Astera Labs Q1 2025 Earnings Report

Astera Labs EPS Results

• Actual EPS: $0.33
• Consensus EPS: $0.28
• Beat/Miss: Beat by +$0.05
• One Year Ago EPS: $0.10

Astera Labs Revenue Results

• Actual Revenue: $159.44 million
• Expected Revenue: $151.55 million
• Beat/Miss: Beat by +$7.89 million
• YoY Revenue Growth: +144.10%

Astera Labs Announcement Details

• Quarter: Q1 2025
• Date: 5/6/2025
• Time: After Market Closes
• Conference Call Date: Tuesday, May 6, 2025
• Conference Call Time: 4:30PM ET

Astera Labs (NASDAQ:ALAB) designs, manufactures, and sells semiconductor-based connectivity solutions for cloud and AI infrastructure. Its Intelligent Connectivity Platform is comprised of a portfolio of data, network, and memory connectivity products, which are built on a unifying software-defined architecture that enables customers to deploy and operate high performance cloud and AI infrastructure at scale. The company was incorporated in 2017 and is based in Santa Clara, California.

Astera Labs Q1 2025 Earnings Call Transcript

Presentation

[Operator]

Good afternoon. My name is Amy, and I will be your conference operator today. At this time, I would like to welcome everyone to the Astera Labs First Quarter twenty twenty five Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the management remarks, there will be a question and answer session.

[Operator]

Thank you. It is now my pleasure to turn the call over to Leslie Green, Investor Relations with Asterra Labs. Leslie, you may begin.

[Leslie Green, Investor Relations at Astera Labs]

Thank you, Amy. Good afternoon, everyone, and welcome to the Asterra Labs first quarter twenty twenty five earnings conference call. Joining us on the call today are Jitendra Mohan, Chief Executive Officer and Co Founder Sanjay Gajendra, President and Chief Operating Officer and Co Founder and Mike Kate, Chief Financial Officer. Before we get started, I would like to remind everyone that certain comments made in this call today may include forward looking statements regarding, among other things, the expected future financial results, strategies and plans, future operations and the markets in which we operate. These forward looking statements reflect management's current beliefs, expectations and assumptions about future events, which are inherently subject to risks and uncertainties that are discussed in detail in today's earnings release and the periodic reports and filings we file from time to time with the SEC, including our risks set forth in our most recent annual report on Form 10 ks and our upcoming filing on Form 10 Q.

[Leslie Green, Investor Relations at Astera Labs]

It is not possible for the company's management to predict all risks and uncertainties that could have an impact on these forward looking statements 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. In light of these risks, uncertainties and assumptions, the results, events or circumstances reflected in the forward looking statements discussed during this call may not occur and actual results could differ materially from those anticipated or implied. All of our statements are based on information available to management as of today, and the company undertakes no obligation to update such statements after the date of this call, except as required by law. Also during this call, we will refer to certain non GAAP financial measures, which we consider to be an important measure of the company's performance. These non GAAP financial measures are provided in addition to and not as a substitute for financial results prepared in accordance with U.

[Leslie Green, Investor Relations at Astera Labs]

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 through the Investor Relations portion of our website. With that, I would like to turn the call over to Jitendra Mohan, CEO of Astera Labs. Jitendra?

[Jitendra Mohan, Co-Founder, CEO & Executive Director at Astera Labs]

Thank you, Leslie. Good afternoon, everyone, and thanks for joining our first quarter conference call for fiscal year twenty twenty five. Today, I'll provide an overview of our Q1 results followed by a high level discussion around our long term growth strategy. I will then turn the call over to Sanjay to walk through the key AI and cloud infrastructure applications that are driving our market opportunity. Finally, Mike will give an overview of our q one twenty twenty five financial results and provide details regarding our financial guidance for q two.

[Jitendra Mohan, Co-Founder, CEO & Executive Director at Astera Labs]

SMLabs had a strong start to 2025 with q one results coming in above guidance. Quarterly revenues of $159,400,000.0 was up 13 from the prior quarter and up 144% versus q one of last year. Our Ares product family continues to see strong demand and is diversifying across both GPU and custom ASIC based systems for a variety of applications, including scale up and scale out connectivity. Our Taurus product family also demonstrated strong growth driven by continued deployment on AI and general purpose systems at our leading hyperscaler customer. Duo continues to shift in preproduction volumes as customers progress through the qualification of their next generation systems, leveraging new CSL capable data center server CPUs.

[Jitendra Mohan, Co-Founder, CEO & Executive Director at Astera Labs]

Finally, we expect our Scorpio PCD switches and 86 retimers to shift from preproduction builds to volume production in the late q two time frame to support the ramp of customized GPU based back scale AI system design. On the organizational front, we are very excited to announce the appointment of doctor Craig Barrett as an addition to our board of directors. Craig brings a wealth of experience across execution and innovation that will help Astero Labs expand our connectivity leadership position in the cloud and AI infrastructure. Our vision is to provide a broad portfolio of connectivity solutions for the entire AI rack through purpose built silicon, hardware, and software to support computing platforms based on both custom ASICs and merchant GPUs. Significant progress towards this vision began in the second half of twenty twenty four as the company transitioned from primarily supplying PCIe retimers for NVIDIA AI servers to now becoming an integral supplier for AI rack level connectivity topology.

[Jitendra Mohan, Co-Founder, CEO & Executive Director at Astera Labs]

We are in an ideal position to enable these new rack level connections with our broadening portfolio of Scorpio fabric switches, Ethernet and PCIe active cable modules, retimer, TXL memory expansion, optical interconnects, other products under development. Our revenue is diversifying across multiple AI platforms based on both custom ASICs and merchant GPUs across different product family, thereby enhancing our revenue profile and delivering increasing value across the AI rack. We are well positioned to continue to deliver above market growth over the long term, and we will continue to increase our investments in r and d to support our vision to own the connectivity infrastructure within the AI rack. On the product front, we recently expanded our market leading PCIe six connectivity portfolio to now also include gearboxes and optical connectivity technology to complement our existing fabric switches, retimers, and smart cable modules. The new 86 PCIe smart gearbox is purpose built to bridge the speed gap between the latest generation PCIe six devices and the existing PCI five ecosystem.

