Q2 2023 Marvell Technology Inc Earnings Call
Good afternoon, and welcome to Marvell technologies fiscal second quarter 'twenty 'twenty three earnings conference call.
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I would now like to turn the conference over to Mr. Ashish Saran Senior Vice President of Investor Relations. Please go ahead.
Thank you and good afternoon, everyone welcome to Marvell second quarter fiscal year 2023 earnings call. Joining me today are Matt Murphy, Marvell, President and CEO and Jean Hu, our CFO let.
Let me remind everyone that certain comments made today may include forward looking statements, which are subject to significant risks and uncertainties.
That could cause our actual results to differ materially from management's current expectations.
Have you the 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, we do not intend to update our forward looking statements during our call today, we will refer to certain non-GAAP financial measures.
Reconciliation between our GAAP and non-GAAP financial measures is available in the Investor Relations section of our website with that I'll turn the call over to Matt for his comments on our performance Matt.
Thanks, Ashish and good afternoon, everyone.
In the second quarter of fiscal 2023, the Marvell team drove another record level of revenue at 1.52 billion growing 41% year over year and 5% sequentially.
Revenue on an annualized run rate exceeded 6 billion.
A significant achievement for Marvell.
Revenue collectively from our four data infrastructure focused end markets grew 49% year over year, and 7% sequentially, reaching a new high of 89% of our total revenue.
Moving on to the rest of the income statement.
Our GAAP gross margin was 51, 8% GAAP operating margin was two 6% and GAAP EPS was one set.
Our non-GAAP gross margin was 65% and our non-GAAP operating margin.
New record at 36, 5% of revenue.
Disciplined Opex management helped drive our non-GAAP earnings per share to 57.
Above the midpoint of guidance.
Earnings per share grew 68% year over year much faster than our revenue growth.
As we continued to drive operating leverage.
Now, let me provide a brief update on the outlook for demand and supply.
We continue to see healthy demand for our products with the exception of consumer H D D and our overall demand is outpacing supply.
The very successful adoption of our new products and strong end market demand has enabled marvell to grow revenue significantly above our long term target model.
As a reminder, at our last Investor Day in October 2021, we had updated our long term model for revenue growth to a target range of 15% to 20% from an annualized revenue run rate at that time of $4 3 billion.
At the midpoint of the target it would've taken us two years to achieve 6 billion in annualized revenue run rate.
We are very pleased that we were able to cross this milestone this quarter a full year ahead of our target.
As we look forward, we are confident that our long term growth opportunity is consistent with our target model even off this higher base of revenue.
Let me now turn to supply.
Despite a choppy supply environment, the strength of our business model and diversity in end markets enabled us to achieve our overall revenue guidance in the second quarter.
We expect our revenue mix by end market will continue to be influenced more by supply and demand in the near term.
As we continue to secure capacity to support our long term growth. We are encouraged to see some pockets of additional supply is starting to open up on certain nodes and simple package technologies. In contrast for our high complexity products with long manufacturing cycle times.
Such as in our data center end market.
The supply chain for leading edge technology and advanced packaging remains very tight.
Our operations team continues to execute our strategy to deeply engage with partners to support our long term growth.
Let me now move on to discussing our five end markets starting with data center.
And our data center end market revenue for the second quarter was $643 million.
On a year on year basis, our datacenter revenue grew 48% with our cloud business growing significantly faster.
The year over year growth was very broad based with multiple product lines contributing to strong results.
On a sequential basis, the continued growth from our cloud business was offset by a decline in our on premise business.
Flattening our data center revenue in.
In the on premise business the sequential decline was driven primarily.
From our fibre channel and Ethernet adapters.
We believe the overall demand picture and cloud data centers remains healthy and that this market represents the single biggest long term growth driver for Marvell.
We expect growth to continue from a number of exciting areas, including electro optics cloud optimized custom solutions cloud switching and our broad data center storage portfolio.
At the Flash memory summit earlier this month Marvell showcase many state of the art datacenter storage solutions, including our <unk> Pcie Gen five SSD controller.
And Ethernet bunch of flash solution for AI, and ml and <unk> XL.
And you recall from our discussion last quarter, we see <unk> as the next big evolution in cloud data centers that will enable us to increase our reach into the memory ecosystem and presents a multibillion dollar Sam expansion opportunity for Marvell.
The host of new products, such as C. At XL, expanders pulling devices switches and accelerators and the potential to embedded <unk> IP and a broad range of our data center products.
Events and presentations at Fms strongly validated our excitement around <unk>. This is the hottest topic at Fms with standing room, only presentations by many leading industry participants tomorrow.
The Marvell Booth, we demonstrated the industry's first <unk> memory pooling solution addressing the challenges related to memory scaling in cloud data centers.
While the industry is still in the early stages of <unk> adoption. We are working on closing significant opportunities right in front of us at key customers and envision a strong design win pipeline.
Turning now to the third quarter of fiscal 2023, and datacenter year over year, we are expecting revenue growth of over 20% driven by our cloud end market.
Due to the complex nature of products for this end market, we expect supply challenges in the third quarter to impact our ability to fully meet the demand on a sequential basis. As a result, we expect revenue from cloud customers to be flat sequentially and revenue in the on premise market to decline.
