Q4 2023 Marvell Technology Inc Earnings Call
Speaker 2: and fiscal year 2023 earnings conference call. All participants will be in a listen-only mode.
Speaker 2: And should you need any assistance during the call, please signal a conference specialist by pressing the star key followed by zero.
Speaker 2: After today's presentation, there will be an opportunity to ask questions. Please note that this event is being recorded today.
Speaker 2: I would now like to turn the conference over to Mr. Ashish Saran, Senior Vice President of Investor Relations. Please go ahead, sir.
Speaker 3: Thank you and good afternoon everyone. Welcome to Marvell's fourth quarter in fiscal year 2023 earnings call. Joining me today are Matt Murphy, Marvell's president and CEO , and Willem Meinke, our new CFO .
Speaker 3: Let me remind everyone that certain comments made today include forward-looking statements, which are subject to significant risks and uncertainties, that could cause our actual results to differ materially from management's current expectations. Please review the quarterly statements and risk factors contained in our earnings press release.
Speaker 3: which he filed with the SEC today and posted on our website, as well as our most recent 10-Q and 10-Q filings.
Speaker 3: We do not intend to update our forward-looking statements. During our call today, we will refer to certain non-GAAP financial measures.
Speaker 3: A reconciliation between our GAAP and non-GAAP financial measures is available in the investor relations section of our website.
Speaker 3: With that, I'll turn the call over to Matt for his comments on our performance. Matt?
Speaker 4: Thanks Ashish and good afternoon everyone. Let me start by welcoming Willem who is participating today in his first Marvell earnings call since being named CFO in January . Having previously served as Marvell's Chief Accounting Officer and Treasurer since 2018, Willem has deep institutional knowledge of our company and our end markets which has helped him seamlessly transition to the industry.
Speaker 4: point of guidance with better than expected results from our data center and market. Sequentially, as our customers dealt with a broad-based inventory correction, revenue declined by 8%, with the majority of the reduction coming from storage products within our data center and market.
Speaker 4: The rest of our end markets held up relatively well in a worsening macroeconomic environment. Revenue grew sequentially in carrier, consumer, and auto industrial, and declined slightly in enterprise networking.
Speaker 4: Looking ahead to the first quarter, the inventory correction that we described last quarter has continued to impact near-term demand, along with typical seasonality for some of our products. As a result, at the midpoint of guidance, we are expecting to solidate a revenue to decline by 8% sequentially and 10% year-over-year. In addition, coming out of the supply crunch,
Speaker 4: broadening inventory corrections are creating an unusual revenue mix.
Speaker 4: In the first quarter, we expect storage to decline further and inventory correction to spread to a number of additional areas I will discuss later.
Speaker 4: At the same time, we are forecasting very strong sequential growth in revenue from 5G and a number of custom ASICs, but these have gross margins well below Marbell's corporate average. As a result, we expect a challenging gross margin outlook for the next few quarters.
Speaker 4: However, we are confident that once we emerge from the inventory digestion phase into a more normalized environment, we will be well positioned for our gross margins to recover. Willin will discuss our expectations in his prepared remarks.
Speaker 4: Let me move on now to discussing our end markets, starting with dataset.
Speaker 4: In our data center and market, revenue for the fourth quarter was $498 million, declining 13% year over year and 21% sequentially.
Speaker 4: It was higher than anticipated, driven by better than expected results, primarily from our PAM BSPs and data center switches.
Speaker 4: As expected, our storage business was responsible for the bulk of the overall sequential decline in our data center revenue. Our results reflected the acceleration in the data center end market.
Speaker 4: and the beginning of efforts by our customers to adjust their inventory to respond to a more challenging market conditions.
Speaker 4: We were expecting this trend to continue.
Speaker 4: and are projecting lower demand to impact multiple data center products.
Speaker 4: As a result, we expect revenue in the first quarter from our data center end market to decline in the mid teens sequentially on a percentage basis.
Speaker 4: We project data center storage to decline again sequentially in the first quarter across HDD, SSD, and fiber channel, and also expect to see inventory adjustments to a lesser degree broadly impact the rest of our data center products.
Speaker 4: The slowdown in spending signaled this year by multiple large data center customers is also impacting the timing of the ramp of our cloud optimized assignments.
Speaker 4: Our key design-win projects remain intact, but the start of production for some of these programs is being delayed.
Speaker 4: As a result, the revenue ramp has shifted out by a couple of quarters compared to prior projections.
Speaker 4: Our lifetime revenue expectations from these design wins remain in the same range as previously communicated.
Speaker 4: While we work through the near-term dynamics in the data center, we remain confident in the growth outlook for the SIN market. We are seeing data center customers prioritizing key growth areas such as AI and ML with potentially much larger investment over the next few years. Our relationship with Tier 1 cloud customers has continued to deepen as we engage with their architects and customers.
Speaker 4: relationship between our companies.
Speaker 4: Marvell is a strategic supplier to AWS, delivering cloud optimized silicon that helps meet the infrastructure needs of AWS customers.
Speaker 4: including the delivery of electro optics, networking, security, storage, and custom design solutions, addressing multiple critical applications.
Speaker 4: We believe Marvell's leadership in essential silicon technologies helps AWS push the boundaries of data center performance essential for driving their long-term growth.
Speaker 4: Earlier today, we announced our new NOVA optical DSPs and TeraLink 10 switches for next generation data center networks.
