Credo Technology Group Holding Ltd (CRDO) April 2026 Conference Transcript

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 yourself to one question only. At that time, if you have a question, you will need to press star so I will be the number one on your telephone keypad. If you would like to withdraw your question, press the pound key. I would now like to turn the conference over to Dan O'Neill. Please go ahead, sir.

Good morning, everyone. Thank you for joining our call in connection with our announcement that we have entered into a definitive agreement to acquire Dust Photonics. Today, I'm 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 press release in our documents filed at the SEC, which 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. Given these risks, uncertainties, and assumptions, the forward looking events discussed during this call may not occur, and actual results could differ adversely and materially 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 actual results or to changes in the company's expectations except as required by law. For that, I will now turn the call over to Bill.

Thanks, Dan. Yesterday, we announced that Credo has entered into a definitive agreement to acquire Dust Photonics, a leader in silicon photonics PIC technology. This is a meaningful step forward for Credo. It expands our optical portfolio and strengthens our position across the full connectivity stack for AI infrastructure, from copper to optical and across front-end, scale-out, and scale-up networks. Over the last few years, we've built a strong foundation in high-speed connectivity by combining CERTES, DSP, and system-level design. As AI clusters scale, the requirements around reliability, power, and performance are only getting tighter. This move is about staying ahead of those demands. By combining forces with Dust Photonics, we bring together our technology with their silicon photonics picks to create a more complete connectivity platform. There is a clear near-term revenue opportunity. Dust Photonics has strong standalone pick business with design wins at leading hyperscalers. Their technology simplifies architectures, reduces laser count, and supports higher speeds with a roadmap to 3.2 terabits per second. This becomes an additional growth driver for us starting in fiscal 27. At the same time, this strengthens our zero-flap optics platform. By owning both the DSP and the PIC, we can deliver a more optimized system-level design, move faster on product development, and improve margins. Dust Photonics also adds a complementary roadmap in laser-based CPO and NPO, alongside our micro-LED initiatives. Having both approaches allows us to meet a broader set of customer requirements as architectures evolve. From a financial standpoint, we continue to see strong growth in our AEC business through Fiscal 27 and beyond. Combining Dust Photonics with our broader optical portfolio, we now believe this marks an inflection point. with combined optical revenue expected to exceed $500 million in fiscal 27. This is a natural extension of how we deliver value at Credo. We've taken a system-level approach and focused on owning more of the stack to create better solutions. Thus, Photonics brings world-class expertise, and together we're in a stronger position to deliver reliable, energy-efficient connectivity at the scale our customers need. We expect to close in the second quarter of calendar 26, we look forward to sharing more at that time. Thanks for joining us. We'll now open it up for questions.

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 yourself to one question only so we can get as many people as possible. We'll pause for just a moment to compile the Q&A roster. Your first question comes from the line of Quinn Bolton with Needham and Company. Your line is open.

Hey, guys. Congratulations on the acquisition. Makes sense strategically. I guess, Bill, I guess the big question for me, you're talking about now $500 million of optical product revenue in fiscal 27. Is there any breakdown you can give us how much of that comes from zero flap optics how much might come from the optical dsps and how much comes from the standalone picks that um dust photonics is selling into either direct into the hyperscalers or module vendors uh to the hyperscalers we're not going to break it down but i can tell you that we got strong momentum in optical dsps zf optics and with dust we'll add to that momentum so it's going to be a combination of all three.

Your next question comes from the line of Taurus, Van Berg with Stiefel. Your line is open.

Yes, thank you and congratulations on the deal. Bill, I was hoping you could elaborate a little bit more on this system-level approach in the optical space. So obviously now you've got the DSP, you've got the PIC. I do know there's a few other components out there, but just hoping you could elaborate a little bit on that And was that sort of a push from customers, or is this basically, you know, leveraging the success that you already had in AECs to creating more of a vertical business model to the optical space as well?

