Q1 2021 Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to Marbles first quarter fiscal year 2021 earnings call.
This time, all participants Arnie listen only mode.
To the speaker presentation, there will be a question and answer session to ask a question. During the session you will need to press star one on your telephone. Please be advised that today's conference is being recorded.
Sure do require any further assistance. Please press star zero I would now like to hand, the conference over to your Speaker today, Vice President of Investor Relations Ashish Serrano Sir. Please go ahead.
Thank you and good afternoon, everyone welcome to Marvelled first quarter fiscal year 2021 owning school joining me today on Matt Murphy, Marvellous, President and COO and Jean Hu our CFO.
I would like to remind everyone that certain comments today.
Include forward looking statements, which are subject to significant risks and uncertainties.
That could cause <unk> actual results could differ materially from management's current expectations. Please review the cautionary statements and risk factors contained in <unk> earnings press release, which he filed with the FCC today and posted on our website as well as almost piece and 10-K and 10-Q filings, we do not intend to update all forward looking statements during.
I'll call today, we will refer to certain non-GAAP financial measures.
He conciliation between GAAP and non-GAAP financial measures is available on our website in the Investor Relations section with that outcome the color what to match what his comments on our performance Matt.
Thanks, Jason Good afternoon, everyone.
During the first quarter fiscal 2021, we delivered strong financial results and achieved 694 million in revenue.
13 million above the midpoint of guidance.
You may recall, our revenue guidance for the first quarter included an assumption for a 5% headwind from cobot 19.
We did in fact experienced some impact on revenue from cobot 19 related issues, but stronger than expected demand from our data center in Fiveg infrastructure and markets Internetworking business drove consolidated company revenue above the midpoint.
Compared to our assumptions when we provided our revenue guidance for the first quarter the impact of Cobot 19 turned out to be greater than expected in our storage business and lower than expected Internetworking business.
Our GAAP loss per share was 17 cents or non-GAAP earnings per share was 18 cents above the high end of our guidance range driven by higher revenue and tight Opex control.
On a sequential basis revenue declined by 3%, however, compared to fourth quarter results adjusted for the divestiture of wife Bye.
Revenue for the ongoing business was actually flat on a sequential basis, a very solid result under current conditions and in what is typically a seasonally weak court.
I'm extremely pleased with our team's ability to deliver great results. Despite the massive disruption from the cobot 19 pandemic the.
We already have our employees have been working from home since early March earlier than most official shelter in place orders were announced as the health and welfare of our employees and their families was our first priority.
All righty team quickly jumped into action to provide secure remote access four or 5000, plus employees are worldwide operations group battled through a number of supply chain challenges and met the upside in demand in our networking business.
Since the start of work from home or engineering team has taped out eight new chips and extremely high level of engineering output in this timeframe on schedule to meet our customers critical time lives.
Our sales team maintained a strong focus on customer communication.
Through this critical time period and continued to drive our growing design win funnel.
I have personally experienced a much higher level of direct engagement with the leadership at multiple key customers at the CEO level.
Normally I fly out my counterparts in person a few times a year. During this crisis, we have quickly adopted virtual meetings over video to increase the frequency of communication.
We believe the change in cadence reflects our customers desire to involved as deeply as a trusted partner in solving the need for higher bandwidth and storage in the post covert 19 world.
Our mission as it infrastructure semiconductor solution provider to move store process and secure the world's data has never been more relevant and we're seeing strong demand drivers for our products and technology.
I truly believe that the culture, we have created at Marvell is enabling our success and has earned the trust of our employees customers and partners and our new Brad reflects the U.S values.
Celebrating the company's 25 year anniversary, we recently launched barbells, new brand identity, marking a milestone in our transformation to focus on semiconductor solutions for data infrastructure.
This was something we'd consider doing soon after we started to pivot the company in the fall of 2016.
But as you know the company's brand as their reputation and a reputation is earned.
So instead, we focused first on creating our new strategy revamping, our culture building operational excellence and delivering business results.
After four years apart work, we were ready to reveal a new brand that mirrors, our culture, which focuses on the substance first our branded built on a foundation of collaboration and partnership with our customers and we are driven by the belief that doing things the right way matters.
Essential technology done right reflects our customer centric approach the high quality tailored solutions.
I know this would be possible without are dedicated employees will then putting in a lot of extra hours through this unusual period, which is likely to persist for a while.
Recognizing this challenge, we're giving all employees a few extra days off and we are shutting down for a four day recharge weekend in mid June.
Similarly, we have taken steps to help our contractors in the local community.
We're continuing to pay our hourly workers in full as well as the service providers that support our facilities, regardless of whether they can fully perform their duties. In addition, marvell has started to cobot 19 relief fund to support our global communities and provide financial relief to those a neat.
Portion of that the fund is dedicated to matching employee donations. So that employees will also have the opportunity to participate in.
Until we're able to return to the office in Santa Clara, We plan to donate our entire cafeteria grocery budget to the second harvests food bag in support of those a neat.
It is in times of crisis that her values and leadership principal pulls are truly tested.
I'm proud of our team in the company. We have built we're in the fortunate position of being able to take care of our people give back to the <unk> our communities when it really counts.
During and after this crisis, we expect the demand for bandwidth to continue to grow stronger.
Major cloud service providers are facing unprecedented demand for their services as a result of so many people working from home and are scrambling to add capacity to their networks Fiveg has become a strategic priority for many nations and also an economic growth driver for economies worldwide.
Enterprises are rapidly upgrading their networking infrastructure to support their workforce with remote access to critical business applications and advance collaboration tools and a secure and scalable environment.
You're in the midst of enabling all the key mega trends in Fiveg datacenter cloud enterprise and automotive as a leading supplier of Dave the infrastructure semiconductors.
Over the last few quarters, we have discussed in detail, our progress and the carrier market tied to the transition to fiveg.
