Credo Technology Group Holding Ltd Price & Performance (CRDO)

Good afternoon. Thank you for joining our earnings call for the third quarter of this 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 section 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. Given these risks, uncertainties and assumptions, the forward looking events discussed during this call may not occur. And actual results could differ materially and adversely from those anticipated or implied. The company undertakes no obligation to publicly update forward looking statements for any reason, after the date of this call to conform these statements to actual results, or to changes in the company's expectations except as required by law. Also during this call, we will refer to certain non GAAP financial measures.

Which we consider to be important measures of the company's performance. These non GAAP financial measures are provided in addition to and not as a substitute for or superior to financial performance prepared in accordance with U. S. GAAP.

A discussion of why we use non GAAP financial measures and reconciliations between our GAAP and non GAAP financial measures is available in the earnings release we issued today, which can be accessed using the Investor Relations portion of our website. With that, I will now turn the call over to our CEO. Bill? Thanks, Dan. And thank you for joining our earnings for the third quarter of fiscal twenty twenty five. I'll start with an overview of our third quarter results. And then discuss our outlook. Following my comments, our CFO, Dan Fleming, will provide Q3 financial details and our guidance for the fiscal fourth quarter. For the third quarter, Credo reported revenue of $135,000,000 up 87% sequentially and up 154% year over year, Kratos non GAAP gross margin was 63.8%. Credo achieved record revenue in Q3 as we saw the expected inflection point in our business. This ramp was led by our largest hyperscale customer as they scaled production of AI platforms. Additionally, we received solidified forecasts and saw increased design activity for our products with additional hyperscalers and other customers, as the performance, reliability and power benefits of our connectivity solutions have become increasingly clear throughout the industry.

In a world where data drives everything, the demand for faster, more reliable, and energy efficient connectivity continues to expand rapidly. Key to Kredo's competitive advantage our multi tiered innovation. Which enables us to deliver a broad set of optimized solutions that are tuned at every level The first tier of innovation is in our CertiS technology. Our CertiS technology is purpose built to tackle the toughest bandwidth challenges balancing speeds up to 200 gig per lane with exceptional performance and power efficiency. By leveraging advanced signal processing, and a programmable design, we created a flexible architecture that adapts to the unique needs of AI workloads. Whether it's long reach data center links, or ultra short connections in dense compute environments. The second tier of innovation in our integrated circuit design, Our IC designs including retimers DSPs and chiplets are engineered to deliver the best combination of performance, [indiscernible] and cost for a given application Our LRO DSP is a great example of innovation on the customer's behalf The third tier of innovation is our system level approach. We don't stop at chips. Our best example of system level innovation is Credo pioneering the active electrical cable market By taking accountability for the system level solution, we raised the bar to deliver end to end connectivity solutions that go beyond industry standards to deliver unique functionality and best in class reliability.

We see this system level approach creating a larger opportunity for Credo the emergence of AI clusters, due to the intense demand for reliability and power efficiency, Finally, wrapped around each tier of innovation, is our development and diagnostics software and firmware platform, to deliver predictive signal integrity linked optimization From the CERNS to the system level, this software platform helps our customers navigate system development to achieve best performance, yields and reliability, As we look forward, we'll expand our solutions to the PCIe protocol with the same ingenuity that creates our differentiated Ethernet solutions. With the introduction of a full suite of PCIe product on the near term horizon, Credo will soon be addressing a larger connectivity opportunity with AI scale out and scale up networks. Substantially expanding our overall TAM, Now I'll discuss our business in more detail. Regarding our AEC product line, as expected, our revenue surged in the third quarter. Driven by our largest hyperscale customer. Compared to alternatives, the benefits of AECs have become clearer. More than ever, data centers are highly focused on back end network reliability. With billions of hours operating in the field, AECs have become the de facto standard for intra rack connections.