Speaker 4: Nova is the first commercially available PAM-4 optical DSP to provide 200 gig per wavelength, twice the throughput of existing solutions over the same physical fiber.
Speaker 4: This breakthrough, made possible by a significant improvement in electro-optics technology, enables the industry's first 1.6 terabits per second plugable optical modules.
Speaker 4: These modules provide twice the bandwidth in a physical package similar to existing solutions, and are essential for the full deployment of 51.2 t switches within the size and thermal density constraints of data centers.
Speaker 4: The higher performance enabled by this new 200-gig 5-nanometer PAM DSP helps to extend the lead in electro optics in FI established and driving the market from 25gNRZ 50gig PAM to 100gPAM.
Speaker 4: The NOVA platform provides a complete 1.6T solution, including DSBs, TIAs and drivers to the optical module ecosystem. Reinforcing our expectations that plugables will continue to remain the backbone of high-speed optical networking within data centers for the foreseeable future.
Speaker 4: TeraLink 10, a 5nm programmable 51.2 terabit second solution.
Speaker 4: marks the latest in a series of cloud optimized, low latency, high bandwidth switches designed for use in leaf and spine architectures.
Speaker 4: The switch was designed in close collaboration with leading cloud customers, and TeraLinks 10 together with Nova creates a full platform to enable the next leap in bandwidth for cloud data centers.
Speaker 4: This is a tangible realization of the benefit of combining Marvell, InFi, and Enovium into a single entity focused on data infrastructure.
Speaker 4: This combination of 51.2T switches with 1.6T optics enables a quadrupling in bandwidth versus existing solutions. This significant breakthrough in capacity at a lower power and cost per bit will be a compelling TCO driver for customers to buyably upgrade their networks to support the large increase in bandwidth they need.
Speaker 4: work in transitioning to a new technology.
Speaker 4: Turning to our carrier infrastructure and market, revenue for the fourth quarter was $275 million, growing 14% year over year and 1% sequentially.
Speaker 4: Our bills wireless and wired businesses drove strong year on year growth. We saw a strong demand for our wireless products as 5G adoption continued to expand. Our wired business benefited from carrier backbone bandwidth upgrades that accelerated during the pandemic.
Speaker 4: At Mobile World Congress, we announced our next generation 5 nanometer Octa-ion Fusion 10 baseband processor.
Speaker 4: This customizable wireless platform has been adopted by leading base station OEMs to provide comprehensive inline layer 1 acceleration.
Speaker 4: This new processor, along with our previously announced Octeon 10 DPU, provides a complete processing platform for 5G baseband, transport, and massive MIMO.
Speaker 4: At MWC, we continue to see strong interest from multiple customers and partners for our latest generation of 5G products for both conventional and cloud-based architectures.
Speaker 4: Moving on to our outlook for the next quarter. For the first quarter of fiscal 2024, we are expecting significant growth in our wireless business, with revenue projected to increase by approximately 25% sequentially, driven by 5G deployments in multiple geographies, and our customer-specific product wraps.
Speaker 4: On the other hand, after an extended period of strong growth in our wired business, we are expecting revenue to decline in the double digits sequentially on a percentage basis.
Speaker 4: As a result, for the first quarter of fiscal 2024, we expect revenue from our overall carrier end market to grow in the mid-single digits sequentially, and the mid-teens year-over-year on a percentage basis.
Speaker 4: Moving on to our enterprise networking end market. Revenue for the fourth quarter was 366 million, with a strong 39 percent year-over-year growth, driven primarily by higher content and growing share of our merchant products, which drove the vast majority of our revenue in this end market in fiscal 2023.
Speaker 4: Sequentially, our revenue declined by 3% as we started to decrease channel inventory of our run rate merchant products, including further reductions in China.
This was partially offset by growth in custom ASICs.
Looking ahead to the first quarter of fiscal 2024, we are planning for additional reduction in channel and customer inventory of our merchant products and enterprise networking. However, we expect a strong ramp in custom A6 to partially offset this decline.
As a result, we project our overall enterprise networking revenue to decline in the high single digits sequentially, while year over year growth is projected to remain strong in the high teens on a percentage basis.
Turning to our automotive and industrial end market, revenue in the fourth quarter grew 25% year over year to $99 million.
Sequential revenue growth accelerated to 18% as supply improved.
Looking to the first quarter of fiscal 2024, we project continued sequential growth from our auto business to be more than offset by a decline in our industrial business.
Year over year, we expect our auto business to continue strong growth of over 30%, offset by a decline from our industrial business.
As a result for our overall auto and industrial and market, we expect revenue to decline.
approximately 10% sequentially and be up
Flap to up slightly year over year.
Moving on to our consumer end market.
Revenue for the fourth quarter was $180 million, declining 3% year over year and growing 1% sequentially. Revenue from our consumer SSD controllers continued to grow, while we saw declines in legacy printer ASICs and HDD controllers.
Fourth quarter was 180 million, declining 3% year over year and growing 1% sequentially. Revenue from our consumer SSD controllers continued to grow, while we saw declines in legacy printer ASICs and HDD controllers. Looking ahead to the first quarter,
which tends to be seasonally softer in the consumer end market, we are forecasting revenue to decline sequentially by approximately 10 percent.
In summary, fiscal 2023 was a very strong year for Marvell, with revenue growing 33% year over year to 5.9 billion, well above the industry and our long-term target model.