Investor focus has been high in this area and I will provide color on this opportunity in a few moments.
For now I'd like to draw your attention to the cloud datacenter market, which represents an opportunity for our storage and networking products similar in Mag mattoon to Fiveg.
This is in addition to our arm server opportunity, which we have previously outlined at the large multibillion dollar market for us.
We've been working on building our business through organic investments over the past four years.
As well as through products and engagements via the Cavium Inavir acquisitions, we're now starting to see the benefits from these efforts and I'm excited to share them with you.
And our storage business over the last few years, we've been transitioning our HDD business to focus on Nearline drives which are primarily consumed by cloud data centers.
This business has been growing nicely for us.
Through both our storage controllers and pre amplifiers.
We expect that the 60 terabyte transition this year will drive strong growth for us.
Our custom flash controllers are very well suited for cloud customers, who have unique storage applications and are looking to disaggregate their ssds to optimize performance and we pioneered the do it yourself model.
We also have storage accelerators in evaluation at multiple cloud customers.
A virtualized environments and cloud data centers multiple customers can be accessing the same physical storage resources.
Simultaneously.
To ensure quality of service expensive CPQ cycles are consumed in managing workloads to ensure that all clients get uninterrupted access to their store data.
Our NV energy storage accelerators enable better solution by all floating storage Io and freeing up CPQ cycles provisioning bandwidth, ensuring low latency to satisfy service level agreements, which are difficult to achieve with software only solutions.
We expect to see initial production ramps for our storage accelerators. Starting later this year.
In our networking business, our OCTEON compute platform is ideally suited for a variety of offload and acceleration applications and Hyperscale data centers.
GTC 2020 last week Jensen Wong referred to this category of computing as the deep you or data processing unit and indicated it would represent the third major pillar of computing and Hyperscale Datacenters after the CPU GPU.
We couldn't agree more.
OCTEON is an ideal deep you platform as it is and that's so see that combines a scalable multi core arm processor high performance networking and a variety of hardened acceleration engines.
As many of you know Cavium was a pioneer in this area. We have continued investing in this segment since the acquisition.
Our recently announced OCTEON, TX two was specifically designed for cloud applications.
Such as our liquid I O programmable smart Nick.
Liquidsecurity HSM for hardware security module product lines.
Cloud infrastructure requires optimized hardware for performance cost and power at scale.
Datacenter operators can achieve these goals by moving specific workloads on the highly optimized offload engines, even the host server to run more efficiently.
Liquid Io Smart next offload network virtualization storage protocols security distributed firewall software defined networks.
And then network overlay for various cloud datacenter models.
Our latest liquid Io smart neck, incorporating OCTEON, TX too is ramping now as cloud provider demand is surging.
Our liquidsecurity HSM, which had been adopted by multiple leading cloud providers to provide fully managed cloud hosted protection for cryptographic keys and crypto as a service are also ramping.
Last year, we announced deployments with Amazon, Google and Oracle and I'm pleased that we have recently added another large tier one customer.
Our arm based server processors have been qualified at Microsoft for internal as your development workloads and we're looking forward to broader adoption in production environments.
On directs three processor will become available later this year and we continue to engage with additional cloud providers on our solutions.
The Ivera Aquas mission brings to us leading edge custom chip design capability, which continues to become more relevant is hyperscalers seek to differentiate and control their own key pieces of selling.
They are very specific needs and we can combine our leading intellectual property with their own unique IP to most efficiently solve the most complex system design challenges as these customers continue to design their own silicon they need a reliable lasik partner that they can count on for the long haul.
Vera was already shipping into the cloud market, when we acquired them and they brought over additional club design wins, which have yet to go into production.
Level of engagement with Hyperscalers has also continued to grow after we completed the acquisition and we are seen as a very attracted choice for next generation design decisions.
Collectively we are now building strong cloud franchise, combining our storage networking and processor technology.
The unique ability to deliver products and standard custom and semi custom solutions.
I'm pleased to report that for the first time, we estimate that our revenue from the cloud market exceeded 10% of total company revenue growing from a fairly small position at the same time last year.
We expect that this business will continue to grow would that end market and our own unique product cycles and become another key growth driver for marvell.
Let me now move on to discussing our two businesses in more detail.
First in our networking business revenue during the quarter was 394 million and grew 5% sequentially significantly above our expectations for low to mid single digit decline.
Compared to fourth quarter results adjusted for the divestiture of Wi Fi growth for the continuing networking business in the first quarter was in the double digit sequentially and I'm thrilled with this result.
Excellent supply chain execution allowed us to meet strong demand from cloud data centers for our smart mics and security adapters that I discussed earlier.
Our one gig in 10 gig five products experienced robust demand from enterprise Datacenters.
Companies continue to upgrade the core of their network operations to deal with higher security and throughput demands.
Our wireless infrastructure business grew sequentially and perform better than our expectations of a flattish quarter in strong contrast to the pause or slowdown in fiveg deployments mentioned by a number of industry peers for the same time period.
We are benefiting from the started the fiveg build out in China, where we have content through two of our key customers, who collectively have been awarded about 50% of the share of recently announced contracts.
We are currently supplying custom 86 and standard conductivity products to these customers and are working with them on additional opportunities.
In addition, we have a very strong position at Samsung. We had just have just started to ship our full suite of solutions and expect that their success in Korea, Japan, and the U.S. to drive growth in the coming year.
Our custom Basebands solution for Nokia is progressing very well through qualification and we expect to start production later this year.
Collectively we are designed into the latest generation of base stations into multiple Oems, which are expected to be powering all key geographies over several years, you're still at the very beginning of the industry transition from Fourg to Fiveg and look forward to driving significant revenue growth from this end market.
Demand from the enterprise campus end market remained stable on a sequential basis good outcome under current market conditions.
We start to come out of the Cobot 19 crisis, we're looking forward to the deployment of Wi Fi six which requires higher speed Ethernet connections.
