Q4 2022 Marvell Technology Inc Earnings Call
Good afternoon, and welcome to Marvell technologies fourth quarter and fiscal year 2022 earnings conference call.
All participants will be in listen only mode. So.
So do you need assistance. Please signal conference vessels Starkey followed by zero.
After today's presentation there'll be an opportunity to ask questions.
Please note. This event is being recorded I'll now turn the conference over to Mr. Ashish Saran, Vice President of Investor Relations. Please go ahead.
Thank you and good afternoon, everyone welcome to <unk> fourth quarter and 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.
<unk> actual results to differ materially from management's current expectations.
Please review the cautionary statements and risk factors contained in our earnings press release.
Would you find 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 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 all that's fine.
With that I'll turn the call over to Matt for his comments on our performance Matt.
Thanks, Ashish and good afternoon, everyone. Let me start with a recap of the exceptional results Marvell delivered in fiscal 2022, an absolutely pivotal year for the company. We saw substantial increase in design wins, the completion of two significant acquisitions and strong revenue growth with great momentum in all our businesses.
Our five nanometer technology platform, along with the rest of our data centric IP portfolio proved to be a key enabler for winning new opportunities in all of our focused markets.
Our sales and product teams did a tremendous job securing new sockets and drove a record level of design wins in fiscal 2022, a big step up from the prior year.
Fiscal 2022 was also a breakout year for our cloud optimized silicon platform, winning a sizeable number of important sockets, which we expect will drive significant revenue for the company going forward.
We remain focused on extending our leadership in process technology and advanced packaging.
Our engineering teams are driving the architecture and design of our complex analog and mixed signal IP to three nanometers. They are also advancing chip lift in three D packaging technologies to support the integration of multiple advanced process nodes inside a single package.
During the year, we completed the integration of impart a transformational acquisition that substantially increased our participation in the fast growing cloud data center market.
The Marvell and <unk> teams share very similar values engineering excellence innovation and a passion for our customer success.
The teams have integrated exceptionally well across the company and are jointly taking our capabilities to new heights.
<unk> position at the core of cloud data centers has given the team unique insights into next generation network architectures.
<unk> team has developed deep relationships with tier one cloud customers, which has been instrumental in unlocking additional opportunities for the combined company.
Including the success of our cloud optimized silicon platform.
The transaction, which was accretive to non-GAAP earnings within the first full quarter. After close has been a resounding success deliberate revenue in fiscal 2022 above our deal model.
We further complemented our cloud business with the <unk> acquisition, adding bear leading cloud optimized switches to Marvell feature rich enterprise and carrier switch portfolio.
<unk> is fully integrated and are leveraging marvell five nanometer technology platform and extensive certes IP to accelerate the roadmap for our next generation 51.2 T switches.
This development is closely aligned with our electro optics D. S. P. A roadmap to provide customers with a complete solution optimized for power and performance the combined Marvell and Adobe of Ethernet switch portfolios are proving very attractive to data center customers among them a new design win at a tier one cloud customer in Asia, where.
Also engage with multiple additional customers and are looking forward to further expanding our footprint in this fast growing market.
Moving on to revenue.
In fiscal 2022 revenue grew 50% year on year to $4 46 billion driven by robust demand for our products.
The organic Marvell Marvell business and the acquired in five business were both strong contributors to growth.
Our results reflect our success in the cloud <unk> and automotive end markets, which collectively doubled in revenue from the prior year.
Our enterprise networking end market also had a phenomenal year with revenue growing 43% year over year later in the call today, you'll hear more details about the start of an extended period of infrastructure refreshes in the enterprise market. We expect that these combined with share and content gains from our merchant products will produce enduring growth and.
Our enterprise business and not only that you'll also hear me talk about a new driver of revenue growth in the enterprise networking market.
Shifting gears to our fourth quarter, we delivered a record 1.34 billion in revenue growing 11% sequentially and 68% year over year Rev.
Revenue exceeded the midpoint of guidance with all end markets growing sequentially and year over year.
Particular note cloud and enterprise networking delivered stronger than projected contributions.
<unk> five G and auto collectively increased to 40% of total revenue in the fourth quarter.
We exited fiscal 2022 with record bookings momentum and opportunities for accelerated growth across our business going forward. We continue to win in the market as our customers look to expand the scope of their engagements with Marvell. Our operations team continues to secure capacity and we are tightly engaged with our strategic suppliers.
Growth in demand continues to outstrip increases in supply and as a result, our delinquency has continued to grow we are working closely with our suppliers to secure additional capacity wherever possible.
Let me now move on to discussing our five end markets starting with data center.
And our data center end market revenue for the fourth quarter was 574 million growing 15% sequentially and 113% year over year exceeding our guidance.
The majority of the growth was from cloud driven by robust demand from Hyperscale customers.
We note that our on premise data center business also grew sequentially and year over year.
In the fourth quarter sequential and year over year revenue growth was broad based with multiple product lines contributing to the excellent results.
We expect the demand outlook from cloud customers to remains strong. We are also looking forward to the ramp of new design wins.
At our Investor Day, we discussed our expectations for 400 million in incremental revenue contributions in fiscal 2024 from new cloud optimized wins.
The $800 million in fiscal 2025.
Development of these programs as well on track with several products slated to enter production later this year and start contributing meaningful revenue.
Since that update we have won multiple additional cloud optimized design.
Similar to the ones in prior quarters. These chips are for a variety of networking and compute offload or acceleration functions and cloud data centers.
