Q3 2022 Marvell Technology Inc Earnings Call
Good afternoon, and welcome to Marvell technologies fiscal third quarter 2022 earnings Conference call. All participants will be in a listen only mode should you need assistance. Please signal coffee specialists by pressing the star key followed by zero.
After todays presentation, there will be an opportunity to ask questions.
Please note. This event is being recorded I would now 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 third quarter 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 actual results to differ materially from management's current expectations.
Each of you to cautionary 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 do not intend to update our forward looking statements.
During our call today, we will refer to certain non-GAAP financial measures a reconciliation between our GAAP and non-GAAP financial measures is available in the Investor Relations section of the site.
We closed the acquisition of with Nokia on October 5th 2021. Therefore, there has also been reported today for the first quarter of fiscal 2020 to include the results from the <unk> business for 25 days of the fiscal quarter.
Revenue from the acquired <unk> business will be reported entirely within our data center and more.
Please note that the guidance we have provided for the third quarter of fiscal 2022 on August 26, 2021 had not including any expectations of results from <unk>.
The financial outlook for the fourth quarter of fiscal year 2022 provided today includes the expected results from the acquired <unk> business for the full quarter.
With that I'll turn the call over to Matt for his comments on our performance Matt.
Matt.
Thanks, Ashish and good afternoon, everyone I will start with a summary of our third quarter GAAP results revenue was one point to $1 billion, which was above the high end of our guidance and represents another record achievement for Marvell.
GAAP gross margin was 48, 5% GAAP operating loss was 33 million and loss per diluted share was <unk>.
Revenue grew 13% sequentially and 61% year over year, an acceleration from the first half of this fiscal year.
We saw great momentum in all five of our end markets with revenue growing both sequentially and year on year or.
Our datacenter carrier enterprise networking and auto industrial end markets, all achieved record revenue and performed above guidance.
Excellent operational and financial execution resulted in revenue, 6% above the midpoint of our guidance.
Our operations team continues to do a great job in sourcing incremental supply and we are starting to see the fruits of their labor.
Why was better than expected in the third quarter and we expect continued improvement as we move into the fourth quarter and next year.
The additional capacity has better positioned us to catch up to the growth in demand, which so far has outpaced increases in supply.
Moving on to our non-GAAP results for the quarter.
Non-GAAP gross margin was a record 65, 1% and we delivered $418 million and non-GAAP operating income.
Non-GAAP operating margin was also a record at 34, 5%.
Higher revenue coupled with stronger gross margin drove non-GAAP earnings per share 43.
13% above the midpoint of guidance.
Growing 72% year over year, which represents phenomenal growth and earnings.
These are tremendous accomplishments and I am very proud of the outstanding execution by our entire marvell team in driving such strong results.
Now move on to discussing our five end markets starting with data center.
And our data center end market revenue for the third quarter was $500 million growing 15% sequentially and 109% year over year exceeding our guidance.
Both the Standalone Marvell business and the acquired in Phy business delivered strong growth driven by robust demand from cloud customers.
I would note that our on premise data center business also grew sequentially and year over year.
Data center is our most diverse end market with multiple product lines contributing to sequential revenue growth. These include 200, 400 gig Pam for electro optics dataset.
Datacenter interconnect ZR modules, SSD, and HDD controllers cloud optimized <unk> and Ethernet switches.
In addition to strong end market demand. The majority of these product lines are also benefiting from the start of new product ramps, which we expect will continue to drive sustained growth.
As an example.
In our SSD business, we benefited from a strong ramp of DIY controllers directly to a tier one cloud customer.
Remember you heard at Investor Day, Marvell has been winning a large number of incremental cloud optimized silicon designs and these are now in development.
In addition, the design win funnel and level of activity on cloud optimized silicon engagements continues to accelerate.
<unk> recently won another sockets with our storage accelerator.
At our Investor Day, we discussed this new $500 million market for our storage business and cloud storage accelerators and disclosed our first design win with a cloud customer.
Now a key storage partner Chiacchia recently announced production availability of their nvme over fabric Ssds, which will also use our storage accelerators.
These are for Ethernet bunch of Flash systems designed for applications, such as artificial intelligence machine learning and high performance computing.
The Chiacchia ssds connect to the network fabric natively using Ethernet by integrating a marvell storage accelerator, which converts nvme into 25 gigabit Ethernet. We are excited to see this new opportunity takes shape with multiple customers starting to adopt our storage accelerates.
Turning now to <unk>.
During the quarter, we closed the acquisition, adding their cloud optimized switches to our broad data center portfolio.
We're pleased that company cofounder and CTO Puneet Agarwal, and the R&D team have become a part of Marvell.
We are confident that our combined switch business.
Businesses are now well positioned to be a strong provider of Ethernet switches to datacenters and we see an incredible opportunity ahead for marvell in this high growth market.
We expect the acquisition of <unk>.
And $150 million in incremental revenue next fiscal year, as we ramp switches into a large tier one cloud customer they had one prior to the acquisition.
We are also looking forward to supporting additional cloud customers such as linked in we're deploying in <unk> based switches in production across multiple data centers with the Sonic Network OS.
<unk> is an open network operating system, which provides cloud customers with more choice and interoperability as well as the ability to scale.
We recently announced our commitment to supporting Sonic across both our Prestero Antero Lynch products.
Moving on to our expectations for revenue from our data center end market in our fourth fiscal quarter.
Similar to the third quarter, we are expecting another strong performance led by cloud customers across a broad range of products. We expect data center revenue to more than double from a year ago, and we project sequential growth in the double digits on a percentage basis in the fourth quarter.
We are pleased with the strength, we are seeing from the cloud end market, which we expect will remain a strong driver of sustained growth for marvell.
