ALAB Q2 2025: Scorpio X series ramp pushed to 2026
- Strong traction in Scorpio product lines: The management highlighted that the Scorpio P Series has already exceeded 10% of total revenue and that over 10 customer engagements have been secured for the emerging high-value Scorpio X Series designed for scale-up connectivity, demonstrating robust market acceptance and a diversified revenue base.
- Technology differentiation via Cosmos software: The team emphasized that Cosmos software enables customization for lower latency and higher throughput in connectivity solutions. This integration not only boosts performance but also increases attach rates for ancillary products, reinforcing a competitive edge in an evolving AI infrastructure market.
- Momentum in emerging scale-up connectivity standards: There is strong customer interest in open and scalable standards like UA Link, which promises to capture a larger market opportunity. The anticipated transition to higher per-lane speeds and broader ecosystem adoption positions the company for future growth in the AI infrastructure sector.
- Delayed Volume Ramp for Key Products: The Scorpio X series, which is positioned as an anchor for scale‑up networking, remains in preproduction with high‐volume production not expected until 2026. This delay could constrain near-term revenue growth and market adoption.
- Margin Pressure from Shifting Product Mix: While high‑value Scorpio products are expected to drive revenue, increased shipments of lower‑margin Taurus modules and other hardware components might pressure overall gross margins despite current improvements.
- Competitive and Ecosystem Uncertainties: ALAB’s reliance on open standards like UALink faces potential risks from competitors (e.g., Broadcom’s advancements in Ethernet switches with 250 ns latency) and possible slower-than-expected ecosystem adoption, which could impact its market position.
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Revenue | Q3 2025 | $170M–$175M, growth 7%–10% | $203M–$210M, growth 6%–9% | raised |
Non-GAAP Gross Margin | Q3 2025 | 74% | 75% | raised |
Non-GAAP Operating Expenses | Q3 2025 | $73M–$75M | $76M–$80M | raised |
Interest Income | Q3 2025 | $10,000,000 | $10 million | no change |
Non-GAAP Tax Rate | Q3 2025 | 10% | 20% | raised |
Non-GAAP Fully Diluted Share Count | Q3 2025 | 178,000,000 shares | 180 million shares | raised |
Non-GAAP Fully Diluted EPS | Q3 2025 | $0.32–$0.33 | $0.38–$0.39 | raised |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Scorpio Product Lines | Bullish traction noted with both P‑Series and X‑Series facing production ramp challenges across Q1 2025 , Q3 2024 , and Q4 2024. | P‑Series has ramped into volume production with significant revenue contribution, while X‑Series remains in preproduction with a clear roadmap for 2026. | Continued bullish sentiment with improved volume execution for P‑Series while ramp challenges persist for X‑Series. |
COSMOS Software Differentiation | Recognized as a key competitive differentiator in Q1 2025 , Q3 2024 , and Q4 2024 , highlighting deep integration and diagnostic capabilities. | Emphasized as a critical competitive advantage with robust diagnostic and fleet management features, with no imitation risks mentioned. | Consistent emphasis on software advantage, maintaining strong competitive differentiation. |
Emerging Connectivity Standards | Discussed as a major growth opportunity with market potential and ecosystem adoption uncertainties in Q1 2025 , Q4 2024 , and touched upon in Q3 2024. | Portrayed as a significant long‑term growth vector with clear technical benefits and adoption uncertainties still in early stages. | Ongoing focus on long‑term opportunity amid adoption uncertainties. |
Production Ramp and Execution Challenges | Addressed across Q1 2025 , Q3 2024 , and Q4 2024 with acknowledgment of complex qualification cycles and ramp challenges. | P‑Series ramped to volume production and X‑Series remains in preproduction with a clear roadmap, while the strong execution track record is highlighted. | Consistent challenges are being managed effectively with operational excellence and progress on scaling key product lines. |
Margin Pressure from Shifting Product Mix | Highlighted in Q1 2025 , Q3 2024 , and Q4 2024 with concerns over variable margins due to a diversifying product mix. | No explicit margin pressure mentioned; non‑GAAP gross margins improved with a largely constant product mix. | Easing margin pressures amid improved volume performance and a stable product mix. |
Competitive and Ecosystem Uncertainties | Noted in Q1 2025 , Q3 2024 , and Q4 2024 with discussions on competitor pressures and broader macro uncertainties. | Not explicitly addressed in Q2 2025, aside from ecosystem context in UA Link discussions. | Reduced emphasis on competitive uncertainties compared to previous periods. |
Diversified Product Portfolio and Revenue Growth Drivers | Emphasized across Q1 2025 , Q3 2024 , and Q4 2024 as a driver of strong revenue performance through multiple product families. | Highlighted with a broad portfolio—including Scorpio, ADX, Taurus, LEO, and emerging UA Link solutions—driving a 20% sequential revenue increase. | Steady focus on diverse product offerings fueling robust revenue growth. |
Geopolitical and China Trade Exposure | Addressed in Q1 2025 with modest impact (less than 10% of revenue) and noted trade concerns; not detailed in Q3 and Q4 2024. | Not mentioned in Q2 2025. | Deemphasized in the current period relative to earlier discussions. |
Inventory Buildup and Customer Concentration Risks | Discussed in Q3 2024 and Q4 2024 with attention to inventory normalization and risks from customer concentration in hyperscaler markets. | No mention provided in Q2 2025. | These concerns are not emerging in the current period. |
Extended Days Sales Outstanding (DSOs) and Liquidity Concerns | Q1 2025 mentioned an increase in DSOs to around 40 days as a result of more balanced shipments ; no mention in Q3 and Q4 2024. | Not mentioned in Q2 2025. | Transient risks noted previously are not addressed in the current period. |
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Product Differentiation
Q: What differentiates Scorpio switches?
A: Management highlighted that their advantage lies in customer closeness, proven execution, and the integration of Cosmos software that enables customization for lower latency and higher throughput, which has helped solidify Scorpio's role in their AI connectivity strategy. -
UA Link Adoption
Q: How is UA Link received?
A: Leaders noted strong traction for UA Link, with over 10 customer engagements praising its open standard, low latency, and support for high Ethernet speeds, positioning it as a critical mid-to-long-term solution. -
Margin Guidance
Q: How sustainable are margins and tax impacts?
A: The CFO explained that while Q3’s tax rate is temporarily at 20%, it should normalize to 15% and eventually near 13%, with operating margins on track to approach a 70% target as hardware mix evolves. -
Revenue Growth
Q: Will Scorpio series boost future revenues?
A: Management indicated that the new Scorpio X series—with its higher dollar content—is expected to outgrow the P series, adding a step change to revenue, especially as high-volume production ramps up in 2026 and beyond. -
Customer Mix
Q: What’s the merchant vs. ASIC exposure?
A: They explained that while current merchant GPU platforms drive revenue through customized rack designs, scale-up connectivity on XPU platforms offers higher attach rates and considerably greater revenue per unit. -
Latency Advantage
Q: How do your latencies compare to competitors?
A: Management emphasized that their purpose-built products achieve lower latencies than the competitor’s 250-nanosecond benchmark, thanks to optimized design and efficient bandwidth utilization that benefit end-to-end AI workloads. -
Retimer Strategy
Q: How is retimer deployment determined?
A: They clarified that retimer use depends on link length and overall system design, ensuring optimal signal integrity across both short PCB links and longer cable assemblies, which fits into their comprehensive connectivity portfolio.
Research analysts covering Astera Labs.