Q4 2024 Credo Technology Group Holding Ltd Earnings Call
Operator: Ladies and gentlemen, thank you for standing by. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. At that time, if you have a question, you will need to press the star 11 on your push-button phone. I would now like to hand the conference over to Dan O'Neill. Please go ahead, sir.
Okay.
Speaker Change: Ladies and gentlemen, thank you for standby at this time all participants are in a listen only mode. Later, we will conduct a question answer session at that time. If you have a question you will need to press the star 11.
Speaker Change: On your push buttons phone I would now like to hand, the conference over to Dan O'neill. Please go ahead Sir.
Dan O'Neill: Good afternoon, and thank you all for joining us today for our fiscal 2024 fourth quarter and year-end earnings. I'm joined today by Bill Brennan, Credo's Chief Executive Officer, and Dan Fleming, Credo's Chief Financial Officer.
Daniel Fleming: Good afternoon, and thank you all for joining us today for our fiscal 2020 for fourth quarter and year ending earnings call.
Speaker Change: And today by Doe Brennan, <unk>, Chief Executive Officer, and Dan Plumbing, Kudos Chief Financial Officer.
Dan O'Neill: 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, the markets in which we operate, and other areas of discussion. These forward-looking statements are subject to risks and uncertainties that are discussed in detail in our documents filed with the SEC. It's not possible for the company's 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 of factors may cause actual results to differ materially from those contained in any forward-looking statement.
Speaker Change: I'd like to remind everyone that certain comments made in this call. Today may include forward looking statements regarding expected future financial results strategy and plans future operations the markets in which we operate and other areas of discussion.
Speaker Change: Forward looking statements are subject to risks and uncertainties that are discussed in detail in our documents filed with the SEC.
Speaker Change: It is not possible for the company's management to predict all risks nor can the company assess the impact of all factors, which business or the extent to which any factor or combination of factors may cause actual results to differ materially from those contained in any forward looking statement.
Dan O'Neill: Given these risks, uncertainties, and assumptions, the forward-looking events discussed during this call may not occur, and actual results could differ materially and adversely from those anticipated or implied. 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. Also, during this call, we will refer to certain non-GAAP financial measures, which we consider to be important measures of the company's performance.
Speaker Change: Given these risks uncertainties and assumptions the forward looking events discussed during this call may not occur and actual results could differ materially and adversely from those anticipated or implied.
Speaker Change: The company undertakes no obligation to publicly update forward looking statements for any reason after the date of this call.
Speaker Change: These statements to actual results or to changes in the companys expectations, except as required by law.
Speaker Change: Also during this call we will refer to certain non-GAAP financial measures, which we consider to be important measures of the company's performance.
Dan O'Neill: These non-GAAP financial measures are provided in addition to, and not as a substitute for, or superior to, financial performance prepared in accordance with U.S. GAAP. A discussion of why we use non-GAAP financial measures and reconciliations between our GAAP and non-GAAP financial measures is available in the earnings release we issued today, which can be accessed using the investor relations portion of our website. With that, I'll now turn the call over to our CEO.
Speaker Change: These non-GAAP financial measures are provided in addition to and not as a substitute for or superior to financial performance prepared in accordance with U S. GAAP.
Speaker Change: A discussion of why we use non-GAAP financial measures and reconciliations between our GAAP and non-GAAP financial measures is available in the earnings release, we issued today, which can be accessed easily investor relations portion of our website with.
Speaker Change: With that I'll now turn the call over to our CEO.
William J. Brennan: Thank you for joining our fourth quarter Fiscal 24 earnings call. I'll start by reviewing our results, and then I'll provide highlights of what we see for Fiscal 25.
CEO: Thank you for joining our fourth quarter fiscal 'twenty four earnings call I'll start by reviewing our results and then I'll provide highlights of what we see for fiscal 'twenty five.
Daniel Fleming: Our CFO Dan Fleming will then follow with a detailed discussion of our Q4 and fiscal year 24 results and provide our outlook for Q1. Credo is a pure play high speed connectivity company delivering a range of optimized and innovative connectivity solutions to meet the needs of global data center operators and service providers. We leverage our core SERTES technology and unique customer-focused design approach to deliver a differentiated suite of solutions, including active electrical cables, or ADCs, optical DSPs, and Line card fives.
Speaker Change: Our CFO Dan Fleming will then follow with a detailed discussion of our Q4 and fiscal year 'twenty four results and provide our outlook for Q1.
Speaker Change: Accredo as a pure play high speed connectivity company delivering a range of optimized innovative productivity solutions to meet the needs of global data center operators and service providers.
Speaker Change: We leverage our core <unk> technology and unique customer focused design approach to deliver a differentiated suite of solutions, including active electrical cables or eight seats.
Speaker Change: Optical DSP.
Daniel Fleming: Serti's chiplets and Serti's IP licenses, for Ethernet port speeds ranging from 100 gigabits up to 1.6 terabits per second. We target the most difficult connectivity challenges facing the market because a combination of architecture, system level approach, power, and performance are most differentiated. Credo is in a market environment of steadily increasing demand for optimized solutions with higher bandwidth and improved power efficiency, driven by the accelerating connectivity requirements of leading-edge AI deployment.
Speaker Change: <unk> card buys <unk> chip lids, and <unk> IP licenses for.
Speaker Change: For Ethernet port speeds, ranging from 100 gig up to one six terabits per second.
Speaker Change: We target the most difficult car activity challenges facing the market.
Speaker Change: Or a combination of architecture system level approach power and performance are most differentiate it.
Speaker Change: <unk> is in a market environment of steadily increasing demand for optimized solutions with higher bandwidth and improved power efficiency driven by the accelerating connectivity requirements of leading edge AI deployments.
Daniel Fleming: I'm pleased to say that during both Fiscal Q4 and Fiscal 24, Credo achieved record revenue. In Q4, we delivered revenue of $60.8 million and a non-GAAP gross margin of 66.1%. In fiscal 24, Credo achieved revenue of $193 million and a non-GAAP gross margin of 62.5%.
Speaker Change: I am pleased to say that during both fiscal Q4 and fiscal 'twenty four.
Speaker Change: <unk> achieved record revenue.
Speaker Change: In Q4, we delivered revenue of $68 million.
Speaker Change: non-GAAP gross margin of 66, 1%.
Speaker Change: In fiscal 'twenty four.
Speaker Change: To achieve revenue of $193 million and non-GAAP gross margin of 62, 5%.
William J. Brennan: The workload supported by our solutions changed significantly during the fiscal year, and our growth was primarily driven by AI deployments across our entire portfolio. In Fiscal Q4, roughly three-quarters of our revenue was driven by AI workloads. The year was also notable as we diversified our revenue across additional customers and products. I'm proud of the team for delivering solid results across a shifting landscape and also for executing a strong quarterly sequential ramp throughout the year in our AEC product line.
Speaker Change: The workloads supported by our solutions changed significantly during the fiscal year and our growth was primarily driven by AI deployments across our entire portfolio.
Speaker Change: In fiscal Q4, roughly three quarters of our revenue was driven by AI workloads.
Speaker Change: The year was also notable as we diversified our revenue across additional customers and products.
Speaker Change: I'm proud of the team for delivering solid results across a shifting landscape.
Speaker Change: And also for executing a strong quarterly sequential ramp throughout the year.
Speaker Change: And our ADC product line.
William J. Brennan: We continued our market leadership and delivered our customers a range of solutions for port speeds ranging from 100 gigabits to 800 gigabits. Furthermore, our approach of delivering system-level solutions with customized hardware and software features has enabled us to build close, collaborative relationships with our customers. Over many design cycles across numerous customers, we have dramatically improved our speed to market in designing and qualifying our solutions. And this remains a key aspect of our competitive advantage. We believe this positions Credo with a unique value to the market that is difficult to replicate.
Speaker Change: We continued our market leadership and delivered our customers a range of solutions for port speeds, ranging from 100 gig to 800 gig.
Speaker Change: Furthermore, our approach of delivering system level solutions with customized hardware and software features has enabled us to build close collaborative relationships with our customers.
Speaker Change: Over many design cycles across numerous customers, we have dramatically improved our speed to market in designing and qualifying our solutions and this remains a key aspect of our competitive advantage.
Speaker Change: We believe this positions credo with a unique value to the market that is difficult to replicate.
William J. Brennan: With this, our AECs have quickly become the leading solution for NRAC cabled connectivity for single-lane speeds of 50 gigabits per second and above. In addition to the advantages of ADCs that include signal integrity, power, form factor, and reliability, our customers have embraced the opportunity to innovate with Credo as a design partner to optimize system-level features that make their AI clusters more efficient. From a customer engagement perspective, Fiscal 24 was fruitful, as we saw the successful ramp of a new hyperscale customer, qualification at another, and expansion of our AEC engagements with hyperscalers, Tier 2 data centers, and service providers.
With this our AUC so quickly become the leading solution for in rack cabled connectivity for single eight speeds of 50 gigabit per second and above.
Speaker Change: In addition to the advantages of AUC that includes signal integrity power form factor and reliability, our customers have embraced the opportunity to innovate with accredo as a design partner to optimize system level features that make their AI clusters more efficient.
Speaker Change: From a customer engagement perspective fiscal 'twenty four was fruitful as we saw the successful ramp at a new hyperscale customer qualification at another and expansion of our AUC engagements with Hyperscale.
Speaker Change: Tier two data centers and service providers.
William J. Brennan: AECs have quickly transitioned from a new concept to a de facto solution across many data center environments. Based on customer feedback and forecasts, we continue to expect an inflection point in our ABC revenue growth during the second half of fiscal 25.
Speaker Change: Aac's have quickly transitioned.
Speaker Change: From a new concept to a de facto solution across many data center environments.
Speaker Change: Based on customer feedback and forecasts, we continue to expect an inflection point in our AUC revenue growth during the second half of fiscal 'twenty five.
