Credo Technology Group Holding Ltd at Stifel Cross Sector Insight Conference Transcript

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

Question: Tore Svanberg - Stifel Nicolaus - Stifel Financial Corp - Analyst : So the format for this particular session is a fireside chat. So with that, we're going to get started. And Bill, as always, I ask management teams to just give a two- to three-minute overview of the company, especially for those investors that may not be that familiar with Credo.

Question: Tore Svanberg - Stifel Nicolaus - Stifel Financial Corp - Analyst : Great. No, thank you for that. And Bill, investors hear the term all the time, but I don't think there's a comprehensive understanding of how important and how difficult it is to get high-speed SerDes right. So please elaborate on how difficult it is to design high-speed SerDes products. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JUNE 06, 2023 / 5:15PM, CRDO.OQ - Credo Technology Group Holding Ltd at Stifel Cross Sector Insight Conference

Question: Tore Svanberg - Stifel Nicolaus - Stifel Financial Corp - Analyst : That's great, great perspective. And ultimately, investors that are more familiar with Credo, they understand the competitive advantage of N minus one. I mean, I think they think of that where it's like, oh yeah, that's a competitive advantage. But can you offer us a few examples where customers looked at designs with more advanced nodes and then said, hey, wait a minute. They eventually chose Credo because of N minus one.

Question: Tore Svanberg - Stifel Nicolaus - Stifel Financial Corp - Analyst : Right. So let's move on to more near-term dynamics. From your recent earnings call, it appears that your largest customer is still digesting inventories from the initial AEC ramp or the previous-year AEC ramp. You also said on your recent call that the dynamics for new ramps have changed because of AI. And I was hoping you could help us better understand some of those dynamics and how we should think more broadly about those two intersecting each other. So on the one hand, you've got still a ramp down or an inventory digestion. But then you have some of these new programs and even a second customer ramping.

Question: Tore Svanberg - Stifel Nicolaus - Stifel Financial Corp - Analyst : Right? And Bill, you've always told me that these ramps are so unpredictable from a timing perspective, over how many quarters, and even the size of it. I mean, now, it must be even more challenging with all this new AI spend coming. So how do you -- internally, how do you manage some of that volatility that I suspect is coming over the next 12 to 24 months?

Question: Tore Svanberg - Stifel Nicolaus - Stifel Financial Corp - Analyst : Makes sense. Also on your recent earnings call, I really liked the way you talked about how AI is impacting your four businesses, AEC, PAM4 DSP, line card PHYs, and licensing. So could you just elaborate a little bit more on that, especially for this audience that perhaps didn't listen to that particular positioning?

Question: Tore Svanberg - Stifel Nicolaus - Stifel Financial Corp - Analyst : Right. And then do you anticipate AI to also perhaps create more synchronization with your four businesses, too? Because I know historically, one business has been ramping. The other one hasn't done much. So I mean, are you seeing that right now with your customer engagements, where perhaps all four businesses can -- I mean, I wouldn't say ramp at the same time, but certainly see some level of growth in each one?

Question: Tore Svanberg - Stifel Nicolaus - Stifel Financial Corp - Analyst : Right, I get it. And a question for you, Dan. So again, thinking about the four product lines, I know you don't split them up, at least not publicly. But I think you have talked about, long term, how much each one could be on a percentage basis. Has AI changed those projected targets?

Question: Tore Svanberg - Stifel Nicolaus - Stifel Financial Corp - Analyst : Got it. And I know your gross margin depends a lot on that mix that you just discussed. So again, there's no reason to believe that that's going to change because of AI. I mean, obviously, from quarter to quarter, you could see. Licensing revenue is very high, or even optical DSP is very high and vice versa.

Question: Tore Svanberg - Stifel Nicolaus - Stifel Financial Corp - Analyst : Understood. And what about from an operating margin leverage perspective? Because I mean, the dynamics have changed the last two months. So has that changed the way you think about OpEx and some of the operating -- have you already invested in a lot of the stuff already?

Question: Tore Svanberg - Stifel Nicolaus - Stifel Financial Corp - Analyst : Got it. And Bill, back to you on some of the more specifics, starting with AEC. And again, I know you've always told me -- well, Tore, you got to be careful with the timing of things. But it does sound like your second customer ramp is kind of right on track. If (multiple speakers)

Question: Tore Svanberg - Stifel Nicolaus - Stifel Financial Corp - Analyst : No, that makes sense. And you've also talked in the past about how important it is to control the cable or own the cable. So that obviously means lower gross margin because the DSP inside that cable is a very high gross margin product. But it served you well in time to market, beating out your two competitors. But I think you also recently told me that your customers now, they want to mix and match the DSPs on each end of the cable, which probably is even more an incentive to control the end product. So could you just talk a little bit more about that? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. JUNE 06, 2023 / 5:15PM, CRDO.OQ - Credo Technology Group Holding Ltd at Stifel Cross Sector Insight Conference

Question: Tore Svanberg - Stifel Nicolaus - Stifel Financial Corp - Analyst : Well, it looks like a cable, though.

Question: Tore Svanberg - Stifel Nicolaus - Stifel Financial Corp - Analyst : It's a purple cable, but it's a cable.

Question: Tore Svanberg - Stifel Nicolaus - Stifel Financial Corp - Analyst : That makes sense. And the joke that I always share with investors when I talk about Credo is that at OFC this year, the DSP was dead, but there were a lot of purple cables everywhere. So how do you square that circle? Anyway --

Question: Tore Svanberg - Stifel Nicolaus - Stifel Financial Corp - Analyst : Yeah. No, I get it, absolutely. That's very clear. That was the funny joke from OFC. The PAM4 DSP business, historically, you've had exposure to China there. I think most investors think of your competitor as very, very strong in the US hyperscale market. So are you making any inroads with the hyperscalers in the US with the PAM4 DSP business?

Question: Tore Svanberg - Stifel Nicolaus - Stifel Financial Corp - Analyst : And your 800-gig PAM4 DSP is in 7 nanometer?

Question: Tore Svanberg - Stifel Nicolaus - Stifel Financial Corp - Analyst : It's in 12? Okay. Well, it's N minus two compared to --

Question: Tore Svanberg - Stifel Nicolaus - Stifel Financial Corp - Analyst : Right. So I had a question about the -- where was I going with this? For the next-generation connectivity, you mentioned -- next-generation USB, you mentioned CXL. Should we expect those to be licensing businesses for Credo or will you also be in product?

Question: Tore Svanberg - Stifel Nicolaus - Stifel Financial Corp - Analyst : Right. But again, staying in that data infrastructure domain and not consumer devices. Well, maybe. If you look at that headset that Apple came out with, that's going to require some crazy connectivity.

Question: Tore Svanberg - Stifel Nicolaus - Stifel Financial Corp - Analyst : Yeah, exactly. All right. We have about seventeen seconds left, so we've run out of time. Thank you so much for coming to our conference, Bill, Dan, and Dan. We appreciate it.

Question: Tore Svanberg - Stifel Nicolaus - Stifel Financial Corp - Analyst : Thank you, everyone, to coming to Credo. Enjoy the rest of the afternoon.