Image source: The Motley Fool.

DATE

  • Monday, June 2, 2025, at 5 p.m. EDT

CALL PARTICIPANTS

  • Chief Executive Officer — William Brennan
  • Chief Financial Officer — Daniel Fleming
  • Vice President, Investor Relations — Daniel O'Neil

Need a quote from one of our analysts? Email [email protected]

TAKEAWAYS

  • Revenue: $170 million, up 26% sequentially and 180% year over year.
  • Non-GAAP Gross Margin: 67.4% for Q4, 65% for the full fiscal year.
  • Product Revenue: $165.9 million in Q4, up 26% sequentially and up 276% year over year.
  • Non-GAAP Operating Margin: 36.8% in the quarter, a sequential increase of 538 basis points.
  • Non-GAAP Net Income: $65.3 million in Q4, with a non-GAAP net margin of 38.4%.
  • Cash Flow from Operations: $57.8 million in Q4, up $53.6 million sequentially.
  • Free Cash Flow: $54.2 million in Q4, an improvement of $54.6 million from Q3.
  • Cash and Equivalents: $431.3 million at quarter end, up $52.1 million from Q3.
  • Ending Inventory: $90 million, a sequential increase of $36.8 million.
  • Largest Customer Concentration: The largest customer contributed 61% of revenue, while two additional customers contributed 12% and 11% of revenue, respectively.
  • Guidance — Q1 Revenue: Projected revenue between $185 million and $195 million, up 12% sequentially at the midpoint.
  • Guidance — Q1 Gross Margin: 64%-66% non-GAAP gross margin expected; non-GAAP operating expenses projected at $54 million to $56 million.
  • Fiscal 2026 Full-Year Revenue Outlook: Expected to exceed $800 million, representing year-over-year growth in excess of 85%.
  • Customer Diversification: Two new hyperscaler customers expected to ramp in the second half of FY2026, along with three current 10%-plus customers.
  • Product Mix Progression: The majority of shipments currently use 50 gig per lane AECs; with a transition toward 100 gig per lane anticipated through the end of FY2026, with some customers already at full 100 gig shipments.
  • Optical DSP Market: Secured a significant 800 gig transceiver DSP win, with initial deployments at a US hyperscaler expected in FY2026; demonstrated a sub-10-watt, 800 gig LRO DSP module.
  • Retimer Segment: PCIe Gen 6 Retimer “Toucan” achieved full compliance at BCIC workshop; customer production revenue expected in calendar 2026.
  • PILOT Software Platform: Piloted for enhanced development, debugging, and advanced telemetry across hardware product lines; integrates diagnostic and analytic capabilities for reliability and uptime.
  • CapEx Expectation: Projected to double in the coming fiscal year, primarily from production mask set tape-outs and three-nanometer chip development.
  • Supply Chain Agility: Management claims rapid geographic manufacturing diversification can be executed within several months if tariffs or macro risks escalate.
  • IP Licensing Revenue: Now below 5% of total revenue and not broken out in future reports due to rapid product segment acceleration.

SUMMARY

Credo Technology Group (CRDO 1.83%) delivered record quarterly and full-year results, highlighted by accelerated growth in both revenue and profitability as customer adoption and product demand increased across hyperscaler markets. Management outlined a strategy focused on deepening product innovation in both copper and optical connectivity, with systems solutions and PILOT software supporting scale-up and scale-out AI infrastructure transitions. Upcoming fiscal periods are set to benefit from expanded customer engagement, including the addition of two hyperscalers and a continued shift in product mix toward higher-speed optical and AEC offerings.

  • CFO Daniel Fleming said, "the largest customer was 61% of revenue," with two others above the 10% threshold.
  • CEO William Brennan stated the company expects the transition to 100 gig per lane AECs “will really start to happen in a bigger way” toward the end of FY2026.
  • PCIe retimer revenue and optical DSP product lines are expected to enter new production ramps in calendar 2026, positioning these segments for future material contribution.
  • Brennan cited accelerated "Customer momentum for our PCIe retimers" indicating potential for near-term design wins and future production revenues.
  • Fleming indicated that gross margin expansion "won't always be linear." and product mix will remain a key driver of margin variance across quarters.
  • Optical innovations using five- and three-nanometer technology have attracted significant hyperscaler interest, especially in ultra-low-power applications.

INDUSTRY GLOSSARY

  • AEC (Active Electrical Cable): High-speed copper cable with integrated signal conditioning electronics for data center connectivity between switches and servers.
  • DSP (Digital Signal Processor): An integrated circuit used in optical modules to manage signal processing, equalization, and error correction at high data rates.
  • LRO (Linear Receive Optic): A variant of optical DSP designed to reduce power consumption while maintaining signal integrity.
  • PILOT: Predictive Integrity, Link Optimization, Telemetry; Credo Technology Group's software platform for telemetry, debugging, and system-level monitoring.
  • SERDES (Serializer/Deserializer): Electronic circuits enabling high-speed serial communication by converting parallel data to serial form and vice versa.
  • Retimer: An integrated circuit that cleans and reshapes data signals, extending reach and improving reliability over high-speed data links.

Full Conference Call Transcript

Daniel O'Neil: Thank you for joining our earnings call for the fourth quarter of fiscal 2025. Today, I'm joined by Bill Brennan, Credo Technology Group's Chief Executive Officer, and Daniel 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 this 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. 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 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 turn the call over to our CEO, Bill Brennan.

