Credo Technology Group Holding Ltd Ordinary Shares 2027 Q1 Earnings Call

Thank you all for joining our first quarter fiscal 2027 earnings call. Today, I am joined by Bill Brennan, Credo's Chief Executive Officer, and Dan Fleming, Credo's Chief Financial Officer. During this call, we will make certain forward-looking statements. These forward-looking statements are subject to risks and uncertainties discussed in detail in our documents filed with the SEC. These documents can be found in the investor relations portion of the company's website. It is not possible for the company's management to predict all risks, nor can the company assess the impact of all factors on its business or the extent to which any factor or combination of factors may cause actual results to differ materially from those contained in any forward-looking statement.

Given these risks, uncertainties, and assumptions, the forward-looking events discussed during this call may not occur, and actual results could differ materially and adversely from those anticipated, implied, or inferred. The company undertakes no obligation to publicly update forward-looking statements for any reason after the date of this call to conform these statements to changes in the company's expectations or to actual results, except as required by law. Also during this call, we will refer to certain non-GAAP financial measures, which we consider to be important measures of the company's performance. These non-GAAP financial measures are provided in addition to, and not as a substitute for or superior to, financial performance prepared in accordance with the U.S. GAAP. A discussion of why we use non-GAAP financial measures and reconciliations between our GAAP and non-GAAP financial measures is available in the earnings release we issued today, which can be accessed using the investor relations portion of the website.

I will now turn the call over to our CEO.

Bill? Thanks, Dan, and thank you everyone for joining our first quarter fiscal 2027 earnings call.

The first quarter was another strong quarter for Credo. Revenue reached a record $479 million, increasing 10% sequentially and more than doubling year over year. non-GAAP gross margin was 68%, and non-GAAP net income exceeded $236 million, up 140% year over year. Credo has been growing at a pace that very few semiconductor companies have achieved, all while expanding profitability. At the heart of this growth is seven consecutive quarters of triple-digit year-over-year growth. We continue to see outsized growth in fiscal 2027, with our optical business growing at the fastest pace. AI infrastructure investment continues to grow rapidly. Cluster sizes are increasing, data rates are moving higher, and connectivity requirements are becoming more challenging. As these systems scale, connectivity is about much more than bandwidth.

Reliability, power efficiency, signal integrity, telemetry, and serviceability all matter. We also believe AI infrastructure will become increasingly heterogeneous. There will not be one architecture, one protocol, or one physical medium that is chosen for every connection. Future AI systems will combine optical and copper interconnects across different reaches, protocols, and topologies, with customers choosing the right technology to optimize their architecture. This is where Credo shines. While network reliability remains Credo's North Star, our ability to innovate, execute, qualify, and deploy across the wide range of customers' needs is core to our differentiation. Our focus is on helping customers bring clusters up faster, maximize processor utilization, and maintain reliable operation at scale. Our portfolio now spans connectivity from millimeters to kilometers with solutions across optics and copper. Let me walk through each of these areas in more detail. Starting with AECs. AECs remain our largest business and continues to grow.

We now have deep relationships with five hyperscalers, and our engagement with NeoCloud customers continues to expand. Within our existing customers, we continue to see increased AEC penetration as deployment scale. Higher data rates provide another growth vector with the transition to 200 gig per lane, 1.6T ports ahead. AECs have always been a system-level product for Credo. We provide the complete solution and optimize the silicon, firmware, manufacturing test, and system qualification together. Our system-level approach has been fundamental to our differentiation since we created the category. As AI clusters get larger, the value proposition remains straightforward. High reliability and low power for short-reach connectivity, where both become increasingly important at scale. We continue to see a healthy growth trajectory for AECs, driven by deeper penetration with existing and new customers and with increasing bandwidth in next-generation clusters.

