Q3 2025 Astera Labs Inc Earnings Call

All lines have been placed on mute to prevent any background noise.

After management remarks, there'll be a question and answer session.

If you'd like to ask a question. During this time simply press star followed by the number one on your telephone keypad.

If you would like to withdraw your question Press Star one again, thank you.

I'll now turn the call over to Leslie Green Investor Relations for stair labs.

You may begin.

Speaker #2: Good afternoon . My name is Eric , and I will be your conference operator today . At this time , I would like to welcome everyone to the Astera Labs, Inc. Q3 25 earnings conference call .

Good afternoon, everyone and thank you Eric welcome to Exterran Labs third quarter 2025 earnings conference call joining us on the call today are J tender Mohan Chief Executive Officer, and co founder Sanjay Good Dendra, President and Chief operating officer, and cofounder and Mike <unk>, Chief Financial Officer before we go.

Speaker #2: All lines have been placed on mute to prevent any background noise . After management remarks , there will be a question and answer session .

Speaker #2: If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad.

It started I would like to remind everyone that certain comments made in this call. Today may include forward looking statements regarding among other things expected future financial results strategies and plans future operations and the markets in which we operate these forward looking statements reflect management's current beliefs expectations and assumptions.

Speaker #2: If you would like to withdraw your question, press star one again. Thank you. I'll now turn the call over to Leslie Green, Investor Relations for Astera Labs, Inc.

Speaker #2: Leslie , you may begin .

Speaker #3: Good afternoon , everyone , and thank you , Eric . Welcome to Astera Labs, Inc. third Quarter 2025 Earnings Conference Call . Joining us on the call today are Jitendra Mohan Chief Executive Officer and Co-Founder , Sanjay Gajendra President and Chief Operating Officer and co-founder .

<unk> about future events, which are inherently subject to risks and uncertainties that are discussed in detail in today's earnings release and periodic reports filed.

Speaker #3: And Mike Tate , chief Financial officer . Before we get started , I would like to remind everyone that certain comments made in this call today may include forward looking statements regarding , among other things , expected future financial results , strategies and plans , future operations , and the markets in which we operate .

And filings, we filed from time to time with the SEC, including the risks set forth in our most recent annual report on Form 10-K, and our upcoming filing on Form 10-Q. It is not possible for the company's management to predict all risks and uncertainties that could have an impact on these forward looking statements or the extent to which any.

Speaker #3: These forward looking statements reflect management's current beliefs , expectations and assumptions about future events which are inherently subject to risks and uncertainties that are discussed in detail in today's earnings release and the periodic reports filed and filings we file from time to time with the SEC , including the risks set forth in our most recent annual Report on Form 10-K and our upcoming filing on form 10-q .

Factor or a combination of factors may cause actual results to differ materially from those contained in any forward looking statements in light of these risks uncertainties and assumptions the results events or circumstances reflected in the forward looking statements discussed during this call may not occur and actual results could differ materially.

From those anticipated or implied all of our statements are made based on information available to management as of today and the company undertakes no obligation to update such statements. After the date of this conference call, except as required by law.

Speaker #3: It is not possible for the company's management to predict all risks and uncertainties that could have an impact on these forward looking statements , 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 .

Also during this call we will refer to certain non-GAAP financial measures, which we consider to be an important measure of the company's performance. These non-GAAP financial measures are provided in addition to and not as a substitute for financial results prepared in accordance with U S. GAAP. The discussion of why we use non-GAAP financial measure.

Speaker #3: In light of these risks , uncertainties and assumptions , the results , events or circumstances reflected in the forward looking statements discussed during this call may not occur and actual results could differ materially from those anticipated or implied .

And reconciliations between our GAAP and non-GAAP financial measures is available in the earnings release, we issued today, which can be accessed through the investor relations portion of our website with that I would like to turn the call over to Jay tender Mohan CEO of <unk> labs to tender.

Speaker #3: All of our statements are made based on information available to management as of today , and the company undertakes no obligation to update such statements after the date of this conference call , except as required by law .

Speaker #3: Also during this call, we will refer to certain non-GAAP financial measures, which we consider to be an important measure of the company's performance.

Thank you Leslie.

Everyone and thanks for joining our third quarter conference call for fiscal year 2025.

Speaker #3: These to non-GAAP financial measures are provided in addition to , and not as a substitute for , financial results prepared in accordance with US GAAP .

<unk> will provide an overview of our Q2 results followed by a discussion on the current trends within our infrastructure to Darko.

Speaker #3: The 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 .

I will then turn the call over to Sanjay who walk through year.

Near and long term growth profile.

Finally, Mike will give an overview of our Q2 2020 financial results and provide details regarding our financial guidance for Q4.

Speaker #3: We issued today , which can be accessed through the Investor Relations portion of our website . With that , I would like to turn the call over to Jitendra Mohan , CEO of Astera Labs, Inc. .

The stimulus delivered strong results in Q3, with a revenue and profitability metrics coming in above our outlook.

Speaker #3: Jitendra .

Speaker #4: Thank you . Leslie . Good afternoon , everyone , and thanks for joining our third quarter conference call for fiscal year 2025 . Today , I'll provide an overview of our Q3 results , followed by a discussion around the current trends within AI infrastructure 2.0 .

Revenue of $236 million was up 20% from the prior quarter and up 104% versus Q3 of last year.

Both within the quarter. It was broad based across our <unk> conditioning, Mark cable module and switch fabric products.

Speaker #4: I will then turn the call over to Sanjay to walk through Astera Labs, Inc. near and long term growth profile . Finally , Mike will give an overview of our Q3 2025 financial results and provide details regarding our financial guidance for Q4 .

Scorpio P series continue to see initial volume ramp at our lead customer and we're excited that our PCB revenue will further broaden the recent new design wins across a variety of platforms at multiple hyperscale customers.

Speaker #4: Astera Labs, Inc. delivered strong results in Q3 with our revenue and profitability metrics coming in above our outlook . Quarterly revenue of $230.6 million was up 20% from the prior quarter and up 104% versus Q3 of last year .

<unk> is shipping in three production quantities with a volume ramp expected throughout 2026.

Our <unk> portfolio continues to perform well with <unk> solutions contributing to robust growth during the quarter.

Speaker #4: Growth within the quarter was broad , based across our signal conditioning , smart cable module and switch fabric products . Scorpio P-series continued its initial volume ramp at our lead customer , and we are excited that our P-series revenue will further broaden with recent new design wins across a variety of AI platforms at multiple Hyperscaler customers .

But 86.

Products are the industry's first and only PTA retirement solutions ramping in high volume today.

<unk> drove strong growth during the quarter as incremental opportunities began shipping in volume across both <unk> and general purpose systems and we expect further growth in 2026, as we expand to 800 gig switching platforms.

Speaker #4: Series is shipping in pre-production quantities with a volume ramp expected throughout 2026 . Our portfolio continues to perform well with PCI solutions contributing robust growth during the quarter .

For legal CSL limited expression products customers are exploring use cases, especially to offload memory from expensive on brokerage HBM two large pools of <unk> memory.

Speaker #4: Our 86 products are the industry's first and only PCI six retirement solutions , ramping in high volume today . Taurus drove strong growth during the quarter as incremental opportunities began shipping in volume across both AI and general purpose systems , and we expect further growth in 2026 as we expand to 800 gigs .

This will broaden the opportunities beyond the current general purpose computer applications that we continue to support them.

On the organizational front, we are growing aggressively and plan to exit 2025, with a global team of more than 700 employees up 60% compared with the beginning of the year.

Lastly, we are happy to report that our non-GAAP operating margin of 41, 7% Mark a new record level for the company.

Speaker #4: Switching platforms for Leo , CXL memory expansion products . Customers are exploring AI inference use cases , especially to offload memory from expensive on package HBM to large pools of Ddr5 memory .