William Brennan: Thanks, Daniel. Thank you for joining our earnings call for the fourth quarter of fiscal 2025. I'll begin with a review of our results, and then I'll provide highlights for our outlook into fiscal 2026. Daniel Fleming, our CFO, will follow with a detailed discussion of our Q4 and fiscal year 2025 results, and then provide our outlook for the first quarter. In the fourth quarter, we delivered revenue of $170 million, a 26% sequential increase and up 180% year over year. Our non-GAAP gross margin was 67.4%. For fiscal 2025, Credo Technology Group Holding Ltd achieved revenue of $437 million, for growth of 126% year over year. Our non-GAAP gross margin for fiscal 2025 was 65%.

I'm proud of Credo Technology Group Holding Ltd's achievements in fiscal 2025. Record-breaking revenue and profitability were fueled by surging demand for our innovative, reliable, and energy-efficient high-performance connectivity solutions. Our long-term commitment to customer-driven innovation paid off significantly in fiscal 2025. Quarterly revenue nearly tripled from Q1 to Q4, validating our foresight and our ability to capitalize on a predicted inflection point. Our agile approach strengthened partnerships with hyperscalers amid a rapidly evolving AI landscape. As a pure-play high-speed connectivity leader, Credo Technology Group Holding Ltd delivers a growing portfolio of differentiated solutions for global data center operators, currently supporting port speeds from 100 gigabits per second to 1.6 terabits per second.

Our innovation spans three tiers: advanced service technology, cutting-edge integrated circuit design, and comprehensive system-level solutions. These innovations are seamlessly integrated with our PILOT software platform. PILOT is an acronym for Predictive Integrity, Link Optimization, Telemetry. PILOT offers an industry-leading user interface, robust debugging tools, and advanced telemetry tailored for large-scale deployments. This holistic innovation strategy enables Credo Technology Group Holding Ltd to deliver copper and optical connectivity solutions that surpass industry standards, providing unmatched functionality, reliability, and energy efficiency. While achieving a remarkable revenue ramp in fiscal 2025, we continue to build the foundation for sustained growth.

Looking ahead, we anticipate increasing customer diversification across copper and optical connectivity for Ethernet, PCIe, UA link, and other emerging applications in both scale-out and scale-up AI networks. Following this significant revenue inflection in fiscal 2025, we're energized by the expanding opportunities and total addressable market that lie ahead. I'll now review our business in more detail. Regarding our active electrical cable product line in Q4, our AEC revenue maintained a steep growth trajectory. As anticipated, our customer base diversified, with three hyperscalers each contributing over 10% of our revenue, strengthening our market position.

When we pioneered the AEC market years ago, we recognized the compelling advantages over both traditional direct-attached cables or DACs and laser-based optical solutions, especially at data rates of 50 gig per lane or higher. AECs have extended the viability of copper connectivity, becoming the de facto standard for inter-rack applications. Compared to DACs, AECs deliver superior signal integrity, advanced features, and a more versatile form factor. Now, AECs are gaining traction as a robust rack-to-rack solution for distances up to seven meters, offering over 100 times greater reliability than laser-based optical modules, virtually eliminating link flaps and significantly improving energy efficiency, which were both key enablers for best-in-class AI deployments.

Credo Technology Group Holding Ltd's system-level approach has driven substantial competitive advantages by owning the entire solution stack, including SERDES IP, retimer ICs, system-level design, qualification, and production. Our approach positions Credo Technology Group Holding Ltd for significant innovation and time-to-market advantages. As data center architectures evolve rapidly, we foresee a continued shift towards curated system-level solutions. We're enthusiastic about the ongoing expansion of the AEC market. For instance, our recently demonstrated PCIe Gen 6 AECs at GTC promise the same compelling benefits for AI scale networks as deployments transition to rack-scale architectures. Our growing traction with hyperscalers is evident, with strong customer forecasts and new design wins and qualifications. We're confident in sustained AEC revenue growth.

I'll now discuss our progress in the optical market. Fiscal 2025 was a standout year for Credo Technology Group Holding Ltd's optical business. We closed the year with strong momentum, expanding customer diversity across lane rates, port speeds, and applications. We achieved our revenue growth targets, delivering 50 gig and 100 gig per lane optical DSPs to a broad base of optical module customers. In Q4, we secured a significant DSP win for an 800 gig transceiver, with initial deployments expected at a US hyperscaler in fiscal 2026. At the OSC conference in San Francisco last month, Credo Technology Group Holding Ltd's latest optical innovations drew widespread attention from industry leaders.

We unveiled our ultra-low-power 100 gig per lane optical DSPs built on five-nanometer technology. This family, including full DSP and linear receive optic or LRO variants, sets new industry benchmarks for power efficiency. In collaboration with an optical module partner, Credo Technology Group Holding Ltd demonstrated an industry-first 800-gig optical module with total power consumption of roughly nine watts. Powered by our LARC LRO DSP and single-mode optics, we achieved error rates comparable to full DSP solutions, earning significant interest from hyperscalers prioritizing power efficiency for AI deployments. We also showcased our three-nanometer, 200 gig per lane optical DSP supporting port speeds up to 1.6 terabits per second.

With leading signal integrity and power efficiency, this solution positions Credo Technology Group Holding Ltd to drive the industry's transition to 200-gig lane speeds in the coming years. Looking ahead, we see a dynamic and growing market for optical connectivity, where reliability and energy efficiency are increasingly critical. Credo Technology Group Holding Ltd is poised to deliver system-level innovations that provide substantial advantages to our partners. Credo Technology Group Holding Ltd's optical business demonstrated robust execution in fiscal 2025. With our growing differentiation and an expanding system-level market opportunity, we anticipate accelerated revenue growth in the years ahead. Turning to our retimer business, in Q4 and fiscal 2025, our retimer business delivered robust results, reinforcing our leadership.

