Q1 2025 Marvell Technology Inc Earnings Call
Yeah.
Operator: Good afternoon, and welcome to Marvell Technology Inc.'s first quarter of fiscal year 2025 earnings conference call. All participants will be in listen-only mode.
Good afternoon.
Speaker Change: Welcome to Marvell technology, Inc's first quarter of fiscal year 2025 earnings conference call.
Speaker Change: All participants will be in listen only mode.
Operator: Should you need assistance, please signal a conference specialist by pressing a star followed by zero. After today's presentation, there will be an opportunity to ask questions. Please note that this event is being recorded. I would now like to turn the conference over to Mr. Ashish Saran, Senior Vice President of Investor Relations. Please go ahead.
Should you need assistance. Please signal a conference specialist by pressing star followed by zero.
Speaker Change: After todays presentation, there will be an opportunity to ask questions.
Speaker Change: Please note that this event is being recorded.
Speaker Change: I would now like to turn the conference over to Mr. Ashish Saran Senior Vice President of Investor Relations. Please go ahead.
Ashish Saran: Thank you and good afternoon, everyone. Welcome to Marvell's first fiscal quarter 2025 earnings. Joining me today are Matt Murphy, Marvell's Chairman and CEO, and Willem Meintjes, our CFO. Let me remind everyone that certain comments made today include forward-looking statements that are subject to significant risks and uncertainties that could cause our actual results to differ materially from management's current expectations. Please review the cautionary statements and risk factors contained in our earnings press release, which we filed with DSCC today and posted on our website, as well as our most recent 10-K and 10-Q filings.
Thank you and good afternoon, everyone welcome to Marvell first fiscal quarter of 2025 earnings call. Joining me today are Matt Murphy, Marvell, Chairman and CEO and Roland <unk>, Our CFO, let me remind everyone that certain comments made today include forward looking statements which are subs.
Ashish Saran: We do not intend to operate a forward-looking, During our call today, we will refer to certain non-GAAP financial measures. A reconciliation between our GAAP and non-GAAP financial measures is available in the Investor Relations section of our website. Let me now turn the call over to Matt for his comments on the quarter.
The significant risks and uncertainties that could cause our actual results to differ materially from management's current expectations.
Speaker Change: As you review the cautionary statements and risk factors contained in our earnings press release, which was filed with the FCC 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.
Speaker Change: Reconciliation between our GAAP and non-GAAP financial measures is available in the Investor Relations section up all that site.
Speaker Change: Let me now I'll turn the call over to Matt for his comments on the quarter Matt.
Matt Murphy: Thanks, Ashish, and good afternoon, everyone. For the first quarter of fiscal 2025, Marvell delivered revenue of $1.16 billion, above the midpoint of guidance driven by stronger than forecasted results from our data center. Higher revenue, combined with Discipline Expense Control, drove non-GAAP earnings per share of $0.24, also above the midpoint of guidance. The Marvell team executed well in the first quarter, and we are looking forward to revenue growth and financial performance strengthening throughout this fiscal year.
Matt: Thanks, Ashish and good afternoon, everyone.
Matt: For the first quarter of fiscal 2025, Marvell delivered revenue of 1.1 dollars 6 billion above the midpoint of guidance driven by stronger than forecasted results from our data center end market.
Matt: Higher revenue combined with disciplined expense control drove non-GAAP earnings per share of <unk> 24 sets also above the midpoint of guidance.
Matt: The marvell team executed well in the first quarter and we are looking forward to revenue growth and financial performance strengthening throughout this fiscal year.
Matt Murphy: Let me now discuss our results and expectations for each of our end markets. In our data center end market, for the first quarter, we drove record revenue of $816 million, well above our guidance. The outperformance was driven by strong demand from cloud AI applications for our electro-optics portfolio, including PAM, DSPs, TIAs, and drivers, as well as our ZR data center interconnect product. Data center revenue grew 87% year over year and 7% sequentially, with double-digit growth from the cloud more than offsetting a higher than seasonal decline in revenue from enterprise on-premise data. Strong revenue growth was driven by cloud AI, as well as standard cloud infrastructure.
Matt: Let me now discuss our results and expectations for each of our end markets.
Matt: And our data center end market for the first quarter, we drove record revenue of $816 million.
Matt: Well above our guidance.
Matt: Performance was driven by strong demand from cloud AI applications for our electro optics portfolio, including Pam DSP, Tia and drivers as well as our <unk> data center interconnect products.
Matt: Data center revenue grew 87% year over year and 7% sequentially.
Matt: <unk> digit growth from cloud more than offsetting a higher than seasonal decline in revenue from enterprise on premise data centers.
Matt: Strong revenue growth was driven by cloud AI as well as standard cloud infrastructure.
Matt Murphy: In addition to strong contributions from our market-leading electro-optics products, we also benefited in the first quarter from the initial shipments of our custom AI compute program. Turning to the second quarter of fiscal 2025, we expect our overall data center revenue to grow at the mid single-digit sequentially on a percentage basis as our custom AI silicon continues ramping. I'm very pleased with our results and projected guidance for our data center and market.
Matt: In addition to strong contributions from our market leading electronics products. We also benefited in the first quarter from the initial shipments of our custom AI compute programs.
Turning to the second quarter of fiscal 2025, we expect our overall data center revenue to grow in the mid single digit sequentially on a percentage basis as our custom AI silicon continuous ramping.
Matt: I'm very pleased with our results are projected guidance for our data center end market. Our continued growth in data center.
Matt Murphy: Our continued growth in data centers, and AI in particular, is being driven by our leading portfolio of connectivity and custom compute products. Starting with our interconnect solutions, our 100 gigabit per lane, 800 gigabit PAM products are the primary interconnect enabler for state-of-the-art AI deployments today. And customers have already started qualifying our first-to-market next-generation 200 gigabit per lane 1.60 solution. Our 1.6T solutions are poised to enable the next generation of AI accelerators.
<unk> in particular is being driven by our leading portfolio of connectivity and compute products.
Matt: Starting with our interconnect solutions, our 100 gig per land 800 gig Pam products are the primary interconnect enabler for state of the art AI deployments today customers have already started qualifying our first to market next generation 200 gig per lane 160 solutions.
Matt: <unk> solutions are poised to enable the next generation of AI accelerators.
Matt Murphy: We are seeing similar success with our DCI products, with 400 gigabyte ZR shipping in high volume, strong interest in our next generation 800 gigabyte products, and an expanding DCI customer base with design wins at multiple new data center customers. As we discussed at our recent AI event, we are further expanding our DCI opportunity enabled by our new coherent DSP, which extends the reach of our DCI modules to 1000 kilometers, creating what is expected to be a new $1 billion market for Marvell over the long term.
Matt: We are seeing similar success with their Dci products with 400 gig ZR shipping in high volume strong interest for our next generation 800 gig products and an expanding Dci customer base with design wins at multiple new datacenter customers.
Matt: As we discussed at our recent AI event, we are further expanding our Dci opportunity enabled by our new coherent DSP, which extends the reach of our Dci modules to 1000 kilometers grading what is expected to be a new $1 billion market for marvell over the long term.
Matt Murphy: In aggregate, we expect our overall market for DCI products to go to $3 billion by calendar 2028. Complimenting our optical interconnect solutions, we have started shipping PAM DSPs for active electrical cables with design ones at multiple tier one cloud customers.
In aggregate, we expect our overall market for Dci products to grow to $3 billion by calendar 2028.
Matt: Complementing our optical interconnect solutions, we have started shipping Pam DSP for active electrical cables with design wins at multiple tier one cloud customers.
Speaker Change: Got it to be another new and completely additive $1 billion market for marvell over the long term.