We expect this adoption will drive growth for our multi gig Ethernet products as we have a very strong design win physician across most leading Oems for enterprise Wi Fi access points and we also have a strong position on campus switches, which aggregate traffic from these that access points.
We recently taped out additional products from our recently announced OCTEON, TX to family of arm based infrastructure processors, including our flagship highest performance solution, featuring 36 cores, which can deliver up to 200 gigabits per second packet processing, the most demanding applications.
We also taped out our fusion based processor customized for massive mimo applications for our leading wireless customer ahead of schedule.
Our customer will be using the solution in their high volume massive mimo skews and we expect to be ramping into production in the fall.
The design win funnel for OCTEON processors is continuing to expand with a broad set of tier one networking and high end security firewall Oems.
OCTEON platform is an extensive arm based embedded processor product family, which can scale from four core is at the low end to 36 scores on the high end all on a common software framework.
The critical advantage for Marvell Wynne engaging with tier one networking Oems, who want to partner with solution providers able to support their broad range of products, allowing massive software reuse.
We are deep into the development already of our next generation OCTEON family based on advanced node process technology.
Combined strength of our recent OCTEON announcements and aggressive roadmap is resonating very well with key Oems.
In our emerging automotive business there are encouraging signs that auto production has restarting in multiple geographies and is this happens we expect to start ramping Ethernet switches and buys in the second half of our fiscal year. The designs. We had one in model year 2021 vehicles.
We expect to grow our automotive footprint over the next few years through our Ethernet connectivity products, but we see an even bigger opportunity for marvell as cars continue to evolve towards becoming truly connected platforms.
Traditional point to point solutions and cars are heading towards zonal architectures very similar to modern enterprise networking.
We're endpoints connect to centralize compute and storage resources over a secure Ethernet backbone.
We believe that we have all the pieces in place to be a leader in the market for this evolution.
Low power and high performance, our based embedded processors proven security IP.
Emotive grade gigabit and multi gigabit Ethernet connectivity advanced storage technology, and a solution delivery model, which can span from standard products.
Custom.
We will discuss this broader initiative in more detail at our Investor day in October.
Let me now discuss the outlook for our networking business. After a very strong first quarter, we expect our networking business to continue to grow in the second quarter fiscal 2021 and project revenue to increase in the low single digits sequentially.
We expect this growth to be driven by Fiveg wireless infrastructure deployments and our carrier end market.
Looking out to the third quarter based on our recent bookings and from backlog position, we expect our fiveg business to continue to ramp strongly.
Turning now to our storage business.
Storage revenue for the first quarter was 259 million a double digit sequential decline worse than our expectations for a mid single digit decline.
This was due to multiple manufacturing facilities in southeast Asia coming under new shelter in place orders in connection with Cobot 19, as the quarter progressed impacting production fiber channel adapters and hard disk drives.
Our SSD controller business. In contrast remained resilient in grew sequentially driven by higher shipments into datacenter applications.
Looking to the second quarter, we expect our storage business to start to recover from cobot 19 impacts on the supply chain, although a full recovery is more likely in our third quarter.
We have started initial shipments of our custom SSD controllers for system level applications in our second fiscal quarter.
As a result, we are projecting storage revenue growth of approximately 10% sequentially for the second quarter.
This custom SSD controllers based on our new Pciethree Gen. Four architecture and was developed in close collaboration with our customer to create a storage controller uniquely tailored to their application.
Very pleased with our strong engineering and operations execution, which has enabled us to start early shipments to meet our customers production schedule.
We expect the storage controller to ramp into high volume in our third fiscal quarter.
In closing we have a strategy focused on semiconductor solutions for data infrastructure. The critical nature of that infrastructure became even more evident during the current crisis at the keeps people connected businesses running and information flowing.
Pivot to data infrastructure wasn't an accident and as a direct result of our decisive strategic portfolio actions over the last four years.
Our strategy is in place, we are executing well and we have the right team and technology to exceed our customers' expectations.
Our book booking and backlog trends are very healthy, especially in fiveg cloud and custom SSD.
Support our expectations of driving overall company growth beyond the second quarter.
We of course will continue to closely monitor demand signals from our customers and this uncertain environment. We remain confident in our ability to continue to benefit over the long term from the macro trends I outlined during this call.
With that I'll turn the call over to gene for more detail and our recent results and outlook.
Thanks, Matt and good afternoon, everyone.
Give me the deal file financially count for the first clot, yet and then provide our current outlook for the second the content I'll fiscal 2021.
Thank you enough was quoting and went to 690 flamini lapping couponing okay.
91 key represented 57% of cloud revenue in the first contact me to start contributing 37%.
Revenue from their accounted for 6% cloud revenue.
I can be maintained its easy to consist of product set testing to solutions and application processors and we had stopped the last.
So we expect they will continue to decline over time.
Our guidance for the second to quantify anticipate and approximately 20% sequential decline in revenue for these products.
GAAP gross margin went to 27.1% which include the amortization cost both Ocwen chair.
You mentioned.
Non-GAAP across matching let's see 62.8% from revenue and the be flat to the changing product mix compared to our expectations as Matt discussed earlier.
That's all thank you spent decent will fall hunting down at 23 media.
Non-GAAP operating expenses were 300, even lower than expected, primarily because hilton allow continue to focus on Opex management and the like heavily expenses due to the Colby men impact.
I'm pleased that we were able to get to our target for non-GAAP operating expenses at the quality, earning our thanks acting.
And then lead times and that you can't to manage all pack at this level through the rest of the fiscal year.
Yes, all he came out with 96 media now Tampa operating profit was 100 peak and thank you fix media on 19.6% health revenue.
For the first quality GAAP loss per diluted share was 17 cents.
Non-GAAP income and share with the 18 cents about high end of cloud Titans bench.
Now turning to our balance sheet.