William J. Brennan: FISCO 24 was also a strong year for our optical DSP product. During the year, we achieved material production revenue with significant wins at domestic and international hyperscalers. Additionally, we continue to gain traction with optical module partners and end customers due to our attractive combination of performance, power efficiency, and system cost. AI backend network deployments are a strong volume driver for the optical transceiver and AOC market, specifically for leading-edge 100 gigabit per lane solutions. As power efficiency has become a more critical factor, Credo has responded with innovative architectural solutions that drastically reduce DSP power while maintaining interoperability and signal integrity at the optical module level.
Speaker Change: Fiscal 'twenty four was also a strong year for our optical DSP products.
Speaker Change: During the year, we achieved material production revenue with significant wins at domestic and international Hyperscale.
Speaker Change: Additionally, we continued to gain traction with optical module partners and end customers due to our attractive combination of performance power efficiency and system costs.
Speaker Change: AI backend network deployments for a strong volume driver for the optical transceiver and Aoc market, specifically for leading edge 100 gig per lane solutions.
Speaker Change: As power efficiency is becoming more critical factor <unk> responded with innovative architectural solutions that drastically reduced DSP power, while maintaining interoperability and signal integrity at the optical module level.
William J. Brennan: We've made great progress with our Linear Receive Optics DSP. In November, we announced our LRO DSP solutions, and by March at OFC, we demonstrated production designs with three 800-gig module partners. In the few months since OFC, we've seen continued market acceptance and design activity. These products enable a significant power reduction versus a traditional 800 gigabit solution. The LRO architecture is the only way to achieve a sub-10 watt 800 gigabit module that meets existing industry optical standards and facilitates multi-vendor interoperability. We expect the benefits of LRO solutions to become even more impactful in next-generation 1.6T optical modules.
Speaker Change: We've made great progress with our linear receiver optics DSP.
Speaker Change: In November we announced our <unk> DSP solutions and by March at OFC, We demonstrated production designs with $3 800 gig module partners.
Speaker Change: In a few months since OFC, we've seen continued market acceptance and design activity.
Speaker Change: These products enable a significant power reduction versus a traditional 800 gig solution.
Speaker Change: <unk> architecture is the only way to achieve a sub 10 watt 800 gig module that meets the existing industry optical standards and facilitates multi vendor interoperability.
Speaker Change: We expect the benefits of <unk> solutions to become even more impactful in next generation 160 optical modules I feel confident saying that the <unk> architecture with no DSP as lost nearly all momentum in the market and that the <unk> architecture is showing great promise.
William J. Brennan: I feel confident saying that the LPO architecture with no DSP has lost nearly all momentum in the market, and that the LRO architecture is showing great promise. I'm encouraged by our customer traction in Q4. We were pleased to kick off multiple new optical DSP design engagements with the leading optical module manufacturers, both with our new LRO DSP and our traditional full DSP solution. Given our results to date and our customer engagements, we are on track to achieve our optical DSP revenue goal of 10% of our fiscal 25 revenue, and we are enthusiastic about future growth prospects in this category.
Speaker Change: I am encouraged by our customer traction in Q4, we were pleased to kick off multiple new optical DSP design engagements with the leading optical module manufacturers, both with our new <unk> DSP and our traditional full DSP solutions.
Speaker Change: Given our results to date and our customer engagements. We are on track to achieve our optical DSP revenue goal of 10% of our fiscal 'twenty five revenue.
Speaker Change: And we are enthusiastic about future growth prospects in this category.
William J. Brennan: Regarding our Lion Card 5... Our leadership in this market continues as we transition to more advanced process nodes that deliver improved product performance and power efficiency. During the year, we continue to add to our customer base and have multiple 100 gigabit per lane wins at industry-leading Tier 1 ODMs and ODMs that serve the global data center market. These include 800 gigabit and 1.6T Gearbox, ReTimer, and MaxSec5 products
Speaker Change: Regarding our line card five business our leadership in this market continues as we transition to more advanced process nodes that deliver improved product performance and power efficiency.
Speaker Change: During the year, we continued to add to our customer base and have multiple 100 gig per lane wins at industry, leading tier one Oems and Oems that serve the global data center market.
Speaker Change: These include 800 gig at 160 gearbox re timer and Max sat Fi products.
William J. Brennan: As we've discussed in the past, AI deployments are the driving force behind our growth for these leading-edge devices. In the fourth quarter, we had success with both 50 gigabit and 100 gigabit per lane line card products. While 50-gig per lane solutions will continue to have lengthy life cycles, our 100-gig per lane solutions will also start adding to our revenue in fiscal 25. We expect the Line Card 5 business will continue to grow and contribute nicely to our overall business in fiscal 25 and beyond, as we continue to invest and innovate in this market.
Speaker Change: As we've discussed in the past AI deployments are the driving force behind our growth for these leading edge devices.
Speaker Change: In the fourth quarter, we had success with both 50 gig and 100 gig per late line card products.
Speaker Change: Our 50 gig per lane solutions will continue to have lengthy life cycles are 100 gig <unk> solutions will also start adding to our revenue in fiscal 'twenty five.
We expect the line card Fi business will continue to grow and contribute nicely to our overall business in fiscal 'twenty five and beyond as we continue to invest and innovate in this market.
William J. Brennan: Lastly, I'll discuss our CERTI IP licensing and chiplet businesses. In Q4, our assertive licensing business delivered solid results, owing to our combination of speed, signal integrity, leading power efficiency, and breadth of operation. During Fiscal 24, we won licensing business across a range of applications, process modes, and lane rates. Our winds range from 28 nanometer down to 4 nanometer at lane rates ranging from 28 gigabits per second
Speaker Change: Lastly, I will discuss our <unk> IP licensing businesses.
Speaker Change: In Q4, our <unk> licensing business delivered solid results.
Speaker Change: Going to a combination of speed signal integrity, leading power efficiency and breadth of offerings.
Speaker Change: During fiscal 'twenty four we won licensing business across a range of applications process nodes and lean rates are.
Speaker Change: Our wins range from 28 nanometer down to four nanometer at lane rates ranging from 28 gig to 112 gig.
William J. Brennan: Our chiplet business saw significant growth, led by our largest customer who deploys our SerDes chiplets in a massive AI cluster. This customer also engaged us to develop a next-generation chiplet for future deployment, which is a testament to our leading technology and customer-centric focus. We are entering fiscal 25 with a strong and diverse funnel of CERTI's licensing and chiplet opportunities. In summary, the shift towards generative AI accelerated during our Fiscal 24, and we see that continuing into the foreseeable future.
Our triplet business saw significant growth led by our largest customer who deploys our series triplets and a massive AI cluster.
Speaker Change: This customer also engaged us to develop a next generation chip with for future deployments, which.
Speaker Change: Which is a testament to our leading technology and customer centric focus.
Speaker Change: We are entering fiscal 'twenty, five with a strong and diverse funnel of certain licensing and chip led opportunities.
Speaker Change: In summary, the shift towards generative AI accelerated during our fiscal 'twenty, four and we see that continuing into the foreseeable future.
William J. Brennan: Industry data and market forecasters point towards continued and growing demand for high bandwidth, energy efficient connectivity solutions that are application optimized. Credo benefits from this demand due to its focus on innovative, low-power, customer-centric connectivity solutions for the most demanding applications. Our view into Fiscal 25 and beyond has remained consistent for a number of quarters now, and this has only been reinforced by recent wins, production ramps, and customers' forecasts as they continue to formalize their AI deployment plans. And with that, Dan Fleming, our CFO, will now provide additional detail.
Speaker Change: History data and market forecasters point towards continued and growing demand for high bandwidth energy efficient connectivity solutions that our application optimized.
Speaker Change: <unk> benefits from this demand due to our focus on innovative low power customer centric connectivity solutions for the most demanding applications.
Speaker Change: A review into fiscal 'twenty, five and beyond has remained consistent for a number of quarters now and this has only been reinforced by recent wins production ramps and customers' forecast as they continue to formalize their AI deployment plans.
Speaker Change: And with that Dan Fleming, our CFO will now provide additional details.
Daniel Fleming: Thank you, Bill, and good afternoon. I will first provide a financial summary of our fiscal year 24 and then review our Q4 results. And finally, discuss our outlook for Q1 and provide some color on our expectations for fiscal year 25. Revenue for fiscal year 24 was a record at $193 million, up 5% year over year, driven by product revenue that grew by 8%. Gross margin for the year was 62.5%, up 448 basis points year over year.
Daniel Fleming: Thank you Bill and good afternoon, I will first provide a financial summary of our fiscal year 'twenty. Four then review our Q4 results and finally discuss our outlook for Q1 and provide some color on our expectations for fiscal year 'twenty five.
Daniel Fleming: Revenue for fiscal year 'twenty four was a record at $193 million up 5% year over year, driven by product revenue that grew by 8%.
Daniel Fleming: Gross margin for the year was 62, 5% up 448 basis points year over year.
Daniel Fleming: Our operating margin declined by 208 basis points, as we continue to invest in R&D to support product development focused on numerous opportunities across our hyperscale customers. We reported earnings per share of $0.09 for the year, a $0.04 improvement over the prior year. Moving on to the fourth quarter.
Daniel Fleming: Our operating margin declined by 208 basis points as we continued to invest in R&D to support product development focused on numerous opportunities across our hyperscale customers.
Daniel Fleming: We reported earnings per share of <unk> for the year, a four cent improvement over the prior year.
Daniel Fleming: In Q4, we reported record revenue of $60.8 million, up 15% sequentially and up 89% year over year. Our IP business generated $16.6 million of revenue in Q4, up 193% year over year. 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 or new contracts.
Daniel Fleming: Moving on to the fourth quarter and Q4, we reported record revenue of $68 million up 15% sequentially and up 89% year over year.
Daniel Fleming: Our IP business generated $16 $6 million of revenue in Q4 up 193% year over year.
Daniel Fleming: 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 preexisting or new contracts.