Matt Murphy: This is expected to be another new and completely additive $1 billion market for Marvell over the long term. This morning, we announced that we are entering a new interconnect market with our PCIe Gen 6 re-timer. AI applications are driving data flows and connections inside server systems at significantly higher bandwidths, driving the need for PCIe retimers to meet the required connection distances at the fastest speed. PCIe Gen 6 is the first PCIe standard to use PAM-4 signaling, technology Marvell has been leading for many generations.
Speaker Change: This morning, we announced that we are entering a new interconnect piece.
Speaker Change: <unk> Gen six REIT universe.
Speaker Change: Applications are driving data flows and connections to the site server systems are significantly higher bandwidth driving the need for pcie re timers to meet the required connection distances at.
That's the fastest speeds.
Speaker Change: <unk> six is the first pcie standardize Pam four signal technology Marvell has been leading for many generations. We have also been working closely with key customers and industry partners to intercept this technology transition and are now sampling, our new eight and 16 Lane Pam four base.
Matt Murphy: We have also been working closely with key customers and industry partners to intercept this technology transition and are now sampling our new 8 and 16 lane PAM-4 based, PCIE Gen 6 refib. These products are designed to help data center compute fabrics continue to scale inside Accelerated Servers. We look forward to updating you on our progress in this new market. In data center switching, we are looking forward to starting production shipments of our next generation 51.2 T-Swiss later this year.
Speaker Change: <unk> six week hours. These products are designed to help datacenter compute fabrics continue to scale inside accelerated servers. We look forward to updating you on our progress in this new market.
Speaker Change: In data center switching we are looking forward to starting production shipments of our next generation of $51.
Speaker Change: He switched later this year.
Matt Murphy: We are encouraged by the traction we are seeing with both existing and new customers, which has expanded our opportunity funnel for cloud switching. As we discussed at our AI day, we have also been making excellent progress with our custom compute business. Our custom compute AI programs are beginning to ship in the first half of this fiscal year, and we are expecting a very substantial ramp in the second half of this year, followed by a full year of high volume production in Fiscal 2026.
Speaker Change: Encouraged by the traction, we're seeing with both existing and new customers, which has expanded our opportunity funnel for cloud switching.
Speaker Change: As we discussed at our AI day, we've also been making excellent progress.
Speaker Change: Yes.
Speaker Change: Our custom compute AI programs are beginning to ship in the first half of this fiscal year.
Speaker Change: We're expecting a very substantial ramp in the second half of this year, followed by a full year of high volume production.
Speaker Change: In fiscal 2026.
Matt Murphy: The multiple custom cloud products we are ramping today are validating the strategy we put in place following the acquisition of Cavium and Avera, combining decades of experience in both compute and custom silicon. As we gain momentum, we are now even more optimistic about our prospects of benefiting from the rapidly expanding opportunity funnel for custom cloud silicon. In fact, at our AI Day in April, we outlined our significant and growing new design lens for custom AI compute, in addition to our continued work with existing customers on a multi-generational basis.
Speaker Change: The multiple custom cloud products, we are ramping today are validating the strategy we put in place following the acquisition of Cambium and Avera Goodbye have decades of experience in both compute and custom silicon.
Speaker Change: As we gain momentum we are now even more optimistic about our prospects and benefiting from the rapidly expanding opportunity funnel for custom cloud silicon.
Speaker Change: In fact that our AI day in April we outlined are significant and growing new design wins for custom AI compute in addition to our continued work with existing customers on a multi generational basis. As a result, we are increasingly confident in our ability to meaningfully grow our share over the next several years and the market for customer accelerated compute which is expected to grow from approximately 7 billion.
Matt Murphy: As a result, we are increasingly confident in our ability to meaningfully grow our share over the next several years in the market for custom-accelerated compute, which is expected to grow from approximately $7 billion in calendar 2023 to over $40 billion in calendar 2028, a 45% CAGR. Underscoring Marvell's strategy to be the leader in data infrastructure, Data Center drove approximately 70% of our consolidated revenue in the first quarter. We see a massive opportunity ahead, with the Data Center TAM expected to grow from $21 billion last year to $75 billion in calendar 2028, at a 29% CAGR.
Speaker Change: In calendar 2023 to over $40 billion in calendar 2028, or 45% CAGR.
Speaker Change: Underscoring the barbell strategy to be the leader in data infrastructure data center drove approximately 70% of our consolidated revenue in the first quarter, we see a massive opportunity ahead with the datacenter Tam expected to grow from 21 billion last year 75 billion in calendar 2028, and 29% CAGR.
Matt Murphy: We have numerous opportunities across compute, interconnect, switching, and storage, and as a result, we expect to double our market share over the next several years from our approximately 10% share last fiscal year. Now, let me turn to Marvell's Enterprise Networking and Carrier End Markets together. As expected, reflecting a period of inventory correction and soft industry demand, revenue from both end markets declined in the first quarter. Enterprise Networking revenue was $153 million, while Carrier revenue was $72 million.
Speaker Change: We have numerous opportunities across compute interconnect switching and storage as a result, we expect to double our market share over the next several years tomorrow, approximately 10% share last fiscal year.
Speaker Change: Now, let me turn to Marvell is enterprise networking and carrier end markets together as expected, reflecting a period of inventory correction and soft industry demand revenue from both end markets declined in the first quarter enterprise networking revenue was $153 million or carrier revenue was 72.
Matt Murphy: In line with our expectations for these end markets to reach a bottom in the first half of this fiscal year, we project our revenue in the second quarter from both enterprise networking and carrier infrastructure to be flat sequential. For enterprise networking, we are encouraged by recent comments from our networking customers that their order patterns are stabilized. They expect their end customers' inventory to start to normalize. As a result, we expect to start a recovery in the second half of this fiscal year as we begin shipping closer to end market demand.
Speaker Change: Well I was our expectations for these end markets to reach a bottom in the first half of this fiscal year, We project our revenue in the second quarter for both enterprise and networking carrier infrastructure to be flat sequential.
Enterprise networking, we are encouraged by recent comments from our networking customers that their order patterns are stabilizing and that they expect their end customers' inventory to start to normalize.
Speaker Change: The result, we expect to start to recover in the second half of this fiscal year as we begin shipping closer to end market demand.
Matt Murphy: In the carrier-end market, while overall demand remains subdued, we are looking forward to the initial transition to our next-generation 5nm-based Octeon 10 DPUs at a Tier 1 customer. As previously outlined, while we are shipping the baseband socket in the current generation, we have already secured both the transport and baseband sockets in the next generation.
Speaker Change: And the carrier end market, while overall demand remains subdued we are looking forward to the initial transition to our next generation five nanometer based off the 10 bps at a tier one customer.
Speaker Change: As previously outlined we are while we are shipping the baseband sockets in the current generation, we've already secured both the transport and baseband sockets in the next generation.
Matt Murphy: The transition begins towards the end of this fiscal year and will be more meaningfully next year. We expect Marvell's market share to continue to grow in the 5G market. In aggregate, we are beginning to see encouraging signs that support our expectations for the start of a modest revenue recovery later this fiscal year in both the enterprise networking and carrier end market. However, the pace of recovery will depend on how quickly the still elevated inventory levels normalize for our customers. We are looking forward to these two end markets returning to strength for Marvell. Turning to the consumer end market, revenue in the first quarter was $42 million, declining 70% year-over-year and 71% sequentially.
Speaker Change: The transition begins towards the end of this fiscal year and more meaningfully next year, we expect barbells market share to continue to grow the <unk> market.
Speaker Change: In aggregate, we are beginning to see encouraging signs that support our expectations for the start.
Speaker Change: Although modest revenue recovery later this fiscal year in both the enterprise networking and carrier end markets.