Therefore for our overall data center end market, we project revenue in the third quarter to decline sequentially in the mid single digits on a percentage basis. However, we expect our datacenter revenue in the fourth quarter to increase on a sequential basis anticipating an improvement in supply and new product ramps and cloud.
Turning to our carrier infrastructure end market revenue for the second quarter was well above our forecast at $285 million and growing 45% year over year and 13% sequentially.
It benefited from a strong performance from both our wireless and wired and markets.
Our wireless business continued to advance in the second quarter benefiting from the growth in <unk> adoption.
With an annualized revenue run rate crossing 600 million, we are thrilled to have achieved an important milestone.
We expect to see an extended period of growth for our <unk> business with multiple regions, such as Europe , and India, yet to launch <unk> in a meaningful fashion.
We expect to see further growth in other large geographies such as the U S, which are only in their first year of mainstream deployment in.
In addition, we have significant content growth in the next generation of base stations still in front of us.
In wired, we saw stronger than expected shipments of our coherent DSP and accompanying tia's and drivers to wired customers. We're seeing strong demand in the metro and long haul carrier markets driven by a rapid adoption of our 400 gig coherent electro optics portfolio we have.
Pleased with the strong launch of these products.
Looking ahead to the third quarter of fiscal 2023 for our carrier end market, we're expecting year over year revenue growth in the mid 20% range driven primarily by our wireless end market on a sequential basis, we expect wireless revenue to continue to grow driven by <unk> deployments. However, after a very strong second quarter, we expect to see.
When shall decline in revenue from wired to more than offset the growth from wireless as a result, we project revenue from the overall carrier end market to decline in the mid single digits sequentially on a percentage basis.
Moving onto our enterprise networking end market revenue for the second quarter was 340 million growing 53% year over year, and 19% sequentially better than our guidance driven by improvements in supply.
Our strong growth in enterprise networking is primarily a result of our own unique product cycles are revenue growth has accelerated as our customers that started shipping their new platforms, where we have the dual benefits of share gains and an increase in content driven by the adoption of higher value products, such as our multi gigabit fives.
In the second quarter, we see ongoing growth from our refreshed Ethernet switch and phy portfolio.
We also benefited from a ramp in our custom silicon products for enterprise networking, which is a new growth vector in this end market for marvell.
In the third quarter of fiscal 2023, we expect to continuation of strong demand for our products.
From the enterprise networking end market as you heard earlier, we are seeing pockets of supply opening up which should enable us to begin to catch up to demand.
As a result, we are projecting revenue from enterprise networking to grow approximately 70% year over year and over 20% sequentially.
Turning to our automotive and industrial end market revenue for the second quarter was $84 million growing 46% year over year.
Our auto business continued to grow sequentially, but this was more than offset by a supply impacted industrial business. As a result overall revenue from the combined end market declined 6% quarter over quarter.
Year over year, our auto business driven by higher adoption of Marvell Ethernet technology continued its strong growth trajectory with revenue doubling.
Last quarter I discussed our growing list of Ethernet design wins in our auto business, which expanded to eight of the 10 largest Oems worldwide and 36 Oems in total.
I'd highlight that the lifetime revenue from these new design wins is substantially larger than prior wins at large auto Oems we are winning in their highest volume internal combustion engine segments, along with their higher content and their evs and hybrids. These.
These wins tend to be multi platform in nature covering many models simultaneously.
Overall content is continuing to grow driven by an increase in the number of Ethernet connected endpoints, coupled with the need for more bandwidth.
Looking to the third quarter of fiscal 2023.
We are projecting revenue growth to remain over 40% year over year and grow in the mid teens sequentially on a percentage basis for the combined auto and industrial end market.
We project all of the sequential growth to be driven by our automotive products.
Where we are experiencing strong demand.
And continuing improvements in supply.
Moving onto our consumer end market revenue for the second quarter was $164 million declining 1% year over year and 8% sequentially.
<unk> were below guidance as demand from the HDD market weakened.
In contrast to consumer HDD products revenue in the second quarter from our consumer SSD controllers continued to grow both sequentially and year over year.
Looking ahead to the third quarter of fiscal 2023 for our consumer end market, we are forecasting revenue to be flattish sequentially.
On a year over year basis, we expect revenue from the consumer end market to decline by approximately 10% due to softness in consumer HDD demand, partially offset by continued growth in our SSD business.
In closing we delivered record results for the second quarter and are guiding for continued growth in the third quarter.
Our strategy to focus on a diversified portfolio and data infrastructure is playing out very well as we continued to deliver strong results.
We have limited exposure to the headwinds that consumer exposed companies are now facing.
In the third quarter at the midpoint of the range, we are guiding a revenue to grow by 29% year over year, and we expect operating leverage in our business model to drive non-GAAP EPS at the midpoint of guidance to grow by 37% year over year.
Looking forward, we are projecting our revenue growth to accelerate on a sequential basis in the fourth quarter on the back of more supply and new product ramps.
As we wrap up the first half of fiscal 2023, I'm very pleased with the trajectory for full year revenue, which is well above the target we established last December .
At that time, we had discussed our target for fiscal 2023 annual revenue growth in the low 30% range I'm.
I am very pleased to note that we are running well ahead of that target with full year revenue growth now tracking towards the high 30% range.