Daniel Fleming: While the mix of IP and product revenue will vary in any given quarter over time, our revenue mix in Q4 was 27% IP, above our long-term expectation for IP, which is 10 to 15% of revenue. Our product business generated $44.1 million of revenue in Q4, down 15% sequentially and up 67% year-over-year. Our product business, excluding product engineering services, generated $40.8 million of revenue in Q4, up 2% sequentially. Our top four end customers were each greater than 10% of our revenue in Q4.
Daniel Fleming: While the mix of IPM product revenue will vary in any given quarter over time, our revenue mix in Q4 was 27% IP above our long term expectation for IP, which is 10% to 15% of revenue.
Daniel Fleming: Our product business generated $44 $1 million of revenue in Q4 down 15% sequentially and up 67% year over year.
Daniel Fleming: Our product business, excluding product engineering services generated $48 million of revenue in Q4 up 2% sequentially.
Daniel Fleming: Our top four and customers are each greater than 10% of our revenue in Q4.
Daniel Fleming: Our team delivered Q4 non-gap gross margin of 66.1%, above the high end of our guidance range and up 391 basis points sequentially, enabled by a strong IP contribution in the quarter. Our IP non-GAP gross margin generally hovers near 100% and was 99.2% in Q4. Our product non-GAAP gross margin was 53.7 percent in the quarter, down 783 basis points sequentially and up 392 basis points year-over-year. The sequential decline was due to a change in product engineering services revenue.
Daniel Fleming: Our team delivered Q4, non-GAAP gross margin of 66, 1% above the high end of our guidance range and up 391 basis points sequentially enabled by our strong IP contribution in the quarter.
Daniel Fleming: Our IP non-GAAP gross margin generally hovers near 100% and was 99, 2% in Q4.
Daniel Fleming: Our product non-GAAP gross margin was 53, 7% in the quarter down 783 basis points sequentially and up 392 basis points year over year the sequential decline.
Daniel Fleming: Decline was due to a change in product engineering services revenue.
Daniel Fleming: Total non-GAAP operating expenses in the fourth quarter were $32.7 million below the midpoint of our guidance range and up 7% sequentially. Our OPEX increase was a result of a 17% year-over-year increase in R&D as we continue to invest in the resources to deliver innovative solutions for our hyperscale customers and a 26% year-over-year increase in SG&A as we continue to invest in public company infrastructure. Our non-GAAP operating income was a record $7.5 million in Q4 compared to a non-GAAP operating income of $2.4 million last quarter due to strong gross margin performance coupled with top-line leverage.
Speaker Change: Total non-GAAP operating expenses in the fourth quarter were $32 $7 million below the midpoint of our guidance range and up 7% sequentially.
Speaker Change: Our Opex increase was a result of a 17% year over year increase in R&D as we continue to invest in the resources to deliver innovative solutions for our hyperscale customers.
Speaker Change: And a 26% year over year increase in SG&A as we continue to invest in public company infrastructure.
Speaker Change: Our non-GAAP operating income was a record $7 $5 million in Q4 compared to non-GAAP operating income of $2 4 million last quarter due to strong gross margin performance coupled with top line leverage.
Daniel Fleming: Our non-GAAP operating margin was also a record at 12.3% in the quarter, compared to a non-GAAP operating margin of 4.6% last quarter, a sequential increase of 771 basis points. We reported non-GAAP net income of $11.8 billion in Q4, compared to non-GAAP net income of $6.3 million last month. Cash flow from operations in the fourth quarter was $4.2 million. CapEx was $3.2 million in the quarter, driven by R&D equipment spend, and Free Cash Flow was $1 million, an increase of $16.7 million year-over-year.
Speaker Change: Our non-GAAP operating margin was also a record at 12, 3% in the quarter compared to a non-GAAP operating margin of four 6% last quarter, a sequential increase of 771 basis points.
Speaker Change: We reported non-GAAP net income of $11 8 billion in Q4 compared to non-GAAP net income of $6 $3 million last quarter.
Speaker Change: Cash flow from operations in the fourth quarter was $4 2 million.
Speaker Change: Capex was $3 $2 million in the quarter driven by R&D equipment spending.
Speaker Change: And free cash flow was $1 million, an increase of $16 $7 million year over year.
Daniel Fleming: We ended the quarter with cash and equivalents of $410.0 million, an increase of $0.9 million from the third quarter. We remain well capitalized to continue investing in our growth opportunities while maintaining a substantial cash buffer. Our accounts receivable balance increased 33% sequentially to $59.7 million, while days sales outstanding increased to 89 days, up from 77 days in Q3. Our Q4 ending inventory was $25.9 million, down $5.6 million. Now, turning to our guidance.
Speaker Change: We ended the quarter with cash and equivalents of 410.0.
Speaker Change: An increase of zero point $9 million from the third quarter.
We remain well capitalized to continue investing in our growth opportunities, while maintaining a substantial cash buffer.
Speaker Change: Our accounts receivable balance increased 33% sequentially to $59 $7 million, while days sales outstanding increased to 89 days up from 77 days in Q3.
Speaker Change: Our Q4, ending inventory was $25 9 million down $5 6 million sequentially.
Daniel Fleming: We currently expect revenue in Q1 of fiscal 25 to be between $58 million and $61 million, down 2% sequentially at the midpoint. We expect Q1 non-GAAP gross margin to be within a range of 63 to 65%. We expect Q1 non-GAAP operating expenses to be between $35 million and $37 million. The first quarter of fiscal 25 is a 14-week quarter, so included in this forecast is approximately $2 million in expenses for the extra. We expect the Q1 diluted weighted average share count to be approximately 180 million shares.
Speaker Change: Now turning to our guidance.
Speaker Change: We currently expect revenue in Q1 of fiscal 'twenty five to be between $58 million and $61 million.
Speaker Change: Down 2% sequentially at the midpoint.
Speaker Change: We expect Q1, non-GAAP gross margin to be within a range of 63% to 65%.
Speaker Change: We expect Q1, non-GAAP operating expenses to be between $35 million and $37 million.
Speaker Change: The first quarter of fiscal 'twenty five is a 14 week quarter. So included in this forecast is approximately $2 million and expenses for the extra week.
Speaker Change: We expect Q1 diluted weighted average share count to be approximately 180 million shares.
Daniel Fleming: We were pleased to see fiscal year 24 play out as expected. The rapid shift to AI workloads drove new and broad-based customer engagement, and we executed well to deliver the sequential growth we had forecast throughout the year. Our revenue mix transitioned swiftly through the year. In Q4, we estimate that AI revenue was approximately three-quarters of total revenue, up dramatically from the prior year. As we move forward through fiscal year 25, we expect sequential growth to accelerate in the second half of the year.
Speaker Change: We were pleased to see fiscal year 'twenty four play out as expected the rapid shift to AI workloads drove new and broad based customer engagement and we executed well to deliver the sequential growth we had forecast throughout the year.
Speaker Change: Our revenue mix transitioned swiftly through the year in Q4, we estimate that AI revenue was approximately three quarters of total revenue up dramatically from the prior year.
Speaker Change: As we move forward through fiscal year 'twenty, five we expect sequential growth to accelerate in the second half of the year.
Daniel Fleming: From Q4 of fiscal 24 to Q4 of fiscal 25, we expect AI revenue to double year over year as programs across a number of customers reach production scale. We expect fiscal year 25 non-GAAP gross margin to be within a range of 61 to 63% as product gross margins expand due to increasing scale. We expect fiscal year 25 non-GAAP operating expenses to grow at half the rate of top-line growth. As a result, we look forward to driving operating leverage throughout the year. And with that, I will open it up to questions.
Speaker Change: From Q4 of fiscal 'twenty four to Q4 of fiscal 'twenty five we expect AI revenue to double year over year as programs across a number of customers reached production scale.
Speaker Change: We expect fiscal year 'twenty five non-GAAP gross margin to be within a range of 61% to 63% as product gross margins expand due to increasing scale.
Speaker Change: We expect fiscal year 'twenty five non-GAAP operating expenses to grow at half the rate of top line growth.
Speaker Change: As a result, we look forward to driving operating leverage throughout the year.
Speaker Change: And with that I will open it up for questions.
Operator: 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 list. Our first question comes from the line of Quinn Bolton from Needham. Your line is open.
Speaker Change: Thank you at this time I would like to remind everyone in order to ask a question. Chris Star then the number 11 on your telephone keypad, we'll pause for just a moment to compile the Q&A roster.
Speaker Change: Our first question comes from the line.
Nathaniel Quinn Bolton: Quinn Bolton.
Speaker Change: From Needham Your line is open.
Nathaniel Quinn Bolton: Hey guys, congratulations on the results and nice to see you quantifying the AI revenue. I guess Bill or Dan wanted to start with just sort of a couple of housekeeping questions. Can you give us sort of the percent of revenue from your largest four customers and were they all across different product lines, or are you starting to see consolidation back to AECs among that top four customer base?
Nathaniel Quinn Bolton: Hey, guys. Congratulations on the results and nice to see you quantifying the AI revenue.
Nathaniel Quinn Bolton: I guess bill or Dan wanted to start with just sort of a couple of housekeeping questions can you give us sort of the percent of revenue from your largest for customers and where they all across different product lines or are you starting to see consolidation back to AUC is among the top four customer base.
Daniel Fleming: Yeah, Quinn, let me comment on that. This is Dan.
Dan: Yes, Ken let me comment on that this is Dan.
Daniel Fleming: Yes, as I mentioned in our prepared remarks, we have four 10% end customers in Q4. They are our two AEC hyperscalers that we've discussed previously, plus a large consumer company and our lead chiplet customer. So by that list, you can kind of see a broad diversification of products represented. And I'll add to that by saying that when our K is filed in the next few weeks, you'll see that we had three 10% end customers for the full year. And I'll lay those out for you since you'll see them soon enough.
Speaker Change: Yes, so as I mentioned in our prepared remarks, we had 410% and customers in Q4.
Speaker Change: They were our two AAC hyperscale or is that we've discussed previously plus a large consumer company.