Looking out further in time, we are also excited by the immense potential for another phase of growth as large scale virtual environments, such as Facebook is doing with their <unk> start to gain traction for.
For simplicity, while I will use the meta versus at the general descriptor for this discussion we expect many different implementations of virtual environment enabled by a broad set of companies and ecosystem.
Regardless of the form these environments take the datasets will be exponentially larger compared to the current internet, which is largely two dimensional and latency will need to be extremely low to realistically simulate a real world environment.
As a result, we expect the <unk> will significantly accelerate a number of key trends, which are already occurring in the cloud today, including the need to store huge amounts of data in a secure environment connected by high speed electro optic links to custom compute engines.
This next level of massive scaling makes the meta versus an even stronger candidate for cloud optimized silicon solutions that Marvell is currently enabling this.
This matches perfectly with our core competencies, we have already developed across compute storage security networking high speed electro optics, and customization, which are driving our current success and these are equally applicable to the variety of virtual environments, which will develop over time.
The <unk> also has the potential to be a killer app for <unk> another area of strength for Marvell.
Multiple cloud customers have already engaged with us as they start designing the architecture of their next generation of data infrastructure to enable a significantly richer set of virtual applications and experiences.
Turning now to our carrier infrastructure end market revenue for the third quarter was $215 million growing 9% sequentially and 28% year over year exceeding our guidance.
This was driven by our <unk> products ramping at multiple customers.
We were also able to improve supply for our wired business to enable sequential growth.
Looking at the fourth quarter, we expect a strong ramp in our <unk> business of approximately 30% sequentially.
And as a result, we project our combined carrier infrastructure revenue across our wireless and wired end markets to grow sequentially in the low teens on a percentage basis.
While year on year growth is expected to accelerate to over 40%.
It's exciting to see the step up in our <unk> business and we expect significant additional growth over the next several years as <unk> adoption continues to grow around the globe combined with Marvell content gains from designs, we have won but not yet again begun to ramp.
Moving onto our enterprise networking end market revenue for the third quarter was $247 million growing 11% sequentially and 56% year over year, but the majority of the growth coming from Standalone Marvell products.
This performance was significantly better than our expectations as our operations team did an excellent job securing additional supply to better address the increase in demand for our products.
From a product perspective in the third quarter the continuation of strong year on year growth was driven primarily by Marvell Ethernet networking portfolio.
We have been gaining share and benefiting from the very deliberate investments we have made in our enterprise Ethernet switch platform as well as the combined marvell and quantified portfolio in.
In addition, our content has been growing driven by an increase in multi gig Ethernet adoption.
Looking ahead to the fourth quarter for our enterprise networking end market, we project revenue sequentially to be up in the low to mid single digits on a percentage basis and year over year growth is expected to remain very strong at approximately 60%.
We expect this strong growth to be driven by continued share gains from marvell products combined with ongoing recovery in the enterprise networking end market.
Turning to our automotive and industrial end market, which has served primarily by Standalone Marvell businesses revenue for the third quarter was $67 million growing 16% sequentially and 114% year over year, driven by ongoing ramps in our auto business.
I'm pleased to report that our team is now driven our auto business to over a $140 million annualized revenue run rate in the third quarter ahead of our prior expectations.
We are benefiting from a faster pace of adoption of our Ethernet solutions by auto Oems, who are prioritizing the production of their latest models, which tend to have higher semiconductor content. We.
We are confident that we are well on our way to driving a multi hundred million dollar revenue stream from our auto net auto Ethernet business over the next few years.
Looking beyond connectivity, our next multibillion dollar market opportunity for Marvell is in automotive compute.
The future of technology in cars is all about electrification and intelligence with embedded security and onboard storage and a fully networked environment.
Similar to the rise of optimized silicon and cloud automotive Oems are realizing that to differentiate their products and deliver the most value to their customers.
They need unique technology and IP to be embedded in compute silicon optimized for their specific platforms.
You don't need to look too far to see evidence for this sea change.
Industry commentary, including from Ford and Volkswagen talks about their focus on developing internal silicon design expertise desire to customize off the shelf compute and their intentions to design and develop their own chips for autonomous vehicles.
Similar to our successful strategy of partnering with Hyperscale customers for cloud optimized silicon we are confident that our co development business model.
And rich IP portfolio is equally attractive to automotive Oems.
In this model the design is done and true partnership with the customer focusing on the portions proprietary to their platform and marvell, bringing our own unique compute security Ethernet networking and storage silicon IP to the table.
The end solution is a semi custom design, which represent the best of both worlds, allowing our customers to achieve their ambitions and retained control of their roadmap.
In doing so they can not only preserve their differentiation with a faster time to market, but it will also enable a lower level of investment banks to marvell.
We see compute becoming an increasingly important part of our growing automotive business, adding to our very successful Ethernet connectivity solutions.
Reflecting this broadening of our portfolio I'm very pleased to introduce <unk>, new brand for automotive solutions right Lane, which includes our gigabit and multi gigabit Ethernet switches and phys for connectivity and our ASEAN processors for compute.
At our Investor Day, we discussed our first major auto compute win based on our <unk> platform.
Custom design is now in development we.
We're seeing a significant increase in compute related activity with additional auto Oems, both traditional and new market entrants and I look forward to updating you on our progress in this exciting new long term growth pillar for Marvell.
Turning to the outlook for the fourth fiscal quarter for our auto and industrial end market, we expect strong revenue growth to continue.
Project sequential growth in the double digits on a percentage basis and year over year growth to remain above 100%.
Moving onto our consumer end market.
Revenue for the third quarter was 183 million growing 10% sequentially and 20% year over year looking ahead to the fourth quarter, we expect revenue to grow sequentially in the low single digits on a percentage basis and year on year growth in the double digits on a percentage basis.