Now turning to optics. Our optical business is progressing very well and includes optical DSPs, silicon photonics PICs, and ZeroFlap optical transceivers. Our optical DSP business delivered record revenue in Q1. Revenue included deployments across our 50G and 100G per lane solutions. We see a long tail for 800G ports, even as we begin the transition to 1.6T solutions. At 200G per lane, customer engagement with our 1.6T DSP is strong across both fully retimed and LRO solutions. Our first 1.6T DSP revenue remains on track for later this fiscal year. During the quarter, we also recognized our first silicon photonics PIC revenue following the DustPhotonics acquisition. Our initial wins are in 800G and 1.6T optical transceivers, and we expect these products to ramp throughout the year. More importantly, silicon photonics PICs add another important technology to our optical platform.

We now optimize the DSP and PIC together and combine them with our firmware, telemetry, and PILOT software. This level of integration creates opportunities to improve reliability, power, signal integrity, and diagnostics. It also positions us well as scale-up architectures move toward near package optics. We are seeing increasing customer activity around NPO for scale-up networks with confirmed design wins expected to begin ramping in our fiscal 2028. As part of the Open Compute Project MSA consortium, we will bring many of the advantages of today's pluggable ecosystem, including telemetry, interoperability, and serviceability. Our opportunity here includes both optical components and complete system-level solutions. This is an important evolution for Credo. We have historically been very successful solving connectivity problems at the semiconductor and AEC system level. We are now applying that same approach to optics. Our ZeroFlap Optics business continues to progress.

ZeroFlap Optics combines optimized optical hardware, PILOT software, and switch-level SDK integration to continuously monitor link health and identify and mitigate when link instabilities become likely. The objective is to improve cluster bring-up time and long-term network availability, both of which deliver significant financial advantages and end customer outcomes. Production shipments are underway, and we expect additional customer ramps during fiscal 2027 across both 800G and 1.6T with both hyperscalers and neo clouds. With DSPs, PICs, and ZeroFlap Optics, we now address much more of the optical link. That changes the opportunity for Credo. We sell components where that is preferred by customers, but more importantly, we also integrate those components with hardware, firmware, and software to deliver a complete optical transceiver with unprecedented system-level reliability.

Taken together, the momentum across DSPs, PICs, and ZeroFlap Optics keeps us firmly on track to deliver more than $600 million of optical revenue in fiscal 2027. Now turning to retimers. Our retimer business also delivered record revenue in Q1. Growth was primarily driven by scale-up deployments using our Screaming Eagle retimer at 100G per lane and with our Blue Heron retimer beginning to contribute at 200G per lane. We continue to see opportunities for the Toucan retimer as PCIe Gen 6 adoption increases, and for Screaming Eagle and Blue Heron across Ethernet and UALink. Scale-up architectures are developing quickly, with customers making different choices around protocols, topology, and connectivity. Our ability to support multiple protocols allows us to successfully participate across these architectures. Now I will discuss two important emerging growth areas.

We also continue to make progress with both Active LED Cables, or ALCs, and our OmniConnect Gearbox solutions. Our ALC solutions use microLED emitters to combine many of the reliability and power advantages of copper with reach of up to 30 meters. Customer engagement continues to increase, and we plan to demonstrate ALC solutions at OFC in October. We remain on target for initial revenue in fiscal 2028. We are also seeing strong engagement around our OmniConnect innovation. Our OmniConnect SerDes and Weaver Gearboxes address the fan-out issues that come with increasing memory bandwidth and capacity requirements of next generation AI architectures. This is especially relevant for inference, where memory capacity, bandwidth, packaging, and cost are becoming increasingly important architectural constraints. We believe OmniConnect solutions can represent thousands of dollars of Credo content per GPU with revenue beginning in fiscal 2028.

In conclusion, Q1 was another strong quarter for Credo and customer engagement across the business remains very strong. AECs continue to grow as we expand with existing customers, add new customers, and move to higher data rates. Our retimer and optical DSP businesses also delivered record revenue. At the same time, the scope of our optical business is expanding. We believe that the system-level approach will become increasingly important as AI networks move to 1.6T and 3.2T solutions and as scale-up architectures drive greater use of near package optics. AEC has helped take Credo to the scale we've achieved today, and we continue to see growth ahead for that business. What's different today is that we're adding optics as another major growth engine from a much larger base and as an established player in the industry.