Q2 2021 Marvell Technology Group Ltd Earnings Call
Ladies and gentlemen, thank you for standing by welcome to the second quarter. Two schools 2021, Marvell Technology Group earnings Conference call.
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After the speaker presentation, there will be a question and answer session.
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It is now my pleasure to introduce vice President of Investor Relations She still right.
Thank you and good afternoon, everyone welcome to Marvell second quarter fiscal year 2021 owning school and.
Joining me today, I'm, Matt Murphy, marvellous, President and CEO and Jean Hu, our CFO I.
I would like to remind everyone that certain comments made today may include forward looking statements, which are subject to significant risks and uncertainties.
That could cause actual results to differ materially from management's current expectations. Please review the cautionary statements under risk factors contained in our earnings press release, which you five at the FCC today and posted on our website as far as I'm, mostly some 10 can't 10-Q findings, we do not intend to update forward looking statements during our call today people refer to certain.
Non-GAAP financial measures reconciliation between GAAP and non-GAAP financial measures is available on our website in the Investor Relations section with that I'll turn the call or what the mats what his comments on our performance.
Thanks, Ashish and good afternoon, everyone.
During the second quarter fiscal 2021, we delivered strong financial results and achieved 727 million in revenue 7 million above the midpoint of guidance revenue grew 5% sequentially and 11% year over year.
Our GAAP loss per share was 24 cents, our non-GAAP earnings per share was 21 cents above the midpoint of guidance driven by higher revenue better gross margins and lower operating expenses.
We're now halfway through our fiscal year time carried which has turned out to be very different than we had all imagine impacted by a global crisis that a significantly disrupted our daily lives and altered our work environment.
Marvell team has met these challenges head on and there's been executing at a very high level.
Continually impressed by the relentless determination of our engineering teams in the face of a multitude of unprecedented circumstances like having to manage the chip bring up remotely.
Probably watched or sales marketing and support teams embraced barbells, new brand identity and use current circumstances to increase customer engagement.
In times of uncertainty I believe that we benefit significantly in building upon our existing deep rooted engagements with customers make forward looking platform decisions your experience with our products and trust in our team works to our advantage. We have continued to close design wins at an impressive right.
Getting that design win is a critical milestone getting our customers to production and volume ramp is the ultimate goal.
To that end over the last few months, we have received customer approval to move into production several key programs.
Putting a critical SSD controller and cloud Eastlink, which are both ramping now and a five few baseband processor for Nokia.
As expected to start ramping later this fiscal year.
Let me now provide an update on our process technology platform and our custom ASIC chip strategy.
Underpinning the development of all our high performance storage networking compute and security products is our industry, leading IP portfolio.
Developed on the leading edge process technology.
Earlier this week, we announced an extension of our long term collaboration with TSMC, the world's largest dedicated semiconductor foundry to deliver a comprehensive silicon portfolio leveraging the industry's most advanced five nanometer process technology.
Joint development positions Marvell for multi generational leadership in data infrastructure technology.
This accelerated cadence in driving to the latest process node and jumping to five nanometers, the outcome of our multiyear evolution to focus on data infrastructure.
In the infrastructure market Fiveg cloud enterprise and automotive customers are migrating to silicon partners, who can solve their most challenging problems requiring the highest performance to be delivered within a very tight power budget.
This requires access to the latest process technology acquisition of Cavium with their processing and compute heavy portfolio further crystallize the need to change our strategy from a fast follower to a technology leader.
The later acquisition of a barrel was done with the recognition that our advanced process roadmap would be a significant step up for of Harrison basic technology platform and would also increased the volume of projects in advance geometries with a subsequent benefits of scale across all of Marvell.
Leadership position, we have established for a process technology.
Platform is the culmination of the last two years of hard work by or Central Engineering team.
There's been a key driver of our recent success in winning sockets in multiple upcoming platforms such as next generation five you base stations.
Our mills five nanometer platform solution covers the full spectrum of infrastructure requirements, including high speed 112 gigabit per second long reach Thirtys processors subsystems encryption engines system on chip fabrics chip chip Interconnects and a variety of physical layer interfaces.
We have multiple five nanometer products in development now on TSMC and five P. process and enhanced version of TSMC is five nanometer technology, which delivers higher performance and up to approximately 40% lower power compared to the previous seven nanometer generation.
We expect to start sampling these products by the end of 21 volume production soon thereafter.
Our advanced technology is the key enabler of our new customer basic platform, which builds upon the of era acquisition.
Well customizing silicon is not new to Marvell This acquisition significantly expanded our capabilities to become a much broader custom silicon supplier.
We benefit from a various decades of experience in developing over 2000 complex full custom made six as part of by the M in global foundries.
We believe that access to our more advanced process platform combined with exposure to Marvel's large customer base opens up a host of new opportunities for the American.
Equally important we are evolving the traditional lasik model by including all of Marvell, leading scanner prototypey into of Eris custom platform.
The breadth of IP, we're offering for customization is what sets us apart.
We aren't just providing high speed securities. Another foundational IP, we're also providing highly scalable multicore arm processors Ethernet switches and controllers.
Storage controllers and more.
This IP can be integrated I'm ship or is it companionship.
He coupled with advanced system in package solutions customers can reuse Marvel's hardened and widely deployed IP and focus their engineering teams on only the unique aspects of their application benefiting from faster time to market.
Lower program risk.
By using our proven technology.
I'm very pleased to announce that are a 16 has recently won a major design win under the Marvell umbrella with a tier one hyperscaler.
This is a new a sick account for the Ivera team and we hope that this is the first in a series of design wins with this important customer.