Sure. We are absolutely building on the system-level approach that we've taken with AEC. So, within AEC, of course, there's really one key component, and that's the DSP. for optical transceivers for zf optics of course the optical dsp is important but there's other components like the pick that that are really critical to building out an optimized system level design that'll enable us to build a better system level product and ultimately it will allow us to improve margins as well because we're eliminating a component where there would be margin stack if we're buying it in the open market. But I will say we're excited about the large market opportunity in the standalone SIFO pick market. Analysts expect this to be a multi-billion dollar opportunity in the upcoming years. And when we add this component to our optical DSPs, we think it's highly complementary. And it really allows us to offer our transceiver customers a more complete solution as well.

Your next question comes from the line of Tom omali with barclays your line is open hey guys thanks for taking my question i had a question kind of on the the dual roadmap that you're now going to be running so uh dust obviously uses laser-based uh technology for their npo cpo roadmap you guys have shared historically just around your your led intersection with that technology trend could you maybe talk about customer traction that DUS may have in CPO today, maybe where they're manufacturing the TIC today, and then just in the future, why you think you need those two kind of avenues to address the technology?

Sure. So we see the opportunity for CPO and NBO, something that's very much developing. I think there's going to be different approaches. And the micro LED effort that we've got, this is a solution that at a fundamental technology level addresses the reliability issues with laser-based solutions. And so we're very much going to continue to invest heavily in that area. As it relates to silicon photonics ticks, if you look at the work that we've done with ZF Optics, as we look at the telemetry information and managing impairments that come with laser-based optics there's an added layer with the dust photonics pick there's sensors in their solution and that's really going to enhance our telemetry capabilities so when we look at npo and cpo we definitely see a diversity of solutions that will exist in the market and our goal is to really cover the uh the you know any any approach that our customers want to take your next question comes from the line of vivek are you with

bank of america your line is open uh thanks for taking my um questions um i had the questions on um you know some of the the financials that you uh described so first on the 500 million in sales i understand this is more kind of vertical integration at this point but and i'm wondering um you know how that 500 million how does it compare to what you thought before the deal or you know how you thought about that a few months ago so i how much of it is incremental to the way, right, we all think about the company's current growth trajectory. And then secondly, maybe if you could give us a sense for, you know, how the margin structure will evolve as hardware, right, or transceivers become a greater part of the mix. Are you expecting them to come at the same, you know, growth and operating margins as your core business? You know, will there be a shift? And longer term, is there a certain, you know, business mix, Bill, that you are heading towards in terms of what you do with AECs versus optics? Thank you.

Hey, Zizek. This is Dan Plumbing. So let me answer that question. So first, with regard to the $500 million that Bill referenced. So it is above what we had previously guided. our fiscal 27 revenue is now expected to grow in excess of 75 percent year over year and that's with a mid single digit sequential growth through the first half of the year and the second half inflection driven by that ramp of our optical portfolio which is you know optical dsp zf optics and now our silicon photonics platform so from a margin perspective everything that we've announced so far is within our expectation of our long-term model on zf optics in particular as we integrate silicon photonics our own solution into our zf optics that is accretive to the the overall zf optics story and we've previously stated that zf optics as we expect is within that long-term gross margin model good 60s percent as well Your next question comes from the line of Joseph Cardozo with J.P.

Morgan. Your line is open.

Hey, good morning. Thanks for the question. Bill, you know, you touched on it briefly in your prepared remarks, but I'm curious if you could flesh it out a little bit more for us that are less familiar with DUST and kind of what they bring to the table. And specifically wanted to see if you can elaborate about how their PIC or other technologies are differentiated relative to other solutions or similar solutions in the market today. And then beyond the obvious benefits of owning another piece of the technology stack, like what specific value does their technology deliver for Credo to become more competitive in the market as it relates to your guys' optical portfolio?

The Silica Photonics pick really brings an added complement to the system-level solution that we're building. And as I mentioned before, our ability now to sell a more complete portfolio at a component level is really added to it as well. When we look at different ways of building optical modules, silicon platonics is a more simple, lower-cost solution than, say, EM lasers that have dominated the data center optics in the past. And so we think that, again, this is a really critical component to build on, both at a system level as well as a component level. And when we think about what the future brings for NPO and CPO, this will absolutely give us a clear path on that front as well.

Your next question comes from the line of Sean and Loughlin with Petey Collin.