During the quality of cash flow from appreciate it was 176 meeting.
Turning to 65 medium to Schaffel against the 225 meeting each year the purchases and the 14 meeting you make it.
We temporarily suspended our share repurchase program equally to the first quality.
As we believe it's prudent to further strengthen our liquidity and the increase our cash balance between the assets.
We will continue to evaluate it these conditions to decide when to me at any share repurchase program.
We extend to quantify maybe 608 and 16 eating cash and short chemie mentioning.
And then we have 500 immediate liquidity available from our Undrawn revolver.
Our net debt to EBITDA ratio was 1.2 times TD nine basis.
I'm very pleased to be now solid financial performance in the first quality and the current environment.
He said that TV thousand Spikiness found pieces model into folks on the growing opportunities extraction, Mac and continuing to be very steep plenty of leaking out to folks Sammy Chang lessening.
Peaking and total liquidity and look at navigate trade show.
Absolutely, Yes, also and the teams out strong investment grade credit profile, which provides asked me to significant financial flexibility.
Last taking out lunch and growth initiatives. So we can't you branch from this and essentially time even stronger.
Now, let me I'm trying to add for the second quarter fiscal 2020.
We are forecasting revenue to be navan children seminars on feed and that 20 million plus minus 5%.
We anticipate our gets off nine can't will be approximately 50.6% and now noncomp across not just will be approximately 63%.
We project, our GAAP operating expenses to be approximately 300 feet and a 93 meeting.
And keep our non-GAAP operating expenses to be approximately 300 media.
We expect net expense to be approximately 15 expects non-GAAP tax rate of 5%.
I think without we anticipate that gas lost share taking advantage of the two cents to Tencent and.
Non-GAAP diluted share intervention 17 cents to 28 then.
HM Please open the line and announced queuing distractions. Thank you.
As a reminder to ask a question you will need to press star one on your telephone to withdraw your question press the pound key.
To allow everyone to ask your question. Please limit yourselves to one question only again one question only if you have additional questions you may get back back into queue. As time allows again, that's star one to chew up for questions.
Please stand by what we compile the culinary roster.
Our first question comes from the line up Timothy Arcuri.
Yes. Your question please.
Thanks, a lot.
In the release you had mentioned that you had some impact for the trade.
What's happening in trade. So gene can you just talk about that and talk about maybe what the impact is that maybe whether there was a longer term opportunity maybe now that hi, silicon is going to be quite quite restricted in sort of what they can build will there be an opportunity for you there and I guess also I just wanted to ask whether you have an update on the 600 million dollar increment.
Fiveg opportunity it sounds like it's going to be quite a bit there that maybe as big as a billion dollar. So I'm wondering if you can comment on that thanks.
Yes, hi, Ken Thank you.
Yeah on the tree the impact I think the impact of from a while we have to happen, but in a positive. So we are already impacted our revenue last year, we actually on what's happening now probably revenue any now going forward.
On the other customers right now based on our assessment, we don't see additional impact and I think because the way to think about it easy there it's uncertain, but you're right now we don't see other impacts our let Matt said five key question.
Sure, Yeah, and Tim just to clarify on the on the trade side, Yes, Jim mentioned, we felt primarily the brunt of that impact.
About a year ago when the initial restrictions were put in place and so we bomb.
We work through that issue I think the other thing you may be asking is.
What's the kind of overall picture yes.
If theres an impact to to that particular customer and the fiveg space and we'll other vendors take share.
It will that tailwind for marvell and the answer to that is in our current base case assumption, we're assuming no share shifts we have strong position at the other floor, but certainly to the extent that there are share movements within the fiveg players that would be to the benefit of the customers that we supply that would be a good thing for us.
Related to that was your with your second part of the question, which was on the long term opportunity.
Yes, it's actually a little bit larger it was 600 million when we.
Standalone Marvell and then when we did the acquisition of of Era, we added another 150 million.
Run rate business coming over so that really frame the whole opportunity at 750.
Still feel very good about that as you heard my prepared remarks, as well as even some of the.
Comments from last quarter, we continue to have very strong design win momentum there and content increase at a number of the key players and we can do to be heavily engaged and and we're still in the early stage of the stages of this and we hope to update that figure at some point in the future, but just clearly based on what we want our.
Ready, there's 750 thats in the pipeline, probably a little bit more if you. If you look at the Nokia partnership that we announced last quarter. So that's very much on track. Thanks for the question modeling.
Okay. Thanks.
Thank you. My next question comes from the line of Gary Mobley.
Wells Fargo Securities. Your line is open.
Everyone. Good afternoon, congrats on a start could start to fiscal year.
Want to start out by asking about the strength that you've been seen on the on the networking side in particular.
Fiveg and cloud as well and so.
Clearly we've seen some some good demand trends there and I'm just curious to hear your perspective on where we might sit with respect to some of those customers maybe adding capacity ahead of demand or are they playing catch up and trying to get a sense of whether or not there might be some carry through on the strength into the second half of the year.
Sure Yeah, Gary This is Matt I'll take that so yeah, we're off to a great start in our first quarter as I indicated.
Last quarter there was.
We had lot of momentum in our business exiting the year I would also give you a high look higher level framework start with which is remember that the overall semiconductor industry in 2019 went through.
The third largest down cycle, we've seen in the last 25 years, primarily on the back of the the trade sanctions.
And so coming into calendar 20, just kind of broadly speaking inventories were low.
In the customer base and supply chain.
Certainly even at Marvell, our own inventories through our channel and our customers were low and so.
So the demand that we had seen you know exiting the year, even before cobot 19 hit has has continued.
And the drivers we see in our business are are we think very sustainable certainly in the two areas that you mentioned, we're at the early stages of Fiveg and.
You've got the China market that is expecting to have very robust demand. This year. That's that's all very sort of publicly announced and we're at the beginning stages of that.