Speaker Change: And our lead chipset customer.
Speaker Change: <unk> by that list, you can kind of see a broad diversification.
Speaker Change: Suffocation of.
Speaker Change: Of products represented.
Speaker Change: And I'll add to that by saying when are when our K is filed in the next few weeks you will see that we had 310% and customers for the full year.
Speaker Change: And I'll lay those out for you since you will see them soon enough our largest customer was our first ADC hyperscale customer, which we've talked about.
Daniel Fleming: Our largest customer was our first ADC Hyperscale customer, which we've talked about over the last few years, which was Microsoft at 26%. Then the second was an AEC, our second AEC hyperscaler; they came in at 20% for the year. And the third 10% customer was the lead chiplet customer that we had at 15%. So the key takeaway this year was, if you go back to FY23 versus FY24, and we've been saying this for the last few quarters, FY24 was really the year in which revenue diversification materialized for us, both from a customer perspective and a product perspective as well. Hopefully, that gives you some additional color, Quinn.
Speaker Change: Over the last few years, which is Microsoft at 26%.
Speaker Change: Then the second was an AAC or second AAC hyper scaler they came in at 20% for the year.
And the third 10% customer was the lead triplet customer that we had at.
Speaker Change: At 15% so the key takeaway, though this year was <unk>.
Speaker Change: If you go back to FY2023 versus FY 'twenty, four and we've been saying this for the last few quarters FY 'twenty four was really.
Speaker Change: The year in which revenue diversification materialized for us both from a customer perspective, and a product perspective as well.
William J. Brennan: Yeah, that's great, Tim. Thank you. And then, Bill, I think if I got your prepared script, you talked about ramping up a second AEC customer and then qualifying a third hyperscaler. I was wondering if you could just give us a little bit of detail on the third hyperscaler.
Speaker Change: That gives you some additional color Quinn.
Quinn: Yes, that's fair.
Tim: Tim Thank you and then I guess.
Speaker Change: Bill I think if I caught your prepared script, you talked about ramping our second AUC customer and then qualifying.
Speaker Change: Third.
Speaker Change: Hyper scaler wondering if you could just give us a little bit of detail on the third hyper scalar is it sort of AI application is that nicked it or is it within a switch can you give us any sense of the per lane speed or total cable speed on that third engagement.
William J. Brennan: You know, is it a sort of AI application? Is it NIC to TOR? Is it within a switch? Can you give us any sense of the per lane speed or total cable speed on that third engagement?
William J. Brennan: Sure, sure. So we've talked about in the past that the first program with this hyperscaler is a switch rack. It's a 50 gigabyte per lane design, 400 gigabit ports, and we've seen this relationship develop in a really similar way to the first two. Start with a single program, and after, you know, the first experience with AECs, we're now engaged with additional programs on the roadmap. I mentioned the first program is a switch rack, and now we're working on additional programs for AI appliance racks, and these are at 100 gigabits per lane.
Speaker Change: Sure sure so we've talked about.
Speaker Change: In the past that the first program with this hyper scalar is a switch rack.
Speaker Change: It's 50 gig per lane designed 400 gig ports.
Speaker Change: And we've seen this relationship developing a really similar way to the first two.
Speaker Change: To start with a single program and after.
Speaker Change: The first experience with <unk>, we're now engaged with additional programs on their roadmap.
Speaker Change: I mentioned, the first program as a source rock and now we're working on additional programs.
Speaker Change: For AI appliance racks and these are at 100 gig per lane.
William J. Brennan: And I'll mention that, you know, the plan that we're getting from them at this point is that, you know, we'll see this third customer ramp in the second half fiscal year timeframe. So that'll contribute to the inflection point that Dan has referenced.
Speaker Change: And I mentioned that.
Speaker Change: The plan that we're getting from them at this point is that.
Speaker Change: We will see this this third customer ramp in the second half fiscal year timeframe.
Speaker Change: So that will contribute to the to the inflection point that Dan just referenced.
Operator: Perfect. Thank you.
Speaker Change: Perfect. Thank you.
Tore Egil Svanberg: One moment for our next question, and our next question comes from Tore Svanberg from Stifel, Ilan Nizov.
Speaker Change: One moment for our next question.
Speaker Change: Okay.
Speaker Change: And our next question comes from the line of tore Svanberg from Stifel. Your line is open.
Daniel Fleming: Yes, thanks, and congratulations on the record revenue. I had a question about Dan's comment about AI revenue for Q4 fiscal 25. So, based on my math, it sounds like AI revenue would be about 90 million. How should we think about the non-AI revenue over the next 12 months? Or, in other words, that 16 million in non-AI revenue for Q4 fiscal 24, how will that progress over the next 12 months?
Tore Egil Svanberg: Yes, thanks, and congratulations on the record revenue.
Tore Egil Svanberg: I had a question on.
Tore Egil Svanberg: <unk>.
Dan: Dan Your comment about AI revenue for Q4 fiscal 'twenty five so based on my math.
Speaker Change: It sounds like <unk> revenue would it be about $90 million.
Speaker Change: How should we think about the non AI revenue over the next 12 months or in other words that that $16 million in non <unk> revenue for Q4 24, how will that progress over the next 12 months.
Daniel Fleming: Yeah, so, based on our comments, we didn't provide specific revenue guidance for the full year, but we wanted to provide you with a framework to understand a little bit more definitively how we've been framing our revenue growth throughout the year. And as you say, AI revenue, we expect to grow 100% from Q4 to Q4, fiscal 24 to 25. If you look at the non-AI revenue piece, what I would say is, you know, we can assume, or you can assume, modest year-over-year growth.
Speaker Change: Okay.
Speaker Change: Yes so.
Speaker Change: Based on our comments, we didn't provide specific revenue guidance for the full year, but we wanted to provide you a framework to understand a little bit more.
Speaker Change: Definitively how we've been framing our revenue growth throughout the year and as you say AI revenue, we expect to grow 100% Q4 to Q4 fiscal 'twenty four 'twenty five if you look at the non AI revenue piece.
Speaker Change: What I would say is we can assume you can assume modest year over year growth that's not.
Daniel Fleming: That's not what's driving our growth this year. It's really these AI programs that are ramping up, largely in the second half of the year. So, that's why we frame things as we did. The other comment I'll add to that is, you know, our overall fiscal year 25 outlook has not changed. We're just kind of giving a little bit more specificity. So, we continue to expect meaningful growth this year, and that second half inflection point will be fast upon us here shortly, driven by these AI programs.
Speaker Change: That's not what's driving our growth in the year.
Speaker Change: It's really these AI programs that are ramping largely in the second half of the year. So that's that's why we frame things.
Speaker Change: As we did the other comment I'll add to that is our overall fiscal year 'twenty five outlook has not changed we're just kind of getting a little bit more specificity. So we continue to expect that meaningful growth in the year and that second half inflection point is.
Speaker Change: Will be fast upon us here shortly driven by these AI programs.
William J. Brennan: Yeah, no, that's great, Collar. And perhaps I have a question for you, Bill.
Speaker Change: Yes, no thats, great color and perhaps a question for you Bill so it looks like Youre Pam four DSP business is finally, starting to take off you're targeting 10% fiscal 'twenty five.
William J. Brennan: So it looks like your PAM-4 DSP business is finally starting to take off. You're targeting 10% revenue growth in Fiscal 25. First of all, how much was that revenue in Fiscal 24? And could you talk a little bit about the diversified customer base that you have for the PAM-4 DSP business? You talked about growth in international and North America, but in North America, are we talking about, you know, several hyperscalers driving that growth?
Speaker Change: First of all how much was that revenue in fiscal 'twenty, four and could you talk to you a little bit.
Speaker Change: The diversified customer base that you have for the Tam for the history of this but you talked about growth in international and North America.
Speaker Change: In North America, we're talking about several hyperscale is driving that growth.
William J. Brennan: So, first of all, for Fiscal 24, we did not, you know, we hadn't had that 10% number as an objective for Fiscal 24, but we came pretty close to it. And so we feel like things are lined up well for Fiscal 25 and beyond. I would say there are multiple drivers.
Speaker Change: Okay.
Speaker Change: Yes, so first of all for fiscal 'twenty four we did not.
Speaker Change: We hadn't had that 10% number as an objective in fiscal 'twenty four but we came pretty close to it and so we feel like things are lined up well for fiscal 'twenty five and beyond I.
William J. Brennan: Of course, we've got, you know, the first U.S. hyperscaler in production. We've got a second one in qualification. We're seeing a return in spending from non-U.S. hyperscalers, and we've commented that we're very well positioned for when that spending turns back on. And, you know, I'd say that these are the primary contributors in Fiscal 25. I will mention that we've got a lot of promising new engagements with Optical Module partners, and these new partners are really considered leaders in the industry.
Speaker Change: I would say there's multiple drivers of course, we've got the first U S. Hyperscale are in production.
Speaker Change: We've got a second in qualification.
Speaker Change: We're seeing a return it spending with non U S. Hyperscale and we've commented that we're very well positioned for when that spending turns back on.
Speaker Change: And I would say that these are the primary contributors in fiscal 'twenty five.
Speaker Change: I will mention that we've got a lot of promising new engagements with thought with optical module partners.
Speaker Change: And these new partners are really considered leaders in the industry.
William J. Brennan: And of course, that bridges to additional hyperscalers that are interested in looking at solutions with Credo. I will also say that we've spent a lot of time talking about the LRO architecture in the last six months. And we see growing momentum with that LRO architecture, for sure. And that's in addition to the full DSP momentum that we're building. So hopefully, that gives you the color that you're looking for.
Speaker Change: And of course that will.
Speaker Change: That bridges, two additional hyperscale or is that better.
Speaker Change: We're interested in looking at solutions.
With credo.
Speaker Change: I will also say that we've spent a lot of time talking about the <unk> architecture and really the last six months.
Speaker Change: We see growing momentum with that MRO architecture.
Speaker Change: For sure.
