Q2 2022 Marvell Technology Inc Earnings Call
[music].
Good afternoon, and welcome to the Marvell technologies fiscal second quarter 2022 earnings Conference call. All participants will be in a listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero after today's.
Temptation, there will be an opportunity to ask questions. Please note. This event is being recorded.
Now I'd like to turn the conference over to Mr. Ashish Saran, Vice President of Investor Relations. Please go ahead.
Thank you and good afternoon, everyone welcome to Marvell.
For fiscal year 2022 earnings call.
Joining me today are Matt Murphy, <unk>, President and CEO and Jean Hu our CFO.
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 our actual results to differ materially from management's current expectations.
Please review the cautionary.
These statements and risk factors contained in our earnings press release, which we filed with the SEC today and posted on our website as well as our most recent 10-K and 10-Q filings, we do not intend to update our forward looking statement.
During our call today, we will refer to certain non-GAAP financial measures a reconciliation between our GAAP and non-GAAP financial.
It is available in the Investor Relations section of our website.
As discussed during our prior quarter's earnings call, we have implemented a change in how we report revenue.
Starting with the second quarter of fiscal 2022, we are starting to report revenue by our five and March.
In our earnings press release, we issued earlier today, we have provided.
Medical end market revenue data by quarter, starting with the second quarter of fiscal 2020.
In this press release, we have also provided revenue results by product group going forward, we intend to only report revenue by end market in today's call macro comment briefly on our revenue performance by product group for the second.
His thunder before transitioning more southern discussion to our results and expectations for each of our five end markets with.
With that I'll turn the call over to Matt for his comments on our performance map.
Thanks, Ashish and good afternoon, everyone I will start with a summary of our second quarter GAAP results.
Revenue was one point 706.
$4 GAAP gross margin was 34, 6% GAAP operating loss was $267 million and loss per diluted share is 34.
Building on the strong results we delivered in Q1, our second quarter results, which include a full quarter event phy or equally robust driven by strength in our diversified.
Billions gets and continued focus on operational excellence.
Revenue for the second quarter exceeded the midpoint of our guidance and grew 29% sequentially and 48% year over year.
I'm now going to review, our non-GAAP results for the quarter.
Non-GAAP gross margin to 64, 8%.
80 basis points better than expectation.
Non-GAAP operating expenses were lower than expected.
We delivered $331 million and non-GAAP operating income revenue non-GAAP gross margin and non-GAAP operating income were all record achievements for marvell.
Higher revenue coupled with stronger.
Non-GAAP gross margin and lower Opex drove non-GAAP earnings per share to <unk> 34.
<unk> above the midpoint of guidance non-GAAP EPS grew 62% year over year.
Our non-GAAP operating margin climbed above 30% demonstrating significant operating leverage in our business model.
In the second quarter, the Standalone barbell business delivered solid year over year revenue growth in the high teens on a percentage basis similar.
Similar to the growth rate, we saw in Q1.
Im also pleased with the strength of our <unk> business, which delivered revenue above expectations and was accretive to our non-GAAP earnings in its first full quarter within marvell.
On.
The product group basis networking revenue was $702 million above the midpoint of expectations and grew 41% sequentially.
73% year over year.
Storage revenue was 342 million also above the midpoint of expectations and grew 13% sequentially and 18% year over year.
Our.
Our storage business, which I would note does not include any contributions from <unk>.
It is now running at an annualized revenue run rate of approximately $1.4 billion.
This business has been growing double digits year over year in recent quarters.
Reflecting its remarkable transformation from significant PC exposure to now being focused largely.
Largely on the data center.
Based on the significant improvement in the mix of end markets combined with design wins, we have secured for our SSD controllers.
<unk> controllers and pre amps, we expect our storage business to continue to grow strongly over.
Over the next several years.
Let me now move on to discussing our five end markets I'll.
I'll start with a recap of the substantial improvements we have driven over the last few years and focusing the company on data infrastructure, which is evident in the historical data we have provided today.
As a result of our strategic multiyear transformation, we have significantly increased our exposure to the data center and carrier end markets, which are characterized by long product life cycles.
Key design wins and multi generational engagements at the same time, we have substantially reduced our dependence on the consumer market.
Which tends to be more volatile with shorter product life cycles.
The consumer market is now only 15% of our total revenue factors contributing to this change includes significantly higher growth we are driven from the.
Other end markets are de emphasis on PC, HDD and SSD controllers, and the sale of our Wi Fi business.
In Sharp contrast, datacenter is now our largest end market and at 40% of total revenue is about twice as large as any of our other end markets.
We believe that data center is positioned to become an even bigger part of.
Marvell over time, when we combine our growing market share with a numerous secular growth drivers in this end market.
Over the last few years data center has become our most diversified end market with revenue contribution from nearly every marvell product line.
Cloud is the primary growth driver in this end market and it's exciting to note that cloud now represents more.
More than half of our datacenter revenue, making cloud on its own larger than any of our other four end markets.
We have grown our datacenter business through organic investments and our near line HDD controllers and pre amps.
<unk> controllers as well as significant M&A.
We added <unk> liquid I O and liquid security Gpus, which had.
<unk> been adopted by multiple cloud customers. The avera acquisition added a custom ASIC platform, which coupled with marvell, leading standard product IP.
This has proven to be extremely compelling to hyperscale customers, who are building custom hardware to deploy incredibly efficient and optimized infrastructure.
We recently added an <unk> market leading electronics.
Optics portfolio for high speed connectivity, both within and between cloud data centers.
Finally, the proposed acquisition of <unk> will add their cloud optimized Ethernet switches to our data center portfolio of products with the <unk>.