Speaker Change: The pace of recovery will depend on how quickly the still elevated inventory levels normalize that our customers.
Speaker Change: We're looking forward to these two end markets returning to strength of the barbell.
Speaker Change: Turning to the consumer end market revenue in the first quarter was $42 million declining 70% year over year and 71% sequentially. These.
Matt Murphy: These results were in line with our forecast and reflected the completion of deliveries for an end-of-life program in the prior quarter, as well as the change in demand from the game console market. During the quarter, we worked closely with our gaming customers to help them quickly complete the realignment of their inventory of our products to their updated production. With this gaming inventory correction behind us, we were expecting our revenue in the second quarter from the consumer end market to rebound and approximately double on a sequential basis. According to our automotive and industrial end market, revenue in the first quarter was $78 million, declining 13% year-over-year and 6% sequentially.
Speaker Change: These results were inline with our forecast and reflected the completion of deliveries for at end of life program in the prior quarter as well as the change in demand from the game console market.
During the quarter, we work closely with our gaming customer to help them quickly complete the realignment of their inventory of our products to their updated production plan.
Speaker Change: This gaming inventory correction behind us, we're expecting our revenue in the second quarter for the consumer end market to rebound and approximately double on a sequential basis.
Speaker Change: Turning to our automotive and industrial end market revenue in the first quarter was $78 million declining 13% year over year, 6% sequentially.
Matt Murphy: These results are reflective of a broad inventory correction taking place across the automotive end market, which is expected to take some time to fully resolve. As a result, we are forecasting revenue from our overall auto and industrial end market for the second quarter of fiscal 2025 to be flat sequentially. Looking further ahead, we expect revenue growth to resume in the second half of this fiscal year, driven by an increase in Marvell's Ethernet content in upcoming model year 2025 vehicles as they enter production towards the end of this calendar year.
Speaker Change: These results are reflective of a broad inventory correction, taking place across the automotive end market, which is expected to take some time to fully resolve.
Speaker Change: As a result, we are forecasting revenue from our overall auto and industrial end market for the second quarter of fiscal 2025, it would be flat sequentially.
Speaker Change: Looking further ahead, we expect revenue growth to resume in the second half of this fiscal year driven by an increase in Marvell Ethernet content and upcoming model year 2025 vehicles as they enter production towards the end of this calendar year.
Matt Murphy: Marvell continues to deepen relationships with the world's largest automotive owners. General Motors recently named us Supplier of the Year and honored us with the 2023 Overdrive Award for Automotive Ethernet Technology. This prestigious award recognizes suppliers who consistently exceed expectations in their partnership with GM. We're excited that our automotive Ethernet portfolio is being recognized for playing a critical role in the industry.
Speaker Change: Marvell continues to deepen our relationships with the world's largest automotive Oems General Motors recently named the supplier of the year.
Speaker Change: And honored US with the 2023 Overdrive award for automotive Ethernet technology.
Speaker Change: This prestigious award recognizes suppliers, who consistently exceed expectations and their partnership with GM.
Speaker Change: We're excited that our automotive Ethernet portfolio is being recognized for playing a critical role in the industry.
Matt Murphy: In summary, the first fiscal quarter played out largely as we had expected. Led by AI, Data Center continued to outperform, with revenue almost doubling on a year-over-year basis, while our other end markets found what is expected to be their lowest. For the second quarter, at the midpoint of guidance, we are forecasting consolidated revenue to grow 8% on a sequential basis. We expect a favorable setup for the rest of this fiscal year, driven by continued growth from data centers and a recovery in the rest of our end market.
Speaker Change: In summary, the first fiscal quarter played out largely as we had expected.
Speaker Change: Led by AI data center continued to outperform with revenue almost doubling on a year over year basis, while our other end markets found what is expected to be there Bob.
Speaker Change: For the second quarter at the midpoint of guidance, we are forecasting consolidated revenue to grow 8% on a sequential basis.
Speaker Change: Expect a favorable setup for the rest of this fiscal year driven by continued growth from data center and a recovery in the rest of our end markets.
Matt Murphy: Our storage revenue has also resumed year over year growth, and given positive demand commentary from customers, we are expecting that to continue. We project robust growth from AI with the expected ramp in our cloud custom AI programs to augment our substantial base of electro-optics revenue, which we expect will remain correlated to accelerator shipments. Given the strong start in the first quarter from AI and our expectations for continued growth the rest of this fiscal year, we are confident that we are well on our way to exceeding the full year AI revenue target we had discussed earlier this year and at our AI event. So with that, I'll turn the call over to Willem for more detail on our recent results and outcomes.
Speaker Change: Our storage revenue has also resumed year over year growth and given positive demand commentary from customers, we're expecting that to continue.
Speaker Change: We project robust growth to continue from AI with the expected ramp in our cloud customer AI programs to augment our substantial base of electro optics revenue, which we expect will remain correlated to accelerator shipments.
Speaker Change: Given the strong start in the first quarter from AI and our expectations for continued growth. The rest of this fiscal year. We are confident that we're well on our way to exceed the full year AI revenue target. We discussed earlier this year and at our AI event.
Speaker Change: So with that I will turn the call over to William for more detail on our recent results at all.
Willem A. Meintjes: Thanks, Matt, and good afternoon, everyone. Let me start with a summary of our financial results for the first quarter of fiscal 2025. Revenue in the first quarter was $1.161 billion, exceeding the midpoint of our guidance, declining 12% year over year and 19% sequentially. Data Center was our largest segment, driving 70% of total revenue.
William: Thanks, Matt and good afternoon, everyone.
Willem A. Meintjes: The next largest was Enterprise Networking with 13%, followed by Auto Industrial at 7%, Carrier Infrastructure at 6%, and Consumer at 4%. Gap gross margin was 45.5%, and Non-Gap Gross Margin was 62.4%. Moving on to operating expenses, Gap operating expenses were $680 million, including stock-based compensation, amortization of acquired intangible assets, restructuring costs, and acquisition-related costs. Non-GAAP operating expenses were $454 million, in line with our guidance. Gap operating margin was negative 13.1%, while non-gap operating margin was 23.3% For the first quarter, gap's loss per diluted share was 25 cents.
William: Let me start with a summary of our financial results for the first quarter of fiscal 2025.
William: Revenue in the first quarter was 1.161 billion exceeding the midpoint of our guidance declining 12% year over year and 19% sequentially.
William: Data Center was our largest end market driving 70% of total revenue.
William: The next largest was enterprise networking with 13% followed by auto industrial at 7% carrier infrastructure at 6% and consumer at 4%.
William: GAAP gross margin was 45, 5%.
William: non-GAAP gross margin was 62, 4%.
William: Moving on to operating expenses.
William: GAAP operating expenses were 680 million, including stock based compensation amortization of acquired intangible assets restructuring costs and acquisition related costs.
William: non-GAAP operating expenses were $454 million in line with our guidance.
William: GAAP operating margin was negative 13, 1%, while non-GAAP operating margin was 23, 3%.
William: For the first quarter GAAP loss per diluted share with 25 states.
Willem A. Meintjes: Non-GAAP income per deleted share was $0.24, $0.01 above the midpoint of guidance. Now, turning to our cash flow and balance sheet. Cash flow from operations in the first quarter was $325 million. As a reminder, our first quarter cash flow results reflect the payment of annual employee cash bonuses for the prior fiscal year.
William: non-GAAP income per diluted share was 24.
William: One think about the midpoint of guidance.
William: Now turning to our cash flow and balance sheet.
William: Cash flow from operations in the first quarter was 325 million.
William: As a reminder, our first quarter cash flow results reflect the payment of annual employee cash bonuses for the prior fiscal year.
