Alab (ALAB) Q3 2026 earnings call transcript

Alab (ALAB) held its earnings call for the third quarter of fiscal 2026 on 3 November 2026. What follows is my machine transcription of the company's public webcast, made on 3 November 2026, and not the company's official text.

A machine mis-hears names and numbers, so where one reads oddly, the webcast is the record. This recording is not split by speaker.

Transcript

Good afternoon. My name is Connor Meek, and I will be your conference operator today. At this time, I would like to welcome everyone to the Astera Labs Q3 2026 earnings conference call. All lines have been placed on mute to prevent any background noise. After management remarks, there will be a question and answer session. If you'd like to ask a question during this time, simply press "star" followed by the number one on your telephone keypad. If you'd like to withdraw your question, press "star" one again.

Thank you. I will now turn the call over to Leslie Green, investor relations for Astera Labs. Leslie, you may begin. Thank you, Connor, and good afternoon everyone, and welcome to the Astera Labs Q3 2026 earnings call. Joining us on the call today are DeTendra Mohan, Chief Executive Officer and Co-Founder, Sanjay Gajendra, President and Chief Operating Officer and Co-Founder, and Desmond Lynch, Chief Financial Officer. Before we get started, I would like to remind everyone that certain comments made in this call today may include forward-looking statements regarding, among other things, expected future financial results, strategies and plans, future operations, and the markets in which we operate.

These forward-looking statements reflect management's current beliefs, expectations, and assumptions about future events which are inherently subject to risks and uncertainties that are discussed in detail in today's earnings release and the periodic reports and filings we file from time to time with the SEC, including the risks that force in our most recent annual report on Form 10K. It is not possible for the company's management to predict all risks and uncertainties that could have an impact on these forward-looking statements or the extent to which any factor or combination of factors may cause actual results to differ materially from those contained in our forward-looking statements.

In light of these risks, uncertainties, and assumptions, the results, events, or circumstances reflected in the forward-looking statements discussed during this call may or may not occur and actual results could differ materially from those anticipated or implied. All of our statements are made based on information available to management as of today and the company undertakes no obligation to upstate such statements after the date of this call except as required by law. Also during this call, we will refer to certain non-GAP financial measures which we consider to be important measures of the company's performance.

For example, the overview of our Q3 financial results and Q4 financial guidance referred to various non-GAP financial measures. These non-GAP financial measures are provided in addition to and not as a substitute for financial results prepared in accordance with U.S. GAP. A discussion of why we use non-GAP financial measures and reconciliation between our GAP and non-GAP financial measures and outlook are available in the earnings release we issued today which can be accessed through the investor relations portion of our website.

With that, I would like to turn the call over to Jitendra Mohan, CEO of Astera Labs. Jitendra. Thank you, Leslie. Good afternoon, everyone, and thanks for joining our third quarter of the 26th conference call. Today, I'll cover our Q3 results market trends and traction across our AI fabrics and signal conditioning portfolios. I'll then turn the call over to Sanjay to discuss our long-term growth profile and that will cover our Q3 financial results and Q4 guidance. Astera Labs delivered outstanding results in Q3 with record revenue of 584.9 million dollars up 49% sequentially and up 154% year over year.

Operational execution was strong during the quarter as we've broadened our customer base with new design wins and expanded our intelligent connectivity platform with the launch of multiple new products. Q3 revenue growth was broad-based led by the high volume ramp of Scorpius X series for scale-up networks. Scorpius was our largest product family in Q3 with Scorpius X series revenue crossing over our PC series. Together, Scorpius represented over 1 billion dollars in annualized revenues. This is an important milestone in our journey to be a critical rack-scale AI infrastructure solutions provider.

Since our last earnings call, we have meaningfully expanded our portfolio with a record number of product launches. This includes a launch of 87. The industry's first PCI Gen 7 copper and optical connectivity solutions. Leo 2 and Leo X series smart memory controllers for AI and general purpose use cases and Orion, our new compute agnostic rack scale architecture targeting enterprise AI and inference applications. Together these innovations broaden the markets and applications we serve creating greater value for our hyperscaler and enterprise customers by supporting a diversified long-term revenue growth profile.

Our design and activity is picked up significantly in Q3 at both new and existing customers. Scorpius increasingly establishing itself as a diversified AI fabric platform with momentum extending across both X series and PC series portfolios. In Q3, X series shipped to two customers across multiple platforms and we expect to deliver free production volumes to additional new customers during the current portal. The PC series similarly broadened its footprint across multiple platforms including two US hyperscalers in Q3.

