Credo Technology Group Q1 2027 Earnings Report

Credo Technology Group EPS Results

• Actual EPS: $1.20
• Consensus EPS: $1.17
• Beat/Miss: Beat by +$0.03
• One Year Ago EPS: $0.52

Credo Technology Group Revenue Results

• Actual Revenue: $479.00 million
• Expected Revenue: $473.30 million
• Beat/Miss: Beat by +$5.71 million
• YoY Revenue Growth: +114.70%

Credo Technology Group Announcement Details

• Quarter: Q1 2027
• Date: 9/1/2026
• Time: After Market Closes
• Conference Call Date: Tuesday, September 1, 2026
• Conference Call Time: 5:00PM ET

Credo Technology Group (NASDAQ:CRDO), Inc. (NASDAQ: CRDO) is a fabless semiconductor company that develops high‑speed connectivity solutions for cloud, enterprise and telecommunications infrastructure. The company focuses on semiconductors and related IP that enable reliable, low‑latency movement of large volumes of data between servers, switches and optical modules in data centers and network equipment.

Credo’s product portfolio centers on high‑speed analog and mixed‑signal devices designed to preserve signal integrity and extend reach over copper and optical links. Its offerings are used inside optical transceivers, switches, routers and other networking equipment to manage channel equalization, clocking, serialization/deserialization and protocol bridging. The company combines silicon design with software and reference architectures to help customers integrate its devices into interoperable systems.

Customers for Credo’s products include cloud service providers, hyperscalers, original equipment manufacturers (OEMs) of networking hardware and optical module suppliers. The company operates with a fabless model, partnering with foundries, test houses and supply‑chain partners to manufacture and deliver components to global markets. Its technology is positioned to address ongoing industry demands for higher bandwidth, improved power efficiency and scalable link performance.

Credo is a publicly traded company on the NASDAQ exchange under the ticker CRDO and concentrates its resources on research and development, customer engagements and ecosystem partnerships to support next‑generation data center and carrier networking deployments.

Credo Technology Group Q1 2027 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: Record Q1 results included revenue of $479 million, up 10% sequentially and 115% year over year, while non-GAAP net income rose 140% year over year to $236.3 million.
• Positive Sentiment: Management reiterated its fiscal 2027 outlook for more than 85% year-over-year revenue growth, including over $600 million in optical revenue, with optical DSPs, silicon photonics PICs, and ZeroFlap Optics each expected to contribute more than $100 million.
• Positive Sentiment: Credo reported record revenue in its AEC, retimer, and optical DSP businesses, while 1.6T AEC and DSP products, ZeroFlap Optics ramps, and near-package optics design wins are expected to support growth in the second half of fiscal 2027 and beyond.
• Positive Sentiment: Emerging products Active LED Cables and OmniConnect are targeted for initial revenue in fiscal 2028; management described OmniConnect as potentially representing thousands of dollars of content per GPU, particularly in inference architectures facing memory-bandwidth and capacity constraints.
• Neutral Sentiment: Customer concentration remains significant, with the top four customers accounting for 33%, 28%, 13%, and 10% of Q1 revenue, although management said it is diversifying across hyperscalers, neo-clouds, and product lines. Q2 guidance calls for $525 million–$535 million of revenue and is based on the current, fluid tariff regime.

Presentation

[Operator]

Ladies and gentlemen, thank you for standing by. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session where we request that you please limit yourselves to one question only. At that time, if you have a question, you will need to press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. I would now like to turn the conference over to Dan O'Neil, Treasurer and VP of Investor Relations. Please go ahead, Sir.

[Dan O'Neil, Treasurer and VP of Investor Relations at Credo Technology Group]

Good afternoon. 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.

[Dan O'Neil, Treasurer and VP of Investor Relations at Credo Technology Group]

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.

[Dan O'Neil, Treasurer and VP of Investor Relations at Credo Technology Group]

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?

[Bill Brennan, CEO at Credo Technology Group]

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.

[Bill Brennan, CEO at Credo Technology Group]

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.

[Bill Brennan, CEO at Credo Technology Group]

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 200GB 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.

[Bill Brennan, CEO at Credo Technology Group]

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 50GB and 100GB per lane solutions. We see a long tail for 800GB ports, even as we begin the transition to 1.6T solutions. At 200GB 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 800GB 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.

[Bill Brennan, CEO at Credo Technology Group]

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.

[Bill Brennan, CEO at Credo Technology Group]

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 800GB 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.

[Bill Brennan, CEO at Credo Technology Group]

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 100GB per lane and with our Blue Heron retimer beginning to contribute at 200GB 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.

[Bill Brennan, CEO at Credo Technology Group]

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 30m. 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.

[Bill Brennan, CEO at Credo Technology Group]

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.