Revenue from cloud grew approximately 50% year over year. Annual revenue from 5G crossed over 600 million and auto crossed over 200 million, important milestones for both end markets. During fiscal 2023, the first full year following the acquisition of Enovium, we drove a significant ramp in our data center switch.
our organic CXL development.
Our enterprise networking business had a tremendous year, with revenue growing 51% year over year, reflecting the significant share in content gains we have driven over the last two years.
Through this period of rapid growth, we scaled the company in a thoughtful manner with non-GAAP OPEX growing 20% year over year, well below the 33% growth in revenue.
Following another strong year for design wins, our opportunity funnel continues to expand, with many large sockets that we believe Marbella's will position to win.
While the broader semiconductor industry, including Marvell, is dealing with near-term headwinds, we are confident in our ability to weather this cycle and continue to execute over the long term.
We remain laser focused on capital allocation and improving efficiency. We are evaluating our customers' latest plans, assessing our level of investment across the portfolio, and redirecting resources to our best opportunities. As a result, we expect to reduce our OPEX in the second half of fiscal 2024. Over the long term, our prospects remain compelling. We have conviction in our plan.
and we will continue to invest to support our strategy.
At physical 2024 progresses, we expect the headwinds from inventory digestion will begin to subside and mix will improve as demand patterns normalize.
While storage has been impacted the most from inventory digestion, we are encouraged to see that customers have started to reduce their finished goods stock, clearing the path for recovery.
Revenue from OEM customers in China has declined to less than 10% of total company revenue. But as China reopens, we expect demand will recover and become a tailwind.
In fiscal 2024, we expect data center switching and 400 ZR will continue to grow, and revenue from our cloud-optimized silicon programs start to layer in.
In addition, we project our 5G and auto-end markets will continue to grow in fiscal 2024.
As a result, for overall Marvell, we expect revenue to start growing in the second quarter and gather momentum in the second half of the fiscal year.
Longer term, we are confident that our focus on data infrastructure and exposure to diversified and markets with secular growth positions us well for the future.
In our wireless end market, we expect content gains to layer in as 5G adoption continues worldwide.
Our automotive opportunity continues to grow, and we see a path to growing revenue to over $500 billion annually over the next few years.
In data center, we expect
to open up new revenue streams from emerging CXL and AEC opportunities.
We expect generative AI to drive a massive transformation in data center architecture.
We see a bigger opportunity for cloud optimiselican for custom compute. Trend we have extensively discussed over the last couple of years.
In addition to compute, the level of scaling in these generative models requires a significant innovation and technology leadership in networking infrastructure to interconnect AI supercomputers.
This requires ultra-high bandwidth links with low latency and sufficient reach. Minimizing energy expended to move the massive amounts of data in these platforms is another important criteria. We believe these requirements are best met by high-speed optical connections.
Last year we launched the industry's first 800 gig PAM DSP and saw a huge ramp driven almost exclusively by AI applications.
Our PAMB DSP revenue from AI in fiscal 2023 more than quadrupled from the prior year.
As AI models continue to grow in complexity, we expect that they will require more and more low latency bandwidth. Earlier today, we announced the industry's first 1.6 terabits per second PAM platform, enabling a further doubling of bandwidth within the AI cluster. As investment in AI accelerates, AI will continue to grow in complexity, and we expect that they will require more and more low latency bandwidth within the AI cluster.
We see this as a new growth engine for our electro optics portfolio. As you have often heard me say, our employees are Marvell's greatest resource. The culture they have built is the foundation of our ongoing success.
In January , Glassdoor named Marvell is one of the top 100 best places to work in the US.
and named Marvell as one of the top 100 best places to work in the US for 2023.
We are in the second highest ranking among semiconductor companies. In February , we were honored to receive the Great Place to Work certification.
These awards are a testament to our culture and dedication to creating a collaborative, compassionate and respectful workplace while remaining focused on growth and execution.
Thank our entire team for their contributions to Marvell to enable us to develop leading-edge essential technology that helps power the world's data infrastructure.
With that, I'll turn the call over to Willem for more detail on our recent results and outlook.
Thanks Matt and good afternoon everyone. Let me start with a summary of our fiscal year 2023 results. Of ours revenue grew significantly by 23% year-on-year to a record 5.92 billion.
Gap gross margin was 50.5% and gap loss per diluted share was $0.19. Our non-gap gross margin was 64.5%.
Our gap operating margin was 4%. Non-gap operating margin expanded to 35.5%.
non-GAAP earnings per diluted share grew 35% year on year to $2.12. We returned $319 million to shareholders through dividends and buybacks.
Moving on to our financial results for the fourth quarter. Revenue in the fourth quarter was 1.419 billion, exceeding the midpoint of our guidance, growing 6% year over year and declining 8% sequentially. Data Center was our largest in market, driving 35% of our total revenue.
Enterprise networking was the next largest with 26% of total revenue, followed by carrier infrastructure at 19%, consumer at 13%, and auto industrial at 7%.
Gap gross margin was 47.5%. Non-gap gross margin was 63.5%, 50 basis points below forecast, primarily due to a change in revenue mix within certain end markets compared to our guidance.
Gap operating expenses were $650 million, including share-based compensation, amortization of acquired intangible assets, legal settlements, and acquisition-related costs. Non-gap operating expenses were $431 million. Gap operating margin was 1.6%.
non-GAAP operating margin was 33.1%. For the fourth quarter, GAAP loss per diluted share was 2 cents. non-GAAP income per diluted share was 46 cents at the midpoint of guidance. Now turning to our balance sheet in cash flow. During the quarter, cash flow from operations was 352 million.
and a much reduced headwind to operating cash flow. Inventory at the end of the fourth quarter was $1.07 billion, growing by $111 million sequentially.