Speaker Change: And that's in addition to the full DSP momentum that we're building. So hopefully that gives you the color that youre looking for.
Operator: Thank you. One moment for our next question. Our next question comes from Thomas O'Malley from Barclays, Illinois.
Speaker Change: Thank you one moment our next question.
Speaker Change: Our next question comes from the line of Thomas O'malley from Barclays. Your line is open.
Thomas O'malley: Hey, what's going on, guys? I wanted to follow up on the AI guidance. Obviously, if you take the comment that three quarters of the revenue was related to AI and Q4 and extrapolate that to next year, it gets to pretty big numbers. But I wanted to just kind of zoom in on this quarter.
Thomas O'malley: Hey, what's going on guys and thanks for taking my question I wanted to follow up on the AI guidance. Obviously, if you take the comment that three quarters of the revenue was related to AI in Q4, and extrapolate that for next year, just gets to be pretty big numbers, but I wanted to just kind of zoom in on this quarter. So you had 410%.
Daniel Fleming: So you had four 10% customers, one of which was a consumer customer who we know is non-AI related. So that would kind of imply that the rest of your business was entirely AI-related if you just do the math. So could you just help me walk through, is it kind of just rounding up three quarters' AI revenue, or how should I be thinking about the dollar amount? Because it obviously sounds like that's growing quite nicely, but just want to understand the base if you're giving some color on what that should grow for the year.
Thomas O'malley: One of which was a consumer customer who we know is non AI related so that would kind of imply that the rest of your business. It was entirely AI. If you just do that math. So could you just help me walk through is it is it kind of just rounding three quarters AI revenue or how should I be thinking about like the dollar amount because it obviously sounds like that's growing quite nicely, but just wanted to understand the base of your giving some color.
Speaker Change: <unk> on what that should grow for the entire year.
Daniel Fleming: Yeah, we didn't give a precise number because it's hard for us to estimate in some cases how our, you know, end customers utilize our products. But we have a fair amount of certainty that that three quarters or 75% is where we ended for Q4. So we kind of, you know, that's just kind of with a caveat. So you would use that. And it's really, you know, looking at this framework as we exited fiscal 24 versus how we expect to exit fiscal 25.
Speaker Change: Yes.
Speaker Change: Didn't give a precise number because it's hard for us to estimate in some cases how are and.
Speaker Change: And customers utilize our products, but we have a fair amount of certainty.
Speaker Change: That three quarters or 75% is where we ended for Q4.
Speaker Change: So we kind of.
Speaker Change: Kind of with a caveat so.
Speaker Change: So you would use that and it's really.
Speaker Change: Looking best framework is as we exited fiscal 'twenty four versus how we expect to exit fiscal 'twenty five.
Daniel Fleming: So, you know, as you know, these production ramps at these large customers can take time, and they can pull in, they can push out a quarter or so. So that's why we're framing it kind of from fiscal year end to fiscal year end.
Speaker Change: So.
Speaker Change: As you know these production ramps at these large customers.
Speaker Change: Can take time and they can pull in they can push out a quarter or so so.
Speaker Change: So that's why we're we're framing had kind of.
Speaker Change: Full year end of fiscal year end.
Daniel Fleming: And then I just wanted to ask, I know you guys don't guide by product segment, but just a little color on the product and the IP side, because it's swung pretty drastically over the last couple of quarters. So, with the July guidance, with the gross margins being a bit better than expected, you would just assume that maybe the IP side is kind of staying higher sequentially. Could you give us any color on the mix there for July?
Speaker Change: Gotcha, and then I just wanted to ask I know you guys don't guide.
Speaker Change: Product segment, but just a little a little color on the product and the IP side, because it swung pretty drastically over the last couple of quarters. So with the July guidance with the gross margins being a bit better than expected.
Speaker Change: Just assume that maybe the IP side or kind of staying higher sequentially could you give us any color on the mix. There into July is there any product growth or is most of the.
Daniel Fleming: Is there any product growth, or is most of the – well, obviously, with the midpoint of revenue a bit down, but is there any IP color that you can give us? Does it stay at these kind of elevated rates after the big fiscal Q4? Yeah, sure.
Speaker Change: Obviously with the midpoint of revenue a bit down but is there any.
Speaker Change: IP.
Speaker Change: Color that you can give us is it stay at these kind of elevated rates after the big fiscal Q4. Thank you.
Daniel Fleming: Yeah, sure. So just to reiterate what we had said for guidance for Q1 for gross margin of 63 to 65 percent, so really just kind of a modest sequential decline from Q4. So it's really driven by a few things. One is that IP web revenue will decline sequentially, quarter over quarter, so that will happen.
Speaker Change: Yes sure so.
Speaker Change: To reiterate what we had said for guidance for Q1 for a gross margin of 63% to 65%. So really just kind of a modest sequential decline from Q4. So.
Speaker Change: So it's really driven by a few things one is IP revenue will decline sequentially quarter over quarter.
Speaker Change: So that will happen.
Daniel Fleming: If you look at NRE, you should assume we're at historic averages, which we were in Q4, so kind of flat quarter over quarter. So it's really the product gross margin; there's a bit of a revenue mix dynamic there as well. And a lot of this, part of the theme of Fiscal 25 will be increasing product margin, exclusive of product engineering services, due to increasing scale as we kind of return to that roadmap where we really do drive operating margin and gross margin leverage as we increase in scale.
Speaker Change: However.
Speaker Change: If you look at it on a re that's kind of you should assume we're at historic averages, which we were in Q4, so kind of flat quarter over quarter.
Speaker Change: So it's really the <unk>.
Speaker Change: Product gross margin there is a bit of a revenue mix dynamic there as well.
Speaker Change: And a lot of this part of the theme of fiscal 'twenty, five we'll be increasing product margin exclusive of <unk>.
Speaker Change: Product engineering services due to increasing scale as we kind of return to that roadmap, where where we really do drive.
Speaker Change: Operating margin and gross margin leverage as we increase in scale.
Okay.
Daniel Fleming: Thank you. One moment for our next question. Our next question will come from Vijay Rakesh from Mizzou. Your line is open. Yeah, hi, Bill and
Speaker Change: Thank you one moment for our next question.
Speaker Change: Okay.
Speaker Change: Yeah.
Speaker Change: Our next question will come from the line of Vijay Rakesh from Mizuho. Your line is open.
Vijay Raghavan Rakesh: Yeah, hi Bill and Dan, good quarter here. Just a quick question on the LRO side, you mentioned the 800 gigabyte LRO, the sub-10 watt power consumption, and your engagement with this. I'm just wondering how many CSPs you're working with on shipping that product, and how do you see those revenues ramping into 25, I guess, Canada 25.
Vijay Raghavan Rakesh: Yes, Hi, Bill and then good quarter here just a quick question on the.
Speaker Change: A lateral site you mentioned eight to maybe give you a lot of this up Denmark.
Speaker Change: Power consumption and engagement with the strong just wondering how many.
Speaker Change: ESP as Youre working with.
Speaker Change: On shipping that product and how do you see those revenues ramping into 25, it gets kind of 25.
Speaker Change: Okay.
William J. Brennan: So the work is primarily being done right now by optical module manufacturers. We've got more than a handful that are working on designs now. And we have delivered the first samples to the first hyperscale potential customer.
Speaker Change: So the work is primarily being done right now with optical module manufacturers that we've got more than a handful that are working on designs now.
Speaker Change: We have delivered for samples to be first hyperscale.
William J. Brennan: And we see that continuing throughout this quarter. So as far as fiscal 25 goes, there is a possibility. We don't have much really forecasted in what we're looking at yet, but there's a possibility that we'll ramp for significant revenue this fiscal year. But it's not something that's really built in.
Speaker Change: Potential customer.
Speaker Change: And we see that continuing throughout this quarter.
Speaker Change: As far as fiscal 'twenty five goes there is there is a possibility we don't have much.
Speaker Change: Really forecasted.
Speaker Change: What we're looking at yet, but theres a possibility that we'll ramp first significant revenue in this fiscal year, but it's not something that's really built it.
William J. Brennan: Got it. So that should be incremental. And on the chiplet customer, your chiplet customer is obviously increasing capex quite a bit. And you know, do you see your traction growing proportionately? Like, is that starting to pick up as well?
Speaker Change: Got it so that should be incremental.
Speaker Change: And on the triplet customer sprint customers, obviously, increasing capex quite a bit.
Speaker Change: And.
Speaker Change: Do you see.
Speaker Change: Youre traction growing proportionately.
Speaker Change: It's starting to pick up as well.
Speaker Change: Thanks.
William J. Brennan: So, the first customer that we've got in production, the one we've talked about, we see that business really going on. Now, if they have a big increase in the spend on the cluster that's designed in-house, we'll definitely see participation with that. But they've got multiple different paths that they're pursuing right now. But, generally speaking, we continue to be bullish on chiplets in general. We've got additional customers that will be coming online in the future. Again, not much built in for fiscal 25, but we're bullish on the segment.
Speaker Change: Yes so.
Speaker Change: First customer.
Speaker Change: That we've got on production one week.
Speaker Change: When we've talked about we see that business really really ongoing.
Speaker Change: Now I'll say have.
Speaker Change: A big increase in the spend on the cluster that's designed in house, we will definitely see.
Our participation with that but they've got multiple different paths that they are pursuing right now, but generally speaking we continue to be bullish on on shipments in general.
Speaker Change: Additional customers that are or will be coming online.
Speaker Change: In the future again, not not much built in fiscal 'twenty five, but we're bullish on the segment.
Speaker Change: Thank you one moment our next question.
Operator: Thank you. One moment for our next question. Our next question comes from Vivek Arya from Bank of America. Your line is open.
Speaker Change: Our next question comes from the line of Vivek Arya from Bank of America. Your line is open.
Vivek Arya: Hi, thank you for taking our question. This is Dr. Sana on behalf of Vivek.
Speaker Change: Alright. Thank you for taking our question. This is <unk> on behalf of Vivek.