[Jitendra Mohan, Co-Founder, CEO & Executive Director at Astera Labs]

Multiple hyperscalers are designing our gearbox into both AI and general purpose compute platforms. We also demonstrated our PCI six over optics technology to enable AI accelerator scale up clustering across racks. This holistic portfolio approach is essential given the increasing complexity of PCI six topology. Point solutions are no longer sufficient. Our broad first to market PCI six connectivity portfolio once again puts us in a leadership position to deliver the most reliable and widely interoperable solutions into the ecosystem.

[Jitendra Mohan, Co-Founder, CEO & Executive Director at Astera Labs]

Increasing our market opportunity also remains a crucial focus for external apps. We believe we are in a great position to address the large emerging opportunity associated with the scale of connectivity open industry standard ultra accelerator link or ULE Link. Last month, the ULE Link one dot 0 specification was released to enable 200 gig per lane connections by supporting up to ten twenty four accelerators. ULEink combines the best of two words, natively offering memory semantics of PCIe and the fast speed of Ethernet, but without the software complexity and performance limitations of Ethernet. Your option of ULEink will enable the industry to move beyond proprietary solutions towards a scalable and interoperable AI ecosystem.

[Jitendra Mohan, Co-Founder, CEO & Executive Director at Astera Labs]

With broad industry support and adoption, the proliferation of UALink can represent a multibillion dollar additional market opportunity for Astera Labs by 2029. Beyond UA Link, we look for next generation standards, including PCIe Gen seven, eight hundred gig Ethernet, and CXL three to drive additional market opportunity for Astera Labs to increase unit shipments and higher dollar content per platform. Scaling our platform approach is another important strategic priority for the company. Our rack scale connectivity focus encompasses our complete product portfolio spanning standalone silicon, hardware solutions, and the Cosmos software suite. The Stellar Labs intelligent connectivity platform provides technology breadth to our hyperscaler customers while also enhancing performance and productivity driven by a better together product portfolio design approach.

[Jitendra Mohan, Co-Founder, CEO & Executive Director at Astera Labs]

As an example, our customers can integrate Scorpio and AD solutions in combination to obtain even more advanced diagnostics and telemetry capability. While ADs can track the reliability and robustness of PCIe six links, Scorpio provides packet level visibility for increased observation of data center traffic. The synergy between our products, underpinned by Cosmos, ensures comprehensive support and seamless connectivity to drive system efficiency and performance across various applications. In summary, we continue to take advantage of robust secular trends and strong business momentum by accelerating the pace of our r and d investment to access new and emerging market growth opportunities to service the entire AI rack. With that, let me turn the call over to our president and COO, Sanjay Gajendra, to discuss our growth strategy in more detail.

[Sanjay Gajendra, Co-Founder, President, COO & Director at Astera Labs]

Thanks, Gajendra, and good afternoon, everyone. Today, I want to provide an update on our progress and opportunities within three key AI and cloud infrastructure application categories as we establish Asterra as a critical connectivity supplier for the entire AI rack. First off, scale up connectivity for AI and cloud infrastructure represents a significant and rapidly growing marketplace. Increasing accelerator cluster sizes, faster interconnect requirements, and overall system complexity challenges are creating substantial dollar content opportunities. These opportunities are driving strong demand for our reach extension solutions in the near term and we expect these trends to drive additional revenue growth across multiple product lines over the longer term.

[Sanjay Gajendra, Co-Founder, President, COO & Director at Astera Labs]

We're also pleased by the growing interest in Scorpio X Series solutions for scale up connectivity, designed to maximize AI accelerator utilization with consistent performance and reliability, Scorpio X solutions will be central to next generation AI racks. This trend will increase our silicon content opportunity to hundreds of dollars per accelerator and serve as an anchor socket for integrating additional Esterile Labs connectivity solutions along with our Cosmos software suite at a rack scale. I'm excited to share that we will begin shipping preproduction volumes for Corphio X Series starting late this quarter. Longer term, hyperscalers will also look to the UALINK protocol to deliver faster data transfer rates with a more scalable architecture. Our expanding roadmap is providing customers with the long term strategy towards scaling their AI accelerator clusters and infrastructure.

[Sanjay Gajendra, Co-Founder, President, COO & Director at Astera Labs]

We expect to deliver UOLINK solutions in 2026 to solve scale up connectivity challenges for next generation AI infrastructure. Next, the scale out connectivity applications. Front end scale out connectivity topologies are becoming increasingly intricate as next generation AI accelerators necessitate faster speeds while also supporting comprehensive interoperability with other peripherals. Over the past few years, we have established a robust business within scale out topologies through our reach extension portfolio of ADs and Taurus products across PCIe and Ethernet protocols. As the market transitions to PCIe six capable GPUs, we now see an expanded market opportunity that includes our Scorpio P Series product family and Ares VI retimer and gearbox solutions.

[Sanjay Gajendra, Co-Founder, President, COO & Director at Astera Labs]

Our Cosmos software framework enables seamless expansion into this additional sockets in our customers' platforms. Utilizing PCIe six data rates to support 800 gig scale out connectivity will be a primary focus for AI infrastructure providers in the coming years. The Scorpio p series combined with 86 represents the first to market solution specifically designed to achieve this objective. Looking ahead to Q2, we anticipate accelerated shipments of Scorpio P Series switches and 86 retimers on customized rack scale AI platform based on market leading GPUs. Additionally, we continue to identify further opportunities for Scorpio P Series outside of rack scale systems with multiple engagements on modular topologies that support enhanced customization.

[Sanjay Gajendra, Co-Founder, President, COO & Director at Astera Labs]

Our reference design and collaboration with Wistron on NVIDIA Blackwell based MGX systems exemplifies this expanding opportunity set as we aim to bolster our presence within OEM and enterprise channels. We remain the sole connectivity provider that has demonstrated complete end to end PCIe six interoperability with NVIDIA's Blackwell GPUs, and we are actively work working across the ecosystem to enable future proof infrastructure capable of leveraging the increased throughput and performance of the PCIe six standard. Finally, we continue to see large and growing opportunities within the general purpose compute infrastructure market. We expect revenue growth from general compute based platform opportunities featuring next generation CPUs, network cards and SSDs with our ADES PCIe six retimers, ADES PCIe gearboxes, Taurus Ethernet STMs and LEO CXL product families. Over the next couple of years, the transition of data center server CPUs to support PCIe six will be a catalyst for additional unit growth and higher ASPs for our ADI's product family.