We are expecting revenue contributions from these new wins to start as early as fiscal 2024, and then ramp more substantially over time.
Note that these wins are incremental to what we had discussed at our Investor day.
In aggregate in fiscal 2022, we have won over a dozen cloud optimized programs across multiple tier one cloud customers a significant number of these designs are for custom GPU implementations, reflecting the increase in the attach rate of Gpus inside cloud data centers, we expect this trend to accelerate in the next generation.
Textures, we are confident that we are uniquely positioned to win these opportunities with our leading portfolio of compute networking security storage and high speed Electro-optics IP all of them delivered on our cloud optimized five nanometer platform.
Our electro optics business, we are continuing to innovate.
We are aggressively driving the roadmap to improve power performance and leading edge technology nodes with their next generation products. We have begun volume shipments of our 800 gig Pam four DSP is enabling customers to start deployment of 800 gig optical modules in cloud data Center and AI network applications. We are confident that we are the industry's first Pam four.
S P supplier to achieve this production milestone.
Let me now discuss our new product line, we just announced for the emerging active electrical cable market. This.
This opens up another avenue of growth for us in the data center, leveraging our core DSP expertise.
Today, our Pam four products are primarily deployed in optical modules used in cloud data centers for long reach switch to switch connections in the same data centers.
Short reach connections between switches between server to top of rack switches and an AI interconnects have traditionally used passive electrical cables for speeds of up to 50 gig per lane.
None of these requires advanced signal processing today. However in next generation cloud data centers AI ml and other data intensive workloads are pushing these short reach connections to hire 100 gig per land throughput.
These speeds passive electrical cables have significant reach and performance limitations to overcome these challenges the industry is turning to active electrical cables referred to as adcs, which require advanced DSP.
To meet that demand Marvell was introduced the industry's first 400 gig and 800 gig DSP for the ADC market based on our leading Pam four series technology.
<unk> business model allows us to work with both cloud customers as well as all leading cable manufacturers to drive an open ecosystem.
Our industry, leading dsp's have enabled major cable vendors to complete development of their first AC solutions. We are also working with multiple cloud operators to take advantage of this new growth opportunity.
On the storage side, our leading process technology platform and Pcie roadmap execution continues to drive new design wins for our datacenter SSD controllers.
During the quarter, we secured designs with our pcie Gen. Five controllers at two additional NAND Oems, making a total of three who are adopting the marvell solution.
Looking ahead. Our team is also pushing forward with our Pcie Gen six development and our customers are very excited about our roadmap.
Moving on to our expectations for the first fiscal quarter of <unk>.
2023 from our data center end market, we project revenue to grow sequentially in the mid single digits on a percentage basis and more than double year over year.
We're expecting another strong performance led by cloud customers across a broad range of products.
We're also projecting the start.
Of a strong ramp of our 400 gig.
ZR data center interconnect products in fact, we were expecting this ramp to drive our Dci revenue to a new record in the first quarter eclipsing. The peak, we had achieved in the 100 gig cycle.
Even at this very early stage of industry adoption, we were excited to see the rapid growth of 400, ZR and we expect to see a lot more growth over time.
Looking forward, we see on growing growth in the data center, including revenue contribution starting from the new cloud optimized product ramps to drive another step up in our data center revenue in the second half of this fiscal year and beyond.
Turning to our carrier infrastructure end market revenue for the fourth quarter was $241 million growing 12% sequentially and 45% year over year.
These results were driven by our <unk> business, which delivered substantial revenue growth of over 30% sequentially exceeding our guidance.
We benefited from the broader rollout of <unk> technology and product ramps at multiple base station customers.
Marvell recently announced a collaboration with Dell and their new suite of Telecom solutions to help service providers enable their transformation to open cloud native networks.
This offering includes a co developed open ran accelerator card using our proven arty on fusion baseband silicon to deliver in line five G layer one processing.
We continue to see strong traction on our <unk> technology platform, resulting in another key five nanometer design win for a radio a second tier one base station customer.
Following the strong step up in the fourth quarter, we expect revenue from the carrier end market to continue to grow in the first quarter of fiscal 2023.
We are projecting revenue to grow in the low single digits sequentially, while year over year growth is expected to remain strong at over 40%.
Moving onto our enterprise networking and in market.
Revenue for the fourth quarter was $263 million growing 6% sequentially and 64% year over year. Another strong performance from this large and growing marvell business.
As you heard in the opening remarks. This end market is going through an inflection.
Hybrid work is here to stay but the current networking infrastructure was never designed to support this flexible seamlessly connect from anywhere immersive and high video usage environments.
Companies are now embarking upon an extended period of refreshing their infrastructure, becoming border lists enabling new digital capabilities massively increasing bandwidth building redundancy and beefing up security.
You will also remember from our prior discussions that we have been winning designs with our refreshed products over several years. In this end market is when that typically come with higher marvell content driven by new features such as multi gig Ethernet and Mac sac.
As the upgrade cycle in the enterprise networking market gains momentum, we are beginning to see our customers starting to ship their new platforms, where we have higher share and increased content.
Looking forward, we expect enterprises will continue to modernize their networks and as a result, we project ongoing growth to continue from this end market.
Let me now discuss a new source of growth for Marvell in this end market custom silicon.
We have a very successful custom business in the carrier end market and are also building a large revenue stream from Hyperscale, there's with our cloud optimized products. We're now enabling the enterprise networking market to take advantage of our advanced technology platform.
