Credo Technology Group Holding Ltd (CRDO) Earnings

Management highlights

### Overall Strategic Positioning - Credo identifies itself as purpose-built for the AI infrastructure connectivity shift, where reliability, power efficiency, and signal integrity have become critical constraints as AI clusters scale to hundreds of thousands of GPUs. Reliability is the company's core North Star guiding product development and investment. - The company pursues a vertically integrated, full-spectrum strategy covering die-to-die, chip-to-chip, in-rack copper, and data center-wide optical connectivity to position itself as a foundational architectural partner for hyperscale and neocloud customers. ### Core Segment Developments - AEC remains a strong long-term growth engine: Credo Zero Flap AECs deliver 1000x greater reliability than commodity laser-based optical modules at lower power consumption, making them the preferred solution for in-rack and short multi-rack deployments up to seven meters. Customer adoption remains strong across both 100 gig and 200 gig per lane deployments, and PCIe Gen 6 AEC design activity is strengthening. - Optical business is poised for a fiscal 2027 inflection: The recently closed acquisition of Dust Photonics adds differentiated silicon photonics PIC technology with a portfolio spanning 800G and 1.6T solutions, and a roadmap to 3.2T and beyond. Dust Photonics' architecture reduces required laser counts, improving reliability, power efficiency, and mitigating industry supply chain constraints, while also enabling a clear path to CPO and NPO architectures, with initial CPO/NPO revenue expected in fiscal 2028. - Zero-flap optics has gained strong customer traction for its reliability focus: Tight DSP-to-PIC integration enables advanced telemetry, autonomous link instability detection and mitigation before cluster performance is impacted, improving cluster bring-up time and long-term uptime. - Retimers are gaining share: The Blue Heron 200 gig per lane retimer supports a broad range of emerging protocols for scale-out and scale-up AI networks, positioning the company to capitalize on growing protocol diversity in increasingly complex AI infrastructure. ### Emerging Segment Progress - ALC extends AEC-class reliability to row-scale optical connectivity up to 30 meters using micro LED technology instead of traditional lasers, creating a new differentiated connectivity category. - OmniConnect's Weaver gearbox solution enables substantially higher memory I/O density and flexible architectures to address growing memory bandwidth challenges, with strong customer engagement particularly for next-generation inference designs. ### Financial Operational Highlights - Full fiscal 2026 non-GAAP net income reached $662 million, up more than 5x year over year, with EPS of $3.46, up 392% year over year. Q4 fiscal 2026 non-GAAP gross margin was 68.3%, non-GAAP net income hit a record $226.7 million (up 9% sequentially), and operating cash flow was a record $182.2 million. The company ended Q4 with $1.4 billion in cash and equivalents, and remains well capitalized for continued growth investment.

Guidance

- Q1 fiscal 2027 guidance: Revenue is expected between $465 million and $475 million, non-GAAP gross margin is expected between 67% and 69%, non-GAAP operating expenses are expected between $86 million and $90 million, and diluted weighted average share count is expected to be approximately 199 million shares. - Full fiscal 2027 expectations: Total revenue is expected to grow more than 80% year over year, with half of absolute revenue growth coming from the optical portfolio and half from existing copper (predominantly AEC) and retimer segments. The optical portfolio is expected to generate more than $600 million in total fiscal 2027 revenue, with optical DSPs, silicon photonics PICs, and zero-flap optics each contributing more than $100 million, with the ramp accelerating in the second half of the year. - Fiscal 2027 half-year growth outlook: The first half of fiscal 2027 is expected to deliver mid-single-digit sequential growth, predominantly driven by the mature AEC portfolio. A growth inflection is expected in the second half, driven by the ramp of the optical portfolio. - Margin and profitability guidance for fiscal 2027: Non-GAAP gross margin is expected to be broadly consistent with fiscal 2026 levels (around 68%). Non-GAAP operating expenses are expected to increase approximately 50% year over year (a slower growth rate than revenue), resulting in a non-GAAP net margin in the vicinity of 50%. - New product timing: Initial revenue from ALC, OmniConnect Weaver, and CPO/NPO designs is expected in fiscal 2028, with 200 gig per lane 1.6T products expected to contribute relatively little revenue in fiscal 2027, though Credo is already production-ready for these products.

