Q3 2026 Credo Technology Group Holding Ltd Earnings Call

March 2, 2026

Speaker #2: At that time, if you have a question, you will need to press star followed by the number 1 on your telephone keypad. If you would like to withdraw your question, press star 1 again.

Speaker #2: I would now like to turn the conference over to Mr. Dan O'Neil. Please go ahead, sir. Good afternoon, everyone. Thank you for joining our earnings call for the third quarter of fiscal 2026.

Dan O'Neill: Good afternoon, everyone. Thank you for joining our earnings call for Q3 of fiscal 2026. Today, I am joined by Bill Brennan, Credo's Chief Executive Officer, and Dan Fleming, our Chief Financial Officer. During this call, we will make certain forward-looking statements. These forward-looking statements are subject to risks and uncertainties discussed in detail in our documents filed with the SEC, which can be found in the investor relations portion of the company's website. It is 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 #2: Today, I am joined by Bill Brennan, Credo's Chief Executive Officer, and Dan Fleming, our Chief Financial Officer. During this call, we will make certain forward-looking statements.

Speaker #2: These forward-looking statements are subject to risks and uncertainties discussed in detail in our documents filed with the SEC, which can be found in the Investor Relations portion of the company's website.

Speaker #2: It is not possible for the company's management to predict all risks, nor can the company assess the impact of all factors on its business.

Speaker #2: 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 #2: Given these risks, uncertainties, and assumptions, the forward-looking events discussed during this call may not occur. Actual results could differ materially and adversely from those anticipated, implied, or inferred.

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 adversely and materially from those anticipated, implied or inferred. 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. 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 the U.S. GAAP.

Speaker #2: The company undertakes no obligation to publicly update forward-looking statements for any reason after the date of this call, to conform these statements to actual results or to changes in the company's expectations, except as required by law.

Speaker #2: 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. 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 US GAAP.

Speaker #2: 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 issue today.

Dan O'Neill: 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. I will now turn the call over to our CEO. Bill?

Speaker #2: Which can be accessed using the Investor Relations portion of our website. I will now turn the call over to our CEO. Bill?

Speaker #3: Thanks, Dan. And thank you all for joining our third quarter of fiscal 2026 earnings call. I'll start by walking through our Q3 results. Give an update on our business, and share our view on our long-term opportunities.

Bill Brennan: Thanks, Dan. Thank you all for joining our Q3 fiscal 2026 earnings call. I'll start by walking through our Q3 results, give an update on our business, and share our view on our long-term opportunities. After my remarks, Dan Fleming, our Chief Financial Officer, will provide a detailed financial review of Q3 and our guidance for Q4. We will open the call for questions. In Q3, we delivered record revenue of $407 million, a sequential increase of 52% and more than 200% from Q3 last year. We delivered non-GAAP gross margin of 68.6% and generated approximately $209 million of non-GAAP net income.

Speaker #3: After my remarks, Dan Fleming, our Chief Financial Officer, will provide a detailed financial review of the third quarter and our guidance for the fourth quarter.

Speaker #3: We will then open the call for questions. In the third quarter, we delivered record revenue of $407 million. A sequential increase of 52%. And more than $200% from Q3 last year.

Speaker #3: We delivered non-GAAP gross margin of 68.6% and generated approximately $209 million of non-GAAP net income. Over the past 18 to 24 months, maximizing network reliability and energy efficiency have been our core mandates as we've built our roadmap and brought new products to market.

Bill Brennan: Over the past 18 to 24 months, maximizing network reliability and energy efficiency have been our core mandates as we've built our roadmap and brought new products to market. In AI infrastructure, performance without reliability stalls clusters, and scale without efficiency strains both economics and power envelopes. The strategy is clear. Accelerate cluster bring up, maximize XPU utilization, and reduce total cost of ownership, all while providing our customers the highest reliability in the industry. Our recent performance reflects the most accelerated growth phase in Credo's history. From fiscal 2024 to fiscal 2025, we more than doubled revenue. From fiscal 2025 to current year fiscal 2026, we expect to triple revenue on top of that. That represents greater than 6x growth in just 2 years. Few companies, particularly in semiconductors, have scaled at that pace while maintaining consistent execution, healthy margins, and product leadership.

Speaker #3: In AI infrastructure, performance without reliability stalls clusters. And scale without efficiency strains both economics and power envelopes. The strategy is clear. Accelerate cluster bring-up, maximize XPU utilization, and reduce total cost of ownership.

Speaker #3: All while providing our customers the highest reliability in the industry. Our recent performance reflects the most accelerated growth phase in Credo's history. From fiscal 2024 to fiscal 2025, we more than doubled revenue.

Speaker #3: And from fiscal 2025 to current year, fiscal 2026, we expect to triple revenue on top of that. That represents greater than six times growth in just two years.

Speaker #3: Few companies, particularly in semiconductors, have scaled at that pace while maintaining consistent execution, healthy margins, and product leadership. Our purpose-built Certies NICs vertically integrated system model and deep hyperscaler partnerships win at scale.

Bill Brennan: Our purpose-built SerDes NICs, vertically integrated system model, and deep hyperscaler partnerships win at scale. We established leadership in high reliability copper connectivity and built strong positions in optical DSPs and retimers. Now, our strategy is to lead in reliability, power efficiency, and signal integrity across the full spectrum of AI and data center connectivity, from die-to-die links to chip-to-chip and board-level links, to rack and row scale copper, to mid-reach optical, and to resilient facility-wide optical solutions. By extending both inward toward the silicon and outward across the data center, we're positioning Credo to encompass the entire connectivity fabric of AI infrastructure. Each layer of connectivity is being fundamentally reshaped by demand for higher bandwidth and faster data rates.

Speaker #3: We established leadership in high reliability copper connectivity and built strong position in optical DSPs and retimers. Now, our strategy is to lead in reliability, power efficiency, and signal integrity across the full spectrum of AI and data center connectivity.

Speaker #3: From die-to-die links to chip-to-chip and board-level links, to rack and row-scale copper, to mid-reach optical, and to resilient facility-wide optical solutions. By extending both inward toward the silicon and outward across the data center, we're positioning Credo to encompass the entire connectivity fabric of AI infrastructure.

Speaker #3: Each layer of connectivity is being fundamentally reshaped by demand for higher bandwidth and faster data rays. AI workloads continue to grow in parameter size, model complexity, and cluster scale, driving sustained transitions from 100 gig to 200 gig per lane and to 400 gig per lane in the upcoming years.

Bill Brennan: AI workloads continue to grow in parameter size, model complexity, and cluster scale, driving sustained transitions from 100 Gb to 200 Gb per lane and to 400 Gb per lane in the upcoming years. At the same time, architectures are becoming more complex, power envelopes are tightening, and reliability requirements are rising. We believe the industry's persistent push towards higher speed and larger clusters continues to expand our long-term opportunity and our ability to win. I'll now discuss our business in more detail. Our AEC product line once again delivered strong growth, driven by existing customers and new wins, including our 5th hyperscaler. Demand is accelerating across both hyperscalers and emerging neocloud providers. We continue to believe the industry is early in its AEC adoption. As AI clusters scale, reliability and power efficiency have become the primary design constraints.

Speaker #3: At the same time, architectures are becoming more complex, power envelopes are tightening, and reliability requirements are rising. We believe the industry's persistent push towards higher speed and larger clusters continues to expand our long-term opportunity and our ability to win.

Speaker #3: I'll now discuss our business in more detail. Our ADC product line once again delivered strong growth. Driven by existing customers and new wins, including our fifth hyperscaler.

Speaker #3: Demand is accelerating across both hyperscalers and emerging NeoCloud providers. We continue to believe the industry is early in its AEC adoption. As AI clusters scale, reliability and power efficiency have become the primary design constraints.

Speaker #3: AECs are now the de facto standard for intra-rack and rack-to-rack connectivity up to 7 meters. Increasingly, displacing laser-based optical modules. Their reliability and power advantages are driving broad adoption.

Bill Brennan: AECs are now the de facto standard for intra-rack and rack to rack connectivity up to 7 meters, increasingly displacing laser-based optical modules. Their reliability and power advantages are driving broad adoption. Our ZeroFlap AECs deliver up to 1,000 times better reliability than commodity laser-based optics, while consuming roughly half the power. In XPU clusters where downtime can cost millions, network reliability matters. We're supporting large-scale deployments at 100 gig per lane today and expect a long tail deployment at those speeds. We're fully prepared to support strong industry momentum towards 200 gig per lane or 1.6 terabit ports. Our 1.6 terabit AECs will support Ethernet, UALink, and ESUN protocols. Our PCIe Gen 6 AECs are sampling now and will be released to mass production in first half fiscal 2027. Our vertically integrated system-level model remains a key competitive advantage.

Speaker #3: Our zero-flap AECs deliver up to 1,000 times better reliability than commodity laser-based optics. While consuming roughly half the power. In XPU clusters, where downtime can cost millions, network reliability matters.

Speaker #3: We're supporting large-scale deployments at 100 gig per lane today and expect a long tail deployment at those speeds. We're fully prepared to support strong industry momentum towards 200 gig per lane or 1.6 terabit ports.

Speaker #3: Our 1.6 terabit AECs will support Ethernet, UA-Link, and eSun protocols. Additionally, our PCIe Gen 6 AECs are sampling now and will be released to mass production in the first half of fiscal 2027.

Speaker #3: Our vertically integrated system-level model remains a key competitive advantage. We take end-to-end ownership. From Certies leadership and silicon innovation, to system design and qualification, deep telemetry, and supply chain execution.