I'd like to point out that these designs frequently pull through additional marvell content across a number of our product lines. Our pipeline of opportunities is growing and we see custom silicon, becoming another leg to the enterprise networking stores, adding to the ongoing growth from our emerging products. We expect revenue from custom products in enterprise networking to grow sharply.
Well over $100 million in fiscal 2023.
In aggregate, we expect a very durable period of high growth from enterprise networking strongly complement our cloud <unk> and auto pillars.
Looking ahead to the first quarter of fiscal 2023, we expect growth to accelerate in our enterprise networking end market, we're projecting revenue to be up sequentially in the mid teens on a percentage basis and year over year to grow over 70%.
Growth outlook reflects our expectations of higher supply to support our product ramps and the ongoing enterprise infrastructure refresh cycle.
Turning to our automotive and industrial end market revenue for the fourth quarter was 79 million growing 19% sequentially and 134% year over year strong revenue growth. In this end market is being driven by higher adoption of our bright line Ethernet solutions and a growing number of vehicles from multiple Oems.
Looking ahead to the first quarter of fiscal 2023, we are expecting strong sequential growth to continue from auto and a flattish outlook for our industrial business as a result.
Auto and industrial end market, we are projecting sequential revenue growth in the high single digits on a percentage basis, while year over year growth is expected above 80%.
Moving onto our consumer end market revenue for the fourth quarter was 185 million growing 2% sequentially and 11% year over year.
Growth in this end market is being driven by our SSD controllers shipping into consumer oriented platforms, such as game consoles.
Looking ahead to the first quarter of fiscal 2023, we expect revenue to be flattish on a sequential basis, we continue to grow year over year approximately in the double digits on a percentage basis.
In closing, we delivered record results for the fourth quarter and fiscal year 2022, growing revenue well above our long term target model.
We expect this momentum to continue.
Marvell is uniquely positioned to benefit from the three most important growth opportunities in semiconductors clouds, five G and automotives.
Transformation in the enterprise end market is also becoming another continuing growth driver for Marvell we.
We expect secular growth to continue from all of our end markets further supported by our large and growing pipeline of secured design wins, which will drive incremental revenue.
We are also working to make sure that we grow in a responsible and sustainable manner.
For the past year Marbella has taken.
Meaningful action on involving our environmental social and governance strategy setting new goals and increasing transparency. We are committed to achieving net zero emissions is a company and they're setting a science based target to put us on track to reach this goal.
Building, a more inclusive and diverse workforce is another important area of focus and we have increased our outreach to traditionally underrepresented talent I would encourage investors to visit our new ESG web site.
To review the goals, we've outlined in our progress to date.
On behalf of Marvell Board and leadership team I, Thank our valued employees for the outstanding results.
They've helped deliver in the fourth quarter and throughout fiscal year 2022.
Ours is a highly resilient team that has stayed focused and outperformed through an extended period of challenges and uncertainty.
This is an exciting time for our company as we've hit an inflection point in our growth cycle and are seeing strong momentum in our businesses across the board I look forward to continuing to work alongside our exceptional marvell team to address the numerous opportunities in front of us with that I'll turn the call over to Jim for a more detail on our recent results and outlook.
Yeah.
Thanks, Matt and good afternoon, everyone I will start to make a summary of our fiscal year 2022 read out.
We're very pleased to read out performing in fiscal 2022.
Elaborating that kind of revenue and profitability, while continuing to Questionably match, he try and strong long term accruals and from the data infrastructure market.
Revenue grew significantly by 50% year on year to 446 P M.
That's across nine <unk>, which is 46, 3% and a GAAP loss per diluted share almost 53.
Oh, no that's across nine G, which is 64.9% expanding by 160 basis points, reflecting the increasing value and the differentiation we provide to trial customers.
Revenue growth and gross margin expansion combined with strong operating leverage from our business model drove robust growth in earnings for the year non.
non-GAAP operating margin expanded by 860 basis points from 24, 2% to 32 point to 8% and non-GAAP earnings per share grew 71% year on year to $1 50.
57 cents.
Moving onto our financial results for the sports content spending or even of course launching it went to one brief one 3 billion exceeding the meal time, your fault banking growing 11% sequentially and 68% year over year.
They just tend to them with our largest end market.
43% of consolidated and branding.
And right now we're working with National launch at 19% of total revenue followed by Terry infrastructure, and 18% consumer had a 14% and auto industrial and Ctrip.
GAAP gross margin was 51, 1% non-GAAP gross profit was 877 medium 65, 3% of programming and nonrecurrent achievement by each product mix, reflecting our strong IP position and the leading product portfolio.
GAAP operating expenses were 652 medium and they include the cost of a share based compensation expenses amortization of acquired intangible assets legal settlement and acquisition and divestiture related costs.
non-GAAP operating expenses were 319, and then O N O clock guidance range.
GAAP operating income, which is defined as non.
non-GAAP operating profit was 487 million up.
One times, EBITDA and 15% from a year ago growing significantly faster than Randy.
We achieved the black hurdles with 36 point, 80% of non-GAAP operating margin an improvement of 700, and then 90 basis points from the prior year.
Reflecting the strong operating leverage in our business model.
For the fourth quarter in GAAP income per diluted share what's the Wednesday.
non-GAAP income per diluted share it was 50 cents.
72% year over year exceeding the Mito, calling a cloud guidance.
Now turning to our balance sheet and the cash flow.