Over the last six years through organic investments and strategic M&A, we have significantly transformed the company pivoting to data infrastructure accelerating our technology roadmap and driving a tremendous increase in design wins. We are now seeing the benefits of these efforts in our revenue growth operating margin expansion and increased.
<unk> to the critical cloud <unk> and auto end markets.
As we look at next fiscal year, despite economic and semiconductor cycle concerns we are optimistic about our prospects.
We expect to benefit from our favorable end market exposure and significant revenue contributions from a number of marvell specific product cycles, which we have discussed in detail over the last several quarters.
Before I hand off to gene, let me provide an update on our board and ESG.
Earlier this week, we announced the addition of Rebecca House to the Marvell Board of directors.
She currently serves as senior Vice President Chief people, and legal officer, and corporate Secretary at Rockwell automation Global leader in industrial automation was 25000 employees worldwide.
It was selected for her extensive background in the areas of talent management legal ethics, and compliance public affairs security and sustainability.
Stated to have Becky join our already strong group of directors and I am looking forward to working with her.
Finally, I'm pleased to announce the publication of Marvell inaugural sustainability report.
Marriage, you to review the report on our website to learn more about our ESG performance and future goals.
And 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.
Turning to review of our financial results for the second of content and then provide our kind of asking for the third quarter fiscal 2023.
Revenue in the second half content with the 1517, EMEA growing 5% sequentially.
1% per year.
India was our largest market accounting for 42% of consolidated revenue.
Enterprise networking with next launches maybe 22% of total revenue followed by carrier infrastructure and 19% can you see.
And 11% in auto industrial and 6%.
Cash gross margin was 51, 8% non-GAAP .
Profit was 986 million increasing 41% non.
non-GAAP gross margin with the 65% of revenues slightly.
Due to product mix.
GAAP operating expenses were 747 units and included the cost of share based compensation expenses were 135.
The amortization of acquired intangible assets of <unk> and a defining in charge of a contractual dispute settlement.
Other acquisition and divestiture related costs.
non-GAAP operating expenses were 432 knee below the median point of our guidance Opex increased by 18%.
We added headcount to Delever the market New design, we haven't wanted me to key customers.
We continue to drive strong operating leverage to grow Opex is significantly less than top line revenue growth.
GAAP operating income taking our.
Our non-GAAP operating profit was 560, <unk>, increasing by 67% farm income and non-GAAP operating margin.
<unk>, 5% and record from that now for.
For the second quarter GAAP net income per diluted share with the Wednesday.
non-GAAP income per diluted share was <unk> 57, increasing by 68% per year.
Now turning to our balance sheet and cash flow during the content, we generated 332 million in cash from operations.
Reflecting our strong earnings offset by continued working capital investment to support our top line revenue growth.
We have increased our inventory by 78 million to better address demands from our customers very tight supply chain environment and to help ensure a smooth ramp <unk> NAND revenue design wins that we expect to start shipping in the next few quarters.
The majority of this increase.
Materials and we're.
Looking longer term I see the supply chain currently has shown improvement.
Back to Alex <unk> will start to decline.
Consistent with our strategy to secure longer term supply we have increased our long term purchase commitments for capacity to support a number of our high volume design win.
Commitments increased by 400, and a slinky Shannon. Thank you Nicolas Champ two at <unk>.
Total of approximately three for me please.
Please note this commitment over a multiyear time period.
At the end of the second quarter, our cash and cash equivalents were 617.
We intend to maintain a higher cash balance compared to the last a few years as our business has significantly increased in scale.
Our total debt was $4 6 billion, our gross debt to EBITDA ratio was two times and net debt to EBITDA ratio was one eight times.
We then turned to 100 and the 1 million to Seattle against it to 51 million in cash dividend and 50 million for share repurchase.
Yes.
Now turning to our guidance for the big quantity on fiscal 2023, we expect the following.
Revenue will be in the range of one to five 6 billion plus or minus 3%.
GAAP gross margin will be in a range of 51, 1% plus or minus one 1%.
non-GAAP gross margin will be in the range of 65% plus or minus two 5%.
Operating expenses will be in the range of 667 million to 670 70.
non-GAAP operating expenses will be in the range of 435 million to 440.
And in <unk>, we expect to Delever, 37% and non-GAAP operating margin.
We continue to make significant progress toward our long term target of 38% to 40% non-GAAP operating margin.
Other income and expense, including interest expense will be approximately 38 million.
For the third of podcast leaseback, our non-GAAP tax rate was 6% lease.
We expect our basic weighted average shares outstanding will be 850 for me and our diluted weighted shares outstanding will be 860 <unk>.
As we reach out we expect GAAP earnings per share in the range of <unk> to <unk>.
We expect non-GAAP net income per diluted share in the range of 56 to 62 event.
Operator, please open the line and announced Chile instructions. Thank you.
You.
Thank you we will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone if youre using a speakerphone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then two.
In the 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.
Our first question comes from Toshi Hari of Goldman Sachs. Please go ahead.
Hi, good afternoon. Thanks, so much for taking the question Matt I wanted to ask a question on calendar 'twenty, three or a fiscal 'twenty four.
You you gave some brief comments as it pertains to some of the big growth drivers that you've talked about in the past.
I was hoping you could remind us perhaps the top three drivers that are that are idiosyncratic to marvell as you look out into fiscal 'twenty four.