Let me now provide an update on our server processors strategy.
Very much aligned with our growing emphasis on custom solutions, we are evolving our arm based server processor efforts towards a customer engagement model.
Over the last few years, we have developed multiple generations of arm server processors and had been working with customers to qualifier products for volume adoption.
Indirects do processor was the industry's first arm based processor capable of powering dual socket servers, which you go toe to toe with X 86 based solutions ended establish the performance credentials for arm in the server market.
Hyperscale datacenter customers represent the largest opportunity for arm server processors.
Having worked with them for multiple generations is become apparent but the long term opportunity is for arm server processors customized to their specific use cases, rather than the standard off the shelf products.
How are the arm architecture has always been and its ability to be integrated into highly customized design optimized for specific use cases, and we see hyperscale datacenter applications is no different.
With our breadth of processor Knowhow and now our customer facing capability.
Marvellous uniquely positioned to address this opportunity.
Let's get amount of unique arm server processor IP and technology, we have developed over the last few years is ideal to create the custom processors hyperscalers are requesting.
Therefore, we have decided to target future investments in the arm server market exclusively on custom solutions.
The business model.
We will be similar to our a sick and custom programs, where customers contribute engineering and mask expenses through and are ready for us to develop and produce products specifically for that we believe that this is the best way for us to continue to drive growing adoption of our base compute within the server market.
While we continue to invest in a number of initiatives to drive long term growth such as the das process technology, new markets, such as automotive and the launch of our new brand. Our team is also remain focused on driving operational excellence.
The successful integration of Quantia, and Ivera continued operational discipline and the change in scope of the arm server project.
Our collectively driving a significant reduction in our quarterly operating expenses from the current 300 million non-GAAP run rate to the 280 million, we're guiding for the third quarter.
Our success in customer engagements, where we do not need to bear the cost in risk of new product development completely on our own has also enabled us to manage opex tightly while continuing to invest in advanced technology.
The increase willingness of our customers to co invest with US is truly a testament to the trust and believe they have in our capabilities to provide them with differentiated solutions.
The improvements in efficiency and the cost structure of the company allow us to improve our earnings power, while we continue to invest more in R&D as a percentage of revenue than any other semiconductor company our size.
We are investing heavily because we believe we can grow faster than the industry and we have the conviction in our strategy to drive long term growth.
However, we remain extremely diligent about how we allocate the company's resources last week, we held our annual strategic portfolio review, where we deep dive into each of our product lines evaluate end market dynamics and review progress against our goals.
This review as the cornerstone of our annual business planning process and lays the strategic foundation for everything else.
This is our fifth reviews since I joined Marvell in 2016, and it was by far the best one.
It is clear how far we've come over that time period, and I could not be more impressed by the quality of our leaders and their depth of experience and technical capabilities.
Every year this process informs our capital allocation decisions and has driven a significant improvement in the quality of our businesses overtime.
But the cycle will be no different as we continue to drive long term success for our employees customers and investors.
Let me now move on to discussing our two businesses in more detail.
First in our networking business revenue grew during the quarter was 406 million and grew 3% sequentially and 23% year over year.
Growth was driven primarily by ongoing fiveg deployments in China.
In the cloud datacenter end market, we started ramping a new custom chip at a tier one hyperscaler.
Our liquid I O programmable smart Nexsan Liquidsecurity HSM has continued to gain traction that cloud customers in revenue for these two products more than doubled from the same quarter last year.
We're very pleased with these results, which came on the heels of the very strong growth we had delivered in the prior quarter.
So it's also the fourth consecutive quarter of sequential revenue growth from wireless infrastructure market as we benefited from the start of the Fiveg transition and our diversified design win physician that four of the top five tier one base station Oems.
In addition to the top five global Oems. There's also a very active next year of more regionally focused Oems who are developing their own fiveg base station equipment.
We believe that our full suite of production ready Fiveg silicon solutions, including the Industrys only merchant base band processor.
Provided very compelling path to market for the set of customers.
Im excited to announce we have now secured design wins for our OCTEON embedded processor and our OCTEON fusion baseband processor with a new fiveg customer in this next year base station Oems.
We expect this designed to start ramping towards the end of next fiscal year.
We continue to engage with this group of customers and look forward to updating you on our progress.
We remain on track to start shipping basebands to Nokia and processors customized for massive mimo applications. The Samsung later this year.
We believe that OCTEON can continue to improve its position within the large $4 billion market for embedded processors in infrastructure applications.
OCTEON as a number of very compelling advantages, including our process technology platform.
Multicore arm architecture.
Demise hardware accelerators flexible programming model and our ability to customized solutions.
Compared to alternative products. Our next generation processors designed on the industry's most advanced five nanometer process using TSMC proven technology platform.
From a very attractive solution for customers.
We believe that our competitive differentiators will enable us to continue to take share in this large market.
Now shifting gears to our Ethernet portfolio.
We've been working closely with our customers to design. The next generation of Ethernet products tailored to meet the requirements being placed on networks by mobility and cloud applications, which are extending the boundaries that the traditional enterprise.
This quarter, we announced our latest Ethernet solutions for the emerging world of the border with enterprise.
And the Borderless enterprise is not just about the transformation of on campus corporate environments, such as Marvel's on infrastructure, but also includes new use cases in the rapidly evolving retail manufacturing hospitality finance and education verticals.
The number of devices connecting to the network is expanding rapidly and no matter, where the users are physically located enterprise IP organizations are being asked to deliver a secure high bandwidth experience.
Increasing amount of cloud access and remote work needs, which has with more intelligence visibility security and bandwidth and these requirements are driving the next refresh cycle.