Beyond AI fabrics, we see additional vectors for diversification. Taurus 800 gig solutions are qualified in shipping in volume to our lead customer and are currently sampling across several additional customers. Leo momentum continues with qualifications completed across several customers including two hyperscalers and we expect to ramp volume shipments in mid-2027. Our custom solutions business is also seeing a substantial increase in design activity as the number of opportunities have broadened over the course of the year with over 10 active engagements.

Finally, our platform business anchored by Orion reference architecture is generating strong early customer interest with initial shipments expected to begin in 2027. AI infrastructure demand continues to strengthen with our hyperscaler customers reporting strong revenue growth from AI services. Yet the physical inputs, river capacity, grid power and memory supply remain tightly constrained. That combination puts a premium on utilization. At the same time the workload mix is shifting to inference where continuous reasoning loops multiply the traffic crossing the fabric.

Operators now optimize for two things latency to deliver faster time to first token and accelerator utilization to drive dollars per token. Our Scorpio AI fabric is purpose-built for exactly these metrics. As token economics become increasingly important to our customers let me highlight the differentiated capability driving a star a success in AI fabrics. First, radix. Our portfolio Scorpio X devices including the industry's largest 320-lane configuration enables large exercises for PCI-like scale-up AI fabrics. Scorpio X high-link count helps to maximize scale-up domain sizes while enabling an all-to-all flat topology to allow AI accelerators to communicate a full bandwidth with low latency.

This is particularly important for AI inferencing as fewer hops reduce collective communication latency allowing resources to be spent on compute rather than moving data between switches. Increased utilization results in higher tokens per second and ultimately greater monetization from the same accelerator investment. Second, intelligent. Conventional switches just move packets. Scorpio X series is AI workload aware and participates in collective communication and computation. Hardware accelerated hypercast and in-network compute offload AI operations such as all reduced and broadcast from the accelerators directly into our fabric delivering up to a 2x improvement in collective performance.

Similarly, fabric attached Leo memory controllers for KV cache offload deliver significant improvement in time to first token and tokens per second. By utilizing advanced AI-aware capabilities enabled by Scorpio and Leo products, customers can improve token economics and increase token output with the same number of accelerators. Third, software. Cosmos is a software layer that transforms our AI fabric and smart connectivity solutions into infrastructure that our customers can deploy, manage and operate efficiently at scale. Cosmos software spans our entire portfolio is broadly adopted across the AI ecosystem and extends from device-level diagnostics to fabric and rack management.

Cosmos speeds rack deployment by resolving connectivity issues in software instead of costly hardware spins then keeps rack online with fabric-wide telemetry and predictive fault detection. It also configures and manages hypercast and in-network compute. So our software directly participates in the AI workload running on XPUs in addition to managing the connectivity infrastructure. Faster times the revenue and higher utilization of AI infrastructure are the reasons why Cosmos is driving new design means across our product portfolio. These differentiated capabilities are optimizing performance in increasing XPU utilization which is rapidly expanding our opportunity funnel and accelerating design wind conversion.

As a result we expect to deliver strong diversified growth with our AI fabric portfolio through increasing value to our customers and continued expansion of our dollar content per AI accelerator. Today our content per XPU across fabrics which is and copper single conditioning can exceed $1,000 per XPU. We expect our next generation AI fabric products alone to contribute well beyond $1,000 per XPU. Over time we aim to address the entire scale-up switching term expanding from PCI Express and Enviling Fusion-based platforms today to systems based on ULA-Link and other protocols.

With the addition of memory controller and optical connectivity products, increasing AI fabric attach rates driven by next generation scale-up protocols including ULA-Link, larger cluster sizes and higher ASPs associated with each data they transition, we see a path to doubling our total silicon dollar content per XPU with each new generation of AI platforms. In summary, Q3 marks another important step in a sterile apps evolution. Record results were led by the high volume ramp of Scorpius X series and continued growth across our single conditioning portfolio.

We also saw strong design wind momentum across new and existing customers and launched a record number of products during the quarter. Looking ahead, we see significant opportunities across optical connectivity, custom silicon, memory solutions and rack scale infrastructure that build on our core franchises, expand our addressable market and position us for long-term growth. With that, let me turn the call over to our president and CEO Sanjay Kajindra. Thanks Jidindra and good afternoon everyone. This quarter was an important inflection point for a sterile apps.

We have evolved from a component level supplier into a rack scale infrastructure platform provider. We are now bringing together silicon hardware and software to solve connectivity challenges across the AI, AI, rack and ports over both copper and optical interconnects to improve ex-view utilization and higher ROI. As we broaden our intelligent connectivity portfolio, we are increasing our silicon dollar content to thousands of dollars per accelerator across AI and cloud infrastructure while expanding our addressable market opportunity. Our foundation today comprises of two core revenue generating franchise, AI fabrics and signal conditioning and is rapidly expanding across four additive market vectors including optical connectivity, custom silicon, memory solutions and our rack scale infrastructure platforms.