In addition to our strong financial performance and new design wins, we continue to lay the foundation for future growth.

Speaker #4: This will broaden Leo opportunities beyond the current general purpose compute applications that we continue to support on the organizational front , we have grown aggressively and plan to exit 2025 with a global team of more than 700 employees , up 60% compared with the beginning of the year .

<unk> of our technology roadmap and scaling of our team and capabilities.

In October we announced that a third of labs had entered into a definitive agreement to acquire X scale photonics.

The wider of leading edge fiber coupling technologies.

This acquisition will help enable us to develop photonics Caleb solutions by combining X scales fiber chip copying capabilities with a thorough labs connectivity and signal conditioning expertise.

Speaker #4: Lastly , we are happy to report that our non-GAAP operating margin of 41.7% marked a new record level for the company . In addition to our strong financial performance and new design wins , we continue to lay the foundation for future growth with the advancement of our technology roadmap and scaling of our team and capabilities .

We envision a future scorpios Caleb switches to be enabled with photonics solutions to optically expand back scale cluster sizes containing hundreds of connected AI accelerators.

Speaker #4: In October , we announced that Astera Labs had entered into a definitive agreement to acquire Xkl Photonics , a provider of leading edge fiber chip coupling technologies .

This acquisition represents an important step within our long term optical journey to intercept a large additive market opportunity associated with Caleb photonics.

Speaker #4: This acquisition will help enable us to develop photonic , scale up solutions by combining Xxl's fiber chip coupling capabilities with Stellar Labs connectivity and signal conditioning expertise .

The industry continues to see strong momentum with major announcements pointing to ongoing rapid growth in large scale infrastructure deployments.

Increasing air use cases are driving higher monetization and surging demand for compute as evidenced by token generation doubling every two months and significant year over year increases in LLM user activity.

Speaker #4: We envision future Scorpio scale up switches to be enabled with photonic solutions to optically expand back scale cluster sizes , containing hundreds of connected AI accelerators .

Speaker #4: This acquisition represents an important step within our long term optical journey to intercept a large additive market opportunity associated with scale up photonics .

This demand the industry is rapidly adopting backfill infrastructure, which analysts forecasting capex at the top for the U S or plus killers to surpassed $500 billion in total.

Speaker #4: The industry continues to see strong momentum with major announcements pointing to ongoing rapid growth in large scale AI infrastructure deployments , increasing AI use cases are driving higher monetization and surging demand for compute , as evidenced by token generation doubling every two months and significant year over year increases in LM user activity .

26.

This shift to <unk> infrastructure <unk> will require ultra low latency all to all connectivity for large workloads and a stellar labs is advancing its intelligent connectivity platform to deliver high performance energy efficient capex switching solutions that maximize air platform efficiency and productivity.

To achieve the board authority, our customers with a wide choice of innovative flexible and efficient connectivity solutions. We are building our portfolio based on open standards are.

Speaker #4: To meet this demand , the industry is rapidly adopting radical infrastructure , which analysts forecasting CapEx at the top for US hyperscalers to surpass $500 billion in 2026 .

Our full portfolio of standard based solutions was on display at the 2025 open compute project Global summit with the support of 15 industry partners all highlighting the importance of an open ecosystem for <unk> infrastructure.

Speaker #4: This shift to AI infrastructure 2.0 will require ultra low latency , all to all connectivity for large workloads in Astera Labs, Inc. , advancing its intelligent Connectivity platform to deliver high performance , energy efficient fabric switching solutions that maximize AI platform efficiency and productivity .

We believe the proliferation of open standards based <unk> platforms will allow the industry to leverage broad innovation and enable interoperability.

Speaker #4: To achieve the goal of providing our customers with a wide choice of innovative , flexible and efficient connectivity solutions . We are building our portfolio based on open standards .

While providing a diverse multi vendor supply chain.

We are particularly enthusiastic about the continued momentum behind the UL and scale up connectivity standards, which exemplifies the open ecosystem approach by combining the low latency of pcie and the faster rates of Ethernet to deliver best in class end to end latency and bandwidth.

Speaker #4: Our full portfolio of standard based solutions was on display at the 2025 Open Compute Project , Global Summit , with the support of 15 industry partners .

Speaker #4: All highlighting the importance of an open ecosystem for AI at scale infrastructure . We believe the proliferation of open standards based AI rack scale platforms will allow the industry to leverage broad innovation and enable interoperability , while providing a diverse , multi-vendor supply chain .

Drilling was built from the ground up with broad contributions from market, leading AI infrastructure participants to specifically solve the mounting challenges of scale of networking.

We believe <unk> delivers the bandwidth efficiency and the ultra low latency needed to unlock full accelerated performance and enable effective scaling <unk> clusters expand.

Speaker #4: We are particularly enthusiastic about the continued momentum behind the uplink scale up connectivity standard , which exemplifies the open ecosystem approach by combining the low latency of PCIe and the fast data rates of Ethernet to deliver best in class , end to end latency and bandwidth .

Customer activity around drilling continues to be strong we are engaged with several leading hyperscale us an air platform providers in the RFP and RFP stages to align on the designs and applications that fit best with their technology and business requirements.

Speaker #4: Dual link was built from the ground up with broad contributions from market leading AI infrastructure participants to specifically solve the mounting challenges of scale up networking , we believe Yueling delivers the bandwidth , efficiency and the ultra low latency needed to unlock full accelerator performance and enable effective scaling as AI clusters expand customer activity around Yueling continues to be strong .

We continue to expect our portfolio of fueling solutions to be available to customers in the second half of 2026 with early revenues generated in 2027.

With that let me turn the call over to our President and COO Sanjay Cassandra to outline our vision for growth over the next several years.

Thanks, Jason and good afternoon, everyone.

Speaker #4: We are engaged with several leading hyperscalers and AI platform providers in the RFP and RFQ stages to align on the designs and applications that fit best with their technology and business requirements .

Today I want to provide an update on our recent execution followed by an overview of the meaningful market opportunities that will fuel <unk> growth over the next several years.

Speaker #4: We continue to expect a portfolio of fueling solutions to be available to customers in the second half of 2026 , with early revenues generated in 2027 .

Instead of lapse has a singular goal to deliver a purpose built intelligent connectivity platform, including silicon.

Hardware and software solutions to customers for rack scale AI deployments, the forthcoming evolution to our infrastructure <unk> will not only be defined by faster silicon and larger AI clusters, but also by open connectivity standards and software that promote innovation at scale.

Speaker #4: With that , let me turn the call over to our president and COO , Sanjay Gajendra , to outline our vision for growth over the next several years .

Speaker #5: Thanks , Jitendra , and good afternoon , everyone . Today I want to provide an update on our recent execution , followed by an overview of the meaningful market opportunities that will fuel a Stellar growth over the next several years .

In short standardized high speed interconnect technologies will be <unk> to deliver AI open racks that are highly performance, while operating as one cohesive unit.

Speaker #5: Slabs has a singular goal to deliver a purpose built , intelligent connectivity platform , including silicon hardware and software solutions to customers for rack scale AI deployments .

During Q3 of 2025, a third labs continued its high growth trajectory and further diversified our overall business to deliver another record quarter.

Speaker #5: The forthcoming evolution to AI infrastructure 2.0 will not only be defined by faster silicon and larger AI clusters , but also by open connectivity standards and software that promote innovation at scale .

We are excited to report several new design wins at multiple Hyperscale is during the quarter for Scorpio P series fabric switches across a variety of AI platforms supported by both merchant Gpus, including Nvidia is GBP 300 and <unk>.

Speaker #5: In short , standardized high speed interconnect technologies will be essential to deliver AI open racks that are highly performant . While operating as one cohesive unit .

<unk> as well as design based on custom AI accelerators.

Speaker #5: During Q3 of 2025 , slabs continued its high growth trajectory and further diversified our overall business to deliver another record quarter . We are excited to report several new design wins at multiple hyperscalers during the quarter .