Access wishes need to apply intelligent processing right at the edge and offload data in France engines.
The data needs to be encrypted unsecured end to end was enhance network visibility for a seamless experience.
The adoption of Wi Fi Sixs, increasing the bandwidth requirements of wired networks.
Barbells unified for Stare Ethernet switch and Alaska Fi solution set is architected from the ground up to manage this complex and evolving environment.
Our dance telemetry capabilities facilitate network automation and our switches have embedded chromatography based security for Ethernet traffic.
Intelligent workload management enables optimize data processing at or near the network access edge improving the performance of hybrid cloud architectures are multi gate capable switches in size facilitate the transition to 2.5 and five gig connectivity, which is essential for Wi Fi six and able to access points and hyper.
Formats end devices.
Our software development kit enables networking system vendors to easily develop new and differentiated products quickly on our silicon platform.
You may recall, we refreshed our Ethernet for portfolio soon after I joined Marbella 2016, and that led to a sustained period of growth for our switching five businesses as we took share with our differentiated products that come headed higher gross margins and outgrew the market.
This year's refresh as an even more impressive set of capabilities and addresses a larger part of the enterprise market further expanding the access core an aggregation layers and we believe that we will continue to drive share gains.
And our emerging automotive business, we continue to make progress in expanding the customer base for our Ethernet switching by conductivity products.
We have recently closed design wins with eight new customers, adding to the 16 I have discussed in prior calls.
We also continue to see a larger opportunity for us and automotive.
Leveraging our growing Ethernet position, we are front and center and discussions around future architectures and have the opportunity to extend into the adjacent compute security and storage domains within the connected car.
Let me now discuss the outlook for the third fiscal quarter for our networking business, we expect strong growth from the wireless infrastructure end market driven by multiple customers.
We also project growth from the cloud datacenter market and we expect our automotive Ethernet products to start shipping into model year, 2021 vehicles, but you're starting production now.
However, given the softness in the enterprise market driven by Cobot 19, and recently telegraph by multiple customers appears not surprisingly, we project demand for our networking products selling into enterprise applications to be week.
The net result is that we expect our overall networking revenue in the third quarter fiscal 2021 to increase sequentially in the mid to high single digits on a percentage basis.
Turning now to our storage business.
Storage revenue for the second quarter was 290 million growing 12% sequentially and 6% year on year.
Strong growth was driven by the start of a ramp of a customized SSD controller for do it yourself or DIY program.
And easing of Cobot 19 production challenges, we in our customers experienced in the first quarter.
Supply chain improvements benefited both our storage controller and fiber channel products controller demand from near line 16, Terabyte Hdds was particularly strong.
The combination of our product cycles and supply recovery drove our outperformance as compared to the drive market. We're demand was starting to get impacted from cobot 19.
Our pipeline of SSD controller engagements continues to grow driven by our commitment to deliver the most responsive and best user experience at the lowest power using most advanced process technology.
I'm very pleased that we have won the next generation of SSD controllers for datacenter applications at one of our key tier one and Oems extending the multiyear relationship we have with them.
This controller features our leadership PCIA Genfive technology.
We expect to continue to drive long term growth for our storage business.
Looking to the third quarter, we are expecting very different trends between our storage controller and fiber channels, We project, our storage controller business, which addresses both hard disk drive and solid state drive applications to continue to grow sequentially.
We expect this growth from the continuation of a ramp of a custom SSD controller, partially offset by weaker drive demand from enterprise data centers and some edge applications such as retail.
Storage controllers.
Dipping into cloud applications are also expected to continue to trend up in third quarter.
Conversely in our fiber channel business, we project a significant sequential decline in revenue, resulting from cobot 19 related weakness in enterprise server and storage system demand.
The weakness in fiber channel is expected to offset the growth from storage controllers and as a result, we project third quarter consolidated storage revenue to be approximately flat on a sequential basis.
In closing our results continue to validate our strategy to focus on developing the most advanced silicon for David infrastructure.
Portfolio actions have also significantly diversified our end market exposure and we have a much larger share revenue today from fast growing fiveg wireless and cloud end markets.
Fiveg, we have wrapped up an impressive set of design wins, which we expect will drive significant revenue growth for us over a number of years the product ramps that Samsung and particularly Nokia are largely in front of us.
In addition to the strong momentum it expected from our own product cycles. We're also turning increasingly positive on the likelihood of our diversified customer base to gain share in light of recent geopolitical events and market dynamics.
Cloud has only recently become a larger part of our business.
Crossing over 10% of our total revenue.
In this market with long term secular growth we have multiple drivers are OCTEON processor platform or security products for customers basics.
Merchant and DIY datacenter, SSD controllers, and Nearline HD controllers in France.
In enterprise, while there are near term headwinds from Cobot 19, it's important to keep a longer term perspective that this is the large and diversified worldwide market spread across a number of industry verticals.
The need for secure an intelligent access to bandwidth is not going away and the number of endpoints trying to connect to a network are only expanding.
We have introduced new solutions, specifically designed to address these challenges and we believe that we can gain share and drive revenue growth from our own product cycles.
In our edge end market, we are barely scratched the surface of the current Ethernet and future compute opportunity in autos, which we believe will become another key driver for long term revenue growth.
We have assembled under one roof critical mass of scarce and unique IP with a very flexible and customized engagement model, which is proving very attractive to our customers. We are accelerating our adoption of advanced process technology, which is already started to pay dividends in the form of design wins and new sockets and customers are.
Borderless enterprise in a sick announcements received strong validation from the industry and we have seen an increase in inbound requests for collaboration from customers as they become more aware of the depth and breadth of technology at Marvell.