[Bill Brennan, CEO at Credo Technology Group]

Our optical opportunity now extends from DSPs and silicon photonic PICs to complete ZeroFlap Optics and NPO solutions. Our content opportunity expands significantly as we solve a broader set of challenges for our customers. AECs continue to grow. Optics is growing faster. Based on the customer engagements and ramps underway across the portfolio, we remain confident in the outsized growth we expect to deliver in fiscal 2027. The common thread across all these products remains reliability. As AI infrastructure scales, our job is to provide connectivity that works reliably, uses less power, provides visibility into the network, and keeps expensive processors operating at high utilization. That's what we're focused on, and we're very excited about what lies ahead. With that, I'll turn the call over to Dan.

[Dan Fleming, CFO at Credo Technology Group]

Thank you, Bill, and good afternoon. I will first review our Q1 results and then discuss our outlook for Q2 of fiscal year 2027. In Q1, we reported revenue of $479 million, up 10% sequentially and above the high end of our guidance range. Year-over-year, revenue grew 115%. Q1 marks another revenue record driven by substantial year-over-year growth across four domestic customers and marks our seventh consecutive quarter of triple-digit revenue growth year-over-year. Our top four end customers each came in at or greater than 10% of revenue in Q4. As a reminder, customer mix will vary from quarter to quarter. We continue to expect that three to four customers will be greater than 10% of revenue in the coming quarters and fiscal year, and we continue to make progress in diversifying our revenue base across hyperscalers, neo clouds, and other customers.

[Dan Fleming, CFO at Credo Technology Group]

Our team delivered Q1 non-GAAP gross margin of 68% at the midpoint of our guidance range. Total non-GAAP operating expenses in the first quarter were $95.2 million, above the high end of our guidance range due to our strong R&D investment and up 16% sequentially. Our non-GAAP operating income was $230.6 million in Q1, compared to non-GAAP operating income of $216.7 million in Q4. Our non-GAAP operating margin was 48.2% in the quarter. Our bottom line once again demonstrated the substantial leverage we are delivering in the business, even with our continued heavy investment in R&D. Our non-GAAP net income was $236.3 million in the quarter, a record high and a 4% sequential increase compared to non-GAAP net income of $226.7 million in Q4.

[Dan Fleming, CFO at Credo Technology Group]

Our Q1 non-GAAP net income more than doubled year-over-year, clearly demonstrating the magnitude of our top-line growth, strong gross margins, and disciplined approach to managing operating expenses. Our non-GAAP net margin was 49.3% in the quarter. Cash flow from operations in the first quarter was $90.2 million, down $92.0 million sequentially, due primarily to changes in working capital. CapEx was $7.3 million in the quarter, and free cash flow was $82.9 million. We ended the quarter with cash and equivalents of $764.3 million, a decrease of $679 million from the fourth quarter, due primarily to the cash outlay for our acquisition of DustPhotonics. We remain well-capitalized to continue investing in our growth opportunities while maintaining a substantial cash buffer. Our Q1 ending inventory was $313.1 million, up $62.2 million sequentially. Now, turning to our guidance.

[Dan Fleming, CFO at Credo Technology Group]

We currently expect revenue in Q2 of fiscal 2027 to be between $525 million and $535 million. We expect Q2 non-GAAP gross margin to be within a range of 67%-69%. We expect Q2 non-GAAP operating expenses to be between $100 million and $105 million. We expect Q2 diluted weighted average share count to be approximately 200 million shares. These expectations are based on the current tariff regime, which remains fluid. As we move forward through fiscal year 2027, we continue to expect an inflection in the second half, driven by more than $600 million in optical revenue with ZeroFlap Optics, silicon photonics, PICs, and optical DSPs, each contributing more than $100 million, resulting in more than 85% year-over-year total revenue growth for the full year. We expect non-GAAP gross margin in fiscal year 2027 to be broadly consistent with fiscal year 2026 levels.

[Dan Fleming, CFO at Credo Technology Group]

We expect non-GAAP operating expenses to increase approximately 55% year-over-year, well below our revenue growth rate as we continue to invest in R&D to support the new product development and address the significant growth opportunities ahead. As a result, we expect our non-GAAP net margin to be in the vicinity of 50%. With that, I will open it up for questions.

[Operator]

At this time, I would like to remind everyone, in order to ask a question, press star, then the number one on your telephone keypad. As a reminder, we ask that you please limit yourselves to one question only so we can get to as many people as possible. We will pause for just a moment to compile the Q&A roster. Your first question comes from the line of Tore Svanberg with Stifel. Your line is now open. Please hold.

[Tore Svanberg, Analyst at Stifel]

Thank you.

[Operator]

Please go ahead. Thank you, Tore.

[Tore Svanberg, Analyst at Stifel]

Yes, thank you, and congrats on the record quarter. Bill, I was hoping you could unpack a little bit the position in optical right now. You did reiterate the $600+ million, but now you also talked about NPO and maybe even doing some system-level NPO. As we think about that $600 million, both in fiscal 2027 and fiscal 2028, how should we expect the mix to look like in terms of all the varied different components?