Bill Brennan: We take end-to-end ownership from SerDes leadership and silicon innovation to system design and qualification, deep telemetry, and supply chain execution, positioning us for sustained leadership. I'll now turn to our IC business, including our retimers and optical DSPs. Our IC portfolio spans both optical and copper connectivity across 50 gig, 100 gig, and 200 gig per lane speeds. We expect strong optical DSP growth in fiscal 2026, driven by 100 gig per lane deployments with increasing traction at 200 gig as customers prepare for 1.6T transitions. For Ethernet retimers, we're seeing significant growth with our 100 gig per lane solutions in both traditional switching fabrics and the rapidly expanding AI server segment. Our PCIe Gen 6 retimers remain on track with fiscal 2026 design wins expected to convert to production revenue in fiscal 2027. Customer feedback has been consistently stellar.

Speaker #3: Positioning us for sustained leadership. I'll now turn to our IC business, including our retimers and optical DSPs. Our IC portfolio spans both optical and copper connectivity across 50 gig, 100 gig, and 200 gig per lane speeds.

Speaker #3: We expect strong optical DSP growth in fiscal 2026, driven by 100-gig per lane deployments, with increasing traction at 200-gig as customers prepare for 1.6T transitions.

Speaker #3: For Ethernet retimers, we're seeing significant growth with our 100 gig per lane solutions in both traditional switching fabrics and the rapidly expanding AI server segment.

Speaker #3: Our PCIe Gen 6 retimers remain on track, with fiscal 2026 design wins expected to convert to production revenue in fiscal 2027. Customer feedback has been consistently stellar.

Speaker #3: We're delivering an unequaled combination of industry-leading reach, latency, and power efficiency. We're also excited about Blue Heron, our 200 gig per lane retimer that is purpose-built for scale-up AI.

Bill Brennan: We're delivering an unequaled combination of industry-leading reach, latency, and power efficiency. We're also excited about Blue Heron, our 200 Gb per lane retimer that is purpose-built for scale of AI. It leverages our SerDes expertise to deliver long reach, energy efficiency, and advanced telemetry with support for UALink, Ethernet, and ESUN protocols. These IC solutions address a large and growing market opportunity. As the industry transitions to 200 Gb per lane, we see substantial growth potential across multiple protocols. I'll now discuss our three most recent product families, where we've made meaningful progress since their announcements last year. At a high level, these products significantly expand our total addressable market by extending Credo's reach across the full spectrum of connectivity lengths inside the data center. I'm pleased to report that our progress with ZeroFlap Optics is ahead of schedule.

Speaker #3: It leverages our Certies expertise to deliver long reach, energy efficiency, and advanced telemetry, with support for UA-Link, Ethernet, and eSun protocols. These IC solutions address a large and growing market opportunity.

Speaker #3: As the industry transitions to 200 gig per lane, we see substantial growth potential across multiple protocols. I'll now discuss our three most recent product families.

Speaker #3: We've made meaningful progress since their announcements last year. At a high level, these products significantly expand our total addressable market by extending Credo's reach across the full spectrum of connectivity lengths inside the data center.

Speaker #3: I'm pleased to report that our progress with zero-flap optics is ahead of schedule. As noted in our recent press release, we began production shipments with our first NeoCloud customer, TensorWave.

Bill Brennan: As noted in our recent press release, we began production shipments with our first neocloud customer, TensorWave. In addition, we're in qualification with three additional customers, including hyperscalers and neocloud operators. At a high level, data centers today face major challenges with extended cluster bring-up times and uptime degradation created by the inherent link flap instability of commodity laser-based transceivers. Our ZeroFlap Optics were designed to address these challenges directly. Through tightly integrated hardware, optics, firmware, and our pilot software with switch-level SDK integration, ZeroFlap Optics deliver continuous link health telemetry and autonomous detection and mitigation of potential link flap events before they impact the cluster. This enables a step function improvement in network reliability. From a TAM perspective, ZeroFlap Optics allows us to address optical connectivity spanning any length within the data center.

Speaker #3: In addition, we're in qualification with three additional customers, including hyperscalers and NeoCloud operators. At a high level, data centers today face major challenges with extended cluster bring-up times and uptime degradation created by the inherent link flap instability of commodity laser-based transceivers.

Speaker #3: Our zero-flap optics were designed to address these challenges directly. Through tightly integrated hardware, optics, firmware, and our pilot software, with switch-level SDK integration, zero-flap optics deliver continuous link health telemetry and autonomous detection and mitigation of potential link flap events before they impact the cluster.

Speaker #3: This enables a step function improvement in network reliability. From a TAM perspective, zero-flap optics allows us to address optical connectivity spanning any length within the data center.

Speaker #3: Based on strong customer traction, we now expect to see a significant production ramp beginning in the first quarter of fiscal 2027 and continuing throughout the year.

Bill Brennan: Based on strong customer traction, we now expect to see a significant production ramp beginning in Q1 fiscal 2027 and continuing throughout the year. Next, I'll discuss Active LED Cables or ALCs. ALCs extend our system-level AEC philosophy into mid-reach optical. By combining Credo's connectivity architecture with the Micro LED expertise gained in our Hyperlume acquisition, we're creating a new system-level product category that delivers the reliability and power profile of an AEC with a thinner gauge optical cable capable of reaching up to 30 meters. This makes ALCs ideal for row scale AI networks where copper reach becomes limiting and traditional pluggable optics introduce reliability, power, and cost disadvantages. ALCs expand our TAM outward from short reach copper into mid-reach optical, bridging the gap between AECs and conventional optical modules.

Speaker #3: Next, I'll discuss active LED cables, or ALCs. ALCs extend our system-level AEC philosophy into mid-reach optical. By combining Credo's connectivity architecture with the micro-LED expertise gained in our hyperloom acquisition, we're creating a new system-level product category that delivers the reliability and power profile of an AEC with a thinner gauge optical cable capable of reaching up to 30 meters.

Speaker #3: This makes ALCs ideal for row-scale AI networks, where copper reach becomes limiting and traditional pluggable optics introduce reliability, power, and cost disadvantages. ALCs expand our TAM outward from short-reach copper into mid-reach optical, bridging the gap between AECs and conventional optical modules.

Speaker #3: We expect to sample and qualify our first ALC products in fiscal 2027 and production ramp in fiscal 2028. Finally, our omni-connect line of products drives our reach inward toward the silicon to further expand our TAM.

Bill Brennan: We expect to sample and qualify our first ALC products in fiscal 2027 and production ramp in fiscal 2028. Finally, our OmniConnect line of products drives our reach inward toward the silicon to further expand our TAM. OmniConnect combines our purpose-built VSR SerDes with a family of gearboxes for XPU connectivity. Our first product, Weaver, enables up to a 10x improvement in memory beachfront IO density with reach up to 10 inches. By converting VSR to DDR, Weaver overcomes the physical fan-out constraints of traditional memory to compute interconnects. Our first OmniConnect customer, Positron, plans to leverage this architecture to deliver an inference XPU with 2 terabytes of memory capacity, enabling substantial bandwidth gains in memory intensive workloads such as real-time AI video generation. We expect the production ramp for the first OmniConnect gearbox to be in fiscal 2028.

Speaker #3: Omni-connect combines our purpose-built VSR Certies with a family of gearboxes for XPU connectivity. Our first product, Weaver, enables up to a 10x improvement in memory beachfront I/O density with reach up to 10 inches.

Speaker #3: By converting VSR to DDR, Weaver overcomes the physical fan-out constraints of traditional memory-to-compute interconnects. Our first omni-connect customer Positron plans to leverage this architecture to deliver an inference XPU with 2 terabytes of memory capacity enabling substantial bandwidth gains in memory-intensive workloads such as real-time AI video generation.

Speaker #3: We expect the production ramp for the first omni-connect gearbox to be in fiscal 2028. We expect to introduce additional gearboxes over time to enable a composable architecture where the same XPU design can be optimized for inference or training workloads and be future-enabled as speeds or protocols change.

Bill Brennan: We expect to introduce additional gearboxes over time to enable a composable architecture where the same XPU design can be optimized for inference or training workloads and be future-enabled as speeds or protocols change. We'll also develop an OmniConnect gearbox targeting near package optics with Micro LED that will address the reliability, serviceability, and availability pitfalls of current CPO solutions, while at the same time reducing power significantly. To wrap up on the business update, we're proud of our record performance and even more energized by the opportunity ahead. With continued growth in AECs and ICs and three new multi-billion dollar TAM expansions through ZeroFlap Optics, ALCs, and OmniConnect, we've meaningfully broadened our near to long term opportunity. We remain confident in our ability to innovate, scale, and grow in the expanding AI infrastructure landscape through our focus on delivering solutions with best in class network reliability and energy efficiency.

Speaker #3: We'll also develop an omni-connect gearbox targeting near-package optics with micro-LED that will address the reliability, serviceability, and availability pitfalls of current CPO solutions, while at the same time reducing power significantly.

Speaker #3: To wrap up on the business update, we're proud of a record performance and even more energized by the opportunity ahead. With continued growth in AECs and ICs, and three new multi-billion-dollar TAM expansions through zero-flap optics, ALCs, and Omni-Connect, we've meaningfully broadened our near- to long-term opportunity.

Speaker #3: We remain confident in our ability to innovate, scale, and grow in the expanding AI infrastructure landscape. Through our focus on delivering solutions with best-in-class network reliability and energy efficiency, I want to take a moment to express strong appreciation for our silicon operations, and system product operations teams.

Bill Brennan: I want to take a moment to express strong appreciation for our silicon operations and system product operations teams. They have done an outstanding job managing supply, scaling production, and executing flawlessly in the face of significant upside demand from our customers. Their ability to respond quickly and reliably has not only enabled our record performance, but has also become a distinct competitive advantage, and truly a reason customers choose Credo. In an environment where execution matters as much as innovation, operational excellence is a differentiator. With that, I'll turn it over to Dan Fleming for a detailed financial review of our Q3 and our Q4 guidance.

