Credo Technology

Refresh delta (since 2026-06-18)

What changed

1. The quarter beat its own guide and the next guide steps up. Q1 FY27 revenue $479.0M (+9.6% q/q, +114.7% y/y) against the company's $465–475M guide; Q2 guide $525–535M revenue, non-GAAP GM 67.0–69.0%, non-GAAP opex $100–105M. AEC unit volume "contributed over 90% of the increase in revenue" y/y.
2. GAAP margins stepped down; non-GAAP did not. GAAP GM 64.5% vs 68.2% in Q4 FY26; non-GAAP 68.0% vs 68.3%. The gap is $11.0M of acquired-intangible amortisation and $5.7M of SBC in cost of revenue. GAAP operating margin 25.2% vs 35.7%; non-GAAP 48.2% vs 49.6%. Total SBC $88.0M = 18.4% of revenue, up from $49.7M (11.4%) the prior quarter [Ex-99.1 reconciliation; estimate: arithmetic].
3. DustPhotonics closed (2026-05-28) and it is bigger than the June headline. Total consideration $1,251.1M: $769.6M cash, $169.1M shares, $2.5M replacement awards, and $310.0M contingent earn-out ($300.0M recorded in equity, $10.0M as a liability). Allocation: goodwill $895.8M, intangibles $361.7M, deferred tax liability $(48.0)M. Credo says pro forma results are "not material" — i.e. DustPhotonics brought little revenue [10-q-2026-q3.md, Note 5]. The June dossier's "$770M cash + ~0.92M shares (+ up to 2.8M shares & $31.6M contingent)" understates it; the filing's fair value of the earn-out is $310M.
4. The balance sheet changed character. Cash + short-term investments $764.3M (from $1,443.3M); goodwill $986.4M + intangibles $378.8M = $1,365.3M, 45% of $3,012.7M total assets (was 5%). Still no funded debt [Ex-99.1 balance sheet; estimate: arithmetic].
5. Concentration spread across four names, not down. End-customer table: four customers ≥10% — 33%, 28%, 13%, 10% (84% together); a year earlier three — 35%, 33%, 20% (88%). The fourth (labelled "Customer F") was under 10% a year ago. Contracting-party "Customer A" 43% of revenue (50% a year ago) and 57% of receivables (53% at May 2) [10-q-2026-q3.md, MD&A end-customer table + Note 3]. Letters are reassigned between filings — "Customer C" in this 10-QForm 10-QThe quarterly version of the annual report. Lighter, and not audited. is the 35% customer labelled "B" in the Q1 FY26 10-Q — so no letter can be tracked across filings by name.
6. The shares are down by about a third. IBKR last $160.28 (2026-10-27, realtime); 26-week high $308.67, 13-week low $142.89 [IBKR snapshot]. June dossier price ~$250.81. A ~27% fall on the print was reported [unverified: AllInvestView summary]; not checked against a price history.

What held. The AEC franchise is still the engine (>90% of y/y growth), non-GAAP GM held at 68%, earnings are still cash-backed in direction if not in ratio (Lens 10), no litigation, no risk-factor changes ("no material changes" since the 10-KForm 10-KA company’s audited annual report to the US regulator. The most complete thing it publishes.) [10-q-2026-q3.md, Part II Items 1 and 1A]. Supply chain (Lens 2) and the moat description (Lens 3) stand.

Correction to the June dossier. It called Amazon "~49% of revenue". The 49% is the FY26 contracting-party Customer A (often a contract manufacturer), not an end customer; the FY26 end-customer table's largest was 33% [10-k-2026-q2.md, Note 3 + MD&A]. The filings name no customer; customer identities in either dossier are web-sourced.

Phase A — Understand the business

Company Overview — carried, see the previous dossier. One wording change: the release now describes a "vertically integrated connectivity portfolio" including "silicon photonics-based photonic integrated circuits (SiPho PICs) and DSPs" — the DustPhotonics line is now part of the product list [Ex-99.1, About Credo].

Supply Chain — unchanged, see the previous dossier. Refundable capacity deposits with assembly subcontractors rose to $88.4M (terms 2–6 years); non-cancelable purchase commitments $222.2M, almost all in the rest of FY27 [10-q-2026-q3.md, Note 9].

Moats — carried, see the previous dossier.

Segments & geography

Still one reportable segment; no product split is disclosed in the filing. Revenue by destination of shipment ($000):

The move worth noting: Mainland China shipments went to almost nothing while Malaysia became a $74M destination — a shift in where the cable assembly/hand-off happens, not (on this evidence) in who the end customers are. The filing does not explain it. US share 53% of the quarter.

Optical split: management guided FY27 optical revenue "north of $600 million", second-half weighted, with ZF optics, optical DSPs and SiPho PICs each over $100M, and first silicon-photonics revenue booked in Q1 [unverified: call summaries via Crypto Briefing / web search, 2026-09]. None of this is in the 10-Q.

Phase B — Measure performance

Earnings Result

• vs guide: revenue above the $465–475M range (guide as recorded in the June dossier from web coverage). Consensus beat (rev $475.7M, non-GAAP EPS $1.17) is [unverified: Zacks via web search].
• Opex: R&D +$62.1M y/y — of which $25.8M SBC, $13.0M headcount, $17.8M design/lab; SG&A +$36.7M — $21.3M SBC, $7.4M consultants and DustPhotonics deal costs [10-Q MD&A].
• Guide for Q2 (quarter ending 2026-10-31): revenue $525–535M; GAAP GM 62.9–64.9% (2.8pts of that gap is intangible amortisation); GAAP opex $199–204M including $97M SBC [Ex-99.1 forward reconciliation].
• FY27 arithmetic: management's ">80%" FY27 growth [unverified: call summaries; another summary says >85%] means FY27 revenue above ~$2.40B. Q1 actual + Q2 guide midpoint = ~$1.01B, so the second half has to deliver more than ~$1.39B — ~$0.70B a quarter, a step of ~32% over the Q2 midpoint.
• Tax: a small benefit ($0.6M) from DustPhotonics purchase-accounting deferred taxes [10-Q MD&A].