[Bill Brennan, CEO at Credo Technology Group]

Sure. I think we feel great about the broadening portfolio that we are bringing to market. As we have indicated, the optical DSP business for us is doing quite well at a component level. The team that came into Credo from DustPhotonics brought a lot of momentum. In fact, after just a few months, the momentum has picked up, and we are happy to be able to say that we have got design wins with two major players for next generation ramps that will occur in FY 2028 and maybe starting in the late part of this fiscal year. At ZeroFlap Optics, we continue to make progress. We are engaged with multiple customers, both hyperscalers and neo clouds. We feel good about the way that the year is shaping up.

[Bill Brennan, CEO at Credo Technology Group]

I think as I think about the overall optical opportunity, and you did mention CPO, and I think you may have all seen the press release earlier that we have joined the consortium. We plan on pursuing solutions for the scale-up market that is developing really across the board. CPO is, I think, an important development in the industry. That is one way of solving the challenge of going to 10x more density than what you are seeing in scale-out. We will pursue this market the same way. We will pursue component sales where that makes sense with customers, and we will also pursue system-level solutions that we will talk about over time. You bring up an important point. FY 2027, I think is just a steppingstone for where we are going with our optical business.

[Bill Brennan, CEO at Credo Technology Group]

If we think about the market forecasters, specifically the ones that are focused on the optical transceiver pluggable market, just that piece alone is expected to grow from 60 million units in 2026 to 175 million units by 2030. This is amazing growth for this portion of the industry, and then add growth on top of that for what happens in scale up. We think that with our broad portfolio of solutions, that we are going to experience continued outsized growth through the 2030 timeframe. It is going to have contributions from not just our optical portfolio, but also AECs, as well as our other copper solutions. I probably gave you a little more color than you asked in that question. Hopefully, that gives you what you were looking for.

[Operator]

Your next question comes from the line of Quinn Bolton with Needham. Your line is now open. Please go ahead.

[Quinn Bolton, Analyst at Needham & Company]

Hey, Bill. I guess a question just on the follow-up to Tore's question. I really wanted more color on the importance of Credo joining the Open CPX consortium. What types of solutions you may be providing. Is it more PIC-based? Would you be supplying the full optical engines? I assume these are all laser-based rather than microLED based, but maybe just a little bit more detail on this new opportunity that's opening up for you in the NPO scale-up segment. Thank you.

[Bill Brennan, CEO at Credo Technology Group]

Sure. As we all think about the scale-up opportunity, we're thinking about a changing of form factors. When we look at front end and we look at scale-out, there's no real catalyst to change from the pluggable form factor. But for scale-up networks, there's fundamental need to have more dense form factors. There's been an ongoing industry conversation about things like XPO, CPX, how that fits in with NPO, and then ultimately CPO. All of these solutions address the need for a 10x density improvement. The way that we're approaching the market is somewhat agnostic. We will basically look at what our customers are asking us, and what our customers are driving towards. We've, I think, done a very good job of being agnostic as it relates to the solutions that we're bringing to market. We're going to continue to do that.

[Bill Brennan, CEO at Credo Technology Group]

Of course, with all of the NPO solutions, including CPX, we'll lead with the silicon photonics PIC, but we'll also look at doing the complete optical engine long term as we add more functionality to our portfolio.

[Operator]

Your next question comes from the line of Tom O'Malley with Barclays. Your line is now open. Please go ahead.

[Tom O'Malley, Analyst at Barclays]

Hey, guys. Thanks for taking my question. Mine relates to the ZeroFlap Optics side as well. When you look at the forecast that you have over the next year and then in the year after that as well, a lot of the volume in terms of revenue is driven by the ZeroFlap Optics forecast. It is unique. You imagine that you are going to use a contract manufacturer for this, and you are hearing about supply issues, raising prices in the foundry world. Can you talk about challenges that you are facing in scaling today? What gives you the confidence that you are able to hit the metrics that you gave us some color on the last earnings call? What gives you the confidence that you are able to hit those really big revenue numbers in the near [term]?

[Tom O'Malley, Analyst at Barclays]

Just maybe a little bit of a pulse check on conversations with customers today, particularly those who in the media have potentially been spending a little bit more money and the forecast has raised on the ZeroFlap Optics side. Thank you very much.

[Bill Brennan, CEO at Credo Technology Group]

Yeah, you point out something that is lots of fun. We are in a very dynamic market right now. You are right, from the supply side, it has been important that we have spent so much time even going back 18-24 months ago when we knew that this was the direction that we were heading. You can see from Dan's update that working capital is increasing. We are leaning in from a supply chain standpoint. I feel great about our ability to supply increasing volumes in our second half and then throughout the next couple of fiscal years. The other half of that is driving demand. I see that over the past year, we have been very successful in marketing and really engaging with customers. All of this has got to come together. Again, I will point out that we are really playing the long game here.