We expect other regions to to continue to follow.
Which would be very good for our customers on the cloud side I think that that demand trend is certainly here to stay and while there has been some talk about potential digestion and things of that nature at least from our lenses Marvell, our we have very unique product cycles.
We mentioned in both on our Smart next are brand new liquid I O three smart Nick product, which is ramping very strongly our liquid security products storage I think there's a there's a strong view on the on the near line side that that'll be a very good year.
So overall at least from from Marvell, We think those are very sustainable.
Last comment I would make us in Q1, we had the additional benefit in some some very good enterprise strength, primarily an enterprise data center.
And.
And that helped us as well so I think we've got a nice setup of various moving pieces, but certainly from a sustainability standpoint.
We see Fiveg and cloud really driving our business this year through the remainder of the year.
Okay as a follow up question I wanted to ask about.
And then Fiveg you mentioned some success in market share gains for some of your customers in that region.
Based on their tender activity and whatnot, what would you anticipate a more meaningful contribution for that specific region.
Well, it's it's.
It's it's in a little little bit started and helped us even in the first quarter is that began we'll we'll see more in Q2 was really we see a very very strong Q3.
Our Q3 for that particular business and I would say that's really when the volume starts. So we're still in the early stages of that build with.
With some of that comprehended in our Q2, but but a much stronger outlook for for Q3 and beyond.
I appreciate it thanks.
Yes.
Thank you. Our next question comes from a line of C.J. Muse Evercore. Your line is open.
Yes. Good afternoon. Thank you for taking the question.
I guess another question on China could you walk through your infrastructure exposure there, both directed through bearing and potentially additional opportunities outside of quality. Thank you.
Sure AC Jay I'll start with that and then I'll address.
Gene to add a sheet she'd like to.
So couple of things to note.
We definitely have indigenous China revenue.
We you know prior to the the.
The entity list issues, while way was our number one customer in in China, and I think thats been very well telegraphed, what's going on there.
As you heard my commentary you know we've ended up.
Gaining some some share.
At their biggest competitor in China, and so thats going to service really well in the five year ramp and then Additionally, we supply number of other Oems, we haven't broken that that number out.
[music].
But what I'd say is if you if you look at our historical cues. They just have shipped two numbers now like 50% and 47% and that's obviously way overstated because that reflects primarily contract manufacturing activity in the region.
So we've got we've got I.
I think exposure on the right places there both at both in Fiveg as well as some of the key enterprise Oems There and then we have some distribution as well.
So I think our businesses is reasonably diversified outside of.
Of the first customer I mentioned.
Thanks, BJ can enter next question please.
Our next question comes in alignment there is at ARIA of Bank of America. Your line is open.
Thanks for taking my question and congratulations on the improving growth and the execution, Matt just a clarification I think you started to mentioned something about networking continuing growth in Q3 I was wondering if you could elaborate.
On that and then the question really is have you seen any double ordering or excess inventory or at any abnormal orders from any of your customers in cloud data center or the China markets, because I think the conceptually get that certain parts of your customer base, our strong but just given.
All the macro issues I think investors that are that's really what it about a anything abnormal that might be going on.
It goes up all the trade concerns that on that at ongoing so any color.
In terms of actual consumption off your products I think would be very helpful. Thank you.
Great. Let me start with Q3, and then I'll move to the to the to the over ordering question as well. So on Q3 is to be clear at the highest level, what what I said in my prepared remarks was that we see we do see overall company revenue.
You know increasing from Q2 to Q3 at this point given the visibility we have.
That's overall company and that's driven by primarily our networking business, which is fiveg and cloud, but also by custom SSD opportunity I mentioned and so we see strength actually.
Beyond Q2, both in our in our networking business.
And in our storage business.
On the subject of of double ordering and the concerns out there.
Look I I've.
I've been on this rodeo for a while I've seen various.
Shocks to the system and then the result, and supply demand imbalances and I'm very acutely sensitive to those and watching those like a hock.
From our point of view I think the interesting dynamic on this one but back as I mentioned earlier is that the industry exiting 19 was coming out of a very severe downturn we're customer.
Inventory levels were low and so certainly there's been a theres been a.
Now they probably over did it and I think even certainly without cobot 19, I think we were going to see even probably.
Stronger demand as we indicated for last quarter. So that's one part of the set up in the second is Weve I mean, we've at least in Marvell, we've really over indexed on this in terms of spending time on this matter and trying to look at you know all the customer ordering patterns does their market share add up to a more than 100% you know how much do we think.
As buffer versus not and the end conclusion is I'm I'm very comfortable with.
With the current.
Forecast, we have and also backlog in order position.
That we've got.
And I just make another note, which as well just to hedge it a little bit I mean, we've been running our distribution inventory.
Well below kind of our target levels and part of that is just.
Ensure that we.
We meaning we maintain integrity in the in the demand side and make sure. We're shipping is needed, but all things 0.2 in aggregate. We don't we don't see a double ordering issue.
Final point I'd make is we haven't been afraid to called those out I mean, if you look at the third quarter of 2018 calendar.
This was right when the trade war, the tariffs were being announced and I mean, if you're probably remember this we had a 29% year over year growth in that quarter in our marvell networking business and we were actually the first company to kind of point out we think that this is.
This is not not no not normal right and that we shouldn't expect us to continue and we tried to plan our business around that so we've been forthcoming when we see it at this point we see.
The supply demand balance at least in our and our view to be to be pretty much in line, but we are we are paying close attention.
Thank you.
Great. Thanks.
Thank you. Our next question comes from Malaysia of Citi. Your line is open.
Thank you for taking my question and good job and result in guide gene I have a question that you have talked about aveda plastic quantia minus wireless, adding about 100 million.
Fiscal 21 sales in the past that I don't expect you breakout these acquisitions anymore, but can you just talk about if you're running above this run rate currently BTIC, one Chen of era.