Broadest technology platform in the industry, we believe marvell is well positioned to become a semiconductor leader in data center.
Expect this end market will be the most important growth opportunity for the company over the next several years.
And carrier infrastructure, we've been significantly growing our dollar content base station, winning new customers and growing our overall market share in the <unk> market.
Just over the last two years, our carrier revenue has nearly tripled.
And running approximately 20% of our total revenue.
We expect a sustained period of strong revenue growth from this end market driven by an increase in <unk> deployments, which are still in the early stage worldwide adoption and the ramp of our full platform of <unk> products at multiple customers and their current generation of base stations.
We are also when additional sockets.
Five nanometer, which will go into production next and next generation base station launches over the next several years extending the growth from our carrier end market over a long time period.
The enterprise networking end market comprises approximately 20% of our total revenue.
The revenue contribution from this end market is growing rapidly.
And kept pace with the strong growth in Marvell total revenue over the last few years. This is a solid accomplishment against the backdrop of a challenging end market dynamics in.
In fact over the last two years.
Our enterprise revenue has grown at a 23% annual CAGR with the majority of the growth coming from Standalone Marvell Ethernet.
Switch and Phy products.
Refresh platforms have been instrumental in driving outsized revenue growth a testament to the competitiveness of our products and technology.
We believe that we are well positioned to continue outperforming the market and.
And we're looking forward to a recovery in enterprise spending that would serve as an incremental tailwind to this business.
<unk> revenue from the automotive and industrial end market has begun to accelerate recent quarters benefiting from the ramp in our auto Ethernet connectivity business.
Our automotive business is in its early stages of growth given our design win traction and the growth expected in the adoption of Ethernet technology in cars, we expect the revenue contribution from this end.
That market will become a larger portion of our total revenue over time.
Let me now move on to discussing our second quarter results and third quarter expectations for each of our end markets starting with data center.
And our data center end market revenue for the second quarter was $434 million growing 57.
Percent sequentially and 62% year over year.
Strong growth was driven by contributions from the acquired <unk> business and ongoing growth from our Standalone Barbell Biz.
Cloud customers drove the vast majority of the growth in our data center end market.
Our electro optics products continued to benefit from the adoption of Pam based connectivity.
<unk> insight cloud data centers as well as the adoption of Dci data center interconnect between regional locations.
<unk> and storage products also contributed to growth in this end market.
Last quarter, we discussed a number of significant design wins, leveraging our advanced technology platform with multiple cloud customers.
Across a variety of applications and business models is there expected to drive a substantial step up in our cloud revenue in the calendar 2024 to 2025 time frame.
<unk> is in full swing on these projects and I am pleased to report that our cloud design win momentum continued this quarter with an additional custom ASIC design secured for our cloud.
Networking application.
We expect to continue to win sockets and gained share in this market.
Bridging the strength of our portfolio and growing engagements with key cloud customers.
In our third fiscal quarter, we are expecting another strong performance from datacenter projecting robust sequential revenue growth in the double digits.
On a percentage basis.
We expect year over year growth will be considerably higher in project datacenter revenue to just over double from a year ago.
We expect the sequential growth to be driven by cloud with virtually all of our product lines contributing to growth.
I'm also pleased to note that in the third quarter, we expect to start ramping our second generation of colors. The Dcs.
Products 400 gig ZR into volume production.
With our proposed acquisition of <unk>, we are looking forward to adding their cloud optimized switches tomorrow bells broad data center portfolio. We received very positive feedback from multiple key customers. Following our announcement of the planned combination. They are excited about the prospect of collaborate.
<unk> worked closely with us once the acquisition closes to address their need for high performance switches going forward.
Turning to our carrier infrastructure end market revenue for the second quarter was 197 million growing 17% sequentially and 38% year over year.
In addition to the contribution from IND by year on year growth.
Growth was enabled by a standalone bar bells wireless business.
Our wireless revenue growth was driven by ongoing deployments of <unk> as well as product ramps at Samsung and Nokia, partially offset by an expected decline in custom asics shipping into China.
Design win progress continues in <unk> and I am pleased to report that we had wanted to next.
Generation ASIC design, leveraging our five nanometer technology platform within the radio units key base station customer with this win we have now secured five nanometer designs. That's three tier one base station customers are Oran and DRAM platform, which includes our card base layer. One accelerator also continues to be adopted by multiple cloud.
Customers and wireless base station Oems.
In the third fiscal quarter, we expect sequential revenue growth from the carrier end market driven by strong growth from wireless partially offset by a decline from wired we project strong growth in wireless and the double digit sequentially and on a percentage basis to come from an increase in <unk> deployed.
<unk> in multiple regions. In addition, we expect growth from <unk> to significantly accelerate in the fourth quarter.
On a year over year basis for our carrier end market. We project strong revenue growth to continue above 20% in the third quarter.
Moving onto our enterprise networking end market.
Revenue for the second quarter.
There was $223 million growing 27% sequentially and 41% year over year with the majority of the growth coming from Standalone Marvell products.
This remarkable level of organic growth in the enterprise end market was made possible in part by a strong effort from our operations team to address pent up customer demand, while we expect.
Strong demand to continue for the foreseeable future, we expect supply constraints will impact our ability to sustain this level of revenue attainment in the third quarter.
From a product perspective growth in the second quarter was driven by our Ethernet networking portfolio benefiting from ongoing share gains and the beginning of multi gig adoption.
We are also encouraged.
By strong demand for our products from customers that we believe indicate a recovery is underway in this end market.
