ALAB Q4 2024: Inventories Surge 80% Ahead of AI Accelerator Ramp
- Diversified Growth Drivers: The company’s mix of ramping internal AI accelerator programs in the first half of 2025 and strong merchant GPU orders in the second half supports a diversified and robust revenue growth profile.
- Strong Scorpio Momentum: Early preproduction orders for both Scorpio P-Series and X-Series design wins highlight Scorpio’s potential, positioning it to capture a larger share of a growing high-speed connectivity market and eventually evolve into the largest product line.
- Robust Customer Engagement & Industry Trends: Increased capital expenditure by hyperscalers, even after announcements like Deep Seek, alongside evolving industry standards such as UALink, underscores strong demand for advanced connectivity solutions in AI and data center infrastructure.
- Inventory buildup risk: Inventories increased 80% sequentially in Q4, presenting a risk of potential overhang if demand slows, which could lead to costly write-downs or discounting pressures.
- Customer concentration risk: Heavy reliance on a few large hyperscalers makes the business vulnerable to shifts in spending or strategic changes by these customers, as acknowledged in the discussion.
- Execution and margin pressures: Uncertainty in the ramp timing for key new product lines—such as delayed merchant GPU programs and the evolving product mix favoring lower-margin hardware modules—could pressure margins and delay revenue recognition.
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Revenue Mix
Q: Merchant vs ASIC share in business?
A: Management noted a strong shift with internal AI accelerator programs rising; Q3 saw initial inflection and Q4 set a robust baseline for 2025, with internal efforts leading early and merchant GPU ramps later, balancing the revenue mix. -
Margin Outlook
Q: How will hardware mix affect margins?
A: Management expects gross margins to stabilize around 70–74%. The Q4 dip was due to increased hardware module share, but a rebalanced mix with chip-level solutions is anticipated in 2025, keeping margins healthy. -
Scorpio Outlook
Q: When will Scorpio become top revenue?
A: Management emphasized Scorpio’s high value—starting with P-Series contributing early and X-Series later—with its attractive TAM, predicting it will overtake other products as the flagship line by 2028. -
Taurus Profile
Q: What drives Taurus revenue split in 2025?
A: Management highlighted design wins for both 200- and 400-gig offerings, with the potential to transition to 800 gig later in the year, supporting diversified and steady Taurus revenue growth. -
Inventory Build
Q: Why are inventories up nearly 80% sequentially?
A: Management explained that after a strong Q3 drawdown, inventories have rebuilt to a normalized level to support future demand, reflecting healthy positioning for growth. -
UALink Impact
Q: When and how will UALink benefit ALAB?
A: The final specification is expected by end-Q1 with products launching in 2026, promising a standardized scale-up solution that will enhance connectivity once adopted industry-wide. -
Optics Impact
Q: Will co-packaged optics affect retimer demand?
A: Management stated that customers will stick with copper until extreme bandwidth needs force a shift to optics, so near-term retimer demand remains unaffected while monitoring longer-term trends. -
Customer Mix
Q: Beyond hyperscalers, are emerging AI firms engaged?
A: Management confirmed that while hyperscalers dominate current deployments, they are also tracking opportunities with OEMs and emerging AI players, ensuring a balanced customer base. -
OPEX Outlook
Q: How will expenses trend this year?
A: Management anticipates higher operating expenses in Q1 due to strategic investments and an acquisition, with a view to normalizing as revenue scales toward a long-term 40% operating margin target. -
Deep Seek Impact
Q: Effect of Deep Seek on AI demands?
A: Management remarked that Deep Seek lowers inference costs and spurs AI adoption, benefiting both inference and training clusters without diminishing the need for large-scale connectivity. -
Competitive Edge
Q: What secures ALAB's competitive lead?
A: With proprietary software and superior device architecture in its P-Series and retimers, management believes ALAB is well positioned to outperform competitors in GPU-centric interconnect solutions. -
Aries Transition
Q: Will merchant GPUs ramp sooner than forecast?
A: Management expects merchant GPU ramps to commence later in the year due to customization lead times, contrasting with early internal AI accelerator shipments in the first half. -
ASIC Engagement
Q: Are there ASIC engagements for Scorpio P?
A: Management confirmed active engagements for both P-Series and X-Series on ASIC platforms, highlighting the product’s versatility in addressing diverse customer requirements. -
Design Momentum
Q: How strong is Scorpio’s design momentum?
A: Early momentum for Scorpio exceeded expectations with multiple design wins, particularly for GPU clustering applications, underscoring its strong competitive appeal.
Research analysts covering Astera Labs.