Speaker #3: They have done an outstanding job managing supply, scaling production, and executing flawlessly in the face of significant upside demand from our customers. Their ability to respond quickly and reliably has not only enabled our record performance, but has also become a distinct competitive advantage and truly a reason customers choose Credo.

Speaker #3: In an environment where execution matters, as much as innovation, operational excellence is a differentiator. And with that, I'll turn it over to Dan Fleming for detailed financial review of our Q3 and our Q4 guidance.

Speaker #2: Thank you, Bill, and good afternoon. I will first review our Q3 results and then discuss our outlook for Q4 of fiscal year 2026. In Q3, we reported revenue of $407 million.

Dan Fleming: Thank you, Bill. Good afternoon. I will first review our Q3 results, then discuss our outlook for Q4 of fiscal year 2026. In Q3, we reported revenue of $407 million, up 52% sequentially and more than tripling year-over-year, at the high end of our revised guidance range. Notably, our revenue again grew healthy double digits sequentially to achieve new record revenue levels once again based on substantial year-over-year growth across four domestic hyperscale customers. Our top three end customers were each greater than 10% of revenue in Q3. As a reminder, customer mix will vary from quarter-to-quarter.

Speaker #2: Up 52% sequentially and more than tripling year over year. And at the high end of our revised guidance range. Notably, our revenue again grew healthy double digits sequentially, to achieve new record revenue levels once again based on substantial year-over-year growth across four domestic hyperscale customers.

Speaker #2: Our top three end customers were each greater than 10% of revenue in Q3. As a reminder, customer mix will vary from quarter to quarter.

Speaker #2: We continue to expect that three to four customers will be greater than 10% of revenue in the coming quarters and fiscal year. And we continue to make progress in diversifying our customer base across hyperscalers, Neo Clouds, and other customers.

Dan Fleming: We continue to expect that 3 to 4 customers will be greater than 10% of revenue in the coming quarters and fiscal year, and we continue to make progress in diversifying our customer base across hyperscalers, neoclouds, and other customers. Note that with product revenue representing the vast majority of total revenue, we will no longer break out product and IP as separate line items in our income statement. Our team delivered Q3 non-GAAP gross margin of 68.6%, above the high end of our guidance range and up 92 basis points sequentially. Total non-GAAP operating expenses in Q3 were $77.4 million, above the high end of our guidance range due to our strong R&D investment and up 35% sequentially.

Speaker #2: Note that with product revenue representing the vast majority of total revenue, we will no longer break out product and IP as separate line items in our income statement.

Speaker #2: Our team delivered Q3 non-GAAP gross margin of 68.6%, above the high end of our guidance range and up 92 basis points sequentially. Total non-GAAP operating expenses in the third quarter were $77.4 million.

Speaker #2: Above the high end of our guidance range, due to our strong R&D investment, and up 35% sequentially. Our non-GAAP operating income was $201.8 million in Q3, compared to non-GAAP operating income of $124.1 million in Q2.

Dan Fleming: Our non-GAAP operating income was $201.8 million in Q3 compared to non-GAAP operating income of $124.1 million in Q2, up demonstrably due to the leverage attained by achieving more than 50% sequential top line growth, while OpEx growth was in the mid thirties. Our non-GAAP operating margin was 49.6% in the quarter compared to a non-GAAP operating margin of 46.3% in the prior quarter, a sequential increase of 327 basis points. Our bottom line once again demonstrated the substantial leverage we are delivering in the business. Our non-GAAP net income was $208.8 million in the quarter, a record high and a 63% sequential increase compared to non-GAAP net income of $127.8 million in Q2.

Speaker #2: Up demonstrably due to the leverage attained by achieving more than 50% sequential top-line growth, while OPEX growth was in the mid-30s. Our non-gap operating margin was 49.6% in the quarter.

Speaker #2: Compared to a non-GAAP operating margin of 46.3% in the prior quarter, a sequential increase of 327 basis points. Our bottom line once again demonstrated the substantial leverage we are delivering in the business.

Speaker #2: Our non-gap net income was $208.8 million in the quarter, a record high, and a 63% sequential increase compared to non-gap net income of $127.8 million in Q2.

Speaker #2: Our Q3 non-GAAP net income quadrupled from Q3 of last year, which clearly demonstrates the magnitude of our top-line growth. Strong gross margins and our disciplined approach to scaling operating expenses.

Dan Fleming: Our Q3 non-GAAP net income quadrupled from Q3 of last year, which clearly demonstrates the magnitude of our top line growth, strong gross margins, and our disciplined approach to scaling operating expenses. Our non-GAAP net margin was 51.3% in the quarter. Cash flow from operations in Q3 was a record $166.2 million, up $104.6 million sequentially.

Speaker #2: Our non-gap net margin was 51.3% in the quarter. Cash flow from operations in the third quarter was a record $166.2 million. Up 104.6 million sequentially.

Speaker #2: CAPEX was $26.5 million in the quarter, driven largely by purchases of production mask sets. Free cash flow was $139.7 million, up more than $100 million from the second quarter.

Bill Brennan: CapEx was $26.5 million in the quarter, driven largely by purchases of production mask sets. Free cash flow was $139.7 million, up more than $100 million from the Q2. We ended the quarter with cash and equivalents of $1.3 billion, an increase of $487.9 million from the Q2, driven by the proceeds of our ATM offering, which began in October and ended in December, and our strong free cash flow. We remain well capitalized to continue investing in our growth opportunities while maintaining a substantial cash buffer. Our Q3 ending inventory was $208 million, up $57.8 million sequentially.

Dan Fleming: CapEx was $26.5 million in the quarter, driven largely by purchases of production mask sets. Free cash flow was $139.7 million, up more than $100 million from the Q2. We ended the quarter with cash and equivalents of $1.3 billion, an increase of $487.9 million from the Q2, driven by the proceeds of our ATM offering, which began in October and ended in December, and our strong free cash flow. We remain well capitalized to continue investing in our growth opportunities while maintaining a substantial cash buffer. Our Q3 ending inventory was $208 million, up $57.8 million sequentially.

Speaker #2: We ended the quarter with cash and equivalents of $1.3 billion. An increase of $487.9 million from the second quarter. Driven by the proceeds of our ATM offering, which began in October and ended in December.

Speaker #2: And our strong free cash flow. We remain well-capitalized to continue investing in our growth opportunities while maintaining a substantial cash buffer. Our Q3 ending inventory was 208 million.

Speaker #2: Up 57.8 million sequentially. Now, turning to our guidance, we currently expect revenue in Q4 of fiscal 2026 to be between $425 million and $435 million.

Bill Brennan: Now, turning to our guidance, we currently expect revenue in Q4 of fiscal 2026 to be between $425 million and 435 million. We expect Q4 non-GAAP gross margin to be within a range of 64% to 66%. We expect Q4 non-GAAP operating expenses to be between $76 million and 80 million. We expect Q4 diluted weighted average share count to be approximately 197 million shares. These expectations are based on the current tariff regime, which remains fluid. As we look ahead to fiscal 2027, we expect sequential revenue growth in the mid-single digits, leading to more than 50% year-over-year growth. With that, I will open it up for questions.

Dan Fleming: Now, turning to our guidance, we currently expect revenue in Q4 of fiscal 2026 to be between $425 million and 435 million. We expect Q4 non-GAAP gross margin to be within a range of 64% to 66%. We expect Q4 non-GAAP operating expenses to be between $76 million and 80 million. We expect Q4 diluted weighted average share count to be approximately 197 million shares. These expectations are based on the current tariff regime, which remains fluid. As we look ahead to fiscal 2027, we expect sequential revenue growth in the mid-single digits, leading to more than 50% year-over-year growth. With that, I will open it up for questions.

Speaker #2: We expect Q4 non-gap gross margin to be within a range of 64% to 66%. We expect Q4 non-gap operating expenses to be between $76 million and $80 million.

Speaker #2: And we expect Q4 diluted weighted average share count to be approximately 197 million shares. These expectations are based on the current tariff regime, which remains fluid.

Speaker #2: As we look ahead, to fiscal 2027, we expect sequential revenue growth in the mid-single digits leading to more than 50% year-over-year growth. And with that, I will open it up for questions.

Speaker #1: Thank you, sir. 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.

Operator: Thank you, sir. At this time, I would like to remind everyone in order to ask a question, press star then the number 1 on your telephone keypad. You will be limited to one question initially. However, you may rejoin the queue to ask further questions as time permits. Our first question comes from Thomas O'Malley at Barclays. Please go ahead.

Speaker #1: You will be limited to one question initially. However, you may rejoin the queue to ask further questions as time permits. Our first question comes from Tom O'Malley, Barclays.

Speaker #1: Please go ahead.

Speaker #3: Hey, guys. Thanks for taking my question. Bill, you mentioned that you saw a ZF Optics ramp in the first fiscal quarter of next year.

Thomas O'Malley: Hey, guys. Thanks for taking my question. Bill, you mentioned that you saw a ZeroFlap Optics ramp in the Q1 fiscal quarter of next year, and you talked about substantial size. Maybe you could compare what a ZF customer engagement looks like versus an AEC customer engagement. Then longer term, if you see kind of a similar pattern to what you've seen in AEC with the customers that you're mentioning, I think you mentioned three here, all representing some significant size. Do you think there's more variation in the customer set when it comes to ZeroFlap Optics?

Speaker #3: And you talked about substantial size. Maybe you could compare what a ZF customer engagement looks like versus an AEC customer engagement. And then longer term, if you see kind of a similar pattern to what you've seen in AEC with the customers that you're mentioning, I think you mentioned three here, all representing some significant size.

Speaker #3: Or do you think there's more variation in the customer set when it comes to ZF Optics?