Looking ahead to the third quarter, while we expect a sequential decline in revenue due to supply constraints, we anticipate strong year over year growth approaching 30%.
Turning to our automotive and industrial end.
Market.
Revenue for the second quarter was 57 million growing 24% sequentially and 125% year over year, driven by the ongoing ramps in our auto business.
Marvell continues to gain recognition from customers for its commitment to automotive grade quality and reliability.
During the quarter, we received a prestigious.
Global supplier award from the Bosch Group and recognition of Marvell is outstanding performance and quality in the manufacturer and supply a leading edge data infrastructure semiconductors.
We are looking forward to our continued partnership and long term collaboration with Bosch on our broad and growing group of automotive customers and partners.
Turning to the third fiscal quarter, we expect our revenue from the auto and industrial end market to grow sequentially.
Year over year, we project growth will continue to be very strong.
And expect revenue to nearly double in the third quarter.
We also expect to attain an important milestone in the third quarter, our automotive business is projected to cross over $100 million.
Annualized revenue run rate earlier, the prior expectations.
Moving on to our consumer end market.
For the second quarter was $165 million declining, 1% sequentially and growing 23% year over year.
Most of the revenue in this end market is from Standalone Marvell and strong annual growth was driven primarily.
Merrily by our custom DIY SSD controllers.
Looking ahead to the third quarter, we expect revenue to grow sequentially or year over year revenue growth will remain strong in the double digits on a percentage basis.
In closing, we expect our business momentum to gather strength in the second half of fiscal year 2022 Ah recently.
Recent results and near term expectations for revenue growth continued to trend above the high end of our target model.
And for our products continues to significantly outpace supply and our global operations team is aggressively securing more capacity.
We're working closely with our supply partners, leveraging our scale and balance sheet to improve our ability.
To be strong secular growth in demand, we expect for our data infrastructure products, both in the short and the long term.
For our third fiscal quarter at the midpoint of guidance, we expect revenue to grow 6% sequentially and 53% year over year.
We expect growth from the Standalone marvell business to accelerate to over 20% year over.
Over a year in the third quarter compared to the high teens, we achieved in the first half.
Additionally, we expect the <unk> business to continue to perform well.
And grow faster than Standalone bar Bell.
Our integration of <unk> is proceeding very well and we successfully achieved our one ERP milestone ahead of schedule.
Leveraging the larger scale and broader set of key technologies. The combined teams are working closely together on winning new opportunities at multiple tier one customers we.
We are also looking forward to completing the proposed acquisition of a Nokia, which will broaden our Ethernet switch platform and further increase our exposure to the fast growing cloud data center market.
I'm also pleased.
We will be hosting our investor day. This year on Wednesday October six 2021 at eight am Pacific similar.
Similar to last year. This will be a virtual event webcast live on our website, we will provide more event details in our press release shortly.
With that I'll turn the call over to Jean for more detail on our recent <unk>.
<unk> and outlook.
Thanks, Matt and good afternoon, everyone I will start immediately.
Financial results for the second content and then provide our outlook for the third content on fiscal 2022.
Revenue in the second <unk> recent 1.0.76.
To announce.
11 million.
Pulling them for guidance.
<unk> presented a 65% and then final Randy <unk>. Thank you.
Revenue from their company, just one 3% of Randy.
And so Ashish mentioned earlier stacking maintenance.
And third the content will only be positive revenue by our time and Mackie to provide in Mt.
The key growth drivers.
Yes.
And the cross matching which is 34, 6%, which includes <unk> and then <unk> inventory and other costs.
Gross margin was 64, 8% revenue base.
Basis points above the midpoint of guidance, primarily due to a better mix.
GAAP operating expenses were 630 HDD.
Non-GAAP operating expenses were 366 million.
Approximately $6 million below the needle pulling for banking.
Primarily due to faster than expected the insight synergy achievement and disciplined Opex management.
I'm confident our team will achieve the remaining integration synergies based on the plan we discussed in last content.
Given the significant growth opportunities ahead of US we are turning our focus to ensuring continued investment to support our long term profitable growth.
As a reminder, our operating expenses can vary quarter to quarter and affected by factors such as the number.
Number of tape outs, the ban on particular projects and these are big.
<unk> more expensive in newer process geometry.
The kagan sofa, and R&D payment, which we treat as a contra opex can also add variability.
Our GAAP operating loss was 200.
Great and a $67 million non.
Non-GAAP operating profit was $331 million or 38% of revenue.
For the second quarter GAAP.
GAAP loss per diluted share was <unk> 34.
Non-GAAP income per diluted this year was 34.
Now turning to our balance sheet during the quarter cash flow from operations was $222 million.
We returned $49 million to shareholders through dividend payments.
Our long term debt was $4.7 billion, our gross debt to EBITDA ratio was three four times.
And net debt to EBITDA ratio was three times.
Inventory at the end of second quarter was $416 million.
We amortized 156 media and also the implied inventory step up cost in the second quarter due to purchase price accounting and we anticipate.
Amortizing the remaining balance over $70 million by the end of the third quarter of fiscal 2022.
Now turning to our guidance for the third quarter of fiscal 2022. Please note. This guidance does not include any contributions from the pending acquisition of.
In OEM.
We are forecasting revenue to be in the range of 1.15 billion plus.
Plus or -3%.
We expect our GAAP gross margin in the range of 46 point to 3% to 48, 3%.
We project, our non-GAAP gross margin will be in the range of 64% to 65%.
We project, our GAAP operating expenses to be in the range of $584 million to $594 million.
We anticipate our non-GAAP operating expenses to be in.