Retimer revenue growth was fueled by our 50 gig and 100 gig per lane Ethernet solutions, offering advanced features like MACsec encryption, earboxing, and software-enabled functionality tailored to diverse customer requirements. Our customer base now includes leading AI server vendors alongside traditional switching clients, reflecting the growing adoption of our solutions in AI-driven architectures. For fiscal 2026, we anticipate strong growth driven by the continued shift to 100 gig per lane solutions and increasing demand for system-level expertise and software capabilities to address hyperscalers' complex AI-optimized architectures. Our recently launched PCIe Gen 6 Retimer Fan, led by the Toucan Retimer, achieved full compliance at the BCIC workshop, showcasing superior performance and interoperability.

Demonstrations at GTC, OSC, and most recently at Computex, with two leading ODM partners, further validated our capabilities. Customer momentum for our PCIe retimers is accelerating, positioning Credo Technology Group Holding Ltd to secure design wins in calendar 2025, with production revenue expected in calendar 2026. Our competitive edge lies in leveraging core SERDES technology, a customer-centric approach, and system-level innovation to deliver differentiated latency, reach, and power efficiency. Additionally, our PILOT development telemetry software platform drives faster time to market, improved yields, and enhanced system monitoring, providing clear advantages based on market feedback.

In summary, fiscal 2025 marked a pivotal year for Credo Technology Group Holding Ltd, achieving record revenue, profit, and market adoption of our innovative connectivity solutions, hitting the inflection point we anticipated. Our operational and customer-facing teams executed flawlessly to deliver these results. Credo Technology Group Holding Ltd pioneered a market that transformed how hyperscalers connect switches and servers. We continue to innovate with recent product announcements reflecting customer-driven solutions. These advancements position us to capture significant opportunities in the global AI infrastructure investment wave, fueling our next phase of growth. Reflecting on our journey, Credo Technology Group Holding Ltd has navigated successes and challenges with relentless focus on delivering world-class products.

This resilience defined our DNA and is our greatest strength.

Daniel O'Neil: Thank you, team Credo Technology Group Holding Ltd. for your dedication.

William Brennan: I'm excited for what lies ahead. We see growing demand for high-speed connectivity solutions across our hyperscaler customers to power advanced AI services, a trend we anticipate continuing for the foreseeable future. Customers require reliable, power-efficient, high-performance, and tailored solutions to support their diverse architectures. Credo Technology Group Holding Ltd meets this demand with a differentiated portfolio of copper and optical connectivity solutions customized for customers, built on our core service IP, peer-to-peer innovation strategy, and system-level approach. With that, Daniel Fleming, our CFO, will now provide additional details and will then take questions.

Daniel Fleming: Thank you, William, and good afternoon. I will first provide a financial summary of our fiscal year 2025, then review our Q4 results, and finally discuss our outlook for Q1 and provide some color on our expectations for fiscal year 2026. Revenue for fiscal year 2025 was a record at $436.8 million, up 126% year over year, driven by product revenue that grew by 157%. Gross margin for the year was 65%, up 257 basis points year over year. Our operating margin improved by 2,500 basis points as we continue to generate considerable top-line leverage, driven by growth in our products while growing operating expenses considerably slower than revenue.

That step-up in profitability flowed through to the bottom line as we reported earnings per share of $0.70 for the year, a $0.62 improvement over the prior year. In fiscal year 2025, Credo Technology Group Holding Ltd not only delivered the dramatic product growth which we had forecast, but we also demonstrated the earnings power in our business model. Moving on to the fourth quarter, in Q4, we reported revenue of $170 million, up 26% sequentially and up 180% year over year, and well above the high end of our guidance range. Our product business generated $165.9 million of revenue in Q4, up 26% sequentially and up 276% year over year.

Notably, our AEC product line again grew healthy double digits sequentially to achieve new record revenue levels once again. Our top three end customers were each greater than 10% of revenue in Q4. As a reminder, customer mix will vary from quarter to quarter, and we continue to make progress in diversifying our customer base. We continue to expect that three to four customers will be greater than 10% of revenue in the coming quarters and fiscal year, as hyperscale customers continue to ramp more significant volumes, and as we expect to begin to ramp to new hyperscale customers in the second half of fiscal year 2026.

Our team delivered Q4 non-GAAP gross margin of 67.4%, above the high end of our guidance range and up 355 basis points sequentially. Our product non-GAAP gross margin was 66.5% in the quarter, up 354 basis points sequentially and up 1,289 basis points year over year, primarily due to increasing scale. Total non-GAAP operating expenses in the fourth quarter were $52 million, at the high end of our guidance range and up 19% sequentially, primarily driven by headcount. Our non-GAAP operating income was $62.5 million in Q4, compared to non-GAAP operating income of $42.4 million in Q3, up demonstrably due to the leverage attained by achieving 26% sequential top-line growth. Our non-GAAP operating margin was 36.8% in the quarter, compared to a non-GAAP operating margin of 31.4% in the prior quarter, a sequential increase of 538 basis points.

Our non-GAAP net income was $65.3 million in the quarter, a record high compared to non-GAAP net income of $45.4 million in Q3. And our non-GAAP net margin was 38.4% in the quarter, well above the high end of our long-term net margin model of 28% to 33%. Cash flow from operations in the fourth quarter was $57.8 million, up $53.6 million sequentially due to cash collection driven by the significant sequential product ramp. CapEx was $3.7 million in the quarter, driven largely by purchases of production equipment. And free cash flow was $54.2 million, an improvement of $54.6 million from the third quarter.

We ended the quarter with cash and equivalents of $431.3 million, an increase of $52.1 million from the third quarter. We remain well-capitalized to continue investing in our growth opportunities while maintaining a substantial cash buffer. Our Q4 ending inventory was $90 million, up $36.8 million sequentially.