Speaker #2: Yes. I think the comparing the customer activity with AECs, I think it's a good way to look at it. Now, understand that we've been in development on ZF Optics for going on two years.

Bill Brennan: Yes, I think comparing the customer activity with AECs, I think it's a good way to look at it. Now understand that we've been in development on ZF Optics for going on 2 years. We are well along the path towards not only developing the solution, and a reminder to everybody, it's, you know, the first time anybody has taken an optical transceiver up the stack to deliver real-time telemetry data, you know, so you can make real-time decisions identifying and mitigating potential link flaps before they happen. Basically taking network reliability far beyond what you're able to achieve with commodity laser-based optics. You know, highlight that these products have gone through our own qualification internally, where we harden the solution even prior to sending it to customers for qualification.

Speaker #2: And so we are well along the path towards not only developing the solution, and a reminder to everybody, it's the first time anybody has taken an optical transceiver up the stack to deliver real-time telemetry data so you can make real-time decisions on identifying and mitigating potential leak flaps before they happen.

Speaker #2: So basically taking network reliability far beyond what you're able to achieve with commodity-laser-based optics. And so I highlight that these products have gone through our own qualification internally, where we harden the solution even prior to sending it to customers.

Speaker #2: For qualification. So it's very similar in a sense that we're delivering a solution to our customers for qualification that's fully vetted. And so moving from providing samples to going right into qualification with the customer is what we're seeing.

Bill Brennan: It's very similar in a sense that we're delivering a solution to our customers for qualification that's fully vetted. You know, moving from providing samples to going right into qualification with the customer is what we're seeing. That's why, you know, we highlighted the fact that although last quarter we signaled that the ramp would occur in second half fiscal 2027, we feel confident now saying that that ramp is going to start in Q1, noting that we've already shipped production units. We feel great about it. We did an announcement with our first customer, TensorWave. It was announced on both AECs as well as ZeroFlap Optics.

Speaker #2: And so that's why we highlighted the fact that although last quarter we signaled that the ramp would occur, in the second half of fiscal 2027, we feel confident now saying that that ramp is going to start in the first quarter.

Speaker #2: I'm noting that we've already shipped production units, and so we feel great about it. And so we did an announcement with our first customer, TensorWave.

Speaker #2: It was an announcement on both AECs as well as ZF Optics. And so it's really great confirmation that the portfolio that we're delivering is really offering kind of next-level overall reliability as our customers build out their clusters.

Bill Brennan: It's really great confirmation that the portfolio that we're delivering is really offering kind of next level overall reliability as our customers build out their clusters. Now I mentioned also that, you know, we're talking with hyperscalers as well as other neocloud clients. We are so early in, you know, in the process of promoting this product that we couldn't be more excited about, you know, the fact that we think this is going to be such a strong ramp through our fiscal 2027.

Speaker #2: Now, I mentioned also that we're talking with hyperscalers as well as other NEO clients. We are so early in the process of promoting this product that we couldn't be more excited about the fact that we think this is going to be such a strong ramp through our fiscal

Speaker #1: Your next question comes from Tori Svanberg from Stifel.

Operator: Your next question comes from Tore Svanberg from Stifel.

Speaker #4: Yes. Congratulations on the record results. Bill, maybe you could just level set us a little bit here. You mentioned we're still in very early stages of AECs.

Tore Svanberg: Congratulations on the record results. Bill, maybe you could just level set us a little bit here. You mentioned, you know, we're still in very early stages of AECs. Obviously there's a, you know, a lot of excitement around CPO. You know, maybe you could just help us a bit what's driving some of the use cases for AECs right now. How should we think about those developing, especially in fiscal 27 and fiscal 28? Thank you.

Speaker #4: Obviously, there's a lot of excitement around CPO. So maybe you could just help us out with what's driving some of the use cases for AECs right now.

Speaker #4: How should we think about those developing, especially in fiscal 2027 and fiscal 2028? Thank you.

Speaker #2: Yes. So, I think the narrative on AECs is very similar to what has been played out up to this point. There are several areas within the data center network where AECs make a really compelling solution and really almost becoming de facto.

Bill Brennan: Yes. I think the narrative on AECs is very similar to what has been played out up to this point. There are several areas within the data center network where AECs make a really compelling solution and really almost becoming de facto in intra-rack as well as now more than ever we're seeing rack to rack solutions that are within the reach of seven meters. You know what's driving it is network reliability and power efficiency. I would only say one of our customers, we're really fully penetrated on all the swim lanes and those being GPU to host connections in the scale-out network, front-end connections within those same racks, and then disaggregated switch racks.

Speaker #2: In a interrack as well as now more than ever, we're seeing rack-to-rack solutions that are within the reach of seven meters. What's driving it is its network reliability and power efficiency.

Speaker #2: And so I would only say one of our customers, we're really fully penetrated on all the swim lanes and those being GPU to host connections, in the scale-out network, front-end connections, within those same racks, and then disaggregated switch racks.

Bill Brennan: Those are really the swim lanes that we've talked about. We see, you know, this really great growth opportunity, not only for 100 gig per lane deployments as we see those increasing, but also as we see a shift to 200 gig per lane. It's even a stronger value proposition at those speeds. That's gonna, you know, help us drive more volume as well as there's an uplift in ASPs. You mentioned the narrative on CPO and, you know, look, this narrative has been one that's existed in different forms for the last decade. It started with MBOM, Mid-Board Optical Modules, and it moved on to onboard optics. It's moved on to many different acronyms over time.

Speaker #2: Those are really the swim lanes that we've talked about. And so we see this really great growth opportunity not only for 100 gig per lane deployments as we see those increasing, but also as we see a shift to 200 gig per lane it's even a stronger value proposition at those speeds.

Speaker #2: And so that's going to help us drive more volume, as well as there's an uplift in ASPs. And so, you mentioned the narrative on CPO.

Speaker #2: And look, this narrative has been one that's existed in different forms for the last decade. It started with MBOM, midboard optical modules, and has moved on to onboard optics—it's moved on to many different acronyms over time.

Bill Brennan: The bottom line is, just recently, I think there's, you know, been, you know, a bit of a signal-to-noise ratio issue in the market. The noise right now is dominating the signal. It says it's, you know, it's not an either/or type of situation. It's about deploying the right technology at the right reach and the right power envelope. We see the industries evolving even more so to a heterogeneous mix of short reach copper, pluggable optics, near package optics, and eventually CPO. The, you know, the strong interest we've seen in ZeroFlap optical is a kind of a clear indicator that reliability matters more than ever now, as, you know, AI networks are the, you know, the bulk of the deployments and as these clusters scale.

Speaker #2: And the bottom line is, just recently, I think there's been a bit of a signal-to-noise ratio issue in the market. And the noise right now is dominating the signal.

Speaker #2: So it's not an either/or type of situation. It's about deploying the right technology at the right reach and the right power envelope. And we see the industry evolving even more so to a heterogeneous mix of short-reach copper, pluggable optics, near-package optics, and eventually CPO.

Speaker #2: And so, the strong interest we've seen in zero-flap optical—it's kind of a clear indicator that reliability matters more than ever now, as AI networks are the bulk of the deployments, and as these clusters scale.

Bill Brennan: The, you know, the bottom line is that with the way we see it that until NPO and CPO solutions can deliver bulletproof reliability, deployments are gonna be somewhat limited, which is why many of the forecasters show low single-digit share in the switching market over the next three years. Our investments are heavily focused on reliability. When we're talking about technologies that will deliver the higher density and reach promised by CPO and NPO, our focus is on delivering the same reliability as AEC and ZF optics. You know, hopefully that gives you color, you know, based on your CPO comment.

Speaker #2: And so the bottom line is that, the way we see it, until NPO and CPO solutions can deliver bulletproof reliability, deployments are going to be somewhat limited, which is why many of the forecasters show low single-digit share.

Speaker #2: The switching market over the next three years—our investments are heavily focused on reliability. And so, when we're talking about technologies that will deliver the higher density and reach promised by CPO and NPO, our focus is on delivering the same reliability as AEC and ZF Optics.

Speaker #2: And so hopefully, that gives you color based on your CPO comment.

Operator: Joseph Cardoso from J.P. Morgan has the next question.

Speaker #1: Joseph Cardoso from JPMorgan has the next question.

Joseph Cardoso: Hi. Thanks for the questions. Congrats on the results. Maybe just wanted to get an update on how you're thinking about the composition of the 50% plus growth heading into next year as we think about the AEC opportunity continuing to ramp, also confluencing with the material ramps of other areas of the portfolio like the PCIe solutions, the optical products, et cetera. You know, can this be a year where we start to see a more material contribution from the non-AEC offerings in the portfolio and where they can drive a more material portion of the mix as early as fiscal 2027? Is the expectation really that's more of a fiscal 2028 story and beyond? Thanks.

Speaker #5: Hi, thanks for the questions and congrats on the results. Maybe just wanted to get an update on how you're thinking about the composition of the 50%-plus growth heading into next year.

Speaker #5: As we think about the AEC opportunity continuing to ramp, but also confluencing with the material ramps of other areas of the portfolio like the PCIe solutions, optical products, et cetera, can this be a year where we start to see a more material contribution from the non-AEC offerings in the portfolio?

Speaker #5: And where they can drive a more material portion of the mix as early as fiscal 2027? Or is the expectation really that's more of a fiscal 2028 story and beyond?

Speaker #5: Thanks.

Bill Brennan: I think that it's fair to say that we'll see a different composition between copper and optical in our fiscal 2027, specifically as ZeroFlap Optics ramp. That's, you know. With that, I'll say that we do expect growth in AECs, we expect growth in ICs, the new wave of growth will come with ZeroFlap Optics. Within that IC and the AEC, shipment will include the PCIe business that we're earning. In fiscal 2028, we expect to layer in our active LED cables or ALCs and in addition our first gearbox as part of the OmniConnect family. That's really fiscal 2028.