William J. Brennan: I just want to go back to the AEC product line. Obviously, you're ramping up your second customer, third customer also in qualification, the second half. How are you seeing the competitive dynamic just because Marvell and Astera are also launching their products here?
Speaker Change: I just wanted to go back to the ADC product line, obviously, you're ramping your second customer a third customer also and clarification in the second half.
Speaker Change: How are you seeing the competitive dynamic just to kind of smart Ballet star also licensed our product here.
William J. Brennan: At a high level, we have not seen a significant change in the competitive environment. So our objective has always been to be first to deliver and first to qualify. And I think we've done a really good job with this objective for all of our customers. I would say that one big advantage that we have competitively is the way we're organized. We have more than 100 people on our team that are dedicated to the AEC business.
Speaker Change: At a high level, we have not seen a significant change in the competitive environment.
Speaker Change: So our objective has always been to be first to deliver and first qualify and I think we've done a really good job on this objective with all of our customers.
Speaker Change: I would say that one big advantage that we have competitively is the way. We're organized we have more than 100 people on our team that are dedicated to the EC business and that includes that includes hardware and software development that includes qualification production fulfillment of support and this really drive success.
William J. Brennan: And that includes hardware and software development; that includes qualification, production fulfillment, and support. And this really drives success, you know, with this objective to be able to deliver first and qualify first. You know, so I would say that as we go deeper with each customer relationship, we really see an increasing number of requests for customized hardware and software, and, you know, I think, from the standpoint of the number of SKUs that we're working on today, the number is more than 20 that are in active development from, you know, a different SKU perspective. Competitively, I would say.
Speaker Change: With this objective to be able to deliver first in qualified one.
Speaker Change: Sorry.
Speaker Change: I'd say that.
Speaker Change: As we go deeper with each customer relationship.
We really see an increasing number of requests for customized hardware and software and.
Speaker Change: I think from the standpoint of the number of Skus that we're working on today.
Speaker Change: <unk> has more than 20 that are inactive development from from <unk>.
Speaker Change: SKU perspective.
Speaker Change: So thank.
Speaker Change: Competitively I would say.
William J. Brennan: You know, we're unique in the sense that we're the single point of contact and we take full responsibility for all aspects of the relationships with our customers, and this really drives their satisfaction. When I talk more specifically about competition, we're really competing with groups of companies that need to do the same work that we do, but there's really no shortcut to it. And when you've got the complexity of having multiple suppliers involved and responsible for different aspects of one solution.
Speaker Change: We're unique in a sense that where the single point of contact and we take full responsibility for all aspects of the relationships with our customers and this really drives their satisfaction.
Speaker Change: When I talk more specifically about competition, we're really competing with groups of companies that need to do the same work that we're doing.
Speaker Change: But there is there is really no shortcut to it and when you've got the complexity of having multiple suppliers involved in responsible for different aspects of one solution.
William J. Brennan: It's really, you know, far greater complexity than having one party like Credo being ultimately responsible. And so I guess with that said, the market's growing quickly, and we do expect to see second sourcing in the future. This is natural, and ultimately, our goal is to always be raising the competitive bar and ultimately serving our customers very well and driving their satisfaction. But I don't have specific feedback regarding the two potential competitors that you mentioned.
Speaker Change: It's really far greater complexity than having one party like accredo being ultimately responsible and.
Speaker Change: So I guess with that said the market is growing quickly and we do expect to see second sourcing in the future. This is natural.
Speaker Change: And ultimately our goal is to always be raising the competitive bar.
Speaker Change: And ultimately serving our customers very well and in driving their satisfaction.
Speaker Change: I don't have specific feedback regarding.
Speaker Change: The two potential competitors that you mentioned.
William J. Brennan: Of course, and then as a follow-up, just given that NVIDIA is also entering this Ethernet switch market, and that could potentially have some implications on AEC as a standard for connectivity, so I was wondering if you had any color there, or if you'd done any interoperability testing with the NVIDIA solutions as well. Sure.
Speaker Change: Of course.
And then as a follow up just given Nvidia is also entering this ethernet switch market.
Speaker Change: That could potentially have some implications on AUC.
Speaker Change: As a standard for connectivity. So I was wondering if you have any color there or if you've done any interoperability testing with the video solutions as well. Thank you.
William J. Brennan: We've been really clear when we talk about the US hyperscalers; there is a desire to move to Ethernet, you know, long term. And so I think it comes as no surprise that we've seen a lot of discussion around NVIDIA and Ethernet. We view this as a positive for us and our business. We've done testing, you know; we've done testing with everybody that's out there from the standpoint of NICs and switches.
Speaker Change: Sure.
Speaker Change: We've been really clear when we talked about the U S. Hyperscale is there is a desire to move to Ethernet.
Speaker Change: Long term.
Speaker Change: And so I think it comes as no surprise that we've seen a lot of discussion around and around Nvidia and Ethernet.
Speaker Change: We view this as a positive for.
Speaker Change: For us in our business.
Speaker Change: We've done testing.
Speaker Change: We've done testing with everybody that's out there from the standpoint of mix and switches and so we feel really quite confident that.
William J. Brennan: And so we feel really, you know, quite confident that there will be an opportunity for our AECs, for interoperable connectivity. And again, we don't view this as a really surprise that the U.S. hyperscalers are driving in this direction.
Speaker Change: There will be an opportunity for our <unk> for Internet connectivity.
Speaker Change: Again, we don't view this as really a surprise that U S. Hyperscale are driving in this direction.
Operator: Thank you. One moment for our next question. Our next question will come from the line of Richard Shannon from Craighalem. Your line is open.
Speaker Change: Thank you one moment for our next question.
Speaker Change: Okay.
Speaker Change: Our next question comes from the line of Richard Shannon from Craig Hallum. Your line is open.
Richard Cutts Shannon: Well, hi guys. Thanks for taking my questions.
Speaker Change: Okay.
Richard Cutts Shannon: And I apologize if this has been touched on before.
Richard Cutts Shannon: Hi, guys. Thanks for taking my question.
William J. Brennan: This has been touched on before I got on the call late here, but Bill, just following up on your comments regarding custom cables and the increasing requests there. I mean, you can characterize your business now and kind of what you expect going forward here in terms of its profile of custom versus more commodity or standard. Is there much of any of that going on now, or do you expect that to be a material contributor soon?
Speaker Change: Apologize if this has been touched on before I got on the call late here, but bill just following up on your comments regarding.
Bill: Custom cables and the increasing requests there maybe you can characterize your business now and kind of what you expect going forward here in terms of.
Speaker Change: Paolo customers versus more commodity or standard is there much of any any of that going on now or do you expect that to be a material material contributor soon.
William J. Brennan: Well, I think that, you know, what we've seen is that every time we engage deeply with a customer, and we open the door for Innovation basically, we will open to special requests from a hardware standpoint, from a firmware or software standpoint. And what we're seeing is that, you know, customers really respond positively. So we've organized to be able to receive these requests and really deliver on them. You know, so I think that, more and more as we, you know, look into the future, I think that a very large percentage of what we ship will be customer-specific. There will be a market, a smaller market, safer, standard connectivity solutions, like an 800 gigabit to 800 gigabit. AEC with just two connectors and really nothing special. But we see the large majority of the volume, you know, being somewhat customer specific.
Speaker Change: Well I think that what we've seen is that every time, we engaged deeply with with a customer and we opened the door for.
Speaker Change: Innovation basically.
Speaker Change: We are open to special requests from hardware standpoint from a firmware software standpoint.
Speaker Change: And what we're seeing is that customers really respond positively so we've organized to be able to.
Speaker Change: See these requests really deliver on them.
Speaker Change: So I think that.
Speaker Change: More and more as we look into the future I think that that's.
Speaker Change: A very large percentage of what we ship will be it will be customer specific there will be a market.
Speaker Change: Smaller market.
Speaker Change: Safer standard connectivity solutions like an 800 gig to 800 gig.
Speaker Change: ADC with just two connectors and really nothing special.
Speaker Change: But we see the large majority of the volume being somewhat customer specific okay.
William J. Brennan: Okay, thanks for that clarification, Bill. My second question is following up on your comments here about AI revenues doubling from this past fourth quarter to the next fourth quarter here. Maybe you can characterize the degree to which backend network revenues are built into this at all versus, you know, thread end and kind of the need to tear another one out.
Okay. Thanks for that.
Speaker Change: Clarification Bill My second question is on.
Speaker Change: Following up on your comments here about AI revenues doubling from.
Speaker Change: This past fourth quarter to the next fourth quarter here, maybe if you can characterize the degree to which.
Speaker Change: Backend network revenues are built in minutes at all versus president and kind of a detour another applications you've been at historically.
William J. Brennan: Yeah, I would say that, you know, you're right on from the standpoint that the back-end networks are really driving the increase in revenue. And that's a general statement about AI. Of course, AI networks are also connected to the front-end network, but the number of connections is small in comparison.
Speaker Change: Yes, I would say that.
Speaker Change: Youre right on from the standpoint that the.
Speaker Change: The back end networks are really driving.
Speaker Change: The increase in revenue.
Speaker Change: And that's a general statement about AI of course AI networks are also kind of connected to the front end network, but.
Speaker Change: The number of connections so small in comparison.
William J. Brennan: So I'll say that we're seeing a continued increase in the density of connections in AI clusters. And it's really driven by the combination of increased GPU performance generally, as those in that market are executing on the roadmap. But there's also a desire to increase the GPU utilization. Some out there, like OpenAI, they published a document that said the average utilization of a GPU is roughly 33%.
Speaker Change: So I'll say that.
Speaker Change: We're seeing that.
Speaker Change: Continued increase in the density of connections and AI clusters, and it's really driven by the combination of increased GPU performance generally is.
Speaker Change: Those in that market are executing on our roadmap, but theres also a desire to increase the GPU utilization.
Speaker Change: Some some.
Speaker Change: Some out there like opening AI. They published a document that says that the average utilization of Gpus is.