As we indicated in our prior call, we expected inventory to grow in the fourth quarter to support upcoming product ramps.
Looking ahead to the first quarter, we expect M3T to start to come down and be a tailwind to operating cashflow over the year. We return 51 million to shareholders through cash dividends. As of the end of the fourth fiscal quarter, our cash and cash equivalents were 911 million, growing by 188 million from the prior quarter.
using our cash balance and free cash flow, which we expect to improve our gross leverage.
Turning to our guidance for the first quarter of fiscal 2024.
We are forecasting revenue to be in the range of 1.3 billion plus or minus 5%. We expect our gap gross margin will be in the range of 44.1% to 46.1%. We project our non-gap gross margin will be approximately 60%. This guidance takes into account the adverse revenue mix we are expecting in the first quarter.
and we are currently expecting mix wool to remain challenging for a few quarters.
Once we get through this period of inventory correction, combine with cost improvement actions underway, we expect non-GAP gross margin to get closer to the low end of our target range by the fourth quarter. We project our GAP operating expenses to be approximately 687 million.
We anticipate our non-GAAP operating expenses to be approximately $460 million. This forecast includes the step-up from the prior quarter due to typical seasonality in payroll taxes and employee salary merit increases.
As Matt discussed, we intend to continue to invest prudently in our long-term growth initiatives while further improving efficiency and optimizing capital deployment.
Altogether, we expect to reduce our non-GAAP operating expense run rate by approximately $15 million a quarter in the second half of the year. We expect a full reduction to be achieved in the fourth quarter. Other income and expense, including interest on our debt, is expected to be approximately $49 million. For the first quarter, we expect a non-GAAP tax rate of 7%.
We expect our basic weighted average shares are sending will be 858 million and our diluted weighted average shares are sending will be 863 million. As a result, we anticipate gap loss per share in the range of 12 cents to 20 cents per share. We expect non-gab income per diluted share in the range of 24 cents.
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And our first question will come from Ross Seymour with Deutsche Bank. Please go ahead.
Hi guys, thanks for having me ask a question. Matt, I just wanted to ask about the general business conditions. In the last quarter you talked about, in the October quarter, you said that things were weakening towards the end of the quarter and then throughout the January quarter. Can you talk about the linearity of demand, whether it be by end markets and or geographies as you go through the end of the January quarter?
of months, I'd say the breadth and some of the steepness of the decline, we've continued to see.
You know, we had thought that storage was going to, you know, kind of bottom out last quarter. It's down again. There are some green shoots there just given what we see in terms of end customers stock levels coming down and we believe that throughout the year that's going to improve.
But I'd say just generally in the storage area broadly and then in the data centers, you can see from our guidance, not only in storage, but a little bit broader, the inventory correction is still going on. At the same time, I think what's happened in
In the wireless business in 5G, that's continued to be very resilient and growing, which is a positive. As automotive as well continues to be very strong for us, and we see that as a growing business again this year. That's on a great upward trajectory.
So a lot of moving pieces, Ross, but I'd say the things that were weaker, you know, a quarter ago, have continued to weaken a little bit more. And then the areas where we had some optimism, those that continue to do better, it's really interesting how these various end markets are kind of moving at different times. But when you add it all up, basically.
and you look out over the next few quarters, you know, we do see growth in the second quarter and then as a result of really what we believe will be the inventory digestion and then normalization in the back half.
plus continued strength in things like 5G and automotive, and then also our cloud optimized ramp, and in theory, some of the China business should come back. We're starting to be optimistic about the second half relative to the recovery. So that's some of the moving pieces, and I agree, we're in the infrastructure business.
This doesn't move up and down typically as much as a consumer business. So it started in October . We're still going through the journey here in the January and April quarters. And then we see a recovery in the second half.
Thank you. In our next question, we'll come from VVAC Ari, or Bank of America. Please go ahead.
Thanks for taking my question. Matt, I'm curious what second half recovery looks like. Is there the potential to get back to this kind of 1.5-ish billion quarterly run rate you guys were at? And then as part of that, I'm also curious to know what should be the updated view on this 400 and 800 million in cloud optimized silicon. And the one thing that I think will mention that you will only be able to get to this.
I prepared remarks and you can see sort of what's happening in the data center area. There's some delay and there's some prioritization within those companies on how they're going to deploy. We feel very good overall about the programs and the lifetime revenue of those programs, but they have an aggregate shifted out by it.
exactly but just to give you big round numbers. I think that's a safe assumption.
just to give you big round numbers. I think that's a safe assumption for now.
The other question was around, you know, what is the second half recovery look like? I think it's too early to call it specifically at this point. I mean, we're still seeing a lot of volatility in the business as you can see from our first quarter guide.
But when we step back and look at it from 30,000 feet and we also take the broad indicators from our customers, we do expect it.
As we said to start growing from Q2 and beyond, the question is how big is the recovery and what comes back. So it's a little bit hard to call precisely where that's.
going to be at this juncture. And then on gross margins, again, it really comes down to the mix.
You know, historically, if you look.
we've the companies actually had pretty stable gross margins. I mean, they've moved around a little bit, but in general, that's been a fairly predictable thing. You can see based on this downturn we're going through just the volatility that's come in relative to the mix. So we see that improving in the second half. Again, I think it's too early to call the exact trajectory. So just in the abundance of
So if she is a hearty with Goldman Sachs, please go ahead.