And how youre thinking about the supply side of the equation do you think by fiscal 'twenty, four youll be shipping to demand or youll still be constrained, whether it be wafers or substrates.
And the third part of my question I think consensus hazard growing top line by about 17%.
Is that.
A fair number to start off with or is that too high too low any comments on where street consensus is today would be helpful. Thanks, So much.
Yeah. Thanks, Toshi and we'll go ahead and do the trifecta of questions here no problem. So on the first one.
The for next year as you point out there are a number of marvell specific growth drivers, which we're very excited about I'll cover three of them.
And then of course, there's other things going on as well. So the three biggest buckets and then the number one of all three is is our is our cloud optimized silicon ramp.
What we've talked about in the last few quarters and even year is a number of new design wins that we achieved over the last couple of years in this cloud optimized silicon area and we sized it.
For those of you on the call that haven't been following it at about $400 million of incremental revenue for next year and then.
And then 800 the year after.
And that's still tracking extremely well.
Have a good line of sight on those programs they are quite diverse in nature by the way. So theres a number of them that are going to have to ramp.
And that's all tracking well the second is and you saw even in the most current quarter again, another strong performance out of our <unk> business.
And wireless.
And the adoption of <unk>, we will absolutely continue next year and really on top of that which is more specific to marvell is we have incremental content gains.
And Sam expansion coming.
As well so thats also in front of us.
And then on the third our automotive business, which in general has been about doubling on a year on year basis. If you go back over the last few quarters.
Yeah. This is automotive Ethernet that also has a very strong outlook as well for next year and again. This is really based on the breadth of design wins, Tokyo, we have across almost all the major top Oems as well as virtually all of the emerging.
Next generation car companies.
And by the way, it's proliferating both in the ice vehicles as well as electric vehicles. So those three.
I think our good buckets to think about.
On the.
On the on the follow up on the constraint side.
We are seeing some loosening of supply as I said in my prepared remarks, which we believe.
We will begin to benefit us some of which will be in Q4.
When you think about next year when you when you look at the broader supply chain and you actually focus in on the.
The bleeding edge technology.
Types of components that are required whether thats advanced packaging and substrates.
Some of the advanced node process technology, and just some of the complex nature of the products. We're dealing with those we have to manage very carefully they have long manufacturing cycle times, and we need to plan appropriately, but currently we feel very good about our line of sight to be able to ramp up these programs in line with what our.
<unk> need and we're having those discussions as we speak.
And then the final part is with respect to the outlook next year I think the biggest thing the takeaway really is at the highest level. We're ahead of plan on where we thought we were if I went back to our analyst day back at the end of 2021.
On the $6 billion annualized revenue run rate now our current year it looks like it's going to be.
Above where we thought it would be.
Back at the end of last year. So that's all positive and as we look forward we do see.
The long term target model being achievable even off this higher revenue run rate so.
That's more of a long term comment, but certainly if you add up our growth drivers and you look at where we are today, we feel very good about fiscal 'twenty for calendar 'twenty three next year.
Thanks.
Thanks, so much.
The next question comes from C. J Muse from Evercore. Please go ahead.
Yes, good afternoon, and thank you for taking my question.
I guess a question around data center, particularly as it relates to the October quarter Guide.
Yes.
I'm surprised that the clouds tracking only flat.
And I guess.
Kind of a supply constraint that caught you by surprise.
Or otherwise.
Less than 3% sequential growth seems a little bit right, we'd love to hear your thoughts around that.
Yeah, No problem C. J, yes couple of things one is as I.
Said some of this in the prepared remarks.
As we've battled through on the supply side like a lot of other companies this year.
It's been quiet.
It's been quite lumpy in terms of when the supply comes in and by what end market and so.
On an average.
Bridge quarter, we're not exactly even over the last few quarters.
Perfectly forecast how much we can deliver now that seven data center just for perspective.
We had a huge step up starting in our Q1 of this year. We were constrained last year, we made a lot of great progress. Our Q1, I believe was up something like 12% sequentially from our Q4.
With.
And then we've sort of held at that level, maybe slightly increased a little bit through that timeframe.
And on a year over year basis.
<unk> has been absolutely on fire.
And the final point would be in the fourth quarter.
We see a step up again both.
On a sequential basis so.
So I wouldn't say it necessarily surprised us I think we've we've known these programs and we're doing our best.
But at this and we're going to try to do better for this quarter by the way, but at this point. This is how we see it.
The cloud business for us has been extremely strong and over overall for Marvell remains healthy.
I would say, it's more of a supply timing issue and our operations team is all over it to try to obviously make sure we meet what our customers need and ramp when they want to ramp.
Thank you.
Yes.
Next question is from Ross Seymore from Deutsche Bank. Please go ahead.
Hi, Thanks for letting me ask a question Matt I wanted to talk about the cloud optimized side I know you answered to a previous question that that should be an idiosyncratic driver for you next year, but how do I blend together frankly, the answers to the first and the second question that was already asked where the cloud side is lumpy.
You have ups and downs, but the good part is idiosyncratic and you expect it to grow so I guess the net of it all is do you see risk to that $400 million over the next year and then another $400 million a year after there.
Macro <unk> supply stays lumpy or do you think the.
Customer specific very customized aspect of those businesses will allow that to grow and deliver those numbers even in a more choppy environment.