The range of $365 million to $370 million.
We expect non-GAAP tax rate of 5% we.
We expect our basic weighted average shares outstanding will be $824 million and our diluted weighted average shares outstanding.
We will be $800 or 41 week.
As a result, we anticipate a GAAP loss per share in the range of <unk> <unk>.
Plus or minus <unk> <unk>.
We expect non-GAAP income per barrel this year in the range of 38.
Our minus three.
Operator, please open.
<unk> and announced Q&A instructions. Thank you.
We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone if youre using a speakerphone. Please pick up your handset before pressing the keys.
To withdraw your question. Please press Star then two.
In the interim.
A time, please restrict yourself to one question only if you have additional questions. Please rejoin the queue. At this time, we will pause momentarily to assemble our roster.
Our first question will come from John Pitzer.
With credit Suisse. Please go ahead.
Yes, good afternoon, Matt Jean Thanks for let me ask the question and congratulations on the solid results that relative to your enterprise commentary you talked about supply constraints impacting the October quarter I am wondering when you look at the overall business Holistically, where are things relative to the supply side of the equation.
<unk> are you still unable to ship to full demand by sort of what amount and earlier this week.
There are some rumors in the popular press of the foundry guys raising pricing I'm just kind of curious if.
You guys have embedded that into your gross margin guidance and how youre thinking about kind of the current inflationary pricing environment can you pass that on.
Or is that something that you can't pass on.
Yes, great. Thanks, John So with respect to enterprise, let me just frame it at the whole company level, we're still carrying a pretty meaningful levels of delinquency.
Across all of the end markets.
As our business has accelerated in terms.
A topline growth.
<unk> been very pleased at.
I guess the downside is that the demand has continued to grow.
Well I guess, that's a good thing the demand is growing faster than supply, but we need to catch up so.
So enterprise is impacted but so are the other end markets, although I would say given the complex nature of our network.
Working products, there's we're carrying relatively more.
We're relatively farther behind there we were pleased that we were able to have a strong performance in Q2 and catch up because as you can see there was a fairly meaningful step up in revenue most of that is coming from organic standalone marvell there.
There's some contribution from <unk>, but it's not.
That is.
It wasn't large for an <unk>. So so this is all this is all marvell in fact, when you look into Q3 and our guidance it still implies a 30% year over year growth rate in enterprise. So we could ship a lot more if we could get the products.
And I think you can also view this as another sign that the enterprise business, which we had been saying a quarter or two ago could be a real tailwind for the company. It's.
This business is definitely picking up both at the end market and demand level as well as our own design wins layering in so we're going to be working hard to increase.
Is here and catch up on the delinquency.
On the foundry side.
And just in general with the pricing environment.
As you recall there was a lot of commentary at the end of last year and early this year from all the major <unk>.
Connector companies relative to the supply chain.
Cost increases that have been occurring on an ongoing basis, and that's everything from foundry to backend to substrates.
We said earlier this year, we were able to work.
With our customers on that and so as you can see in our and our margin performance, we've been able to work with.
Them to <unk>.
Pass that on and we've done that pretty fairly and in a neutral manner.
I anticipate as we head into calendar 'twenty two.
There will be additional increases across the industry and input costs.
And I'm confident as part.
Marvell, we're able to work with our customers again neutralize that that impact, but the key focus we have right now John is.
Planning our business together, focusing on long term supply and making sure that not only can we meet the short term but also.
Engaging multiple.
Term agreements, where we really have.
Much stronger visibility to long term supply. So that's been the priority for us that's been the priority for our customers.
And.
I think the pricing has been has been second at this point.
Helpful. Thank you.
Yes.
Our next.
Question will come from Ross Seymore with Deutsche Bank. Please go ahead.
Hey, guys. Thanks for letting me ask the question and Echo the congrats on the results that I wanted to go a little bit into the carrier business you talked in your press release about the <unk> business accelerating in the third quarter and then taking us.
I think you've called it a significant step.
Step up again in the fourth quarter can you give us just a little bit of a ballpark how much of your carrier business is that what's driving that <unk> step up and I guess as kind of a bit deductive logic whats driving the step down on the wired side implicit in your fiscal third quarter guidance.
Yes, great. Thanks, Ross Yeah. So.
Wireless is performed.
Very well for us historically as you recall, we had seven straight quarters of sequential growth in our <unk> business.
That took a pause.
Past quarter, which we had signaled.
With the with the China <unk>.
Digestion.
And then on the positive side, we see that business.
Re accelerating and growing in Q3, and then even more in Q4 that that primarily on the back of.
New design wins that we had achieved several years ago ramping into production and those geographies that are being serviced through those are primarily.
So.
Non China. So that's really part of the now the global rollout, which we are well positioned with with our our key customers. There. So it is a combination of global rollout plus new content kicking in which we had been signaling for some time, so that's all going well.
The balance as you mentioned.
<unk> wired that business historically it wasn't wasn't terribly large for marvell, we picked up some some wired revenue from <unk> really in the coherent franchise.
Which does link in some ways to the growth of global data traffic. So we feel good going forward about the wired portion that's.
And thats, the <unk> piece, but in general that business.
Is it lumpier that business also has pretty significant supply constraints around it as well and so I would say the traditional marvell wired business isn't isn't necessarily a growth business the carrier business over time will be driven by.
By the wireless portion as well as some of the <unk> business and just big round numbers. The wireless portion is roughly half the carrier number and that will grow over time, obviously is wired probably stays flat ish.
Without in Phy in Fi will grow and then and then obviously.
<unk> Rollouts will really be what's going to drive the carrier growth over the next few years.