Willem A. Meintjes: Our inventory at the end of the first quarter was $826 million, decreasing by 38 million from the prior quarter. On a year-over-year basis, we have reduced our inventory by 200 million, or almost 20%. Our DSO was 69 days, decreasing by 8 days from the prior quarter.
William: Our inventory at the end of the first quarter was $826 million.
William: Decreasing by $38 million from the prior quarter.
On a year over year basis, we have reduced our inventory by 200 million or almost 20%.
William: Our DSO was 69 days decreasing by eight days from the prior quarter.
Willem A. Meintjes: We returned $52 million to shareholders through cash dividends. In addition, we repurchased $150 million of our stock during the first quarter, an increase of $50 million from the prior quarter. We expect to further increase repurchases in the second quarter of fiscal 2025. Our total debt was $4.15 billion, our gross debt to EBITDA ratio was 2.27 times, and our net debt to EBITDA ratio was 1.8 times. As of the end of the first fiscal quarter, our cash and cash equivalents were $848 million, decreasing by $103 million from the prior quarter.
William: We returned $52 million to shareholders through cash dividends.
William: In addition, we repurchased 150 million of our stock during the first quarter, an increase of $50 million from the prior quarter.
William: We expect to further increase repurchases in the second quarter of fiscal 2025.
William: Our total debt was $4 one 5 billion.
William: Gross debt to EBITDA ratio was 2.27 times and next day to EBITDA ratio was one eight times.
William: As of the end of the first fiscal quarter, our cash and cash equivalents were 848 million decreasing by $103 million from the prior quarter.
Willem A. Meintjes: This was primarily due to the payment of annual employee bonuses, as we funded stock repurchases and dividend payments for our operating cash flow generation during the quarter. Now, turning to our guidance for the second quarter of fiscal 2025. We are forecasting revenue to be in the range of $1.25 billion, plus or minus 5%. We expect our gap growth margin to be approximately 46.2%. We expect our non-GAAP gross margin to be approximately 62%. We are forecasting a small sequential decrease in non-GAAP gross margin.
William: This is primarily due to payment of annual employee bonuses as we fund the stock repurchases and dividend payments for our operating cash flow generation during the quarter.
William: Turning to our guidance for the second quarter of fiscal 2025.
William: We are forecasting revenue to be in the range of $1, two 5 billion plus or minus 5%.
William: We expect our GAAP gross margin to be approximately 46, 2%.
William: We expect our non-GAAP gross margin to be approximately 62%.
William: We are forecasting a small sequential decrease in non-GAAP gross margin.
Willem A. Meintjes: Due to a projected change in product mix as our consumer revenue rebounds and custom cloud silicon continues to ramp. In the second half, we expect a substantial ramp in our custom silicon programs to drive strong revenue growth, with only a modest recovery in our traditional businesses. As a result, we expect this revenue growth and accompanying mixed shift to be dilutive to our current gross margins but to be accretive to operating margin and earnings. We expect that a rebound in our traditional businesses to more normalized levels would meaningfully improve our overall gross margins in the future.
William: To a projected change in product mix as our consumer revenue rebounds, and custom cod silicon continues to ramp.
William: In the second half, we expect a substantial ramp in our custom silicon programs to drive strong revenue growth with only a modest recovery in our traditional businesses.
William: As a result, we expect this revenue growth and accompanying mix shift is likely to be dilutive to our current gross margins, but to be accretive to operating margin and earnings.
William: Expect a rebound in our traditional businesses to more normalized levels would meaningfully improve our overall gross margins in the future.
Willem A. Meintjes: For the second quarter, we project our gap operating expenses to be approximately $688 million, and we anticipate our non-GAP operating expenses to be approximately $455 million. For the second quarter, we expect other income and expense, including interest on our debt, to be approximately 46 million. We expect a non-gap tax rate of 7% for the second quarter. We expect our basic weighted average shares outstanding to be $867 million, and our diluted weighted average shares outstanding to be $877 million.
William: For the second quarter, we project, our GAAP operating expenses to be approximately $688 million.
William: We anticipate our non-GAAP operating expenses to be approximately $455 million.
William: For the second quarter, we expect other income and expense, including interest on our debt to be approximately $46 million.
William: We expect a non-GAAP tax rate of 7% for the second quarter.
William: We expect a basic weighted average shares outstanding to be $867 million.
William: Diluted weighted average shares outstanding to be $877 million.
William: We anticipate GAAP loss per diluted share in the range of 15 to 25 states.
William: We expect non-GAAP income per diluted share in the range of 24 to 34 states.
William: Our guidance for revenue in the second quarter is to grow sequentially in the high single digits at the midpoint on a percentage basis.
William: Continue to be optimistic about the prospects in the second half of this fiscal year.
William: As we drive revenue growth, we remain focused on delivering robust operating leverage strong cash flow generation and returning increasing amounts of capital to investors through our active stock repurchase program at.
Willem A. Meintjes: We anticipate a gap loss per deleted share in the range of 15 cents to 25 cents. We expect non-GAAP income per diluted share in the range of 24 cents to 34 cents. Our guidance for revenue in the second quarter is to grow sequentially in the high single digits at the midpoint on a percentage basis, and we continue to be optimistic about the prospects for the second half of this fiscal year. As we drive revenue growth, we remain focused on delivering robust operating leverage, strong cash flow generation, and returning increasing amounts of capital to investors through our active stock repurchase program. Operator, please open the line and announce Q&A instructions. Thank you.
Speaker Change: Operator, please open the line and announced Q&A instructions. Thank you.
William: Thank you.
Operator: We will now begin the question and answer session. To ask a question, please press star 1 on your touchtone phone. If you're using a speakerphone, please pick up your handset before pressing any key.
Speaker Change: We will now begin the question and answer session.
Speaker Change: To ask a question. Please press star one on your Touchtone phone.
Speaker Change: If youre using a speakerphone please pick up your handset.
Speaker Change: Before pressing any keys.
Operator: To withdraw your question, please press start. In the interest of time, please restrict yourself to one question only. If you have additional questions, please rejoin the queue. This time, we will pause momentarily to assemble our roster. Our first question comes from Vivek Arya of Bank of America Securities. Your line is already open.
Speaker Change: Draw your question please.
Speaker Change: Please press star two.
Speaker Change: In the interest of time, please restrict yourself to one question only.
Speaker Change: If you have additional questions. Please rejoin the queue.
Speaker Change: At this time, we will pause momentarily to assemble our roster.
Speaker Change: Yeah.
Speaker Change: Our first question comes from.
Speaker Change: Vivek Arya of Bank of America Securities. Your line is already open.
Vivek Arya: Thanks for taking my question. Matt, just kind of near term, I was hoping you could help quantify how much custom compute was accounted for in Q1 and how you were thinking about it in Q2. And then as we look into the back half, I think you've given an overall AI number for the data center. But is that a supply constraints number? Just give us a sense of what are the puts and takes in the back half. How much flexibility is in the model to adjust for upside expectations from here on? Hey Vivek, thanks for the question.
Vivek Arya: Thanks for taking my question I, just kind of near term I was hoping you could help quantify how much custom computer accounted for in Q1, and how you were thinking about in about it in Q2.
Vivek Arya: And then as we look into the back half.
Vivek Arya: I think you've given an overall number for the data center, but is that the supply constrained number just give us a sense for what are the puts and takes in the back half how much flexibility is in the model.
Speaker Change: Two upside expectations.
Speaker Change: From here on.
Matt Murphy: Hey, Vivek. Hey, thanks for the question. Yeah, so we started production shipments, which was great in our first quarter. And, you know, that's on its way up. If you look at our Q2 shipments, most of the growth in the data center segment is coming from custom. So that's a positive.
Speaker Change: Hey, Vivek thanks for the question.