For NIC to tour and switch to switch applications, However, are now seeing a new expansion of AEC usage. Our zero flap AECs deliver more than 100x better reliability than laser based optical solutions And as a result, we're seeing AECs replacing optics for rack to rack solutions for lengths up to seven meters. We continue to make significant progress with additional hyperscalers. For our Ethernet AEC solutions. We have achieved volume production with three hyperscalers. And we're in qualification with two additional hyperscalers. Expecting production in fiscal twenty twenty six. With broad traction, we feel confident we'll continue to see increasing diversification in the coming quarters and years. Additionally, Credo continues to make progress with our PCIe AEC solutions. Our Gen six sixty four gig PAM4 AECs will deliver the same compelling benefits for AI scale up networks. As deployments move to rack scale architectures. Credo will demonstrate our PCIe AECs at NVIDIA's GTC show later this month. We expect customer design engagements and qualifications for our PCIe AECs in the upcoming quarters. With a significant revenue opportunity in the upcoming years, For our AEC business in total, we expect continued revenue growth based on customer forecasts, new qualifications, new design engagements and TAM expansion.

Now I'll turn to our optical business. Our optical DSP business is on track to achieve the growth objectives we set out at the beginning of fiscal twenty twenty five. We have opportunities across the global customer base with revenue currently driven by 50 gig and 100 gig per lane designs, we for AOC and transceiver applications.

At port speeds up to 800 gig, Credo is actively engaged in opportunities with more than 10 transceiver vendors for multiple hyperscale end users. We work with our optical transceiver partners to provide full DSP and LRO options to meet a wide range of networking architectures. We see a large and growing market for these offerings. As well as for 1.6T port deployments in the future. With our recent three nanometer tape out, Credo is well positioned for these leading edge opportunities with our 200 gig per lane DSPs. We expect to again have a compelling combination of performance, power and feature We see the market opportunity for optical connectivity in continuing to be very dynamic as reliability and energy efficiency become more important. As a result, we've seen an increasing to our partners activating Credo's third tier of innovation, I outlined earlier, Next month at the OFC Conference in San Francisco, we'll demonstrate a full suite of optical solutions. Including 200 gig per lane in conjunction with our optical module partners. Based on all of our progress, the breadth of customer engagements, and the expanding market opportunity we remain excited about the increasing revenue prospects given our role as an innovator in the optical connectivity market, Now regarding a retimer business, Credo continued to gain momentum with our retimer business in the third quarter.

Over the past several years, Credo has established leadership in the Ethernet retimer market. Delivering advanced capabilities such as MACsec encryption gear boxing and other software enabled functionality. Existing customer wins and future gig per lane applications, which for both traditional switching and increasingly for AI servers requiring retimers for scale out networks. This year, Credo has entered the market for PCIe retimers used in scale up networks. Our strategy is in alignment with our three tier innovation approach. We believe Kritos PCIe CertiSertes IP will establish new benchmarks for the combination of latency, reach performance and power. And that our implementation of the Tucan PCI retimer will deliver compelling advantages our customers. In February, Credo participated in the PCI SIG compliance workshop in Taipei. And we are pleased that our Tucan retimer achieved full PCIe compliance It is notable that Credo is only the second vendor to achieve this level of compliance certification for PCIe Gen five, This significant milestone demonstrates our capability to bring best in class PCIe products to market.

Credo will be added to the PCIe SIG integrators list in the coming weeks. During Q3, we engaged with key customers who evaluated our PCIe silicon. I'm pleased to say that the feedback was very encouraging and we received our first platform commitment from a large AI server ODM. We are on track for production revenue in calendar year 2026. Market forecasters believe the TAM for PCIe retimers will exceed $1,000,000,000 by 2027, and Credo is very well positioned to compete for material market share. In summary, I'd like to first comment about our teams in incredible execution over the past quarter. To successfully navigate a ramp of this magnitude requires extremely tight operational control, supply chain coordination and customer communication Just as Credo works tirelessly with customers to innovate on solving their pressing connectivity needs, the Credo team is clearly rising to the occasion to deliver on the significant demand ramp experiencing As we more broadly ramp customers across our products, we will continue to closely manage our execution. I remain enthusiastic about the expanding market opportunity for high speed connectivity driven by the promise of AI, and the investment it's firming. Kredo's tiered approach to innovation has will continue to be an advantage as we serve our customers.

Based on our progress with customers and the increasing demand for leading edge Credo remains on track for continued scaling of revenue and profit. I'll now turn the call over to our CFO, Dan Fleming, who will provide more detail.