Thank you.
Okay.
Our next question will come from Vivek Arya with Bank of America. Please go ahead.
Thanks for taking my question.
Matt you're guiding Q3 sales up by.
The <unk> 69 to 70 million, 6% or so.
Is that really the absolute dollars of supply equivalent that is becoming available.
And if that is the case is that the range of supplying dollars that could be available for the next several.
Quarters them, so I know you.
<unk>, adding more than a quarter out I'm, just trying to get a better sense for how many supply.
Kind of becoming available for the next handful of quarters, because it seems like that is really what's going to gate.
We assume from a growth perspective for you over the next several quarters and I think part B of.
On the <unk> side.
You alluded to that ramp in Q4, but that would be incremental to that kind of supply available or do you think that is kind of captured in indoors. So just trying to get a better sense for what the flex is flex is on the supply side over the next handful of quarters. Thank you.
That sure, yes, I mean, I think it's fairly.
Straightforward in terms of how we think about the.
The guidance and just the broader commentary that we gave which.
Very much comprehend the supply that we see available and we're we're obviously been pushing hard to increase that and I would note we have any.
Increase that if you look even going back to a.
A year ago or more even at the beginning of calendar 2020.
We started growing the company.
Double digits in that growth rate for the for the Standalone Marvell.
Has actually accelerated rate it was in the double digit.
Range now you get to the first half of this year, we had 17% kind of.
Growth both in Q1, and Q2 and the standard in the Standalone Marvell business. We've said that that's going to pick up in Q3, right more like 20% year over year and and we expect that we can continue going.
Going at that kind.
Right. So we've been actually accelerating our ability to.
Get supply and then on top of that.
Got inside kicking in which has also been able to grow their business meaningfully so.
We've been signaling for quite some time to our supply chain and our suppliers that we have we have we have needs.
And here they are and so you should expect we're going to keep working on that and we're going to keep driving the supply higher as available.
I think a lot of productive discussions.
And negotiations with our with our key suppliers not only for this quarter next quarter, but next year and even.
<unk>.
Even beyond in terms of really lining up where we see our business heading the advantage I think we have over some of the other industry peers for perhaps is that our product life cycles vivek in the data and data infrastructure are very long. These are typically five sometimes seven.
Lifecycle, so we've got very good visibility.
And so we're in those discussions right now both this quarter next quarter blocking and tackling as well as planning our calendar 'twenty two and then even planning out even further with some long term agreements, we're putting in place, but just to circle back to your to the main question Yeah. Everything we give you is.
Year around what we can actually supply there is like I said every every one of our end markets.
We could we could ship more right now if we could get the parts.
Okay.
Our next question will come from Blayne Curtis with Barclays. Please go ahead.
Hey, good afternoon, and thanks for your question.
Center thing.
The segment guidance.
Just curious on you mentioned another cloudy when that can span a lot storage <unk> networking out maybe optical so I'm wondering if you give me any.
Any color on that one or maybe just in general all of these wins that you've had where youre seeing the most traction.
Across the whole age.
Question usability helpful.
Yes, sure Blayne, Thanks, Yes, I'd say, just if I frame it.
More broadly as you mentioned the dynamic is that the the ASIC and semi custom wins that we're getting.
<unk> across a broad range of applications. So it's all the above.
It's a cute there are everything from compute.
Ml AI networking storage.
And and.
I'm pleased with the breadth and it's across multiple.
Multiple customers multiple applications I believe in my prepared remarks on the one that we just secured.
Secured was actually in the networking area. So it's it's in it's in a bunch of different applications.
But it's all leveraging fundamentally Blaine the five nanometer technology platform that we introduced in the summer of 2020, which is leveraging.
All of the high performance standard Marvell IP.
Barclays.
That's all going very well and just as a side note on our five nanometer.
Programs are multiple products now that have taped out this year, we actually have first silicon on five nanometer coming back now imminently.
And we're very happy with all the benchmarking performance.
<unk> et cetera, I would also say that we're in a strong period of design win momentum primarily because we introduced the platform in 2020, there is a whole range now of.
Of RF Skus that we've been successful on closing on and that's not just in the cloud by the way. We also noted we won an important <unk>.
E <unk>.
Basic just recently and even across some of our other end markets. We've also secured some very important programs on five nanometer.
Yes, so I think the over time, what Youll see is a very diverse offering of cloud of.
Of custom and semi custom.
Sockets across multiple end markets and multiple applications.
Thanks, Matt.
Yes.
Our next question will come from tore Svanberg with Stifel. Please go ahead.
Yes, and congrats on the record results.
<unk> got 400, ZR is going to be ramping now.
Is that sort of in size.
Customer or are you starting to see ramps with multiple hyperscale or for that particular product. Thank you.
Yeah, what I'd say.
Detour is on 400 VR. Unlike.
The initial colors product.
Which was primarily at one hyperscale or the engagements are much more broad.
With 400, ZR and so.
I would say there are a number of.
Different design opportunities and wins that are at various stages of trials qualifications.
<unk> and production ramps, but we anticipate that 400, ZR will be multi customer multi year and a very important product cycle for marvell.
But there's probably there's one primary customer ramping now, but it's going to continue beyond that.
Understood. Thank you Matt.
Yes.
And our next question will come from Harlan sur with J P. Morgan. Please go ahead.
Good afternoon, and congratulations on the strong results and execution.
Look beyond Q3, and the growing demand profile for your products right combined with strong product upgrade cycles, you've got 400 gig in your Pam four optical business.