Yeah. So we started production shipments, which was great and our first quarter.
Speaker Change: And.
Speaker Change: On its way up if you look at our Q2.
Matt Murphy: And then the whole thing, you know, in flex, meaningfully in the second half. And I'd say from a full year perspective, the way to think about it, maybe some additional color would be, you know, we talked about a floor of 1.5 billion for AI revenue for Marvell for this fiscal year, with about two-thirds in electro optics and a third in custom. And we see, we see now both of those, you know, exceeding that number, and then kind of flow into your second part of your question on the supply constraints and the second half and how do we think about it.
Speaker Change: Most of the growth in the data center segment is coming from custom.
Speaker Change: So that's a positive and then the whole thing and flex meaningfully in the second half.
Speaker Change: And I would say from a full year perspective, the way to think about it maybe some additional color would be.
Speaker Change: We talked about a floor of $1 5 billion for AI revenue for Marvell for this fiscal year with about two thirds and electro optics and a third in custom and we see.
Speaker Change: We see now both of those exceeding that number and then Canada, so well into your.
Speaker Change: The second part of your question on the supply constraints in the second half and how do we think about it.
Matt Murphy: We feel like we're in a good position. On the optics side, we did get that initial very strong upside about a year ago, if you recall, and the team did a great job, and we've been reacting, as you saw in our fourth quarter and in our first quarter, where we overachieved on our revenues there. And so we're continuing to manage that supply chain very, very carefully and in a very focused manner to make sure we have the flexibility we need for that. And the same is true for the second half, both on the optics and the custom side. And so we're positioning ourselves very much to handle upside above and beyond the numbers we've talked about. Thanks.
Speaker Change: We feel like we're in a good position we.
Speaker Change: On the optics side.
Speaker Change: We did get that initial very strong upside about a year ago. If you recall and the team did a great job and we've been reacting as you saw in our fourth quarter and then our first quarter, where we over achieved.
Speaker Change: On our revenues there and so we're continuing to manage that supply chain very very carefully and in a very focused manner to make sure. We have the flexibility we need vivek and the same is true for the second half both on the optics and the custom side and so we're positioning ourselves very much to handle upside above and beyond the numbers we've talked about.
Speaker Change: Thanks.
Mike: Thank you Mike.
Timothy Michael Arcuri: Your next question comes from Timothy Arcuri of UBS. Your line is already open.
Speaker Change: Your next question comes from Timothy.
Speaker Change: Arcuri of UBS. Your line is already open.
Timothy Michael Arcuri: Thanks a lot. Matt, I wanted to ask about the evolution of the custom ASIC TAM. You had said it was roughly 6.6, I think you said last year. And I guess at the, you know, Analyst Day, you said that you'd be to 10% share very soon. So is it fair to say that you could be at a billion dollars in custom compute next year? I mean, I would think that TAM gets to roughly 10 billion next year.
Matt: Thanks, a lot Matt I wanted to ask about the evolution of the custom ASIC Tam you had said it's roughly six six I think you said last year and I guess at the Analyst day, you said that you'd be the 10% share very soon so is it fair to say that you could be at $1 billion in custom compute next year I mean, I would think that the Tam gets too.
Speaker Change: Roughly 10 billion next year.
Timothy Michael Arcuri: So do you think you can get to that billion dollars in custom compute number next year? And then also, I'm just kind of wondering if you can talk about the upside, you know, data center came in 30-35 million dollars better in fiscal Q1. What was that from?
Speaker Change: So do you think you can get to that $1 billion in custom compute number next year.
Speaker Change: And then also I'm just kind of wondering if you can talk about the upside you know data center came in $30 million to $35 million better in fiscal Q1, what what was that from it sounds like it wasn't necessarily custom compute because that's still pretty small so it was it more on the connectivity side. Thanks.
Matt Murphy: It sounds like it wasn't necessarily custom compute, because that's still pretty small. So is it more on the connectivity side? Thanks.
Matt Murphy: Yeah, great. Hey, thanks, Tim.
Tim: Yes, great Hey, Thanks, Tim Yeah, So we we articulate it.
Speaker Change: AI day.
Tim: Very.
Speaker Change: Robust custom silicon Tam in excess of $40 billion going out into <unk>.
Matt Murphy: Yeah, so we articulated the AI day, you know, a very robust custom silicon TAM in excess of $40 billion going out into the 2028 timeframe, and that TAM growing very significantly. And yeah, we I think your numbers are about right in terms of the share we're going to end up with near term, and then Raghib articulated, you know, our goal to drive that in the custom silicon area to 20%.
Speaker Change: Yeah.
Speaker Change: 2028 timeframe and that Tam growing very significantly.
Speaker Change: And yes, we I think your numbers are about right in terms of the share we're going to end up with near term and then ragav articulated.
Speaker Change: Our goal to drive that in the custom silicon area of the 20%. So you've got to draw a line kind of from here to there in terms of the opportunity and obviously that the Tam is got to materialize.
Matt Murphy: So you have to draw a line kind of from here to there, in terms of the opportunity, and obviously, the TAMs have to materialize. But yeah, we're well on our way, our programs are, you know, continuing to kind of upsize in terms of the magnitude we're looking at. I just say we didn't give the breakout exactly for next year, but we did talk about an incremental billion dollars as the floor for next year from this year.
Speaker Change: But yes, we're well on our way our programs are.
Speaker Change: Continue to kind of upsize in terms of the magnitude. We're looking at I'd, just say, we didnt give the breakout exactly for next year, but we did talk about incremental billion dollars is the floor for next year from this year, so going from one five to $2 5 billion and a lot of that is going to be due to the custom programs.
Matt Murphy: So going from 1.5 to 2.5 billion, and a lot of that is going to be due to custom programs. Transcribed by https://otter.ai, You know, hitting their first full year of volume. So we're not calling out the exact split for next year, but maybe that will help you triangulate in the middle, in terms of where we are today, where we're trying to drive the business, and then also where we see the overall AI business for next year.
Matt Murphy: And I'm confident you and the team can come up with a great model around that. In Q1, yeah, most of the because custom had just started, again, our optics business continued to be very strong, outperformed again. And all indications are that business, certainly on a year over year basis, will perform very well and be above the targets we outlined even on AI day. [inaudible] Thanks, Jim.
Speaker Change: Hitting their first full year of volume so we're not calling out the exact split in X rate for next year, but maybe that will help you triangulate in the middle in terms of where we are today, where we're trying to drive the business and then also where we see the overall AI business for next year and I am confident you and the team can come up with a great model around that on on Q1, Yeah most of.
Speaker Change: Because it's customer just started.
Speaker Change: Again, our optics business continued to be very strong outperformed again and it's.
Speaker Change: And all indications are that business certainly on a year over year basis will perform very well and be above the targets, we outlined even at the AAD.
Speaker Change: Great Matt.
Sam: Thank you so much thanks, Sam yes.
Sam: Okay.
Christopher Caso: Your next question comes from Chris Caso of Wolf Research. Your line is already open.
Speaker Change: Your next question comes from Chris Caso of.
Speaker Change: Wolfe Research your line is already open.
Speaker Change: Okay.
Christopher Caso: Yes, thank you. Good afternoon.
Speaker Change: Yes. Thank you good afternoon.
Speaker Change: <unk> is on gross margins and some of the comments that you made with.
Christopher Caso: My question is on gross margins and some of the comments that you made with regard to gross margins in the second half of the year. Could you give a little more detail about, you know, some of the puts and takes of that, you know? Understand that some of the lower margin segments, such as consumer, I guess you would include some of the carrier business, and that coming back will weigh on margins. You know, what are the segments in traditional businesses that need to come back to bring gross margins back to more normalized levels?