Recently, our <unk> Pcie, six smart read time, where business and customer opportunities are now expanding as AI racks built around custom AI accelerators, and new merchant accelerators begin to adopt <unk>.

Speaker #5: For Scorpio, P-series fabric switches across a variety of AI platforms are supported by both merchant GPUs, including Nvidia's GB 300 and B300, as well as designs based on custom AI accelerators.

This dynamic is poised to further accelerate the broader adoption of pcie six across the ecosystem and further drive our dollar content opportunity.

Overall, our PCI six solutions contributed in excess of 20% of our Q3 revenues illustrating our market leading position.

Speaker #5: Additionally , our Aries PCIe six smart timer business and customer opportunities are now expanding as AI racks built around custom AI accelerators and new merchant accelerators begin to adopt PCIe six .

We see a similar dynamic taking shape within the Ethernet market with the transition to 800 gig links putting additional strain on signal integrity.

Speaker #5: This dynamic is poised to further accelerate the broader adoption of PCIe six across the ecosystem , and further drive our dollar content opportunity .

Given faster speeds and larger AI cluster sizes system architects are tuning to Ethernet AUC applications to solve the reach challenges of passive cabling.

Speaker #5: Overall , our PCI six solutions contributed in excess of 20% of our Q3 revenues , illustrating our market leading position . We see a similar dynamic taking shape within the Ethernet market , with the transition to 800 gig links , putting additional strain on signal integrity given faster speeds and larger AI cluster sizes .

This transition is expected to drive market growth with increasing overall volumes and a generation over generation ASP lift.

While we expect strong continued demand for our 400 gig solutions throughout 2026, we also believe our customer base will diversify with 800 gig solutions driving a new layer of growth for our Ethernet smart cable modules.

Speaker #5: System architects are turning to Ethernet , AEC applications to solve the reach challenges of passive cabling . This transition is expected to drive market growth with increasing overall volumes and a generation over generation .

We believe our approach to enable multiple cable partners with with our smart cable modules supports the scale and flexibility.

That is preferred by Hyperscale.

Speaker #5: ASP lift . While we expect strong continued demand for our 400 gig solutions throughout 2026 . We also believe our customer base will diversify with 800 gig solutions , driving a new layer of growth for our Ethernet smart cable modules .

Looking ahead, we are gearing up for Scorpio X series to shift to high volume production over the course of 2026.

With this ramp of Scorpio X series for scale up connectivity topologies next year, we expect our overall dollar content opportunity per AI accelerator to significantly increase.

Speaker #5: We believe our approach to enable multiple cable partners with smart , with our smart cable modules supports the scale and flexibility that is preferred by hyperscalers .

Representing another step up from a baseline revenue standpoint.

Overall, given the extreme importance of scale up connectivity to AI infrastructure performance and productivity, we see Scorpio X series solutions as the anchored socket within next generation AI racks.

Speaker #5: Looking ahead , we are gearing up for Scorpio X-series to shift to high volume production over the course of 2026 , with this ramp of Scorpio , X-series for scale up connectivity topologies next year , we expect our overall dollar content opportunity per AI accelerator to significantly increase , representing another step up from a baseline revenue standpoint .

Our early engagements are providing us valuable insights in terms of both hardware and software requirements to deploy scale up switching networks for a diverse set of Gpus and AI accelerators.

Beyond the connectivity protocol like Pcie UL linked core Ethernet there are additional functions both in the data path and management of scale up networks that can make or break the performance and deployment of scale up networks. We're learning this everyday building a computer.

Speaker #5: Overall , given the extreme importance of scale up connectivity to AI infrastructure performance and productivity , we see Scorpio X-series solutions as the anchor socket within next generation AI racks .

Speaker #5: Our early engagements are providing us valuable insights in terms of both hardware and software requirements to deploy , scale up switching networks for a diverse set of GPUs and AI accelerators .

Your moat and ensuring our solutions already for real world deployments at scale.

And implementation perspective, the architecture of <unk> X family was built to support multiple platform specific tailored protocols and customization.

Speaker #5: Beyond the connectivity protocol . Like PCIe , UA link or Ethernet , there are additional functions both in the data path and management of scale up networks that can make or break the performance and deployment of scale up networks .

We're actively expanding our pcie based scaleup fabric solutions and in parallel we are working on future <unk> products for applications that need higher bandwidth.

Speaker #5: We are learning this every day , building a competitive mode and ensuring our solutions are ready for real world deployments at scale . From an implementation perspective , the architecture of our Scorpio X family was built to support multiple platform specific scale up protocols and customizations .

For Pcie, we are engaged with over 10 AI platform providers with opportunities that are expected to drive revenue growth across multiple generations of AI platforms or the next several years.

We view you willing opportunities to be meaningfully additive to our pcie scale up revenues.

Speaker #5: We are actively expanding our PCIe based scale up fabric solutions , and in parallel , we are working on future unlinked products for applications that need higher bandwidth for PCIe .

Our flexible fabric architecture hands on experience with scale up networks support for diverse workloads that run on training and inference clusters of various scale and complexity and open approach puts us in an excellent position to win next generation designs.

Speaker #5: We are engaged with over ten AI platform providers with opportunities that are expected to drive revenue growth across multiple generations of AI platforms over the next several years .

As we look to 2026 and beyond our playbook remains the same one stay closely aligned with the multi generational technology roadmaps of our customers and partners.

Speaker #5: We view opportunities to be meaningfully additive to our PCI scale up revenues . Our flexible fabric architecture hands on experience with scale up networks , support for diverse workloads that run on training and inference , clusters of various scale and complexity , and open approach puts us in an excellent position to win next generation designs .

To innovate exponentially in everything we do and three separate the noise from reality and continue to be laser focused on execution needed for a thriving durable business in.

In conclusion, we are motivated by the meaningful opportunity that lies before us and we will continue to passionately support our customers by strengthening our technology capabilities and investing in the future.

Speaker #5: As we look to 2026 and beyond , our playbook remains the same one . Stay closely aligned with the multi-generational technology roadmaps of our customers and partners .

With that I will turn the call over to our CFO, Mike <unk>, who will discuss our Q3 financial results and our Q4 outlook.

Speaker #5: To innovate exponentially in everything we do . And three separate the noise from reality and continue to be laser focused on execution needed for a thriving , durable business in conclusion , we are motivated by the meaningful opportunity that lies before us , and we will continue to passionately support our customers by strengthening our technology capabilities and investing in the future .

Thanks, Sanjay and thanks to everyone for joining the call.

This overview of our Q3 financial results and Q4 guidance will be on a non-GAAP basis.

The primary difference through the stereo labs non-GAAP metrics are stock based compensation and related income tax effects. Please.

Please refer to today's press release available on the Investor Relations section of our website for more details on both our GAAP and non-GAAP Q4 financial outlook as well as a reconciliation of our GAAP to non-GAAP financial measures presented on this call.

Speaker #5: With that , I will turn the call over to our CFO , Mike Tate , who will discuss our Q3 financial results and our Q4 outlook .

Speaker #6: Thanks , Sanjay , and thanks to everyone for joining the call . This overview of our Q3 financial results in Q4 guidance will be on a non-GAAP basis .

For Q3 of 2025, the <unk> labs delivered quarterly revenue of $236 million, which was up 20% versus the previous quarter and 104% higher than the revenue in Q3 of 2024 during.

Speaker #6: The primary difference in Astera Labs, Inc. non-GAAP metrics is stock based compensation and its related income tax effects . Please refer to today's press release available on the Investor Relations section of our website .

During the quarter, we enjoyed revenue growth from our Scorpio <unk> and towards product lines supporting both scale up and scale out pcie and Ethernet connectivity for AI rack level configurations.

Speaker #6: For more details on both our GAAP and non-GAAP Q4 financial outlook , as well as a reconciliation of our GAAP to non-GAAP financial measures presented on this call .