We believe that we have built a business for the long haul and are confident and driving revenue growth and managing through any transitional challenges and some of our end markets. We continue to invest in technology, while reducing overall operating expenses by driving higher levels of efficiency with our platform.
Operational excellence enhances our ability to deliver operating leverage and drive earnings growth.
With that I'll turn the call over to gene for more detail on our recent results and outlook.
Thanks, Matt and good afternoon, everyone I'll start immediately deal file financially to out but the second the Claudia and then provide to our current absolute but it's hard to quantify it 2021.
Revenues in a second the quantitatively feminine hygiene and 27 media about deploying cloud.
Now looking that piece and 56% no revenue in the second quantify maybe our agent contributing 40%.
Revenue from other come at a 4% for driving declining 25% sequentially and that's what he went and yes, yes.
The mandate it beat me to PTCL for product that we have south less.
We expect they will continue to decline over time.
Our guidance for the same quality and take a small sequential decline revenue from me.
GAAP gross margin was 14.4%.
GAAP across 19, let you 63.3% revenue I should I expect patients, reflecting the hard work from our operations team to drive outpacing PCC equal lab that costs.
And helping spend keeps it will 511 meeting and they include the cost of the share based compensation expenses.
And the addition of acquired intangible asset acquisition and divestiture related cost as well I think impairment and other related restructuring charges as he read out the changing scope of the similar process and program Matt discussed earlier in the call.
Non-GAAP operating expenses were 297 3 million nowhere Anx basket, the primarily because our continued focus on Opex management.
After all thinking not with 100, even 51 meeting.
Non-GAAP operating profit was 106 TV R 22.4% Randy.
For the second quarter GAAP loss per diluted share with 24 cents non cat the income Adam Scheer 21 cents I missed appointments.
Now turning to our balance sheet, joining the quality and cash flow from operations with 226 meeting.
Our team continues to drive improvement of working capital Matchy exceeding the second RJ.
We emphasized the Alec HLC sales outstanding to 61 base and agency elementary each man Keybanc.
Let me turn to what do you mean into schaffel against the two dividend payment.
We had to compare any suspended our share repurchase program as we believe a prudent to further strengthen our liquidity and increase our cash balance between that and synergy environment.
Well continue to be bad in a competitive conditions to decide when to meet that share repurchase program.
We exited the quality and maybe 832 meeting cash out chairman Lightning and increased 100 feet and 64 understand from the prior content.
We continue to had 500 TPV out liquidity available from our Undrawn revolver.
Our net debt to EBITDAX ratio, what's the 0.8 times treating tell 90 basis.
At this will force to August 2020, 450 medium term loans, you will be didn't tell night and that's being classified as short term add on the balance sheet.
We expect obviously to continue to generate strong cash flow and there we intend to repay that might be to cash flow from operations.
I'm pleased to that had revenue growth combined with our strong business model and operating expense discipline continue to driving improvement I'll pay TV Sal.
Strengthening our balance sheet.
Now moving onto our current absolute with a third quarter fiscal 2021.
Please note that compared to second the quality any doubt outlook of all peaking expenses reflects the significant improvement Matt discussed earlier from this successful integration with a punch yet and there.
Continued operational plan and the changing fell to the silver project.
And can be Medicare operating expenses. It can vary qualitative quantia affected by factors such as the number but people out to me Dan I peaks in the quality.
Keith I'd be cutting expenses it in your processing.
Yeah.
Okay. So for every payment we kept prime in 18 countries.
The Opex can also add variability and we now have a higher level.
Following the acquisition of Iraq, maybe our customer AC Milan.
You should be typical seasonality in payroll taxes I'll packs in the first fiscal quarter it tends to increase sequentially.
Facts, then piece page right that's eight per year.
Houston, a specific guidance and for the Santa Claus here.
Were forecasting revenue to be eventually a 750 medium class I'll minus 5%.
We anticipate our ads across 19 will be approximately 51.4% and the non-GAAP across 19 will be approximately 63%.
We project, our GAAP operating expenses it to be approximately 360 18, we anticipate our non-GAAP operating expenses to be approximately 200 feet and 18 me.
We expect net.
Thanks to be approximately 15 million and expects non-GAAP tax rate of 5%.
Estimates out we anticipate gasoline south ranching loss of one cents diluted share on the low end to end the income of four cents share on the high end.
We expect to non-GAAP income share innovating 22 cents to 28 cents.
Operator, please open the line now that kewley inspections and.
[noise] certainly.
As a reminder, ladies and gentlemen to ask a question you will need to press star one all your telephone.
So withdraw your question press the pound key.
During the time constraints, we ask that you please limit yourself to one question.
And if time permits you may reenter the queue any additional questions.
Please standby well, we compile the culinary roster.
Your first question comes from lineup Blayne Curtis with Barclays.
Hey, guys. Thanks to my question, a nice result, obviously given the backdrop in enterprise.
Just kind of curious you mentioned as you walk you through you spent a lot of comedy thick.
You mentioned you design win Hyperscaler, if you'd give any color with that but maybe just thinking broader.
If you can kind of give us a flavor as types that when did you mentioned, you're picking up and yes.
The segments and I think.
In both across wireless and networking that'd be helpful.
Beyond the on the Hyperscale when you know as I said, we're pretty excited about that I think the the bringing the there a team into marvell has created a much more relevant portfolio and broader portfolio for all the hyperscale accounts and I think it was a great Testament to.
To the capability of the team to actually break into.
Into a new one.
As you as you know due to the you know the nature of the basic business. These are highly confidential type of.
