Credo Technology Group Holding Ltd

Ladies and gentlemen, thank you for standing by. And welcome to the Credo Semiconductor Second Quarter Fiscal Year 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we'll conduct a question and answer session. At that time, if you have a question, you will need to press star 11 on your telephone. I would now like to turn the call over to Dan O'Neill. Please go ahead, sir.

Good afternoon. Thank you for joining us today on our earnings call for our fiscal 2023 second quarter. Joining me today from Credo are Bill Brennan, our chief executive officer, and Dan Fleming, our chief financial officer. I'd like to remind everyone that certain comments made in this call today may include forward-looking statements regarding expected future financial results, strategies and plans, future operations, the markets in which we operate, and other areas of discussion. These forward-looking statements are subject to risks and uncertainties that are discussed in detail in our documents filed at the SEC. It's 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 from those contained in any forward-looking statement. Given these risks, uncertainties, and assumptions, the forward-looking events discussed during this call may not occur, and actual results could differ materially and adversely from those anticipated or implied. 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 actual results or to changes in the company's expectations, 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 U.S. GAAP. A discussion of why we use non-GAAP financial measures, and reconciliations between our GAAP and non-GAAP financial measures is available in the earnings release we issued today, which can be accessed using the investor relations portion of our website. With that, I'll now turn the call over to our CEO.