We're benefiting from a strong from strong growth driven by our SSD controllers that we had targeted a differentiated sticky long lived and high ROI applications such as game consoles.
In closing, we delivered very strong results for our third quarter and we expect this momentum to continue in our fourth quarter and next year.
Both the acquired and Phy business and the Standalone Marvell business are firing on all cylinders.
In the third quarter, the Standalone Marvell business delivered strong year over year revenue growth close to 30%.
Phy business performed even better.
The midpoint of our guidance for revenue in the fourth quarter implies a similar approximately 30% year over year growth rate for each of these businesses.
We are proud of these results and our outlook for growth in the fourth quarter, which is which is well above the high end of our long term revenue growth target of a 15% to 20% CAGR.
Securing capacity for growth remains the highest priority for our operations team even as the supply expansion comes with an increase in input costs.
As we have done throughout the supply Crunch, we are working with our customers to adjust prices to offset the impact of these cost increases.
Let us jointly benefit from sustained growth.
As we look at next fiscal year, we will continue to drive supply improvements and we expect demand to remain above the high end of our long term target model.
As a result, we anticipate a sustained period of strong revenue growth for Marvell.
From a base of approximately $4 4 billion in fiscal 2022, we expect the combined marvell and in Phy business to continue growing in fiscal 2023 at the 30% year on year rate. We are currently achieving.
On top of this we expect an additional $150 million of revenue in fiscal 2023, resulting from the <unk> acquisition.
We are also excited about the setup for growth beyond fiscal 2023.
At our Investor Day, you heard us describe our participation in end markets collectively expected to grow at a 13% CAGR.
In addition, we have a number of growth drivers, which we expect will result in a revenue growing faster than our end markets.
We discussed our expectations for a step up in incremental revenue from the start of new design win ramps.
We updated our expectations for revenue from cloud optimized silicon design wins to ramp to $400 million in fiscal 2024, a year earlier than prior projections.
These wins are further projected to double to $800 million in revenue in fiscal 2025.
And <unk>.
Starting in fiscal 2024, we expect to benefit from an increase in content at Nokia.
When we start ramping our five nanometer <unk> embedded processors into their <unk> base station.
Over the same timeframe, our auto Ethernet connectivity business is expected to make significant progress towards driving revenue over $500 million annually and our electro optics Pam coherent ZR portfolio is also projected to remain on a high growth trajectory.
In summary, while we have been delivering strong results for multiple quarters. We are confident that we are still in the early stages of a sustained high growth period for Marvell and we're looking forward to reaping the benefits of the investments we have made in our business over the last few years.
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 Anthony to review our financial results for the third and then provide our time to actually look at the first quarter on page <unk> 2010.
Revenue in the third quarter analyst a one to one 1 billion exceeding high end <unk>.
Growing 13% sequentially and 61% a year.
Announced an application challenge that <unk> added approximately <unk> 5 million in revenue, which was not contemplated.
Agriculture.
Revenue growth with robust from all five of our end markets.
Data Center remained our largest end market at 90 plus percent of consolidated revenue.
Networking was the next largest maybe 20% of total revenue followed by Kerry Scott at 18%.
The 15% and auto industrial at 6%.
GAAP gross margin was 48.
Which includes many and position.
High inventory step up costs non-GAAP gross margin was 65, 1%.
Exceeding the high end of our guidance range, primarily due to mentioning.
And the market and revenue mix.
<unk> revenue from our enterprise networking and the market that was significantly better than our guidance.
GAAP operating expenses of $1 $621 million.
Non-GAAP operating expenses were 371 million, which included the 25 bank for.
Operating expenses of approximately $5 million.
That's all taking now listen thank you Jamie.
GAAP operating profit was 418 EMEA Vicki Fuller.
Thanks Danny.
And all time record demonstrating the strong language in our operating model, while we continue to invest for long term revenue growth.
For the third quarter GAAP loss per diluted share was <unk> <unk>.
Non-GAAP income per diluted share was 43 cents to the high end.
Yeah.
Earnings per share grew 26% sequentially and 17, 2%.
Year, driven by strong top line revenue momentum and the execution on both the gross and operating margin now.
Now turning to our balance sheet and cash flow during.
During the quarter cash flow from operations was unchanged and $65 million.
We can turn to <unk> interim CFO Dennis through cash dividends.
We paid down $151 million of our long term debt during the third party.
And so at the end of the third fiscal quarter, our long term debt with a full point IPD, our gross debt to EBITDA ratio was three times and net debt to EBITDA ratio was two seven times.
At the end of the data <unk> 629 meeting.
71 media analyst days inventory balance is from navin, including 42 million step up of cost to due to purchase price.
We anticipate amortizing this is step up cost over the next two quarters.
We have also increased our working process inventory to support the revenue growth that you're granting youll were forecasting.
In summary, the team executed exceptionally well in that rating accelerated top line growth and earnings expansion much faster than revenue growth.
Now turning to our guidance for the fourth quarter of fiscal 2022. Please note. This guidance include the effects to reach out from the <unk> just had a full quarter.
We are forecasting revenue to be in the range of one point to EMEA plus or minus 3%.
We expect our GAAP gross margin in the range of <unk> 47 in <unk>.
And <unk>, 8%.
We project, our non-GAAP across the margin will be approximately 65%.
This is Jack.
<unk> expenses at <unk> 630 <unk>.
We anticipate our non-GAAP operating expenses to be in the range and thats going to Henry to 19% to 890 finally.
Which includes approximately $15 million of Opex for the acquired <unk> business.
For the full quarter.
It's absolute also reflects increased investment to support the accelerating revenue growth that we're driving across the business, including the launch of multiple new projects tied to the design wins that we have in each caustic in prior quarters.