Thank you, Bill, and good afternoon. I'll first review our Q3 results and then discuss our outlook for Q4 of fiscal year twenty twenty five. In Q3, we reported revenue of $135,000,000 up 87% sequentially and up 154% year over year and well above the high end of our guidance range. Our product business generated $132,000,000 of revenue in Q3, up 91% sequentially and up 155% year over year. Notably, our AEC product line grew strong triple digits sequentially to achieve new record revenue levels. Our product business, excluding product engineering services, generated another record at $129,400,000 of 101% higher than our previous product record in the prior quarter. Our IP business generated $3,000,000 of revenue in Q3, As demonstrated by our product revenue ramp, we are seeing substantial opportunities with customer programs on the product side which we are prioritizing. This prioritization does not impact our long term model for company wide non GAAP gross margin of 63% to 65% Our largest end customer was 86% of revenue in Q3 As a reminder, our customer mix will vary from quarter to quarter, and we continue to make progress in diversifying our customer base. As we shared last quarter, we had seven And going forward, we expect that three to four customers, which be greater than 10% of revenue in the coming quarters and fiscal year.

As additional hyperscalers ramp to more significant volumes Bill described. Our team delivered Q3 non GAAP gross margin of 63.8%, above the high end of our guidance range and up 17 basis points sequentially. Our product non GAAP gross margin was 63% in the quarter up 85 basis points sequentially and up 152 basis points year over year Our products non GAAP gross margin excluding product engineering services, was 62.4% in the quarter. Up two twenty nine basis points sequentially and up nine thirty four basis points year over year. Primarily due to increasing scale Total non GAAP operating expenses in the third quarter were $43,800,000 within our guidance range and up 16% sequentially due primarily to higher headcount. Our non GAAP operating income was $42,400,000 in Q3, compared to non GAAP operating income of $8,300,000 in Q2. Up demonstrably due to the leverage attained by achieving 87% sequential top line growth Our non GAAP operating margin was 31.4% in the compared to a non GAAP operating margin of 11.5% in the prior quarter a sequential increase of nearly 20 percentage points. Our non GAAP net income was $45,400,000 in Q3 compared to non GAAP net income of $12,300,000 in Q2.

And our non GAAP net margin was 33.6% in the quarter above the high end of our long term net margin model of 28% to 33%. Cash flow from operations in the third quarter $4,200,000 down sequentially due to working capital increases driven by the significant sequential product ramp. CapEx was $4,600,000 in the quarter driven largely by purchases of production equipment. And free cash flow was negative $400,000 an improvement of $11,300,000 from the second quarter. We ended the quarter with cash and equivalents of $379,200,000 a decrease of $3,700,000 from the second quarter.

We remain well capitalized to continue investing in our growth opportunities maintaining a substantial cash buffer. [indiscernible] Our Q3 ending inventory was $53,200,000 up $16,900,000 sequentially. Now turning to our guidance. We currently expect revenue in Q4 of fiscal twenty twenty five to be between $155,000,000 and $165,000,000 up 19% sequentially at the midpoint.

We expect Q4 non GAAP gross margin to be within a range of 63% to 65%. [indiscernible] We expect Q4 non GAAP operating expenses to be between $50,000,000 and $52,000,000 We expect Q4 diluted weighted average share count to be approximately 188,000,000 shares. As we approach the start of fiscal year twenty six, we expect revenue growth from fiscal year twenty twenty five to fiscal year twenty twenty six. To be greater than 50%.

And we expect non GAAP operating expenses to grow at half the rate of revenue. From fiscal year twenty twenty five fiscal year twenty twenty six. As a result, we look forward to continue driving operating leverage while expanding our net margin throughout the year. And with that, I will open it up for questions.

And your first question comes from the line of Vivek Arya with Bank of America Securities. Your line is open. Thanks for taking my question. Bill, for the first one, If you could give us a sense of how large was the largest customer? I think Dan mentioned some number, I didn't catch it. But I guess, I have two parts to the question. One is, where are you in the adoption of AEC at that customer? And if you exclude that customer, how are you looking at the growth of your business? Among other customers? Because depending on that customer concentration, right, we get a slightly different trend outside of that large customer.