Speaker Change: With regard to gross margins in the second half of the year could you give a little more detail.
Speaker Change: Some of the puts and takes of that I understand that some of the lower margin segments.
Speaker Change: Such as consumer I guess, you would include some of the carrier business and that's coming back we'll weigh on margins.
Speaker Change: What are the segments in the traditional businesses that need to come back to bring the gross margins back to more normalized levels.
Willem A. Meintjes: Yeah, thanks. Let me let me take that.
Speaker Change: Yeah. Thanks, Let me, let me take that so.
Speaker Change: When we look at our gross margin is still very much driven by overall product mix as well as the overall level of revenue in the overhead absorption that you get if you look at the merchant side of our business. Those gross margins continued to be extremely healthy actually quite a bit above or corporate.
Speaker Change: Our target range.
Speaker Change: However, some of the key components of that if you look at data center storage enterprise networking enterprise on Prem are really growing through significant inventory correction.
Willem A. Meintjes: So, you know, when we look at our growth margin, it's still very much driven by the overall product mix, and then as well as the overall level of revenue and the overt absorption that we get. If you look at the merchant side of our business, those growth margins continue to be extremely healthy, actually quite a bit above our overall corporate target range. However, some of the key components of that, you know, if you look at data center storage, enterprise networking, and enterprise on premises, are already going through a significant entry correction.
Willem A. Meintjes: And so at the same time, you know, we're seeing the beginning of a very strong ramp on our custom programs, and those are typically lower gross margin. However, we get a ton of leverage on the OPEX, especially as we're able to recognize the NRE on that as contra R&D. And so as a result, that really drives really strong operating margin for us. So overall, you know, I'm not going to guide you for more than one quarter year at a time.
Speaker Change: And so at the same time.
Speaker Change: We're seeing the beginning of a very strong ramp on our custom programs.
Speaker Change: And those are typically.
<unk> gross margin however, we get a ton of leverage on the Opex, especially as we're able to recognize in already on matters Contra R&D.
So as a result that really drives really strong operating margin for us. So so overall.
Going to guide more than one quarter at a time I think you'll have to triangulate with.
Willem A. Meintjes: I think, you know, you'll have to triangulate with what we're indicating here. But, you know, we do see, as those other merchant businesses start recovering, that that drives a nice tailwind for us across next year. Yeah, thanks Willem.
What we're indicating here.
Speaker Change: But.
Speaker Change: We do see.
Speaker Change: As as those.
Speaker Change: Those other merchant businesses starts recovering.
Speaker Change: That that drives a nice tailwind for us.
Speaker Change: Across next year, yes.
Matt Murphy: Yeah, thanks Willem. And Chris, just one more addendum and then we can go to the next question. I'd say in addition to that, which is really, as Willem said, both the on-premise data center, and the enterprise networking, those types of segments being weaker with healthier gross margins. The other one that is poised for a stronger recovery as well is automotive in the second half, and that's been a strong driver for us as well.
Speaker Change: Thanks, Paul and then Chris just one more and then we can go to the next question I would say in addition to that which is really as William said, both the on Prem data center. The enterprise networking those types of segments being being weaker that are healthier gross margins. The other one that is poised for a stronger recovery as well as automotive in the second half and Thats been.
Matt Murphy: So there's some goodness out there for sure. We'll have a better read, obviously, as this current quarter progresses in terms of what the second half is going to look like for those other businesses, but we do expect them to recover and return to growth. It's just a timing issue. So hopefully that's helpful to think about the different drivers of gross margin. Next question.
<unk> been a strong driver for us as well. So there is some goodness out there for sure. We're we'll have a better read obviously is that this current quarter progresses.
Speaker Change: What the second half is going to look like on those other businesses, but we do expect them to recover and return to growth.
Speaker Change: Just the timing issue.
Speaker Change: So hopefully that's helpful to think about the different drivers of gross margin next.
Speaker Change: Next question.
Speaker Change: Okay.
Karl Ackerman: Your next question comes from Karl Ackerman of BNB Paribas. Your line is already open.
Speaker Change: Your next question comes from Karl Ackerman of Bnb Paribas. Your line is already open.
Karl Ackerman: Thank you. Within data center, it looks like the AI portions of your business are about I was hoping you could just also size the non-AI portion of data center, and I guess what you're seeing there both this quarter and going forward, because there does appear to be green shoots within the storage ecosystem and perhaps even fiber channels on a seasonal basis, so if you could just discuss the non-AI portion of data center both this quarter and throughout the balance of fiscal 25, that would be very helpful.
Karl Ackerman: Yes. Thank you.
Karl Ackerman: In data center it looks like the AI portions of your business are about <unk>.
Karl Ackerman: 500 million this past quarter, and so I was hoping to just.
Speaker Change: Also size the non AI portion of data center, and I guess, what Youre seeing there both this quarter and going forward because there does appear to be green shoots within the storage ecosystem and perhaps even fibre channel from a seasonal basis. So if you can.
Speaker Change: Can you just discuss the non AI portion of data center, both this quarter and throughout the balance of fiscal 'twenty five that'd be very helpful. Thank you.
Matt Murphy: Yeah, hey Karl, thanks. Yeah. So, yeah, without getting into the granularity by quarter relative to the pieces within data centers, the way I'd say it is AI, as we discussed, has been very strong. It continues to grow on the upside, and it continues to look very promising this year and next year. But to your point, a couple other things are going on that we see playing. Those companies providing those services, in particular, are continuing to invest for sure.
Matt Murphy: Thank you. Yeah, hey, Karl. Thanks. Yeah. So yeah, with
Yeah, Hey, Karl Thanks, Yeah, so, yes without getting into the granularity.
Speaker Change: Granularity by quarter relative to the pieces within data center the way I'd say it is the AI as we discussed has been very strong and continues to upside and that continues to look.
Speaker Change: Look very promising this year and next year.
Speaker Change: But to your point a couple of other things are going on that we see playing out through the year. The first is in standard cloud infrastructure.
Speaker Change:
Matt Murphy: And that, and so when we are seeing our recent results, we're seeing growth in both AI and standard cloud infrastructure. And we see that continuing throughout the year. And then as it relates to the on-prem piece, which has been very depressed relative to just what's happened with traditional server shipments over really the last eight quarters or so, we do, we do very much see a bottom in our first quarter in that business.
Speaker Change: Those companies, providing those services in particular are continuing to invest for sure and that.
Speaker Change: And so when we when we are seeing our recent results, we're seeing growth in both AI and standard cloud infrastructure and we see that continuing throughout the year and then as it relates to the on trend piece, which has been very depressed relative to just what's happened with traditional server shipments over really the probably the last eight quarters or.
Speaker Change: So we do we do very much see a bottom in our first quarter in that business and so that's going to be part of the growth throughout the rest of the year as well as some of that coming back to normalized leverage levels and that ties back to Williams comment earlier about.
Matt Murphy: And so that's going to be part of the growth throughout the rest of the year as well as some of that coming back to normalized levels. And that ties back to Willem's comment earlier about some of the gross margin improvement we can look forward to as those businesses recover. So I see growth in all three, kind of from here, but with different dynamics driving it.
Speaker Change: Some of the gross margin improvement, we can look forward to as those businesses recover so I see growth in all three.
Speaker Change: Kind of from from here, but with different dynamics driving us.
Speaker Change: <unk>.
Tom O'malley: Your next question comes from Tom O'Malley of Barclays. Your line is already open.
Speaker Change: Your next question comes from.
Speaker Change: Tom O'malley of Barclays. Your line is already open.
Tom O'malley: Good afternoon, guys. Thanks for taking my question.
Tom O'malley: Good afternoon, guys. Thanks for taking my question. This one is for you and it's sort of a follow up from the AI days. So you talked about with the kind of training inference and CPU and when you look into the future could you talk about.