During the planting of cash flow from operations once the 346 million I'm pleased to lead to our strong cash flow generation low E glass teams to come if you can meet your working capital to support strong revenue growth.
We returned 51 million to shareholders through cash dividends.
I supposed to be end of the fourth stage called quantum of our cash and cash equivalents were 640, <unk> and our long term debt with a 4.5 <unk>.
Our gross debt to EBITDA ratio was two six times and net debt to EBITDA ratio with a 2.3 times.
We are accomplishing she definitely are on track to achieve our target gross debt to EBITDA ratio for two times by the end of the second approach here on stage two bathroom 23 a.
At which time, we expect to restart the share repurchase.
Inventory at the end of the fourth Quad channel once the 727.
Turkey, namely me off against the inventory balance each from Oems due to purchase price accounting, we anticipate advertising. This is step up over the next two quarters.
We have also increased our working process at UNC to support the rapid growth in revenue we are forecasting.
In summary, and my old team executed exceptionally well in every accelerated top line growth and strong earnings expansion significantly faster than revenue growth.
Turning to our guidance for the fourth quarter, you ultimately fiscal 2023.
We are forecasting revenue to be in the range of 1.425 billion plus or minus 3%.
We expect our GAAP gross margin will be in the range of 49.6 to 15, 6%.
We project, our non-GAAP across 19 will be in the range of 65% to 66%.
We project, our GAAP operating expenses it should be approximately 672 million.
We anticipate our non-GAAP operating expenses to be in the range from 430 to 435 million.
The first your commentary, we expect non-GAAP tax rate of 6% lease.
We expect our basic weighted average shares outstanding will be 848 P. M and I would think you would have the weighted average shares outstanding will be 863.
I think the balance we anticipate a GAAP earnings per share in a range of cloud. So you can push here I'm in Atlanta and twin the income from five cents per diluted share on the high end.
We expect non-GAAP net income per diluted share in the range of 48 to 54.
Operator, please open the lines now for Q&A instructions. Thank you.
We will now begin the question and answer session.
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.
And the interest and the interest of 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.
Yeah.
Our first question comes from Timothy Arcuri with UBS.
You May now go ahead.
Thanks, a lot Matt It seems like you're ahead of plan and and I'm wondering if you could update us on your fiscal 'twenty three growth forecast and then also as you look to fiscal 'twenty. Four I know you said, you're going to grow more than 30%. This year, but it seems like you can do better than that now it seems like you're getting a little more surplus supply and then also I think you had hinted.
Well, maybe you can grow somewhere in that range also for fiscal 'twenty four because the fiscal 'twenty three guidance didn't include any worked out in the.
And Ah Indeed delinquencies. So I'm just kind of wondering if you can update us on those it sounds like you'd be incrementally more confident that you can grow you know quite a bit higher possibly at 30% this year and maybe even 30% in fiscal 'twenty four things.
Yeah, Great Tim Thanks for the question, Yeah just to answer.
Very happy that we're ahead of plan right now based on our strong outlook for Q1.
Second we do continue to get more supply you saw that in our fourth quarter as well as in our first quarter outlook, which is very positive.
I think as well you know.
The order momentum continues to be.
Strong we had we had very very strong bookings in our fourth quarter, which give us.
A lot of confidence in our twenty-three outlook and beyond and then of course, new design wins. When you look out to 'twenty. Four also have us feeling very good. So I think we're tracking really well across the board and we're very pleased with with the results we've got plus our outlook plus the the long term view.
Yes.
Matt can I sneak a quick second one I was wondering if you can maybe.
Yeah. Thanks can you sort of size the custom ASIC business I know, what's reported across different segments, but can you maybe add up all of the cost. It makes like revenue and just give us a sense for sort of how big it is in aggregate today. Thanks.
Yeah, Hey, Tim. This is a this is an interesting question, we've actually gotten this on and off over the years.
Just to kind of refresh the.
Investors on the line it's really.
Hard to define this precisely because when you when you think about <unk>.
Customization, you have a range of Ah.
Products and business models that we offer for example, we have a.
Full custom business in the traditional sense of the word that would be an ASIC business that we picked up from avera, but we also do a lot of semi custom work or cloud optimized work as an example, where we work either with large hyperscale or is or in the case of telecom with five G.
To take the customers, our IP and our IP and put it together and then even in our merchant offerings candidly. We ended up doing skus in derivatives that have something special for what our customers want so.
Say that generally it's it's it's not something we can even exactly quantify internally what I would say is it's an absolute trend. It's the way. The market is moving you have to be able to have you know a rich a rich set of intellectual property and flexibility in your business model and how you engage with your customers and that's.
Not just for the Hyperscale cloud Tim It's also for five G. It's for enterprise as well.
And then in the in the future I think this is going to be a key differentiator for us in automotive as well as what we call our flexible business model.
But anyway I think that's as much as I can say, it's a it's a hot trend. It's the way the market is moving and where we're probably the best positioned company to take advantage of it.
Okay, Matt Thank you. Thanks.
Thanks, Tim.
Our next question comes from the back are you with Banc of America Securities. You May now go ahead.
Thanks for taking my question, Matt given that conditions are still supply constrained how are you ensuring that the quality of demand and in the backlog and I'm, making sure customers are not just stocking up and in product and related to that does the strength in the enterprise market, which seems to be well above what.
Conventional wisdom and history would suggest but you seem to be incrementally even more positive. So just thoughts on just demand quality overall and sustainability of the strength in enterprise.
