Credo recently announced that it had agreed to acquire DustPhotonics for $750 million in cash and Credo shares. The deal is expected to close in the second half of this year.

Key Takeaways:

• Based in Israel, DustPhotonics is a pioneer in silicon photonics. The company develops Photonic Integrated Circuits (PICs) that are used in optical transceivers to convert electrical signals into light pulses and vice versa. 
• DustPhotonics offers a differentiated PIC portfolio spanning 400G, 800G and 1.6T, with a roadmap extending to 3.2T - with both integrated and external laser configurations. 
• Credo recently launched ZeroFlap (ZF), an optical transceiver platform designed to eliminate "flapping" (i.e. connection drops) in AI networks. Bringing DustPhotonics' PIC technology in-house provides Credo with control over key components of its ZF Optics platform and means it no longer has to buy critical components from third-party suppliers. This lowers costs, reduces supply chain risks and speeds up the company’s ability to ship new products. 
• Prior to the acquisition, Credo was primarily a leader in electrical connectivity (i.e. SerDes and DSPs). By acquiring DustPhotonics, it now has an optics capability too. This means that it can now design electrical and optical chips in tandem, which reduces power consumption, a major headache for data centers today. 
• According to Credo, the combined portfolio of both companies is expected to drive more than $500 million in optical revenue in fiscal year 2027. 

Analyst Take:

• Following the acquisition, Credo becomes a vertically integrated electrical and optical connectivity platform with exposure to every major speed tier and with a roadmap that extends into co-packaged optics. 
• By acquiring DustPhotonics, Credo is getting a critical optics capability, while DustPhotonics gets Credo's global scale and customer relationships, for example, with AWS and Microsoft. 
• The deal will make Credo a stronger competitor against major players such as Broadcom and Marvell.