William J. Brennan: And so there's a big opportunity in going with more parallelism. And really, that drives a larger density or increased density in the number of connections, really specifically to the back-end scale-up networks. So we talked about scale-out and scale-up. What that means from the standpoint of how many connections, how many AEC connections are possible per GPU, some of the back-end clusters that we're ramping up in the second half will have two or four AECs per GPU.
Speaker Change: Roughly 33% and so theres a big opportunity in.
Speaker Change: <unk>.
Speaker Change: Going with more parallelism, and really that drives larger density or increased density and the number of connections.
Speaker Change: Specifically to the backend scale up networks. So we talked about scale up and scale up what that means from the standpoint of how many connections how many AUC connections are.
Speaker Change: Possible per GPU.
Speaker Change: Some of the backend clusters that we're ramping in the second half will have.
Speaker Change: Two or $4 <unk> per GPU and we're working on next generation platforms that we will actually increase that number of connections to eight.
William J. Brennan: And we're working on next-generation platforms that will actually increase that number of connections to eight or even higher per GPU. And so I think if you take it to a rack level, say an AI appliance rack level, we're seeing a density today of between 56 and 64 AECs per rack. And we expect this number to likely reach close to 200 AECs per rack in the future. So this is, you know, this is something that will fuel growth as well.
Speaker Change: Or even higher per GPU, and so I think if you take it to a rack level say in AI appliance rack level.
Speaker Change: We're seeing a density today of between 56% and $64 <unk> per rack and we expect this number to likely reached close to 280 <unk> in the future.
Speaker Change: So this is.
Speaker Change: This is something that will fuel the growth as well.
Operator: Thank you. One moment for our next question, and our next question comes from Carl Ackerman from PNB Pirate Bus. Your line is open.
Speaker Change: Thank you one moment for our next question.
Speaker Change: Okay.
Speaker Change: And our next question comes from the line of Karl Ackerman from <unk> Paribas. Your line is open.
Karl Ackerman: Yes, thank you, gentlemen. I have two.
Karl Ackerman: Yes, Thank you gentlemen, I have two.
Karl Ackerman: I suppose for the first question, Dan, could you...
Karl Ackerman: I suppose my first question is Dan could.
Daniel Fleming: Could you put a finer point on IP licensing revenue in the July quarter? Like, was it cut in half?
Karl Ackerman: Could you put a finer point on IP licensing revenue in the July quarter like is it cut in half.
And do you see IP revenue remaining toward the upper end of your long term, 10% to 15% range for fiscal 'twenty five.
Daniel Fleming: And do you see IP revenue remaining toward the upper end of your long-term 10 to 15 percent range for fiscal 25? Yeah, so for fiscal 25, we internally expect it to be near the high end of that long-term model, which again is 10 to 15 percent of overall revenue. And so, if I were in your shoes to model this, I would assume that it's kind of near a quarter of that annual amount in Q1, and if you do that, you should kind of solve to within our gross margin range for Q1, if that's helpful.
Speaker Change: Yeah, so for fiscal 'twenty five.
Speaker Change: Okay.
Speaker Change: We internally expect it to be near the high end of that above that long term model, which again is 10% to 15% of overall revenue.
Speaker Change: So from a if I were in your shoes to model. This I would assume that it's kind of near a quarter of that annual amount in Q1, and if you do that you should kind of.
Speaker Change: Solved within our gross margin range for Q1, so that's helpful.
Daniel Fleming: Thanks for that. Perhaps I have a question for you, Bill. You know, there has been much discussion and confusion about where half-retime DSPs can be used in the network. For example, the use of active copper cable is being used for interact connectivity, while AOCs and AECs appear to be the primary use case for connecting NICs to TOR and or the middle row switches. My question is, do all AI networks require a fully retimed DSP for either AOC or AEC connections?
Speaker Change: I see.
Speaker Change: Thank you for that perhaps a question for you Bill.
Speaker Change: There's been much discussion and confusion about where have free time DSP is can be used in.
Speaker Change: In the network for example, the use of active copper cable are being used for interact connectivity, while Aoc and ECS.
Speaker Change: Period primary use case for connecting next to tour <unk> and middle of the road switches.
Speaker Change: Do my question is do all AI networks require a full re timed DSP for either Aoc or AUC connections.
Speaker Change: <unk>.
William J. Brennan: So this, you know, this is a much discussed topic in the industry, and I think a year ago when at OFC there was a big discussion about the idea of eliminating the DSP. You know, that really started a lot of, you know, a lot of effort in pursuing the solution. So there are many companies, many optical module companies, you know, that pursue designs with no DSP. And I think, generally, the jury has come in, and basically, there's really no momentum in the market now for solutions with no DSP.
Speaker Change: So this.
Speaker Change: This is a much.
Speaker Change: Much discussed topic in the industry.
Speaker Change: And.
Speaker Change: I think a year ago when.
Speaker Change: At OFC, there was a big discussion about the idea of eliminating the DSP.
Speaker Change: Sure.
Speaker Change: That really started a lot of.
Speaker Change: A lot of effort in pursuing the solutions. So there is many companies many optical module companies.
Speaker Change: That pursued designs with no DSP and I think generally the.
Speaker Change: The jury has come in and basically there is.
Speaker Change: Really no momentum in the market now for.
Speaker Change: For solutions with no DSP.
William J. Brennan: So, in the optical world that we see right now, the solution for LRO is really, you know, quite feasible. And we're showing that with multiple partners. We demonstrated three at OFC, Lumentum being the, you know, largest of the three partners.
Speaker Change: So in the optical world that we see right now the solution for <unk> is really quite feasible and we're showing that with multiple partners. We demonstrated three at at.
Speaker Change: At OFC momentum being the.
William J. Brennan: And what we're seeing is that the solution successfully reduces power. And by the way, that was the entire objective of LPL, to reduce power of these connections. And so we've shown that we can deliver 800 gigabyte modules with partners that go sub-10 watts, which is really probably a 30 to 40% reduction compared to what's typical in the market for fully retimed solutions. And so the key with LRO is that we're able to maintain industry standards as well as interoperability.
Speaker Change: The largest of the three partners.
Speaker Change: And what we're seeing is that the solution successfully reduces power and by the way that was the entire objective of LPL was said it was to reduce power of these connections and so we've shown that we can deliver 800 gig modules with partners that go sub 10.
Sub 10 watts, which is really.
Speaker Change: Probably a 30% to 40% reduction compared.
Speaker Change: Compared to what's typical in the market for fully fully re timed.
Speaker Change: Solutions.
Speaker Change: So the key with <unk> is that we're able to maintain industry standards as well as interoperability and so you can you can literally.
William J. Brennan: And so you can literally use an LRO solution, and there's nothing special that you need to do. And so we see that, especially for clusters. You know, these are shorter connections, and AOCs are likely also transceivers, but for these shorter connections that say 10 to 20 meters. And especially in the cluster, power is so critical that we see that, you know, that entire market could be addressed by LRO solutions.
Speaker Change: There is nothing special that you need to do.
Speaker Change: These are shorter connections and aoc's.
Speaker Change: Are likely also transceivers, but for the shorter connections.
Speaker Change: 10% to 20 meters.
Speaker Change: And especially in the cluster power is so critical.
Speaker Change: We see that.
Speaker Change: That entire market could be addressed by our <unk> solutions.
William J. Brennan: Now, you know, it's obviously going to be up to a given customer and their strategy, you know, but the idea that, you know, there will be a large volume of solutions with no DSP, I think, I think that, you know, that really no longer exists from the customers that we're talking to.
Speaker Change: Now, it's obviously going to be up to a given customer and their strategy.
Speaker Change: But the idea that.
Speaker Change: There will be.
Large volume of solutions with no DSP I think I think that.
Speaker Change: That really no longer exists from the customers that we're talking to.
Operator: Thank you. One moment for our next question. Our next question comes from Suji DeSilva from Roth. Your line is open. Hi, Bill. Hi, Dan. Congratulations on the...
Thank you one moment our next question.
Speaker Change #100: Our next question comes from the line of Tsuji to silver from Ross Your line is open.
William J. Brennan: Just, Bill, on your comments on the number of AECs per GPU increasing, I'm just curious, you know, in general, is that increasing the kind of forecasting needs of your customers in the AI area versus traditional cloud versus three months ago? Or, you know, is the AI line stable, already anticipated? And is the cloud, traditional cloud part?
Suji DeSilva: Hi Bill. Hi Dan. Congratulations on the progress here.
Speaker Change #101: Hi, Bill Hi, Dan Congrats on the progress here just bill on your comments on the number of Acs per GPU, increasing I'm just curious in general is that increasing the kind of the the.
Speaker Change #102: Forecasting needs of your customers in the AI area versus traditional cloud versus three months ago.
Speaker Change #103: Is the airline stable already anticipated and is the cloud traditional cloud part coming back.
William J. Brennan: Yeah, I would say there's really no change in the programs that we talked about three months ago. You know, I'd say the additional information that we're sharing today is that, you know, this need for more performance and more bandwidth is really something that we're seeing as we look at next-generation AI cluster designs. And so that's a bit of new information that the number of connections per GPU is doubling, or even more than doubling. And that'll obviously drive growth.
Speaker Change #104: Yes, I would say Theres really no change in the programs that we talked about three months ago I'd.
Speaker Change #104: I'd say the additional information that we're sharing today is that.
Speaker Change #104: This need for more performance and more bandwidth is.
Speaker Change #104: It was really something that we're seeing as we look at next generation AI cluster designs and so thats a bit of new information that the number of connections per GPU is.
Speaker Change #104: Doubling.
Speaker Change #104: Or even more than doubling.
William J. Brennan: Now, as it relates to, we talk about front-end networks and back-end networks, and of course, AI clusters; they're all connected to the front-end network. As that relates to, say, general compute versus AI, it's hard for us to see from a forecasting standpoint how that breaks out, because the same AECs are used for both, from a front-end network perspective. But I would say generally that the momentum in the market for AI is, there's no question, it's still a huge amount of momentum.