In addition, we're including a higher amount of bonus accruals, given our strong operating performance well above our plan.
As a manager.
I had two the first fiscal quarter of 2023 due to the typical seasonality in payroll taxes.
Our opex to increase from Q4 also fiscal year <unk>.
Sequentially on a percentage basis.
We expect non-GAAP tax rate of 5%.
We expect our basic weighted average shares outstanding will be 844 media.
And our diluted weighted average shares outstanding will be 861.
Estimates out we anticipate GAAP earnings per share in the range of <unk> <unk> per share on the low end to an income of <unk> put that Nokia on the high end.
Please note that income per diluted share in the range of <unk> 48.
Class all my emphasis.
Now, let me now close to maybe some directional comments.
We plan for the next fiscal year.
As Matt mentioned earlier, we see continued strong demand across our end markets and improvement in supply to drive our top line revenue growth.
30% in fiscal 2023.
This is how the policy near term and long term revenue growth, we are planning to increase our investment in land loans to a property today.
Annualized at the Middle point of our Opex guidance for Q4 fiscal 2022, which includes both <unk> and <unk> for the full period.
1.57 billion baseline Opex run rate.
From this baseline we are planning for Opex to grow in the high single digits on a percentage basis in fiscal 2020 to me.
Potentially lower that our top line revenue growth.
We are increasing our spending to execute any significant design wins and continue to drive the process technology leadership as well as aggressive.
Casino, a growing funnel of new design win opportunities within the large 30 bps than we discussed at our Investor day.
We are confident we will continue to drive strong and sustainable long term revenue growth and the Delever earnings expansion much faster than revenue growth in fiscal 2023 and beyond.
Operator, please open line and announce 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.
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At this time, we'll pause momentarily to assemble our roster.
And our first question will come from Blayne Curtis with Barclays. Please go ahead.
Good afternoon and great results.
Maybe just a question I know youre going to get a bunch on supply, but obviously it seems like the biggest swing factor in to the outside so.
Can you talk about that and maybe also just address the enterprise segment, but I think that was your biggest feed and you were thinking it would be down. So just refresh my memory in terms of why you thought it would be down and maybe just a perspective on.
Just supply in general you said that you are signing long term agreements.
At what point do you think you'll kind of get out from under the supply constraint.
Yes, Thanks, Blayne, and what I would lead off by saying because I think the two questions. You asked are interrelated, meaning the enterprise.
Strength, we saw was really as a result of.
Pretty big catch up in supply so on the topic of supply we're really pleased with the progress we like a lot of other companies.
<unk> have been.
It's been challenged to meet the this unprecedented demand.
And I'm.
Very proud to say that our team has responded.
Really well and so a couple of factors one is we've driven pretty big transformation in our operations group.
Part of that was.
Signing long term supply agreements I would say.
Equally meaningful though is with the strategic nature in which we have really engaged over the last nine months with our supply chain, our partners understand our opportunity as well as anybody now and they are really betting on us and they are betting on marvell that's helped a lot.
And it's just been strong execution by the team.
So when you add it all up.
Really what's happened Blayne as the demand has continued to be very very strong and thats continued even even till now it's really been a story of supply catching up in what I would note as supplies caught up.
A lot, obviously, but to be honest, we still arent really making a dent yet in the unfulfilled backlog that's out there. So it's a two edged sword on the one hand, it's great. We're getting more supply on the other hand demand continues to be very strong and we see that going into next year, but certainly we will we'll take the win in Q3.
Also the Q4 guide relative to the great job. Our team has done an enterprise as we noted at the last time was really we had.
We had a very nice Q2.
On enterprise and we were able to actually do just again to the team has done a great job to get the supply wind up to meet the strong demand and then if you actually look into Q4 <unk>.
<unk> got enterprise up up again.
And really the year over year story is what what.
Whats I think most impressive I mean, we're talking about 60% year over year growth projected in our enterprise segment, almost all of that is organic Blaine.
Well that will continue to grow next year. Thanks I appreciate it thanks.
Yeah.
The next question will come from Ross Seymore with Deutsche Bank. Please go ahead.
Thanks for letting me ask a question, Matt I wanted to dive a little bit into the.
Guidance you gave for fiscal 'twenty three there was a little more detailed than I had expected and it seems like youre exceedingly confident about the revenue growth side of it. So can you just talk a little bit more detail on it looks like about $5 6 billion in revenue given the math that you said, if we took the <unk> side out because we all have a decent idea of whats happening. There can you just talk about what the.
Biggest drivers of that growth is it going to be year over year, and if something happened thats increased your confidence in your ability to deliver that whether it be the supply side coming or if youre just willing to talk more about design wins that you have kind of dropping breadcrumbs to us about over the last few calls.
Sure I think there is a few factors Ross. The first is we did lay out our strategic narrative at the Investor day. So that was that was one setup, we tried to give investors relative to where the business was heading.
Second is is when we look into next year.
We certainly see the demand strength, continuing really across all segments. So that gives us a lot of confidence that data center Thats Phy Gee, that's automotive it's also enterprise and consumer those are backed up with.
Purchase orders that are in place today. So the backlog we have is very strong.
And I think the other point is we really want it and I really wanted to contextualize the growth that we're seeing in Q3 and Q4 on an organic basis with Marvell growing 30, <unk> growing 30 ish and that effectively continuing so that the investment community.
We understood that this wasn't a a short term bump, but rather part of a longer period of sustained growth, which we believe actually had legs. Even beyond next year and then the simple math and I'll, let Jim chime in but basically what we said is just take take the.
The pro forma $4 4 billion ish, we'll do this year if you take our Q4 guide.
We believe we will.
Yes.
We'll grow that 30% next year and then on top of that you would add in <unk>. So I think your number would be actually a little bit higher when we look out to next year.