Yeah.
Sure Vivek. Yeah. This is something we've been paying extremely close attention to not just even in the fourth quarter, but really at the onset of this supply and demand imbalance is weak.
As we were going through the pandemic.
We have a very rigorous.
Internal review process, we have very good end market data in terms of everything from how many base station ship to the number of.
To which carriers are deploying that would be a <unk> example, and then what is our content as it relates to that we get very good data.
And on the cloud deployments, we know how many servers they're shipping we can we can then calculate.
All kinds of things about which products that we are attaching to those.
Same with enterprise et cetera. So we have an end market focus that we look at we also.
Because where we're actually a very focused company vivek. We we have you know a handful of major accounts that we go very deep with and given the system level nature of what we do we have we have very good insight into what they're doing and what the needs are on top of that we've also put in place a very <unk>.
Rigorous.
I guess, our engagement model with our customers where the backlog is firm we do have noncancelable.
Hum.
Conditions on those orders.
Reschedule or limited.
And and so we've gone through a process to make sure that as we scheduled the backlog and we get bookings, it's actually what people want and then we prioritize around that and then finally I would say that you know when this crisis has brought.
I'd say that the leaders of the chip industry and the leaders of the Oems even closer in so my interactions all the way to the CEO level of our major customers is another way that we triangulate as it relates to two enterprise.
You know most of the growth here, but that candidly is a combination of significant content gain as the.
As the the electronics inside these various pieces of enterprise infrastructure.
Have have migrated to things like multi gigabit Ethernet they've added things like security and Mac Sac.
We are also in there is just more ASP per port as an example, there.
We've also been focused on this area. So if you look at traditional Marvell business in enterprise switch and Phy. We've gained we've gained market share.
Through our through our offerings by refreshing the portfolio and staying competitive from a technical standpoint, and staying focused on that market.
And then we also have new product areas ramping.
Like custom silicon and enterprise, which basically if you look at where we were.
A year ago.
In that custom area, I mean that business is up dramatically year over year, and it's ramping very sharply and our fiscal 'twenty three so theres a lot layering in and you know the trends are real too I mean, if you just look at what we even go through at Marbella and other other major companies as you bring people back to work.
Yeah.
Things have changed over the last two years and so theres an enterprise enterprise upgrade cycle. That's also kicking in as companies spend to modernize their infrastructure. So I think it's a combination of those things the numbers there are dramatic in terms of the growth.
We're excited by that and we see this business continuing to grow in fiscal 'twenty three and beyond.
Off of this already.
Higher base of revenue that we're achieving.
Thanks, Mike.
Yep.
Yes.
Our next question comes from John Pitzer with Credit Suisse. You May now go ahead.
Yes. Good afternoon, guys. Thanks for letting me ask the question that Matt Congratulations on the solid result of a lot of things to highlight and I was wondering if you could spend a.
A few minutes just talking about gross margins, but both cyclically and secondarily clearly youre seeing some input cost increases in your supply chain I'm, assuming given how strong gross margins or your ability to pass that on it's pretty high but the real crux of my question is.
When you guys talked about sort of restructuring the arm server business as more of a custom silicon business, you kind of talked about how margins on that customer gross margins on that custom silicon side can be a little bit lower op margins, you know kind of neutral to the overall model, but ever since you kind of reset the bar you have done a better.
Job on the gross margin line. So I guess my question really is as you're getting into these customer engagements are you finding out that the profitability is perhaps better than you originally thought.
Yeah. Thanks, John for the for the questions Yeah in the certainly the solid results in a large part were driven by the very.
Very durable gross margin performance of the company.
We're pleased to have set up set a record gross margin of 65, 3%. This past quarter. We also guided gross margins to be in the $65 to 66% range, which is.
Call. It at the mid to then if you went all the way up to the high end range of our of our long term model. So so despite input cost increases and all kinds of challenges. The team faced I think the quality of our engineering and the quality of the products.
Is is ultimately what's enabling us to maintain our gross margin in a range that allows us to invest back in the business.
On your question about you know what happens with some of these custom products and when they start ramping and what well first of all they've already started ramping right, where we're where we're deep in two high volume and cloud optimized silicon. If you look at our data center revenue. It's obviously, our biggest segment and within data center.
<unk>.
The majority of that is cloud cloud on its own would be larger than any of our other segments. So theres already that contribution and if you remember from our Investor day.
<unk> had a great chart of our gross margins.
By end market and if you recall datacenter and automotive actually were the two highest ones and those are also happen to be two of our highest growth businesses. So.
Look I think in individual product here or there that's.
Lower gross margin, if you will but higher op margin to be honest this businesses already so large and it's growing so fast where we're able do too.
To deal with anything that might be slightly less gross margin than the average because we also have <unk>.
Products like from in Fi as an example that are growing even better.
At our higher gross margin and are growing even faster. So I think that's the beauty of our model John we can actually grow this business, we can be aggressive to take large high volume sockets, especially in compute and we can do that and still maintain the company's long term target model.
On margins, which I think is.
A testament to the business model, we put together and the rich mix of products we have.
Helpful. Thank you.
Yep.
Our next question comes from C. J Muse with Evercore you May now go ahead.
Yeah. Good afternoon, thanks for taking the question.
On the call you talked about a number of new products that are ramping this year and beyond as well as new design wins. So so curious two part question first.