Engagements that we have so we can't go into a ton of detail, but what I would say that broadly speaking our AR.
Our five nanometer platform is being extremely well received both from an ace sick as well as a standard product offering and what I mean is when you go out into.
No way hyper scale, but also the fiveg market and enterprise you know, we're migrating the entire marvell platform across multiple product lines jumping into five so it's much broader than just basic engagement. In fact, it's it's you should assume that our Ethernet business, our OCTEON platform.
And others are all going to going to migrate in so it's just created a very rich and compelling set of eyepiece and engagement model, that's being well received and so this is one example of that were actually.
Gaining new customers for new types of technologies.
And hopefully there'll be more to come on that as we head towards the Investor day that we just announced in early October to give even more and more details around our our technology platform and the various engagements that we have then talk about them and as much detail as we can at that time Lynn.
Thanks Bye.
Yes.
Thank you.
Question comes a lot of the that right with bank of America.
Thanks for taking my question then congrats on the good outlook. Despite all the had been a matter I'm. Just curious you mentioned do kind of headwinds I'm going to one.
Because of all the restrictions in terms of shipping to customers in China, and I think separately. You also mentioned some headwinds because the covert and fiber channel I was hoping if you could address and maybe quantify how much of those had been done I think specifically on the China customer had been do they.
Just do go sales just go away.
Some of the comfortable with some license I'm just curious what does that China exposure now in terms of kind of wired wireless and enterprise mix.
Sure, Yes, I'll answer it separately, because I think they're two different dynamics I think that the China.
Situation, obviously is broadly impacting people in certainly.
In our all of our disclosures, we always call it out as a risk factor just in general, but just to be very clear in terms of our guidance for the third quarter.
There are no China headwinds included in that so that that was not something that we're saying is.
A big part of of.
He had when we're seeing there I mean could could be minor, but it's not really.
It's not material that really the central issue in terms of just to the growth sequentially, which is still up.
Quarter over quarter, certainly would've been better if enterprise has had performed maybe where we thought there would have been a few months back was really around the enterprise market.
We saw in both of our both in our networking business really where we sell Ethernet solutions into things like enterprise campus and SMB and then also our fiber channel business, which is pretty broadly deployed in a number of enterprise applications, including storage and that also.
Is projected to be.
Down in in the third quarter and that business just to note is generally pretty stable.
Doesn't fluctuate around the whole a whole lot and so we definitely are or noting it for Q3.
So I would say you know ex those trends and in the enterprise very specifically the rest of the business is obviously performing very well in terms of the strong growth, we're seeing sequentially in our fiveg customers, which if you look out to Q3.
Assuming we achieve what we believe that would be five quarters in a row of quarter over quarter growth in that market.
And then in cloud datacenter again, another up quarter after a really strong Q.
Q.
You want in Q2, so thats really the nature of the headwinds that we're calling out that are very very focused on the enterprise.
Set of issues that are out there.
Thank you.
Sure.
Thank you and our next question comes from a lot of John Pitzer Credit Suisse.
Hey, matching congratulations on the solid result.
I was wondering if you could just spend a little bit more time on the Fiveg drivers I mean, clearly theres been some of your peers.
After several quarters of very strong growth that are kind of characterizing September October.
Sort of a digestion period for the Fiveg wireless Capex and I know you've got a lot of company specific drivers, but I was hoping you can help me understand what percent of revenue is fiveg today and as you look out the October what percent might it be and I guess importantly, how much runway do you have a company specific drivers before you become.
So a little bit more dependent upon the overall macro backdrop for spending.
Sure Yeah, Great Great question, John and you're right to note that.
The performance, we're seeing in that business is really very very specific to us and because we didnt have very large share in fourg.
We're not really seeing.
That that counterbalance that maybe others were that that are more broadly exposed to both.
And then as you've seen you know we have new products ramping we have new Oems that are going into production we have.
Certainly regionally there or regions like China as one example, we called out that's obviously very aggressive in deployment. So we have a lot of wind at our back in terms of.
That the Fiveg business and then of course in front of US really is still all the other major geographies, which are projected at various stages to rollout Fiveg and then we have new content with new customers also in front of us with Nokia being an example, so I think the longer view as it's going to take us a while which.
I think is a good thing.
No.
To be at a point, where we'll we'll kind of represent the market I think the market needs to develop in Fiveg, we would need to be a bigger portion of the total.
Wireless Capex out there and then our design wins would have to ramp. So I think that's something that were well it is a choppy market.
We certainly feel like at least at this point based on our own.
Product cycles, and our own design wins that we achieved.
That's why the business is performing.
That way and it continues to grow every quarter in terms of revenue as though as a percent of total and just just as a net a mountain.
We will when you think out to the Investor day, we typically take that opportunity to to frame the various markets in our sizes in our shares and so sort of look forward to to the investor day to get a more comprehensive view from a market standpoint, where we are but we're very pleased that the growth rate of that business.
Similarly to where we were happy with the growth rate of our cloud business and its representation inside the company. Both of those are working really well for us right now.
Perfect Congratulations.
Thanks Scott.
Thank you next question comes from a line of CJ Muse with Evercore.
Pacey they are there.
Why don't we go to the next question. Please.
One moment please.
Pardon me CJ Muse please check your mute button.
And on excess go to the next question.
[laughter].
Operator, do you want to just focus to the next question. Please.
[noise] [noise] hey, operator.
Can you just took an exit persons question.
I just got a message I think the operators, having technical issues. So just hang on for a second.
[noise].
Where we stand or from Stifel. Please go ahead.
Yes, Thank you and congratulations on the results.
