Credo Technology Group Holding Ltd at Goldman Sachs Communacopia & Technology Conference Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Toshiya Hari - Goldman Sachs - Analyst : I've got a bunch of longer-term questions, but I did want to start relatively short term. You're fresh off of your earnings call from last week. If you can kind of recap key highlights in the quarter. Did anything surprise you? You're guiding October revenue up 11%, I believe, at the midpoint. Where are some of the drivers that went into that outlook for October?

Question: Toshiya Hari - Goldman Sachs - Analyst : That's great. Last February, you surprised us all in --

Question: Toshiya Hari - Goldman Sachs - Analyst : I don't want to rub it in.

Question: Toshiya Hari - Goldman Sachs - Analyst : That's correct. Not this February, but the last February. Since then, to your point, you've executed really well, both in terms of delivering results and guiding to, if not above Street consensus. Is the improved visibility a function of environment being favorable? Or do you feel like you have a deeper look into what customers are working on? Are they more open with their plans, their forecasts, et cetera? Has something permanently changed? Or is this sort of you guys benefiting from a more favorable backdrop or both?

Question: Toshiya Hari - Goldman Sachs - Analyst : Got it. And Bill, you talked about converting one customer at a time. You had a big number one customer, the number two customer ramping very aggressively. You've talked about number three and beyond. How should we think about sort of the dollar opportunity, dollar content opportunity evolving as you go from one customer to the next because not all data centers obviously are created equal, right? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. SEPTEMBER 11, 2024 / 5:10PM, CRDO.OQ - Credo Technology Group Holding Ltd at Goldman Sachs Communacopia & Technology Conference

Question: Toshiya Hari - Goldman Sachs - Analyst : Okay. Got it. That's really helpful. The advantages of AEC is pretty clear. Data rates are increasing. We had [Jensen] this morning. He talked about the densification of data centers and all that stuff is really good for you. You've got to reduce power. To the extent you've had episodes where you engage with the customer, but ultimately, they decide not to transition to AECs and maybe there hasn't been any situation. But to the extent there have been, what was the pushback? Is it passive copper cable continuing to improve? Is it optical? What's sort of getting in the way?

Question: Toshiya Hari - Goldman Sachs - Analyst : Okay. Got it. Maybe on customer diversification. I'm sure you guys hear this directly from investors a lot as well. The concentration is something that some investors struggle with. I think it's really a product of your success in sort of pioneering the --

Question: Toshiya Hari - Goldman Sachs - Analyst : But the question that we get from investors is when do we start to see a Credo that is more diversified? I think you talked a little bit about Tier 2 or, I guess, emerging CSPs. Maybe talk about the forward outlook from a customer profile standpoint?

Question: Toshiya Hari - Goldman Sachs - Analyst : Got it. Okay. I'll definitely come back to optical. Maybe on competition in AEC, I think ever since the IPO, you guys have talked about you expecting competition, if anything, competition sort of being an endorsement of what you've been trying to do. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. SEPTEMBER 11, 2024 / 5:10PM, CRDO.OQ - Credo Technology Group Holding Ltd at Goldman Sachs Communacopia & Technology Conference A couple of your competitors are talking more about AECs. I don't think there in full production or they've won significant designs. What are you seeing from a competitive standpoint? And what are your expectations going forward?

Question: Toshiya Hari - Goldman Sachs - Analyst : Right. Right. And your model at this point is still very unique. The competitors do not follow it?

Question: Toshiya Hari - Goldman Sachs - Analyst : Makes sense. Optical DSPs, to your point earlier, great momentum, 10% plus of fiscal year '25 revenue? Where are you seeing the traction? What's resonating with customers? I know it's still a small base, but where do you see the -- REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. SEPTEMBER 11, 2024 / 5:10PM, CRDO.OQ - Credo Technology Group Holding Ltd at Goldman Sachs Communacopia & Technology Conference

Question: Toshiya Hari - Goldman Sachs - Analyst : Okay. On an apples-to-apples basis, how cost competitive are you vis-a-vis the incumbent? Rough numbers.

Question: Toshiya Hari - Goldman Sachs - Analyst : Right. Okay. Got it. Maybe I'll pause here. I've got a bunch still and see if anyone has any questions. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. SEPTEMBER 11, 2024 / 5:10PM, CRDO.OQ - Credo Technology Group Holding Ltd at Goldman Sachs Communacopia & Technology Conference Unidentified Participant I had a question around the 5 to 7 meter rack-to-rack opportunity for AECs. You brought up that architecturally, some designs don't have a top of rack switch, which would be the classic [end rack] AEC use case and have a kind of row of switches adjacent to the racks. Is that something that opens back up into the AEC market as you get into the 5 to 7 meter length where even if it was a design that has kind of lease switches adjacent to the rack as we densify those networks, AEC becomes addressable for that architecture as well?

Question: Toshiya Hari - Goldman Sachs - Analyst : Any other questions? Unidentified Participant Yes. So for what you have mentioned about what has been seen in the last like three or five months? And what will be the -- for -- in terms of the revenue and the guidance, is there any change for the whole year guidance or something?

Question: Toshiya Hari - Goldman Sachs - Analyst : Maybe bring Dan into the conversation. Gross margin -- product gross margins in the quarter, really impressive. Curious what drove the sequential and year-over-year increase. I think the guide for the quarter implies a step down Q over Q. What's driving that? Is that conservatism? Or is there something going on?

Question: Toshiya Hari - Goldman Sachs - Analyst : Got it. Okay. Maybe one on R&D and how to think about leverage -- OpEx leverage going forward. I think you guys have talked about OpEx growing at roughly half the rate of revenue, which is great. You're driving leverage. At the same time, Bill, just talking to you, it feels like you've got massive opportunity ahead of you. You do -- maybe you do not have competition, direct competition today, but you've got large competitors who are kind of coming your way. How are you able to deliver that kind of leverage how do you balance sort of investing in growth versus delivering margins and returns for your investors today?

Question: Toshiya Hari - Goldman Sachs - Analyst : Got it. Okay. Another question that I often get from investors is on M&A. You frankly as a buyer and a seller. I think to your point, you've got a really competitive SerDes technology. I don't think many companies globally have that. So I often get the question, why wouldn't companies A, B, and C would be interested in Credo? The other question I have is kind of the other way of looking at it is, okay, you guys are doing really well today, but you do have large competition. Over the long run does Credo need to become bigger. So not bigger for the sake of being bigger, but do they need more IP? Do they need more parts to be successful long term? How would you sort of respond to those questions.

Question: Toshiya Hari - Goldman Sachs - Analyst : I do get some.

Question: Toshiya Hari - Goldman Sachs - Analyst : Don't shoot the messenger.

Question: Toshiya Hari - Goldman Sachs - Analyst : Okay. Great. Maybe in the last minute, anything that we haven't touched that is topical, you want to highlight I know we're keeping you busy with meetings all day --

Question: Toshiya Hari - Goldman Sachs - Analyst : Anything we collectively miss about the Credo story or what you guys are working on, what you're excited about?