Your line is open. hey thanks guys and congrats on the acquisition and the momentum um sort of building on joe's question i was wondering if you could talk about the motivations for for why it was you know why you felt the need to bring this asset in-house rather than you know just source uh source picks from them on the merchant market you know i don't understand the portfolio expansion aspect for sure But is there something specific that, you know, maybe you can bring to help them scale or is it really just about the additional incorporation of their technology into the transceiver, both margin and portfolio?

Well, first, we see a large market opportunity in the standalone tech market. I mentioned earlier that it's a multibillion dollar market, you know, per analyst. And that's really in the very near term, you know, by 2030, some analysts call it a $6 billion market. So there's a very large market opportunity. The technology that Dust has developed is leading edge. And just that as a standalone business that's additive to what we're doing is very meaningful. But maybe more importantly, our ability to build the most optimized zero flap optics platform is going to be enhanced by having this pick as another key component to the optical DSP. I mentioned earlier that from the standpoint of moving faster on product development and improving margins, this is all part of a system level approach that we're taking. When we look at the opportunity for both front-end and scale-out, we see pluggable transceivers, both optical and copper, really a long-term solution. There is no catalyst to go to a different form factor. But as we look at the scale-up opportunity, network density is going to be driving the need for more dense form factors on connectivity. When we see that market, we see a 10x number of connections, and that is going to be the catalyst for moving to different form factors. And so with this, really the third leg here is it positions us very well in owning this technology as we develop CPO and NPO solutions for customers in the future.

Your next question comes from the line of Sebastian Nachu with William Bair. Your line is open.

Good afternoon. Yeah, congrats on the acquisition. This seems like a more sizable acquisition than the past. It sounds like Dust Photonics already had a little bit of scale, some engagement. So maybe could you talk a little bit about how you expect this acquisition to impact your OPEX or even your CAPEX in fiscal 2027?

Yeah, we haven't given guidance yet overall for fiscal 27, so stay tuned in the upcoming earnings announcement. We'll talk about that a bit more than we can at the moment. I will mention, though, that we expect this deal to be accretive in fiscal 27 and beyond.

Your next question comes from the line of Jim Schneider with Goldman Sachs. Your line is open.

Good afternoon. thanks for taking my question can you maybe just talk a little bit about how your customer pipeline has evolved for the zf optical transceivers given sort of that you've mentioned um expanding adoption across the hyperscaler deployments and dust already seems to be at multiple hyperscalers today how does that what does it mean for the kind of the aperture of customer engagement well we've been making great progress on customer traction for for zf optics and we'll update you know on on that more in the future when we when we do our upcoming call in june the uh the traction that dust has is is great when we look at the customers that they're engaged with both at a hyperscaler

level as well as uh at a module uh manufacturing uh customer level uh it's really quite quite good and it's very complementary to what we've already done and so over the next um over the next year we will be integrating the dust technology within the ZF optics platform. And so we see near term that the traction that they've got with their standalone pick business will be a great driver for us. And then longer term, it will be very complimentary as we look at ZF.

Your next question comes from the line of Richard Shannon with Craig Hallam. Your line is open.

Well, thanks, guys, for taking my question.

Maybe just a quick one for you, Bill. the press release for the deal mentioned contingency earn out here. Maybe you could describe what the nature of that is over what time frame that would be. Thank you.

Dan, why don't you take that one?

Yeah, so Richard, it's over a two-year time frame, and it's based on a mix of financial metrics that we expect them to achieve.

Your next question comes from the line of Christopher Rowland with Susquehanna, your line is open. Mr. Christopher, your line is open.

Can you guys hear me?

Yes.

You can't hear me. So I guess first to housekeeping. How much revenue does dust do today? And then secondly, my question, you know, as I talk to people in the optical supply chain, And they suggest that PIC might be more of like a foundry opportunity and less of a merchant opportunity, as it just might be harder to get a good margin on that chip. And I know, Dan, you already addressed that. And you talked a little bit about the tech differentiators, but what do you think might allow you to get a sustainable margin on the PIC? uh you had on your website uh i think an integrated laser uh technology uh within this pic is that part of it um uh anything you can speak to specifically that would differ from uh design coming out of a foundry for example would would be great well let me i think you go ahead though yeah i think you hit on a couple of key points we're not going to break out the

revenue for DUS, but I will say that their backlog is quite healthy and it's growing throughout fiscal 27. As it relates to the margin question, there's great opportunity for scale, the scale that we can bring as we combine forces with DUS. So I think from a margin standpoint, I don't think there's any shift in any of the messaging that we've given in the past.