As AI systems scale, the challenge is no longer simply connecting more accelerators inside a server. As Jidindra mentioned, customers are building larger scale-up domains that need more bandwidth, lower latency and smarter ways to more data to improve token economics. Our real world experience deploying scale-up networks in production volume is helping us define workload specific high-value feature sets. Based on these factors and increased attach ratios, we believe we can more than double the dollar content per XPU in each subsequent generation.

Signal conditioning remains the critical problem to solve as data rates double and AI clusters scale. As a result, we expect ASPs and attach rates for our new PCI-E Gen7 portfolio across optical and copper to expand versus the prior generation. In addition, our ADs, gearbox and redriver solutions are expected to address new sockets within AI platforms. Torros for 800 gig applications began shipping in volume during Q3 and we anticipate solid growth within scale-out Ethernet ACs heading into 2027 driven by higher ASPs and new program RAMs.

We're also sampling 3.2 TZ timers to multiple customers. Looking ahead, we are adding four growth drivers that materially expand our addressable market. Starting with optical, we continue to make great progress on our fiber connectivity business. At OCP last month, reduced our first optical products including smart optical drivers and TIA is optimized for scale-up PCI-E Gen7 topologies addressing near-packaged and linear-pletable optics applications. We also demonstrated integration of our optical technology with our Scorpio X series fabric switches.

Our smart TIA and laser drivers will begin sampling this quarter to select hyperscaler and OEM partners for NPO applications and we are actively working with multiple customers to extend PCI-E fabrics beyond the rack to the port level. With near package optics for scale-up application, we see our TIAs and drivers unlocking a additional content opportunity per XPU and we expect these optical products to begin initial revenue contribution in late 2027. Long term, we are fully, we are developing fully integrated optical engines with the goal of building an optically-enabled Scorpio X series fabric switch.

In 2030, we estimate the scale-up optics interconnect opportunity to be a 40 billion dollar market which we will service through our high-density fiber attack solution and optical engines for NPO and CPU applications. Moving to custom solutions, the AI accelerator landscape continues to broaden and diversify driving demand for purpose-built intelligent connectivity. Interest and activity for our custom offerings have accelerated in 2026 and we are engaged with 10-plus opportunities now. We are developing custom fabric solutions, custom memory controllers for specialized inference applications and IO triplets for next generation accelerator platforms.

We expect initial shipments of these solutions to come in in late 2027 and ramp to volume in 2028. We are being selective and focusing on high-value custom programs looking to leverage our deep portfolio of connectivity IP, robust supply chain partnerships and system level expertise. Next is our memory solutions business where we recently expanded our Leo smart memory controller family to address new applications and use cases. Leo X series is our new fabric attached memory controller that pays with our Scorpio X series AI fabric to create a dedicated memory tier for KV caches and agent context.

We also introduced Leo 2 E series and P series which double memory bandwidth and capacity versus the prior generation and support both DDR4 and DDR5 BIMs. As memory constraints intensify, Leo lets customers expand memory capacity, full standard memory across a rack and reliably reuse previously deployed DDR4 alongside new DDR5 BIMs. Engagement and design activity remain strong across a broadening set of hyperscaler and inference cloud customers. I'm happy to report that Leo 2 products are now shipping in pre-production volume with high volume ramp projected in mid-2027.

Turning to platform solutions, we recently announced Orion, our compute agnostic rack-skilled reference architecture built to enable turnkey AI infrastructure solutions for inference cloud and enterprise customers. Orion spans six production-ready reference design scales from 8 to 160 accelerators per cluster and integrates with Cosmos our software management platform that is now enhanced to include rack and fabric manager functionality. These reference designs leverage our portfolio of intelligent connectivity solutions including AI fabric, smart signal conditioners, advanced memory solutions and Cosmos to provide a tightly integrated highly performant platform.

We're already seeing substantial interest from GPU and XPU suppliers and Orion is on track to enter the market through our ODM and OEM partners in 2027. Fully loaded Orion rack scale designs contain greater than $100,000 in external apps content creating another large additive market opportunity. In conclusion, we remain focused on execution and delivering substantial value to our AI and cloud infrastructure customers across silicon hardware and software. Design activity accelerated with wins across a broad set of programs and applications at multiple customers.

Finally, a record number of product launches is broadening our portfolio creating deeper synergies across our solutions and expanding both our market opportunity and silicon dollar content per AI platform. With that, let me turn the call over to this. Thank you Sanjay and good afternoon everyone. Today I will review our Q3 financial results and then discuss our Q4 guidance both presented on a non-gap basis. We delivered outstanding third quarter results with record revenue of 584.9 million dollars up 49% sequentially and 154% year over year.