Yeah sure Ross Great question, maybe just before I answer it I'll, just give a give a higher level view.
And your cloud your questions cloud specific but if I just frame the overall marvell.
Strategy that we've put together in the business model, we've put together its been one where.
You know.
Diversification and breadth of product offering and technology and obviously the financial model to go with it has been.
Then our Northstar right since since I joined the company and since this management team has driven this transformation. So you can even see it in the short term were.
Like for example, we've got constraints and cloud this quarter, but enterprise and automotive when you look out to next quarter or are doing extremely well and thats because of our diversification of our model all focused around data infrastructure by the way. So while there may be lumpy quote unquote parts of our business from time to time.
That is by design, how we've architected the business model of Marvell and its taken taken a long time to get here and I think it's actually proven to be very resilient. When you look at our Q3 being up and then our Q4 actually accelerating so that's the bigger picture around how we think about it and managing Lumpiness now with respect to the cloud.
I might want to put a little asterisk by the 400 800 and that we've actually talked about it being 400, plus an 800 plus in prior calls which means the 400 800.
Was identified last year.
And then subsequent went Lee and.
Our communications with investors, including earnings call. We've said, we've actually won more business. Since then with incremental revenue both in fiscal 'twenty four in fiscal 'twenty five some next year and the year. After so think of it as kind of a 400, plus 800 plus diversified across a number of programs. So the bottom line is we feel very good.
That ramp.
Some of them I'm sure will require a lot more than we're planning for at this point and I'm sure a few of them will require less than we're planning, but in aggregate when we judge the outlook and we just did a refresh of this just very recently not only internally, but even with my key customers in terms of planning for next year that ramp looks very solid.
In both of those years.
Thank you.
The next question is from Timothy Arcuri with UBS. Please go ahead.
Thanks, a lot Matt I also wanted to ask about data.
Center and last quarter I think the expectation was that you were going to see some reacceleration as the supply was going to improve into the back half of the fiscal year. So.
I know that.
Enterprise portion of that business is weak, but maybe can you help us understand sort of what's going on there maybe tell us how much cloud is as a portion of the total data center business and then also.
In the fiscal Q4, it sounds like total revenue is going to be close to $1 7 billion for you to be up high <unk> and that's up nearly 10% Q on Q, but im wondering how much data center will be up I mean, you said, it's going to be up Q on Q, but I would think it should easily be up double digits with more supply you have the five nanometer products ramping so I wonder if.
We can help with that.
Sure Yeah, a couple of things so on the.
On the first part on the data center, what we've said is that our the.
The larger portion of the total is is in cloud so.
The exact number we haven't quite disclose it but call it <unk>.
<unk> to 60% 60 plus percent versus 40, so that's been and that's why we said even in this prior quarter on a year on year cloud grew much faster than the total.
Just because the enterprise of the mix now reminder, a little bit on the enterprise side its not a great proxy of what I would call enterprise data center from the standpoint that those products, we sell into that market or our fibre channel.
And Ethernet adapters, which are.
Somewhat of a legacy type of business for Marvell, so that one.
We've been pretty upfront about this that doesn't have a lot of growth per se ahead, and so really it's been all about it.
About the cloud.
The in Q4, as we said the overall company revenue, we expect to accelerate off of Q3, we haven't pegged a number I think.
The range you are discussing.
It looks a little on the high side, but if you just back end to the high Thirty's comment we made in U.
Take the two quarters, we've already produced we take our Q3 guide and look at Q4, you'll you'll you'll get to a range that that seems to make sense. So.
Yeah, I guess bottom line is.
We do and I think the acceleration we thought we would get in the second half on cloud is more a Q4 type of story than Q3, and that's that's how it's playing out primarily on the on the basis of supply.
Okay, Matt Thank you.
The next question is from Blayne Curtis with Barclays. Please go ahead.
Hey, good afternoon. Thanks, Tim My question I, just wanted to go back to the demand part of the equation I thought you said in the beginning consumer Acd's, where the only thing week, but you have two segments that are down some just maybe just revisit that.
Even in the areas like enterprise or up a bit it sounds like supply. So I just wanted to revisit the demand outlook.
I think you said data center is kind of lumpy, but I mean is that all lumping in timing and supply even for the businesses that are down or have you seen any broader down ticks on that demand side.
Yes, Blayne I think.
I think when I look at your question there the enterprise side.
And particularly the on Prem.
I do think that that has been more lumpy in terms of the supply we've gotten and how we've delivered it we haven't really seen a lot of.
Demand changes there per se, but we certainly in our in our first quarter.
And a little bit of our second quarter.
We're able to produce more supply than we had hoped so when we talk to customers the demand signals there.
Don't look anything out of the ordinary versus what we have seen historically.
Feels like we're going back to a little bit of where we were before this huge up cycle, but it's all within the normal range.
The comment on consumer HDD was really its down its pronounced we can we can we can quantify it.
But the other part you mentioned is.
It's more around the lumpiness of our supply delivery rather than than demand being down.
Thanks, Matt.
The next question is from Matt Ramsey with Cowen. Please go ahead.
Yes. Thank you very much good afternoon.
Right.
I don't know if it's for a change of pace, maybe something not.
You can go there Matt no problem.
I wanted to ask you about the enterprise networking.
Segment.
Big upside, there and guiding for almost 25% growth or 70% year over year.