Tom O'malley: Matt, this one's for you, and it's sort of a follow-up from AI Day. So, you talked about WINS and kind of training, inference, and CPU, and when you look into the future, could you talk about, you know, if you think any of the three are more or less defensible? Do you think you could be over-indexed to any of those? I know that you spent a lot of time at AI Day saying this is really a process that involves your chip design as well as the customer's design, and I understand that where flags are planted today, there may be some defensibility, but could you talk about those three opportunities and where you see more defensibility and where you may see some more security?
Tom O'malley: Do you think any of the three are more or less defensible.
Speaker Change: Do you think you could be over indexed to any of those I know that you'd spent a lot of time at the add anything. This is really a process that both involve your chip design as well as the customers design. So I understand that were flagged our planet today.
Speaker Change: There may be some defensibility, but just could you talk about those three opportunities and where are you where you see more defensibility and where you've seen some more success.
Matt Murphy: Yeah, Tom, thanks for the question. I think I would, I would, you know, bucket them all into the same camp.
Speaker Change: Yeah.
Speaker Change: Thanks for the question I think I would I would.
Speaker Change: Bucket them all largely in the same.
Matt Murphy: Okay. And what I mean by that is, If you're in the data center custom silicon market, as we are in providing a wide variety of solutions, Raghib showed those types of solutions on a slide at AI day, plus a bunch of other ones right that we're involved in. But, these are, you know, multi-year development cycles. These are multi-year or multi-generational types of engagements we have because you're talking about developing literally the most state-of-the-art semiconductor products in the industry.
Speaker Change: Camp, Okay, and what I mean by that is.
Speaker Change: If you're in the data center custom silicon market as we are and providing a wide variety of solutions raga showed those types of solutions on a slide at the AI plus a bunch of other ones right.
Speaker Change: That we're involved in but but these are multiyear.
Speaker Change: Multi year development cycles. These are multiyear multi generational types of engagements we have because.
Speaker Change: Youre talking about developing literally the most state of the art semiconductor products in the industry.
Matt Murphy: You know, some of these are the 100 billion type of transistors and up; it's the most advanced packaging, the most advanced process node, the most advanced IO. And as a key partner, you know, we have to be able to put all that together for the customer and then actually deliver it in high volume with high yield, high reliability, as well as have the parallelism to be working on the next generation.
Speaker Change: Some of these are $100 billion type of transistors in Opex. The most advanced packaging is the most advanced process node. The most advanced I O and as a as a key partner you know we have to be able to put all that together.
Speaker Change: <unk> for the customer and then actually deliver it in high volume with high yield high reliability as well as have the parallelism to be working on the next generation.
Matt Murphy: And these plans typically get set, you know, well in advance. The first wins we talked about on these custom programs were in 2021, Tom, and then we're sort of looking out to 2024, Ramp, I'm talking about the calendar now, and then really 2025 for kind of a full year. So and that's moving heaven and earth, you know, with the engineering teams in both companies. So these are very defensible, very sticky sockets when you partner and when you do a great job. And I wouldn't sort of put one over the other.
Speaker Change: And these plans typically get set well in advance the first wins, we talked about on these custom programs was in 2021, Tom and then we're sort of looking out to the 2024 ramp we're seeing I'm talking about calendar now and then really 2025 for kind of full year, so and that's that.
Speaker Change: Moving Heaven and Earth with the engineering teams in both companies.
Speaker Change: So these are very defensible very sticky sockets, when you partner and when you do a great job and I wouldn't I wouldn't I wouldn't sort of put one over the other theres various dynamics within all the different kinds of custom silicon <unk>.
Matt Murphy: There are various dynamics within all the different kinds of custom silicon investments our customers are making with us. But in general, once we're in, and we prove our execution and our partnership, it typically leads to the next one. So I feel really good about our position there. And so does Raghib. And that's why we're very confident in our ability to drive share gains over the next few years. And if the market really develops like I think we all think and hope it will, it will be very meaningful for investors. So, thanks for the question.
Speaker Change: Investments, our customers are making with us but in general you know once were in and we are.
Speaker Change: And we prove our execution and our partnership.
Speaker Change: It typically leads to the next one so I feel I feel really good about our position there and.
Speaker Change: And so it is wrong and that's why we're very confident in our ability to drive share gains over the next few years and if the market really develops like I think we all think and hope it will it will be very meaningful for marvell.
Speaker Change: So thanks for the question.
Speaker Change: Alright.
Yeah.
Nathaniel Quinn Bolton: Your next question comes from Quinn Bolton of Needham. Your line is already open.
Speaker Change: Your next question comes from Quinn Bolton of Needham your.
Speaker Change: Your line is already open.
Nathaniel Quinn Bolton: Thank you. Hey Matt, I just wanted to come back to the gross margin question. Obviously, I understand the ramp of custom compute is a bit of a headwind, but when you talk about sort of the pressure on margins as custom compute ramps, can you just level set us? Are you kind of talking relative to the long-term model of 64 plus, or are you sort of talking about pressure from sort of the July quarter guidance level of 62?
Speaker Change: Thank you, Matt just wanted to I guess to come back to the gross margin question, obviously I understand the ramp of custom compute is a bit of a headwind, but when you talk about sort of the pressure on margins is it's got some compete ramps can you just level set us so you're kind of talking relative to the long term model of 64, plus or you sort of.
Speaker Change: Talking about pressure from sort of the July quarter guidance level of 62.
Matt Murphy: Yeah, thanks for the question, Quinn, and the clarification. Yeah, we're really talking about in the short term here as we think about these custom programs ramping and what that's going to do to our business, you know, starting in Q2 and through this year. You know, we have a we have a mix of different business models and different product lines, as you know, and we're in a period right now where, You know, the custom piece as well, I'm indicated, which does drive tremendous operating leverage does carry a lower than So in the near term, as we see a very strong ramp in inflection on that business, with the sort of more margin rich businesses taking longer to recover, I think that's what we're trying to say, you know, we've, you know, successfully managed for some time now, you know, the ability to drive a healthy gross margin across the portfolio of products, but we still got to kind of get through this post, [inaudible] Willem, do you have anything to add? No, I think that's perfect, Matt.
Speaker Change: Yeah. Thanks for the question Quinn and the clarification, yes, we're really talking about in.
Speaker Change: In the short term here as we think about these custom programs ramping and what what that's going to do to.
Speaker Change: The business you know.
Speaker Change: In Q2 and through this year.
Speaker Change: We have a we have a mix of different business models in different product lines as you know.
Speaker Change: And we're in a period right now where.
Speaker Change: The custom piece as well and indicated which does drive tremendous operating leverage does carry a lower than.
Speaker Change: Corporate average gross margin so in the near term as we see a very strong ramp in inflection on that business with a with a sort of more margin rich business is taking longer to recover I think that's what we're trying to say we have successfully managed for some time now.
Speaker Change: The ability to.
Speaker Change: Drive a healthy gross margin across the portfolio of products, but we still got to kind of get through this post cyclical.
Speaker Change: Period, we're in and get back to a period of normalcy in terms of demand and I think when that happens and you see those other more.
Speaker Change: More margin rich businesses.
Speaker Change: Return to their to their run rates that they were at and then grow from there I think we'll have a much healthier.
Speaker Change: Margin profile, but that's really.
Speaker Change: That's really sort of beyond I would say the next few quarters and that's really what we're just trying to signal to everybody and on how to think about the business as you model in the near term.
Speaker Change: Do you have anything to add.
Willem A. Meintjes: No, I think that's perfect, Matt. There's nothing else.
Speaker Change: No I think thats perfect math, but nothing else okay. Thanks.
