Credo Technology (US:CRDO)2022-12-01 01:24Financial Data and Key Metrics Changes - Credo achieved record revenue of $51.4 million in Q2 2023, representing a 94% increase year-over-year and an 11% increase sequentially [8][25] - Product revenue reached $48.1 million, up 33% sequentially and 143% year-over-year, driven by strong AEC adoption [25] - Gross margin for the quarter was 54.9%, with product gross margin at 52.6%, up 80 basis points sequentially and 4.8 percentage points year-over-year [27][30] - Operating income was $3.4 million, an improvement of $5.6 million year-over-year, but down 41% sequentially [29] - Net income for Q2 was $2.4 million, an increase of $5.7 million year-over-year, but down 55% sequentially [30] - Cash and equivalents at the end of the quarter were $240.5 million, a decrease of $3.2 million from the previous quarter [32] Business Line Data and Key Metrics Changes - AECs continued to show strong execution, with expectations for significant growth in the coming years as the market for AECs is forecasted to grow to a multi-billion dollar market [10][12] - The optical solutions category saw new product announcements, including several new 100 gig per lane products, which received positive customer feedback [14][15] - Line Card PHY solutions established leadership at 50 gig and 100 gig per lane speeds, with increasing demand for MACsec PHYs due to security needs [18][19] Market Data and Key Metrics Changes - The company is engaged with multiple hyperscale customers, with expectations for revenue ramps from these engagements in fiscal 2024 [11][12] - The AEC market is projected to grow significantly, driven primarily by hyperscalers, but also with potential contributions from enterprise markets as they move to higher speeds [70][71] Company Strategy and Development Direction - Credo is focused on high-speed connectivity solutions, expanding its product families and intellectual property offerings to meet increasing market demands [7][8] - The company aims to maintain its competitive edge by delivering optimized, secure, and high-speed solutions with better power efficiency and cost [8][20] - The strategy includes engaging in joint development models with optical module manufacturers to enhance market penetration [15][75] Management's Comments on Operating Environment and Future Outlook - Management noted a reduction in CapEx and delays among Chinese hyperscale customers, but U.S. hyperscalers continue to show strong demand [44][46] - The company remains optimistic about its growth trajectory, expecting to achieve at least $200 million in revenue for fiscal 2023, representing over 88% growth compared to fiscal 2022 [22][33] - Management highlighted the importance of next-generation technologies and the competitive landscape, emphasizing the need for continuous innovation [46][82] Other Important Information - The company is actively working on diversifying its supply chain to mitigate risks associated with potential disruptions in China [79] - Credo is positioned as an early leader in the chiplet market, with significant opportunities anticipated as the industry moves towards standardization [21][82] Q&A Session Summary Question: Growth in AEC business and switch applications - Management discussed the dual opportunities for AECs within server racks and switch racks, noting a significant market potential [36] Question: Competitive landscape for NIC to ToR applications - Management acknowledged the desire for multiple sources among data center customers but emphasized their competitive advantages and ongoing innovations [39][40] Question: Changes in customer behavior and project timelines - Management observed a reduction in CapEx among Chinese customers but noted that U.S. hyperscalers continue to show strong demand without significant project delays [44][46] Question: Revenue recognition for the second customer in AEC business - Management expressed confidence in the ramp-up of revenue from the second customer, highlighting the strategic importance of the project [48][84] Question: Strength in product revenue and market segments - Management confirmed that the strength in product revenue was primarily driven by AECs, particularly with their lead customer [73] Question: Future opportunities in PCIe and USB markets - Management outlined plans to enter the PCIe market significantly with the move to Gen 6 and similar timelines for USB opportunities [64][65]