As you just mentioned and you're ramping new data center interconnect business and 400, ZR <unk> wireless as you've mentioned and continued strong demand for your near line HDD in enterprise SSD controllers.
Just at a high level sequential growth into Q4 does the team have the supply commitments for wafers.
<unk> and packaging substrates.
To drive quarter on quarter growth in Q4, if the backlog supports it.
Yes, thanks for the question Harlan.
We do we see increasing supply.
Each quarter.
Our backlog today.
De and firm purchase orders firmly supports that plus the supply that comes with it. So we do expect sequential growth in Q4.
And as you mentioned.
You outlined a number of growth opportunities. This isn't just going to be a Q3 Q4 type of phenomenon. Each one of these really carries.
Yeah.
Our talent calendar 'twenty, two and in many cases accelerates.
That's why I said earlier one of the prior questions.
Theres blocking and tackling in Q3 and Q4, but we've been really working for the last six months and detailed even longer on how do we lineup continued strong growth.
Into calendar 'twenty, two 'twenty three 'twenty four because this is going to be multi year in many of these engagements by the way are also multi generational. So we tend to transition from one platform to another and we're going to see that in our <unk> business. As an example, so yes bottom line is we do have supply lined up and we're going to keep working hard.
Ensure we can we can chunk away at that delinquency and we're very focused on customer sat at this point I think that's the main driving force of what we do right now Heartland is just make sure that we're not the long pole in the 10 that we're meeting what our customers need and that we're also planning our business together and I'm quite.
Hard to make with how that cooperation is going.
And I think we have a very very clear outlook for what we need to go get done in the next few quarters and through next year.
Yes.
Thanks, Matt.
Our next question will come from Serena, Missouri with NBC Nikko Securities. Please go ahead.
Please thank you Matt I have a question on the Hyperscale.
Business, obviously, you have several product cycles, you know 400 gig 400, ZR and you also mentioned deep use.
What I'm trying to figure out is that in many of your peers are also reporting very strong demand from hyperscale, so trying to understand to what extent Europe.
This is mostly structural versus you know also benefiting from some of the spending to increase in the cyclical factors. So as you can.
I'll go through the next few quarters as I guess some of the cyclical factors slow down just trying to figure out how should how we should think about your core business that goes into the hyperscale customers.
Your Bill think screening it's both so clearly.
The peer companies are.
There's probably one notable exception, but in general the peer companies are reporting very strong growth in hyperscale. So I think that is secular and I think that's very much happening.
If you just look at our organic.
Yes growth and you can you can do the math because you know sort of where we're in <unk> was a year ago is very very strong and in fact as I look to Q3, it's both growth from <unk>, but as you pointed out and it's not just <unk> from Marvell, It's also our networking products.
Fifth our storage products, we sell.
Organic a number of product lines, let's call. It 10, maybe 10 plus product lines, just going into cloud alone almost each one of those is up even sequentially in Q3, almost all of them are up and then if you look at year over year.
The growth in our datacenter business actually.
And cloud business from Marvell.
<unk> standalone would actually be even growing faster than the <unk> business, So and that's all on the basis of new new designs and new ramps.
<unk> to that so I think we've got both we've got.
Strong secular demand happening in the hyperscale, but it's our own unique cycles as you mentioned the transition from.
<unk> and <unk> to Pam and 400 gig and 200 gig intra datacenter the ramp now with 400 ZR the attach rate of DP use.
Attaching more and more as a percentage the Cpus.
And then <unk> got our own product cycles, whether they are new design wins in DIY.
Rich for flash.
It could go through the whole list, but it's I think that's the exciting thing about our portfolio, that's very differentiated in the semiconductor industry relative to the Hyperscale accounts as we have so many product lines very unique and very differentiated both within the silicon.
Store and in the software and firmware we provide.
And we're just at the early stages in some of these quite frankly in terms of the ramp cycle. So.
When you look at the guide we're going to be obviously our.
Guide for data center is about <unk>.
The rate of growth for the whole company just distribute acute.
Two to Q3.
And certainly we have very strong expectations heading into next year on the data center.
Got it very helpful. Thanks, Brian Yes.
Our next question will come from Ambridge, sorry about Saba with BMO. Please go ahead.
Alright, Thank you very much.
Silicon imagine Jim on gross margin.
Despite all the input costs.
You have been able to keep it to the higher end up to long term.
And Matt you made a comment about next year kind of expecting.
Additionally, non traditional.
Ongoing input cost increase so should we expect gross margin.
Okay, and the higher end of the range like you are guiding to or is there an offset in <unk>.
Do realize that there is a.
On the mix impact.
Help us understand how we should think about the overall gross margin.
And <unk>.
First you were very pleased with our strong Q2.
What kind of margin profile.
I think a long for that things that we discussed in the past and primary driver of our gross margin is really a product mix.
And what do we have been doing beta customers as Matt mentioned, we're working with the customers they really trying to minimize food.
The impact from all the input cost to increase but overall, if you think about the product portfolio. We have the datacenter as Matt just mentioned earlier and also enterprise in Q2, we see our enterprise business networking business are growing at 27% sequentially.
Although it's.
Significant performance on the product portfolio and the revenue side actually are very favorable to our cross match and fundamentally it could reflect channel for our investment and the IP. So I don't think that that will change because we continue to innovate to continue to invest to drive that.
And the top line revenue growth and so we're going to be in the range and that will continue to work with the customers to a set of priorities and to make sure we meet our customers need a <unk> and <unk>.
Nate we wanted to make sure our operating model continue to leverage it to expand operating.
<unk> clean power.