Is that maybe you could talk about the specific product cycles that are going on there or.
Is it in fact, that's where youre able to upside in supply and just sort of disaggregate, what's what's driving that to be the fastest growing segment right now.
Yes, Thanks, yes, actually it's a combination of both where we.
We have very strong demand for our products I'll cover that in a second on why that's a little bit unique to us. But then also I would say where we have been we called this out a couple of quarters ago. This had been one of our more pronounced areas of <unk>.
Delinquency and we're starting to finally catch up so it's a combination of both Matt, which I think is producing a very strong result, obviously, we guide out not only not only in the Q3 guide, but also the quarter. We just finished so on the on the demand side I mean, we've I think a couple of things right in our sort of classic Marvell poor.
Folio.
Had very consistent share gains and new product introductions with a lot of success in the.
Enterprise class Ethernet switch and Phy area and some of those cases, we sell the two products together as part of a total solution and one trend that I think we had talked about for quite a while and it's actually here and it's right in front of us and it's showing up in our numbers is the adoption of multi gig phy technology.
<unk>.
The large enterprise Oems and you can listen to their commentary there, they're seeing a big uptick a lot of that is driven by Wifi six which.
At some point the wireless rate line rate was going faster than the wired rates. So that's driven a pretty big adoption and the content and the.
<unk> per port has gone up dramatically as you switch to multi gig and its not like <unk>.
<unk>, 2030%, it's sort of multiples on a per port basis of of where it was before and that's that's hitting okay. So you've got increased by content.
New products ramping we've won new customers over the last few years.
And we've gained share so so that's been a good story and it's been pretty consistent by the way although it has accelerated in the last few quarters.
And then on top of that a lot of the constraints we had had.
In this area. We finally started seeing the supply improvements based on our own.
Partnerships that we struck with our various suppliers and so that's starting to benefit us as well and we're finally sort of getting more caught up here. So all in all I think great great performance, obviously out of enterprise, it's at a much higher run rate than I think.
Certainly people were planning or we were even thinking back at our Investor day.
A year ago, but.
We're pleased that I think the designs, we won't actually have ramped up and we still have a bright outlook from here. The final one I would say Matt is that we also had some new incremental business on custom silicon and ASIC in the enterprise, which was not an area where we historically played and those are also going to production as well both starting.
This year, but even reaching full volume or not.
Let's call it run rate volume next year.
So I think a lot of new product stuff and good supply improvements.
Thanks for all the detail Matt.
Yes.
The next question is from Gary Mobley from Wells Fargo. Please go ahead.
Good afternoon, everybody. Thanks for taking my question.
I had a couple of questions on that.
Some of your foundry relationships gene I believe you mentioned that your purchase obligations with your foundry partners kicked up about 15% sequentially sits at about a half year's worth of revenue I'm wondering if given that capacity seems to be freeing up a bit, but we see that those purchase obligations level off and what are the risks there.
Maybe.
Not being able to take all of that commitment in the future and then as well have you or do you anticipate any additional price increases from your foundry partners that you may eventually have to pass on to customers.
Yeah, Hey, Gary Thanks for the question first on the long term purchase commitment.
<unk> mentioned right.
<unk> data infrastructure, our products that tend to have a very long product cycle and most of our products, whereas philosophe. So based on the design wins, we have and the product ramp in the business of planning, we strike strategic relationship that would be the our suppliers to ensure we can secure.
The capacity in the longer term so when you look at the purchase commitment.
With our long term commitment to like two three and five to seven or even beyond a year.
Our team has done a great job to really analyze what we eat and what we should strike I said long term purchase agreements typically it's only a very small portion of our overall supply needs. So we are actually we feel very comfortable by analyzing the need for the product ramp.
Customer relationship and what we our can making if you look at the each year its actually very small mountain right, it's spread into seven years and beyond so we feel pretty good about that.
On your second question about supply chain input cost.
Still very tight supply chain environment.
Continue to build.
<unk> the next year, we're going to continue to face challenges.
Complex substrate and some of the components and even older generation wafer side, so for us we definitely if their input.
Cost of increase because of supply demand imbalance our strategy and our approach has been really working with our suppliers and our customers to make sure we share the cost to increase.
Overall, so that's our current expectation.
Thanks Gene.
The next question comes from Harlan sur with Jpmorgan. Please go ahead.
Good afternoon, Thanks for taking my question.
On the cloud optical connectivity business, both inside and between data centers you know the upgrade cycles have been this really great multiyear tailwind for the team and if I look into next year I believe that there is still that this one of the top four U S. Hyperscale pricing that's going to start the 400 gig Pam four trends.
<unk> you.
They'll have China CSP didn't need supplier, you've got multiple customers on Dr. That's been a fire as well historically like these transitions.
I think have been impacted by a slowing macro demand environment, they're viewed as I think very strategic but is that how your cloud customers.
Thinking about these upgrades and your views on continued upgrade momentum in this segment for next year and just Relatedly.
The inaugural came on track to deliver $150 million in revenue this year.
Hey, Thanks, Harlan Yeah, I think the first part of it you you you got pretty well in terms of the transition on 204 hundred gig Pam for inside the data Center and then the new ramps, we're seeing in 400 gig ZR for Dci between data centers.
What I'd add on top of that is which has been.