[Sanjay Gajendra, Co-Founder, President, COO & Director at Astera Labs]

For Ethernet, Torus continues to see growth on general purpose platforms leveraging 400 gig switching port speeds. CXL will also expand our general purpose compute exposure with expected volume ramps on hyperscaler customer programs in second half of twenty twenty five. Overall, general purpose compute remains an important application for our intelligent connectivity platform and is expected to drive diversification of our revenue profile over the long term. In conclusion, the strong customer traction with Scorpio along with increasing opportunities in AI connectivity and general purpose computing allows us to drive future growth. By innovating and expanding our product offerings, we aim to meet the evolving needs of our customers and capitalize on our vision to deliver high performance connectivity solutions for AI racks to support PCIe and UA link based scale up, Ethernet based scale out, PCIe based peripheral and CXL based memory connectivity with all these components seamlessly integrated with our Cosmos software suite for advanced observability, fleet management and rapid market deployment.

[Sanjay Gajendra, Co-Founder, President, COO & Director at Astera Labs]

With that, I will turn the call over to our CFO, Mike Tate, who will discuss our Q1 financial results and our Q2 outlook.

[Mike Tate, CFO at Astera Labs]

Thanks, Sanjay, and thanks to everyone for joining the call.

[Mike Tate, CFO at Astera Labs]

This overview of our Q1 financial results and Q2 guidance will be on a non GAAP basis. The primary difference in Astero Labs' non GAAP metrics is stock based compensation and its related income tax effects. Please refer to today's press release available on the Investor Relations section of our website for more details on both our GAAP and non GAAP Q2 financial outlook as well as the reconciliation of our GAAP to non GAAP financial measures presented on this call. For Q1 of twenty twenty five, Astero Labs delivered quarterly revenue of $159,400,000 which was up 13% versus the previous quarter and 144% higher than the revenue in Q1 of twenty twenty four. During the quarter, we enjoyed strong revenue growth from both our Ares and Taurus product lines supporting both scale up and scale out PCIe and Ethernet connectivity for AI rack level configurations.

[Mike Tate, CFO at Astera Labs]

LEO CXL controllers and Scorpio Smart Fabric switches both ship preproduction volumes as our customers work to qualify their platforms for volume deployment in mid to late twenty twenty five. Q1 non GAAP gross margins was 74.9% and was up slightly from the December levels as product mix remained largely constant. Non GAAP operating expenses for Q1 of $65,600,000 were up from the previous quarter as we continue to scale our R and D organization to expand and broaden our long term market opportunity. Within Q1 non GAAP operating expenses, R and D expenses were $45,400,000 Sales and marketing expenses were 9,400,000 and general and administrative expenses were $10,900,000 Non GAAP operating margin for Q1 was 33.7%. Interest income in Q1 was $10,400,000 Our non GAAP tax rate for Q1 was 7.1%.

[Mike Tate, CFO at Astera Labs]

Non GAAP fully diluted share count for Q1 was 178,000,000 shares and our non GAAP diluted earnings per share for the quarter was $0.33 Cash flow from operating activities for Q1 was $10,500,000 and we ended the quarter with cash, cash equivalents and marketable securities of $925,000,000 Now turning to our guidance for Q2 of fiscal twenty twenty five. We are aware and focused on navigating the rapidly changing and dynamic macro environment. Policy initiatives including tariffs and changing export restrictions are few of the variables that are likely to have at least some impact on demand across the global economy, including the AI and cloud infrastructure markets. Despite these factors, our business continues to have strong momentum as we execute on our long term growth strategy. With that said, we expect Q2 revenue to increase to within a range of $170,000,000 and $175,000,000 up roughly 7% to 10% from the prior quarter.

[Mike Tate, CFO at Astera Labs]

For Q2, we expect Ares and Taurus revenues to grow on a sequential basis. Our LEO CXL controller family will continue shipping in preproduction quantities to support ongoing qualifications ahead of an expected production ramp in the second half of twenty twenty five. Finally, we expect our Scorpio product revenues to grow sequentially in Q2 as the initial designs of customized GPU based rack level systems begin to ramp in volume late in the quarter. We continue to expect Scorpio revenue to comprise at least 10% of our total revenue for 2025. We expect non GAAP gross margins to be approximately 74% as the mix between our silicon and hardware modules remains largely consistent with Q1.

[Mike Tate, CFO at Astera Labs]

We expect second quarter non GAAP operating expenses to be in a range of approximately $73,000,000 to $75,000,000 Operating expense growth in Q2 is being driven by continued investment in our research and development function as we look to expand our product portfolio and grow our addressable market opportunity. Interest income is expected to be approximately $10,000,000 Our non GAAP tax rate should be approximately 10% and our non GAAP fully diluted share count is expected to be approximately 178,000,000 shares. Adding this all up, we are expecting our non GAAP fully diluted earnings per share in a range of approximately $0.32 to $0.33 This concludes our prepared remarks. And once again, we appreciate everyone joining the call. And now we'd like to open the line for questions.

[Mike Tate, CFO at Astera Labs]

Operator?

[Operator]

Thank you. Excuse me. The floor is now open for questions. If you are called upon to ask your questions and are listening via loud speaker on on your device, please pick up your handset and ensure that your phone is not on mute when asking your question. Our first question comes from the line of Harlan Sur with JPMorgan.

[Operator]

Your line is now open.

[Harlan Sur, Executive Director - Equity Research at JP Morgan Chase & Co]

Good afternoon. Thanks for taking my question. High level question, on the overall AI and data center spending environment, there have been some concerns on the CapEx spending momentum potentially. Speaking this year, maybe some AI compute digestion. We also kinda recently saw some of the AI bands to China recently, and then, obviously, tariff and trade concerns as you guys articulated in your prepared remarks.

[Harlan Sur, Executive Director - Equity Research at JP Morgan Chase & Co]

On the flip side, you've got the strong ramp of your merchant GPU customers on the next generation AI platforms, strong new AI ASIC XPU ramps. So you've got new entrants into the AI, ASIC XPU market. So since last earnings, I mean, anything changed meaningfully positive or negative on the customer programs or the demand outlook for this year and more importantly your confidence level on continued strong growth for next year?

[Mike Tate, CFO at Astera Labs]

Thanks, Harlan. Yeah. First off on the tariffs, we have not seen any material impact on our business, but it is fluid and and and the rules are are still subject to change. So it's something we're we're watching closely. But so far, we have not seen an impact.