Got it James So we should assume at the higher end of the long termination rates given how the product mix is shifting more towards the rent Gisela that product makes it because we have a final end market quality over quantity and youre going to see the variability of the mix the change.
Frankly.
Paul.
What we discussed at 64% to 65 with <unk>.
Potentially you are going to see in the long term.
Thank you Jamie.
Our next question will come from Joe Moore with Morgan Stanley. Please go ahead.
Great. Thank you.
Hey.
Additional revenue classifications in the color there I'm curious how you're thinking about.
Building the development team are you going to focus on these end markets more or I noticed their storage controllers, I think going into four of the five segments or are you going to maintain vertical market focus on storage.
You have kind of a go to market and you just how should we think about this impacting not just the way we see your business, but how youre seeing internally.
Yes, thanks for the question Joe actually.
Pretty insightful so we.
We're a product company, we're a technology company, we're organized by by business units we have.
And then as business units and product lines in each of those is really responsible for driving technical excellence in everything they do product differentiation roadmap.
And that's going to continue what I would say, though is when I look at it my level and when we look at.
And this has been consistent for five years at a philosophy when I became CEO.
Which was that.
The semiconductor companies that have adopted a market based approach relative to looking at the R&D investment profile across its portfolio. Those companies that made that shift we're going to have the biggest lever.
Going forward I mean, I'm just I appreciate internally all the time, which is the market always wins.
So we had an era when I started in the industry, which was you just did parts as many parts as you can put them out of the data book you bite. The park's best part wins, there was a shift to hey go focus on customers find our customer sell a basket of products.
But in.
And it's really the end market.
Orientation and concentration, which ultimately drives your business and those that the shifting that mix is like one of the hardest things to do in business. Okay. You can sort of shift your product line moves.
<unk>, some investment around but to get it to flow through to the P&L.
Is really.
Tough and so I think one of the things when you just take a 30000 foot view Joe of what we've accomplished in the last five years.
Consumer when I joined was probably 70% to 80% of the revenue right. It's 15.
I think the total contribution from cloud and <unk> and auto was.
If it was 75 million Bucks a year, we'd be lucky okay.
It's like doing it's in the billions range today, so thats really where I have been taking the firm over the last five years through the M&A through all the investments through the R&D changes we've made so that we can achieve.
Mark and end market.
<unk> mix that really meets our long term strategy and we're not there yet we're I think we're pleased we've sort of unveiled this thing we were 40% in datacenter were 20% and carrier where 20% of enterprise. We've got this automotive thing thats growing really fast so that concentration now and where we want to be is very high, but but but the.
The key focus areas like cloud <unk> and auto those are going to continue to increase as a percentage of our total so maybe a longer answer Joe we organized by business unit, but we run the company and ultimately the capital allocation framework ultimately around the end market and even whereas the R&D going and it's it's a very.
Very rigorous process, we have internally and you can see the results over the last five years of what we've been able to accomplish with that framework.
Very helpful. Thank you.
Yes.
Our next question will come from Toshi Hari with Goldman Sachs. Please go ahead.
Thanks for taking.
Hello.
Yes, we're here sorry, thanks for taking my question Congrats on the solid results.
I realize it's still a relatively small portion of your business, but you talked about your automotive business exceeding $100 million in annualized run rate in Q3.
I was hoping.
Hoping you could speak to the breadth of that business today in terms of product technology customer mix and I guess more importantly, based on the design win pipeline.
You have in front of you today, how are you thinking about the growth rate going forward in that business. Thank you.
Yeah, great. Thanks for the question.
So the business today has been squarely focused in the in this.
Pretty radical change that's happened over the last few years with.
The internal networks of the car moving to either Ethernet based products and packet based networking and that's for a number of reasons that the design.
Today, our extremely broad and we've got something like 24, 20% to 24 car Oems not not models not not individual products, but the actual Oems themselves who are adopting.
Marvell Ethernet technology in many cases.
We elected to go sole source with us and those engagements primarily to ensure interoperability because as you add more and more.
<unk> module inside the car that you want to hook up via Ethernet you actually want to make sure that the link is is highly reliable.
We have wins, both with the established leading.
David one call it top 10 car Oems.
But also a very strong position in the emerging challenges all the EV startups, which when you add it all up and of course test was a big portion of it a big part of the number but there is like $7 billion to $800 billion worth of market cap tied up in.
New emerging entrants.
<unk> got <unk> got sort of the new guys that are designing our stuff and thats a call option on growth and then we have the established players as well relative.
Relative to the financial.
But the potential now we've said that we believe it's going to be about $1 billion market over the next few years and at our analyst day.
We.
So with line of sight to this being a multi hundred million dollar type of business.
That business has accelerated we had signaled last year that we were hoping to get to $25 million a quarter.
Existing the year.
Now that we're going to get there in Q3 and this business has got tremendous.
<unk> gained momentum and you can look at the data we provided now to see how far that business has come over the last seven eight quarters. Most of that growth that you see has been driven by the automotive contribution. So it's a big opportunity and I think that ultimately that $1 billion market. You go out 10 years there'll be probably $2 billion.
And we obviously hope we can.
Can get a big share of that so it's a big opportunity and I think the last point I would make is that it's really an entry now because it's such a key part of the car architecture.
We're very very focused now on.
Our applications outside of Ethernet, so compute applications.
Digital.
Networking products security and storage and we've really proven ourselves a final point, we've shipped millions and millions of units now in the cars. They are on the road.
We're running at an astonishing one DPM type of quality rate or actually less in fact, the most.
Most recent update our guide as we were in the.