Growth was broad based across our AI fabric and signal conditioning portfolios led by the volume ramp of Scorpio X series. Revenue also diversified across a broader base of customers and platforms during the quarter. Scorpio became our largest product family by revenue in Q3, also with X series revenues or passing PCAs. X series revenue increased significantly as shipments expanded across multiple platforms and radix configurations where PCAs also grew sequentially as existing deployments expanded and new programs entered production.

Within signal conditioning, it is growth with led by strong PCI-E gen6 adoption across scale-up and scale-out applications. Hotores also gained momentum as our 400 gig and 800 gig solutions ramped across scale-out applications. Non-gap growth margins for the third quarter was 72.4 percent above our guidance of 72 percent. Non-gap operating expenses for the third quarter were 162 million dollars up 19 percent sequentially reflecting continued R&D investment to expand the addressable market across our core franchises and emerging growth sectors.

Non-gap operating margins for the third quarter was 44.7 percent up from 39.1 percent in the prior quarter and increased of 560 basis points reflecting significant operating leverage as revenue scaled. Interest in other income was 13 million dollars and our non-gap tax rate was 11.4 percent. Non-gap net income was 243.4 million dollars resulting in non-gap diluted earnings per share of 1.32 cents up 52 cents or 65 percent sequentially from Q2. We ended the quarter with 1.38 billion dollars in cash, cash equivalents and marketable securities an increase of 125.3 million dollars from Q2.

The increase was primarily driven by record cash from operations of 179.2 million dollars. Now turning to our outlook for the fourth quarter we expect revenue to be in the range of 730 to 750 million dollars. At the midpoint this represents 27% sequential growth. Growth is expected to be driven by the continued expansion of Scorpio X series and PC news across both customers and platforms. Signal conditioning growth is expected to be led by PCI-E Gen6 retirement adoption in areas in the ramp of Torus 800 gig solutions.

We expect fourth quarter non-gap gross margin to be approximately 72 percent. We expect fourth quarter non-gap operating expenses to be between 194 and 200 million dollars reflecting continued investment in our core AI fabric and signal conditioning portfolios as well as additional investments in the growth opportunities outlined by Sanjay. We expect non-gap operating margin to be approximately 45 percent. Interest and other income is expected to be approximately 13 million dollars and we expect a non-gap tax rate to be approximately 12 percent.

We expect a Q4 share count to be 187 million deleted shares outstanding. Overall we expect non-gap fully deleted earnings per share to be between $1.62 and $1.66. In closing Q3 was an exceptional quarter marked by record revenue, significant operating leverage and the strategic milestone of Scorpio becoming a largest product family by revenue. Looking ahead a growth drivers continue to broaden Scorpio X series and P series are scaling across new and existing customers and platforms in signal conditioning areas and Torus are benefiting from growing adoption of next-generation connectivity standards.

Beyond our core franchise opportunities are emerging across optical custom custom memory and platform solutions reflecting the strategic R&D investment we have made to expand our portfolio and address full market. We will continue to invest across our portfolio, execute with discipline, maintain strong profitability and deliver long-term value for our stockholders. This concludes our prepared remarks. I will now turn the call back to our operator to begin Q&A. Operator. We will now begin the question and answer session.

Please limit yourself to one question. At this time I would like to remind everyone in order to ask a question press star then one on your telephone keypad. We'll pause for just a moment to compile the Q&A roster. Your first question is from the line of Harlan Sir of JP Morgan. Your line is open. Please go ahead. Good afternoon. Thanks for taking my question and as always great execution by the team. On the new Orion Rack scale reference architecture you know as large corporations like ours start to evaluate open source open-weight models on premise for lower token inferencing costs control on things like model fine tuning and just more importantly like internal data security.

These customers are looking for compute platforms that can get into their private data center architectures with air cooled compact cluster sizes flexibility on XPU CPU supported. Orion seems to be that sort of perfect solution. So what's been the interest level? Have you engaged with large enterprises? And what's the standard dollar content capture across the different configurations you offer? Great question Harlan. Thank you so much. Now we are very excited with Orion. Like you correctly pointed out, you know enterprise AI is something that is a significant market.

It's a very fragmented market with different workloads and all of them need compute in a form factor that is you know readily available but more importantly it is workload specific. So what we have developed with Orion is that it's a GPU agnostic rack meaning you can bring any GPU that you want that suits your workload or based on availability and things like that. The rest of the infrastructure is all defined meaning the connectivity is all defined as part of the reference design, the power, the cooling and other components that are essential.

What Estera is providing are three main things. We are providing the the entire reference architecture whether it's at a box level or rack level. We're providing baseboards that utilize our silicon that combines the fabric solutions, the memory solutions, the signal conditioning and other components that are required in a well optimized fully tuned and fully validated way. And then we're providing the software which we're excited about because Cosmos has now gone from being a device level software to being a rack level and fabric level.