[Mike Tate, CFO at Astera Labs]

We do note that the hyperscalers stuck to their CapEx in the recent calls, and and one actually increased. So that was encouraging. So we'll continue to monitor that. In regards to restrictions to China, we we did see an impact on that in in this year. We do have designs that we were the retimer on on those programs.

[Mike Tate, CFO at Astera Labs]

So to the extent our our customers cannot procure the GPUs, that that does have a headwind for us that we've contemplated in our guidance. Yeah.

[Harlan Sur, Executive Director - Equity Research at JP Morgan Chase & Co]

And then on the Conclusion, Pauline.

[Sanjay Gajendra, Co-Founder, President, COO & Director at Astera Labs]

Yeah.

[Sanjay Gajendra, Co-Founder, President, COO & Director at Astera Labs]

On the Mhmm. Customer and the business side, just to, touch on that question that you asked. You know, the the great thing about, our overall revenue profile is that, there are, you know, multiple, ways in which we are approaching the market. The diversity, across both custom ASIC based platforms versus, merchant GPU based platforms, scale up versus scale out, and the multiple product lines that we have enables us to approach the market in many different ways. And to that standpoint, for us, for first half, what we're expecting is that our revenue would be driven largely by the PCIe scale up and the Ethernet scale out opportunities along with the initial shipment of Scorpio, p series and 86 going into the customized rack.

[Sanjay Gajendra, Co-Founder, President, COO & Director at Astera Labs]

And second half, of course, lays nicely on top with, some of the production ramps that we're expecting with the customized racks, which, again, for us is the Scorpio switches along with the PCIe six retimers. These are now qualified. So we are starting to see that shipments start becoming significant. So that's part of second half. And second half, of course, we have the CXL initial shipments that we're expecting for production volumes and the Scorpio X switches for the scale up going into the custom ASICs.

[Sanjay Gajendra, Co-Founder, President, COO & Director at Astera Labs]

Those are also expected to start hitting production, initial production volumes in the second half of this year, which essentially gives us multiple waves, if you will, and sets us up nicely for future revenue growth even beyond 25%.

[Operator]

Thank you. Your next question comes from the line of Blayne Curtis with Jefferies. Your line is now open.

[Blayne Curtis, Managing Director at Jefferies Financial Group]

Hey, guys. Nice to roll. Thanks for taking my question. I wanted to talk about scale up. You mentioned it several times.

[Blayne Curtis, Managing Director at Jefferies Financial Group]

I think you even said a couple hundred dollars per accelerator. Today, I think you're selling some retimers and then some PCIe cabling. Can you walk us through the progression of scale up in your participation and kind of maybe set some timing? Because I know UAL is probably, you know, later next year. So what's the scale up opportunity for you in between now and then?

[Jitendra Mohan, Co-Founder, CEO & Executive Director at Astera Labs]

Hi, Minh. This is Deepinder. Scale up presents a very good opportunity for us. As you know, so far our revenues have been driven primarily by scale out opportunities. But for the first half, as Sanjay laid out, we have a significant contribution from scale up.

[Jitendra Mohan, Co-Founder, CEO & Executive Director at Astera Labs]

The reason that's so important for us is, scale up is really a very rich opportunity of high speed interconnects that need to deliver low latency and high throughput. And that's where we play today with our, eighties retimer products and the starting shipments of, Scorpio x family. And we do expect this opportunity to continue to grow as cluster sizes grow and the data rates, increase. So we have significant opportunities that we are working on, for for PCI Express based, scale up networks based on our current Scorpiox family. But then it also dovetails very nicely into UAL, and we expect this to be a multibillion dollar opportunity as we provide a full holistic, you know, portfolio of devices to address UAL infrastructure.

[Jitendra Mohan, Co-Founder, CEO & Executive Director at Astera Labs]

And, you know, as far as the the the UAL itself is concerned, the spec is now final. It's been released as the one dot o spec. And so you can imagine that the products will start to be worked on now and start to see for samples in in 2026, with the revenue contribution the the following year. So that is a very big opportunity that we are very well positioned to take advantage of.

[Blayne Curtis, Managing Director at Jefferies Financial Group]

Thanks so much. And then I wanna ask you on Taurus.

[Blayne Curtis, Managing Director at Jefferies Financial Group]

You you called out growth in March and then continued growth in June. Can you talk about on the do you wanna frame how big that business has gone, whether there's some rough metrics you can kinda give us? And then just kinda curious the diversity of the customer base beyond the lead customer as well.

[Mike Tate, CFO at Astera Labs]

Yeah. Yeah. Currently, we're we're shipping the fifth 50 gigs solution that that continues to grow. We're we have multiple designs at our at our lead customer, which which are, you know, the largest one being the internal AI accelerator based platform, which is still in a kind of a ramp phase. We we we do look to broaden out behind beyond our lead customer.

[Mike Tate, CFO at Astera Labs]

That's probably gonna be on the next technology jump to 100 gig speeds.

[Operator]

Thank you. Your next question comes from the line of Ross Seymore with Deutsche Bank. Your line is now open.

[Ross Seymore, Managing Director at Deutsche Bank]

Hi, Thanks for asking a question. Last quarter's call, really made a big point about the diversification of your customer base. Tonight, it seems like it's a lot more about the diversification of your products that you're offering. So I guess if we kind of blended those two together, what are you seeing as the the changes in the environment on the ASIC side versus the merchant GPU and how you're broadening technology be is being applied differently between them?

[Sanjay Gajendra, Co-Founder, President, COO & Director at Astera Labs]

Yes. So for us, again, we play in both the space with different strategies and different products. Now the key thing that we are excited about is the growing interest on Scorpio x family. So these are, fabric switches that are used to interconnect, multiple accelerators together. So to that standpoint, a, it's not only a significant dollar opportunity because the ASP of this product tends to be high.

[Sanjay Gajendra, Co-Founder, President, COO & Director at Astera Labs]

But these are also products that are turning out to be anchor sockets for us. If you think of AI, rack being built, you know, you have the accelerators and then you have the fabric that interconnects the accelerators. So what we are transitioning and what we're excited about is that the Scorpio x device is now translating to be an anchor socket, think of it as like a mother ship, around which we are able to now add lot more products that, that, go along with it, whether it's a silicon level products or module or other form factors that we're considering. So overall, I want to say that, from an opportunity space, standpoint, for Astera, the custom ASIC based, implementation tends to offer a lot more opportunities. And with Scorpio X becoming more and more gaining more and more traction, we do believe that, we are in a good position looking forward, not just to service near term business, but also longer term, with potentially UA link being, the industry wide standard for, scale up topologies.