Hi, good afternoon. Thanks so much for taking the question. Matt, I wanted to ask about generative AI and to the extent your customer conversations have evolved over the past couple of months. You talked about the cloud optimized opportunity being pushed out. But have you sensed any change in customer pull as it relates to the AI? You talked about your exposure and compute and networking.
You also talked about your Pam DSP business, specifically in AI quadrupling last year. Curious how you're thinking about that business in fiscal 24. Thank you. Sure. Yeah. I think the, as we said in the prepared remarks, the impact of...
generative AI and the buzz around that is real positive for Marvell. The ramp on our 800 gig products, really over the last few years, was driven by AI clusters and AI applications. So that's gone very, very well and we see a tailwind there over time.
on our optics business. I'd also note we just announced today our 1.6 terabit per second product, which also has native 200 gig per lane I.O. That's a real product that's sampling and it's gonna go into production, we believe sometime next year and again the big pull there.
on that outlook and then in addition some of these systems for AI clusters are going to get data centers are going to have to get re-architected quite frankly and we think that's also going to drive the need for cloud-optimized silicon as well to complement.
the GPUs that are used, as well as the optics. So I think there's a broader opportunity here for sure. I think this is a very bright spot for us in the cloud and I think it's evolving very quickly.
Thank you. Ashish, did you want to add anything to that? No, I think the other thing I'll add is, I think we're already starting to see requests from cloud customers to really accelerate the availability of our next-gen products. I think we've seen a distinct change in tone, I would say, over the last quarter or two, where as we introduced our 1.60 as an example, we're certainly getting requests that, hey, how quickly can it become available? Because they see that bandwidth needs really expanding very, very quickly. So I think it's...
We could drill a little bit deeper into kind of the trends you've seen year on year based on the implied God So roughly I think down to a 220 million you know, is there a way to kind of parse through how much of that is storage Pre-Aid private channel and other and maybe help us under better understand kind of the slow down and other what drove that and then from here You know how to think about the different parts
between kind of storage and the new products that you already kind of spoke about. So we have a pretty good idea there. But any way to kind of frame that would be very helpful.
Yeah, sure. Yeah, CJ, sure, go ahead. I'll let Willem start off and then, you know, I can add to it as appropriate. Great question.
So I think first of all, on a year over year basis, storage is a much bigger part of that decline for Q1. The way we think about it CJ, we spoke originally about the $1.4 billion for storage. And so if you look at that on a quarterly basis, we're seeing a lot of growth in the Q1 market. So we're seeing a lot of growth in the Q1 market. So we're seeing a lot of growth in the Q1 market.
and data center was more in storage compared to the rest.
I guess is there a way to frame what the other part is outside of storage? I mean it certainly feels like roughly maybe 150 million out of the 220 million decline of storage, but we would love to isolate on that 70 and how you see that part of your business recovering. Hey CJ, it's Ashish. Let me just add some more colors.
a couple of quarters. So I think you'll expect them to start to bounce back, I would say, in the second half. And I think they get a lot bigger. So the non-store is portion of data center, really starts to recover in second half and gets a lot bigger. And on top of that, even though we have pushed out some of the ramps or f**k out optimized on an incremental basis, you will see some additional revenue in the second half. So overall, non-store edge.
is a big part of how we see data center that covering in the second half of the year.
Thank you. And our next question will come from Joe Morgan Stanley . Please go ahead.
Great, thank you. I wonder if you could talk about the gross margin pressure in the April quarter, carrier being up mid-single digit, it's not that much incremental revenue, and it can just give us some sense for the gross margin disparity between the carrier-centric custom business.
and the rest of it. And then I guess, you know, separate from that, as you ramp other parts of Custom Async into cloud, you know, do you expect to see that be more like the corporate gross margin?
Yes, let me start. The way to think about that is, I think in the prepared remarks, we also said WIRED was done significantly, about 20%. That was offset by the growth in wireless. So net net, you see a small growth there.
But it's those two dynamics that we'll sit in each other. Okay. I mean, it seems like, still even 25% growth in 5G to cause a four point margin of disparity overall, it seems like. Yeah, sure, sure. I don't want to mind the meat. Okay.
Yes, sure. So I think the way to look at it is overall, we saw additional weakness in storage, particularly in HDD and fiber channel, which typically is an entire gross margin product for us. In addition, we've seen decreased in our much of enterprise networking business, which is also a higher gross margin product. So.
that with the growth in 5G and also we've seen some strong increase in our ASIC business which both of those are typically slightly lower growth margin product. And that in combination with the top line coming down, we've had some...
it went from fixed cost absorption. And so overall, that's driving the decrease that you're seeing. OK. Hey, Joe. Yeah, let me add a couple of things. It's a very good question. So first, fully agree with everything Willem said in the way he characterized it, which is fundamentally that we had.
some, you know, a creative de gross margin, product lines, you know, decline fairly significantly and fairly rapidly and at the same time we're seeing strong growth.