<unk> P series demand for Pcie Gen six scale out applications was robust during the quarter.

Speaker #6: For Q3 of 2025 . Astera labs delivered quarterly revenue of $230.6 million , which was up 20% versus the previous quarter , and 104% higher than the revenue in Q3 of 2020 .

Ares demonstrated solid growth during the quarter for both Gen five and Gen six solutions.

With the transition to PCI Gen. Six we gain an increased dollar opportunities with both our Scorpio and Ares Gen six products as demonstrated with our Gen six revenues exceeding 20% of our Q3 revenues.

Speaker #6: For during the quarter , we enjoyed revenue growth from our Scorpio , Aries and Taurus product lines , supporting both scale up and scale out .

Speaker #6: PCIe and Ethernet connectivity for AI , rack level configurations . Scorpio P series demand for PCIe Gen six scale out applications was robust during the quarter .

<unk> growth during the quarter was driven by increasing shipments for 400 gig scale out connectivity and AI systems.

Q3, non-GAAP gross margin was 76, 4% and was up 40 basis points from the June quarter levels with product mix remaining largely constant across higher volumes.

Speaker #6: Aries demonstrated solid growth during the quarter for both Gen 5 and Gen 6 solutions. With the transition to PCI Gen 6, we gained dollar opportunities with both Scorpio and Aries Gen 6 products, as demonstrated with our Gen 6 revenues exceeding 20% of our Q3 revenues.

non-GAAP operating expenses for Q3 of $80 million.

We're up $9 $4 million from the previous quarters due to higher payroll taxes and the continued expansion of our R&D organization.

Speaker #6: Taurus growth during the quarter was driven by increasing shipments for 400 gig scale out connectivity and AI systems . Q3 non-GAAP gross margin was 76.4% and was up 40 basis points from the June quarter levels , with product mix remaining largely constant across higher volumes .

Within Q3, non-GAAP operating expenses R&D expenses were $57 $2 million.

Sales and marketing expenses were $10 million and general and administrative expenses were $12 8 million.

non-GAAP operating margins for Q3 reached a new record level of 41, 7% up 250 basis points from the previous quarter.

Speaker #6: non-GAAP operating expenses for Q3 of $80 million were up $9.4 million from the previous quarter , due to higher payroll taxes and the continued expansion of our R&D organization within Q3 .

Interest income in Q3 was 11 5 million.

Our non-GAAP tax rate for Q3 was 18% non-GAAP fully diluted share count for Q3 was 186 million shares.

Speaker #6: Non-GAAP operating expenses included R&D expenses of $57.2 million, sales and marketing expenses of $10 million, and general and administrative expenses of $12.8 million.

Our non-GAAP diluted earnings per share for the quarter was <unk> 49.

Cash flow from operating activities for Q3 was $78 $2 million and we ended the quarter with cash cash equivalents in marketable securities of $1, One 3 billion.

Speaker #6: non-GAAP operating margins for Q3 reached a new record level of 41.7% , up 250 basis points from the previous quarter . Interest income in Q3 was $11.5 million .

Now turning to our guidance for Q4 of fiscal 2025.

We expect Q4 revenues to increase to within a range of $245 million and $253 million.

Speaker #6: Our non-GAAP tax rate for Q3 was 18% . non-GAAP fully diluted share count for Q3 was 180.6 million shares , and our non-GAAP diluted earnings per share for the quarter was $0.49 .

Up roughly 6% to 10% from third quarter levels.

For Q4, we expect growth across our Aries tours in Scorpio product families with particular strength from our tourist smart cable modules.

Speaker #6: Cash flow from operating activities for Q3 was $78.2 million, and we ended the quarter with cash, cash equivalents, and marketable securities of $1.13 billion.

We expect earnings growth to be driven by a number of end customer platforms, where we support scale up and scale out connectivity.

Speaker #6: Now , turning to our guidance for Q4 of fiscal 2025 , we expect Q4 revenues to increase to within a range of $245 million and $253 million , up roughly 6% to 10% from third quarter levels for Q4 .

Strong tourist growth is expected to be driven by increased volumes on 400 gig designs for AI scale our connectivity.

Scorpio growth will be primarily driven by the continued deployment of our P series solutions for scale out applications on third party GPU platforms, while we expect Scorpio X series to ship initial volumes.

Speaker #6: We expect growth across our Aries tours and Scorpio product families , with particular strength from our Taurus Smart cable modules . We expect Aries growth to be driven by a number of end customer platforms where we support scale up and scale out connectivity .

We expect Q4, non-GAAP gross margins to be approximately 75% with the increased mix of our tours hardware modules in the quarter.

We expect fourth quarter non-GAAP operating expenses to be in the range of approximately $85 million.

Speaker #6: Strong Taurus growth is expected to be driven by increased volumes on 400 gig designs for AI . Scale out connectivity . Scorpio growth will be primarily driven by the continued deployment of our P-series solutions for scale out applications on third party GPU platforms .

To $90 million.

Anticipated operating expense growth in Q4 is driven by the expectation of continued investment in research and development functions.

And also the incremental operating expenses from the <unk> acquisition anticipated to close during the quarter.

Speaker #6: While we expect Scorpio X to ship initial volumes , we expect Q4 non-GAAP gross margins to be approximately 75% with the increased mix of our Taurus hardware modules in the quarter , we expect fourth quarter non-GAAP operating expenses to be in the range of approximately $85 million to $90 million , anticipated operating expense growth in Q4 is driven by the expectation of continued investment in research and development functions , and also the incremental operating expenses from the Xscale acquisition anticipated to close during the quarter .

Interest income is expected to be approximately $11 million.

Our non-GAAP tax rate should be approximately 15% or.

Our non-GAAP fully diluted share count is expected to be approximately 183 million shares adding this all up we are expecting non-GAAP fully diluted earnings per share to be approximately 51.

This concludes our prepared remarks and once again, we appreciate everyone joining the call and now we will open the line for questions operator.

At this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad.

Speaker #6: Interest income is expected to be approximately $11 million . Our non-GAAP tax rate should be approximately 15% . Our non-GAAP fully diluted share count is expected to be approximately 183 million shares , adding this all up , we are expecting non-GAAP fully diluted earnings per share to be approximately $0.51 .

We'll pause for just a moment to compile the Q&A roster.

Your first question comes from the line of Harlan sur with JP Morgan.

Please go ahead.

And good afternoon. Thank you for taking my question and again, great execution by the team.

Speaker #6: This concludes our prepared remarks . And once again , we appreciate everyone joining the call . And now we will open the line for questions .

Postal announcement of UA link one that all specification in April as the industries.

Speaker #6: Operator .

First standard Scaleup networking architecture.

Speaker #2: At this time , I would like to remind everyone , in order to ask a question , press star . Then the number one on your telephone keypad .

<unk> been a plethora of new scale up announcements, mostly Ethernet based scaleup architectures. Thank you Mark.

Speaker #2: We'll pause for just a moment to compile the Q&A roster. Your first question comes from the line of Harlan Sur with JP Morgan.

<unk> has been concerned about these competitive architectures, but.

We know that GPU and extra you chip design cycle times are anywhere from 18 to 24 months and the scale of architecture associated with these designs have been fertile like way in advance. So in other words I assume that your design win pipeline and engagements extra use of Gpus that.

Speaker #2: Please go ahead .

Speaker #7: Good afternoon . Thank you for taking my question . And again , great execution by the team . You know , the announcement of ULA link 1.0 specification in April .

Speaker #7: This is the industry's , you know , first standard scale up networking architecture . There have been a plethora of new scale up announcements , mostly Ethernet based scale up architectures .

Either have decided to use Scorpio <unk> UA link has not changed at all since the last earnings maybe even expanded but wanted to get the team's view.