Yes. So does that so what I mentioned in the prepared remarks is our largest customer was 86% of revenue. So let me just give you some historical context there. As we entered our fiscal twenty twenty five, we described a second half inflection point really to be driven by our largest hyperscaler, which is exactly what we saw play out with that 87% sequential growth into Q3. So as far as customer concentration goes, Q3 was a bit of an outlier for us. Especially considering the customer diversity that we had in Q2, and what we expect in the coming quarters, Again, as I mentioned in the prepared remarks, we expect 3% to 4%, 10% plus end customers in the coming quarters and fiscal year. Which is simply based on the forecast that we received from our customers. So just broadly speaking, there's clearly a broad based need for our innovative solutions as lane speeds are increasing at these hyperscale deployments. And our AEC opportunities in are expanding in the back end network from originally the scale out network to now the scale up network as well, which represents significant expansion of our TAM So I'll let Bill add some additional color to those comments on customer diversification.

Yes, thanks. First thing I would say is that my takeaways are that this is really great confirmation of the AEC product category and market. And the overall TAM.

I think that it's also a great confirmation of Kritos leadership in the space And so as we've talked about on past calls, See, each one of the hyperscalers capable of driving a very sizable TAM. Take our engagements from first deployment to a more populated accretive AMC deployment longer term. So I think if we look at our customer base, it's broadening. You mentioned that we've taken now three customers, three hyperscalers to volume production and we've got two additional hyperscalers in qualification and expecting ramp in our fiscal twenty twenty six. So we expect to see really solid customer diversity long term within our ADC business, but also I think that that I'll add to that, that the expanding opportunity that we see for optical as well as PCIe will drive really further diversity across products and customers. We look towards the future.

Got it. So my follow-up Bill, if let's say, mode of the market turns towards inference, rather than training, right, whether Welcome. Sensors, but incidents take off the compute build out What does that do to these AI clusters and what does that do to connectivity requirements and the AEC? Potential? Is that good, bad neutral for AECs? Thank you. Yes.

Yes.

I think as the inference market really takes off, I think If anything, we would see a larger opportunity. From an AEC standpoint, And that's just that's just based on on sheer number of deployments related to entrants. So I think that as we look at the customer activity going forward, there is a lot more focus now on inference and we're seeing really an uptick in the amount of activity.

And your next question comes from the line of Tom O'Malley with Barclays. Your line is open.

Hey, guys. Thanks for taking my question. I appreciate it. So I think a lot of the tone of the call here has been about like a broadening of the portfolio. You're talking about PCIe retimers, you're talking about PCIe cables, To push you maybe one step further, if you're looking in the PCIe realm and area of a lot of value is in the switching ecosystem as well. Do you guys have plans to move into the switching ecosystem? Is that like a natural progression from kind of the road you're traveling down already? And maybe talk about the challenges of doing retimers versus moving to switching and the timeline that it would take to transition from product in the market today to maybe some new products on the switching side? Sure. Appreciate the question. So we've made a lot of progress with PCIe over the past quarters. I think the comment that I made earlier was regarding accretive passing PCI special interest group, the PCI SIG most recently in February.

That's great confirmation of the technology, great confirmation of interoperability for Gen five. So as we move towards Gen six, I think we're increasingly bullish on our ability to compete in market. We see that for us, first step is really going after retimer market as well as the PCI, the AEC market as scale up architectures move to rack scale. I think it's a really natural progression to think about moving to PCIe switching. There's different challenges associated with that, but it is really not such a huge step. To transition from retimers to the type of switches that are being built and talk about being deployed in the future. So I look at that as a possible spot for us to grow into over time. Right now, we're very much focused on getting things right related to the retimer as well as the AECs that were that we're building.

I appreciate you answering despite you just announcing the prior product before, so I appreciate it. But just in terms of the market outlook, you're talking about the scale up network is and also the scale out network, you have PCIe cables, potentially more aligned with the scale up network. You've got some of the AEC product, particularly looking more at the scale out network. Can you talk about the opportunity size? Because I think we're going to see in a couple of weeks here like maybe a redefinition of what scale up and scale out is? Is it one rack? Is it multiple racks? Maybe your thoughts on on scale up versus scale out? Where is the opportunity set live for you? Are you indifferent? Just want to kind of to get your temperature on that transition.

Sure.

So we've talked about we've talked about the opportunity in the past. So scale out, we really see being an Ethernet protocol And so we see that continuing on the path that we're that we've been on as the market moves to 100 gig per lane and as market will subsequently move to 200 gig per lane solutions.