[Ross Seymore, Managing Director at Deutsche Bank]

Thanks for all those details. I guess as my follow-up, just sticking on the custom silicon side of things, does the competitive environment change at all there? I think this was a question that was asked on the last call as well. But considering the XPU providers are oftentimes your primary connectivity competitors, I know the best technology always wins. But does the bundling capability that could occur in that XPU market actually lead to more competition on your side?

[Ross Seymore, Managing Director at Deutsche Bank]

Or is that something you're not seeing?

[Sanjay Gajendra, Co-Founder, President, COO & Director at Astera Labs]

The competition will always be there and competition will always try to sell more. Think that's a given. What, you need to keep in mind is that we are working with large hyperscalers that needs to also consider, the supply chain and ecosystem and other considerations, from a risk management standpoint. So that's where we, is is what we see. And in general, it also comes down to technology differentiation.

[Sanjay Gajendra, Co-Founder, President, COO & Director at Astera Labs]

For us, the fabric devices and in in fact, all of our connectivity devices are developed ground up for AI type of workloads. So there is a clear advantage and benefit that we offer, which is recognized and valued by our customers. Our Cosmos software provides unprecedented, visibility into what's happening in the network, being able to predict performance, being able to predict upcoming failures, and so on, which are all critical requirements if you think about how complex an AI rack looks like and then will continue to become more complex. So all in all, the reasons I'd like noted both from a risk management, commercial, and technology differentiation standpoint, we are seeing that customers continue to work with us and we see an increasing interest for our Scorpio line of products.

[Operator]

Thank you. Your next question comes from the line of Thomas O'Malley with Barclays. Your line is now open.

[Thomas O'Malley, Director - Equity Research at Barclays]

Results. First one's for you, Mike. You mentioned that there was a China impact on your sales. It's never been a significant portion of your model, but could you give us a feeling just of how large that impact was and what that impact will be over the next couple of quarters?

[Mike Tate, CFO at Astera Labs]

Yeah. So, you know, we we we ship into China with our re retires predominantly right now, and they were attached to third party merchant GPU systems. Both both were restricted hard stop during the quarter. So there was a modest impact that we have to overcome. China revenues when you look at end customer demand is less than 10% of our revenues.

[Mike Tate, CFO at Astera Labs]

So it's been manageable enough, and given the strength of our business and other product lines to to continue to grow through this challenge.

[Thomas O'Malley, Director - Equity Research at Barclays]

Helpful. And then, Tatintra, maybe a broader question. So you guys have been very consistent in kinda describing the year as first half. PCIe scale up, Ethernet scale out, and a lot of the custom silicon with, you know, the second half, you see more Scorpio, more retimers. There's been a ton of noise in the market, and that's just the price you pay from being very visible and attached to NVIDIA.

[Thomas O'Malley, Director - Equity Research at Barclays]

But you heard about a lot of differences in terms of, like, what the ramp cadence was coming into this year versus where we were today. Some large hyperscalers, maybe some weakness in their programs, and then potentially with your large customers, some systems that are maybe delayed and moving to more DGX style solutions. I understand you have to be sensitive about talking about customers, but to the best extent that you can, coming into this year versus where you are today, could you maybe describe if there's any differences to what you saw in the ramp of your revenue and and maybe comment on anything that maybe has changed, that can help us understand what's going on? Thank you.

[Jitendra Mohan, Co-Founder, CEO & Executive Director at Astera Labs]

Yeah. I don't that's a good thing that the good point that you bring up. These systems are incredibly complex. And, you know, a lot of things have to go right in order for the full system to not only get deployed, but then get deployed at scale. And we, of course, try to do our best to make sure that we are never the bottleneck in terms of the deployment of these systems.

[Jitendra Mohan, Co-Founder, CEO & Executive Director at Astera Labs]

And as Sanjay mentioned earlier, we have done a pretty good job so far with our preproduction shipments and getting the products qualified and so on. But we always have to take some buffer or some kind of conservativeness in terms of what it would take for our end customers to kind of complete that qualification and deployment. And so far, I would say that our expectations have come true largely unchanged from from when we started the year, which is what our judgment was based on what we were getting from our customers. Sanjay, do wanna add any any more color? Yeah.

[Sanjay Gajendra, Co-Founder, President, COO & Director at Astera Labs]

I think the so we will always continue to be conservative just to underline what you can have said. But having said that, the the revenue models and the guidance that we are providing or the outlook that we are sharing, you know, comprehends all this because we are so close to this customer that we see a lot of stuff and we're able to consider and contemplate that when we provide guidance. So to that step point, you know, we do feel, comfortable and confident about where we are. We just need to continue to make sure that we execute and deliver our part of the the subsystem. And then rest of it, like we noted, will account for that, in in in a conservative model knowing how complex the systems are to get deployed.

[Operator]

Thank you. Your next question comes from the line of Joe Moore with Morgan Stanley. Your line is now open.

[Joseph Moore, Managing Director at Morgan Stanley]

Great. Thank you. I guess we've heard a lot of the large language model developers talk about sort of tightness in inference markets and kind of a lack of hardware to deal with inference. Are you guys seeing that? Does that translate into strengthen any part of the business for you?

[Joseph Moore, Managing Director at Morgan Stanley]

Or just anything you can do to corroborate or mitigate those concerns?

[Jitendra Mohan, Co-Founder, CEO & Executive Director at Astera Labs]

K. Thanks, Joe. The the for us to the first level, inference and training are about the same. Same products get used in both of these systems. So we do benefit from both training and inference.

[Jitendra Mohan, Co-Founder, CEO & Executive Director at Astera Labs]

And as you look at some of these larger models, the mixture of experts and so on, what we are finding is that the amount of compute that's required to to draw inference from these models is even higher, 10 x higher than previously. And as a result, the basic unit of compute is starting to become a rack, kind of a rack level system of GPU. It also happens to be the same basic unit for training. And so with the increased complexity of these rack level systems, we actually see more opportunities overall for both inference as well as for training. As Sanjay mentioned earlier, this quarter, we also released a, you know, Scorpio based inference system for smaller scale inference.