Speaker #7: I think the market has been concerned about these competitive architectures , but we know that GPU and Xpu chip design cycle times are anywhere from 18 to 24 months , and the scale of architecture is associated with these designs have been specced out like way in advance .

Yes, absolutely Harlan.

We.

Continue to see our.

<unk> market opportunity grow four hour scaleup products, particularly.

Is <unk> X product like you noted.

As you can imagine it's a very large market, we estimate it to be in tens of billions of dollars and like you correctly noted some of those design wins take.

Speaker #7: So in other words , I assume that your design , win pipeline and engagements or GPUs that either have decided to use Scorpio or UA link has not changed at all since the last earnings .

A lost over multiple generations simply because of the investment that goes into developing the software and the hardware required for killer topologies.

Speaker #7: Maybe even expanded . But wanted to get the team's view .

Speaker #5: Yeah , absolutely . Harlan , we are continue to see our market opportunity grow for our scale up products , particularly the Scorpio X product .

If you think about our business today.

We are getting ready to ramp into production with our pcie based scalable solutions.

Speaker #5: Like you noted , you know , scale up as as you can imagine , is a very large market . We estimate it to be in tens of billions of dollars .

It's been extremely popular there are several customers that are using pcie like protocols for scale up and you mentioned pause Qualcomm that publicly announced their new AI 200 influence racks that feature Pcie based scale up for Australia. We are engaged with over 10 AI platform <unk>.

Speaker #5: And like you correctly noted , some of these design wins take last over multiple generations simply because of the investment that goes into developing the software and the hardware required for scale up topologies for us .

Orders and we expect that these design wins and engagements that we have will continue to ramp in fact, we expect this to go to.

Speaker #5: If you think about our business today , you know we are getting ready to ramp into production with our PCIe based scale up solutions .

2029, just based on some of the multi generation nature of these design wins.

Speaker #5: It's been extremely popular . There are several customers that are using PCIe like protocols for scale up and new entrant was Qualcomm that publicly announced their new AI 200 inference racks that feature PCIe based scale up for Astera .

For US you will link is also a very meaningfully additive opportunity as customers start adopting it just based on the higher data rates support the spec has been around like you noted for over a year now in terms of the consortium being pumped.

Speaker #5: We have engaged with over ten AI platform providers , and we expect that these design wins and engagements that we have will continue to ramp .

The spec is stable the ecosystem is forming silicon development is in full gear and many of these customers. We are currently engaged with rfps and out of Q. So the momentum is is really a belt built up very nicely and continues to grow. So we do expect meaningful revenue from <unk> linked to <unk>.

Speaker #5: In fact , we expect this to go to 2029 just based on some of the the multi-generational nature of this design wins for us .

Speaker #5: Link is also a very meaningfully additive opportunity as customers start adopting it just based on the higher data rate support , the spec has been around .

Start coming in in 2027, there are of course other standards being defined and that is to be expected. This is a market that we will have multiple standards that will coexist, but for us. The bottom line is that we are in a good position to address all of the emerging scale up of market opportunities with the.

Speaker #5: Like you noted for over a year now . In terms of the consortium being formed , the the spec is stable , the ecosystem is forming , silicon development is in full gear , and many of these customers we have currently engaged with RFPs and Rfqs .

We have the learnings that we've had by being in the trenches over the last let's say nine to 12 months developing scalable solutions understanding what is needed and what is not needed and with production ramps happening in 2020. So overall, we feel very confident that this is going to be.

Speaker #5: So the momentum is is really built up very nicely and continues to grow . So we do expect meaningful revenue from you will link to start coming in in 2027 .

Speaker #5: There are of course other standards being defined and that is to be expected . This is a market that will have multiple standards that will coexist , but for us , the bottom line is that we're in a good position to address all of the emerging scale up market opportunities with the engagements we have , the learnings that we have had by being in the trenches over the last , let's say , 9 to 12 months , developing scale up solutions , understanding what is needed and what is not needed .

Present multiple.

Opportunities for us, resulting in a multi business a multibillion dollar business on the scale up side based on all the opportunities that we see in the market.

I appreciate that and the team this tough about Scorpio axis and anchor product right in other words customers design. Your switch fabric solution. This creates opportunity for additional content pulling right, whether that's a signal conditioning products here.

Speaker #5: And with production ramps happening in 2026 , so overall , we feel very confident that this is going to present multiple opportunities for us , resulting in a multi business , multi-billion dollar business on the scale up side , based on all the opportunities that we see in the market .

C optical cable modules is this strategy playing out in other words, if you look at let's say all of your Scorpio <unk> engagements what percentage of these engagements are also using your e-commerce.

<unk> optical cable module solutions and you have a sense of the average content uplift per extra you on these incremental attach.

Speaker #5: .

Speaker #7: No , I appreciate that . And you know , the team has talked the Scorpio axis and anchor product , right . In other words , customers design your switch fabric solution .

Speaker #7: about

Yes so.

Like you've correctly noted if you are a system designer to hyper scaler on day, one when you decide on building a new platform you generally think of two things one is the accelerator. The one is the scale up.

Speaker #7: This creates the opportunity for additional content pulling right . Whether that's your signal conditioning products , your AEC optical cable modules . Is this strategy playing out ?

Speaker #7: In other words , if you look at , let's say , all of your Scorpio X engagements , what percentage of these engagements are also using your re timers , your AEC or optical cable module solutions ?

Switch in the topology for it so Fortunately, we get invited to the conversation very early and some of these conversations are multi generational. So it gives us a good outlook for.

Speaker #7: And do you have a sense of the average content uplift per xpu on these incremental attach .

Not just on requirements that we have in the near term, but also on the long term.

We announced the.

Speaker #5: Yeah . So like you correctly noted , if you are a system designer at a hyperscaler on day one , when you decide on building a new platform , you

Acquisition that we're working towards for X scale and that was driven based on similar insights that we've been able to gather in terms of what is needed for us in terms of content itself. Once that we had in the sockets for a scalable solution.

Speaker #5: generally think of two things . One is the accelerator , another one is the scale up switch and the topology . For it .

Speaker #5: So fortunately we get invited to the conversation very early , and some of these conversations are multi-generational . So it gives us a good outlook for , you know , not just on requirements that we have in the near term , but also on the long term .

Naturally opens up conversations around other products that we have with the three timeless gearbox devices controllers and things like that which we have been able to.

Maximize in terms of how we can service in terms of dollars.

Speaker #5: You know , we we announced the the acquisition that we're working towards for X , and that was driven based on similar insights that we've been able to gather in terms of what is needed for us in terms of content itself .

And what I would say is that overall, if you look at some of this future design wins that will ramp up.

<unk> scale up to multiple thousands of dollars. If you look at it from a accelerator in the rack level. So in general we do see that having a strong presence in the scale up network allows us to pull in several other products and technology that we currently have and also working on and in terms.

Speaker #5: Once that we are in the sockets for our scale up solution , it naturally opens up conversations around other products that we have , whether it's re timers , gearbox devices , controllers and things like that , which we have been able to maximize in terms of how we can service , in terms of dollar content .

So future product lines that we intend to offer to our customers.

Well I appreciate the insights thank you.

Speaker #5: What I would say is that overall , if you look at some of these future design wins , that will ramp up , you know , they scale up to multiple thousands of dollars .

Your next question comes from the line of Ross Seymore with Deutsche.

Deutsche Bank.

Go ahead.

Speaker #5: If you look at it from a accelerator and a rack level . So in general , we do see that having a strong presence in the scale up network allows us to pull in several other products and technology that we we currently have , and also working on in terms of future product lines that we intend to offer to our customers .

Hi, guys. Thanks for asking the question. The first one I wanted to follow on to the.

Switch fabric side of things with Scorpio, you talked about more design wins across several platforms and more customers I guess why.

Do you want to get some more colors on the diversification theme how are you seeing that business diversify and Springfield ex launches.