So scale up is really probably more interesting in the sense of talking about where we are today and where we're going And we do see by by the innovations [indiscernible] shown by NVIDIA and what we expect coming up at GTC, that there's a lot of activity. It's really a dynamic space from their perspective. Now a little bit different from the market broadly.

But what we see, within the customer base that we're talking to is that this scale up network that has really been a network that exists within an AI appliance really going rack scale. And then of course, there's an opportunity for it to go row scale long term. We've talked about the volumes being [indiscernible] larger than the scale out network opportunity. So we really see this as a big new TAM. As the market moves from Gen five to Gen six, we're talking about moving 32 gig NRZ is really very old technology and it is really not competitive if you compare it to the market leader. From a bandwidth standpoint per lane. Gen six represents the move to 64 gig PAM4 modulation So that's a step up in complexity and difficulty from the existing suppliers in the market moving towards that for many years. So we feel we're going to bring the same compelling advantages that we've brought to Ethernet. The interesting part of the future is that when you look at that scale of network and the opportunity for improving performance with an increase in bandwidth We've talked about the Ultra Accelerator Linked UAL conversation in the market, taking the scale up network from 64 gig all the way to two twenty four gig.

And so we're going to be in a unique position to take advantage of that transition when that happens with the other market leaders that are outside of the NVIDIA ecosystem.

So we're pretty excited absolutely about about both opportunities, but I would say the scale up opportunity is probably larger if we look out in the two to three year time frame. And your next question comes from the line of Karl Ackerman with BNP Paribas.

Yes. Thank you, gentlemen. Two questions, if I may.

The first one, I guess, what's driving the uptick in gross margins in the April? Is it IT licensing revenue related or is there some other thing that we should be thinking about Yes.

So to sum it up, we're really seeing a huge benefit from scale, which we talked about or we've foreseen it for quite some time, As you know, our overall gross margin in Q3 was almost 64% up a little bit from last quarter if you dig into the numbers, the thing that's more indicative of what's happening underneath is, if you look at our product gross margin excluding product engineering services, our gross margin was 62.4%. So that was up over 200 basis points sequentially up over 900 basis points year over year. Principally driven by scale. It's really as simple as that. The other lesser factor that I'll mention We have a warrant with Amazon The contra revenue associated with that kind of rolled off during the quarter as we attained that as we fulfill the $200,000,000 of total gross revenue shipments to them in the quarter. So that was also accretive to margin. Which will continue to be accretive next quarter as well.

It. Thanks for that. Just a follow-up on your prepared comments, you spoke about how you may have three or four customers that would be 10% plus in the three today are AEC related. Is the fourth one also AEC related or would that suggest perhaps broadening into other aspects and product portfolios of your Yes. Of the ones we've referred to in those comments, they are AEC related. That by far is the largest driver in absolute dollars of our revenue growth. Having said that, if I just look simply year over year from fiscal twenty twenty four to 2025 for instance, we've had our main three product categories between AEC, our retimer business, our Ethernet retimer business and optical, they're all experiencing sequential growth, but AEC just has it's growing from a bigger base into an even bigger base as we into the future.

Thank you.

And your next question comes from the line of Quinn Bolton with Needham and Company. Your line is open.

If I've got my numbers right, revenue outside of your largest customer went from about $48,000,000 in October to about $19,000,000 in January. You talked about kind of revenue diversifying again over the next few quarters and into fiscal twenty twenty six with three to four customers that could be over 10%. Can you just give us some sense what do you expect your largest customer to do? Does it stay 80% plus of revenue? Are you anticipating that that pulls back and that you see ramps at some of the other customers in the April quarter? Just any sense of revenue re diversifying would be helpful. Yes. We've talked in the past about actually Amazon is a great example. So our largest hyperscaler, if you look at their Q1 revenue, was $30,000,000 then it went down a bit in Q2. Now it obviously surged in our Q3. Our internal expectation is they'll probably be in the same zip code as to where they were in absolute dollar terms. This in Q3 or where they were in Q3. So So if you look at that being what it is and knowing that we guided 19% sequentially up quarter over quarter into Q4 at the midpoint, That would imply that maybe they're two thirds of our revenue in Q4 would be what that math would imply. [indiscernible] Got it.