Yes, so we're very pleased because they did those acquisitions I think last earnings call, we said that those.
Upon shanda and narrow that being on track to lead our expectation yeah definitely to the CEO, we think that they are willing to perform better now expectations.
Just based on the backlog or that the audio Pat and everything so overall Bailey. Please divvied up two acquisitions.
Yes, and I'll just add.
Back that up we.
We had a very very we had a very strong Q4, and Q1 and so the six months that we've we've owned by them.
We've we've gained a lot of confidence that not only were those right acquisitions to do but the the the level of topline contribution.
Okay.
As we see what's going to be not only right, where we thought but probably given all the dynamics I mentioned.
With with strength in cloud and strength in Fiveg.
That is benefiting certainly of era, and then on a quantia.
And should we have had very good enterprise strength and some of these segments. So we do see both of those probably performing better than we had indicated.
Back at the time of announcement for for calendar 2000.
Thanks.
Thanks.
Thank you My next question comes from Harlan sur.
Hey, P. Morgan. Please go ahead.
Good afternoon, and great job on the quarterly execution.
Do you added why SSD controller with nearly customary no good to see the initial ramp this quarter given that this is a semi custom chip utilizing a vast majority of your IP I assume that you are the sole supplier of this SSD controller. So in other words your customer it'd be maybe using different NAND memory suppliers, but.
It will be using your control solution irrespective is my assumption a quick because I'm just trying to size opportunity because your customers platforms here has a historical cadence of ramping anywhere from five to 7 million units in the first year to around 16 to 20 million units by year, three so pretty substantial.
The opportunity if you guys are the sole supplier.
Yes, correct right yeah.
Now ill take this gene and then you can.
Right.
So, yes, I know you're right and in fact, the way to think about it is any all of these DIY opportunities are by design.
Proprietary and sole source in nature and they.
To your point, they typically incorporate pretty substantial enrich IP from Marvell and and then as a result of that.
We're able to command better Sps and also.
Add an additional functionality above and beyond what you would sort of normally think of a standard SSD controller is being value that so I think it's a great combination of.
Of open any of these DIY efforts that we have going on and there are several of them.
Where we have very close collaboration with the with the OEM to define really something that's very special and unique for.
They need and and then the result of that as they can get pretty significant performance benefits.
Across a wide variety of applications when it comes to flash based storage, so yep proprietary sole source and on track to ramp.
Great job execution.
Yeah, I'll just add the right and that said earlier, we already started point action in Q2 week share if not earlier than we expected that meant Q3 said to me that's that major granted it's going to happen.
Great. Thanks for the insights.
Thanks, Ron.
Thank you. Our next question comes from Ross Seymore of Deutsche Bank. Your line is open.
Hi, guys. Thanks, Let me ask the question, Matt I wanted to go back to the cloud theme can you talk about in your script and kind of clarification. Then a question that greater than 10% number that you talked about which is up though a lot year over year, just roughly how is that split between the two segments storage and networking and more importantly.
Going forward, how do you expect that to grow customers can be very very lumpy, especially on what I would assume would be your networking side of the business it could be a little bit more steady and the storage side, but give us an idea of how we should think about monitoring the growth and Canada, the lumpiness of that going forward.
Sure. Thanks for the question Ross, then and I'm glad you you brought it up I mean, we definitely want to spend time on it I think if you look at the last year. So we've been very focused and certainly from an investor point of view the demand for questions and information then.
The opportunity for Marvell at least has really been framed around fiveg.
As I mentioned that continues to be not only a great opportunity, we're actually starting to ship and so it's nice to see the results now catching up with with the with the thesis so very pleased about that and so.
The thing that's really come together, though in parallel as we did the various.
Portfolio moves last year, and even going back farther kind of the marvell organic investments that we've made we have been very focused on cloud and Hyperscale. We do see that is a big Sam at a big opportunity and so what's what's we thought it was an appropriate time to talk about that and break it out because.
A lot of things have come together in that business is now ramping and it's actually strong in both our networking and storage side and we see both of those opportunities as being quite significant.
That's excluding arm server I mean arm server just you just dump that one on top of it.
But even ex arm server, we see the Sam for our networking and storage products in the and now the combined company with all the moves we've made as being equivalent really large opportunity as fiveg.
And while while cloud spend can be lumpy.
We certainly have that in other markets the carrier market isn't exactly the hallmark of.
Of stability that thing certainly can move around as everybody. That's been involved in base stations knows so there can be some lumpiness to the business.
But at the same time because of the breadth of products, we sell into that marketing cloud and even if you look at Fiveg. It's the same thing we will because we sold to a wide range of Oems with the light Sweet of technology. We do we are able to smooth out some of the lumpiness, but I think the key thing I would point to is both businesses now or.
Becoming significant for Marvell, both businesses, we expect to grow this year and beyond and I think it's a horse race between the two on which when can be bigger if you look out over several several years and so that's really Ross why we wanted to spend the time on it we think it's a pretty major opportunity, but when it was so small a year ago before.
We did a quantia.
Sorry, before we had a vera plus some of our own designs hasn't kicked in.
We didnt want to do that it reminds me of when I was at Maxim and we had a very nascent emerging automotive business and then there was a point, where we had an analyst and we decided to break it out because it had crested over 10% and and then it was off to the races. So.
I think.
Those are some of the so some additional considerations for you to think about on on our cloud business beyond my prepared remarks.
Thanks, Ross can you have the next question please.
Yes, Sir our next question comes from a line of Blayne Curtis of Barclays. Please go ahead.
Hey, guys. Thanks, taking my question just curious about.
If I did a wider range.
Can you just curious how you're thinking about that clearly the factory shutdown.
That impact you.
Storage its it seems like most factory there kind of back on line. So it seems like some of the headwinds or tailwinds kind of curious what you're thinking about on the other side of the coin there.
You look out.