in product lines that are less than the corporate average and it's moved the gross margin, you know, much more significantly than anything we've experienced in some time and maybe just to take it from the top on a bigger picture for a second, our custom business you know came from the purchase of Avera back in 2019
And we knew at that time that was going to be a lower gross margin business and that was fine and it's actually grown really well The team has executed well. It's been a great growth driver for us and we've been able to man and in fact I it's if you look it's probably grown faster than the overall you know marvel portfolio But at the same time call it from 2020 to now We've actually been able to increase and drive marvels gross margins up over that time frame So we've had you know a balanced portfolio
of different product lines and diversified product lines that have a wide range of gross margins that blend to something that's been very, very healthy and in general been very predictable. What was the change was really the steepness and the breadth of the inventory correction we're dealing with and so you have these growth drivers that are still kicking in.
on ASIC and then also carry or as you point out, has always been a lower gross margin business for us. We've been very transparent about that. Those are actually continuing to grow through this cycle quite significantly. And then again, our highest margin product lines for various reasons, whether it's channel inventory correction or just customers doing their own inventory burn.
those have come down a lot. So that's why we think and we look at the numbers, you know, over the next few quarters that should start to normalize again. So I hope that's helpful to provide both the detail and then the bigger picture, Joe. Thank you.
So that's why we think and we look at the numbers, you know, over the next few quarters, that should start to normalize again. So I hope that's helpful to provide both the detail and then the bigger picture, Joe. That is, thank you. Yep.
In our next question, we'll come from Matt Ramsey with Cohen. Please go ahead.
Thank you very much, guys. Good afternoon. Matt, you guys talked about maybe the change in timing and the push out a bit of the cloud optimized.
400 million for this year. But when you look into next year that 800 million that you guys have talked about for a while is not just, it's obviously not just one customer or one program, right? And all of these high-tech scale folks are going through different architecture changes, periods of digestion. And you can see that there's a lot of people see sterilization that you can COVID return to cells and strender gases vaccinated already in 200 more minutes, completely out of energies
you could just maybe walk through some of that dynamic and then just a real quick clarification on a question that Joe asked. As we ramp these cloud-optimized solutions.
Are those going to be accretive to gross margins specifically? Maybe you could address that a bit. Thank you. Sure. So for next year, you know, I'd say my high-level answer is it's too early to call. And you kind of nailed it. I mean, some of the programs are cracking as we thought.
Some even might be a little bit ahead some have pushed out more than we thought so that the net effect for this year We're just trying to Call it as we see it today on the shift now for next year I don't I don't know that it just keeps sliding. I think some of these are going to ramp at their own pace and quite frankly it's
It's too early to call it and to understand, you know, what's going to happen, you know, four or five quarters from now Given how much is changing in the near term on I guess I'm reticent to
to try to provide any more precision there. I mean, I think if you want to be conservative, you could just sort of keep shifting it out a little bit, but I think there's still a call option for growth from our bell next year in this area, but we have to see how these programs play out.
And um...
And I think on the question of the margins, it really depends on the program. They're not all the same and some are more custom in nature that would be more traditional profile, some are higher. But we still see the blend for the overall company returning back to its...
you know, towards the low end of the range this year, and then we're going to keep driving it towards our long-term model in the next year.
You know, at this point, I think it's too early to call in kind of infer what that gross margins of those programs would be and then when they ramp versus what's going to happen next year. So, as we get through the year, I think Matt, we can give you more precision on that, but we're not changing our long-term growth model at this point in terms of the financial model, whether it's gross margins or...
or long-term revenue growth in operating margins. Thanks, Matt. I appreciate the call.
Our next question comes from Taurus Von Merck with Steve. Please go ahead. Yes, good afternoon. This is Jeremy Conqueratory. I guess I want to focus in a little bit on the custom silicon. It sounds like this business has proven more resilient than other areas of the data center.
Is this a function of the nature of those programs and the NRE investment and your customers have made? And maybe you get better visibility to chew and demand. And also, is this resilience fee reflected in some of your ongoing current customer programs maybe more specifically, you know, comparing the push outs here relative to the data center business?
Sure. Yeah, a couple things that are going on. I think that, as I said, one, because that business and team has done really well in terms of overall ASIC growth, those programs tend to still be ramping. So there's not a lot of inventory that's been billed, that's been part of the growth. So that would explain some of it.
But I'd also note that the breadth of the engagements we have in this traditional custom area are data center, but they're also in carrier and they're also in enterprise. And so, as Willem indicated, even within the enterprise segment,
We've had some mixed shift there just with the traditional merchant products, which are much higher gross margin coming down and then some of the A6 stuff ramping up. So again, I think this is all gonna gonna get normalized over time, but certainly because of the growth in that area, it's proven to be very resilient.
And I think some of it is maybe because, sure, we've got an NRE. You know, you get, I think there's just historically that team has had a, those that type of business has been one that's been, I think, a little bit easier to plan. It seems to be a little bit more predictable. I don't know, but I think in general it's...
mostly because they're new programs wrapping. And Ed King talked about the pushouts here relative to the other segments. Have there been any significant changes there?
new programs wrapping. And it can talk about the push outs here relative to the other segments. Have there been any significant changes there? Sorry, say that again.
I guess has the custom program has been impacted by the pushouts you're seeing in other areas of the data center?
No, I mean, again, I wouldn't say that's a major factor. I mean, and again, some of the cloud optimized programs that we talked about, those are custom, but in the short term, the data center impact has really been, again, more driven by storage and the impact on the rest of the portfolio, whether it be.
custom or optics or whatever hasn't been as pronounced but it's still going through its own correction.