Great. Thank you.
Yes.
The next question will come from Vivek Arya with Bank of America. Please go ahead.
Thanks for taking my question and congratulations on the very strong growth and execution.
I wanted to talk about the Opex side, if I look in the last year.
Youre basically.
Added almost $500 million in sales and Opex has just grown about $100 million and when I look at the guidance Youre providing for next year also that also suggest very strong leverage in the model and EBIT margins that can get into the high <unk>.
Im curious, Matt, what's helping drive that leverage how are you, adding almost a billion and a half plus and sales while keeping opex at these levels how sustainable is this.
Trajectory of expanding margins.
Sure maybe I'll start from <unk> actually why don't you start James go ahead yeah.
So if you looked at our investment level as we discussed during the Investor day, we have a strong language because not only our central engineering team really language across the all of the different end market, but we also focus on the cloud are optimized.
Silicon solutions, what can be the customers is helping to partner with customers to get customer funding true overall, if you look at the R&D investment we have been doing.
Class.
We get from customer actually into the significant demand here. So I would say our team significantly leverage the investment across our different advanced process node and also.
Cross default and the market that that helps out tremendously and if you look at all.
Opex the increase yes.
Yes of course that we acquired both the <unk> and the Inova and year over year actually.
Going to get to almost $1 7 billion.
Hi, Matt.
The positive model, we are focusing on our long term business model.
It's the language that helps out tremendously.
Okay.
Yes, I think that was well said by Jean.
Thank you.
The next question will come from Timothy Arcuri with UBS. Please go ahead.
Thanks.
Jean <unk>.
Inventory was up about $100 million if I exclude.
<unk> and you did talk a lot about this being with and the fact that you are taking with up given how much you think you can grow but I guess the question is really on your visibility on revenue and.
I guess I'm surprised you were able to build that much inventory and maybe you could talk about whether delinquencies got any better. Thank you.
Yes.
We have improved the supply significantly however demand continue to outpace the supply. So we have now committed spend on the delinquency we have as a company as Matt discussed earlier, if you look at your fiscal 'twenty three we see strong demand significant revenue ramp across all our end markets.
Our unique product cycles.
So 30% to over 30% year over year growth naturally.
Matter of fact, if we look into Q1 sequentially seasonally it will be down quarter by tariff will come.
<unk> Q1 fiscal 'twenty, three we actually see sequentially the revenue increase.
Approaching mid single digits.
The basis of a very strong guide for Q4, so the inventory depth, primarily they're all working process inventory to support not only Q1 revenue growth beyond the Q1 for the.
Sequentially.
Quarter over quarter increase in the in the next year to support the over 30% of topline revenue growth.
Thank you James.
The next question will come from John Pitzer with Credit Suisse. Please go ahead.
Yes, good afternoon, guys, congratulations and thanks for letting me ask the question.
One of the key strengths of your businesses is that the design cycles for a lot of your products are fairly long and fairly visible and I would argue that the revenue growth that you have confidence in next year notwithstanding some of the supply constraints was based upon design wins that you've had for a while.
Kind of curious can you talk about the design pipeline and the momentum in the design pipeline today, and how you expect it to progress.
For next year. My guess is it's going to continue to be strong if not accelerating that's the key.
Case, not wanting to get too far out in front of you. The long term growth rate you put out in the <unk>.
Analyst day, why wouldn't that just move up structurally higher for the quarter. Since you did that but if you could give us some sense of how.
How are you feeling around the design pipeline.
Yes, John It's a great question I think the way I would answer. It is you are correct and that the design cycles for our products are quite long actually but they also come with.
Very.
Very long visibility as well so the revenue that we've got for next year. Those are those designs are done I mean, they've been done for in some cases for a year as an example like in automotive.
So then you got to go back a couple of years and say well what is the design win funnel and pipeline closure rate look like say two years ago or three years ago.
What does that translate into what I would comment on is our design win funnel and close rate.
In the last three years has gone up dramatically each year.
And this current year, we're on track for our sales team is on track for a.
Beyond record design win capture so the design wins are growing each year that is a great leading indicator for us for sure and I think to your other question about the long term look we did our analyst day, we put out a long term model there will be ups and downs, if you take a long term view, but.
I think what we're saying is at least in the short term I E. Q3, Q4 also FY 'twenty three and we believe even beyond we can run above that model and.
And we're very bullish on our business.
Perfect. Thanks, guys congratulations.
Yes.
The next question will come from tore vendor with Stifel. Please go ahead.
Yes, Thank you and let me Echo Congratulations I had a question on <unk>, you're expecting 30% sequential growth in the January quarter could you just elaborate a little bit.
What's driving that I do know you have some some new customer design wins that are ramping in content growth.
Especially as we think of it from a sort of a regional deployment perspective.
Any more color you could share with us would be great. Thank you.
Sure Tori.
To your point, yes, we had.
Last quarter said and signaled that we anticipated a step up from.
From Q3 to Q4 in our <unk> business that we've we've quantified it which which we see it growing 30% sequential so great step up great validation of <unk>.
<unk>.
The thesis in that business and what's exciting I guess is it's primarily driven by new product ramps at at some of the key customers, particularly in the baseband area.
And then also geographies ex.
Ex China.
Deploying five G.
So and we see that growing pretty strongly throughout FY 'twenty three our <unk> business as we're highly diversified both by customer by geography that those customer service and then buy the content, which we have.
Most of which is still in front of US. If you think about one of our biggest opportunities is really the the transport.
Officer area, where we've won an additional customer we outlined a few years ago, that's going to ramp in 2023 calendar. So there is that there is a nice layering effect, but I would say, it's certainly nice to see a one quarter step up but we certainly see growth from here.
