Credo Technology Group Holding Ltd: Innovative Connectivity Solutions Driving Growth in AI Infrastructure

Published on September 24, 2024 | Ticker: CRDO

Credo Technology Group Holding Ltd (NASDAQ:CRDO) is an innovator in providing secure, high-speed connectivity solutions that deliver improved power and cost efficiency as data rates and corresponding bandwidth requirements increase exponentially throughout the data infrastructure market. The company's innovations ease system bandwidth bottlenecks while simultaneously improving on power, security and reliability.

Business Overview

Credo's connectivity solutions are optimized for optical and electrical Ethernet applications, including the 100G, 200G, 400G, 800G and emerging 1.6T (or Terabits per second) markets. The company's products are based on its proprietary Serializer/Deserializer (SerDes) and Digital Signal Processor (DSP) technologies. Credo's product families include integrated circuits (ICs), Active Electrical Cables (AECs) and SerDes Chiplets. The company's intellectual property (IP) solutions consist primarily of SerDes IP licensing.

Financials

In fiscal year 2024, Credo achieved record revenue of $192.97 million, up 5% year-over-year. However, the company reported a net loss of $28.37 million for the year. Operating cash flow was $32.74 million, while free cash flow came in at $17.09 million.

Recent Developments

The shift towards generative AI accelerated during fiscal 2024, and Credo has seen continued and growing demand for its high bandwidth, energy efficient connectivity solutions. In the fourth quarter of fiscal 2024, the company reported record revenue of $60.8 million, up 15% sequentially and 89% year-over-year. Gross margin for the quarter was 66.1%, above the high end of guidance.

Credo's revenue mix has transitioned significantly over the course of fiscal 2024, with AI-related revenue accounting for approximately three-quarters of total revenue in the fourth quarter. The company expects this AI-driven momentum to continue, forecasting AI revenue to double year-over-year from the fourth quarter of fiscal 2024 to the fourth quarter of fiscal 2025.

Product Performance

The company's AEC product line has maintained market leadership, with Credo delivering solutions for port speeds ranging from 100G to 800G. The company's approach of delivering customized hardware and software features has enabled it to build close collaborative relationships with customers, improving speed-to-market. Credo's AECs have become the leading solution for in-rack cabled connectivity for single lane speeds of 50Gbps and above.

Credo's Optical DSP business also saw material production revenue gains in fiscal 2024, with significant wins at both domestic and international hyperscalers. The company's innovative Linear Receive Optics (LRO) DSP solutions have enabled a significant power reduction versus traditional 800G solutions, positioning Credo well for next-generation 1.6T optical modules.

In the company's Line Card PHY business, Credo continues to add to its customer base, securing multiple 100Gbps per lane wins at leading Tier 1 OEMs and ODMs serving the global data center market. These include 800G and 1.6T gearbox, Retimer and MACsec PHY products.

Credo's SerDes IP licensing and chiplet businesses also delivered solid results in fiscal 2024. The company won licensing business across a range of applications, process nodes and lane rates, from 28nm down to 4nm and 28Gbps to 112Gbps. The chiplet business saw significant growth, led by Credo's largest customer deploying the company's SerDes chiplets in a massive AI cluster.

Outlook

Looking ahead, Credo expects sequential revenue growth to accelerate in the second half of fiscal 2025, driven by the ramp of AI-related programs across multiple customers. The company forecasts fiscal 2025 non-GAAP gross margin to be within a range of 61% to 63%, as product gross margins expand due to increasing scale. Credo also expects fiscal 2025 non-GAAP operating expenses to grow at half the rate of top line growth, driving improved operating leverage.

Conclusion

Credo's innovative connectivity solutions, strong customer relationships, and exposure to the high-growth AI infrastructure market position the company well for continued success. With a diverse product portfolio, expanding customer base, and robust financial position, Credo appears poised to capitalize on the exponential increase in data bandwidth requirements across the data infrastructure landscape.

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