Speaker #2: I think that it's fair to say that we'll see a different composition between copper and optical in our fiscal 2027, specifically as ZF Optics ramp.

Speaker #2: With that, I'll say that we do expect growth in AECs. We expect growth in ICs, and then the new wave of growth will come with zero-flap optics.

Speaker #2: And within that, IC and AEC will include the PCIe business that we're earning. In fiscal 2028, we expect to layer in our active LED cables, or ALCs.

Speaker #2: And in addition, our first gearbox as part of the OmniConnect family. That's really fiscal 2028.

Operator: Your next question comes from Vivek Arya from Bank of America.

Speaker #1: Your next question comes from Vivek Arya from Bank of America.

Vivek Arya: Thanks. Just a clarification to Dan first on what drove the upside, almost $60 million-plus upside. Was there a one-off or anything else in your projects in the reported quarter? Bill, I wanted to get back to you, this question of how complementary versus competitive is AEC versus optical solutions. Over the last three months, we have seen this massive divergence in the performance of stocks of your optical peers, and just this morning we saw Nvidia invest into a few optical peers. Why isn't that, you know, a very important and credible pushback, that the market for AEC might be limited?

Speaker #5: Thanks. Just a clarification to Dan first on what drove the upside. Almost $60 million-plus upside—was there a one-off or anything else in your projects?

Speaker #5: And the reported quarter. And then, Bill, I wanted to get back to you with this question of how complementary versus competitive is AEC versus optical solutions?

Speaker #5: Because over the last three months, we have seen this massive divergence in the performance of stocks of your optical peers, and just this morning, we saw NVIDIA invest into a few optical peers.

Speaker #5: So why isn't that a very important and credible pushback that the market for AEC might be limited? So I just wanted to get your views on where copper versus optical is competitive and where they are more complementary.

Vivek Arya: I just wanted to get your views on where, you know, copper versus optical is competitive and, where they are more, complementary. Thank you.

Speaker #5: Thank you.

Dan Fleming: Hey, Vivek. Let me address your first question regarding what drove that strength, and I'll answer a question that wasn't asked as part of my answer. If you look at our top, you know, 10% customers for the quarter, we've just continued to see strength across all of our hyperscale customers. In fact, our top 3 customers all grew sequentially from Q2 to Q3, that really drove that growth. Our largest 3 customers in Q3 were also our largest in Q2, as you would expect, but in a different order. Let me just talk briefly about our largest customer. They were 39% of revenue, they were also the same customer that was our largest customer in Q1.

Speaker #4: Hey, Vivek. So let me address your first question regarding what drove that strength. And I'll answer a question that wasn't asked as part of my answer.

Speaker #4: If you look at our top 10% customers for the quarter, we've just continued to see strength across all of our hyperscale customers. And in fact, our top three customers all grew sequentially from Q2 to Q3.

Speaker #4: So that really drove that growth. And our largest three customers in Q3 were also our largest in Q2, as you would expect. But in a different order.

Speaker #4: Let me just talk briefly about our largest customer. They were 39% of revenue, and they were also the same customer that was our largest customer in Q1.

Sean O'Loughlin: That was quite a large increase quarter-over-quarter for them. The second-largest customer was 32%, and they were our largest customer last quarter. Finally, our third 10% customer was 17% of revenue, and that was the first hyperscaler that we had to ramp.

Speaker #4: So that was quite a large increase quarter to quarter for them. The second largest customer was 32%. And they were our largest customer last quarter.

Speaker #4: And then finally, our third 10% customer was 17% of revenue. And that was the first hyperscaler that we had to ramp.

Bill Brennan: Relating to the question about the AECs versus optical, or actually how they complement each other. Really nothing has changed in the narrative. I think you mentioned Nvidia. I think they've been really outspoken that, you know, where you can use copper, you will use copper. So it's the reasons are very basic why somebody would choose an AEC over say a laser-based optical module. That's really reliability, number one, power efficiency, number two, and ultimately total cost of ownership, number three. That equation's not gonna change. As we go towards 200 Gb per lane, 1.6 Tb deployments, there is an effect that as you go faster, the length of connection is gonna decrease slightly, we believe from 7 meters to 5 meters.

Speaker #2: And relating to the question about the AECs versus optical or actually how they complement each other, I'm really nothing has changed in the narrative I think you mentioned NVIDIA.

Speaker #2: I think they've been really outspoken that where you can use copper, you will use copper. And so it's the reasons are very basic why somebody would choose an AEC over, say, a laser-based optical module.

Speaker #2: And that's really reliability, number one; power efficiency, number two; and, ultimately, total cost of ownership, number three. That equation is not going to change.

Speaker #2: As we go towards 200 gig per lane, 1.6T deployments, there is an effect that as you go faster, the length of connection is going to decrease slightly.

Speaker #2: We believe from 7 meters to 5 meters. And so if you look at our investments over the last couple of years, it's been heavily weighted towards optical as we've talked about.

Bill Brennan: If you look at our investments over the last couple of years, it's been heavily weighted towards optical, as we've talked about. There is a tremendous demand in the optical space, and that's in addition to the demand in the AEC space as well. Our approach is fundamentally different, and we think, you know, suits us well, which is to focus on delivering bulletproof reliability, again by going up the stack with real-time continuous telemetry on each link to be able to identify links that are degrading in signal integrity and being able to mitigate by taking those links down in a proactive manner and an orderly manner.

Speaker #2: There is a tremendous demand in the optical space, and that's in addition to the demand in the AEC space as well. Our approach is fundamentally different.

Speaker #2: And we think suits us well, which is to focus on delivering bulletproof reliability again by going up the stack with real-time continuous telemetry on each link to be able to identify links that are degrading in signal integrity and being able to mitigate by taking those links down in a proactive manner.

Speaker #2: And in an orderly manner. I'll also say that the work that we're doing on active LED cables—ALCs—we're talking about delivering a different class of optical product, one that is, at a base technology level, as reliable as copper.

Bill Brennan: I'll also say that, you know, the, you know, the work that we're doing on Active LED Cables, ALCs, we're talking about delivering a different class of optical product, one that is at a base technology level as reliable as copper. You get the same reliability profile, the same energy efficiency profile, the same cost profile, but you get reach initially up to 10 meters, and then next step will be 30 meters. That's gonna be a really unique new product category as we talk about, you know, the heterogeneous world between copper and different forms of optical.

Speaker #2: You get the same reliability profile, the same energy efficiency profile, the same cost profile. But you get reach initially up to 10 meters, and then the next step will be 30 meters.

Speaker #2: And so that's going to be a really unique new product category as we talk about the heterogeneous world between copper and different forms of optical.

Operator: The next question comes from Quinn Bolton, Needham & Company.

Speaker #1: The next question comes from Quinn Bolton, Needham & Company.

Quinn Bolton: Hey, guys. I guess, you know, given all the noise in the market around CPO and optical, I was wondering if you could kind of just discuss in further detail two products. One, your Blue Heron DSP for scale up, AEC connections. Are you seeing interest in that? Then sort of a similar question on Bill, I think in the prepared comments you talked about an OmniConnect gearbox with a ALC CPO solution, somewhere down the road. Can you give us any sense on timing when you would have a ALC CPO solution potentially coming to market? Thank you.

Speaker #5: Hey, guys. I guess given all the noise in the market around CPO and optical, I was wondering if you could kind of just discuss in further detail two products.

Speaker #5: One, your Blue Heron DSP for scale-up AEC connections. Are you seeing interest in that? And then sort of a similar question on Bill, I think in the prepared comments, you talked about an OmniConnect gearbox with an ALC CPO solution.

Speaker #5: Somewhere down the road, can you give us any sense on timing when you would have an ALC CPO solution potentially come into market? Thank you.

Bill Brennan: I wanna note first of all that the bulk of our revenue from AI is really in scale out now. We don't have any revenue for scale up. In fact, that market is, you know, relatively small in comparison today. There's great promise that the scale up market will grow, especially as it goes from rack scale to row scale, and that's driving a lot of these conversations. The Blue Heron product that we introduced and announced our first customer, Upscale AI, this is a 200G per lane retimer that supports UALink, ESUN, Ethernet. We will build AECs with this product as well. As that scale out opportunity takes shape, you know, we're going to have a full portfolio of products that we can offer.

Speaker #2: Sure. So I want to note, first of all, that the bulk of our revenue from AI is really in scale-out now. We don't have any revenue for scale-up.

Speaker #2: And in fact, that market is relatively small in comparison today. There's great promise that the scale-up market will grow, especially as it goes from rack scale to row scale.

Speaker #2: And that's driving a lot of these conversations. The Blue Heron product that we introduced and introduced announced our first customer, Upscale AI, this is a 200 gig per lane retimer that supports UA-Link, eSun, Ethernet, we will build AECs with this product as well.

Speaker #2: And so, as that scale-out opportunity takes shape, we're going to have a full portfolio of products that we can offer. As it relates to my comments about OmniConnect, yes, it is a very straightforward path to basically extend the OmniConnect architecture to add a gearbox that converts from VSR to micro-LED.

Bill Brennan: As it relates to my comments about OmniConnect, yes, it is a very straightforward path to basically extend the OmniConnect architecture to add a gearbox that converts from VSR to Micro LED. The work we're doing with ALC, that's gonna be, you know, the proof point. Ultimately there's gonna be a direct, you know, direct line of sight on doing a gearbox that takes that VSR conversion to, say, a pigtail that you can connect Micro LED to with. That is gonna give a relatively straightforward lower risk path to, you know, to a near package optics solution. Again, that solution is gonna be delivered with bulletproof reliability, and it's gonna be done at a power that's much less than laser-based CPO.