Your next question comes from the line of Michael Genoves with Rosenblatt Securities. Your line is open.

Oh, great. Thanks a lot. Guys, the $500 million target for optics in fiscal 27, which is basically calendar 26, I mean, you know, that's a good start. I think it would give you about 2% market share in transceivers.

So my question is, is longer term, do you have, you know, any goals in this market to become a very large player is anything you could say about market share goals kind of beyond this year or or you know do we think about it as a niche product or something that will become more of a mass market product eventually i think the question was related to our zf optics transceivers and we see this as a as a critical solution for customers that have architectures where their GP or NIC to TOR or first switch connection is longer than what we can service with our AT business. So there's several customers that have an architecture where they're looking for longer NIC to TOR connections. That's really, you know, the market, and I think it can be quite sizable. The reason that our solution is unique is because we're able to utilize really deep, real-time, continuous telemetry data to be able to proactively identify and mitigate potential link flaps. As you know, clusters, tens of thousands, even 100,000 GPUs tied together, the key element related to reliability is they're all working as one cluster. And if you've got link flaps, you can shut down the entire cluster. And so this is one of the reasons that AEC is so popular and really a de facto standard for that NIC Tor connection in a cluster where it can be used based on length of the connection. ZF Optics, we're offering that bulletproof reliability, and we're doing that through going up the stack. We're not looking so much at the overall transceiver market and what percentage it might be, but it absolutely will be a multibillion-dollar opportunity that we're growing into. And that's really over the next several years.

Your next question comes from the line of David Liu with Mizuhu. Your line is open.

Hi. Yeah, thanks for the question. I'm on for Vijay here. Congrats on this deal. My question is, when do you see Dust's roadmap to 3.2 started to ramp and maybe a timeline for when Credo's integration of Dust's technology solution might start to ramp? And how does that feed into your view of the mix of SIFL versus the EML market share at 3.2T?

Thanks. dust has made lots of progress, even at this point on 448 or 3.2 terabits per second. I think they're very much ahead of the market and will be an enabler for that next generation port speed. I do think it's going to take some time before that market develops, but the great news is that the combination of the dust pick as well as the Credo optical DSP and Sertes, we're going to be right there as that market really develops. And so we're talking about solutions that exist already with dust.

Your next question comes from the line of Crawford Clark with Jeffries. Your line is open.

Hey, guys. Crawford Clark on for playing Curse with Jeffries. Thank you so much for taking my question, and congrats on the pending acquisition. I wanted to better understand whether you're already working with us to supply picks for ZF Optics. I'm really just trying to get at, essentially, is there any risk to the qualifications that you have in progress for ZF Optics given that decision to end source?

The great thing about both being suppliers to the optical transceiver market in general is that we've got great experience working with dust. And that's on designs that we're both involved in for optical transceiver customers of ours. So, you know, we've got great confirmation on the, you know, the technology in general. As it relates to ZF, there's really, you know, no change in what we're expecting from a ramp perspective. The integration of dust within our platform will take place over the course of about a year. And, you know, couldn't feel better about it.

Your next question comes from the line of Quinn Button with Needham and Company. Your line is open.

Hey, guys. Thanks for the follow-up. Bill, I guess I just wanted to ask, you know, the standalone PIC business that you have or Dust has today with other module vendors, since you bring Dust in-house, do you see any conflict or any risks to that business going to other PIC suppliers, or do you think because Xero Flap Optics is sort of a premium transceiver product that it doesn't really compete with um the other uh module vendor customers of dust and then i've got a quick follow-up for dan we don't we don't really see a conflict at this point what we're doing on zf is is completely different from the standpoint of looking at say the commodity transceiver market

so we believe we're going to be able to manage our component business in parallel with our zf optics There are no further questions at this time.

Mr. Brennan, I turn the call back over to you.

Well, I appreciate everybody getting on the call. We're excited about the opportunity in front of us and we look forward to updating you further on our progress in the near future.

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