Bill? Thank you, Dan. Good afternoon, and thank you to everybody for joining the call. During this call, I'll review Credo's fiscal Q2 results and share why we remain excited about our future prospects. After I conclude, Dan Fleming, our Chief Financial Officer, will provide a detailed review of our financial results and expectations moving forward. Credo is a pure-play high-speed connectivity company. We built our first solutions for the Ethernet market and are extending into other standards-based markets as the need for higher-speed connectivity increases exponentially. Today, our product families include integrated circuits, or ICs, active electrical cables or AECs, and SERDES chiplets. Our intellectual property or IP solutions consist primarily of SERDES licensing. Our connectivity solutions address both electrical and optical applications at port speeds currently ranging from 50 gigabits per second up to 1.6 terabits per second. All our product and IP solutions leverage our unique application-specific SERDES portfolio enabling us to deliver optimized, secure, and high-speed solutions with better power efficiency and cost. This has led to high growth rates with hyperscale customers and the ecosystem of suppliers that provide the infrastructure for these data centers. Credo continues to be one of the fastest-growing companies in the semiconductor industry. And I'm pleased to report that we achieved record revenue of $51.4 million in the October quarter, an increase of 94% year-over-year and 11% sequentially. I'll now give a brief update on our progress across our various solutions, starting with AECs. For AECs, we continued to deliver strong execution as the pioneer of this product category. In RAC, low-speed cabled connections have historically been made with passive copper DACs As single-lane speeds increased 100 gigabits per second, DACs become obsolete due to signal integrity and physical size constraints. The industry assumption has been that when DACs are dead, optical cables or AOCs would take their place. Credo saw an opportunity to develop a broad product family of AECs that deliver half the power, half the cost, and with 10 times better reliability than AOCs. We also saw the opportunity to offer compelling functionality that enables our customers to innovate on server rack and switch rack architectures. Industry analysts are now forecasting AECs to grow to a multi-billion dollar market in the next four to five years. We continue to ramp volumes with our first customer as they broaden deployments of the new dual tour architecture enabled by the Credo AEC. We expect the ramp to continue into calendar 23 and we're developing multiple AEC solutions to solve for their future roadmap of higher speed deployments. I'm happy to report that Credo has completed the stringent qualification with our second hyperscale customer. We expect to begin our revenue ramp near the end of this fiscal year and expect meaningful contribution in fiscal 24. In addition, we are engaged in developing advanced AEC solutions with this customer for their next generation server rack and switch rack applications as they move to 100 gig single lane speeds. We have also further broadened our traction in the market. We're currently in qualification with a third hyperscale customer for a 400 gig port switch rack application. And yet, with another Hyperscale customer, we're engaged in developing AECs for two future architectural deployments. Although Hyperscalers are clearly our primary focus, we've sold our AECs to dozens of customers, including data centers, 5G carriers, networking OEMs and ODMs, as well as others in the Ethernet ecosystem. Finally, Credo is very proud to have introduced the industry's first 1.6 terabit per second connectivity solution in OCP. which will be a critical enabler for the 51 terabit per second switch generation. This reinforces Credo as the leader in the AEC market. Now moving to our optical solutions category. As we do across all our product solutions, Credo focuses on delivering disruptive solutions that are optimized for speed, reach, power, and cost Our optical solutions include DSPs, laser drivers, and TIAs found in both optical modules and AOCs, and span the breadth of applications with 50 and 100 gigabits per second single-link speeds, including 50-gig, 64-gig, 100-gig, 200-gig, and 400-gig modules. In the October quarter, we announced several new 100-gig per lane products, including our Dove 800 and 400 optical DSPs, with integrated drivers, and they've been met with great customer enthusiasm. In addition to engaging the optical module customer base directly, our go-to-market strategy has grown to include the Joint Development Model, or JDM. That is, focusing on the end customers of our optical module manufacturing partners. These include data center, 5G, PON, and fiber channel end customers as a means to have the end customer pull Credo through to design wins by specifying our solution. To date, we've been successful with JDM engagements with two hyperscalers and the Tier 1 OEM. We're now actively engaging all data center customers directly and teaming with optical module partners to jointly pursue our end customers. I'm pleased with our progress as we now have line of sight on new engagements with several data center and 5G customers across a wide range of applications, including 200 gig, 400 gig, 800 gig, and 50 gig solutions. I'll note that we see the process from initial win to qualification to volume ramp as taking longer in the current environment than we had anticipated a year ago. With that, our ramp to material revenue has shifted somewhat, but our opportunity remains the same. We continue to play the role of disruptor in the optical market, and we will gain share over time given the distinct efficiencies we deliver in the combination of performance, power, and cost. Based on our increasing customer traction, we look forward to announcing meaningful customer wins and growth in our optical business. Regarding our LineCard 5 solutions, Credo has established leadership for Ethernet LineCard 5 solutions at 50 gig and 100 gig per lane speeds. This includes MACSEC 5s for high security applications needing encryption, as well as retimer and gearbox solutions. Our customers, again, include leading hyperscalers and networking OEMs and ODMs. As single-lane speeds increased to 100 gig, the demand for line card PHYs increases due to the signal integrity challenges that come with higher speed copper connections. We also see a trend toward greater demand for encryption driving increased demand for MACSEC PHYs. A highlight from the OCP show in October was Meta showing the use of our OSPRI 800 MACSEC PHY in one of their critical deployments. Also in October, we announced our Screaming Eagle 100 gig per lane solution, a long-reach DSP retimer device with 1.6 terabits per second of bandwidth. This product has received great market reception due to its combination of performance and power efficiency. We have sampled it to many leading OEMs and ODMs and are already kicking off design engagements. Based on our current market position, product positioning, and customer engagements, We expect solid growth and continued share gain in the market. And finally, I'd like to give an update on our SERDES IP licensing and SERDES chiplet business. We've received very positive feedback from customers on our five and four nanometer, 112 gig SERDES IP announcement, and it confirms that Credo's solution offers a 40 to 50% power advantage over our competition, depending on the reach required in the application. This highlights that Credo has extended what we refer to as our N-1 process advantage, which means to compete with the power efficiency of Credo's 5 and 4 nanometer solutions, our competitors will need to move to 3 nanometer. As every industry seeks to lower its carbon footprint, Credo's core service technology is delivering on the need to lower electricity use. We're also an early leader in the chiplet market. and are in production with multiple customers. Notably, Tesla selected Credo Certi's IP and chiplets for their Dojo supercomputer program. Going forward, we're excited about the prospects for chiplets in light of the UCIE consortium. This Intel-led consortium, where we're a contributing member, is coalescing to standardize the broad use of chiplets inside servers. In summary, we remain highly encouraged about Credo's prospects Due to our current solutions and production, near and mid-term opportunities we're deeply engaged in, and longer-term opportunities in emerging markets. Today, we remain focused on delivering strong execution in our fiscal 23, and we continue to expect to achieve at least $200 million in revenue, representing more than 88% growth compared to fiscal 22. I'll now turn the call over to our CFO, Dan Fleming, to provide more details on our second quarter and to give guidance on Q3.