I had I had a bit of a brother question for you know you talked a lot about five nanometer you're talking about cause the basics no reason that you talk to learn about edged processing.
<unk>. It just seems like the world is changing right in there right in front of us and I'm just wondering what that means for marveled as a company, perhaps perhaps more importantly for the whole business model because it does seem like we are a bit I didn't at an inflection point on all those France.
Well I think you're right you know and you you certainly look downstream Tori and.
You know when the and the design chain all the way to the Oems and you know I think the level of digital transformation that's occurring.
Certainly in companies.
And the equipment that needs to get designed to service. These new needs is is quite traumatic.
And and so were aware of that and I think that really is playing in to our to our advantage to be to be honest with you I think.
When you look at what our customer base once it's unique blend they want.
You know access to the leading edge I P. Maybe that sounds like cable snakes, but they have their own very critical applications that they're trying to serve and they're trying to do that in a lot of cases with.
Much higher performance than I ever had to deal with before or much lower power, especially as <unk>.
Applications move closer and closer to the edge.
And so increasingly as well the other trend I would notice that the intersection of computing of networking.
Security and even storage these tip's for the data infrastructure, they're all tending to blend together in a lot of ways in terms of what customers want to go do.
And with that really speaks do is you need to have flexibility.
And your model in order to service these opportunities and I think when when advantage. We have Vittorio Martin L is that we've by design developed is extremely flexible business model from merchant offerings, where customers can prove on her IP because they can just go by the part to this partner model, we invaded where it's a <unk>.
<unk> of our intellectual property and our customers to drive time to market as well as just being able to services you huge opportunity for custom silicon.
And so I think when I when I look forward.
Very enthusiastic about.
All the opportunities in front of US and also the way that the platform, we are really able to leverage and when I mean platform I mean.
Our design wind platform, our technology platform.
Where we don't have a lot of.
And I'm, a Jason businesses, what we do for a living as we do this data infrastructure.
Silicon really really well and we do that in a very concentrated manner and you'll see that both and are now are five nanometer platform, which we announced this week with TSMC and the translation of all that investment.
And the focus we have actually.
Surprisingly, even driving lower operating expenses and then we had before so I think it's a unique combination and Tori I would just say you nailed it there's there's a big opportunity for Marvell on the go forward here.
Thank you.
Thank you I'm sure. Our next question comes from car right Hey come in from calendar. Please go ahead.
Hi, good afternoon, Thanks for taking my question.
Jean it's great to see the solid execution on Opex I'm I'm curious, though what's the argument for Opex.
To not trend toward 30%, even if we assumed flattish revenue from here.
Particularly giving me a maturity the storage Tam and co investment from customers.
Processors. Thank you.
Yeah first yeah, we're really pleased to our team has done a great job actually used to <unk> to 280 million quantity rang right yeah worth it.
Do you know expectation economic a three hungry mediant when we entered into faith code 21, so that suggest a tremendous after I kept by realizing mountain niche easier from Avera and Ah Contra integration and also just the operation on efficiency cross that border. So.
If you think goodbye to that we're investing the red level and laid out portfolio jazz and then the portfolio optimization, we constantly raving USA company, we do see actually.
Diving the revenue grant.
If you look at our Q3 Guy.
Revenue yeah over here, a garage sale for Apple D Kid and continue the revenue Rand.
And to operating expensive level, we do think of our motto outgoing too.
Show tremendous elaborate yeah and continue to drive it earnings expansion. If you look at that hour Q3 Guy.
The operating imagine at the needle kind of law guidance actually east coast to 26%. So I think we're setting up a great business and model with Alpex liable to invest it ended to continue to expand.
Thank you.
Thank you I show next question comes from Quint Bolton for me. Please go ahead.
Hi, guys, it's Michelle on for calling thanks for taking the question and congrats congrats on the results.
So my question is on the storage business I know he doesn't break out the storage controllers from fiber channel, but I was wondering if you can get some some color oh on how <unk>.
Two segments are broken up within that bucket cause I'm, just trying figure out like puts and takes.
Four.
Library channel.
Decline I'm trying to determine kind of like the magnitude.
Hi, Michelle.
I'll I'll help you give you some color we typically <unk> gave up all the details Sandra report all the details there to help you out here the way to think about it.
Type of kind of business the overall market the opportunity all sand, maybe about 500 <unk> each year, it's quite a stable market to actually.
It is split between.
<unk> and abroad, a calm so largely were very much same in our size and so if you think about the hour fabric cannot business. It's all setting into the enterprises datacenter on premise so kind of weakness is such an a impacted tremendously.
Sequentially the revenue decline actually it's the 20% quarter over a quarter. So it's quite a significant hopefully that that will give you some color, but yeah. We don't have break down the details within the scar age category of January.
Yeah. That's helpful. Thank you.
Thank you I shall next horse.
[noise] Hi, Joshua next question comes from Jerry Mobley from Wells Fargo Securities. Please go ahead.
Everyone thinks for taking my question, what to dig a little bit deeper into the.
Thunder X aren't based surface development and so to what extent was 121 million dollar charge related to.
[noise] restructuring development of Thunder.
And how does it impact your joy development, I guess cost sharing relationship with arm and as well the related.
[noise] for them to take a Marlboro equity.
And and then the Thunder X three that you.
Highlighted the hardships last week is that shall we think about that has been funded by maybe one or two specific customers.
Gary with Divine this question into peace.
So they impermanent part then American talk about the strategic aside or for the business day. So it impairment actually as quiet Street to follow a day as you recall.
We acquired a caveon and we close at your transaction two years ago. So.