[Jitendra Mohan, Co-Founder, CEO & Executive Director at Astera Labs]

So that should allow us to kind of benefit for some of these smaller scale inference systems as well. So having said all of that, we do see today that our customers are also using the same set of systems to do both inference and training, and we benefit from both.

[Joseph Moore, Managing Director at Morgan Stanley]

Great. That's helpful. And for my follow-up, you mentioned racks. A lot of the rack scale systems seem to be sort of tricky to get get up and running. I guess those issues seem to be worse a few months ago.

[Joseph Moore, Managing Director at Morgan Stanley]

But does that

[Joseph Moore, Managing Director at Morgan Stanley]

affect you guys? I know you

[Joseph Moore, Managing Director at Morgan Stanley]

have good content across both Rack and non Rack merchant solutions and ASICs. But just is that kind of change in ramp schedule? Is that having any impact on you guys?

[Sanjay Gajendra, Co-Founder, President, COO & Director at Astera Labs]

There is always complexity, Joe, I would say. But like, we noted, we are modeling that and and providing guidance that takes a conservative view on how some of the systems are being, built and deployed. That's, probably the the right thing to do, from a business outlook standpoint. But having said that, going forward, what we're doing is also something I I do wanna, share, Joe, which is to take a more of an AI rack level view in how we approach the market. Now the vision that we outlined is to be the connectivity supplier for the entire AI rack.

[Sanjay Gajendra, Co-Founder, President, COO & Director at Astera Labs]

And like I noted in my prepared remarks, focus on four main protocols, which is, PCIe and ULE for for, scale up, Ethernet for scale out, PCIe for peripheral connectivity, and CXL for memory expansion, and approach it holistically. So we are providing a variety of different products, whether it's three timers, gearboxes, fabric devices, switches, you know, across both copper and optical. So that going forward for next generation AI system, at least from a connectivity infrastructure standpoint, it's a holistic solution that not only considers silicon products, but also hardware and software. That's how we see the the evolution, if you will. And Esterra, we believe, is, is well, is well suited and to deliver the entire connectivity at the rack level, which we are executing, both in terms of what we are servicing today and then going forward, of course, with ULE Link.

[Operator]

Thank you. Your next question comes from the line of Tore Svanberg with Stifel. Your line is now open.

[Tore Svanberg, Managing Director at Stifel Financial]

Yes. Thank you and congrats on the quarter. To tenderize, I was hoping you could elaborate a little bit more on the Area six, upgrade cycle here, especially in reference to, gearbox products. If you could add any color on how diversified, are the use cases be going to be for, Area six, gearbox products?

[Sanjay Gajendra, Co-Founder, President, COO & Director at Astera Labs]

Yeah. So, let me just take a second to kind of explain what a gearbox device does. It's primarily used to match two generation of of the same standard. Meaning, this particular case, one side of the device talks PCIe gen five, the other side talks gen six. The reason these products are essential is if you look at the CPUs today, they're still at Gen five.

[Sanjay Gajendra, Co-Founder, President, COO & Director at Astera Labs]

GPUs have already transitioned for Gen six. The same thing could happen with the networking and storage interfaces. So what a gearbox device does is, it it does is two things. One, it takes care of the signal quality similar to a retimer, and on top of that, takes care of matching the, the protocol generations on two ends of the, of the chip. So in terms of, opportunities, we have multiple engagements today that, we're servicing for the gearbox device.

[Sanjay Gajendra, Co-Founder, President, COO & Director at Astera Labs]

In fact, we've already started, you know, shipping preproduction volume for, supporting some of the opportunities. And this would, again, not create an additional TAM to our eighties business because it's adding to the retimer TAM, but essentially bringing in, a higher level of ASP simply because you're able to not only do retiming, but also do some of the, the speed matching that I noted. And we will, continue to, you know, offer products like that, which is critical because if you think of it of a typical engineer that's working on an AI system, they need multiple tools. And Esterra is providing that to them both in terms of retimers, gearboxes, fabric devices providing the software. So overall, we are providing a holistic portfolio that is also opening up that added interest and momentum for customers to use our products.

[Tore Svanberg, Managing Director at Stifel Financial]

Great. Thank you for that color, Sanjay. As my follow-up for Mike, not to nitpick here, but I mean your DSOs came in at forty days. I think throughout most of last year, were around mid-20s. Anything going on there to note?

[Mike Tate, CFO at Astera Labs]

It's really just the linearity was more balanced in the quarter than previous quarters. I think this going forward will a more typical level of DSOs as we grow as a company and have more multiple product line shipping.

[Joseph Moore, Managing Director at Morgan Stanley]

Perfect. Thank you, Mike.

[Operator]

Thank you. The next question comes from the line of Quinn Bolton with Needham and Company. Your line is now open.

[Quinn Bolton, Senior Analyst at Needham & Company]

Maybe just a quick clarification, guys. Mike, I think in your prepared comments, you said that Ares and Taurus would grow in the June. Just wanted to make sure that Ares does that is that only the on the board retimer products? Does that include the Ares SCM or scale up applications? I know you've talked about strength and scale up, but just wondering just wanted to see if you could make a specific comment on the Ares SCM product because that certainly sounds like the lead ASIC platform is is still in a ramp phase.

[Mike Tate, CFO at Astera Labs]

Yes. It it is. The Ares SCM is is doing very well for us, but also other internal AI accelerator cloud platform providers are also ramping. So we're seeing growth, and that's more chip on board for scale out, and the areas that seems for scale up. So we're seeing both contributing, growth.

[Mike Tate, CFO at Astera Labs]

So these are on, internally, I accelerate, systems.

[Quinn Bolton, Senior Analyst at Needham & Company]

Got it. Okay. Thank you for that. And then maybe, Senator Sanjay, just longer term, I know you're ramping Scorpio P Series switches first, but it sounds like the X Series is a larger TAM. That starts to enter production late this year with higher dollar content per accelerator, would you expect X Series to potentially cross over P revenue by the end of twenty six, or would that be more of a '27 event?

[Quinn Bolton, Senior Analyst at Needham & Company]

Just trying to to get some sense of what you think the pace of the ramp might be once the x series enters production.