Actually come back to some concentration or does that further diversify the business and what I. Appreciate is a naturally concentrated market, but within that framework, how do you see that business diversifying over time.

Speaker #7: I appreciate the insights . Thank you .

Speaker #2: Your next question comes from the line of Ross Seymore with Deutsche Bank . Please go ahead .

Speaker #8: Hi , guys . Thanks for asking a question . The first one I wanted to follow on to the the switch fabric side of things with Scorpio .

So in general.

The team that we have been working towards is to ensure that there is a good diversity, both with their product lines and customer base that we have like you. Currently correctly noted the the hyperscale market is fairly fairly concentrated I mean thats. The occupational hazard that we all have to deal with but to Europe.

Speaker #8: You talked about more design winds across several platforms and more customers . I guess where I really want to get some more color is on the diversification theme .

Speaker #8: How are you seeing that business diversify , and when Scorpio X launches , does it naturally come back to some concentration , or does that further diversify the business ?

Today like we have noted for things like Pcie based scale up and in the future you will link and other protocols today, we have over 10 customer platforms that we had engaged with we have made tremendous progress in the last quarter, making progress in terms of not just design wins, but also for some of the op.

Speaker #8: And what I appreciate is a naturally concentrated market . But within that framework , how do you see that business diversifying over time ?

Speaker #5: Yeah . So in general , the theme that we have been working towards is to ensure that there is a good diversity , both with our product lines and customer base , that we have , like you currently correctly noted , the the Hyperscaler market is fairly , fairly concentrated .

Fortunately is moving them forward from a technical POC software development and other aspects that are needed to deploy this technology at scale. So at this point given our presents with the fabric devices, that's truly allowing us to be very broad based and there is not only in <unk>.

Speaker #5: I mean , that's the occupational hazard that we all have to deal with . But to your point today , like we have noted , for things like PCIe based scale up and in the future you will link and other protocols .

Speaker #5: You know , today we have over ten customer platforms that we're engaged with . We have made tremendous progress in the last quarter , making progress in terms of not just design wins , but also for some of the opportunities , moving them forward from a technical POC software development and other aspects that are needed to deploy this technology at scale .

Third party GPU based platforms, but also customer accelerator based products and thats been a.

The exciting momentum for US right now as we seek to add many more design wins to the customers that we have on Scorpio cities.

Thanks for that color and I guess, one for Mike on the gross margin side of things, it's very very impressive I understand the mix dynamic and why it might be going down a bit in the fourth quarter, but it's still well above your 70% long term target. So I think investors are just wondering what would be the puts and takes that would drive it down from kind of the.

Speaker #5: So at this point , presence with the fabric devices , that's truly allowing us to be very broad based and this not only includes third party GPU based platforms , but also custom accelerator based products , and that's been a a exciting momentum for us right now as we seek to add many more design wins to the customers that we have on Scorpio series .

Speaker #5: given our

Mid 70% to 70 over time, especially if the scale up architectures and different products are going to become so important to you and as Sanjay said are relatively accretive on the dollar amount and I assume even on the gross margin side.

Speaker #8: Thanks for that color . And I guess one for Mike . On the gross margin side of things , it's very , very impressive .

Yes, so on the first order effect generally when we sell hardware products the modules versus silicon that's margin dilutive. So we do see an uptick and tourists in Q4. So that's the guidance to 75% as we look longer term, we are going to greatly broadened our product portfolio.

Speaker #8: I understand the mix dynamic and why it might be going down a bit in the fourth quarter , but it still well above your 70% long term target .

Speaker #8: So

Speaker #8: I think investors are just wondering what would be the puts and takes that would drive it down from kind of the mid 70s to 70 over time , especially if the scale up architectures and different products are going to become so important to you .

And the design cycles are moving very fast so.

And in doing that we will have a wider range of margins for our products.

Generally because the market is moving so fast that we can have a very.

Speaker #8: And

Pointed products for every opportunity system will will have a cost structure is a little more overburden for the opportunities set and that will be part of the mix. So we still encourage people to think about us going to a long term model, but with that we we do see operating leverage as we as we grow our revenue dollars.

A very good pace.

Speaker #6: the design cycles are moving very fast . So in doing that , we will have a wider range of margins for our products , generally because we , you know , the market's moving so fast .

Thank you.

Yeah.

Your next question comes from the line of Blayne Curtis with Jefferies.

Speaker #6: We can't have very pointed products for every opportunity . So some will will have a cost structure a little more overburden for the opportunity set .

Please go ahead, hey, guys. Thanks, Timna question America results.

Maybe I just wanted to start off on just level set obviously you beat by a wide amount I think you mentioned kind of the first two you mentioned was seasonal and conditioning and these SPM module.

Speaker #6: And that will be part of the mix . So we still encourage people to to think about us going to our long term model .

I'm just trying to figure out if you can.

Speaker #6: But with that we we do see operating leverage , you know , as we as we grow our revenue dollars at a , at a very good pace .

I know you'd want to break out certain segments, but could you give us a little bit more color as to what drove the beat and what changed during the quarter.

Speaker #8: Thank you .

Yes, we saw breath through all the all the three product lines, we generally want to be conservative because a lot of the revenue growth that we have are from new programs and these programs are very complex.

Speaker #2: Your next question comes from the line of Blayne Curtis with Jefferies . Please go ahead .

Speaker #9: Hey , guys . Thanks for taking my question . And a great results . Maybe I just want to start off on just level set .

We just wanted to give a little cushion in case, there's any delays in the product launches by our customers but.

Speaker #9: Obviously you beat by a wide amount . I think you mentioned kind of the first two . You mentioned with signal conditioning . Then these SCM modules .

It was a very successful quarter for our customers and their deployment so.

Speaker #9: I'm just trying to figure out if , you know , you can kind of I know you don't want to break out certain segments , but can you give us a little bit more color as to what drove the beat and what changed during the quarter ?

Enables us to deliver to the upside.

Thanks, and I want to ask you I mean, obviously, the what Nvidia has done with re timers was a lot of the talking points throughout the year, but youre starting to see these ASIC platform is going to be more material next year. The way to think about that Ares family as these basic ramp on a relative basis versus.

Speaker #6: Yeah , we saw breadth through all the all the three product lines . We generally , you know , want to be conservative because a lot of the revenue growth that we have are from new programs .

Speaker #6: And these programs are very complex . So , you know , we just want to give a little cushion in case there's any delays in the product launches by our customers .

A brief primer.

Okay.

Speaker #6: But it was a very successful quarter for our customers in their deployments . So that that enables us to deliver the upside .

Yes so.

Just to kind of level set right. So we do expect a significant growth in 87 million. This year and we do expect the revenue growth for <unk> family to continue to next year as well so in general.

Speaker #9: Thanks . And then I want to ask you , I mean , obviously the what Nvidia has done with three timers was a lot of the talking points throughout the year .

Speaker #9: But you're starting to see these ASIC platforms becoming more material next year. Is there a way to think about that?

Obviously the.

The ASP for the lead time, where business is different compared to the scorpio or the switch fabric.

Speaker #9: Aries family as these Asics ramp on a relative basis versus , you know , kind of the re timer content you're seeing today ?

Business that we have and we do expect that <unk> to be our largest product line from a revenue standpoint, and there are obviously several different design wins that we have that that that are expected to ramp the production volume in 2026. So in general what I want to say is that the business has transitioned.

Speaker #5: Yeah . So just to kind of level set , right . So we do expect a significant growth in Aries revenue this year .

Speaker #5: And we do expect the revenue growth for the Aries family to continue into next year as well. So, in general, obviously the ASP of the timer business is different compared to the Scorpio or the switch fabric business that we have.

To some of these larger sockets and the higher ASP business that we have and that trend will continue with the inflection point happening sometime in 2026, and Scorpio will overtake <unk> and other product lines from a revenue standpoint.