So it manages all the fabric, it manages the rack level, diagnostic and other aspects that are involved in orchestrating the GPU performance. So overall this Orion is quietly addressing use cases like you outline and Orion family will have multiple generations of it which will obviously have higher and higher content. But the initial platform that we call Orion 1.0 that's based on PCI scale up. We estimate about $100,000 of Estera content that will be monetized through through components, through boards and software.

Thanks Sanjay. The next question is from the line of Joe Moore of Morgan Stanley. Your line is open please go ahead. Great thank you and congratulations. Can you talk about Scorpio X? You know you hit the billion dollar threshold. It's been such a steep ramp. Do you anticipate that there could be kind of a plateau as the products that Scorpio X is in that sort of matures before you get the UA link or just help us out a little bit with what that progression may look like?

And you know it seems like you're anticipating a sort of long tail for PCI Express but also this transition to other protocols. Can you just talk about that dynamic? Hi Joe, it's Dez here. Thanks for the question. We've been really pleased with their sort of execution throughout 2026 which really is shown broad based trends across the portfolio. If you look at our growth in the second half of the year this has really been led by scale up deployments and the production volume ramp of Scorpio X series which started in Q3 and will continue into Q4 this led to us unable to deliver almost 50% revenue growth in Q3 and using the midpoint of a guidance for Q4 we do expect to see a further 27% sequential growth.

If I look further ahead, what I would say is that the initial Scorpio X platforms have completed much of their initial deployment ramps and they'll be contributing its scale going forward. We expect Scorpio X to continue to grow driven by new platforms and also additional customers leading into the model throughout 2027 and then if I look further ahead, given our experience with high scale deployments, advanced feature sets and our strong relationships with our customers, we are very well positioned for the next-generation platform growth and certainly beyond Scorpio we're excited about the growth opportunities as we outlined in the call.

Earlier we continue to see growth in the new product period of 87 LEO and optical products which will all start leading into the model in 2027 and offer future growth opportunities. So overall we're very pleased with our performance and overall momentum that we have across our portfolio. Great, thank you. Thanks. Your next question is from the line of Blaine Curtis with Jeffries. Your line is open. Please go ahead. Hey guys, thanks for having my question and a nice result here.

I wanted to ask on MPO you mentioned some design progress there. You had some new parks at OCP on the analog side. Can you just maybe walk us through, you know, how would you think about all these different components layering in and you know is there designs that you're working on for the full MPO solution? Now or is that a bit later? Absolutely now, Blaine. So we as we noted in the prepared remarks we are planning to start sampling our MPO products to lead customers this quarter.

We do expect, you know, roughly about six months of qualification and system level integration and all that. We do expect that revenue will start contributing towards the second half of 2027 from MPO deployments and these are again components that we're servicing for going inside the MPO module, the TIA's and laser drivers and so on. So we do expect, you know, hundreds of dollars to come in per accelerator with the MPO type of products and solutions that we're building.

Going forward, MPO, we do expect to continue to drive the growth beyond 2027 with CTO volumes coming in probably mostly in the 28/29 timeframe. Thanks, Ajahn. The next question is from the line of papa cilia of city. My apologies. The next question is from the line of Tori Svanburg of Stiffle. Your line is open, please go ahead. Yes, thank you and congrats on another record quarter. So you've got these four new big growth engines and I agree these are, you know, huge tabs.

You also stepped up the, or you're going to step up the optics quite a bit here in the December quarter. I'm just curious, you know, should we think of, you know, a lot of the optics for these four new business opportunities, you know, you know, is that still in the comm or, you know, have you already made a lot of heavy lifting, you know, to target those four new opportunities? Thank you. Hi, Tori. It's Dave here.

We continue to invest in the business at the right level to support the high growth opportunities ahead of us. You are connected. We did see the OpEx step up to about 162 million in Q3. We expect it to continue to grow into sort of Q4, but what I would point out is that our OpEx is growing slower than our sort of revenue growth. So you're seeing the significant leverage within the model. I would say that our OpEx growth is really driven by sort of three factors in the second half of the year.

We continue to grow our headcount to support our customer programs. Our headcount is doubled year over year from year. Secondly, I would say that we've seen additional variable R&D expenses in the form of Wafers, Maths, and IP expenses. And then lastly, as we continue to outperform our P&L sort of model, we are seeing some higher variable comp from there. But again, what I would really reiterate is that we are seeing the significant leverage within the model.

I think going forward, the right way to think about OpEx in the longer term is around 30% of sort of revenue and we're certainly underperforming that today, given the high revenue growth that we're seeing. Thank you. Thanks. The next question is from the line of Ananda Barua of Loop Capital. If your line is open, please go ahead. Yeah, good afternoon guys. Congrats on the progress and thanks for taking the question. Yeah, I guess, question clarification. You guys mentioned a couple times of doubling the content for XPU with each new generation of platform.

