the board for front end and back end networks.
I think we'll be in position in the future to give more color on that.
Okay fair enough I'm going to follow up on another question on DSP topic as well I think it was <unk> question by 800 gig DSP I think your response was something along the lines of revenue as expected somewhere in that fiscal 'twenty five from that what does that mean about in terms of having better visibility on wins there should we hear about that in the next quarter or two or is it going.
To be more into calendar 'twenty four before that happens.
Yes, I think we will give updates when we've got something significant to report.
I know that.
The.
I appreciate it when we give more color.
But I really want to make sure that were locked in.
We've got many many shots on goal so to speak.
Many opportunities that we're working on right now.
Okay Fair enough I'll look forward to those updates that's all from a bill thanks.
Thank you.
There are no further questions at this time, Mr. Brendan I'll turn the call back over to you.
Okay.
So thank you very much for the questions. We really appreciate the participation and we look forward to following up on on the call backs. Thank you. This concludes today's conference call you may now disconnect.
Yes.