I mean, you've got you've got U S. You've got Europe, and there's a lot of optimism around India as well next year. So I think the geographic mixes in our favor as well.
Thank you for the color.
Okay.
The next question will come from Harlan sur with Jpmorgan. Please go ahead.
Good afternoon, and congratulations on the strong results and execution.
I would assume that 16 nanometer is sort of the workhorse volume technology now.
<unk> seven nanometer products ramping strongly where you've got 204 hundred gig Polaris and Kareem up for products.
You've got your Canopus seven nanometer DSP for data center interconnect ramping.
And then on top of that your five nanometer pipeline is quite strong what do you think you guys said at the analyst day.
You have 20 tape outs over the next 18 months and I think the team has already been sampling a number of different five nanometer products.
So when does the team expect five nanometer revenues to become a material part of the revenue mix of the calendar year 'twenty two is it more likely 'twenty three.
The first meaningful five nanometer revenues is going to be more cloud focused on carrier focused.
Sure Harlan Yeah I think.
Frick frame frame your question around.
Process technology roadmap, whereas marvell today, and you're right. Some of those examples are spot on relative to some of the optical components.
Et cetera, but we've got a diversity of process technologies that we use some of those came from different acquisitions, but you're in the ballpark I think where it leads to is really five nanometer where.
In the case of the kind of classic Marvell business, we effectively skip seven right. So there is a there was a big investment in.
That is going to be led by carrier and <unk>, that's where the initial ramps will occur.
Those products are getting ready to go to production. So we will see revenue in calendar 'twenty two on five nanometer.
Our Aki on.
Products.
But that's the initial ramp phase that will really kick in more in 'twenty three 'twenty four and then you'll see some of the GPU products.
And then a whole host of other five nanometer products really hit the market kind of in that 'twenty two 'twenty three time frame.
Effectively the entire company roadmap.
<unk> has converged on this five platform from storage and networking to even the in Phy business is going to going to move there and take advantage and so a little bit pursuant to <unk> question earlier, we just we get tremendous leverage out of this process and technology platform that we've put together that we add.
We articulated even a couple of years ago at our 2020 Investor day, and that's really paying dividends relative to managing the opex efficiently and being able to tape out a significant number of designs in five nanometer that are going to last for a very very long time.
But certainly it will be <unk> first then carrier and then youre going to see all the other markets enterprise automotive optical you name. It. So this has got a lot of legs behind it.
Great. Thanks for the insights.
Welcome.
The next question will come from C. J Muse with Evercore. Please go ahead, yes.
Yes. Good afternoon. Thank you for taking the question I guess I wanted to clarify.
The supply side and then.
Just a question on auto so on the supply side as you indicated in terms of roughly $5 9 billion.
Fiscal 'twenty three are you, saying that you've secured that it meant so more or can you give us.
Some clarity there and then.
Your commentary on the auto compete said very intriguing.
We'd love to hear more on that in terms of.
How we should thinking about the timing of sort of initial design wins and when that should start to materially hit the model. Thank you.
Sure Yeah on the first question on supply, yes, we feel good about that that range. We gave for next year certainly there is still a lot of moving pieces and we've got a lot of execution in front of US. This is not a lay up things have not eased up it's not it's not like all of a sudden suppliers loosened then what I would say is.
That debt.
The growth next year really just comprehend is kind of keeping up with demand there's still there's still going to be some unsupported backlog probably that we will.
We can't quite get to so we're working on that as a potential as well, but we certainly feel good about the 30% growth and that growth rate, continuing which is really where we were in Q3, that's where we're going to be in Q4, and what we're saying is we anticipate we can keep growing our revenues at that at that rate and when you look out to next year.
But obviously, we're going to try to do even better on the automotive compute side, yes, it's pretty new it's a little bit like some of our other markets, where we gave some initial indications as we were gaining traction and then the story evolves from there.
But yes, we're I'd say, we're well underway on our first design and the level of activity going on with the automotive Oems around this topic.
Kind of off the charts at this point.
I think there is such a it's almost like a.
There was a renaissance.
Jay I think in what I would call the infotainment H and when automotive Oems really embraced these consumer technologies and all of a sudden you got things like USB Chargers in your car you got state of the Art audio you got touch screens as consumer Tech went in that had a big benefit to semiconductor companies.
What we've been saying for a while and Thats coming through now is that the data centric.
Semiconductor products and Ips will be the next wave of growth, we're seeing that in our networking products now.
But it's very much moving to a <unk>.
Compute centric.
Discussion and there's a whole bunch of ways to skin that cat.
But our model will be will be unique in that we're approaching it very similarly to what we do in the cloud market, which is coming in with a broad IP portfolio partnership oriented model build what build with somebody wants let them put their stamp on it if they want to and really customize and optimized for their particular.
<unk> system and use case and bring all the goodness of all the Marvell IP with it so it's pretty interesting discussions.
There'll be more to come there, but we think this is going to be a very large long term opportunity for the company.
Very helpful. Thank you.
The next question will come from Mark <unk> with Jefferies. Please go ahead.
Hi, Thanks for taking my question.
Matt if I think about the kind of portfolio of assets that you've kind of pulled together here I think about you have interconnected capabilities within phy processing capabilities with the <unk> networking capabilities from <unk> and native Marvell and.
I'm wondering.
To what extent.
As your customers are coming to you for semi custom solutions.
Are they asking you to deliver solutions to them that are that are.
A mix of two or more of those kind of different capabilities.
And so that would be the question for your customers as well as like how youre thinking about delivering.
Complete optimized.
Computing solution.
On the merchant side, and maybe as part of that could you just as you have.
Embraced the semi custom model can you share with us your view like what is what is marvell looked like pick the time three 510 years down the line. What is what is the merchant model versus a semi custom model.
How does how do your revenue split along those dimensions. Thank you.