Extremely strong and also in some ways a little bit of a constraint we have seen in terms of being able to keep up as the demand on 800 gig, which is which is happening right now.
Really around.
Obviously very advanced AI workloads that is an area where.
If we could obviously produce more material, we would we would be shipping it in Q3. So that that's also a positive trends so you've got sort of a.
The transition going on all the way up to 800 gig and that continues to look look pretty good.
On the on the data center switching side, we are on track.
For the $150 million of data center switching this year.
And we see very good traction in the market too.
In the solutions, we're talking about now at 51, two with our.
With our.
Pam four DSP is kind of a total solution. So that's also going well the team has been integrated.
Very well into the company.
Roadmap looks very strong.
It's pretty exciting so that was another growth vector that I did not mention upfront, but I guess you could lump it it's not part of our 400 800 cloud.
Ramp, but that's also incremental opportunity for us in cloud switching.
Perfect. Thanks, Matt.
Yeah.
The next question comes from tore Svanberg with Stifel. Please go ahead.
Yes, congrats on another record quarter.
Just kind of staying a little bit on what's to come.
Over the next few years, you talked quite a bit about <unk> I was just wondering when when will that business.
Part two to ramp I mean, we're talking about.
More than $1 billion Tam here.
And when could that business sort of become bigger than the consumer HDD business.
Just going to put into perspective unique growth drivers versus market drivers. Thank you.
Yeah, well, hey, sorry that would be a great day, we can crack the champagne, if we can get <unk> up to where the consumer or the HDD business used to be but in all seriousness. This is this is new.
This is a new technology transition that is happening it's actually very exciting for the team to look at now really enabling these solutions to.
In the memory ecosystem.
We have a full roadmap that's well underway in terms of product development.
But it's still early so we're still a couple of years out and by the way just to be clear on the opportunity that that that's the fan. We said was was overtime.
The.
The $1 billion plus are multibillion so it's still a ways out we're not we're not ready to sort of talk about when the timing exactly of that but we're very encouraged.
Absolute real trend, we intend to be a leader here, we're investing ahead of the curve.
Tremendous traction on our roadmap and the breadth of what we can do in <unk>. So it's an exciting why don't we just thought it was appropriate to flag that for investors as yet another opportunity to leverage a lot of the great technology, we have into the same set of accounts and in the case of <unk> will actually help.
Enable them right.
<unk>.
Architect these solutions for the future. So I think it is going to be a pretty exciting one, but it's a little ways out and none of that is sort of in the.
Like the $400 million next year as an example, that's not that's not part of it that would all be incremental a few years out.
Great. Thank you.
Yep.
The next question is from shiny toys jewelry from S. NBC Nikko. Please go ahead.
Thank you Hi, Matt My question is on <unk> and <unk>.
Particular, now that India <unk> auctions are behind Us I'm, just curious as to how we should think about that opportunity map.
I think you have a pretty strong position there, but could you put that into perspective versus a U S opportunity, our Europe opportunity and then.
The second half strength is that what's driving it I think youre guiding <unk> to be up even in the third quarter. So I'm just curious if youre seeing any action from India as yet thank you.
Yes, Jean you can chime in but I think India for US is still I think thats still in next year type type of event, although the.
You mentioned the tenders have gone through we're well positioned for that I think we've historically through our partners had a strong position there, but I would say, it's the way to think about our <unk> business now.
Is more.
Broader diversified.
And.
And kind of a consistent performer, so I don't think youre going to see it takes.
It takes some enormous leap in a given quarter as an example, I mean, it's been performing extremely well. If you go all the way back to kind of the initial ramps to two plus years ago.
Basically had sequential growth I think about every quarter, except one maybe I don't know seven quarters ago, where we were flat or something right. So I think I think again, it's a it's a good example, maybe at a smaller scale of the diversification strategy. We've tried to drive whereas we go into these markets, we do try to.
Find.
A number of key partners to lineup with such that were.
We try to reduce volatility in.
And perform well in any environment. So I think I think India is just another example, but I think theres also other geographies that are going to be laying in as well and I think maybe even the bigger tailwind is just sort of increased content as new systems rollout with more and more marvell silicon per base station I think that's really where.
<unk>.
There will be a bigger impact than a particular geo geography.
Ramping up in a given quarter, but gene any thoughts on that to add.
Let me just add to what you just said is this year, we have seen significant growth.
Ratings are already over 600 million now.
It's actually marginally benefited by North American and North American adult channels, where <unk> has been really strong this year going forward in India indefinitely.
The next year.
But.
Matthew right.
Our <unk> business. It will continue to be a very significant growth driver next year for us it hasnt really long product cycle and the visibility actually into pretty good in this market.
Got it thanks, Dan Thanks, Matt.
The next question comes from harsh Kumar with Piper Sandler. Please go ahead.
Yeah, Hey, Matt I had a question for you so if I layer in.
Parts on the $400 million odd.
Custom cloud silicon.
That's about 15% growth by itself to your cloud business and then I assume your business will grow at least that much if not more.
Organically. So is it fair for us to think for January 2024 for that.
That.
Data center business to be somewhere in the 30, something odd percent range or even better than that.
Yes.
Yes, I think.
I'd have to probably get out of <unk>.
<unk> to go figure that one out arch, but I think directionally I think you're I think you're right in that.