Speaker #5: And we do expect that Scorpio to be our largest product line from a revenue standpoint . And there are obviously several different design wins that that we have that that are expected to ramp to production volume in 2026 .

Thanks.

Yeah.

Your next question comes from the line of Torrey Sandberg with Stifel.

Please go ahead, yes, hi, yes, thank you and congrats on the strong results sided a question on the acquisition and then you know penetration into the optical scale up market.

Speaker #5: So in general , what I want to say is that the business has transitioned to some of these larger sockets and the higher ASP business that we have , and that trend will continue with the inflection point happening sometime in 2026 , when Scorpio will overtake Aries and other product lines .

Just curious.

Material revenue timelines.

Assumed this was potentially the beginning of more to come.

And maybe you could also discuss a little bit why you decided to intersect.

Optical now.

<unk> prior or later thank you.

Yes, Thanks, Tony maybe maybe I'll begin and then Mike can add on.

Look our vision has always been to deliver complete connectivity infrastructure.

Sure.

We have taken this great guidance recall that area infrastructure, Colorado, and we are laser focused on building solutions for that.

Today, we are focused on complete solutions Macy's, mainly because it's what our customers ask us to do.

However, as data rates increase and Caleb domains go beyond one rack.

At some point you will need optical interconnects for scale up.

And there is already a big market for optical interconnect.

Data center scale.

So we view.

And turning to optical as a big additive opportunity and we will enter the market with unique solutions that are aligned with our customers' roadmaps in any of our in the sense of when they want to transition from copper to optical so as far as the timing of concern why now why not why not later.

Part of the plan that we have with our customers on when we want to intersect with an optical solution. It is also important to note that with this acquisition of <unk>, we are adding capabilities to the company that we did not have before.

<unk> allows us to get the glass components that are required to deliver a successful.

Optical product, whether it is a CPO or an opioid in npls, but this is a technology, that's very complementary to the signal conditioning and switches switching expertise that we have.

So our vision would be to deliver a product line, where our car to your family is optically enabled.

With photonic solutions to allow for a higher data rates and longer reach and scale of domains.

With the <unk> acquisition, we got a phenomenal team that we can kick start with development and this acquisition is just again our commitment to enter this market and intercept at the right time.

Hey, good morning, guys.

No.

I am sorry, the <unk> you had a question on the timing.

Yes.

Part of my first question.

When can we start to expect material revenue coming from optical products from us.

<unk> 2007, 2008 2009.

More likely the earliest for scale up optical connections would be in the 2008 2029 timeframe.

Very good and just as my follow up you talked about <unk> driving strong growth in Q4, I think you mentioned 400 gig.

Is that also diversified growth is this with more than one customer.

And when do you see the inflection happening for tours for 800 gig in 2026. Thank you.

Yes so.

The 800 gig deployment I want to say are just starting in terms of the market needs. So for US we are engaged with several customers our business model for Acs to offer the smart cable modules that then gets enabled through multiple cable vendors and generally speaking Dave.

A little bit of lag between when customers targeted initial POC or initial dip.

Deployment to when they stop scaling so overall.

We believe that from an 800 gig standpoint, our business our revenue impact would start in 2026 I want to say early part of 'twenty six as the qualifications complete and stopped ramping to production.

Great. Thank you very much.

Your next question comes from the line of.

Mehdi Hosseini with.

Yes.

Please go ahead, yes. Thanks.

We're taking my questions a couple of follow ups I just wanted to go back to the target the Scorpio would be.

About 10% of your revenue and if that's the case then does it imply that scorpio would be like closer to 20% of the revenue in the December quarter.

Yes, the 10% was for the full year. It started to launch in materially in Q2, so the exit rate would be closer to 20% that's correct.

Okay and then.

The X ramping let's say.

Spring of next year.

When.

The contribution is going to actually accelerate am I thinking about this right.

Yeah.

He will continue to grow given that we have new designs that will be ramping throughout the year. So <unk> peanut as it serves as a nice growing.

Piece of revenue per Scorpioid, the X series isn't kind of low initial volumes right now, but then it starts to ramp materially next year. What we said before is the X is ultimately a bigger opportunity to scale up opportunities. So at some point and we're not saying exactly when it will it will be.

Bigger than <unk> and <unk>.

And we're very excited about that potential.

Sure.

I have a.

Rather the clarification question I am new to the name maybe just me, but when you say you have 10 AI platforms.

With your escrow pure product.

What does that mean does that mean 10 different.

Csp's 10 different customers.

From a if you could just elaborate on it will be great.

Yes, so we are therefore too.

The customer base that you have that includes the folks that are developing their own accelerators. It also includes the Hyperscale is that are you buying some of these third party accelerators and integrating it into their AI.

AI servers.

So those are the two broad categories to think of in terms of the one customer that genotype. Okay. So that basically implies the diverse set of customers that are adopting the UAE link to open source right.

You have to be fair.

Yes, so that comment itself is correct. We do believe that is quite a bit of momentum around <unk> link.

Based on the fact that it's deadlocked ground stuff, but the 10th customer comment. We made was in reference to folks that are using pcie light protocols for scalar, although we do believe that.

The folks that are using pcie like protocols would also be looking at you will link as.

As an option to our service platforms that that required higher data rate, meaning from a physical layer standpoint, so to that standpoint.

You willing could be additive to our <unk> customer base at the same time. It will also provide an.

An upgrade path for folks that want higher speed on specific AI platforms.

Okay. Thank you.

The next question comes from the line of Quinn Bolton with Needham <unk> Company.

Please go ahead.

Hey, guys. Let me offer my congratulations as well I just wanted to come back to the X scale Photonic acquisition is this your first entry into.

The optical side of things I think just technology looks like as fiber chip topline.

It seems like you probably need some kind of silicon photonics capability.

To complete our <unk>.

<unk> CTO type solutions. So just wondering is that something you look to develop in house for now that the sort of.

An acquisition that you would look to pursue in the future how do you complete that that fall.

Scale up CTO solution.

Yes, good question.

Excuse me, yes, so as you correctly pointed out the <unk>.

To build a full optical solution unit three pieces.

You need an electrical IC.

That takes our signals.

Pharmacy, especially for future converts it into a format that applicable for a photonic chip. So that's a second component that you need a photonic chip now convert these electrical signals into life and then you need a a packaging technology that will couple this light.

<unk> fiber and so on and we had a very specific requirements for each one of them with the acquisition of X scale.

We saw two of the three so.

They are working on some very cutting edge technology on on a package development. Once the acquisition closes we will be able to reveal more about what that means to us and how we will intend to use it but they are as you correctly pointed out working on packaging technologies that is a very critical part of the equation.

You also get other photonics expertise as part of this acquisition as well. So we will look to put a team together internally to work on photonics, but at the same time photonics is a very complex equation, where end customers also have a lot of sale to work photonics to us. So we are open to not only work on our solution, but also use third party photonics.

Solutions to enable.

Overall optical solution that is suitable for our customers' requirements and then when it comes to electrical we've been doing electrical kicks off.

As part of our federal labs in lung and before that so we feel pretty confident in building the electrical components, but all three of them put together is what makes a compelling optical solution and we have some great ideas on how to build a unique solution as we enter as we contemplate entering this space.

Thank you for that and then I guess just wanted to come back to the comment about initial scorpios shipments in the fourth quarter is that kind of pre production more sample units are you starting to see the initial scorpio <unk> design wins going to production.

The initial build of our production system.

Yeah. So this is the initial builds that we've gone through the qualification stage and all the intermediate stages. So.

So we start shifting into production volumes.

Production systems.

End of the year, but the big ramp will happen in 2006.

Got it okay. Thank you.

Yes.

Your next question comes from the line of Shawn Lockman.

With TD Cowen. Please go ahead.

Hey, guys. Thanks for let me take the question, let me ask the question and congrats again on the results I wanted to ask maybe a bit of a technical one on the pcie.