[Jitendra Mohan, Co-Founder, CEO & Executive Director at Astera Labs]

Yeah. So if you consider the the PCD and the x series TAMs, we we kind of outline them to be both about 2 and a half billion each. But if you look at the x series that that the the available TAM today is nearly zero, right, outside of NVIDIA. So it's a very, very rapidly growing market for us. And we do, you know, we do estimate that it'll be the single largest sort of product line, for us.

[Jitendra Mohan, Co-Founder, CEO & Executive Director at Astera Labs]

As Sanjay mentioned earlier, the x family shipments are just going to start, have just started in this quarter and will start to ramp, later on this year for the full volume of them really coming in in 2026. So we do expect in the '26 and '27 time frame for the x family to become a larger contribution, to our revenues.

[Sanjay Gajendra, Co-Founder, President, COO & Director at Astera Labs]

If I can add

[Sanjay Gajendra, Co-Founder, President, COO & Director at Astera Labs]

to that, not just revenue like noted, x series is our anchor socket. It's the socket around which we are building the entire product line. Cosmos operates at a completely higher level when it comes to supporting the x series. So overall, we do believe that that anchor socket and the fact that this is a greenfield TAM that's rapidly growing puts us in a great position to be able to offer multiple product lines in order to service the entire AI rack.

[Operator]

Thank you. Your next question comes from the line of Atif Malik with Citi. Your line is now open.

[Papa Talla Sylla, Equity Research Analyst at Citi]

Thank you for taking my question. This is Papa Silva in for Atif. I guess my first question might be more of a broader question for Jitinder or Sanjay. I I I believe one year ago, kind of, Astera announced some progress made around PCIe over optics and this year, obviously, we saw various demos on the technology. I I guess at higher level, does Asteris still see PCIe over optic as a path forward to extend PCIe beyond copper and beyond scale up, or perhaps the focus is still on copper?

[Jitendra Mohan, Co-Founder, CEO & Executive Director at Astera Labs]

Yeah. So the the good question, the focus right now is definitely on copper as we have discussed through the entirety of this call. But as Sanjay mentioned earlier, our job really is to provide all of the tools that our customers require in order for them to deploy their AI infrastructure. Our customers usually prefer to deploy over copper just because it's kinda more reliable, low power, you know, better TCO, and so on. And so we will continue to support that for for as long as, you know, we we can.

[Jitendra Mohan, Co-Founder, CEO & Executive Director at Astera Labs]

But at some point in time, as data rates go up and the the the reach requirements increase, you will have to go to optical solutions, and that's where we have our very innovative PCXpress over optical demonstration to provide that additional capability to our customers. And more broadly speaking, you know, as you go into from PC Express into UAL, where the line rates are even higher, we believe that copper will still be the dominant media at 200 gig per second. Now if you start looking at speed even beyond that, that's where optical may start to have a play, and we are very actively working with our customers to figure out what that intercept is and and the different type of innovations that are required to deploy a scale of optics based solution, at those data rates.

[Papa Talla Sylla, Equity Research Analyst at Citi]

Got it. No. That's helpful. And and for my kind of follow-up discussion, it might be more for for Mike. And I totally get you don't guide beyond the next quarter.

[Papa Talla Sylla, Equity Research Analyst at Citi]

But if our math is right, Scorpio sales in September and December could reach mid teens to 20 of sales on a quarterly basis if we take into account the 10% plus sales you gave out for the year. With that in mind, can we think of actually the second half gross margin actually being up versus the first half qualitatively?

[Mike Tate, CFO at Astera Labs]

Yeah. Overall, for gross margins, you know, as we diversify our product line, we're we're gonna see a wider range of margins per per product offering. Just given how quick the market's moving, you know, you have less time to optimize the product portfolio for cost optimization. You're always chasing the next generation for revenue growth. So with that wider range of margins, we still expect our longer term gross margin targets of 70% to be the direction we're heading, know, not all in one you know, this year, but over time.

[Mike Tate, CFO at Astera Labs]

So I I would I would still encourage people to think about the margins as we grow the company to trend towards 70%.

[Operator]

Thank you. Your next question comes from the line of Srini Pajjuri with Raymond James. Your line is now open.

[Srini Pajjuri, Managing Director at Raymond James Financial]

Thank you. A question on the custom racks and also what sort of mix I think you're assuming for custom racks as we go into second half. Maybe first, can talk about what's driving that inflection. I know it's been it's always been middle of the year for custom racks. But is there any, I guess, software?

[Srini Pajjuri, Managing Director at Raymond James Financial]

Or is it related to the Blackwell Ultra or some other, you know, hardware component that's, you know, kind of, you know, enabling customers to switch over to custom racks? And, you know, as I said before, if you could talk about, you know, what sort of mix assumptions you're making as we, you know, go into the second half of the year.

[Jitendra Mohan, Co-Founder, CEO & Executive Director at Astera Labs]

It's a a good question. It's, unfortunately, difficult to give out an exact mix because it actually keeps changing or keeps evolving. But to go back to the point that you made, you know, Blackbird, first of all, is a fantastic architecture, fantastic platform for customers to take advantage of. But they also have the the challenges or restrictions of, you know, what their data center looks like and so on. So there is a lot of incentive for our customers to customize this rack to take advantage of their, you know, existing data centers, their existing hardware, the software infrastructure that they have, security, even their supply chain.

[Jitendra Mohan, Co-Founder, CEO & Executive Director at Astera Labs]

So that's why we do believe that, many of the hyperscalers will customize the racks, and and deploy in their data centers. However, the timing of that will vary. So hyperscaler customers that are kind of more focused on time to market or low engineering effort will likely, you know, side with the reference designs to get started and then, you know, customize the the, racks later on. We can definitely talk about the the information that's now publicly released. We are the first first application for this customization was to use, in house SmartNICs in order to attach them to the Blackwell platform.

[Jitendra Mohan, Co-Founder, CEO & Executive Director at Astera Labs]

And that's a fantastic opportunity for us, and we expect that to start to ramp in the second half of this year.

[Srini Pajjuri, Managing Director at Raymond James Financial]

Got it. Thanks for that. And then more of a longer term question, Jitendra, on UA link, obviously, it seems like a very large market potential out there. But at the same time, some of your competitors are focusing on Ethernet. These are obviously pretty large competitors.