Earnings Calls — not re-run. The 2026-09-01 call transcript was not read (stocktaper.com returned HTTP 429; no transcript on the shelf; IR replay not fetched). The only call content above is from third-party summaries and is tagged [unverified].

Comps — carried as open; still n/a, not sourced.

Catalysts since June

• 2026-05-28 / 2026-06-01 — DustPhotonics closed; CEO Special PSU granted (8-KForm 8-KA filing for something that happened between reports and matters enough to tell shareholders now. 2026-06-01, 8-k-2026-q2.md).
• 2026-09-01 — Q1 FY27 print and Q2 guide (above). Reported ~27% one-day fall [unverified: AllInvestView], said to be on optical second-half weighting and 1.6T transition risk [unverified].
• 2026-10-12 — AGM: three Class II directors elected (Acevedo, Danesh, Sutardja); say-on-pay passed with ~83% of votes cast (99.1M for, 19.2M against); E&Y ratified for FY ending 2027-05-01.
• Price: $160.28 now vs 26-week high $308.67 [IBKR]. The CEO PSU's first stock-price hurdle ($244.70) is now well above the market [prior dossier Lens 9; IBKR].
• Next print: Q2 FY27 (quarter ends 2026-10-31), expected ~early December; date not confirmed from a primary source.

Phase C — Judge people & books

Management (short re-run)

• CEO adopted a new 10b5-1 plan on 2026-06-10 to sell up to 440,000 shares held by the Brennan Family Trust between 2026-09-14 and 2027-09-14 [10-q-2026-q3.md, Part II Item 5]. The June dossier recorded his termination of a plan on 2026-03-20; this is a new one. Trust holding ~1.77M, so the plan is ~25% of it.
• Say-on-pay 17% against is a visible minority (the Special PSU sat in the 2026 proxy) [8-k-2026-q4.md].
• No officer changes surfaced in the filings read. Everything else carried.

Forensic Red Flags

• Cash conversion fell: OCF $90.2M vs net income $129.4M (0.70), after $151.3M of working-capital outflow: receivables +$54.5M, inventory +$61.5M, capacity deposits +$25.3M, payables −$16.4M [10-Q MD&A cash flows]. Earnings are still cash-backed in direction; the ratio is lower than FY26's 0.98.
• Inventory again outran revenue: $313.1M, +24.8% q/q vs revenue +9.6%. The build is in raw materials ($64.4M→$99.2M) and WIP ($34.3M→$66.5M); finished goods fell ($152.2M→$147.4M) — consistent with the stated "unfulfilled backlog and related new product ramps". E&O write-down $3.9M [10-Q Note 8, cash-flow statement].
• Receivables: $288.8M, DSO ~55 days vs ~49 at May 2; one contracting party is 57% of receivables.
• SBC: 18.4% of revenue this quarter and guided at $97M opex SBC next quarter; RSUs outstanding 8.3M (2.1M granted in the quarter at $226.57 average fair value); diluted shares +5.3% y/y [10-Q Note 10; Ex-99.1].
• Acquisition accounting: $895.8M of new goodwill on a business the company calls not material to results; the allocation is preliminary for up to a year; earn-out fair value changes on the liability portion run through other income [10-Q Notes 2 and 5]. Goodwill impairment is now the largest single balance-sheet sensitivity.
• Controls / legal: no material litigation; no risk-factor changes; auditor E&Y re-ratified [10-Q Part II; 8-K 2026-10-16]. SEC LR/AAER not re-fetched this pass; the June regulatory/regulatory-findings.md stands.

Phase D — Project & stress-test

Forward Projection — not re-modelled. No workbook was built; the June table is now stale on share count (194M diluted GAAP already), SBC (18% not 12–13%) and GAAP margin (amortisation of ~$11.6M a quarter). Open question for the model: what FY27 GAAP EPS looks like with H2 at ~$1.4B but SBC near $100M a quarter.

Bull vs Bear

• Bull: the company keeps beating its own revenue guide; AECs are still compounding; a fourth customer crossed 10%, so the top line rests on four buyers rather than three; non-GAAP GM held at 68% through the first optical-heavy quarter; Credo now owns SiPho PICs, optical DSPs and ZF optics in-house.
• Bear: the FY27 bar is back-end loaded — H2 must be ~32% above the Q2 midpoint, with half the year's dollar growth said to come from optics that have not yet ramped; GAAP profitability fell sharply on SBC and amortisation; the cash cushion halved; $1.37B of acquired goodwill/intangibles sits on a business that has not yet shown revenue; the four-customer total (84%) is no lower than the three-customer total of a year ago.
• Pre-mortem: optical slips a half-year, Q3/Q4 land at Q2-like levels, FY27 growth prints in the 50s rather than 80s, inventory ($313M and rising) gets written down, and the DustPhotonics goodwill is tested in the FY27 10-K.

Devil's Advocate — the June skeptic called DustPhotonics defensive at $770M. The filing puts the price at $1.25B including a $310M earn-out, with immaterial acquired revenue. The question has moved from "is optics upside?" to "can optics carry half of FY27's dollar growth in the second half?"

Management Questions — carried; add first: What are the DustPhotonics earn-out metrics behind the $310M, what share of the >$600M optical guide is already in backlog, and why did Mainland China shipments fall from $51.8M to $1.1M while Malaysia rose to $74.5M?