You have an estimate of what our cloud revenues are and certainly layering in the 400.
We get you to a certain number and then youre absolutely right I mean, what I didn't bring up is that the base business right.
Which doesn't include the new wins is also ramping up so we haven't we haven't sized that piece of it exactly but clearly that's going to grow.
As well next year, the kind of existing run rate portfolio, because some of those programs.
Either it's in cloud switching whether its in electro optics. Some of the things we've already talked about today that are already in the run rate or are certainly going to grow so.
Yes, I think thats right.
I think.
From there you'll have to kind of.
I think when you say 2024 I got.
Don't know that exact number off top my head so.
No very helpful. Thank you Matt appreciate it.
The next question comes from Quinn Bolton with Needham. Please go ahead.
Hey, Matt I wanted to follow up on <unk> question on enterprise networking.
If I look at the business in the October quarter looks like youll be over $400 million and Thats up probably two five times over two years, so phenomenal growth, but clearly well ahead of the market I know some of that is content gains some of its market share, but if you look at inventory in the networking space.
OEM inventory levels are probably up to X over that two year period, and so you guys have any way of knowing whether there was any inventory that's accumulated in that channel do you think you can sort of sustain this 400 million quarterly run rate into next year or do you think.
They see some ebb and flows.
That's a very strong October levels looking beyond October .
Yes, Hey, Quinn, it's a great question and certainly we're very aware of.
Kind of the broader.
Inventory growth that's gone on in a number of the end markets that we serve.
And this one in particular I think a couple of things give us give us a lot of comfort. The first is we've still been ramping into some of these new designs. So they're not it's not business. We had two years ago and it was that extra run rate now its at X times, two run rate I mean, almost all of this is effectively new programs that have.
Ramped up I guess, the silver lining is on the supply constraints. So far is that we haven't been able to get over our skis on an over shipping and so and we continue to have escalations by the way, even even within enterprise networking today in terms of trying to meet meet the demand and again as I said because.
We are in the new systems and the new programs.
Those are the ones typically are Oems are the most short on and Theyre trying to sell so I think it's a very fair question and certainly for somebody that's got a lot of market share in a given end market that had a run rate business that had been going on for a while and it got inflated because of inventory growth over the last few years, one would would get concerned but that's not.
As much of a concern for us.
Overall in enterprise networking today, and so I think we feel pretty good about the run rate, we're on and the fact that we're running a lot farther ahead.
Then than we thought and we still have some.
We still have some growth ahead of us, but we're watching it closely for sure Glenn No question.
And then just as a quick follow up can you comment about how much of your cloud business for Hyperscale business, maybe driven by the Chinese hyper scalar is I know some of your.
Your peers in the industry have commented that they've seen.
We continue to demand out of China Hyperscale. Thanks.
Yes.
Yeah go ahead, I'm sorry, Matt.
Our cloud business are primarily U S. A hyperscale data center, but we actually have a very limited.
Revenue exposure with the Chinese Hyperscale data centers are today.
Great. Thank you.
The next question comes from Joe Moore from Morgan Stanley . Please go ahead.
Great. Thank you I Wonder if you could talk about the supply constraints I think a quarter or so ago, probably your biggest problem was analog parts.
<unk>.
Substrates have also been an issue trailing edge wafers.
Are those priority shifting you talked about a little bit more complicated parts that are giving you trouble can you just talk a little bit about.
Where supply is getting better.
What's the pricing is getting better and what's getting worse. Thank you.
Yeah, great. Thanks, Joe No I think Youre right I think certainly I mean.
<unk>.
Independent of US right Theres been broader constraints within the analog peer group that have caused sort of golden screw issues and things like that with.
And.
It remains to be seen when all of those sort themselves out for our purposes.
Some of those constraints overlap because we do in some of our mixed signal technology, we do have a pretty broad usage of some of the older older nodes relative to Cmos or by Cmos technology, which would be 28 nanometer 40 nanometer 55, slash 65, those have been historically over the.
Last two years very constrained.
We continue to be constrained we've.
But it has gotten better for sure it's gotten better and some of that some of those older nodes have been where the lumpiness of our supply has come in.
You can see actually even when you look at our guide for the automotive business. Those five portion of that business uses some of this older technology and you can see we are very strong.
Sequential sequential guide there so that is starting to work itself out there's still there's still constraints.
Where we're having a little bit more trouble and I think some of the peers are too is just when you when you get into these larger more complex packages Joe that use.
Flip chip <unk> and <unk>.
Large complex substrates, that's still in very rough shape and you have to plan way in advance even now for the capacity that's going to be required there that trend on ABF, especially is only going to go up.
And.
And so I think the more complex products is where it continues to be a pain point and I do think over time as.
The cycle plays itself out probably some of the legacy nodes in the analog stuff, probably lightens up but I think for high complexity.
There's just such a move in the industry companies like Marvell and a lot of our large peers, who more and more are just producing tremendous amounts of compute power and high performance computing broadly, whether it's in networking or custom silicon or Cpus Gpus you name. It it's all going to this complex technology and that's where.
Sure.
<unk>.
That's where we have to just continue to be.
The tactical and keep our heads down and match supply and demand and get what we need.
Okay. Thank you.
Okay.
This concludes our question and answer session as well as our conference. Thank you for attending today's presentation. You may now disconnect.
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