Segment performance

For full fiscal 2026, total company revenue was a record $1.3 billion, up 206% year over year, with a 68.1% non-GAAP gross margin. In Q4 fiscal 2026, total revenue hit a new record of $437 million, up 157% year over year and 7% sequentially. The top four end customers each contributed 10% or more of Q4 revenue, ranging from 10% to 34% of total revenue. Breakdown by product segment: 1) Active Electrical Cables (AEC): Core growth segment, it remains the largest contributor to current revenue, with growth driven by strong demand for 100 gig per lane solutions and increasing customer engagement for 200 gig per lane and PCIe Gen 6 AEC products. 2) Optics: The optical portfolio is expected to contribute more than $600 million in total revenue for fiscal 2027, with three sub-segments each contributing over $100 million: optical DSPs, silicon photonics PICs, and zero-flap (ZF) optics. Zero-flap optics is expected to be the largest revenue contributor within the optical portfolio due to its higher three-digit ASPs. 3) Retimers: This segment is seeing strong momentum, with growing demand for 100 gig and 200 gig per lane products, and increasing traction for PCIe Gen 6 retimers. 4) Emerging growth: Active LED Cables (ALC) and OmniConnect (including the Weaver gearbox solution) are expected to begin production ramps in fiscal 2028. ALC targets row-scale connectivity up to 30 meters, while Weaver addresses high-density memory bandwidth needs for next-generation inference designs.

Risks & headwinds

- There is quarter-over-quarter revenue lumpiness and variability associated with large customer contributions, which may impact first half fiscal 2027 results. - Broad industry supply chain tightness exists, particularly for 3 nanometer process capacity required for 200 gig per lane products, which could impact production ramp timelines. - The timing of the industry transition from 800 gig to 1.6T connectivity is uncertain and varies by customer, with potential delays that could shift revenue timelines. - Forward-looking results are subject to general market and macroeconomic risks and uncertainties, which could cause actual results to differ materially from management guidance, as detailed in SEC filings.

Analyst Q&A

• Q: Can you confirm that all three optical segments (discrete DSPs, zero-flap optics, and silicon photonics PICs) are included in full-year fiscal 2027 guidance, and have you seen accelerating adoption of discrete DSPs? /

  A: All three optical segments are included in the 80%+ year-over-year full revenue growth guidance. Each segment is expected to deliver over $100 million in revenue, for a total optical contribution of more than $600 million. Half of all absolute revenue growth in fiscal 2027 will come from the optical portfolio, with the other half coming from existing copper AEC and retimer segments.

• Q: Which of the three optical segments will be the largest revenue contributor in fiscal 2027, and what is the expected ramp trajectory for ALC and Weaver in fiscal 2028? /

  A: Zero-flap optics will be the largest optical contributor, because it has three-digit ASPs compared to two-digit ASPs for discrete DSPs and PICs. ALC, as a system-level pluggable product similar to AECs, can ramp to large revenue quickly after production launch in fiscal 2028. Weaver can also ramp very fast: a single inference GPU using Weaver can contribute $2,000-$3,000 in revenue, so volume adoption by customers will drive rapid growth.

• Q: What is the supply chain update for your 2027 ramp, especially for zero-flap optics and AECs, and how secured is 3 nanometer capacity for 200 gig per lane products? /

  A: Management feels confident in secured supply chain commitments to support the aggressive second half 2027 ramp. Credo has invested heavily in long-term relationships with supply chain partners over five years, and partners understand that AI clusters cannot be built without Credo's connectivity chips. The company has diverse process node positioning across its product portfolio, and is well positioned to meet 3 nanometer demand for 200 gig per lane products.

• Q: How large could tier two neocloud customers be as a share of total revenue over the next few years, compared to core hyperscale customers? /

  A: The fast-growing neocloud segment is a very attractive market for Credo, as these operators prioritize speed of deployment, network reliability and performance, which align with Credo's core strengths. Management expects neocloud customers could collectively represent approximately 20% of total revenue over the next few years, driving meaningful revenue diversification.