[Bill Brennan, CEO at Credo Technology Group]

Of course, there should be, and there is a lot of emphasis on the very fast ramp that we have set expectations on. I think more importantly, looking at the big picture, this involves an opportunity that takes us to a different scale as a company. This is very much an important part of our growth strategy and our scale as a company.

[Operator]

Your next question comes from the line of Sean O'Loughlin with TD Cowen. Your line is now open. Please go ahead.

[Sean O'Loughlin, Analyst at TD Cowen]

Hey, guys. Congrats on the solid results and momentum. Thanks for letting me hop on. Maybe we could just get some blocking and tackling. Dan, you mentioned that three to four customers will be greater than 10%, and you are continuing to diversify. I wanted to ask specifically, maybe if you could do the rundown of what the stats were on those three or four in the quarter. But also, when we think about customer concentration, there is also platform concentration. Are you diversifying your product portfolio across those customers as well? Thanks.

[Dan Fleming, CFO at Credo Technology Group]

Yeah, sure. Let me start with just the percentages of those 10%+ customers. So, our largest customer was 1/3 of our revenue at 33%, second largest, 28%, and then followed by 13% and 10%. Those top three customers were similar to or the same three as in the prior quarter in a slightly different order. One thing to note, our fourth 10% customer, right at 10%, was different from our 10% fourth customer last quarter. They have been a 10% customer in the past, though. Now, in terms of diversification of product line within those, for sure, there is a strengthening and broadening across the board. It is not just AECs that these hyperscalers are consuming of ours.

[Operator]

Your next question comes from the line of Blayne Curtis with Jefferies. Your line is now open. Please go ahead.

[Blayne Curtis, Analyst at Jefferies]

Hey, guys. Thanks for taking my question. On the AEC side, I just wanted to ask you, timing on 1.6TB, but also just the design traction if you compare that versus the 800GB. You've been talking about NeoCloud. I think some of your existing customers are moving to faster speeds. Can you just give us a perspective of how those designs are laid out and the timing?

[Bill Brennan, CEO at Credo Technology Group]

Sure. We expect that our AEC portfolio will ramp in a similar timeframe as the rest of the market, and for that matter, our ZeroFlap Optics products. I want to step back and give some perspective on the way we view the AEC market. There's been a lot of conversation about copper and optical, and just the trade-off there. The way that we view the AEC market, it is part of the pluggable transceiver market. So, when we talk about forecasts for specifically optical transceivers going from 60-175 over the next four years, there's not really a breakout for the AEC market, but the AEC market really represents the 1m-7m segment of that market. So, it just makes sense that segment is going to grow as well. We see that really being long-term. We see that in a big way.

[Bill Brennan, CEO at Credo Technology Group]

In the 800G category, what we saw was copper replacing optical, and it was replacing laser-based optical transceivers because of the need for higher reliability and secondarily, lower power as it relates to that first connection in the network from GPUs to that first switch. The bottom line is that we see the pluggable transceiver market for all of the pluggable transceivers, from copper to laser-based optical, and ultimately, we'll talk about ALCs being another pluggable transceiver option within the spectrum, and that going up to 30m. As it relates to what I think the setup looks like for 1.6T, we're quite bullish about the AEC opportunity.

[Bill Brennan, CEO at Credo Technology Group]

As we showed going back six months ago at OFC, many of the next generation deployments that have been discussed in the industry, we showed very elegant solutions all connected with AECs, and we'll deliver up to 6.5m in that category. So, we think it takes shape, there'll be some contribution in our second half fiscal 2027, and then fiscal 2028, it comes in in a much bigger way.

[Operator]

Your next question comes from the line of Joseph Cardoso with JPMorgan. Your line is now open. Please go ahead.

[Analyst at JPMorgan]

Hi. Thank you for taking my question. This is MP on behalf of Joseph Cardoso. Just wanted to ask on the overall opportunity. Till date, most of the opportunity and the focus has been on training, but we are seeing incremental development around inferencing as well now. Just wanted to check how Credo is positioned in terms of addressing the inferencing opportunity, and which part of the portfolio particularly stands out, and how does the overall opportunity compare relative to training? Thank you.

[Bill Brennan, CEO at Credo Technology Group]

Appreciate that question. I'd like to maybe talk a little bit about our OmniConnect solutions that we are bringing to market now and that we expect to contribute revenue in our fiscal 2028. Specifically related to inference, as these solutions continue to gain momentum, one universal issue is around memory fanout. The memory fanout issue is limiting bandwidth and also total memory deployment of memory capacity, both of which are critical to achieving high-performance inference. With our OmniConnect solutions, there's kind of a two-piece story to the offering. First thing is we license a highly optimized high-speed SerDes that's got a very small form factor, very low power, and that's got reach of up to 10in. Effectively addressing the fanout issue that exists on the XPU beachfront, as well as the distance you could achieve between the GPU and memory.