Speaker #2: And so the work we're doing with ALC, that's going to be the proof point. And ultimately, there's going to be a direct line of sight on doing a gearbox that takes that VSR conversion to, say, a pigtail that you can connect micro-LED with.

Speaker #2: And so that is going to give a relatively straightforward, lower-risk path to a near-package optics solution. And again, that solution is going to be delivered with bulletproof reliability.

Speaker #2: And it's going to be done at a power that's much less than laser-based CPO.

Operator: The next question is from Sean O'Loughlin, TD Cowen.

Speaker #1: The next question is from Sean O'Laughlin, TD Cowen.

Sean O'Loughlin: Hey, you guys. Thanks for letting me ask a question, and I will add my congrats on a really incredible set of results. I had a quick clarification. I think last quarter you mentioned that you expected the fourth hyperscale customer to represent greater than 10% of revenues for the full fiscal 2026. Obviously, you mentioned 3 10% customers this quarter. Is that still your expectation for the full fiscal year? On the OpEx guide, I was a little bit surprised to see that it was, you know, almost flat quarter-over-quarter, obviously after a big, pretty big step up last quarter.

Speaker #3: Hey, guys. Thanks for letting me ask a question, and I will add my congrats on a really incredible set of results. I had a quick clarification.

Speaker #3: I think last quarter you mentioned that you expected the fourth hyperscale customer to represent greater than 10% of revenues for the full fiscal '26.

Speaker #3: Obviously, you mentioned three 10% customers this quarter. Is that still your expectation for the full fiscal year? And then on the OPEX guide, I was a little bit surprised to see that it was almost flat quarter over quarter.

Speaker #3: Obviously, after a pretty big step up last quarter. But with all the irons in the fire, including the acquisition this morning, is there just some constraints around, I don't know whether it's hiring qualified mix signal engineers or is there something else going on in OPEX, or am I just overthinking all of this?

Sean O'Loughlin: you know, With all the irons in the fire, including the, you know, the acquisition this morning, is there just some constraints around, I don't know whether it's, you know, hiring qualified mixed signal engineers or is there something else going on in OpEx, or am I just overthinking all of this and you're just executing to your roadmap? Thanks.

Speaker #3: And you're just executing to your roadmap. Thanks.

Bill Brennan: Yeah. Let me address the first question first. With regard to our fourth hyperscaler that we talked about, we made those comments, you know, last quarter. We've obviously experienced a lot of upside, really driven by our largest customer this quarter, in the current timeframe. That may make the math. While they're still in line with our expectations from, you know, 90 days ago, they may not be a 10% customer for the full quarter, if that makes sense, or for the full year, I mean. Now with regard to OpEx, a couple of dynamics there to note. One is, there was a large step up this quarter for R&D spend. One thing to note is that it was off a relatively light spend in Q2.

Speaker #4: Yeah, so let me address the first question first. With regard to our fourth hyperscaler that we talked about, we made those comments last quarter.

Speaker #4: We've obviously experienced a lot of upside, really driven by our largest customer this quarter and in the current timeframe. So that may make the math—while they're still in line with our expectations from 90 days ago—they may not be a 10% customer for the full quarter, if that makes sense, or for the full year, I mean.

Speaker #4: Now, with regard to OPEX, a couple of dynamics there to note. One is, it was a large step up this quarter for R&D spend.

Speaker #4: And one thing to note is that it was off a relatively light spend in Q2. And, in addition, I highlighted two things: project-related spend and hiring.

Bill Brennan: In addition, you know, I highlighted two things: project-related spend and hiring. The project-related spend was higher than has been typical, related to a lot of these things that we're working on. If that were to come down, you might have some incremental hiring to. They just happen to kind of offset for the year or for the quarter. That's kind of the underlying dynamics in our Q3 to Q4 R&D spend, if that helps you out.

Speaker #4: The project-related spend was higher than has been typical related to a lot of these things that we're working on. So if that were to come down, you might have some incremental hiring to they just happen to kind of offset for the year, or for the quarter.

Speaker #4: So that's kind of the underlying dynamics in our Q3 to Q4 R&D spend, if that helps you out.

Operator: Vijay Rakesh from Mizuho is up next.

Speaker #1: Vijay Rakesh from Mizuho is up next.

Vijay Rakesh: Yeah. Hi, Bill and Dan. Just a question on the 1.6T ramp. I think as you go to 1.6T, most of the big hyperscalers seem, still seem, have not talked much about CPO. Is your assumption that as 1.6T ramps into calendar 2027, 2028, that it'll be predominantly copper? You know, as you mentioned, the ASP bump, that should drive a pretty nice upside there between the adoption of copper and the ASP.

Speaker #5: Yeah. Hi, Bill and Dan. Just a question on the 1.6T RAP. I think I should go to 1.6T. Most of the big hyperscalers still seem to have not talked much about CPO.

Speaker #5: So is your assumption that as 1.6 TRAPs into calendar '27, '28, that it'll be predominantly copper and, as you mentioned, the ASP bump, that should drive a pretty nice upside there between the adoption of copper and the ASP?

Bill Brennan: Yeah. For the 200G lane per market, we very much see that, you know, that market is gonna be addressed by AECs, a combination of laser-based modules. We'll have the ALCs that ramp into that market as well. That would be, you know, what I would consider the new product category. I think CPO is still, you know, sometime in the future beyond that. We see our customers ramping 200G programs really at very different schedules. You know, of course, NVIDIA is gonna lead the charge with Vera Rubin, many other customers will follow on a slower timeline. We do expect to see very strong business in all 3 categories that I just mentioned.

Speaker #2: Yeah. For the 200-gig lane per market, we very much see that that market is going to be addressed by AECs. And then a combination of laser-based modules will have the ALCs that ramp into that market as well.

Speaker #2: But that would be what I would consider the new product category. I think CPO is still sometime in the future beyond that. We see our customers ramping 200 gig programs really at very different schedules.

Speaker #2: Of course, NVIDIA is going to lead the charge with Vera Rubin. But many other customers will follow at a slower timeline. So we do expect to see very strong business in all three categories that I just mentioned.

Bill Brennan: We'll have ZeroFlap Optics, you know, that are gonna be delivered in that timeframe. I will say from an optical DSP standpoint, we're getting a lot of uplift right now for LRO. Power is becoming a much more important thing as our customers go to 200 Gb per lane. I think we have, you know, a really nice position. You mentioned ASPs, and that's right. There is gonna be an uplift from 800 Gb to 1.6 Tb across the board, across the entire portfolio. We feel, you know, great about the way we're positioned there.

Speaker #2: So we'll have ZF Optics that are going to be delivered in that timeframe. I will say, from an optical DSP standpoint, we're getting a lot of uplift right now for LRO. Power is becoming a much more important thing as our customers go to 200 gig per lane.

Speaker #2: So I think we have a really nice position. You mentioned ASPs, and that's right. There is going to be an uplift from 800 gig to 1.6T.

Speaker #2: Across the board, across the entire portfolio. So we feel great about the way we're positioned there.

Operator: Your next question is from Quinn Bolton, Needham & Company.

Speaker #1: Your next question is from Quinn Bolton, Needham & Company.

Quinn Bolton: Hey, guys. Thanks for the follow-up. Just wanted to ask, you guys announced the CoMira acquisition this morning. Looks like that's kind of more layer two stuff, right? MAC, PCS, MACsec security. Are you buying that just to kind of enhance the IC products that you've done historically, or is this a move to try to get into more layer two solutions down the road? Thank you.

Speaker #5: Hey, guys. Since we're in the follow-up, just wanted to ask you guys to announce the COMERA acquisition this morning. Looks like that's kind of more layer two stuff, right, Mac, PCS?

Speaker #5: Macsec Security. Are you buying that just to kind of enhance the IC products that you've done historically, or is this a move to try to get into more Layer 2 solutions down the road?

Speaker #5: Thank you.

Bill Brennan: Yeah, appreciate the question. We didn't have a chance to get it in the prepared remarks, given the fact that it's closed basically right at the same time. But we feel great about the combination of bringing CoMira into Credo. We've been collaborating with CoMira as an IP partner since 2022, and CoMira has a really strong reputation in protocol IP, error correction, as well as security IP technologies. So we view this as a strengthening of our ability to deliver complete system-level connectivity solutions. You alluded to maybe going up. Yes, absolutely. That's, you know, that's part of the opportunity. So, you know, we feel great strategically about this. The fact that they'll be dedicated to Credo projects now, it'll accelerate our end-to-end connectivity roadmap and expanding the overall platform.

Speaker #2: Yeah. Appreciate the question. We didn't have a chance to get it in the prepared remarks given the fact that it's closed basically right at the same time.

Speaker #2: But we feel great about the combination of bringing COMERA into CREDO. We've been collaborating with COMERA as an IP partner since 2022, and COMERA has a really strong reputation in protocol IP, error correction, as well as security IP technologies.

Speaker #2: So, we view this as a strengthening of our ability to deliver complete system-level connectivity solutions. And you alluded to maybe going up—yes, absolutely.

Speaker #2: That's part of the opportunity. And so we're we feel great strategically about this. And the fact that there'll be dedicated to CREDO projects now, it'll accelerate our end-to-end connectivity roadmap and expanding the overall platform.

Quinn Bolton: Thank you.

Speaker #3: Thank you.

Operator: The next question is from Sebastien Naji from William Blair.

Speaker #1: The next question is from Sebastian Najee from William Blair.

Sean O'Loughlin: Yeah. Thank you for taking the question. There's been a lot of focus lately on supply chain constraints, including, the high cost of memory. I guess, what type of supply chain risks are you seeing for Credo, if any? Is there anything in the supply chain that could emerge as maybe a gating factor to your growth in some of the coming quarters?