Now turning to our guidance. We currently expect revenue in Q1 of fiscal 2026 to be between $185 million and $195 million, up 12% sequentially at the midpoint. We expect Q1 non-GAAP gross margin to be within a range of 64% to 66%. So we expect Q1 non-GAAP operating expenses to be between $54 million and $56 million. We expect Q1 diluted weighted average share count to be approximately 188 million shares. These expectations are based on the current tariff regime, which remains fluid.

We were pleased to see fiscal year 2025 play out as we expected. The rapid shift to AI workloads continues to drive new broad-based customer engagement. And we executed well to deliver the sequential growth we had forecast throughout the year. As we begin fiscal year 2026, we expect revenue to exceed $800 million for year-over-year growth in excess of 85%. We expect non-GAAP operating expenses to grow at less than half the rate of revenue from fiscal year 2025 to fiscal year 2026. And as a result, we expect our non-GAAP net margin to approach 40%. And with that, I will open it up for questions.

Operator: At this time, I would like to remind everyone in order to ask a question, press star followed by the number one on your telephone keypad. Your first question comes from the line of Vivek Arya with Bank of America. Your line is open.

Vivek Arya: Thanks for taking my questions. For the first one, on the revenue side, I was hoping you could, you know, perhaps quantify how large were the three 10% customers, especially the largest ones. And thanks for giving the fiscal 2026 revenue outlook. That suggests kind of a, you know, modest kind of sequential growth through the year, but I think you mentioned that you expect other new hyperscalers to come on board in the second half.

So if you could just talk through what the puts and takes are as you look at kind of shaping the year, what could be the upside drivers and downside risks from here through fiscal 2026 as you get more customers onboard and then add a follow-up.

Daniel Fleming: Right. Sure, Vivek. This is Daniel Fleming. So as you know, last quarter in our earnings call, we said that we expected three to four 10% end customers in the coming quarters and fiscal year. So we reiterated that again in our prepared comments, and that's exactly what we saw in our Q4. So the largest customer was 61% of revenue, and no surprise who that was. And we also had a 12% and an 11% customer, and they were the same as the same customers that we saw in Q2, past that 10% threshold. So kind of addressing your second point, we expect to continue our diversification throughout fiscal 2026.

And in addition to these three customers, we do expect to have two additional hyperscalers in the second half of fiscal 2026 in addition to those three 10% customers. It's a little difficult for us to map out exactly how that will chart through the year. But right now, if you just kind of apply a linear projection, that's probably as best as we could project at this point in time. But we're certainly excited about our continued revenue diversification across several hyperscalers as our innovative solutions are more broadly adopted across the industry.

Vivek Arya: Got it. And for my follow-up on gross margin, you mentioned scale as a reason for gross margin expansion, but I think for Q1, you're guiding gross margin to kind of get back to trend 65%, but, you know, you should be getting more scale benefit. So is there anything else in mix or customers that are sound? So just, you know, conceptually, how should we think about the gross margin trajectory for the fiscal year? And if for extra credit, if you could also tell us about how you think about EBIT margin because there you are above your longer-term model. Thank you.

Daniel Fleming: Yeah. We're certainly seeing the benefit of scale. We saw that in Q3. We saw it even more so in Q4 as that scale continued to grow. It's a fair question that you ask. You know, we were up 355 basis points from Q3 to Q4 gross margin-wise. And that puts us, you know, above the high end of our long-term model. But having said all that, our gross margin expansion won't always be linear. As we continue to increase scale, and there will always be some differences in product mix from quarter to quarter. So we guided Q1 at to 65% of the midpoint.

But more importantly, you know, we're not setting a new long-term model for gross margin, but we're clearly entering a phase right now where gross margin will be at or above the high end of that long-term expectation.

Vivek Arya: Anything on EBIT, Daniel? They're also your above target? None of the same. You would expect that to follow

Daniel Fleming: Kind of the improvement or expansion in net margin should fall right through to EBIT. So you could do that math in a pretty straightforward fashion. Our CapEx, the one additional piece I'll give you is if you look at all of the different tape-out and leading nodes that we have planned over the coming fiscal year, our CapEx might be maybe double what it was this last year. So that'd be the last piece of the equation you would need to come up with your own EBIT.

Operator: Again, before going to the next question, if you would like to ask a question, please press star then the number one on your telephone keypad. We request that you limit your question to one and one follow-up. Your next question comes from the line of Tore Svanberg with Stifel. Your line is open.

Tore Svanberg: Yes. Thank you, William. Awesome results, great execution. William, I was hoping you could talk a little bit more about some of the use cases with your large customers that are ramping, especially on the AEC side. So I know there's clearly, you know, an 800 gig upgrade cycle going on. You know, I guess you're still, you know, shipping some 400 gig. And especially as we think about the two new customers that are coming out, coming on second half of the year, if you could talk to the use cases for those as well, that'd be really helpful. Thank you.

William Brennan: Sure. So I think we see the use cases being pretty consistent with what we've talked about in the past. There's three basic areas. There's and our main business today is in connecting servers with switches. The first business that we ramped was really front-end connections. And that is what we think about traditionally when we think of the network. The second area is now with back-end networks and specifically with scale-out networks. This is the majority of the product that we're shipping today. Really, if we look at all of the customers combined, I would say it's far greater than 50% of the shipments that we're seeing. Scale-up back-end networks for AI.

The third area is really within just like exists in both the back-end and front-end networks. What we're seeing is, you know, our largest volume right now is actually in 50-gig-per-lane AECs. But we see the trend moving quickly to 100 gig per lane. Hopefully, that gives you the color you were looking for.

Tore Svanberg: No. That's great. And maybe as a follow-up and sort of related to that, because you mentioned the largest volume is still 50-gig. I assume that means it's worth 400. But, you know, where are we sort of then in the inflection point, the 800 gig? Is this sort of still very early days for 800 gig upgrades? And, you know, I assume it would be very different by customer. Right? You know, some customers probably haven't even moved to 800 gig for your AEC products yet. Right?