[Bill Brennan, CEO at Credo Technology Group]

The second piece is the gearboxes that we're developing. The first gearbox that we're developing is a solution that we call Weaver, and it is a gearbox that interfaces between that embedded SerDes on the XPU. It's up to 10in reach and interfaces with that same exact SerDes, and then it becomes an LPDDR interface. It's important to note that our first product will be LPDDR5, and there will be a second product we do for LPDDR6. In a sense, this architecture is future-enabled, because when the memory market shifts from LPDDR5 to LPDDR6, there isn't going to be a need for our XPU partners to do another tape out, another design. Just simply change the gearbox. Our first customer, Positron, is doing really great things.

[Bill Brennan, CEO at Credo Technology Group]

When we look at memory limitations and the opportunity that if you can increase memory capacity up to 2TB, which is their first announced product, just the performance with frontier models, basically, you can fit everything in memory, and your performance just goes off the charts. They are redefining what is competitive in that space. If we look even from a bandwidth standpoint, we have a roadmap that will achieve very comparable bandwidth to even HBM5. That is while expanding on memory size and eliminating the reliability issues of packaging XPUs and HBM in the same package. But related specifically to inference, we are really excited about how this is really going to change the game for many frontier model applications.

[Operator]

Your next question comes from the line of Vivek Arya with Bank of America. Your line is now open. Please go ahead.

[Vivek Arya, Analyst at Bank of America]

Thanks for taking my question. Bill, I wanted to go back on the AEC growth in the second half and then longer term. If I take your 85% growth outlook for the year, it suggests about $500 million of incremental growth in the second half. If optics is going to be the bulk of it, then that $600 million, that suggests more conservative assumptions about AEC growth. I am sure that I am probably mistaken about how much optics was in the first half or so. I was just hoping if you could give us some more details on the optics versus the AEC segmentation in the first half versus second half, and what that implies for AEC growth in the second half, and then how should we model AEC growth longer term?

[Bill Brennan, CEO at Credo Technology Group]

Sure. I think that as we look at the entire year, and we look at the growth across each one of the products that we're bringing to market, we see growth across the board. Now, of course, with our optical solutions, this is really the first year that we're ramping, and it makes a lot of sense based on what we're bringing to market that we'll be able to achieve a really fast-paced growth. I think AECs will continue to grow. You've got to consider where we've grown from. AECs have driven growth over the last two fiscal years, more than doubling from 2024-2025, and then more than tripling from 2025-2026. I think that, as we look at our opportunities in AEC, we continue to see expanding opportunities.

[Bill Brennan, CEO at Credo Technology Group]

In a sense, I think we're looking at clearly a slower growth overall compared to the fact that we're growing into such a large market with optics. It makes sense that optics will grow faster because we're growing from a smaller base. Long term, I think you'll see AECs grow, and as we continue to scale as a company, I think you'll see a really nice balance between copper solutions and optical.

[Operator]

Your next question comes from the line of Sebastien Naji with William Blair. Your line is now open. Please go ahead.

[Sebastien Naji, Analyst at William Blair]

Yeah, thank you. Good afternoon. I just wanted to maybe ask a little bit about PILOT and some of the telemetry data that your solutions are picking up. As your install base grows, are you accumulating enough link-level telemetry that the data itself is becoming a bit of a competitive advantage? For example, allowing you to identify failure modes or optimize future DSP designs. Is that extending your moat at all? Just any thoughts on that?

[Bill Brennan, CEO at Credo Technology Group]

Sure. The PILOT software platform is a really important part of the total ZeroFlap Optics offering. When we look at what we've done, we basically had to start with a custom DSP design, one that would enable telemetry to be lit up on every link between an XPU and a switch. When I say every link, there's really six in total. There's three in one direction and three in the other. This is completely different than the telemetry that has been discussed up to this point in the industry. What we're able to sense on a real-time continuous basis is really rich telemetry data that looks on indicators of link stability, even going down to the SerDes level, because that, of course, is core to our platform on everything we do. But we're looking at a real-time measurement of eye height and SNR post-FEC histograms.

[Bill Brennan, CEO at Credo Technology Group]

Really rich telemetry data, even down to that level. When we are sensing this continuously, we can sense when the link integrity is decreasing. You can think of it as, right now in the industry, what exists is a green light when you've got a connection, and a red light when there's a failure. What we're adding is like a check engine, like a yellow light that says, "Okay, you've identified something," and then the mitigation piece of it is about acting. There's different approaches that are enabled by PILOT. You can make the decision on a transceiver by transceiver basis to take that transceiver that looks likely to have a link flap, and in an orderly way, take that GPU out of the cluster. We've got other customers that are looking at a network level, more of a centralized approach.

