Credo Technology Group (CRDO) Mizuho Technology Conference 2024 summary

Industry trends and market evolution

• Exponential growth in data center bandwidth driven by generative AI, with per-lane speeds advancing from 10G to 200G and a significant increase in the number of connections per rack, especially for AI clusters compared to traditional compute.

• AI applications are accelerating demand for high-speed connectivity, with hyperscalers shifting long-term toward Ethernet protocols for both front-end and back-end networks.

• Rack-scale connections are moving from passive copper to active electrical cables (AECs) due to speed and power constraints, with AECs now the de facto standard at 100G per lane.

• Adoption of 800G and 1.6T solutions is increasing, with hyperscalers and major customers ramping up deployments and moving toward wider network architectures.

• Power efficiency is a critical focus, influencing technology choices and driving innovation in optical DSP and process geometry.

Product innovation and adoption

• Full portfolio includes AECs, line card PHYs, optical DSPs, SerDes chiplets, and IP licensing, targeting all Ethernet connections in data centers.

• AECs offer advantages over optical solutions: half the power, half the cost, higher reliability, and better form factor, leading to widespread adoption among hyperscalers.

• Engaged with all five major hyperscalers, in production with two, and expanding to additional customers and programs in the current and next fiscal years.

• Linear Receive Optics (LRO) product reduces module power from 15W to 10W by using a single DSP per connection, maintaining industry standards and robust signal integrity.

• Next-generation DSPs for 1.6T are being developed on 3nm process to further reduce power, targeting 10W or below for standard modules and 5W for LRO versions.

Financial outlook and revenue drivers

• Optical products targeted to reach 10% of revenue in fiscal 2025, with significant ramp and margin accretion expected in fiscal 2026 as qualification with hyperscalers completes.

• Long-term gross margin model is 62-65%, with optical and IP revenues at the higher end, chiplets and line card PHYs in the middle, and AECs slightly lower.

• Fiscal 2024 ended with 62.5% gross margin, aided by strong IP and engineering services revenue; fiscal 2025 margin target is 61-63%.

• 75% of Q4 fiscal 2024 revenue was AI-related, with major contributions from hyperscaler deployments and chiplet business for AI supercomputers.

• Revenue expected to double year-over-year, driven by ramping AEC programs with hyperscalers and recovery in front-end network cable volumes.