William Brennan: Right. Yeah. Each one of our customers, we kind of view as a different market in and of itself. They all have different strategies, and there's, you know, many different ways to achieve the networking objectives as it relates to AI clusters as it relates also to the network in general. And so we see that really towards the end of fiscal 2026, we see it, you know, the transition from 50 gig to 100 gig. Overall, broadly for our business, we'll, you know, will really start to happen in a bigger way. But, again, we've got some customers who are already there, 100% of the shipments that we're making are 100 gig per lane.

So it's hard to talk generally about it, given the fact that each one of our customers will have a different strategy. Well, that's great.

Tore Svanberg: Congrats again.

William Brennan: Thanks, Tore.

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

Quinn Bolton: Yes. Let me offer my congratulations as well. Wanted to come back, Daniel, to the gross margin and the step down in the July quarter. Wondering if you could just talk to us about the tariff risks. I think you've got Bizlink and Foxlink, which manufacture your AEC cables both located in China, and wondering if tariff risks and tariff costs are having any impact on that gross margin in the July quarter? And then I've got a follow-up.

Daniel Fleming: Yeah. That's not we don't expect there to be a significant tariff risk impact to gross margin percentage at this point. So that's not what's driving, you know, potentially a minor reduction in gross margin percentage, you know, Q1 to Q2 or Q4 to Q1. But just thinking of tariffs in general, maybe I'll let William comment on them a little more broadly. Sure.

William Brennan: So I think what we've seen over the last quarter since our last call, tariffs and the overall macro economy are continuing to evolve. We're obviously monitoring the situation closely. And we're working very closely with our customers and ultimately trying to be as flexible as we can in delivering the best solution for each customer. Over the past year, we've talked about the efforts that we're making to diversify geographically. Really happy to say that in the kind of worst-case scenario, we, you know, within months, we could be out of one geographic location and into another. And so I feel like our team and our customers are trying to take a, you know, a mindset that's dynamic and, you know, ultimately, we feel like this thing is going to be more well understood over the next three to six months.

And we're going to try to be as flexible as we can to deliver solutions in the most efficient way possible.

Quinn Bolton: Got it. And my follow-up, William, just you've talked about your fourth and your fifth hyperscale customer ramping. You know, it sounds like kind of more second half of the year. You've got three 10% customers. You're saying there could be three to four. I'm wondering if you think either of the two hyperscalers that ramp this year, would you expect them to ramp so quickly that one of those could be a 10% customer, you know, on a quarterly basis by the end of fiscal 2026, or would you expect a more modest ramp from the two new hyperscalers this year? Thank you.

William Brennan: I think all of the hyperscalers have the potential to be a 10% customer long term. If we look at more of a short-term outlook, it's very hard for us to be specific with that. I will say that one of the two additional customers that we've talked about, the ramp looks like it's going to happen towards the middle of the year. So we're getting some clarity that, you know, that ramp is planned to be a little bit sooner than we expected.

The additional customer beyond that, it's also firming up, but it looks, you know, more towards the second half when that's going to happen. Again, really hard for me to say, you know, in that time frame, how large these two additional customers will be. But long term, I surely believe that both of them could be a 10% customer long term.

Quinn Bolton: Yeah. You, William.

William Brennan: Thanks, Quinn.

Operator: Your next question comes from the line of Thomas O'Malley with Barclays. Your line is open.

Thomas O'Malley: Hey, guys. Thanks for taking my questions. The first one to your commentary about a majority of your business being scaled out today. If you look at the number of connections, like, you're increasingly seeing that a lot of these links are going to be in the scale-up architecture. And you're seeing, you know, UAL, scale-up Ethernet, and then NV Fusion now come out in different, you know, methods for connecting those nodes. Could you talk about your play in the scale-up architecture? And do you think that you need to be embedded deeply in one of those protocols/standards to have success? Like, today, it feels like your customer wins are very much, you know, one-on-one, but, you know, as those standards grow and those protocols grow, like, do you feel like that's where you will get the next wind of this company is when you get aligned there? And just any comments on the NVFusion, please.

William Brennan: Sure. Before we jump into NVLink Fusion and scale-up Infiniti or SUV and ULink, first of all, you know, there's a large market for PCIe. And so that's Gen 5 today moving to Gen 6. And then longer term, when we talk about these other standards, these are all going to be 224 gig each. 224 gig SERDES. So in the near term, we expect that we're going to increase we're going to establish revenue and really increase that revenue base. The PCIe Gen 5 and Gen 6 time frame.

And then after that, we're going to be flexible in the sense of offering Gen 7 or doing products that would be universal for all of the standards that we mentioned. At the physical layer, layer one, these are all similar SERDES, and we think that if we talk about AECs specifically, we think that for the 224 gig per lane AECs, we'll be able to support Ethernet at SUE, ULink, and also NVLink Fusion. So we think generally that the announcement from NVIDIA is good for the market. Open standards are good, and that will open up opportunities for the market in general, including Credo.

Thomas O'Malley: And that's helpful. As a follow-up, I wanted to dive in on some comments you made in the preamble on the optical side, just talking about the success of the execution this year and then thoughts on growth into next year. In terms of your opportunities at higher speeds, are you seeing more traction with customers today? It seems like there's a lot of diversification going on. And just any evidence points of that success in the market thus far. Thanks again, William.

William Brennan: Yeah. Our progress with optical continues. So we felt great about what the team was able to accomplish in fiscal 2025, and we're looking again to double or even beyond double our optical revenue in fiscal 2026. The majority of our business today is, believe it or not, 50 gig per lane. And we've got several designs that are in flight, and we're seeing traction now in revenue for 100 gig per lane designs. That is going to continue. Our share increase for 100 gig per lane optical DSPs will continue. I think when we saw each other at OFC, you could sense the interest that we saw in the demonstrations that we made there.