[Bill Brennan, CEO at Credo Technology Group]

The ultimate outcome is the same from a reliability standpoint. In this case, both opportunities allow you to collect a tremendous amount of data because as you're taking a link down, you've got a snapshot of exactly what was happening within that transceiver and what's happening within the network. You're right that the data set that we're starting to gather and that we will gather over time will lead to better solutions. It will lead to next generation solutions being optimized even more so for the types of failures that we're detecting early. I will say we're doing other things that are really interesting, and that's related to conversations with customers.

[Bill Brennan, CEO at Credo Technology Group]

We had a customer ask us, "Can you sense even the slightest ESD damage on a transceiver because that will become a latent defect." We've figured out a way to sense even the slightest ESD damage. Not the type of damage that would cause a transceiver to fail, but the type of damage that over time would result in a failure in that connection. Now when we've got customers lighting up racks, they can determine immediately if a transceiver was mishandled and needs to be replaced. Other things that we're sensing is dust on the fiber plant. This is really important because even the smallest speck of dust can have light bouncing back in the other direction, causing a multi-path interference situation. What we're doing is far beyond.

[Bill Brennan, CEO at Credo Technology Group]

Now, PILOT allows us to integrate within the network our customers, and that really just changes the game on giving our customers tools to be active in identifying and mitigating. Look, the goal here is twofold. It is really to deliver the fastest time to revenue, so bringing a cluster up in five or six days versus six to eight weeks. I think we have seen the contracts that have been reported in the market. You can measure a month on the order of hundreds of millions or even $1 billion of advantage when you have got that really expensive gear that could be generating revenue. But it is sitting idle because you are trying to bring a cluster up and on the order of weeks versus days. The other big one is uptime after deployment.

[Bill Brennan, CEO at Credo Technology Group]

Driving to a 99% uptime or even higher is the objective here, and that just delivers a better fabric, better product for the end customers. It is a huge differentiator, I think at a cluster level. Yes, PILOT is critical to enabling that. It is a combination of the custom hardware, but the interface within the network is really the critical piece.

[Sebastien Naji, Analyst at William Blair]

Great detail. Thank you so much.

[Operator]

Your next question comes from the line of Karl Ackerman with BNP. Your line is now open. Please go ahead.

[Karl Ackerman, Analyst at BNP]

Great. DSPs and PICs. Aren't direct hyperscaler sales growing as a portion of your mix versus optical module suppliers? How does that improve your customer visibility and stickiness with your data center customer base? Thank you.

[Bill Brennan, CEO at Credo Technology Group]

Karl, I apologize. The first part of your question, we didn't hear, so I just want to make sure I've got the right perspective.

[Karl Ackerman, Analyst at BNP]

Sure. As we think about the opportunity for your discrete DSPs and PICs of that $600 million and also growing over time, isn't the customer mix moving more toward direct hyperscaler sales who are making their own custom transceivers? As they do that, how does that improve your customer visibility and stickiness with that customer base?

[Bill Brennan, CEO at Credo Technology Group]

So in looking at our optical components business, this is a really important part of our business, short-term and long-term. Ultimately, it's the path where we're going to pursue that pluggable optical transceiver market that is based on mainstream standards. The combination of having an optical DSP and a PIC and being able to offer that system level, even within a component offering, that'll help our customers deliver what we see as the most competitive combination of system performance, power, and yield. Many times, our module customers are working directly with hyperscalers, and the hyperscalers are active in basically pointing to the components that they want to be put together within the modules that our module customers offer.

[Bill Brennan, CEO at Credo Technology Group]

And so the hyperscalers play a big role in both the component sale part of our business to our module customers, as well as our ZeroFlap Optics modules that we're building ourselves. Long-term, I think that is going to be a balance that we see that will continue to where we're going to see that, in fact, our component sales and our module sales will be complementary in the sense that the broad part of the market will be addressed by components. A very specific part of the market that really is focused on reliability will be a new product that's offered in that transceiver space.

[Operator]

Your next question comes from the line of Vijay Rakesh with Mizuho. Your line is now open. Please go ahead.

[Vijay Rakesh, Analyst at Mizuho]

Yeah. Hi, Bill and Dan. Just a quick question. Just taking a step back, you mentioned 2027 as a stepping stone, and you're already growing 85% year-over-year. As you look out to fiscal 2028, can you give us some perspective on how to look at it? Obviously, AEC is growing, might be like 50% this year. You have ZeroFlap Optics ramping, SiPho, the ZeroFlap Optics and SiPho is like $600 million for fiscal 2027, which kind of annualized is like a $1+ billion run rate. As you mentioned, Active LED Cables as well. As you have all these four segments ramping, can you give us some perspective on how to look at fiscal 2028? Thanks.