Are you, including both of those or did you include both of those when you. Originally guided is at 5.9 billion from fiscal 'twenty three and then as you think about these design wins coming into the model is there a way to kind of rank order or highlight kind of the the one two or three that you think are most relevant to the model into fiscal.
<unk> 24 and beyond.
Sure, Yes C. J I think as it relates to the to the design win side and new products I think a couple of things to think about first of all as I said in my remarks.
And I just want to give a shout out our sales and field applications team and our business units absolutely knocked it out of the park. This year on design wins it was a significant step up.
And an achievement, we just went through our process to review kind of the final numbers. They did a great job our funnel is as large as ever with respect to the opportunities in front of us.
The incremental wins that we've got you know some of them do as we mentioned they will they will layer in in fiscal 'twenty four.
In 2005.
Some of them may start a little bit earlier, but typically when you get a new design win on a new product.
It's typically not the existing fiscal year, but remember we've also got the.
The revenue that's going to feed the $400 million on 800 million.
That's looking really good and that's also plan to start ramping in the second half of this year.
So I think just the way to think about it is the incremental wins, we keep getting in the cloud area specifically.
Really sort of are additive to the fiscal 'twenty, four and 'twenty five theres not many issues wouldnt from a timing perspective capture a lot of it this year, but I would say at the same time the ones that we already won are tracking very well.
Thank you.
Yep.
Our next question comes from Blayne Curtis with Barclays. You May now go ahead.
Hey, good afternoon. Thanks for taking my question I just wanted to follow up on John's question on margins and you know one thing we saw last month. Your earnings was that pricing kind of superceded future wafer cost a lot of people saw a benefit in the first quarter and margins come down I'm just kind of curious if you could talk about that.
The kind of the strength in gross margin and then just I wanted to make sure that this is a level that you can kind of build off of and it wasn't that same dynamic a lot of other companies are thought through earnings.
Hi, Brian . Thanks for the question I think that we have been in a very tight supply chain environment before we have been keeping the debt cost to increase the price increase on the supply chain side for a long time now for us at our team will walk me to suppliers and customers to close.
And to really try to just offset to the cost carefully increase doing the whole thing.
We have very long product cycles, how we can plan ahead, though our gross margin is primarily driven by.
But on the market the mix and I have to talk about the early or if you look at the Q4 and Q1 guidance. We're very pleased David up gross margin, but largely because the data center is growing really fast automotive alcohol, even when they pass to enterprise mid market and the market Crossmatching also very strong companion.
Oh to trend up so overall, if you look at our mix and that's really drive out while smacking for the restaurant yeah, it'll be the same situation any given quarter, they largely depends on the mix.
Thanks Jade.
Our next question comes from Joe Moore with Morgan Stanley You May now go ahead.
Great. Thank you I Wonder if you could touch on the supply demand situation a little bit more you said delinquencies are still kind of rising but you are getting more supply any progress on getting lead times down and can you tell you know and a lot of these cases are you still kind of the bottleneck here is your product that constraint or is there any possibility of your product kind of waiting for other chips to arrive.
Yeah, Hey, Joe Great question, and you know you've been doing this a long time like me I. It's it's it's shocking to say I never thought we would be at this point in this cycle, but.
But yeah the gap between <unk>.
Supply and demand has has actually grown.
And we look at our.
Some companies call it unfulfilled backlog we.
Raised in the old school could just calling it delinquency, but that number continues to rise each quarter.
It rose in the fourth quarter and it will also rise in the.
In the first quarter. So demand is very strong now I think.
We're.
So, but yes, we're getting more supply you see we're actually exceeding are exceeding our guidance from last quarter and our Q1 guide is very strong both sequentially and year over year, but we're still having to grind you know.
Grind hard with our suppliers to get more of what we need we've moved although I'd say dramatically.
We've we've our position within the supply chain I think relative to the the key suppliers, we engage mission engage with understanding our opportunity I mean that has been a big transformation over the last year and hats off to our team.
And operations led by Chris Coupons, and also our business units.
You know even myself personally engaging.
Up and down the supply chain. So so they understand our opportunity, which is I think helping us.
And you know, we just continue to prioritize Joe it's it's I'm I'm very.
So I'm personally involved with all the major accounts.
<unk> managed to not be the long pole in the tent or if we were it wasn't for very long. So we've been able to sort of stay barely ahead.
And but and we're satisfying customers, we don't have anybody lined down that I know of right now, but it gets it gets tight as we continue to ramp and customers have designed us in.
But I think we're managing it very well and we'll continue to just be very tactical in the short term to get the supply we need to match it to the right demand make sure we're not building inventory and do or do our best to manage through this unprecedented cycle. We're in.
And I think the final thing I would say is it's a cycle that we haven't seen at least in terms of the strength of the duration and I think on top of that with Marvell, given our increased market share at the end marker market exposure, we have with the secular growth drivers, we have that's making it even.
Creating even more pressure on us given given those dynamics, but we're up for the challenge and I think our team is doing a great job and we'll continue to do.
Two two.
To work closely with our customers to make it happen.
Okay. Thank you very much.
Yep.
Our next question comes from tore Svanberg with Stifel. You May now go ahead.
Yes, Thank you and congratulations on the record results.
But I think the big highlight at least for me. This quarter was what you said about you know.
Custom enterprise business.
And if you look at your carrier in your cloud.
Business I think it's pretty obvious right I mean, there's like.
A handful of companies, but enterprise is probably a much bigger group of companies could you just elaborate a little bit on that I mean on the on the.
Custom enterprise side are you actually going to be working with you know more than perhaps a.