And I guess the question clarification is, is it each new generation of XPU or is it each new generation of a sterile lab like Gen 7, Gen 8? Or is this something else? We just love to get context around that, how to think about that. Thanks. And a great question. This is Jitendra. So if you look at the content that we have in some of the highly loaded systems today, it already exceeds $1000 of content on a per XPU basis across our fabric switches and signal conditioning products.

As we go to the next generation of our products, we aim to add $1000 plus content just from switching opportunity on a per XPU basis. So that kind of gets you to the first doubling as we speak. Then beyond that, as we go to the next generation of AI platforms or the next generation of XPU, we bring in additional content to bear on these platforms, which includes, for example, optical networking components that Sanjay just talked about, Leo memory controllers per KV cache upload and so on, as well as growing cluster sizes that drive higher ASP on a per product basis, as well as higher data is there also drive higher ASP on a per product basis.

So if we model all of this out, we expect to get double the content on a per XPU basis on each successive generation of XPU. Oh boy, that sounds like a lot of content, Jitendra. I appreciate it guys. Thanks a lot. Yeah, our customers continue to build larger and larger cluster sizes and as these cluster sizes go bigger, we get a higher attached rate. Thank you. The next question is from the line of papasila of Citi.

Your line is now open. Please go ahead. Thank you for taking my question and congrats on the very strong readouts. So maybe Jitendra or Sanjay, just wanted to double click a little bit on the prior 10 plots of Scorpio X engagement you previously talked about. Any color on how many of those you expect to be meaningful ramps in the first half of 27 and maybe tied to that. How are you still thinking about you wailing timeline?

Do you still kind of see in more of a kind of second half 27 story and if that's the case, it is reasonable to assume that some of your current Scorpio X engagement will kind of turn into you a link engagement or opportunities. Yeah, thanks for the question. Yeah, so what we had guided was that there are more than 10 customers were engaged on Scorpio X so that those engagements continue to make progress in a very positive way.

What we noted was that we of course have our lead hyper scalar platform that's now in production that's reflected in the Q3 numbers and also on the guide that we provided for Q4. What we also noted is in Q3 we started shipping the X series Scorpio to an additional hyperscaler so that's now in pre-production so that should help us generate revenue in 2027. We do have backlog from multiple additional customers in Q4 for Scorpio X so these are parts that will get shipped out this this quarter and then it'll go through its you know development and qualification phases in the first half of 27 and contributing revenue in the second half.

Now what is also happening is that because of all the results and performance that we are able to deliver to our customers with Scorpio X with many of the unique features that we highlighted in our prepared remarks the customers that have designed in are now adding new platforms or essentially using Scorpio X on new platforms so not only are we growing the number of customers that are adopting Scorpio X we're also seeing customers rapidly expanding the use of Scorpio X in multiple platforms that they're developing so overall I want to say the Scorpio X has taken off very well reflected both in the pipeline opportunities as well as the revenue that that we highlighted with Scorpio family exceeding a billion dollars of annualized run rate in Q3.