[Bill Brennan, CEO at Credo Technology Group]

I appreciate that. The conversation about fiscal 2028 and 2029 and 2030 is something that's a very active conversation within our leadership team at Credo. Let me first touch on ALC as a part of our portfolio. I think this is you know the ALC product that we're bringing to market first is using microLED technology. The promise of this technology is really to deliver the same reliability and the same power efficiencies at a core technology level as AECs. Key difference there is we'll extend the length to 30m. ALCs will represent our third differentiated pluggable transceiver solution. So different things we first did, kind of created the product category with AECs, followed by ZeroFlap Optics, again, creating a new product category. ALCs will be the third leg of that stool.

[Bill Brennan, CEO at Credo Technology Group]

The bottom line is I look at that pluggable transceiver market, and I think that's just step one for ALCs and the [microwave meta technology]. A next natural step forward on that is to apply that to what comes with the scale-up opportunity, because again, in scale-up, this is another technology alternative, but the promise there is that at a core technology level, we'd be addressing some of the problems that have prohibited that market from taking off with solutions specifically related to reliability, availability, and serviceability. And so, we view ALC as a big multi-billion-dollar opportunity, followed by as big of an opportunity with scale up. It's highly complementary to the suite of technologies that we've brought to market. The way that I think about the future, more specifically to answer your question, is that we're trying to put ourselves in several multi-billion-dollar TAM opportunities.

[Bill Brennan, CEO at Credo Technology Group]

You can just analyze our portfolio across the pluggable space, and you can see that it's really 10s of billions of dollars of opportunity that we're now going to be addressing in our fiscal 2028 timeline, given the fact that ALCs will be part of the portfolio. And so, we're trying to put ourselves in position to address a very large market. Our growth as a company will follow based on our success in executing with every customer. I think we're quite bullish on the opportunity, and that's without even talking about the massive opportunity that the entire industry has in front of us with scale up. Even think about OmniConnect. We've articulated in the past that that's a multi-billion-dollar opportunity annually as well. I think that as we think about fiscal 2028, you're right.

[Bill Brennan, CEO at Credo Technology Group]

We think about outsized growth again for another year, but we think that'll continue for the years that follow as well.

[Operator]

Your next question comes from the line of Mark Lipacis with Evercore ISI. Your line is now open. Please go ahead.

[Mark Lipacis, Analyst at Evercore ISI]

Hi. Thanks for taking my questions. Bill, I think for you, optics is growing faster. It's a newer market. Can you contrast how you are prosecuting the optics market compared to how you prosecuted the AEC market? I have to imagine there's some differences given you effectively created the AEC market. Maybe as part of that, what are the implications on the business model as optics becomes larger? To the extent that you can talk about where you get leverage between these businesses on development and the supply chain and with your customers and where you need to build capabilities. Thank you.

[Bill Brennan, CEO at Credo Technology Group]

There is a pretty interesting contrast between the efforts that we pursued with AECs and some of the leverage and how it looks different this time with ZeroFlap Optics. With AECs, we imagined this product as being an extension to copper, basically addressing some of the issues that our customers were facing as they were going to faster speeds, and they were having issues with DACs. We were surprised when we had customers pursuing us, talking about really interesting innovations at a feature level. Things like telemetry, things like other system-related rack-level innovations. We really opened that door to the customer base on feature set innovation. Our first customer, Microsoft, the reason that they converted to AECs was really the functionality that we offered.

[Bill Brennan, CEO at Credo Technology Group]

We developed a solution that was smart enough to sense when a TOR port was failing or about to fail, and then switching the data to a redundant TOR in a hitless manner. Really, really smart solution in a cable format. Over time, the momentum built, and this is over years, momentum built because as speeds increased, it was clear that DACs weren't going to cut it from a signal integrity, but also from a form factor standpoint with the copper wires needing to become much, much thicker. From a form factor standpoint and a signal integrity standpoint, many other customers started looking. Then, again, if we look at our solutions today, many of them have really innovative feature set solutions. The growth happened over, a product category creation happened over several years.

[Bill Brennan, CEO at Credo Technology Group]

As part of developing our solution and having it be a complete solution and taking ownership of it, we developed a really differentiated way of coming to market from a qualification standpoint. The rigor that we put our solutions through is sometimes far beyond what our customer quals look like, and that includes having our customers' switches, our customers' NICs, running at speed as we're hammering the link, the entire link, not our AEC, but the entire link. From NIC to switch. The objective is to harden the solution, finding link weaknesses and then hardening that through firmware modifications. So that was definitely something that we're leveraging now as we bring ZeroFlap Optics to market.

