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Credo’s last quarterly report indicated that they generated $44 million for the quarter ending 28 October 2023 and $79 million for the last 6 months. So broadly equating to an annual revenue of about $160 million and which is less than half of what AWE are on track to generate for 2023.
And yet, Credo have a market cap of $2.8 billion compared with AWE market cap of $1 billion.
So Credo are valued at 2.8x that of AWE for less than half the total annual revenue.
Moreover, Credo are currently loss making with an annual net loss of around $36 million.
Their cash & cash equivalents position at the end of October was nearly $129 million.
Credo’s share price surged about 27% to $18 in the last couple of months and amazingly had absolutely no difficulty whatsoever in doing another public offering last week to raise a further $175 million at $17.5 per share merely for working capital! Clearly, on the US markets Credo are perceived to be highly investable.
Credo are presently ploughing money into R&D at more than $60 million per year.
Credo’s products, as far as I can understand, when I last checked are what you call n-1 grade products. This means one step behind the latest generation of technology, and therefore essentially less superior to the range of products and IP on offer from AWE. If Credo are fair value today, then you might argue that AWE are at least worth 3 times more.
As far as I know Credo build SerDes based on so called N-1 process technology and they can achieve similar or even superior power/performance because of their architecture and feature. They used to have expertise designing SerDes using extensive analog and mixed signal, and therefore have power advantage as compared with DSP+ADC approach. Besides, rather than supporting both PCIe and Ethernet, their SerDes only focused on Ethernet/optical protocols with selective frequency range so that they can optimize power further. (Of course, this can be their weakness from IP business pov.) Using N-1 process technology can make their products more cost competitive while claiming comparable power and performance.
Besides, their AEC (active ethernet cable) is unique to the market. It provides an low-cost yet more reliable alternative than optical fiber and passive cables. Credo AEC is tailor-made for cloud customers and has many different forms. This is by far their cash cow, followed by copper PHY products.
Mmm...
When asked at the interim's "Who are AWE's main competitors in the opto electronics space?"
Tony Pialis responded "Who else has great connectivity technology? The only other player that can implement PAM4 and coherent at leading edge is Marvell."
Was this
a) incorrect ?
b) correct at the time but no longer correct ?
c) correct at the time and still correct ?
d) 'An answer' to an imprecise question ?
The question that was actually asked was: "You mentioned that there’s a handful of companies that can execute design, manufacturing and delivery of chiplets, who do you see as the main competitors in this space and also in Optoelectronics?"
Tony's precise answer was: "So, great question. Look the five companies that I mentioned in my talk that are able to manufacture chiplets are companies like AMD, Intel and Nvidia. They implement chiplets for their own products. There is no-one today that is developing and deploying chiplets to the broader market, so there’s no competition today for that. That’s where we’re laser focused enabling the rest of 150, 250 semiconductor companies to be able to implement chiplets, not just the five stalwarts that are able to do it today. In terms of who else has great connectivity technology I think I’ve already mentioned that. The only other player that can implement PAM4 and Coherent at leading edge is Marvel. Broadcom has great PAM4 technology but not really a player in Coherent. So for us it’s Marvel and you know what, I love that competition, because Marvel is a great company with extremely long lineage and I’m honoured to be at the table with them but look, the world needs more than one player in the space especially with the explosion of AI, we need competition, we need a robust ecosystem and we’ve invested to be a strong player in the space over the next decade."
So in correct context, Tony was saying that only Marvel can implement both PAM4 and Coherent at leading edge.
I think this is arguably correct and still remains the case today. That said, Credo earlier this year announced plans to collaborate with a Dutch company called EFFECT Photonics to develop coherent DSPs. So eventually, they too will likely be a player in both PAM4 and Coherent at the leading edge .