Sure, Yes, Mark I think you highlighted it well there is a pretty incredible set of assets inside the company now that I would argue is very unique in terms of all of these being under one roof I would actually add there is even more I think you gave three great. Examples I would say our security IP storage in Io.
And you're absolutely right when we engage in are.
And our various business models, whether it's a.
Full custom design or a call. It a semi custom partnership designed with a mix of IP from the customer and hours every one of those Ips gets put puts on that gets put on the table.
And we gave an example actually in the prepared remarks about the storage accelerator opportunity, where it's not just the storage product. It's got Cpus. It's got it's got security and it's got some pretty advanced network interfaces, especially when you talk about things like going from Nvme to Ethernet as an example.
So very unique and it's part of our value prop and the fact also that we can do this.
Under one roof and despite the fact that a lot of these Ips. We have are these people. We have came from other companies. It's a one marvell culture in our company and so when we go and engage this doesn't look like 12 business units are Oh theres. The caveat team I don't know if somebody has to go work with them and there is the <unk> theres one integrate.
<unk> go to market strategy and technology platform, and it's very powerful and I think it is going to become even more and more relevant.
And I would say, we don't really think about our business market at this point between pure merchant peer semi custom pure custom I mean, there's all these different business models in between and even our merchant products. What we're finding like let me give an example in storage we.
We ended up doing a fair degree for example on our high end data Center class SSD controllers now we're doing a fair amount of customization, particularly on the firmware. The software as an example for each individual customer that makes it very very sticky and occasionally we will spend a metal option often we'll give them a certain feature.
That they want or need.
But yes in a way a lot of our business already today is effectively customized in the standpoint that we've really optimized it for the application and that could be in the hardware or it could be in the software and the firmware. So I think that.
That those lines are fairly blurred now is what I would say mark and I think it's good I think it enables us to stay flexible.
And it's enabling us to win new accounts.
Great color Thanks, Matt.
Okay.
The next question will come from Surinder <unk> with SMB Nikko Securities. Please go ahead.
Thank you Matt couple of clarifications actually first on the <unk>.
Pricing I think you mentioned that you implemented some pricing actions to offset the higher input costs I'm, just curious where we are in the process on how broadly are implementing those and to what extent.
Might be helping the top line as we go into next year and then the second part of the question is obviously very strong outlook for next year I'm, just curious given your breadth of products in there.
The end markets that you participate in I'm guessing, there's probably not going to be much seasonality, but I'd love to hear your thoughts on you know first half versus second half in terms of how you view the topline playing out next year. Thank you.
Sure how about that.
I'll take the first one and then I'll, let Jim talk about the second one.
Yes, so on the first one let me take you back on pricing. It was about this time a year ago when I got a call from our ops team that said.
We have some serious issues because.
We're getting a number of price cost increases from a whole bunch of our different suppliers overseas and what are we going to do and this is like what.
I spent the month of December negotiating higher cost increases by my supply chain a year ago, and we then worked in.
Managed to pass those through earlier than the year. Each time, we've secured additional capacities. So we ended up in a lot of cases, having to bear a higher input cost that's been part of the drill as supply has come available and so I would say that this has been a gradual process. It's gone on throughout the year. It continues to go on I think.
As you are continues to be inflation in the supply chain.
Our philosophy has been to.
B real fair about that be very partner oriented not take advantage of it and so while it has flowed.
Through and through the top line throughout the year the biggest benefit of.
The growth we're seeing is just the raw demand the design wins the value that we're capturing and certainly there is there is there is a slight tailwind on the topline, but it's it's almost all from demand and we certainly see that trend continuing through next year.
Gene do you want to cover the.
The view of <unk>.
Yeah to just follow what Matt just said right next year, we see strong demand across all our end market and frankly.
The supply constraint.
We talk batch it.
Over 30% revenue growth, that's a supply constraint.
Outlook of what we're looking at so that normal seasonality.
Definitely does not apply here, we see Q1 sequentially, a very strong Q4 base to increase.
Approaching mid single digit and after Q1, we will see continued sequential increase.
Supply demand dynamic is set to make something our team will continue to drive but absolutely it will.
We have them all supplier, we definitely have a multi mine that we can ship more product to customers. So you should expect till we see sequential increase each quarter for the rest of the next year.
Thank you and very helpful and congrats again.
Thanks.
The next question will come from Christopher Roland with Susquehanna. Please go ahead.
Hey, guys.
Thank you for the question fantastic update in quarter.
I was going to dig in on the Hyperscale custom silicon side as well, maybe if you guys could talk about in terms of your outlook your big outlook there.
How many of let's say the top seven.
Big Hyperscale or are you guys engaging.
And it was kind of touched on but.
Storage versus networking and optics, where are you guys getting the most interest I think you've kind of covered that but.
And then finally this is probably too much to ask for but.
In the past we've had some <unk> associated with these hyper scaler or those and are you still coming in or are you guys on your own.
Sure.
Think on the first question.
I would say we're engaged broadly.
The opportunity and the activity, though is primarily centered around the big four in the U S.
That's where the technology leadership is thats, where the thought leadership is.
But we are and I think that's where the.
The biggest drivers of our growth are going to come from I think a lot of the others will follow and so I think theres leverage we're going to we're going be able to get from that but we're very well engaged across the board.
And when we say custom youre right its certainly.
Custom compute silicon for different types of workloads and applications, but also storage networking optics, it's quite quite a broad range of technologies that we engage with and security as well.
On the NRA front that continues to be healthy and that's not just a hyperscale story thats really broad based across all of our businesses.
And we get we get actually really good visibility because when we when we start developing these products custom semi custom whatever the model is there is a development agreement that comes with that if they're milestone based customer wants to have once that they want to have skin in the game. So do we so thats tip.