Q2, it both in here.
Yes, sure I'll give you both sides of the coin I think on the one hand.
You could you could take the argument you just said, which is which is what we see today by the way you know that things appear to be stabilizing in factories are coming online in countries are reopening and so forth.
At the same time, though I mean, let's just take a big step back right. The whole world in environment is highly uncertain and the rate at which they get US I think everybody off guard and so I wouldn't read too much into it other other than we widened the range last quarter and just out of the abundance of caution Theres no reason to tight.
At this point, but we don't see anything.
You know.
Differently than you mentioned at the beginning I mean, we sweet seems like we've got we've got our demand true we're going to demand drivers. We we've seen strong strong orders. We've got good backlog position those types of things. So we have confidence in our business, but it's really just around the the broader level uncertainty I think our range by the way is.
Very consistent actually with a lot of other semi tiers.
We'll probably leave it a little bit lighter until.
We Uh huh.
The world seems the stabilized.
Thanks.
Yes.
Thank you. My next question comes from John Pitzer of Credit Suisse. Please go ahead.
Yeah, guys congratulation on the fall result, Matt maybe another way to ask planes question you guys clearly have a different go to market model that a lot of other semi is more direct lift distribution at least relative to some of the broad based semi save a lot fewer customers, but I'm just kind of curious as I look towards the guide for July it seems like a lot of your peer.
Others significantly discounted their bookings and backlog trends when they gave guide guidance for June July.
Just trying to take a level of conservatism I'm. Just wondering if you can give us any color on how you constructed this guide relative just just to all the backdrop of the macro uncertainty.
And as an example, some companies that guided to 100% backlog coverage, where they normally guide to 75% to 80% backlog coverage.
Yes, sure John Yeah, happy to answer that and I have seen that commentary and.
I think it.
I think it does have a lot to do with what you mentioned in particular, probably the analog mixed signal guys, who have a much broader customer set highly distribution oriented consumer and industrial type of exposure in automotive as well were those types of market seem to have been hit very very hard.
I think our market mix is clearly.
Benefiting us at this point in our strategy that we really have been driving for the last several years I think has become extremely permanent in this in this new world and so we're we're I think we are quite different than than maybe some of the other broader base folks, who who I don't blame them for being extremely conservative and.
I understand those dynamics.
That they may face.
But but I'd say you know with us heading in I mean, we also.
Through the through the mix changes because we're not selling as much into consumer anymore. As an example.
The lead times that we get our solid our terms and conditions are quite solid backlog coverage we get.
It is especially with a very coming in and think of it it's very coming in and Quantia in Wi Fi going out and you swapped out sort of consumer for for infrastructure, you're just getting a much better backlog position and on top of that we've got the channel.
Quite lane and we're also carrying some delinquency.
Higher than we normally do and so that gives which is which means we've got we've got backlog. That's out in Q3 that customers would like us to ship into Q2 and that is increased relative to where we normally run it and so I think that those are some of the the other data points, John that give us give us comfort in the guide as well as just are starting.
Backlog position is.
It's been higher than most quarters.
We've been here.
Perfect great color. Thanks.
Thank you. Our next question comes from Christopher Rolland of Susquehanna.
A line is open.
Thanks for the question Matt in your prepared comments you spoke about the gentle and the deep you and you guys will really pioneers in smart Tech Nick technology with a liquid.
And Cavium, there and you called that out specifically as a driver this quarter I know cavium used to have one key partner there that eventually went internal with their own development.
But perhaps you can talk about this renewed interest how broad is that what kind of levels are we out are we close to.
Levels.
And this is going to be sustainable in your opinion this time.
Yes, great. Thanks, Chris.
Great question. So so first went on on deep you I thought that was really really well done by our colleagues over in India and.
And it certainly resonate I think that was the clearest way that I've seen anybody explain what these products do and I think the market in general has gotten confuse Dover.
What's the smart neck isn't isn't a nick kind of a commodity thing and you know ads and its terms like fungible and liquid and that just I think I think this is a much CRISPR way to.
To describe it and so.
And that certainly fits as you point out.
Kind of a key.
In the key area that Cavium really pioneered and so with respect to.
Two.
So our smart Nick offerings, I think kind of it's consistent with the question at Ross asked we spent a lot of time talking about fiveg last year, but very quietly we then.
Continuing those roadmaps and so that that is ramping.
It's it's highly sustainable.
We ended up in we're engaged with.
With multiple Oems between the ramps that we're getting plus new opportunities and engagements and I actually think we're in probably one of the best physicians have any semiconductor company to truly Taylor and optimize.
Solutions based around to smart that type of architecture, because we have all the pieces.
Right, we have the latest generation.
OCTEON core which is highly programmable we have network connectivity and Ethernet we have security.
We have access to that and development and investment in the most advanced no process technologies.
And and we have eight the capability, which is which is a trend that we see as well where where some of the large hyperscalers or just saying, let's go skip over illiquid Io type of solution, let's go directly to our very special thing that we want and we think we can provide a similar type of solution. There just like we do in our quote partner model on base.
Spend we contribute big chunk of the IP the customer can also contribute we stitched together they get exactly what they want we can do it very quickly without.
Without.
The customer having to hire a gigantic design team and take three years. So I think it's a very compelling opportunity Chris both on the current ramps, we're seeing on the latest generation products as well as our roadmap and the ability to customize and drive this product area forward. Thanks for the question.
Thanks, Matt Congrats on the quarter.
Yes. Thanks you.
Thank you. Our next question comes from Joe Moore of Morgan Stanley. Your question. Please.
Great. Thank you you talked about Thunder.
And the enthusiasm that you have there can you talk a little bit about something like what are the key workloads that you're addressing and as this you know I think at one point there was the thought that this sort of is as it replacement for Intel on a broad base of of applications and versus something Thats kind of an accelerant for a few key work looks like what what's that.