Great, thank you. Our next question will come from Blaine Curtis with Far Place. Please go ahead. Thank you for answering my question. I just wanted to go back to, I just want to understand what your message is on Data Center. So the hard drive.
more of a correction, inventory correction at your customer. What are you seeing from just overall data center? Because I thought the message last quarter was, you know, the Pam business and switching were actually kind of okay. So I guess when you were talking about cloud-optimized pushing out and you said data center softer, I'm trying to understand how those two relate, I guess, and then you mentioned architecture changes. If you just elaborate a little more, I'm still kind of confused.
and storage.
And we also said we were starting to see signs of inventory correction on the rest of the portfolio, but it was it was more muted.
And at that time, our expectation was that storage most likely was going to at least flatten out, maybe go down a little bit more. And then there'd be, again, a continued more mild correction. I think what's happened is the storage in data centers continued to need more time to correct.
So that's declined again in the Q1 guide. And then I would say the rest of the portfolio has also is now seeing more of a correction needed than we thought last quarter. Okay, so that's in the short term right now, Blaine. So you have storage down a little bit more and then the rest of the portfolio, including those other product lines you mentioned in aggregate. I mean, within underneath some of them are moving up and down.
last few years. That's still going to happen this year, but it's been some of it has been pushed out.
by a couple of quarters. So we still see that kicking in at the end of the year.
and adding to growth, but that's sort of separate than any inventory correction. That's just program execution by our customers, timing of their ramps, et cetera. And then on the third point, which is just, all we were pointing out on the architecture stuff was that as we see the...
the growth in AI-based systems and AI-based clusters and AI-centric data centers, we think longer term. I mean, that's now outside the window we're talking about here whether it's this year next year, that that's going to be a significant growth trend and that's going to require both cloud-optimized silicon as well as our high-speed optics. So I think three pieces do it short-term, medium-term, and long-term.
Thanks, Mike. But very dynamic overall, Blaine. I guess that's the punchline. Thanks. Thanks, Mike.
But very dynamic overall, Blaine. I guess that's the punch line. Good thing. Good.
In our next question, we'll come from Christopher Rolum, which is Gujana. Please go ahead. Hey guys, thanks for the question. I guess my first is the 400 to 800, regardless of the push out. Push out.
Do you have any visibility into the composition or can you elaborate on the composition of those wins around kind of maybe percentage storage versus network versus compute and maybe even optics in there as well, anything else that you can offer, just any visibility into the composition.
You can get something more public out there, but until my customers give me the go ahead, not going to do it. All I'd say is just in general, maybe just to try to be helpful, it's really not much storage in there. This is really more custom compute, custom networking, accelerators, offload, that type of thing. That would be the bulk of it, I would say, those types of applications. As we go along Chris, I think we get closer to these product ramps and things. I'm going to use them.
Obviously, hoping for our investors, we can continue to provide more transparency as these things materialize. But it's a bit early to talk about that mix, and I'd prefer to do that as we got closer. Sure. If you didn't like that question, you probably won't like this one. But I always love your questions, Chris. Go ahead. In terms of AI, you talked about networking. You talked about networking. You talked about networking.
And then the second part of that question is, are you willing to guide beyond the 800, do you have visibility until let's say beyond a billion, as it's been sometimes since you gave that that 400 to 800 number?
Okay, maybe just real high level answer to both of those. I think on the AI one, I think that is and will be an opportunity for custom and for cloud-optimized applications, I think that's a real thing, meaning people will wanna use things that are merchant, they'll wanna use some of their own special things and probably in combination. So I think that's an opportunity that's part of the.
that's part of the potential. And then as far as the the long-term peak revenue from those the winds, the 400-800, yeah I think we said when we won them it would keep going because typically you don't hit peak until you know many years into the ramp so you know with the design winds intact.
the 800 becomes larger over time. How big that is, I think it's too early to call, but certainly it would exceed the 800 on an annual basis, just because really that was our view at the time as a year one, year two ramp would look something like that.
Awesome. Thank you, Matt. Yep. And our next question will come from Caracament with VNP. Please go ahead.
Yes, thank you. I wanted to delve into data center if I could for a second there. It sounds like some of the softness relates to the rebalancing of optical modules at hyperscalers and that's just more of an industry comment, not just a company specific comment. dashboard
You know this I guess for from our bill does that bleed into the July quarter as well, and then you know bigger picture How are you thinking about the 400 gig upgrade cycle for 2023? despite some of the near-term challenges that you know does that influence your your bigger picture view in terms of 2023 and then it's 2024
given the broad product portfolio that you have to address both for her getting make concrete. Thank you. Yeah I think at this point Carl you're right I mean we put part of the inventory digestion we're seeing is is our our pan products that sell to the optical module guys and that's that's a business where again we're kind of one step back.
in the supply chain. So we would see that and we are seeing that and feeling it. When exactly that recovers, which quarter? It's gonna happen in the next few quarters. The question is, is this quarter, next quarter or the quarter after? But it's in that probably that timeframe because the underlying demand is still strong. And then I think you're a,
I think your other question was, and then of course the head when we face now becomes a tailwind in the second half of that's the case. I think your other question was it on the 400 gig, ZR or was it on the 400 gig inside data center pan? Get your broader portfolio on 400 gig.
800 day and I guess how you think about the upgrade cycle because obviously it's off for the market near term but you know how do you think about your portfolio?
broadly as you think about that upgrade cycle over the next couple borders. Thanks.
Yeah, I mean, we tend to think of the upgrade cycle as a, quite frankly, a multi-year rollout, right? We had a very strong year last year, and it's a blend of products, right, from 200, 400, 800, inside data center, 400 ZR, between data centers, and that 1.6 T announced.