<unk>, where the NRT then gets mapped out over a fairly long period in some cases. So we haven't we have a nice roadmap and in our view and jeans team actually does a great job of being able to forecast the NRA and manage it and it continues to grow.
Part of the leverage that we're getting.
Into next year the.
The Opex is going to grow but also the <unk> is going to grow so that's enabling us to.
We get kind of a double whammy right because we're while we're growing our opex and we are hiring people and were staffing up we're growing the NRC as well and so think of that as this incremental spend we've got that's not completely visible, but yet contains very important engineering resource in R&D resource that gets deployed toward.
<unk>.
High ROI projects that spit out several years later and so it's a really I think it's a virtuous cycle in our our team's done a really good job.
Of of managing that as part of the business model.
On the final kind of example on the automotive compute.
<unk>.
Design win we talked about it was heavily funded by.
By R&D by NRT, excuse me and again, that's a multiyear project.
It's so critical I mean, you basically can't build the car without it so.
It's going to be really important to have a.
We have a real meat.
Significant contract around that and for us to have a significant co.
Co funding to make it happen. So it's a pretty important part of the business model, Chris and that continues to be healthy.
That's a great update Matt thanks.
Yes.
The next question will come from Quinn Bolton with Needham. Please go ahead. Thank.
Thanks for squeezing me in Hey, Matt you gave us a great outlook through fiscal 'twenty, three but as you look out beyond fiscal 'twenty. Three I think you mentioned you see another big step up in the <unk> business at Nokia as the five nanometer platform starts to ramp and Im just wondering can you give us a sense is that step up really marvell, capturing even greater content.
Then on.
Your current share of base station to that customer or do you think your five nanometer platform is allowing you to grab greater share at that customer as five nanometer platforms ramp. Thank you.
Okay. Let me give you a broader answer and then I'll dive into the <unk>. So just as you think about the <unk>.
The growth from.
Fiscal 'twenty three next year to fiscal 'twenty four.
The biggest overall growth actually in step up is in the cloud.
You remember.
And at the Investor Day, we outlined is sort of.
Very strong design win activity, we had which was going to result in the $400 million incremental revenue in fiscal 'twenty four from cloud and then going to doubling again the year. After so that when you think of the step up that's where that's coming from <unk> is also kind of right behind and thats going to be very strong as well and to your point.
One of our key partners and customers. There is is Nokia as you mentioned.
That.
That in five nanometers, where we not only.
Support them on their ambitions around baseband, but also on the CPU side and transport processing side, and so that's going to be.
That is content gain that is new for us that starts at that time. That's all been plan. That's been that's been that's all kind of going well and tracking to what we thought but I thought it was important to note the timing around that and highlight that we have more legs, even in <unk> beyond beyond next year, because that will just really.
The first full year of production there so actually we won't even peak for.
Years after.
So really really strong outlook on cloud and <unk> and fiscal 'twenty four and beyond and then of course, you've got the automotive story layering in and all of that drives a lot of goodness in the model.
Great. Thank you.
The next question will come from <unk> Hari with Goldman Sachs. Please go ahead.
Thank you for squeezing me in and congratulations on the very strong results, Matt I wanted to ask about the enterprise networking business, you talked a little bit about your share growth.
Ethernet I believe I was hoping you could elaborate on that a little bit what's driving the success and if you can speak to sustainability. There and then as my second part again sticking to enterprise networking.
I think all of US appreciate the secular nature of your business and data center in <unk> in auto and industrial.
Enterprise networking has perhaps at least on a relative basis, a little bit more cyclical in nature with the business growing kind of in the $50 to 60% range year over year, how should we think about sustainability of growth as we transition into 2022. Thank you.
Sure, Yes, so maybe I'll answer it in two pieces. The first is you're probably asking as well.
What happened why how did you.
How did you guys do this and I think if you look back we've made we've had a commitment to enterprise.
Okay from day, one when I became CEO, we never milk the cow, we never took this market for granted.
We and most of this growth as you noted is organic marvell right. So this comes from our Ethernet switch team, which really focused on leadership products latest process node.
Very strong software capability from our switch business unit and a real focus on the enterprise market.
In new products and new product development product definition, so that had a huge benefit that started three or four years ago and now those designs are ramping.
The second is in our in our Ethernet Phy transceiver business.
Also.
Move that from being a technology laggard to a technology leader in Ethernet Phys and we also did an acquisition of <unk>, which was a relatively small company when we bought it but when we put the two teams together the combined share that we've been able to drive has been very significant and the road map, we were able to accelerate.
Dramatically.
One of our product areas as an example that we're driving to five nanometer. Okay. And then that has all kinds of integration opportunity so customers like the roadmap. They liked the team they like the story and Thats now showing up in certainly the enterprise market is not growing at 50% a year. So you have to draw your conclusion, there's been certainly a.
Share shift is as customers have adopted our solutions.
And we do believe that this business is going to continue to grow it will grow next year.
May not grow on the annualized basis at 50% because youre going to start lapping at some point and we're coming off of a relatively low point from last year, but also remember our content has gone up on each of these generations is multi gig Ethernet becomes much more prevalent and as especially as enterprises are spending again in implementing Wi Fi six which require.
<unk> high speed Wired Internet Ethernet connections at multi gigabit, we're seeing switch ports go up on multi gave which has our five attached to it plus our switches. So theres also a content story here toshi. So I wouldn't exactly say well enterprises like a low single digit grower and eventually will trend back there I think between product leadership.
Share gain and then content increase.
Enterprise can continue to be a winning business for marvell.
Very helpful. Last question. Thank you congrats again.
This concludes our question and answer session as well as our conference call for today. Thank you for attending today's presentation. You may now disconnect.
Yes.
Yes.
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