Credo Technology (CRDO) - 2025 Q1 - Earnings Call Transcript

Financial Data and Key Metrics Changes - For Q1 fiscal 2025, Credo reported revenue of $59.7 million, down 2% sequentially but up 70% year-over-year [13] - Non-GAAP gross margin was 62.9%, down 323 basis points sequentially due to lower IP contribution [14] - Non-GAAP operating income was$ 2.2 million, compared to $7.5 million in the previous quarter [15] - Non-GAAP net income was$ 7 million, down from $11.8 million in the last quarter [15] - Cash flow used in operations was$ 7.2 million, primarily due to changes in working capital [16] - Ending cash and equivalents were $398.6 million, a decrease of$ 11.4 million from the previous quarter [16] Business Line Data and Key Metrics Changes - Product revenues reached $57.3 million, up 30% sequentially and 77% year-over-year, establishing a new quarterly record [14] - The AEC product line continued to be the main source of revenue, expected to drive growth in fiscal 2025 and beyond [5][6] - The Optical DSP business is projected to contribute at least 10% of fiscal 2025 revenue, with ongoing customer engagements [7][8] - Line Card PHY business contributed significantly to overall product revenue growth, driven by strong demand for 400 gig and 800 gig solutions [10] - SerDes licensing and chiplet businesses are expected to see growth opportunities, although quarterly variability is anticipated [11] Market Data and Key Metrics Changes - The data center market is evolving rapidly, with increased spending observed from emerging hyperscalers [4][5] - Credo is targeting both leading hyperscalers and the next tier of data center operators, indicating a broadening market focus [4] - The company plans to enter the 64 gig PAM4 PCIe Gen 6 market, optimizing for signal integrity and cost-effectiveness [5] Company Strategy and Development Direction - Credo aims to extend its reach into new markets as data rates rise, particularly in AI deployments [5][12] - The company is focused on maintaining a competitive edge through system-level products that blend customized hardware and software [6] - Future growth is anticipated in the Optical DSP category, with innovations like Linear Receive Optics (LRO) being adopted [8][9] - The company is committed to advancing its range of solutions to meet the growing demand for high-speed connectivity driven by AI [12] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the growth prospects of the AEC business, driven by increasing rack power densities and liquid cooling migrations [7] - The company expects an inflection point in the second half of fiscal 2025, supported by existing and new customer engagements [12] - Management highlighted the importance of network quality and reliability in driving customer preferences towards AEC solutions [19][53] Other Important Information - The company ended Q1 with an inventory of$ 31.6 million, up $5.7 million sequentially [16] - Credo's strategy includes a focus on energy efficiency and power optimization in its product offerings [9][12] Q&A Session All Questions and Answers Question: What are the key drivers for the acceleration in growth in the AEC business? - Management noted broad adoption of AECs, with potential expansion into rack-to-rack connectivity as rack densities increase, leading to a shift towards high reliability solutions [19] Question: What are the market share aspirations for the Optical DSP business? - Management indicated that they are on track to achieve at least 10% of revenue from Optical DSPs in fiscal 2025, with significant growth expected in fiscal 2026 and beyond [21] Question: Can you elaborate on the timing of entering the PCIe market? - Management explained that entering the PCIe Gen 6 market allows them to deliver compelling benefits similar to those in Ethernet, with plans to accelerate to Gen 7 [26] Question: How does the company view the licensing revenue for fiscal 2025? - Management reaffirmed expectations for licensing revenue to be in the long-term range of 10% to 15% for the full year, despite variability in quarterly contributions [35] Question: Can you clarify the contributions from the two 10% customers? - Management confirmed that the first AEC hyperscale customer remained at 10% of revenue, while the second AEC hyperscale customer contributed 62% [50]