Probably most impressive coming out of that show was showing an 800 gig LRO DSP built into a module that was being demonstrated showing great error rates. And the key point was at roughly nine watts. So there's an increasing focus on power efficiency, especially in AI networks, in AI clusters. And so my feeling is that we're going to experience a lot of success in the 100 gig per lane market in the next 12 to 24 months. And, of course, beyond that, 200 gig per lane is coming. I think we're in the camp that says it's going to come a little bit more slowly than predicted, as it always seems to happen.

But also at OC, we demonstrated what we believe is an industry-leading 200 gig per lane optical DSP solution. Again, leading error performance and setting probably a new benchmark in power efficiency for that 1.6 T market. We're going to come out with both full DSP and the LRO variants at the same time. And our expectation is that we're really well positioned in that market as that develops.

Operator: Your next question comes from the line of Vijay Rakesh with Mizuho. Your line is open.

Vijay Rakesh: Hi, William and Daniel. Congratulations on a great quarter, I guess. Just a couple of quick questions over the airport. It's a little noisy. But, can you talk to one of the what's the traction you're seeing on optical DSP? I think it was yeah. I talked to about three customers going to five. I'm just wondering if they're all full DSP or LRO and when we expect to slam. To know, become much bigger, I guess.

William Brennan: Sure. So I feel like we're really well positioned right now. If we talked about 100 gig per lane solutions and the 200 gig per lane solutions specifically, we're going to have various products that are going to enable our customers to target specifically what they're most interested in. So our 12-nanometer family of DSPs is by far the lowest cost from a standpoint of any DSPs in the market. So super cost-effective in 12 nanometers. The product line we came out with recently in 5 nanometers, this sets new benchmarks for power efficiency. And so that is a trend that we see that is something that our customers are pursuing pretty aggressively right now.

As it relates to full DSP versus LRO, we're very agnostic. And, you know, certain customers, if they can fit under the power ceiling for the module design, with a full DSP, go with a full DSP. In other cases, if power efficiency is really critical, and we're seeing this market for 800 gig optical DSPs and optical modules really becoming much more prioritized. So sub-10 watts is very much an objective. And in the past, those in the industry have said that the only way to do that is to go to an LPO solution, which drops the DSP and creates a whole host of issues with interop and diagnostics. So the LRO is a solution.

As we've shown, we can deliver on this requirement of sub-10 watt modules and still maintain the benefits of having the DSP designed into the system.

Vijay Rakesh: Got it. Thanks. And then last on the scale-up side, I know you're sure to be able to see it, but when do you expect scale-up and where you should start to get or start to show up and get material for you. Thanks.

William Brennan: Yeah. For us, we've been pretty consistent saying that our design wins will come this calendar year, and our revenue ramp will start in calendar 2026. And I feel like we're absolutely right on top of that time frame. When I think it's going to become a very material and significant part of our business, I think, you know, over the next two to five years, this is going to be a part of the network where there's intense demand across the board. And so I see our business growing pretty dramatically beyond, say, our fiscal 2027 time frame.

Vijay Rakesh: Got it. Thank you.

Operator: Your next question comes from the line of Karl Ackerman with BNP Paribas. Your line is open.

Karl Ackerman: Yes. Thank you. I have two. Please. First, Daniel, you spoke about CapEx doubling this year to support your sales outlook for fiscal 2026. Given the capital commitment to support these programs, could you discuss whether any of these programs are take or pay that may give you better visibility into the manufacturing ramp requirements? For these programs over the next couple of quarters.

Daniel Fleming: No. No. This is the largest thing that drives our CapEx is our production mask set tape-outs. and we've talked now for a while about upcoming three-nanometer chip outs in fiscal 2026. So that's really what's driving it. So it's, in a sense, kind of disconnected from any customer contracts or customers specifically. It's really, you know, fundamental devices that we're taping out that we capitalize.

Karl Ackerman: Yep. Thanks for that. I understand that you may not have full visibility into every AEC connection, but do you have a general rule of thumb to think about your AEC sales being used to connectGPU compute racks versus custom compute server racks? I asked because there's a misperception that you're over-indexed to custom basic server racks for AECs. Thank you.

William Brennan: Yeah. I think you got it right, Karl. That our AECs are used to connect any kind of GPU to any kind of switch. And we've seen that across the board with our customers. There's definitely no way to look at our AEC business as a proxy for any kind of custom GPU solutions. We're connecting broadly at a lot of our customers. With both

Operator: Your next question comes from the line of Sujeeva De Silva with Roth Capital. Your line is open.

Sujeeva De Silva: Hi, William, Daniel, and Daniel. Congrats on the progress here. Maybe it's been a few quarters since some of your competitors have announced AEC products and talked about them. Can you just update us on the competitive landscape and, you know, obviously, you said it'd be a large market where you get some share, but maybe you can just talk about the competitive advantages that Credo continues to bring to the marketplace with more folks talking about AEC offerings.

William Brennan: Sure. From our perspective, the competitive environment has not changed meaningfully in the last, you know, 90 or 120 days. We know that our customers want multiple sources, and it's really becoming increasingly clear that the AEC market can support multiple winners. So our goal is to maintain our position as the leader and in doing that report, continuing that leadership, it's really based on delivering innovative solutions more quickly than our competitors. So we're very, very focused on at each one of our customers on delivering the next generation solution. You know, first sampling and then ultimately going through qualification and being the first to ramp. That has to do with our ability to, you know, to act quickly in a sense that, you know, the entire responsibility for the system-level product sits within the Credo organization.