And then I guess just looking at that customer obviously, it's a significant percentage of revenue in the January and April quarters. I think in the past, you've talked about having kind of twelve month rolling forecast from some of your larger hyperscale customers. Just generally speaking, can you give us any sense what gives you the confidence that the surge you've seen here in January and April may not just be somewhat related to an inventory build ahead of server deployments that at some point in fiscal twenty twenty six you go into kind of a depletion mode or just a deployment mode where you could see I guess for lack of a better term an AirPOC at that customer at some point [indiscernible] to hold hands would be appreciated.

Yes, sure. So I guess when we talk about visibility, I think it's very normal at this point to get twelve month forecasts from customers. I think this is one of the the positives that came out of COVID is that Really a top priority for our customers is to secure their supply across all materials. Including the things that Kratos supplies.

So when there is a sizable ramp, it's really imperative to work together with our customers as well as our supply chain to ensure that we can deliver flawlessly. And so I would say across the board from a customer perspective, we're getting good visibility. In the case where there is a new ramp this is where things become more high definition as you get closer to the actual ramp. There's some things that can happen where we've seen push offs to a schedule. We've seen pull ins. We've seen increases as we as we saw this quarter in the level of deployments as customers ramp. But generally, as we look towards The future We see several customers that are at different stages of deployments.

And so if we look at the numbers and compare, say, Q2 to Q3, you saw a pretty big shift, pretty good move. And we indicated that, say for our the first customer that we ramped with over the last several years, we talked about a period of time where supply and consumption and those curves will meet That happened in Q3. We also have talked about that customer returning to historic levels, which we've expect to be over $100,000,000 run rate say, as we look at fiscal 2026, We've got a new customer that we're ramping and the size of allocations that they're getting from a GPU standpoint suggest that They're going to be a very large customer in our fiscal twenty twenty six as well. I mentioned the two new customers these would be customers that are a little less a little less definition on the exact timing and size of the ramp, but both are promising in the sense that we're seeing the level of deployments they're talking about being sizable. So as you look at the next couple of quarters, I'm sure we're going to have a decreasing level of concentration but it's still going to be something that you would say that's a large amount of concentration, but it's going to be balanced out over the second half of fiscal twenty twenty six.

Understood. I'd rather see you guys have the Amazon revenue than not. So congratulations on the nice results.

These are good issues.

And your next question comes from the line of Tore Zvanberg with Stifel. Line is open.

Yes. Thank you and congrats on the record results.

Bill, in your prepared remarks, you talked about several layers or multi tiered innovation. And the one thing that that you talk about is the system level approach That's obviously very obvious on the AEC part of your business. As you went venture into some of these new segments and especially on PCIe, will you take more of a system business model approach there as well or should we assume that's going to be primarily selling chips?

Well, I think the fact that GTC in a few weeks, we're going to be demonstrating a full rack with multiple ATCs that are that are active, that are live. We're going to be demonstrating our AEC capability. And it may actually be it might even be the first demo of its kind in the AEC space. So yes, absolutely.

From day one, we've been planning on pursuing the same path with PCIe AECs as we have with [indiscernible] And No change there. We're even planning as the scale up architecture could potentially go row scale. We're also investing in the optical space as well.

That's very interesting. And then as my follow-up, LRO, haven't heard a whole lot about it.

Since you obviously introduced it. So any update you can give us there, if you do have some stuff that you're going to talk about at OFC, I I get it, but any update we can get on LRO would be really helpful.

Right.

We continue to offer customers both full DSP solutions and LRO solutions. We're agnostic to their choice. We see customers continuing to purchase traditional full DSP solutions where they can fit within the power ceiling.

In the case we do have cases where power is a deciding factor. And I think I think with all of the customers we're talking to, LRO really becomes that de facto solution compared to say LPO. I think we've all seen that the discussion on LPO has decreased pretty substantially. The conversation with LRO, I think, it's a real opportunity to get the kind of signal integrity bit error rates and interoperability and being able to save that kind of power. Those sub-ten watts for for an 800 gig port.

But it's also Great. Thank you. To the side.

Understood.

And your next question comes from the line of Vijay Rakesh with Mizuho. Your line is open.

Yes. Hey, Bill and then great quarter. Congratulations. Just on the AEC side, know you mentioned to you customers, two new hyperscalers that you'll be working with. On invisibility, do you see them ramping to as you look out twelve, eighteen months, do you see that ramping pretty nicely to significant volumes? How do you see that?