Switch transition to Ewing UA linked native switches as we look towards that product launch next year.

How much of a step changes that in terms of silicon complexity and design.

Or is it.

Much more on the call it firm wear or SDK side and the silicon is largely similar since they're both based on memory semantics, rather than networking networking semantics, and then sort of related to that you talked about your customers.

Taking a look at the UA linked protocol.

Even though they're on pcie today, how much of a lift is on their side when they're looking at the scale up communication kernel.

And.

What can you do to sort of de risk that transition for them.

Yes, great question.

You are very correct in pointing out that there are similarities between.

Both PCI express and yearly from a political standpoint, and also that customers have made good investments into their software stack that is tuned to a particular type of.

Protocol, So let me answer them one by one so to begin with our Scorpio X family today supported PCI Express and PCI Express like protocol and when we transition from PC Express to you a link it will indeed be a new chip that addresses the future generation of <unk>.

These AI systems. However.

However, when week when we design Scorpio ex the we took into account.

The ambition of this product where the line rates will go up so the switching architecture and many other features that go into the switching.

Product, which are beyond the protocol already ready for the next generation.

So while it is going to be a new development for us to go through are you willing to switch we will certainly <unk>.

Leverage the development that we have done for the current squad PX generation very heavily including all of the software features that are part of our Cosmos software stack.

Ansible for optimizing customizing and delivering a lot of diagnostics and tell immediately to our end customers.

In terms of the similarities between PCI Express annually. There are both load store base based protocols PCI Express has been around for many many years.

It is a memory semantic based protocol.

From a <unk> perspective visa can simply say I wanted to ask this memory location and it doesn't matter whether that memory location is in the same GPU or the same experience or are they more <unk>. This is the beauty of memory semantic based protocol and you hadn't carries forward. The same thing it carries forward the memory semantic based protocol.

It carries forward the lossless nature of the network and the software lift for the end customer is much easier. So we do see you willing as an Ebola evolutionary step for our PCI Express customers is as Sanjay mentioned before.

And at the same time really does a few things that are very much a customized part Aif tailor the data at a somewhat faster obviously, we go from 64 and 100 gig to 200, and then beyond in the future, but more importantly, the protocol was built ground up for Taylor.

This into account the AI workload Ci traffic patterns and simultaneously delivers low latency as well as <unk>.

Increased throughput.

Most importantly, <unk> is also an open standard so it's been around for one year now one one year officially which are terms is probably a decade.

And during this time.

Ecosystem has become mature the spec is very solid.

A lot of vendors are working on.

New silicon to to deploy.

You will be switching in the 2026 timeframe with revenues coming in 2027.

Thanks for all that I really appreciate the color there.

<unk> of follow up with a quick clarification on the 20% Pcie Gen six.

I believe that was inclusive of both Scorpio P and areas or was that an area of specific comment.

That's inclusive of LOE, Scorpio, which resolved gen six product in our areas Gen six products.

Got it thanks, that's what I figured thanks, a lot again for the time and congrats again on the results.

Thank you.

Your next question comes from the line of.

<unk> Desilva with Roth capital.

Please go ahead.

Alright, you tender Sanjay my congrats on the progress here.

I know the optical revenue is down the line here, but just wondering in comparing pain points of bandwidth versus ex few density.

Which one kind of pushes customers.

Or to scale up using optical or is there a way to kind of handicap one versus the other.

Yes, I think what our customers have told us and you can see this in the product announcements.

Radiotherapy platform providers and Hyperscale is have made.

They prefer to stick with copper for as long as possible.

And the reason for that is multi fold.

Early copper has so far proven to be more reliable.

It's lower power.

It offers better PTO and so as part of the focus that we have on copper will continue to push for.

As long as possible.

Copper is not going away anytime soon however, as the topologies are scaled up networks evolve.

We'll end up you will end up with a practical limitation of trying to provide megawatts of power into on that and so as a result at some point in time, we will have to disaggregate the rock into multiple rocks.

Which will then be beyond the reach of copper. So that is what we are planning for.

And in the outer years as Mike mentioned in the 2028 29 timeframe, we expect to see these optical deployments from POC and eventually turning into revenues.

Okay, great. So retroactive and then just a clarification on the 10 plc customers for Pcie link for scale up.

Any of the customers pursuing anything Ethernet related with you and are you working on any Ethernet stack efforts in house, yet or is it all PCI E U enlink roadmap.

Today.

Yes, so again, we can't comment on what customers are looking at but let me talk about what we're doing.

Likely have highlighted many times.

We are.

<unk> engaged right now on scale up today most of the deployments are pcie like.

And diesel engagements that that obviously will have.

We'll leave for multiple generations, and that's probably something that perhaps is a little underappreciated we.

We do expect the revenues to go into 2029.

In terms of like other protocols, what I would say is that think about it this way.

We believe in open standards, we believe in doing what's right for the customers. Our Scorpio <unk> developed to date to support Pcie and it can easily upgrade to you willing.

Especially on the non non protocol related functions. So overall, what I would say is that.

<unk> comes when customers require alternate implementations, we're well set up for it.

One key thing to highlight is that although there is so much of a focus on like the physical layer protocol, pcie or Ethernet or or other things. What we're learning is that the most important or some of the most important functionality is required in the data path from the management side causes clusters are joined.

And having a link that is nonperforming or a.

Sub system on the data path not delivering the right performance could significantly impact the overall performance of the cluster so to that standpoint, what we are seeing is that.

There are several things that needs to be done at the at the upper levels and those are things that will remain constant for us irrespective of the physical layer that we end up supporting based on market and customer requirements.

Okay I appreciate the detailed color. Thanks.

Your next question comes from the line of Sebastian <unk>.

William Blair.

Please go ahead.

Yeah. Thanks for taking my questions I wanted to ask you about the opportunity for <unk> in China and in particular.

Willingness for Chinese hyperscale or to maybe use more open technologies like Pcie are you railing.

Yeah.

There is a <unk>.

Difference in the the Hyperscale opportunities in the U S relative to the Hyperscale opportunities in China.

Because of the constraints that are placed on the availability of IP and technology, we actually see a lot of demand in China for PCI Express based scalable.

And the reason that has to do with that is the IP availability there is limited.

In terms of the data 200 gig is not readily available.

PCI Express Gen five and add in card partners of most call most common in China and in order to build a larger.

Cannot our network so that they can address the same problems that you might be able to solve within ADP cluster yet in the U S might require 16 24 clusters of GPU to attract the same problem.

You have more Gpus, our revenues are typically indexed by the number of Gpus. So when you have more gpus or more accelerated because a bigger opportunity for us to sell both our switching solutions as well as a <unk>.

All of our retirement solutions from both chipped down opportunities as well as active cable opportunities.

Got it okay, that's really helpful.

Maybe if I could just one follow up.

Just I'd love to get your thoughts on Nvidia shift to more of a cable less design with their Rubin servers are Ruben rack does that does that design shift changes parents opportunity with Ares or tourists at all.

So as we've said before the opportunity for us for Nvidia based designs is then the hyperscale customers customize the design to deploy in their own infrastructure.

That has been true of the Blackberry.

Platform and we believe there are something like this will happen for the <unk> platform as well.

So using our cable backman versus a a PC board based backman has to do with the number of Gpus that are present in the design and certainly Richard let Nvidia explained the rationale from going from one to the other but the opportunity for a seller comes when hyperscale customers take the very performance high performance GPU platform and customize it.

For the use cases.

Got it great. Thank you and congrats on a nice quarter.

Thanks.

Okay.

There are no further questions at this time.

I would like to turn the call back over to Leslie Green for closing remarks.

Thank you everyone for your participation and questions and please refer to our Investor relations website for ongoing information regarding upcoming financial conferences and events.

Talk to you soon.

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This concludes today's conference call you may now disconnect.

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