There's a very small piece oh for a developer the technology intangible related to older T X two.
M D. A aliped it before the acquisition of <unk> acquired a carryanne. So that's primarily if you look at the impairment the primary impairment needs to related that they intangible Nevada by the technology of with T X two of <unk> data that the business in the past.
Maybe the hour new focus that going forward definitely those oh, the development of technology intangible is going to be in pair to that so they impairment part of it outlet Mad answer the strategic side of the silver business.
Sure Yeah.
So I think at the highest level.
You know this well the.
We've had a long term history with arm there used in almost all of our products and we cooperate on a number of different applications.
Like we are observer.
Opportunity to.
To five G automotive et cetera. So.
Two companies work together.
And the way you should think about again, what we're doing with the Thunder product line is really just focusing it.
The market that we are always called out for this has always been the hyperscale customers.
And so what we're basically doing is just really acknowledging that and also acknowledging the fact that.
It turns out they seem to really want their own thing their own special chip.
And this notion of you know maybe if you go back a few years to where you would have a broad based.
Armed server platform that you would drive and you could sell to everybody and maybe put it on like a ticktock type of.
Cadence and sort of run it like a normal CPU business I I think just so much has changed since since we we acquired Gabby M. N. This markets developed arm and the data center, an arm and servers has actually continued to get traction in the market.
Whether that's with us or that's with customers doing their own developments themselves in house with partners and so we expect that to continue we're just gonna do this in a much more focused in targeted manner and with a business model that looks more like our traditional.
Customer semi custom model versus funding the whole thing.
On our own.
You know kind of for in perpetuity <unk> said basically it's when it gets more it's better for us a better for the customers actually to do this in a more focus manner hope that helps.
[noise] next question place.
And our next question comes from the line of Harland served with J P. Morgan.
Hello, Good afternoon, and good job on a quarterly execution.
Good to see the diversification into storage business, driving flattish growth and what I would consider to be a very tough storage environment. You guys had been talking about the ramp up your DIY assist you controller into the large gaming opportunity that starting to fire and it looks to be pretty strong care and the second half, but if it under HDD side.
Relieved that your second near line HDD customer just got qualified on it's 16 terabyte platform. It is ramping here in the September quota are you guys Dennis City and can described here in two three and maybe mid to longer term you guys also have some DIY SSD controller wins with tier one hyperscale letters.
When do you guys expect these programs to ramp.
Yeah, great great questions Harlan.
Yeah, if you think about the storage business.
Storage controller portion is performing quite well into Q3 is Jean sorta laid the bread crumbs earlier on the fiber channel business, how to think about that market size or share of it how much it was down.
We're basically.
Offsetting that by growth in.
<unk> sighed into your point.
And our customer SSD engagement as well as in both of our near line.
Customers that continue to to ramp with our solutions of Soc's and then one also using a preamplifier solution as well so yeah. The traditional call. It Marvell storage controller business is performing quite well in the near term here coming off of the.
You know.
<unk> through the Cove at 19.
Apply issues that we're going on so that's doing well it's really this <unk>.
[noise] targeted.
Slow down in enterprise, we're seeing that within the storage areas.
Offsetting that grow so the grilled drivers are very much working and storage is what I would say the areas, where we put a lot of R&D, an investment and club applications as well as the DIY, it's nice to see the revenue coming in.
And I think there's more to come on discussions of future DIY engagements, which were very active in right now.
Those are already turned to the design winds.
With Hyperscale hours and that is also part of our future growth strategy to continue to keep storage growing is.
Is expanding with additional customers that we didn't have before.
Tomorrow and that would be great.
Yep. Thanks Beth.
Thank you and our next question comes with a lot of Timothy R. Pirie would you be S.
Thanks, a lot Matt I think you alluded to our design win with another five G base station customer beyond the too that we already.
Know about can you talk with a more about that and maybe help size the content for that way maybe versus the two that you've already talked about thanks.
Sure Yeah, I think yeah. So it was a lot of content. We went through today, but the main point was that while there's a lot made certainly of the top five vendors in the in the base station market.
And typically the you know those fiber call at 90% of the total so it's a big number historically, but but there's there's also.
A the remainder is is currently quite active in this five G transition and I would say in almost every region, whether it's in parts of Asia.
Certainly North America.
Another G O as there's there's a lot of.
Activity there in what we would call the second tier.
And the nice thing is is that the products that we developed for the top.
I'm going off the top guys.
Those are all gonna be available is standard products for the rest of the market. So for example to win that we got that's in the second tier it's using the existing parts we already have so.
Obviously, a lot of leverage from that because we didn't have to go and design a brand new chip and it's been a bunch of money on it and they are able to leverage the investment that we already made and.
Without getting into dollars. What we did say is that the content is both the fusion baseband.
You guys have a sense of what those go for as well as our off beyond embedded processor for the transport later two processing.
So we are very solid content from a processing perspective there.
And I would say is with the last thing Tim is with all the disruption going on and all the geopolitical events I think there is an opportunity for this second tier to actually.
Become more relevant and five G.
Whether it's taking sure from traditional incumbents or even with new standards like like Oran, where you might see new new people come in and actually be be meaningful participants and some of the regions. So that's again, that's one that we're watching but it's nice that we're able to take.
You know kind of benefit from <unk>, all the hard work we've done.
To put put these IP platforms together to be able to then go in and sell those enables.
No.
Other other customers of ours to participate in <unk> market.
Got it got it.
Yeah.
Thank you.
The next question comes with a line of raw Seymour with Deutsche Bank.