And that really comes from product definition, you know, through development, through delivery of samples all the way through qualification, ultimately in production. We take full ownership. There's no question there's no time loss. All of our engineers that work on, you know, the different parts of this from SERDES to the ICs, to the system-level cable system, to the firmware team, all of them, you know, are sitting right next to each other. And so our ability to iterate, to close a design, and bring it, you know, through qualification and production, I think, is probably best in class.

And, you know, that's really our focus is to make sure our team is the one that's, you know, delivering for our customers first and satisfying them. And I think we've done a great job with that thus far.

Sujeeva De Silva: Okay. Okay. That's very helpful there. Cool. And then my second question is on the rack-to-rack seven-meter solution that you're planning, I guess. Is that going to the timing of that dovetailing you get into scale-up more so second half this year next year? Or can you just talk about when, when the demand for rack-to-rack extended cables would come in versus the ones you're selling today?

William Brennan: Yes. I think that, you know, the catalysts are really in the way that next-generation data centers are being built. We talked a lot about liquid cooling. And, you know, the nonlinear power sourcing increase that's happening. And so we really see the rack-to-rack opportunity, you know, come as those deployments increase. So you can do a lot to get, you know, significantly higher density for compute. And that really opens the door to improving the reliability of the network by replacing optical solutions with AECs. You know, effectively, eliminating link flaps. And so we see, you know, there's one customer we've, you know, publicly talked about being XAI, and that's, you know, gone very, very well. We've accomplished their very high-level objectives in, you know, building the most reliable cluster possible.

But we've got a second customer that's going to ramp this year, that the catalyst there was similar in the sense that their ability to move to these longer-length AECs really opens the door for them to improve their reliability. So I believe we'll see that over time. As it relates to scale-up, that's really going to be, you know, PCIe Gen 6 to begin with. And we expect that will become somewhat popular in the calendar 2026, calendar 2027 time frame.

Operator: Your next question comes from the line of Christopher Rolland with Susquehanna. Your line is open.

Christopher Rolland: Hey, guys. Thanks for the question, and congrats on these results. William, just a broad question for you. Beyond AECs, like, if we look out maybe three years, five years, you've talked about optical becoming larger, I think, 10% of revenue or higher at some point. But how would you view your total product mix, AECs versus optical versus, let's say, retimers for scale-up versus other. How do you see this mix broadly playing out three to five years from now?

William Brennan: It's a good question. In a sense that there's a lot of conversation about the necessity to move to optical over time. And I think the market has spoken very loudly that, you know, if you can use copper, you will. Even, you know, the folks like Nvidia have been pretty outspoken in saying that. So we believe that the market for copper is going to, you know, be very large in the next three to five years. But with that said, if we look at the largest investments that we're making right now as a company, they're all in the optical space.

So my belief is that over time, yes, we'll, you know, we'll have 10% represented by optical, but I think that number will grow, especially if we're talking about three to five years. We see a tremendous opportunity in the optical space, really even beyond, you know, beyond what we would think of as traditional optical DSPs. We're looking at improving implementing the same kind of system-level innovative solutions that we've done with AEC. So there's a lot of learning there. And so we talk about going beyond standard, that's something we're very focused on right now. I will also say that we do see a large opportunity for, you know, for ICs.

And maybe it's in areas that are related to emerging applications within the AI space. Specifically with entrants. Not going to talk too much about that, but addressing different bottlenecks within the landscape is definitely part of our plan, and we're investing in different spaces there. But that will definitely play into our revenue in a significant way in the five-year kind of time frame. So we see lots of opportunities across the board.

Christopher Rolland: Excellent. Excited to hear more about those products. My second question is around supply. So you guys are putting up just some really massive growth numbers here. And usually, when we have a product take off like this, you can end up with some bottlenecks. So I guess my question is, are you seeing any bottlenecks, any constraints, in either front end or back end or at your cable suppliers? And, you know, what has happened to lead time for your products during this growth? Have they grown you know, and where are they now? You know, just yeah. The question is generally, like, how far do these guys have to book out to get a product?

William Brennan: Yes. I think we've shown in the past couple of quarters, you know, a great ability to ramp in a short period of time. And if we kind of break it down, specifically to the AEC, there's really two pieces. There's the silicon aspect of it and then there's the, you know, the system-level aspect. So we've got two different operations teams in the company. We've got a silicon operations team and a systems operations team. And so the longest lead time that we've got is really on the silicon side. And that's, you know, with TSMC and our assembly partners.

On the system side with the AEC, it's really important that, you know, that we stay close with all of the different suppliers in our supply chain, but specifically the cable assembly partners. We've shown great ability to increase volumes quickly. And so this isn't, you know, the same kind of challenges it would be to expand fab capacity. Basically, if we install an additional line, if we look at, say, a 24/7 operating kind of situation, every line represents about a million units in production capacity annually. And so the investment that's required is not as significant as taping out a, you know, say a five-nanometer chip or a three-nanometer chip. It's substantially less.

And so the CapEx required, the lead time to get the equipment, and the lead time to bring it to line is actually shorter than what it would take to build a semiconductor from start to finish. So I believe we're in good position even if we do see the kind of, you know, percentages increase that we've seen over the, you know, the last 12 months, that will be in good shape. So and again, it's a huge benefit that our systems operations team has close relationships with all of the supply chain partners.

And so it's you know, it's important that we have those direct connections so that we don't miss a beat when we're trying to ramp quickly. All of our supply chain partners know that we're ultimately responsible for making commitments and delivering the solution.

Operator: Your next question comes from the line of Joshua Buchalter with TD Collin. Your line is open.

Joshua Buchalter: Hey, guys. Congrats on the results and guidance, and thank you for taking my question. I actually wanted to ask about your PILOT software that you talked about in the prepared remarks. How does the SDK and debug tool differ from what, you know, your competitors are bringing to market? And I was also hoping, you know, are there any synergistic elements of that the PILOT software brings across your AEC, DSP, and retimer hardware? Thank you.