How do you see that ramp and that follow?

Yes, sure. The customer facing team at Credo is hard at work and that that includes our applications engineering group. And I think it's a function of exactly when we intercept on the ramp versus if we do. Both of these customers, there are There are design engagements that are absolutely identified and committed to. So I think it's a function of of exactly when the ramp starts and that's one I make the comment that fiscal twenty twenty six is what we expect I think if we wanted to be somewhat I guess on the conservative side, we'd say second half fiscal 'twenty six. But we're getting to the point where Our confidence is quite high with the additional two customers that are in qualification.

Got it. And then on the PCA scale up side, very great to see you guys ramp so fast. Into so quickly after you introduced the cables. You mentioned one server OEM How does that pipeline look? And do you have to qualify the server ODM or the GPU ASIC guy? [indiscernible] So understand the timing of our ramp for PCIe IG will still take some time. We're really targeting the Gen six market, which is [indiscernible] really a calendar year 2025 design cycle. And a calendar 2026 production ramp cycle. And so it's It's really somewhat out in time even though we're demonstrating we're passing interoperability tests, we're absolutely ready to compete. It's going to be some time. So another question would be, are there going to be Gen five opportunities that we're able to pursue And of course, as our solution is brought to market, open for business and we'll bring advantages to Gen five and easy upgrade to Gen six And And so what we're seeing from a customer perspective is that there is independence making [indiscernible] [indiscernible] there is a need for a more broad supply chain than exists for Gen five.

Got it. Thank you.

And your next question comes from the line of Sean O'Loughlin with TD Cowen. Your line is open.

Hey, guys. Thanks a lot for taking the question and congrats on the nice set of results and guide. I'd like to the trend a little bit and ask about front end networking. The original obviously, the original AEC deployment was on a front end solution. And I wonder whether or how you and your customers are thinking about that front end opportunity that still potentially exists? Is it just that traditional front end networking is not where the innovation is happening in the space and so customers are focused on the back end. Or is it a matter of time or some hybrid of the both And then to squeeze an extra question on top of that, is there really a difference in the product that you ship to front end or go to market for the front end versus back end? Thanks.

So from a front end network perspective, it applies to general compute and it applies to AI clusters. So the front end connections are are pretty similar between the two. Now with general compute, that's the only connection to the network. The front end network. And if we think about the traditional general compute space. It's really a question about really the X86 roadmap. And that has typically moved at a slower pace what's happening within AI clusters. And so it's very common still today to see 25 gig per lane front end network connections.

In fact, the one that we've shipped in high volume is a four lanes of 25 gig. So it's 100 gig port connecting to that front end network. The unique feature that we brought was that Our lead customer implemented a dual tour design to achieve levels of availability the SLAs of five nine. So it was a way for them to to really achieve a goal that had been in place for five to ten years even.

So that unique functionality is what turned on that business for the front end network connection at 100 gig ports. As we look at that general computer, there's an absolute move to 50 gig per lane and 100 gig per lane. But in contrast, if we look at AI, just the nature of the application is is causing customers to move to the fastest connection, so 100 gig per lane today, and really putting pressure on delivering 200 gig per lane solutions in the future. And within AI clusters, those front end connections exist and at best case, albeit at the same Line rates in the back end, but probably most likely there'll be a lower line rates. And so our largest customer is using our Credo Credo solutions for both back end and front end connections. Great. Super helpful. And then just as a quick follow-up, you mentioned the three hyperscalers that are achieving volume ship obviously that we all know about and then indeed third emerging hyperscale. I just want to clarify that that is not the third hyperscaler that you talked about today, but is in fact a different customer. Yes. So as it relates to this this concept of emerging hyperscovirus, it really boils down to the amount of spend And if you look at the allocation that is being given to this kind of the lead emerging hyperscaler.

We really are classifying them now as as a hyperscaler. So we're not drawing the line between the two.

And your next question comes from the line of Christopher Rolland with Susquehanna. Your line is open.

Hey, thanks for that.

Thanks for the question.

I guess, yes, as it concerns your largest customer here and maybe any of these large ramps going forward. I think a lot of these things are project based. We have very large deployments sometimes 200,000 GPUs and just a couple of months.