Hey, guys. Thanks for let me ask a question man I wanted to go back to the enterprise side, I think everybody understands that the demand as week right now, it's nothing marvell specific but I wanted to dig a little bit into your views of the duration of that weakness and some of the sub causes of it in the past we've seen the macro demand weekend and they're also be some significant inventory bird that exacerbated.
That for a period of time, so I guess the two parts of this question would be easier fiscal third quarter enterprise guidance being weak exacerbated by that inventory digestion and do you think that continues into your physical fourth quarter and similarly are their company specific offsets either show games or losses within enterprise that would be either offset or magnify.
That weakness.
Sure.
<unk>.
Certainly in the short term.
We're seeing the impacts you said and I think.
Some of this.
Maybe certainly.
Inventory related I do think that when we had the the supply crunch.
And countries, we're shutting down left and right I think certainly oem's wanted to make sure that they.
And some inventory, but I would say that is also very much couple of depending on the segment you're talking about with with just straight up demand weakness just given that <unk>.
Certain segments of enterprise companies aren't spending on.
Those are very well known so.
I'd say that the inventory part unlike sort of I'd say, pryor cycles, which which which I've been through I'd say. This one is just more more on the demand side at this point. So that's really in the short term.
And we just have to deal with that.
Still very encouraged okay, and bullish about our enterprise offerings.
Once we're through this cycle, we're in especially as we look out to calendar 21.
And.
I referenced in my remarks, as well as you probably saw some of the announcements we've made around her bordered los enterprise.
The whole thing is really code for Marvell, just refreshed, it's entire Ethernet switching and five portfolio and the last time, we did that.
Which was a few years ago.
<unk> jumped a process node or two at that time, we added a whole bunch of features we optimize the products and.
And we have great success. It was part of the kind of the initial marvell turnaround story was that networking growth.
And so we see the same type of opportunity.
Starting really next year with some of our new products, which are again in the latest process nodes that are relevant for for those markets.
The latest sets of features and then even beyond that as we look out.
I'd say beyond next year and you start looking at our five nanometer portfolio, which you know where where.
Sampling our first products next year on but all the design wins that we're in the hunt on right now we're really in that node for the large sockets were extremely well positioned and I would say that even goes beyond Ethernet and also looking out to our next generation <unk> products, which.
I've gotten a lot of press because of their success and base stations recently, but don't forget about the wired market.
And the wired market I think if you look at all the networking Oems in communication Oems and what they're going to need in the future and you look at us with a best in class.
Infrastructure processor in five nanometer, which would be which would be the 10th generation KVM processor.
We're very excited about that business between.
A number of friends. So I think the shorter term, we certainly have some chopped Fortunately, it's being offset by by cloud and five G. But we're still very optimistic on enterprise, which drives great margins for the company, great stickiness and I think will benefit from the hard work the team.
[noise] is put into really refresh the portfolio, we're seeing great traction on those products.
Thanks.
Yep.
Thank you.
The last question will take comes from Street perjury with S. M B.
Thank you thanks for squeezing man.
Jean I have a question on the cash usage.
I saw that the shower count has paired up a little bit in the quarter. Just wondering how are you thinking about the cashier usage as we could go into the next few quarters and maybe along the same lines Mat and then you guys have done a great job with M M.
Integrating some of the acquisitions and.
Now that you know the cashflows improving the balance sheet is pretty strong I'm just curious as to how are you thinking about I'm in there for the next 12 months you know what do you see out there in the market you know what kind of opportunities you're seeing and how are you thinking about it. Thank you.
Yeah. So I'm a cashing you say J for next <unk>, all business or continuing to generate a very strong free cash flow. If you look at the first hassle physical yet 2021.
Cash flow conversion.
Very significantly higher than a lot of 100% 90 income so I think certainly or going to be able to pay down our short term bad we choose it for 100 million and additional access cash. It we have the always being quiet can make it to return cash to shareholders.
Certainly the macro environment a steal.
But we definitely will monitor and a S. S E.
If we should make that at the Sherry appreciate the program. So that's definitely what where I can say dream.
Yep and I'll just conclude.
On the second topic, you you mentioned about M&A so.
Yeah, I think we're first of all we're very pleased with how the you know all the all the effort we put in in 2019, we've been awful lot as you remember, we we sold our Wifi business.
The NXP and then we purchased a quantity of error.
And we made those decisions candidly right kind of in the midst of the trade war and a lot of uncertainty and I think.
Collecting back we're thrilled right that we made those decisions I think both of those.
Acquisitions, we did last year performing better than we had anticipated when we announced them as you saw from our results I think the benefit of the Marvell platform from a cost standpoint is really enabled us to.
Run these two businesses that we acquired very efficiently.
While keeping Kiki technical talent and key management talent, which were we were thrilled to get <unk>.
So we like those kind of deals I think the prices paid we're very reasonable and certainly they they've really helped our company.
And so look we're in execution mode. At this point, we got a lot of design wins in front of US we're executing of five nanometer platform.
But we're always going to keep a lookout and certainly.
Very encouraged by.
The guidance, we gave in terms of revenue growth, but also if you even look at last quarter was the cash flow generation of the company I think you're starting to see that the company's got a tremendous leveraging that's operating model and can generate significant free cash flow as we grow and that's certainly set us up well if we were at a.
<unk>.
To go to go after but as you know we've been <unk> been very disciplined on this front.
Multiples are definitely high at this point, we got a lot going on so of course, we'll look around but right now I know myself in the team are plenty busy with executing our current initiatives that we've worked really hard to put together but.
We will see thanks city.
Thanks, Matt.
Thank you.
E as in Gentleman. This concludes today's conference call. Thank you for participating and you might know <unk>.
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