The framework of how you're thinking of that now for over the next three to five years.
Sure Joe yet I think I think the.
The world the whole Thunder.
You know investment that we're making has continued to be really.
Focus down I mean, if you went back to sort of.
Pre pre acquisition of Cavium I think there was a view that said theres a very large market for this we can sell to a whole kind of customers across a whole bunch of different applications and serve number workloads and go head to head.
With more general purpose, FX 86, and really the direction that we've taken is to really focus the product.
Down and tailor it.
Really around a handful of key vendor key customers in the cloud area and within that.
As an example in our announcement publicly we had with Microsoft were.
Were the first property that were in isn't isn't as your storage and the way we developed and defined part was really ideal for that application, but we can certainly do a high level looks customization for these hyperscalers because they know exactly what they need and so we do see opportunities and expanding.
Into more compute oriented.
Applications and workloads, but that's sort of in the future, but again I sort of transitions. The Thunder story just to bridge everybody from Hey, It's broad based it's going to go take on X 86, and take on the world across all kinds of applications to really the evolution over the last few years under under a more focused effort.
To really focus around the hyperscale opportunity and and tailor it specifically to those customers and what they need.
Great. Thank you.
Yes. Thanks.
Thank you.
For Islam Bird of Stifel. Your question. Please.
Yes. Thank you congratulations on the results on the new branding I really liked the logo.
But look to sort of skew that thunder from the analyst in October, but you talked about in the automotive space you could have cbas zonal architecture, that's very similar in the sort of enterprise networking world.
Just wondering how that's going to play out.
I'll be working with networking companies here or will you be working with the Hyperscale guys on the auto companies just just trying to get a head start on how that whole what's going to look like thanks.
Yeah, Great. Great question here is the way I'd say, it's very much with the automotive customers themselves and.
And it's very much with with.
With the Oems themselves and a little bit like if you go back in time, the automotive Oems probably in the mid two thousands to kind of 2010 era started taking a lot more control over their semiconductor.
Strategies and that was really generally around things like infotainment.
He.
Aid Das and you also and started seeing these.
Ganic automotive Oems with full semiconductor teams first it was sort of purchasing and quality than they started adding design capability in resources and and they've built up over the years quite quite a capability. So they take very seriously.
They want to control their own destiny when it comes to their future car architecture. So we have a huge head start because of our Ethernet opportunity where were designed it we've talked about a couple times were and 16 different Oems are going to use our using are going to use our Ethernet solutions to provide in car networking.
And that provided a nice beachhead to go in and also show them.
All these other types of IP is we have and now we're getting traction there and so this is a longer term opportunity, but it's it's it can be quite significant in nature, because I would be analogy I would give you would be.
The C tide shift we saw in automotive.
In the in the kind of mid two thousands in sort of the infotainment revolution that benefited all kinds of custom companies all kinds of semiconductor companies the new wave of automotive suppliers came out of that.
One was my prior company, but also many others had huge benefit on the infotainment Revolution I think this data centric.
Evolution and automotive is going to be just a substantial and really plays to our strengths and so we look forward to two articulating. This in more details at our Investor Day. This is this is a long haul type of opportunity, but we've got enough traction now that it's going to be worth calling out and explaining to investors and the analyst community what we're up to.
The opportunity could look like especially for our long term investors, who want to who are now asking me Hey. This is all great with what you're doing in Fiveg, and we're doing and cloud what's next.
And so we think there's a there's a there's a nice disk.
Story to be told there about what what's what's beyond.
These other cycles can drive the company for for a long time.
In the future.
Thank you for that.
Thank you next question comes from Cerenia jury of SMBC. Your line is open.
Thank you. Thanks for squeezing me and Matt I, just want to go back to the Fiveg topic.
You alluded to Q3 being potentially up I'm. Just curious I mean are you getting better visibility as some of this reagents rollout fiveg is that what you said, what's giving you confidence and looks like it's mostly coming from China.
Q3 commentary.
Could you also talk about what's going on in some of the other regions like you us or Japan, and Korea, and also touch upon India because.
That's been a big market for Samsung historical thank you.
Yes.
Thanks for the question.
So couple of things I think one is.
Given the ramp that's coming and the lead times associated with these products.
We have strong backlog today, and we have strong bookings in this area both in Q4 as well as in Q Q1.
It certainly gives us confidence that Q2 in Q3 are going to look very very very good in this area and the reason.
At least that we're hearing and that we can infer both from looking at the outside market outside in as well as from our customers is that primarily.
Primarily driven by China.
But I think.
I think the Oems are all gearing up to your point for.
The other markets.
We see we see that Japan will start to roll out later this year on there was a concern that that would get push or or pause completely.
Due to the Olympics moving out and then covert 19, but.
It looks like that that you while it may not be as robust than we don't know yet in any of these things whether it will.
With the slope will look like but Japan is certainly talking about rollouts. Starting later this year.
Yes carriers once they can start putting people backout installing things they're planning on.
Second half in more robust deployments and then India they've got a.
And the U.S. by the way both have pretty important spectrum auctions that need to get completed we think to to.
To really drive Fiveg as you know in India, we still have a strong fourg presence through our lead customer, but really its fiveg thats going to drive to growth. So we think maybe moving around a little bit they may be moving out, but but it's definitely a.
A win not enough.
And I think whats nice is it's hard to handicap. These.
But what I'd say is even though some of the other one if you looked at where we started the year. Some regions are probably pushing out a little bit more than what we thought but then the China opportunity actually sort at worst that and and.
And offsets it so I think net net we do see we do see countries that are going to roll. This out it's going to take time, but.
But it's encouraging to see at least a large deal.
Really driving this forward and and.
Then ultimately that's ripple back to orders on our books that we need to go for Bill.
Appreciate the question.
Ladies and gentlemen, this concludes todays conference call.
Thank you for participating you may now disconnect.
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