A half dozen companies.
Well you know.
Like everything Tory ultimately, even though there are there is certainly a broader set of Oems and diversity of applications and let's call. It the enterprise market than maybe people that make base stations. The reality is the folks that can.
That cannot.
Afford or wanted to do a full custom design.
As a narrower subset.
That being said I think our ability to to do this kind of optimization. If you will without maybe having to do a full custom design. That's one advantage we bring to the table, that's a little bit of a different business model.
And then.
But but yeah. It's it's it's multiple customers that we're engaged with and they want a lot of the same things, including all of our high performance IP. They want five nanometer going to three nanometer.
Actually our capability in compute.
Is very attractive, especially as a lot of the trends in the Hyperscale and <unk> are starting to manifest themselves in the enterprise and.
People are looking to do you know.
Acceleration in and offload fashion, and our GPU octagon GPU capability, whether we sell it as a card or we customized the chip and then somebody else puts the solution together, there's a lot of really interesting things going on in the enterprise.
And then finally, even on the.
The core processing opportunity as well as you know our latest <unk> product is very competitive in the market. It's the most competitive when we've had in five nanometers. So.
Anyway, much broader obviously set of opportunities than we had before tori, but going back to your comment yes custom enterprise, we're really pleased with.
The uplift in revenue.
And we're also pleased with the pipeline we have there because this these products last a long time and the overall profitability and gross margin profile of the enterprise business.
Business in Marvell is in gene showed this at the Investor day, but it's about where the corporate averages. So very healthy growth gross margins broad set of customers broad set of applications and very long product life cycles that are very sticky. Once you. Once you get designed in and we're able to pull through other sockets I mean there are.
And Ethernet based designs as an example, you can pull through the fire so theres.
There's a lot of great things going on in enterprise.
Great perspective, Thank you Matt.
Yep.
Our next question comes from stream perjury.
S M. B C. Nikko Securities you May now go ahead.
Thank you Hi, Matt question on the 400 ZR cycle.
You said, it's going to grow in Q1, but you also said something even more interesting that you know it's gonna be hard I guess, you said the revenue is going to be higher than the previous peak I know we are in very very early days.
Jason This cycle. So if you could just talk about what's driving that strength and also if you could put you know into some perspective, how big you think the family is going to be versus the previous I guess, you have 100, ZR I think that'll be very helpful.
Yeah sure and.
And just to just to clarify when we talk about the the peak I'm, including the original 100 gig products, which is which has colors right, which was developed by <unk> and now we have colors too which is 400 gig so colors.
When it was sort of at its peak was about 100 million dollar run rate for <unk> and then as it into Marvell and so what we're saying now is.
That colors colors to total contribution is that it's at a peak revenue that the Dci contribution the Dci revenue of that.
The Dci product line. If you will is going to be at peak revenues in Q1, and then grow from there.
In the past on 100 gig it was really driven by one customer and that was almost a semi custom like engagement and 400 ZR there are multiple.
Hyperscale customers that we're working with we will have we'll have multiple customers.
And it started at the start of a very exciting ramp on our products and.
And this is a transition that we've all been waiting for but it's here and it's contributing to revenue now in Q1.
Got it thank you.
Yep.
Our next question comes from Harlan sur with Jpmorgan you May now go ahead.
Good afternoon, and congratulations on the strong results and execution.
On your cloud optimized E cig and some of your DIY design win pipeline.
400 million target in fiscal 'twenty four I think that you said that you're on track for doubling that in fiscal 'twenty five fiscal 2006. So now that you guys are deep into the design phase for many of these products at five nanometers can you guys just give us a sense on what types of chips is developing for your cloud customers is it.
Primarily AI and machine learning acceleration is it video transcoding custom GPU server Cpus et cetera, and then any color.
I'm disappointed would be great and then just as important is the team already starting to engage on early three nanometer programs with your cloud customers on their next generation ACO programs.
Yeah.
Well, it's a great question and I think.
You understand.
Quite well the sensitivities, we have with respect to the these types of engagement with the Hyperscale is I would say it's.
Between what we've won and the pipeline that we are we're pursuing it's pretty much all of those applications that youre discussing.
It's it's.
It's acceleration primarily and it could be.
It could be for things like video it could be for things like security or storage there are networking.
A fix that we're doing that are very customized there's compute there is custom.
D P use if you will.
I think I would think of it is and by the way we said some of this I mean the.
As you look at sort of the the smart Nic opportunity and we've been saying this for a while.
There is a lot of customization going on in that segment as well. So it's a it's a wide range of Ireland note, there's no sort of a one trick pony in here and in aggregate, they're all tracking extremely well and we gave a very judged view by the way when we gave those numbers. So obviously.
Not obviously, but our customers' forecasts are actually higher than what we gave you, but that's sort of our baseline, but we've now won incremental designs, which would layer on top of that so I think it's all positive.
But our ability to get Super precise at this point without a customer announcement would.
It would be a little bit tough.
And you guys are you guys are already engaged on early three nanometer Oh, yeah, sorry, yeah. So so we're very engaged on three nanometer Harlan.
That's actually a key part of.
To be honest why we've been winning.
In five nanometer is having that.
Very committed.
Very rich three nanometer IP portfolio underway.
And we're in deep architecture discussion now on multiple products and in multiple end markets by the way from cloud to <unk> to enterprise.
<unk>.
But using our three nanometer platform. So we're.