William Brennan: Sure. So, you know, we recently announced the platform, but this has been this you know, this debug and development tool has really been something that has been key to our success really over the past decade. And so in the Ethernet space, at the speeds where, you know, we've been operating, having the ability to, you know, to offer a solution like this to customers is really critical for them to be able to develop the platforms that they're trying to develop. And so when we talk about getting into the PCIe space, what we're bringing is years of experience and years of knowledge to the space. We are going beyond what we've traditionally done, especially as it relates to system-level features like telemetry.

We learned a huge amount from our efforts in the AEC space. And so platform you know, that we refer to as PILOT, it really touches all levels, all three tiers of innovation that we talked about, and even extending into our customer system. So it gives great visibility into the SERDES IP, retimer ICs, or even, you know, the system-level solution. So, additionally, adding diagnostic and analytic capabilities along with this telemetry establishes what we think is a new benchmark for the competitive space and is specifically related to reliability and uptime stability.

Joshua Buchalter: Thank you for all the color there. For my follow-up, I want to ask, as your customer base diversifies through the year, can you maybe compare and contrast what types of infrastructure build-outs that you're servicing with your new customers? Like, are these primarily accelerated AI builds and general-purpose servers? Are they for internal versus external offerings? Like, anything that would help us better understand the composition. Thank you.

William Brennan: Comment that both of the new customers that we've talked about, the first part of the ramp will definitely be related to AI deployments. And then longer term, we see opportunities related to disaggregated switched chassis. But, you know, as you would expect, truly the AI application that's driving the increased need for AECs.

Joshua Buchalter: Thank you.

Operator: Your next question comes from the line of Richard Shannon with Great Hallum Capital Group. Your line is open.

Richard Shannon: Well, thanks, William and Daniel, for taking my questions, and I'll go congratulations on a couple of great quarters in a row. My first question is on your DSP win with a hyperscaler here. I think you said there's 800 gig, but I'm not sure if you said whether it was full DSP or LRO, if you can share that one. But I think more importantly here, we'd love to understand how you could describe the share allocation here. It does seem like it's a much bigger deal than any of your wins in the past year, so maybe we get a sense of the size of this win versus the ones you've had in the past.

William Brennan: Yeah. I think it's hard for me to contrast the size of the opportunity. We can look at volumes and we can look at revenue, kind of two different things. And so I think that if you would break it out, you know, from a volume standpoint, I think it would be, you know, similar in the sense that we expect it to be high volume as we've seen in the past with our designs. You know, given that it's 100 gig per lane from a revenue standpoint, it's probably going to be the largest opportunity that we've had to date.

And so I'm not going to give too much color given the fact that, you know, this is a super competitive space we're in, but I will say that this implementation is a full DSP implementation.

Richard Shannon: Okay. Thanks for that, William. Second question is, I guess, the topic hasn't come up a lot in recent quarters given how well your AEC business is going, but look at your IP business.

Obviously, I mean, it's obviously, the revenue is coming down here. As you apply seemingly more engineering resources to the product side, so it makes sense here. I'd love to get your sense of how you see this business going over the long term. A response to one of the last questions, you referred to UAYLINK and NVLINKFusion. Just seems like there's some great opportunities there. So maybe you can help us understand kind of long term for your IP business. Thanks a lot.

William Brennan: Sure. So I think going forward, we're not going to be breaking it out since it's not going to be above 5% of our revenues. What we've seen is we've actually, you know, seen an acceleration on our product revenue that you know, causes us to I mean, when we did our IPO three and a half years ago, we signaled that we thought our IP business would be in the 10% to 15% range. On a shorter-term basis of our total revenue, but we've accelerated so quickly that we now find it being sub-5%. From my perspective, it's really a return on investment scenario. And I've always been very consistent in saying that, you know, from a percentage revenue standpoint of our total available market, this is tiny. And I don't expect that to change. I think the way we think about that business internally now is engaging where it makes sense from a strategic perspective.

And so we've had lots of opportunities. We'll be talking to a customer about an overall system solution. And a key enabler can be us providing the core IP for kind of the main chip that they're developing and then complementary solutions that would connect to that. And so those are very valuable contracts as we engage with those types of customers. And I expect those types of relationships to continue. Existing relationships and new relationships. So I think, as I think about our IP business, we're going to be somewhat opportunistic, of course. But the strategic aspect of it, it's really enabling system-level solutions with key customers.

Operator: Your next question comes from the line of Tore Svanberg with Stifel. Your line is open.

Tore Svanberg: Yeah. I just have a follow-up, William, you know, because there's a lot of on your AEC business. Obviously, copper. You know, you did talk about the optical DSP win, but you've also talked about sort of taking that further and perhaps, you know, work on a system-level optical solution. I'm just wondering, you know, would you intersect the 200 gig per lane, you know, market with that particular product, or would you even consider doing it at 100 gig?

William Brennan: I think yes to both questions. I think yes for 200 gig for sure. 200 gig per lane solutions. But, you know, I expect the 100 gig per lane market to extend for several years. And so we're definitely looking at what kind of value can we add above the standard to make our customers' networks more reliable. And more power efficient. And so I would say yes that we're looking at solutions that don't require a significant shift in speeds.

Tore Svanberg: Great. Well, we look forward to hearing more updates on that system of product. Thank you.

Operator: There are no further questions at this time, Mr. Brennan. I turn the call back over to you.

William Brennan: Thank you very much. I'd like to thank everybody for the continued strong interest in Credo Technology Group Holding Ltd., and for joining the call, and we'll talk shortly. Thank you very much.

Operator: This concludes today's conference call. You may now disconnect.