Credo Technology Group Holding Ltd Q1 2025 Earnings Call Transcript

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

Question: Toshiya Hari - Goldman Sachs - Analyst : My first question is on the AEC business and how we should be thinking about the acceleration in growth you guys spoke to as it pertains to the second half. Bill, I think on past calls, you've talked about your second customer ramping in the AEC space and your engagements with additional customers in that space as well. Can you kind of speak to the key drivers that you see contributing to the acceleration in growth in the second half of the year? And how you're thinking about your AUC opportunity outside of in-rack connectivity as you move into calendar '25 and '26?

Question: Toshiya Hari - Goldman Sachs - Analyst : Yeah. That's really helpful. And then as a quick follow-up on the optical DSP side of your portfolio. It's really nice to hear the customer traction. I think you guys reiterated that for fiscal '25, it should be more than 10% or at least 10% of your business. Longer term, given your current engagements, the customer back and forth are having, what are your market share aspirations in this business? I know you're playing the role of disruptor, but curious how you're thinking about your market presence over time. And then within the context of LROs, I think on the last call, you talked about $1.60 potentially being a catalyst for increased adoption. Is that still the case? And if so, is that pretty much a '25, '26 dynamic?

Question: Toshiya Hari - Goldman Sachs - Analyst : Thank you.

Question: Tore Svanberg - Stifel Financial Corp - Analyst : Yes. Thank you. Bill, you just said something that I called my attention. You said you're going to ship more DSPs in fiscal '25, than all previous years. I mean, obviously, that includes the AEC business. But can you just elaborate a little bit on that because that seems like a pretty high number?

Question: Tore Svanberg - Stifel Financial Corp - Analyst : Got it. My second question is, you mentioned penetration or entrance into the PCI retimer market. Could you just talk a little bit about why now? I mean, clearly, this is a market that's been around for a few years, but it seems to be expanding. So help us understand a little bit the timing entering this market? And when should we expect some early revenues for Credo in this market?

Question: Suji Desilva - Roth Capital Partners LLC - Analyst : Hi, Bill. Hi, Dan. In terms of the customer concentration, you talked about a new expected 10% customer in F 2Q. I just wanted to get a sense if that customer is kind of starting from the ground floor in F 1Q or whether it's been a gradual growth. I just to understand the contribution from that new ramp? 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 04, 2024 / 9:00PM, CRDO.OQ - Q1 2025 Credo Technology Group Holding Ltd Earnings Call

Question: Suji Desilva - Roth Capital Partners LLC - Analyst : Okay. Bill, good to hear the customer base diversifying. And then you talked a little bit about the opportunity as racks densify, if you would, and being able to handle closer racks and shorter reach. Can you just give us some sense of metrics and kind of the cooling technology, maybe the hopper to black well transition that makes that possible and some of the metrics to think about in terms of how the TAM increases for you guys?

Question: Karl Ackerman - BNP Paribas Exane - Analyst : First off, I wanted to discuss how active couple cables have received a lot of attention recently which use a redriver instead of retimer that's used in active electrical cables. Each, of course, has their own trade-offs. But do you view these applications catalystic to each other? Or is the market opportunity for passive copper cable is large enough for both applications. And as you address that question, how am I using an AEC with a half time DSP improve the powering cost between perhaps active electrical and active copper cables. And I have a follow-up. Thank you.

Question: Karl Ackerman - BNP Paribas Exane - Analyst : Yeah. Very clear. I wanted to focus back on licensing revenue. I know it's hard to predict, but is there a seasonality component to the consumer USB licensing revenue? And I guess more importantly, has your view changed at all on the licensing revenue being towards the 10% to 15% of your fiscal year revenue in fiscal '25, and perhaps obviously look for fiscal '26.

Question: Thomas O'Malley - Barclays Bank PLC - Analyst : This one is for Dan. I just want to be a little bit more specific on a question that's kind of come up a couple of times here. So in the July quarter, product came in much better and licensing came in much lower. Could you just describe first what drove that product uptick? And also, if you look at the gross margins, they were much better as well. I know you said volume on the call, but I'd be surprised if volume drove all of that. And then -- looking into the October quarter guidance, like is your assumption that IP goes back to that kind of $10 million a quarter range just because that obviously matters for what product does in a quarter. I think that's what people are trying to figure out. So both of those would be super helpful.

Question: Thomas O'Malley - Barclays Bank PLC - Analyst : And then just the second part about your expectations embedded in the guidance. You're kind of saying 10% to 15% for the year still obviously lighter in Q1, so you would expect some acceleration. But just what is your expectation for October?

Question: Quinn Bolton - Needham & Company LLC - Analyst : Congratulations on the nice results and outlook. I guess, Dan, maybe to beat on the gross margin here a little bit. would you expect product margins to decline in the October quarter? Because I'm struggling to sort of see why margins wouldn't be at least at the high end of your 62% to 64% range if product gross margin is flat and IP is a slightly higher percentage of the mix in the October quarter?

Question: Quinn Bolton - Needham & Company LLC - Analyst : Got it. Yeah, that does. And then just wanted to come back to the license and IP. I think in the script, you mentioned royalty as part of that IP business and I know you had a big consumer license a few years ago that wondering if you could just give us any update on specific royalties that you're looking for as part of that IP revenue stream? Does royalty become something to call out here at some point over the next year or so? Or do you think most of that IP is from straight licensing of your SerDes like it's been historically?

Question: Richard Shannon - Craig-Hallum - Analyst : Maybe a very quick two-parter for Dan here. You called out record product revenues, a record in couplers, but I don't think it was an ACs. Can you declare whether you had a record AC quarter? And then also can you give us the percentages of the two 10% customers as well.

Question: Richard Shannon - Craig-Hallum - Analyst : Okay. Great. And I'll follow up with a question for Bill here. Bill, I'd probably tighten incorrectly here in response to an earlier question here, but you talked about some next-gen AI clusters and racks here kind of moving away from, I think, if I caught you correctly, optics and moving towards the active copper in some manner here. 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 04, 2024 / 9:00PM, CRDO.OQ - Q1 2025 Credo Technology Group Holding Ltd Earnings Call Maybe you could just maybe delve into that a little bit more? And maybe also comment on whether you think that is a dynamic that can sustain for more than one generation of systems, I can go two or three generations, my suspicion is not, but I'd love to get your comments on that.

Question: Tore Svanberg - Stifel Financial Corp - Analyst : I just had two follow-ups. Bill, as we sort of look at the second half of fiscal '25, the ramps that you're expecting, could you talk a little bit about how broad those ramps are, I'm not talking about by customer here, but I'm thinking more about the different AEC form factors and especially when

Question: Tore Svanberg - Stifel Financial Corp - Analyst : That's very helpful. Just last question for Dan. Dan, you said that OpEx would grow at half the rate of revenue growth. Is that a specific sort of target for fiscal '25? Or was that more a reference to sort of your long-term financial model?