Eight 900, ppb, which I can tell you, we're having a lot of experience in the automotive market, it's really hard to get under one and these products have been engineered extremely well we put in place like a world class automotive flow. So we can leverage that toshi for many other marvell technology.
Technologies and products outside of Ethernet and you should expect to hear more from us on this in the future.
Alright, thank you for the detail.
Yes.
Our next question will come from Gary Mobley with Wells Fargo Securities. Please go ahead.
Yes.
Couple of questions for Jean.
Jean I would assume that you're in sort of the sweet spot of the Opex synergy realization from the NPI acquisition Youre guiding for roughly $1 million sequential growth in non-GAAP opex for the third quarter.
And so just given all the different moving pieces.
And your investments in the synergies to be realized from <unk> is it realistic to think that you could see fourth quarter Opex dropped sequentially and then eventually tick back up in the first quarter per your usual.
First a year increases and then for the non-GAAP.
If I'm not mistaken your expectation is for it to increase.
Going forward should we think about that maybe one to 200 basis point annual increases going forward. Thank you.
Maybe the easy one first on the non-GAAP tax rate.
For next year, you'll probably come just model.
About 6%.
Because we do have a lot of the tax deductions as part of our merger with <unk> Phy. So that's the assumption you can model on the Opex right.
Team did a great job of two integrated the one ERP one quarter ahead of time so.
If you look at our synergy achievement, we outlined last quarter, we basically achieve it to one ERP one quarter earlier, so the opex. It came off in Q2, and then Q3 guidance.
Frankly, as I said earlier, we do see the pattern of our synergy achievement.
Just exactly the same as we outlined last quarter. So Q4 typically they are variability so for opex.
Thank you.
I will leave it to you to model aided by the from our perspective, we are quite confident to achieve the <unk> synergies at the same time.
Seasonality for all packs in Q1, you're absolutely right that typically Q1 because of payroll taxes at the Opex Awards step up I just wanted to make sure right and the team at my well, it's very thoughtful in managing Opex.
At the same time increased investment to drive that.
The seagram revenue growth, especially given the tremendous opportunities that we have.
Hydro flask.
Are going to make sure we invest but at the same time, we're always going to drive good revenue growth was significantly higher than the opex growth.
Thanks Gene.
Our next question will come from Chris Caso with Raymond James. Please go ahead.
Yes. Thank you. Good evening. My question is just a clarification of what concluded.
On the new segmentation, specifically for data center, and I think your comments with Apple.
More than half of that business was what's cloud base whats the.
The other half is that more in the area of health campus networking.
Clarify that.
And maybe you could talk to the relative growth rates of cloud versus the non cloud that youre expecting within the data center segment going forward.
Okay.
Yeah, I'll give you the definition then Matt can add.
On the on premise data center, that's part of the datacenter is really.
Frankly, it's our summer for the HDD business fiber channel business and the networking business. It's on premise data center, but the more than half of its actually clouded.
Data center matter kind of add them all.
Yes, sure so fixed figure this is.
Traditional industry standard servers hosts blips adapter cards enterprise mix things like that so that's that.
That business historically has been pretty flat.
And just to clarify the campus.
Networking products, that's in enterprise networking.
Most of the enterprise line, so we've gone through pretty carefully and just figure it out which.
What our revenue concentration is specifically in the enterprise on Prem side. So that we assume is going to be a flattish.
Dish business, it's been a flattish business.
It will have its ups and downs here and there.
All the growth is going to come from cloud and so.
As we mentioned it's over half.
Of the revenue today and even if you look to Q3 the acceleration in growth you see is coming from that portion.
And we are.
Expect the cloud to be.
Probably one of the biggest growth drivers of the whole company over the next few years.
I mean cloud alone is larger than <unk>.
Carrier larger than enterprise larger than consumer it's larger than anything else just just on its own if you had as its own line item.
Them and that should continue to see very outsized growth for the foreseeable future.
Thank you.
Yes.
Our final question will come from Quinn Bolton with need him <unk> company. Please go ahead.
Yes.
Okay.
Okay.
Line might be muted.
Okay.
Barely Quinn.
Yeah.
Alright can you hear me now.
Yes, there you go.
Okay Sir.
Sorry about that Matt was going.
To ask on the 400 ZR ramp how much of that business for Marvell will be.
Optical modules complete modules.
Versus just selling DSP to other module vendors and the reason I ask is if you look at your market share sort of buy DSP.
Sure do you think he may ultimately achieve.
Achieving zero.
Zero market, if you just kind of counting.
DSP.
Yes, I think youre asking some great questions. Let me, let me give you maybe a higher level view and then we've got as we mentioned at our analyst day coming up in October where youre going to be able to hear actually from the various executives running these groups.
<unk> and we'll talk in a lot more detail about about sort of the questions you're asking because that's fairly specific but at the highest level.
400, ZR is going to be a combination of both both modules as well as Standalone DSP is we've the team has lined up a number of partners.
Both for for the.
VR applications ZR plus there is an open version of that and then Theres also applications for this that are not Dci right that are actually in the carrier market and so.
There's a there's a broad opportunity here Quinn Besides just hey, we take the one hyperscale or we had we'd move into 400 ZR and then it's done it's not that at all.
And the initial ramp we are seeing.
Is based on modules.
We're continuing to be committed to that that's a good business for us, but the NPI team I think you've done a great job of lining up a broader ecosystem set of partners to drive DSP sales as well. So we can we will give more color.
All are on those dynamics, when we get into the Investor day, and we start talking more about our products and our technologies.
Thank you Matt.
Yes Youre welcome.
This concludes our question and answer session. Thank you for attending today's presentation you may now disconnect.