Sebastien Naji: Yeah. Thank you for taking the question. There's been a lot of focus lately on supply chain constraints, including, the high cost of memory. I guess, what type of supply chain risks are you seeing for Credo, if any? Is there anything in the supply chain that could emerge as maybe a gating factor to your growth in some of the coming quarters?

Speaker #3: Yeah. Thank you for taking the question. There's been a lot of focus lately on supply chain constraints including the high cost of memory. I guess what type of supply chain risks are you seeing for CREDO, if any?

Speaker #3: And is there anything in the supply chain that could emerge as maybe a gating factor to your growth in some of the coming quarters?

Bill Brennan: Yeah. I, you know, I think we got a little bit out in front on this topic last quarter. I feel great about our supply chain for Credo, and that includes wafers. In all of the different product categories that we've talked about, and that encompasses 12 nanometers, 7, 5, and 3. We did a lot of work over the last quarter to make sure that we were aligned with our supply chain partners, not only on the wafer level but also the packaging level. I think it's, you know, it's clear that we're gonna be able to support, you know, our plan as well as upside that we expect.

Speaker #2: Yeah. So I think we got a little bit out in front on this topic last quarter. I feel great about our supply chain. For CREDO.

Speaker #2: And that includes wafers in all of the different product categories that we've talked about. And that encompasses 12 nanometers, 7, 5, and 3. So we did a lot of work over the last quarter to make sure that we were aligned with our supply chain partners, not only on the wafer level, but also the packaging level.

Speaker #2: So I think it's clear that we're going to be able to support our plan as well as upside that we expect. In the market, we are absolutely in kind of uncharted territory.

Bill Brennan: In the market, we are, you know, absolutely in, you know, kind of uncharted territory, where I think supply chain is gonna become more and more of a differentiator. As it relates to the supply chain issues that are outside of our normal IC builds, I would say from a system level, there's no issues, you know, from a supply chain standpoint there. I will say at an industry-wide level, memory has all of a sudden been a concern. You know, if anything, we can look at the first OmniConnect product, Weaver, as almost a solution to some of the pain points where we enable the use of DDR over HBM, which I think is probably the tightest area within the memory market right now.

Speaker #2: Where I think supply chain is going to become more and more of a differentiator. And as it relates to the supply chain issues that are outside of our normal IC builds, I would say from a system level, there's no issues from a supply chain standpoint there.

Speaker #2: I will say, at an industry-wide level, memory has all of a sudden been a concern. And if anything, we can look at the first OmniConnect product, Weaver, as almost a solution to some of the pain points, where we enabled the use of DDR over HBM.

Speaker #2: Which I think is probably the tightest area within the memory market right now. Outside of that, there's been a lot of conversation about lasers, but from a ZF optics perspective, we feel that we've more than underpinned our demand for '27 and really beyond.

Bill Brennan: Outside of that, there's been a lot of conversation about lasers. You know, from a ZeroFlap Optics perspective, we feel that we've more than underpinned our demand for 2027 and really beyond.

Operator: The next question today comes from James Schneider, Goldman Sachs.

Speaker #1: The next question today comes from Jim Schneider, Goldman Sachs.

James Schneider: Good afternoon. Thanks for taking my question. Bill, it was helpful to hear sort of the, you lay out the progression of your various product lines, especially the optical products over the next couple of years. I was wondering if you could maybe just to give us a sense of how we should be modeling the strength of those optical products, a sense of where we might end, fiscal 2027 in terms of their contribution. Are these something that could be sort of, 15% to 20% of total revenues of the company at an exit rate, or should we be modeling something a lot less than that? Thank you.

Speaker #4: Good afternoon. Thanks for taking my question. Bill, it was helpful to hear sort of the layout, the progression of your various product lines, especially the optical products over the next couple of years.

Speaker #4: I was wondering if you could maybe just give us a sense of how we should be modeling the strength of those optical products?

Speaker #4: A sense of where we might end fiscal '27 in terms of their contribution? Are these something that could be sort of 15 to 20 percent of total revenues of the company at an exit rate?

Speaker #4: Or should we be modeling something a lot less than that? Thank you.

Dan Fleming: Yeah. We haven't been too specific in that, but if you, if you just look at where we are this year based on how we've guided Q4, you know, we're just, you'll end up just up north of $1.3 billion. The 50% growth gets you to nearly $2 billion for next year. Bill did kind of mention that we expect AEC to continue to grow fiscal 2026 to fiscal 2027. So there will be a significant-- we think it'll be a material component of our fiscal 2027 for specifically ZeroFlap Optics. As that progresses and as our customer engagement continues with that product line, we'll give you an update as we enter the new fiscal year next quarter.

Speaker #2: Yeah, we haven't been too specific on that. But if you just look at where we are this year, based on how we've guided Q4, you'll end up just north of $1.3 billion.

Speaker #2: The 50% growth gets you to nearly 2 billion for next year. Bill did kind of mention that we expect AEC to continue to grow fiscal 26 to fiscal 27.

Speaker #2: So, there will be a significant—we think it’ll be a material component of our fiscal ’27 for specifically ZF optics. But as that progresses, and as our customer engagement continues with that product line, we’ll give you an update as we enter the new fiscal year next quarter.

Operator: Your next question is from Suji Desilva, Roth Capital Partners.

Speaker #1: Your next question is from Suji DaSilva, Roth Capital.

Suji Desilva: Hi, Bill Brennan. Hi, Dan Fleming. Congrats on the progress here. Just quickly, how many customers do you expect to be ramping ZeroFlap Optics across in the coming fiscal year? Just a longer-term question on the gearbox. You talked about being able to handle training and inference in the same architecture. I was curious on if you could elaborate on that opportunity. It sounds interesting.

Speaker #5: Hi, Bill. And congrats on the progress here. Just quickly, how many customers do you expect to be ramping ZF optics across in the coming fiscal year?

Speaker #5: And just a longer-term question on the gearbox. You talked about being able to handle training and inference in the same architecture. I was curious on if you could elaborate on that opportunity.

Speaker #5: It sounds interesting.

Bill Brennan: Sure. Sure. Absolutely. You got me confused with the second question. What was the first again?

Speaker #2: Sure. Sure. Absolutely. You got me confused with the second question. What was the first again?

Suji Desilva: The ZeroFlap Optics, how many customers you think you'll be ramping it across in fiscal 2027?

Speaker #5: Oh, the zero-flap optics. How many customers do you think you'll be ramping it across in fiscal 27?

Bill Brennan: Well, I, you know, I'll My expectation is, you know, throughout fiscal 2027, we're a bit, you know, early talking about fiscal 2027, but my strong expectation is that we'll ramp more than four. We've got four in the call now. I expect to add to that list. I should reiterate that it's a combination of, you know, hyperscalers as well as neoclouds. The second part of your question was on OmniConnect. If you know, if you know, can imagine, the key enabler for OmniConnect is really our VSR serdes that sits on the XPU side of the connection. Gearboxes are put together that mirror that VSR serdes and then gearbox it to something else.

Speaker #2: Well, my expectation is throughout fiscal '27. We're a bit early talking about fiscal '27, but my strong expectation is that we'll ramp more than four.

Speaker #2: We've got four in Qual now, and so I expect to add to that list. And I should reiterate that it's a combination of hyperscalers as well as NeoClouds.

Speaker #2: And the second part of your question was on OmniConnect. And so, if you can imagine, the key enabler for OmniConnect is really our VSR CertiS that sits on the XPU side of the connection.

Speaker #2: And gearboxes are put together that mirror that VSR CertiS and then gearbox it to something else. And so I think it's pretty clear for memory that a first DDR gearbox would be for 5.

Bill Brennan: I think it's pretty clear for memory that, you know, a first DDR gearbox would be for 5. You can imagine as the market shifts to LPDDR6, that all you'd have to do, you wouldn't have to retape out an XPU. You could just simply change the gearbox, and you'd, you know, have that inference capability with that next generation memory. You can also imagine, say, building a scale-up gearbox. At first, the first gearbox might be a Gen 7 and Gen 6 combo to where, you know, that XPU's got that same VSR SerDes, and the gearbox would take those 100 Gig lanes and gearbox them to either Gen 7 or Gen 6 PCIe.

Speaker #2: And you can imagine as the market shifts to LPDDR6 that all you'd have to do you wouldn't have to retape out an XPU. You could just simply change the gearbox.

Speaker #2: And then you'd have that inference capability with that next generation memory. And so you can also imagine, say, building a scale-up gearbox and at first the first gearbox might be a Gen 7 and Gen 6 combo.

Speaker #2: To where that XPU has got that same VSR CertiS and the gearbox would take those 100 gig lanes. And gearbox them to either Gen 7 or Gen 6 PCIe.

Bill Brennan: You can imagine when 200 Gb per lane is really ready for that given customer, you could just simply drop in a new gearbox that would support 200 Gb per lane, with, you know, any of the protocols we've talked about being Ethernet, UALink, or ESUN. You could extend that, you know, that case to, you know, to scale out as well. You could have a gearbox that would, say, improve, say, the first one that might be 200 Gb per lane. As soon as 400 Gb per lane was ready, you could simply drop in a new gearbox that would gearbox lanes of 100 up to 400 Gb per lane.

Speaker #2: You can imagine when 200 gig per lane is really ready for that given customer, you could just simply drop in a new gearbox that would support 200 gig per lane.

Speaker #2: With any of the protocols we’ve talked about, being Ethernet or UAL or eSun, and you could extend that case to scale out as well.

Speaker #2: You could have a gearbox that would, say, improve, say, the first one that might be 200 gig per lane. As soon as 400 gig per lane was ready, you could simply drop in a new gearbox that would gearbox lanes of 100 up to 400 gig per lane.