Let me take the UV link question so we continue to see the UV link ecosystem strengthen there is more IP available there are more you know vendors that are coming in with products for UV link so overall there's not a lot of change in the UV link from a customer standpoint the customers who had focused on memory semantic based protocols such as PCXpress continue to stay in that swim lane and well as you said over time convert to your link our development of your link products also continues we introduced our Taurus family earlier this year and we continue to work on the anchor sockets on switching and so on in order to intercept them with the release of the UV link experience from our customers so not much has changed those who are in the you will in swim lane continue there those who are in the Ethernet swim lane will continue in that swim lane overall our strategy is to address the entire scale-up switching term we've started with PCXpress gone on to to the n-willing fusion and actively working on UV link and as we start to see more customer interest you will address other protocols for scale-up as well yeah that's very helpful thank you the next question is from the line of Sebastian Nanji of William Blair your line is open please go ahead thanks and good afternoon thanks for taking the question I want to to stay on the theme of Scorpio in particular but maybe ask a little bit about the p-series so Scorpio X series revenue cross period series in the quarter you maybe just comment on how we should think about the growth in p-series in Q4 and in 2027 seems like X series has maybe more significant content but is more concentrated while p-series is perhaps lower content but has a broader set of customers so just how should we think about the mix between those two products going forward hey Sebastian it's Dez here and we've been really pleased with her performance and Scorpio PCX in the third quarter it could double-digit sort of growth and expect it to continue in Q4 at a similar sort of rate sort of going forward as we continue to look further ahead into sort of next year what we continue to see is you know the hyperscalers continuing to grow we talked about having two hyperscalers you know growing in revenue in the second half of this year so that'll continue to grow into next year we continue to see a variety of engagements across different customers that continue to run so we've seen this being a continue to be a meaningful sort of part of the overall sort of Scorpio and obviously Scorpio X series given the higher ESPs that that's going to be the sort of dominant sort of growth driver going into next year but p-series continues to perform really well thank you the next questions from the line of Quinn Bolton of Needham your line is open please go ahead hey get let me add my congratulations on the outlook it's one it has the longer-term question you gave us sort of four new product categories on the call optical custom the memory controller expansion and then the Orion rack level platforms and I won't hold you to it but but of those four would you say one is more likely than the others to hit 10 percent of revenue at some point over the next you know a couple of years or how should we think about the relative growth rates of those four new opportunities yeah so what I would start off by saying is that all the four are significant tens as you can imagine with optical or the memory inferencing use cases custom is a huge opportunity out there both for XPU attach and some of the other XPU like opportunities so for us and of course the the rack is going into several enterprise and inference application the the value proposition and form factor there is very different so I would say if you start off these are all big markets for us so now it comes down to how are we able to develop the right product make sure that we execute and deliver and it's a matter of timing is what I would say in other words the the most near-term opportunity that we're expecting in second half is all the optical RAM that we're expecting specifically on the NPO side so that is something that will have the most immediate effect from a from a revenue contributions standpoint custom silicon that one is a muzzle that we have been building and making lot of progress like we noted we have over 10 engagements right now for doing custom fabrics custom memory controllers and so on so this one I would say is going to be a significant opportunity for us but I would say probably more than the 2028 time frame and the the last one the Orion is to be to be candid it's been like fantastic reception since we announced it at OCP a lot of folks are coming to us especially enterprise folks and folks that are building XPUs and other accelerators so that one we will start launching the product goes through ODM and OEM partners that are building the system for us so that will start contributing revenue in 27 we get to sort of get a full handle on exactly what that numbers would look like for the Orion platform so we expect to provide more concrete data on that in our next quarterly call but in general the key message here is that all of these are substantial market opportunities they all require innovation and execution that we have proven ourselves to be able to deliver at the company so we are looking forward to playing in all this market and you know contributing additional growth engines to go along with the single-conditioning franchise we have and the fabric franchise that we have so overall if you can have six engines that are all pumping out great growth I think we will have achieved the goal of being a a great iconic company the next question is from the line of Carl Ackerman BMP-Pervis your line is open please go ahead hi this is Sam Feldman on for Carl Ackerman thanks for taking the question so you're seeing strong growth with Ares can you delineate this growth between content uplift from the transition to PCI-E Gen6 versus unit growth and more generally how do you think about your retimer content for XPU as optics moves close to compute yeah that's a big question we we had a record quarter for 80s and 80s family continues to grow we started the company actually with the Ares PCI Express Gen 4 and now we are going to Gen 5 Gen 6 and at OCP we launched our Gen 7 portfolio and as you correctly pointed out there are two factors that are causing the ASP to go up one is just the increase in data rate so every time we you know we double the data rate we can expect together 20, 25, 30 percent increase in ASP from generation to generation the other factor is that we also ship these devices in multiple form factors so you have the chip down opportunity where the chip is directly sold around the board but we also have the smart cable modules where the chip is sold in the form of a PC board that gets then built into an active electrical cable and there we get a higher ASP and just as importantly we have the these active electrical cables attaching into the scale up part of the network and therefore we get a higher attach rate and overall growth in revenue on I know at the high level I would say that that we've been very happy with the growth of the Ares family it continues to grow it's grown from 24 to 25 to 26 and we expect it to grow in 27 as well so the last point that you made is you know some of these links that were previously served with copper will get served with optics as we go into the next generation and there is an opportunity for us to have even higher content because the dollars that we can get on a per-link basis on optical links is much more than what we get on copper in addition to that there were several links that previously did not require any kind of retirement at all which will now require both copper as