Speaker Change #104: And that will obviously drive growth now as it relates to.
Speaker Change #104: We talk about front end networks, and backend networks and of course AI clusters Theyre all connected to the front end network.
Speaker Change #104: As that relates to to say.
Speaker Change #104: General compute versus AI hard for us to see.
Speaker Change #104: From a forecasting standpoint, how that breaks out because the same.
Speaker Change #104: Saint <unk> are used for both.
Speaker Change #104: From our front end network perspective, but I would say generally that the momentum in the market for AI. There's no question. It's.
William J. Brennan: And we see that really for the foreseeable future. If I talk about what's the trade-off for us, if there's a real return from a general computing market share perspective, of course, we'll benefit from that. We're really used in both. And when we talk about the third swim lane, which is, we have AI appliances, general compute, and server racks, so these are both server racks. We talk about the third swim lane being switch racks, and we see that growing in popularity as well, especially as the market moves towards 100 gigabits per lane speed.
Speaker Change #104: It's still a huge amount of momentum and we see that really for the for the foreseeable future.
Speaker Change #104: If I talk about what's the tradeoff for us.
Speaker Change #104: If there is a <unk>.
Speaker Change #104: Real return from a general compute.
Speaker Change #104: Market share perspective.
Speaker Change #104: Of course will benefit from from that.
Speaker Change #105: We're really Houston, both and when we talk about the third swim Lane, which is.
Speaker Change #105: We have AI appliances general compute server rack. So these are both server racks, we talked about the third swim lane being switched racks and we see that growing in popularity.
Speaker Change #105: As well.
Speaker Change #105: Especially as the market moves towards 100 gig.
Speaker Change #105: Per line speeds.
William J. Brennan: It's very helpful to call out the buildings. And then, staying on this increase in ACs per GPU, does that introduce a customization opportunity as well? I'm thinking kind of the old Y-Rack opportunity, things like that, or are those more standard cables but just more...
Speaker Change #106: Got it Thats very helpful color. Thanks, and then staying on these this increase in Acs per GPU eight.
Speaker Change #107: Does that introduce a customization opportunity as well I'm thinking kind of the old why rack opportunity things like that or are those more standard cables, but just more of them.
William J. Brennan: Yeah, I would say none of these are standard, you know, so in the AI appliance application, what we're seeing is that there's maybe a few or zero standard products that are being designed right now. So all of them have special features. I will say that, you know, we're delivering cables with two connectors, three connectors, four connectors, and even five connectors. And so it's, you know, there are.
Speaker Change #108: I would say none of these are standard so so in the Aaas.
Speaker Change #109: And the AI appliance application, what we're seeing is that there is maybe little or zero.
Speaker Change #109: Standard products that are being designed.
Speaker Change #109: <unk> designed right now so all of them have special features.
Speaker Change #109: I will say that.
Speaker Change #109: That we're delivering.
Speaker Change #109: Cables with two connectors three connectors for connectors and even five connectors.
Speaker Change #109: And so it's.
William J. Brennan: When you give these really creative designers of the racks, just the entire A-Appliance rack, it's fun to see what they're going to come up with. And we're very much open to, you know, making their rack design more efficient.
Speaker Change #109: There is.
Speaker Change #109: When you give these really creative designers of the racks that just the entire.
Operator: Thank you. One moment for our next question. And we have a follow-up on the line from Quinn Bolton from Needham. Your line is open.
Speaker Change #109: Appliance frac.
Speaker Change #109: It's fun to see what theyre going to come up with and we're very much open to making there the rack designed more efficient.
Speaker Change #110: Thank you one.
Speaker Change #111: One moment for our next question.
Speaker Change #112: And we have a.
Speaker Change #113: Follow up from the line of Quinn Bolton from Needham Your line is open.
Nathaniel Quinn Bolton: Hey, Bill, wondering if you could just sort of address the AEC versus ACC debate that seems to, you know, kind of..., popped up after OFC because NVIDIA is looking to use ACCs in its NVLink fabric. You know, do you see, perhaps as a result of that growing adoption of ACCs or do you think ACCs are going to be really use case limited going forward?
Speaker Change #114: Hey, Bill wondering if you could just sort of address the EC versus ACC debate that seems to kind of popped.
Speaker Change #115: Popped up after OFC is Nvidia is looking to use.
The accs in its NV link fabric.
Speaker Change #116: Do you see perhaps as a result of that growing adoption of accs or do you think.
Speaker Change #117: <unk> youre going to be really use case limited going forward.
William J. Brennan: We don't see ACC's anywhere in the market other than what you describe at NVIDIA.
Speaker Change #118: Use case limited.
Speaker Change #119: We don't see Acc's anywhere in the market.
Speaker Change #120: Other than what you described at Nvidia.
Speaker Change #120: Perfect.
Speaker Change #121: Very simple thank you.
Operator: Thank you. One moment for our last question. And our next question will come from Tore Svan from StayFull. The line is open.
Speaker Change #122: Thank you one moment for our last question.
Speaker Change #122: Okay.
Speaker Change #123: And our next question will come from the line of tore Svanberg from Stifel. Your line is open.
Tore Egil Svanberg: Yes, Svanberg, just two follow-ups. First of all, Bill, in your prepared remarks, you talk about accelerating the speed to market pretty meaningfully. Is that a result of your engagements with customers, or have you implemented internally any new technologies or anything like that to really, you know, get the product to market quickly?
Speaker Change #123: Yes, Swanberg, just two follow ups.
Speaker Change #124: So first of all Bill in your prepared remarks, you talk about accelerating the speed to market pretty meaningfully.
Is that a result of your engagements with customers or have you implemented internally any new technologies or anything like that to really.
Speaker Change #124: Get the product to market quicker.
William J. Brennan: I think it's really due to a number of things in the way that we organize and also the way that we work with our customers. You know, I think from the standpoint of our ability to, you know, collaborate, it's really on a different level. I mean, we've got weekly, if not daily, interaction between our engineering teams at Credo and our customers.
Bill: I think it's really due to a number of things in the way that we.
Bill: We've organized and also the way that we work with our customers.
Bill: I think from the standpoint of our ability to.
Bill: Collaborate it's really on a different level.
Speaker Change #125: Got it.
Speaker Change #125: Weekly if not daily interaction between our engineering teams.
Speaker Change #125: Accredo and and our customer.
William J. Brennan: And so that relates directly to our ability to deliver first samples. And then, you know, when we talk about moving something into production, there are many different levels of qualification. And, you know, we've taken complete ownership of that. And when we think about that, what does that mean?
Speaker Change #125: And so then that relates directly to our ability to deliver first samples and then when we talk about moving something into production there is.
Speaker Change #125: And many different levels of qualification.
Speaker Change #125: And we've taken complete ownership of that.
Speaker Change #125: <unk>.
Speaker Change #125: And when we think about that what does that mean that means that.
William J. Brennan: That means, you know, that we've got more than ten thermal chambers that are in constant use, and what are we doing there? You know, our customers ship us switches or appliances with the configuration that they want to be qualified for, that they're planning on taking into production. We run the qualification test for them. So it's live traffic, varying temperatures, varying voltage, and we're doing a lot of the work for them up front.
Speaker Change #125: We've got more than 10 thermal chambers that are in constant use and what are we doing there so our customers ship us.
Speaker Change #125: Switches or appliances with the.
Speaker Change #125: The configuration that they want to be qualified that theyre planning on taking a production we run the qualification tests for them. So it's live traffic.
Speaker Change #125: <unk> temperature bearing voltage and we're doing a lot of the work for them upfront.
William J. Brennan: And so when they go into a final qualification mode, they know that what we're delivering is highly predictable because we've already delivered data based on, you know, their prescriptive tests that they give us with the equipment that they ship us. And so, you know, from the standpoint of delivering first, it's about, you know, it's about being organized to respond quickly. First, we're doing a lot of the work for our customers, and, you know, that's really taking it up a notch.
Speaker Change #125: And so when they go into a final qualification mode. They know that what we're delivering is highly predictable because we've already delivered data based on.
Chris: Sure Chris Prescriptive test.
Chris: With the equipment that they ship us.
Chris: And so from the standpoint of delivering first it's about.
Chris: It's about being organized to respond quickly.
Chris: Qualifying first we're doing a lot of the work for our customers and that's really taking it up a notch.
Tore Egil Svanberg: And just my last question is a clarification. I just want to make sure that I understand this right, but I just want to make sure that it is clear to everybody. So AI revenue, three quarters, that includes product and licensing revenue. And that is the number that you expect to double year over year. That is correct.
Speaker Change #127: Great and just my last question is a clarification I just want to make sure I mean, I think I got this right, but I just want to make sure that it is clear to everybody. So AI revenue three quarters that includes product and licensing revenue and that is the number that you expect to double year over year.
William J. Brennan: But that is correct.
Speaker Change #128: For fiscal 'twenty five.
Speaker Change #129: That is correct.
Speaker Change #130: Great. Thank you.
William J. Brennan: Thank you, and there are no further questions at this time. Mr. Brennan, I turn the call back over to you.
Speaker Change #131: Thank you.
And there are no further questions at this time, Mr. Brennan I'll turn the call back over to you.
William J. Brennan: So thanks to everybody for the questions. We really appreciate the participation, and we look forward to the continued conversation on the callbacks. Thank you.
So thanks to everybody for the questions. We really appreciate the participation and we look forward to continue.
Operator: And this concludes today's conference call. You may now disconnect. Everyone have a great day.
William J. Brennan: Continued conversation on the call backs. Thank you.
Speaker Change #133: And this concludes today's conference call you may now disconnect everyone have a great day.
Speaker Change #133: Yeah.
Speaker Change #133: [music].
Okay.
Speaker Change #133: Yeah.
Speaker Change #133: Yes.
Speaker Change #133: [music].
Speaker Change #133: Okay.
Speaker Change #133: Okay.
Speaker Change #133: [music].