[Srini Pajjuri, Managing Director at Raymond James Financial]

And I'm guessing some of your customers are probably going to stick to Ethernet as well. Just wondering how you think about, you know, how the market might shake out longer term, you know, Ethernet versus UOLINK, you know, in terms of what, you know, I guess, sort of applications might adapt, you know, Ethernet for, you know, scale up versus UOLINK? Thank you.

[Jitendra Mohan, Co-Founder, CEO & Executive Director at Astera Labs]

Yeah. So UOLINK, as you correctly pointed, is a brand new standard. Right? It it's been purpose built for AI for for, specific workloads around training as well as inference. Whereas Ethernet is has been very widely deployed.

[Jitendra Mohan, Co-Founder, CEO & Executive Director at Astera Labs]

I mean, probably the most widely deployed, protocol for scale out. And now what's happening is with the UEC, Ultra Ethernet Consortium, they're trying to retrofit, Ethernet to maybe work on scale up. If you look at kind of longer term horizon, probably fair to say that you would be able to build scale up networks using both UAL, as well as UEC. However, there are pretty significant differences between the two, and I can maybe categorize them into two, bucket. One is on technical performance, and the other the other one is ecosystem diversity.

[Jitendra Mohan, Co-Founder, CEO & Executive Director at Astera Labs]

If you just look at it from a a technical performance standpoint, you will bring the best of two words. Right? It gets the memory semantics, the ease of software, the lower latency of a PCI Express, protocol, and then combines it with the fastest speeds that are available for Ethernet. At the end of the day, you get a very efficient system with lossless packet transmission, very low latency, and very high throughput. Whereas in the case of Ethernet, you're trying to retrofit, some of these features while keeping Ethernet backwards compatible or keeping UVC backwards compatible.

[Jitendra Mohan, Co-Founder, CEO & Executive Director at Astera Labs]

So overall, our belief is that just purely from a performance standpoint, UL will be more performant, compared to UEC. The other part of it is ecosystem diversity. And being on the board of of UL, we see a lot of traction both from customers as well as for vendors to build products, into this ecosystem. We believe that over time, we will have a a rich ecosystem where, multiple vendors are building different components that'll go into a UOL based track of UOL infrastructure, and and certainly, a Star Labs is also very well positioned to play into that ecosystem. Overall, we believe that hyper scale customers will prefer this diverse ecosystem over one that is more proprietary or locked into one large, you know, component provider.

[Operator]

Thank you. And our final question comes from the line of Suji Desilva with Roth Capital Partners. Your line is now open.

[Suji Desilva, Managing Director, Senior Research Analyst at Roth Capital Partners, LLC]

Hi, Jatin. This is Andre. Mike, quick question on Scorpio products. Do we think of there being any appreciable price difference between the x product and the B product? Or are they fairly similarly priced?

[Sanjay Gajendra, Co-Founder, President, COO & Director at Astera Labs]

Yes. So in general, the functionality is much more valuable, if you will, from on the X series because it's used to interconnect GPUs. And the GPU utilization, of course, being a prime factor if you think of the overall performance of a of a training cluster or an inference cluster. So to that standpoint, X Series does bring in a a lot more value and therefore you can assume that the ASP tends to be, you know, significantly higher. And that's again, there are different the X Series is not one device to be very clear.

[Sanjay Gajendra, Co-Founder, President, COO & Director at Astera Labs]

There are multiple part numbers. So there would be situations where, you know, maybe one part number is is not at the same level as p series. But in general, you can just look at it from a per lane standpoint or per port standpoint and look at the value delivered and on that basis, the X Series will always be a much, much more valuable, much more, higher ASP product than a PC. Okay.

[Suji Desilva, Managing Director, Senior Research Analyst at Roth Capital Partners, LLC]

Great. And then the other question I have is sort of updating on the thoughts, you know, versus kind of coming out of the IPO of mostly chips, but then Taurus being a paddleboard. Can you update on your thoughts on chips versus using board level solutions or even or do module level solutions make sense here given how much content you have to integrate all of that?

[Sanjay Gajendra, Co-Founder, President, COO & Director at Astera Labs]

Yeah. So I think like Arjithuna laid out, right, our vision really is to be a a connectivity supplier at a AI rack scale. Right? We wanna solve our customers' needs and and challenges, And we are sort of uniquely set up as a company in the sense that we have our silicon engineering team, we have our hardware engineering team, and we have our software engineering team that includes what the service on the Cosmos side. So what I wanna say is in in that context, obviously, we are trying to, provide a rack scale solution to our customers with the, one one variable, which is the compute trace coming from either third party or internally developed ASIC platforms.

[Sanjay Gajendra, Co-Founder, President, COO & Director at Astera Labs]

But rest of the connectivity, whether it's based on copper or optical, we seek to address that and service that. And the exact form factor that we will take really depends on, the customer needs. But we have the capability to go from, you know, silicon to hardware or software. So we'll always, look at trying to maximize the opportunity that's available to Astera so we can continue to grow and thrive as a company.

[Operator]

Thank you. There are no further questions at this time. So I'd like to turn the call back over to Leslie Green for closing remarks.

[Leslie Green, Investor Relations at Astera Labs]

Thank you, Amy, and thank you, everyone, for your participation and questions. We look forward to updating you on our progress. As we announced today, we will be conducting a webinar hosted by JPMorgan on expanding opportunities in AI infrastructure with UA Link. You can find full details in our press release, and you can also check the Investor Relations portion of our website for this and other upcoming financial conferences and events. Thank you.

[Operator]

Thank you. This concludes today's conference call. You may now disconnect.

Participants

Executives

• Leslie Green, Investor Relations
• Jitendra Mohan, Co-Founder, CEO & Executive Director
• Sanjay Gajendra, Co-Founder, President, COO & Director
• Mike Tate, CFO

Analysts

• Harlan Sur, Executive Director - Equity Research at JP Morgan Chase & Co
• Blayne Curtis, Managing Director at Jefferies Financial Group
• Ross Seymore, Managing Director at Deutsche Bank
• Thomas O'Malley, Director - Equity Research at Barclays
• Joseph Moore, Managing Director at Morgan Stanley
• Tore Svanberg, Managing Director at Stifel Financial
• Quinn Bolton, Senior Analyst at Needham & Company
• Papa Talla Sylla, Equity Research Analyst at Citi
• Srini Pajjuri, Managing Director at Raymond James Financial
• Suji Desilva, Managing Director, Senior Research Analyst at Roth Capital Partners, LLC