[Bill Brennan, CEO at Credo Technology Group]

The difference with ZeroFlap Optics was that AI happened, and AI networks were fundamentally different than, say, front-end networks, where there was kind of a built-in redundancy within the different tiers of the network. We have had link flaps for a long time, but they just have not surfaced as a major concern because there was not any massive hit to the network. Now that we have got AI clusters, you have got tens of thousands, if not hundreds of thousands of links that are all interdependent, that if you start getting flaps on some of those links, it can affect the entire cluster to the point where customers have talked about losing GPU utilization on the order of greater than 10% or even approaching 20%.

[Bill Brennan, CEO at Credo Technology Group]

With this new application, it was a perfect fit for following the playbook on AECs and doing interesting things, very innovative things in an area where innovation had not happened for many years. Working closely with customers and basically charting the path to, at a system level, be able to improve reliability of the network. That was really the difference. It took some time to develop the hardware and the software solution. We are seeing that the market is taking off a lot faster than AECs because we are addressing a pain point that clearly exists already. This is welcomed every time we have a conversation with the technical networking teams within the customer base.

[Operator]

Your next question comes from the line of Suji Desilva with Roth Capital. Your line is now open. Please go ahead.

[Suji Desilva, Analyst at Roth Capital]

Hi, Bill, and congrats on the progress and the margins. You have given us a lot of color on the optical and kind of dug into how you are approaching it. It might be a good time to revisit the competitive landscape and how you think competitors are approaching the market you are approaching, whether you are approaching it differently or they are going to be able to approach the feature-driven approach the way you are, or any other elements that are key to how you are doing it that really allow you to separate from the group, because a lot of people talking about the same opportunities.

[Bill Brennan, CEO at Credo Technology Group]

Sure. I think there is a case to be made here about our go-to-market strategy and the fact that we are owning the entire stack. I think when we look at the opportunity just at a transceiver level, starting with the SerDes and then looking at it from a DSP and now a PIC perspective, being vertically integrated gives huge advantage on your ability to deliver the best possible system solution, but it also gives you an advantage on COGS. Then you think about going to market with a solution that's differentiated, and the challenge is what are those features worth? I think we expect an advantage at a COGS level, but we also expect an advantage on an ASP level as we compare our solution to more standards-based solutions in the market.

[Bill Brennan, CEO at Credo Technology Group]

I do think that long-term, we are now the pace setter on innovation in the optical space. The market needs it, and we're being pretty open with working with the standards groups on standardizing around some of the things that we're doing. The challenge there is how can we innovate faster than the rest of the competition, the rest of the market? I think we feel comfortable, given the fact that we own the entire stack, that that's going to lead to the same kind of success that we've had with AECs.

[Operator]

Your next question and final question comes from the line of Christopher Rolland with Susquehanna. Your line is now open. Please go ahead.

[Christopher Rolland, Analyst at Susquehanna]

Hi, guys. Thanks for the question, squeezing me in. Bill, I will bite on your DSP plus PIC integration that you've mentioned quite a few times. I guess first of all, if you could talk maybe a little bit more about your two Dust wins. Do they include DSP integration? If you could remind us kind of the economics for this part, for this market, and what it means to you guys, that would be great.

[Bill Brennan, CEO at Credo Technology Group]

Appreciate the question. The world we live in at a component level is quite competitive. Just by proper protocol, we are not able to talk too specifically about exactly which of the major players that we are engaged with. I will say that these first two major design wins that we are talking about do not include the DSP, so there is upside potential with that as we look at really co-marketing the DSP and the PICs long term. Right now, the Dust team was really doing a great job with engaging deeply with major players in the industry. Amazing that a small team like that had such great traction. I think it is evidence of the fact that their technical solution is absolutely leading edge in the market.

[Bill Brennan, CEO at Credo Technology Group]

Long term, I think there is going to be a great opportunity for us to look at these two components and really bring a lot of benefits to the customer base. I look at this as a great development in our overall portfolio and going to be really promising long term for us. I guess with that, we will wrap up the call. I really appreciate you all attending, and thanks for the thoughtful questions. We look forward to the follow-up. Thanks so much.

[Operator]

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

Participants

Executives

• Dan O'Neil, Treasurer and VP of Investor Relations
• Bill Brennan, CEO
• Dan Fleming, CFO

Analysts

• Tore Svanberg, Analyst at Stifel
• Quinn Bolton, Analyst at Needham & Company
• Tom O'Malley, Analyst at Barclays
• Sean O'Loughlin, Analyst at TD Cowen
• Blayne Curtis, Analyst at Jefferies
• Analyst at JPMorgan
• Vivek Arya, Analyst at Bank of America
• Sebastien Naji, Analyst at William Blair
• Karl Ackerman, Analyst at BNP
• Vijay Rakesh, Analyst at Mizuho
• Mark Lipacis, Analyst at Evercore ISI
• Suji Desilva, Analyst at Roth Capital
• Christopher Rolland, Analyst at Susquehanna