Where we're on the we're on the the nanometer train and we're fully committed and we're executing quite well on a roadmap and customers are excited.
Yeah strong momentum thanks, Matt Yes.
Thank you Harlan.
Our next question comes from Christopher Roland with Susquehanna You May now go ahead.
Thanks for the question I also want to Echo my congrats.
You'd mentioned, a new opportunity here Matt.
C or D S P for AC.
B.
I guess my question is are you know what's the timing on this product when it comes to market you.
How big do you think this market could be here and ultimately you know are you guys in a position to take majority share.
<unk>.
Yeah, where we're.
We're pretty excited about this transition in the market Chris as you as I said some of this in my prepared remarks, but.
Traditionally this type of active cable hasnt been needed or at least the last generation that where it was needed was based on.
On <unk> Z technology so.
A little bit like we did and I would say, we have meaning us and imply.
We intercepted the market as it is about to take off in growth at 408 hundred.
With.
With Pam four based technology and six nanometer. So this is think of this is just right in our wheelhouse in terms of.
Leveraging what we've already got but then optimizing the product for this specific application.
Our partners and we've done some announced.
Announcements, we've done a whole flurry of them, you've probably seen them around around OFC coming up.
But we are engaged with all the major cable manufacturers that supply to the hyper scaler.
Our.
Those cables are available they are sampling the customers now we're working directly with the cloud customers on additional enhancements to the roadmap, but we are we are going to be a force to be reckon with in this market.
And it's a perfect fit for us because.
When you think about sort of having all the pieces if you will.
Having the switch having the optics, having now the AUC products, having the gpus and that insight into the NDA and then also a six thats sort of hanging around all of these things and interface.
We have a we have a unique opportunity to really work with our customers to optimize the full solution and thats something that maybe companies that only have one piece of the puzzle that don't quite see what's exactly happening so very.
Very excited about this as an incremental opportunity for us.
Market size, depending on who you talk to.
Some are saying it's in billions.
1 billion plus I think.
But we'll see where we're optimistic that it's a it's a big opportunity for us we're still sizing what we think it means for marvell, but we're going to we're in the market today.
Exciting thanks, Matt.
Yep.
Our next question comes from Gary Mobley with Wells Fargo Securities You May now go ahead.
Hey, everyone. Thanks for sneaking in my question.
I know you haven't filed your 10-K yet.
As it relates to that is there anything notable with respect to purchase commitments on your behalf with your foundry partners.
Specifically, that's quantifiable and then as well purchase commitments and Cnr's, Mr called with respect to your customers.
Oh, Hi, Gary This is Jim Yeah, we have not filed the 10-K, yet but as far as the purchase agreement.
As you know last quarter, and we have about a three D. NAND commitment and care, we are engaging with our supplier suppliers to ensure we have the capacity not only for this year next year and if a longer term so.
You probably know it tends to be a year ago. This is just 200 media. So we have an increase to our.
Commitment to significantly you're going to see going forward at the same trend that you see because that's what really driving folks I saw a company to make sure we have the capacity to support our customers.
And Gary I would add is gene as gene indicated.
You can kind of follow the trend line.
The engagements now as we talked about you can actually direct directly relate them to some of the prior questions. We had about our cloud optimized ramps.
In fiscal 'twenty, four and 'twenty five.
We're planning we're planning our business.
Out even beyond that with respect to some of the key capacity we need on.
On the.
The critical technologies that are required.
Substrates and various other pieces of the supply chain. So you'll see that trend continue as we plan our business actually multiple years in the future both with our and Oems and then our key supply chain partners to make sure. We're all in lockstep to meet these these very very steep product ramps that are going to be required over the next few.
Years.
Thank you Matt.
Thank you Gary.
Our next question comes from Matt Ramsey with Cowen You May now go ahead.
Thank you very much guys for letting me on Matt I wanted to ask a quick question about the given that cloud is such a important part of your business.
My own observation is that.
A lot of things are coming in the data center space in the next 12 months with Sapphire for mentor with Genworth remain D with.
Pam for 400 gig optics and a bunch of other things that are really to meet that.
To have a pretty big update upgrade cycle in data center spending space.
And I Wonder as you engage with your customers. How your do you agree with that do you see an inflection in sort of pent up spending given given maybe intel's roadmap is held back some things on lack of clarity I just wonder how you would characterize over the next year or two the hyperscale spending environment as you guys see it today. Thanks.
Yes, Thanks, Matt and welcome to the call.
So so I think you're absolutely right on the trends that we're talking about here I think.
As we have new processor refreshes new server refreshes.
And then there's all kinds of chips by the way that are going to flow into the equation as well not just the sort of the.
The server itself, but then the acceleration that is going to be required the new workloads different AI GPU clusters. I mean, you just start going through all of the trends.
And that is underpinning.
Ultimately the silicon sort of architectures are are underpinning fundamentally the the cloud capex and what's needed. So we you know as as the as these new cycles come and there's an inflection it's really good for Marvell and <unk>.
The Pam for 400 gig opportunities one just great example, but.
Our design win position on the new systems right.
In the new architectures that are coming the content is just much higher whether its per datacenter per server you name it and so I think that.
That's exciting to us and yes, there has been there's been some delays from certain suppliers here and there but as those.
As that roadmap gets executed and that transition happens, there's a lot of uplift for marvell and that is a kind of another way to back into some of the growth that we're seeing and projecting that.
This concludes our question and answer session. Thank you for attending today's presentation you may now disconnect.
Okay.
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