I'd say that the demand and the shift to PAM continues at a very strong rate. Again, we have some inventory correction in the first half, that's more of a module related issue and again, the slope of the hyperscale cloud guys revenue growth or cap x growth dropping, but not declining, just not at the same rate of acceleration. So we think all that works its way through and consumption continues to grow very strongly.
last year, this year, and the year after. In our next question, we'll come from Queen Volton with Needham and Company. Please go ahead. Hey, man. I guess one clarification and one question. The clarification just you talked about the growth in driven by AI clusters for high-speed optics.
You guys, are you impartial to whether those AR clusters are connected through Ethernet or in Finneban because I think different hyperscalers have different fabrics for those AI clusters? Then my question is, you guys have talked about the growth in PAM. We've got the EOSC show next week and I think there's more talk now about the linear drive modules where...
You don't need the DSP or the DSPs and other parts of the line card. I'm just kind of curious if you could address, you know, DSC any threat from direct driver, linear drive modules going forward to that pay-am-for business.
Sure, yeah, no. So it's an exciting time for optics at this point, given we've got OFC coming up next week. Yeah, on the first one, you know, in general, we're agnostic to...
to both of those, we tend to just partner closely with the customers and design the solutions they need. So it's the fundamental IP that really matters. As it relates to the disruptive technologies that are lurking around out there, I think that's been the history of optics. Our view is,
Pluggables is going to be the high volume de facto standard for many years to come and certainly we're encouraged by showing demonstrations of our new product at 1.60 at OFC. There's real people building systems around this. And of course the ramp last year of 800 gig gives us confidence under the ramp of 1.60.
So we're paying attention to all of it, Quinn, I would say. We've got a really excellent team that understands the trade-offs and understands the various architectures. But right now we feel very confident in our approach and our solution set. And I think coupled with our switch platform, which has now also been announced.
You know, it's really a nice combination of the assets of Marvel plus NFi, plus an OVM, you know, all coming together in a single platform. So more to come on that and certainly we're happy to debrief with you and the rest of the team at NAFTA or OFC. I think there's going to be a lot of activity there. Thank you, Matt. Hello, next.
And as you look out to the next few quarters, can you, I mean, to the extent that you have visibility, you know, can you talk about the sustainability of that business? Because every time we see, you know, 20, 25% growth in any semiconductor business we do start to worry about potentially inventory bills. So if you can talk about, you know, what you're seeing out there, that'll be helpful.
Sure, yeah, I think the big issue, especially with maybe some of the more larger incumbent players that have large carrier communications businesses
So, there's in the wireless area, they tend to be, you know, have a combination of some legacy. Let's call it like...
4G LTE type of solutions, and then they've got new 5G chips that are ramping up, and then there's some mix of the two. But as you can see with carrier spending, the bulk of it in wireless is just pretty much all going to 5G at this point. And so from a Marvell perspective, we had very little legacy.
before on On the older standard and five G's really world content gains rolled in so that's continued to be you know A nice growth driver for us as a result and I'd say on top of that and you've been around the block enough to see this as well I mean carrier tends to be a very lumpy business
So it doesn't really historically ever move in a very linear fashion that tends to have be a little bursty at times and certainly we're happy with the growth we're seeing and we think that that's overall this year is going to be a growth year for us in 5G but certainly it can be a little bit lumpy. But I would say that this is not something that overall is kind of going according to plan in terms of the designs we won.
you know, what the content we could capture would be. And finally, if you just look and we set it in the prepared remarks, you know, last year we crossed the $600 million mark in 5G, which was the Vogue we had set several years ago. We hadn't time bound it by the way, like it's gonna be in this exact year, this exact four quarters. We had left it a little bit open, but we're pretty happy that, you know, really just a few years after we talked about that goal, we were able to see.
That would be great.
Yeah, perfect. We'll appreciate everybody's time on the call today.
You know, when I look back at our last fiscal year, it was a great success from our VEL. I think it, and I was reflecting back, you know, looking at where we were back, let's say in 2020, you know, during the pandemic, we were in the process of combining within fire. And, you know, I sort of look a few years later, and I think in fiscal 23, we, you know,
that's more pronounced in some markets than others, we're managing through that very prudently and expeditiously, and doing that also in a partnership model with our customers to where we're trying to understand their real demand and get back to a point where we're shipping back to real demand. At this point,
We believe we're shipping below consumption of Marvel products. So we want to get back there. When we do that, it'll also lead to the increase in recovery back in the gross margin profile. Then we can have all of our new wins that we've gotten. And all the hard work, our sales team, business unit team has done over the last few years, driving our design wind funnel to recognize that growth. So I'd say, you know,
despite the short term issues, we think very long term at Marbell. OK, I mean, I'm entering, you know, my my seventh year is actually about to complete my seventh year as CEO . The the the prospects for this company are tremendous. We have conviction in our end markets and the long term opportunity and the the R&D investment that's needed to really execute the programs our customers want to.
is right in front of us. We have an opportunity, I think, to really reassess and make sure that we're focused, and laser focused on the best opportunities. I think we've made capital allocation from day one a strategic priority from our VELV. And I believe we can come through this cycle much as a much stronger company with our growth prospects intact and actually have...
have a better long-term opportunity doing really key programs for our customers with the best ROI. So we're going through that whole process now as we do always and I feel very good about the future of the company. So appreciate the time today everybody and look forward to catching up post-derning.
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