well as optical you know content and that's a great opportunity for us to continue growing the Ares portfolio the next question is from the line of Simon Leopold of Raymond James your line is now open please go ahead yeah thanks Jeff Coachean for for Simon just wanted to ask you a quick question on the Marvell momentum merger obviously trying to bring silicon and photonics closer together potentially enabling you know tighter co-design and improve power I just want to get your your cake on this strategy do you think that this can provide a competitive advantage and you know does it change how you are viewing you know you're how you're you know vertically and great things so Marvell and Lamentama are both great companies they have good respect for both of them so I'm sure they've thought through the strategy before getting into this combination discussion so I let them comment kind of what they think about it but I'm happy to talk about you know our own strategy for optical so our strategy for optical is more grounded in scale up right unlike the other companies we are not yet focused on scale up scale out or scale across our focus on scale up which is not a big time today but as we talked about during the prepare remarks we expect that to be a 40 billion dollar time going forward and all of the components that we need to address the time we are building ourselves starting with the electrical ICs laser drivers and TIAs for the NPO generation and more complex EICs for the CPO generation at OCP we also showed our silicon photonics that goes into some of these NPO modules as well as the connectors that allow us to build full optical engines for NPO as well as CPO these optical engines will then get deployed with our hyperscalers and hyperscalers will continue to source laser components just like they do today with their existing vendors great thanks a lot guys the next question is from the line of Tom O'Malley of Barclays your line is open please go ahead hi Jane this is a trip Smith on for Tom O'Malley nice results and thank you for your question I was just curious if you get about the cadence of revenue growth into calendar year 27 I think there's some expectations that your lead customers current generation builds are kind of peaking out in the one queue time frame and then the next gen is not really expected to ramp until kind of closer to calendar year 20 so any color they're super helpful thank you it is here thanks for the question obviously we will not comment upon our customers you know volume sort of ramp I think I addressed some of this sort of earlier in the sort of Q&A and when I talked about our sort of you know it's the large scale that we've been able to generate on the sort of Scorpio X sort of platforms the initial deployment is taking place and they'll continue contributing in scale sort of going forward and we'll continue to see new platforms plus additional customers leaning into the model on a sort of go forward basis I think it's important you know just that we also remember the scale that we've been able to generate in terms of our Scorpio X sort of family I think Jitendra talked about you know a one billion dollar sort of run rate been achieved in sort of QC and we're optimistic about our sort of global prospect sort of going forward as we going to sort of next generation platforms as well the next question is from the line of Bastianne Falcon of Suskehana your line is open please go ahead I thank you for taking my question I'm filling in for Medio Seni I guess I wanted to come back to your comments about the content that you're capturing by Orion Rec Scale designs you mentioned that you capture about a hundred thousand dollars of content per rack you know in your press release you have it that those parts have it from eight accelerators to 160 so I wanted to know a little bit more about how to think about that hundred thousand dollars you know how many GPUs or accelerators are you taking the consideration for that estimate and then my follow-up would be you know how should we think about the growth margin profile of the racks scale solutions relative to your long-term growth margin targets of 70 percent thank you yes so let me try to break it down for you so the Orion Rack is designed to support up to 10 compute trays each compute tray can have up to 8 GPUs or accelerators that are plugged in so our content which includes the fabric the switches and so on they reside at the compute tray level to interconnect the GPUs so we do have content there now some customers rather than operating the 10 compute trays individually they want to create a larger cluster meaning operate the 80 GPUs as one unit for that they need a scale up switch and a tray as well so in those situations there is you know additional hardware that is required and of course when you think of 160 GPUs we're talking about two racks that are talking to each other in a in a with connectivity going from the east to west type of topologies so in general if you think about that kind of system then the components that we are able to integrate in that includes of course all of our fabric and switch products are both at the computer level and at the rack level it includes all of our signal conditioning products retirement and such that would be required including AEC right and then we are also for the first time monetizing our Cosmos software so Cosmos software like a noted has upgraded from being a component level solution to a rack level solution a fabric manager and so on so that provides additional monetization points that that that adds to the hundred thousand dollars that I noted and then the last point I would make is that again we are providing this as production ready reference design so obviously there is certain amount of of royalty that we get from our OEM and OEM partners that are taking that and providing it to their end customers enterprise AI and inference cloud guys so all in all there are three monetization points it's the base ports that we sell it's the software that we sell and royalty that we get for the reference design so that's the way to think about how the monetization happens when we said hundred K we're just talking about one rack meaning 80 GPUs even though the the reference design itself can support up to 160 the hundred thousand refers to a single rack so that's the other point I want to emphasize and and overall like a noted this is just the beginning of the Orion story meaning we'll have additional versions that brings in ULAing and liquid cooling and all that stuff so in general we do expect that we'll be able to add more value by doing a vertical integration of the components and software and in terms of the margin itself we do expect this to be equity just given the business model that I noted where we are not only providing silicon but we're providing software and there is additional revenue coming in through the through the royalty approach that we're taking so overall it's meant to bring in top line it's meant to be a creative to the margin that we have but I will also like to call out and say this is the only days for this platform the interest has been great we will of course keep updating you guys on how the business is growing and I think in Q1 will be able to provide a lot more details on the impact for our overall P&O thank you very much there are no further questions at this time I will now turn the call back over to Leslie Green for closing remarks thank you everyone for your participation and questions and please refer to our investor relations website for information regarding upcoming financial conferences and events thank you so much this concludes today's conference call you may now disconnect

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