So as we think about these kind of large lumpy deployments, should we be expecting these customers for example, in this case, a pretty strong handoff in the next few quarters to other customers, like Bill, maybe if you could talk to how project based these revenue ramps are? That'd be great.

I think that I guess when I think about your question and we talk about project based, of course, all of these programs that we're involved with are projects that have been planned for for quite some time. Going through the development internally [indiscernible] it's a long process to architect and ultimately bring all of the gear up to a point where they're ready for qualification. Qualification takes a significant amount of time and then planning the ramp. Takes time as well. And so we're at the point where we've kind of gotten through that process with with or nearly through that process with many of the customers. I don't really see a handoff so much as I see a diversification in the shipments that we'll be seeing throughout fiscal twenty twenty six. This is just a function of where we are with each customer. [indiscernible] are done with a project. There will be a transition from [indiscernible] say 50 gig per lane technology to 100 gig per lane technology, And that as we've talked about in the past is we are absolutely queued up and ready to ramp We're the short pole in the tent, so to speak. That all of that technology, that need to be developed internally Accredo is done and we're ready to ramp as soon as our customers are And so I don't see us getting to the point where say that, hey, that project is over and now there's some sort of near pocket.

The key is making sure that that we're first, making sure that we're first to deliver next generation samples. We're first to get qualified and we're first to ramp production.

Which really is our strength at this point given the fact that we're taking accountability for the entire system [indiscernible] Great. Thank you. And maybe as a second question, analog copper cable solutions, seem to have missed perhaps the B300 cycle. Is that an opportunity for you guys? Do you think you're gaining share and design wins, just as that technology did not ramp does that increase your TAM and your ramp expectation?

Yes, I think that TAM really existed within the NVIDIA ecosystem.

The TAM that we're looking at, we've not seen really any customer think seriously about about using amplified solutions. So this referring to the the analog amplified solution. We haven't really been competing head to head within any of those solutions really. At any other customer.

Really see it within the NVIDIA ecosystem.

And what role do we play within that ecosystem That is one that we're pretty conservative in talking about. When there is an opportunity for us to add value we're absolutely ready, but it's not something that's built into any kind of forecast that we've got. Thanks so much, Bill.

And your next question comes from the line of Rich Well, hi, thanks Bill and Dan.

Let's hear. Maybe I'll just ask a simple question here that I think you get most quarters here, Bill, but just want to get your latest thoughts on competition in the AC space. Obviously, you got a very high share. You're doing exceptionally well here. It would certainly make sense for some of your large customers customers to attempt to do dual sourcing. Have you seen any evidence of that either attempts or see that coming here anytime soon? Just kind of your latest thoughts on that, please.

Yes. I think the fact that the AEC product category is now really de facto for in rec [indiscernible] Naturally there is a desire for multiple sources in the market But the way that we think about competition, it's really our objective is always to best possible partner to our customers. That means delivering on the innovations [indiscernible] delivering on the most reliable solutions [indiscernible] passing qualification first and getting our customers into production [indiscernible] And so that's our focus with our customers is really on creating a relationship with them where they're counting on us.

To help them ramp. And having the second source being something that's kind of a trailing edge effort So that's really the way that we think about competition. Now I will mention again that being accountable for the system solution allows us to deliver a faster, more predictable way. [indiscernible] every level from the Certi's to the ICs and ultimately to the to the cable system. It gives us some big advantage from our perspective. That's what we're seeing across the board with customers. With that said, we have a lot of respect for competition. We don't see any significant changes on the competitive front. Okay, great. Thanks for that update, Bill. My second question really just looking at the large AEC opportunities here and clearly the largest customer, this really drive a lot of content here, both as you said, both in the back and the front end. I think maybe just thinking about from a back end perspective, are you seeing any other hyper hyperscalers getting close to adopting and even qualifying your ACs in the back end and kind of thought process on timing here? I'm assuming it's somewhere in fiscal twenty six or not after, but maybe just kind of your latest spots there as well.

Thank you.

With our new customers, we see it playing out the same way that it's played out.

With our existing customers. And it's always starting with the first Starting with a a first project or a first SKU that we're working on, starting in a a given rack and then really expanding from there.

One of the customers that's new, we started with a switch rack, so a disaggregated chassis. [indiscernible] low hurdle 50 gig per lane type of