Bill Brennan: You're talking about, you know, having the ability to build an XPU that becomes composable based on different markets, and it becomes composable. You know, based on the future enabled aspect of, you know, just being able to upgrade the gearbox to either the next speed or a different protocol.

Speaker #2: And so you're talking about having the ability to build an XPU that becomes composable based on different markets and it becomes composable based on the future enabled aspect of just being able to upgrade the gearbox to either the next speed or the protocol.

Operator: The next question comes from Christopher Rolland, Susquehanna.

Speaker #1: The next question comes from Christopher Rowland, Susquehanna.

Christopher Rolland: Hey, guys. Thanks for the question. I guess the first one is probably to you, Bill, just about AEC applications and kind of where this may be moving around. If you could talk about, you know, where you think you're being used in terms of front-end versus scale-out, scale-up, or like traditional cloud, where you're being used today and what this looks like over the next couple of years in terms of changes.

Speaker #4: Hey, guys. Thanks for the question. I guess the first one is probably to you, Bill—just about AEC applications and kind of where this may be moving around.

Speaker #4: If you could talk about where you think you're being used in terms of front-end versus scale-out, scale-up, or traditional cloud—where you're being used today and what this looks like over the next couple of years, in terms of changes.

Bill Brennan: Yeah. I'd say that, you know, the part of the network that's probably where we're strongest is on scale-out. This is where we really see the full benefit of AECs, as we're talking about leading-edge speeds, and we're talking about in the part of the network where reliability really means, you know, faster time to cluster stability as well as, you know, continuous uptime. We do very, very well in scale-out. Front-end kind of comes along with it. We're also seeing a couple customers now that are deploying in switch racks or disaggregated chassis. It's really across the board, but I would say our real strength is in scale-out.

Speaker #2: Yeah, so I'd say that the part of the network that's probably where we're strongest is on scale-out. And so this is where we really see the full benefit of AECs.

Speaker #2: As we're talking about leading-edge speeds, and we're talking about in the part of the network where reliability really means faster time to cluster stability as well as continuous uptime.

Speaker #2: And so we do very, very well in scale-out. Front-end kind of comes along with it. And then we're also seeing a couple of customers now that are deploying in switch racks or disaggregated chassis.

Speaker #2: So it's really across the board. But I would say our real strength is in scale-out.

Operator: Next up is Karl Ackerman, BNP Paribas.

Speaker #1: Next up is Carl Ackerman, BNP, Parabus.

Karl Ackerman: Yes. Thank you. Bill Brennan, perhaps a follow into that, the question earlier. You know, you indicated much of your AI revenue for AEC products is for scale-out networks. How should we think about the $5 billion TAM for AECs split between front-end versus back-end links between a server NIC's networking switches? Dan Fleming, could you speak to why gross margins are guided down roughly 360 basis points at the midpoint of your outlook? Is it just conservatism? Is it near-term product mix? Anything around that would be helpful. Thank you.

Speaker #5: Yes. Thank you. Bill, perhaps a follow-on to that question earlier. You indicated much of your AI revenue for AEC products is for scale-out networks.

Speaker #5: But how should we think about the $5 billion TAM for AECs split between front-end versus back-end links between a server and networking switches? And Dan, could you speak to why gross margins are guided down roughly 360 basis points at the midpoint of your outlook?

Speaker #5: Is it just conservatism? Is it near-term product mix? Anything around that would be helpful. Thank you.

Dan Fleming: Yeah. Let me let me address the gross margin question first. You know, overall, as you mentioned in Q3, gross margin at 68.6%, up 92 basis points sequentially. We've really, over the last, say, seven to eight quarters, really seen a significant benefit to increasing scale. We've also been very persistent in saying that the gross margin expansion won't always be linear as we continue to increase scale. There will always be differences from quarter to quarter in product mix, we are conservative in the way we forecast. We believe that, you know, we have not changed our long-term expectation in the 63% to 65% range for gross margin, we've clearly entered this phase where we're at or above that high end of that long-term expectation.

Speaker #2: Yeah, let me address the gross margin question first. So, overall, as you mentioned, in Q3, gross margin was 68.6%, up 92 basis points sequentially.

Speaker #2: We've really, over the last, say, 7 to 8 quarters, really seen a significant benefit to increasing scale. But we've also been very persistent in saying that the gross margin expansion won't always be linear as we continue to increase scale.

Speaker #2: There will always be differences from quarter to quarter in product mix. And we are conservative in the way we forecast. We believe that we have not changed our long-term expectation in the 63% to 65% range for gross margin.

Speaker #2: And we've clearly entered this phase where we're at or above that high end of that long-term expectation. So it's really just a function of how we view the world and how we forecast our gross margin.

Dan Fleming: It's really just a function of how we view the world and how we forecast our gross margin, and it's a very conservative forecast.

Speaker #2: And it's a very conservative forecast.

Bill Brennan: Right. You asked about the AEC TAM and the $5 billion number. We're not the group that really focuses too much on the top-down forecast. We leave that to the market forecasters. I can give you my perspective on, you know, the market opportunity, and I think largely the market opportunity that we see is scale-out networks. I think that will transition into some share of the scale-up networks as they become deployed. Of course, you know, front-end is gonna be smaller than scale-out, probably on the order of, it'll probably be 20% to 25% of the total scale-out market as we see it.

Speaker #5: Right. On the you asked about the AEC TAM. And the $5 billion number. So we're not the group that really focuses too much on the top-down forecast.

Speaker #5: We leave that to the market forecasters. And but I can give you my perspective on the market opportunity. And I think largely the market opportunity that we see is scale-out networks I think that will transition into some share of the scale-up networks as they become deployed.

Speaker #5: And then, of course, front-end is going to be smaller than scale-out—probably on the order of, it'll probably be 20 to 25 percent of the total scale-out market as we see it.

Bill Brennan: The disaggregated switch market, that one's yet to be seen, but that could be a significant TAM if we see that kind of architecture deployed broadly, which, there's a good case to be made for.

Speaker #5: And then the disaggregated switch market—that one's yet to be seen. But that could be a significant TAM if we see that kind of architecture deployed broadly.

Speaker #5: Which there's a good case to be made for.

Operator: Tore Svanberg from Stifel, your line is now open.

Speaker #1: Tori Spanberg from Stifel, your line is now open.

Tore Svanberg: Yeah. Thanks. I just had a follow-up. This pull-in of the ZeroFlap Optics business, Bill, I mean, is that just mainly because of certain technical milestones that or are there market dynamics? The reason I'm asking the question because obviously there's concerns about availability of commodity lasers. You know, just trying to understand exactly what's driving that pull-in by a few quarters.

Speaker #5: Yeah. Thanks. I just had a follow-up. So this pull-in of the ZF optics business, Bill, I mean, is that just mainly because of certain technical milestones that or other market dynamics?

Speaker #5: And the reason I'm asking the question is because, obviously, there's concerns about the availability of commodity lasers. So just trying to understand exactly what's driving that pull-in by a few quarters.

Bill Brennan: Well, the pull-in's being driven by customers pulling it. You know, I mean, this is a real indicator that, you know, as we've said many times regarding AECs, that reliability is really critical, again, from the standpoint of, you know, the time to bring up a cluster and, you know, the uptime that you can expect after that point of stability. It's a direct improvement in productivity and, you know. As AECs have been, you know, much more popular as a result of people getting it, right?

Speaker #2: Oh, the pull-in is being driven by customers pulling it. I mean, this is a real indicator that, as we've said many times regarding AECs, reliability is really critical.

Speaker #2: Again, from the standpoint of the time to bring up a cluster and the uptime that you can expect after that point of stability. And so it's a direct improvement in productivity.

Speaker #2: And so as AECs have been much more popular as a result of people getting it, right, the minute that we talk to our customers about ZF and we talk about extending that reliability into the optical space, it's very rare that somebody would say, 'Yeah.'

Bill Brennan: The minute that we, you know, talk to our customers about ZF and we talk about, you know, extending that reliability into the optical space, it's very rare that somebody would say, "Yeah, I really don't want that." So it's been really customer pull that's caused us to feel more confident in articulating that we expect the ramp to happen early in 2027, really next quarter. From a supply chain standpoint, understand, you know, we've been working on this for 2 years, and so we've, you know, had the mindset that we would, you know, carry the same model from AECs into ZeroFlap Optics. We've been out there, you know, underpinning supply along the way.

Speaker #2: I really don't want that. So, it's been really customer pull that's caused us to feel more confident in articulating that we expect the ramp to happen early in '27, really next quarter.

Speaker #2: And so the from a supply chain standpoint, understand, we've been working on this for two years. And so we've had the mindset that we would carry the same model from AECs into a ZF optics.

Speaker #2: And so we've been out there underpinning supply along the way. We've made firm commitments to supply chain partners. And we feel very confident about our ability to ramp even though we've pulled in six months.

Bill Brennan: We've made firm commitments to supply chain partners, and we feel very confident about our ability to ramp, even though we've pulled in six months.

Operator: Everyone, there are no further questions at this time. Mr. Brennan, I'll hand the call back to you for any additional or closing remarks.

Speaker #1: And everyone, there are no further questions at this time. Mr. Brennan, I'll hand the call back to you for any additional or closing remarks.

Bill Brennan: Yeah. Thank you. I really appreciate the ongoing interest and support in Credo. We'll talk to you all very soon. Again, thank you very much.

Speaker #5: Yeah. Thank you. I really appreciate the ongoing interest and support in Credo. We'll talk to you all very soon. So, again, thank you very much.

Operator: Once again, ladies and gentlemen, this does conclude today's conference call. You may now disconnect.

Q3 2026 Credo Technology Group Holding Ltd Earnings Call

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