Ross Clark Seymore: Your next question comes from Ross Seymour of Deutsche Bank. Your line is already open.
Your next question comes from Ross Seymore of Deutsche Bank. Your line is already open.
Ross Clark Seymore: Hi guys, thanks for my question. I wanted to get to the cyclical parts of your business. Matt, you talked about kind of a slow recovery and the combination of the enterprise networking and carrier business. Just wondered if they're dropping so hard and so abruptly over the course of a couple quarters. Why would it be such a gradual increase? Usually, if you have those kind of big drops, you'd have big step-ups
Ross Clark Seymore: Hey, guys. Thanks for me ask the question I wanted to get to the cyclical parts of your business. Matt you talked about is kind of a slow recovery and the combination of the enterprise networking and carrier business.
Speaker Change: Just wondered if they're dropping so hard and so roughly over the course of a couple of quarters why would it be such a gradual increase usually if you have those kind of big drops you'd have big step ups are you just being conservative in that is there share loss.
Speaker Change: What sort of slope would you expect in that recovery.
Speaker Change: I think last quarter, you said, they should get to be billion dollar businesses individually. So 2 billion overall the timetable for that as you know can you get there next year as it further off any color on those two topics would be helpful.
Matt Murphy: Yeah, no, it's a great question, Ross, and maybe I'll give you one example. So to answer the first part, yeah, I think we're taking, you know, given the magnitude of the drop, we are taking a conservative view on the recovery slope, I would say, until we really see the bookings and the backlog coming in. And I'd say when it's here, it'll be much easier to call. I know that sounds a little bit snarky, but it's not.
Ross Clark Seymore: Are you just being conservative in that? Is there share loss? Just what sort of slope would you expect in that recovery? And I think last quarter you said they should get to be billion-dollar businesses individually, so $2 billion overall. The timetable for that is, you know, can you get there next year? Or is it further off? Any color on those two topics would be, Yeah, no, it's a great question, Ross, and maybe I'll give it to you.
Ross: Yeah, No. It's a great question Ross, maybe I'll give you. One example, so to answer the first part yes, I think we're taking.
Ross: Given the magnitude of the drop we are taking a conservative view on the recovery slope I would say until we we really see the bookings and the backlog laying in and I'd say when it's when it's here it'll be much easier to call I know that sounds a little bit snarky, but its not its just the reality is when something drops you want to be a little thoughtful.
Matt Murphy: It's just the reality is, when something drops, you want to be a little thoughtful about the recovery. But that being said, I've seen this pattern too. And in fact, look at our consumer business, you know, it had a down Q1, and now it's doubling. Going into Q2, right, as that inventory worked through and we realigned, and so that was like, you know, that was a fairly quick one. On those two dynamics, it's probably important for me to take a second on what we're seeing there in both the carrier and enterprise markets.
Ross: The recovery, but with that being said.
Ross: I've seen this pattern to in fact look at our consumer business. It had a down Q1 and now it's doubling going into Q2 right as that inventory worked through and we realigned and and so that was like that.
Ross: That was a fairly quick one.
Ross: On those two dynamics.
Ross: Probably important for me to take a second on what we're seeing there in both the carrier and enterprise markets.
Matt Murphy: And, and we do, and I do see those returning back to their, to kind of, you know, call it 2 billion combined, 1 billion each run rate, but it's very different, I think the paths, and maybe a little counterintuitive in terms of what we're seeing, but here it goes.
Ross: And we do it I do see those returning back to there.
Ross: Kind of I'll call. It $2 billion combined 1 billion H run rates, but it's very different I think the pass and maybe a little counterintuitive in terms of what we're seeing but here it goes.
Ross: On the carrier side.
Ross: The overall environment.
Ross: And environment with operators and capital spending still looks very weak.
Ross: And it still looks depressed however.
Matt Murphy: On the carrier side, you know, the overall environment, the end environment with operators and capital spending still looks very weak, you know, and it still looks depressed. However, you know, we have some of our own growth drivers in this market, in particular on the wireless side, with some new content ramping. And, in this area, we've actually seen bookings in demand improve in terms of the outlook for later this year. And so when you start getting those orders for the second half and really kind of into Q4, it starts to give us a lot of confidence in that return to growth, even in sort of a broader, more depressed environment.
Ross: We have some of our own growth drivers in this market in particular on the wireless side with some new content ramping and and in this area, we've actually seen bookings and demand improve in terms of the outlook for later this year and so when you start getting those orders.
Matt Murphy: So, counter-intuitively, we're feeling pretty good about just in terms of because we're seeing order activity. On the enterprise side, it's a little bit different. The end market commentary continues to strengthen, which is good. Our end customers are talking about improvements in their order backlog and their sales activity, and they're also starting to modestly work down their own internal inventory and even talk about their customer inventory starting to work down. So that's positive. But I think given the magnitude of the inventory out there, we still haven't seen the recovery, you know, yet. And so it goes.
Ross: For the second half and really kind of into Q4 and start to give us a lot of confidence in that return to growth even in a sort of a broader more depressed environment. So so that one counterintuitively, we're feeling pretty good about just in terms of because we're seeing the order activity on the enterprise side, it's a little bit different.
Ross: The end market commentary continues to strengthen which is good our end customers are talking about improvements in their order backlog and their sales activity.
Ross: And there are also starting to modestly work down their own internal inventory and even talk about their customer inventory starting to work down so that's positive.
Ross: But I think given the magnitude of the inventory out there we still havent seen.
Ross: That recovery is.
Ross: Yet and so yes.
Matt Murphy: Hopefully, that's helpful in terms of how you think about modeling it, but I'm hopeful within the next quarter, we'll have much better visibility on the second half for both of those businesses. But, kind of to my surprise, carriers started to pick back up first, but we do expect enterprise to follow. The question is when. But I'd say, if anything, like the carrier example, it wasn't share loss; it was actually share gain we've got going forward.
Ross: Hopefully that's helpful. In terms of how you think about modeling it but I'm hopeful within the next quarter, we will have a much better visibility on the second half for both of those businesses, but I would say kind of to my surprise carriers started to pick back up first but we do expect enterprise to follow the question is when.
But I'd say if anything if you would care example, it wasn't share loss. It was actually share gain we've got going forward. It's just a tough depressed environment at the moment.
Matt Murphy: It's just a tough, depressed environment at the moment. But all of our indications are that they will return to growth, and hopefully we'll have a better second half. Your next question comes from Blayne Curtis of Geoff. Thanks for taking my question. Actually, my question was similar to Ross, but I
Ross: But all of our indications are they they will return to growth and hopefully we'll have a better second half.
Speaker Change: Thank you.
Blayne Peter Curtis: Your next question comes from Blayne Curtis of Jeffreys. Your line is all ready. Yeah, thanks for taking my question. Actually, my question was similar to Ross's, but I was wondering.
Speaker Change: Your next question comes from Blayne Curtis of Jefferies. Your line is all right guys. Thanks for taking my question actually my question was similar Ross, but I was wondering you did a pretty good explanation. There if you could talk in datacenter right. So outside of the lesser optical if we know the ASIC ramp is going to be what it is.
I'm just kind of curious the cyclical correction I thought you said storage was up year over year, but I think it's a pretty easy comp. So if you look at kind of storage and kind of the other bits of data center that arent, the AI and optical what kind of cycle corrections going on there how much I don't know if you can comment on how much it's down and kind of what are you seeing any improving trends there as well.
Matt Murphy: Yeah, no, great, great one to add, Blayne, actually. You know, although we don't break it out exactly, we and I reviewed all these numbers heading into the call. So you're right, year over year comps are pretty easy, I guess, but it's still a positive trend, for sure, overall, in storage. In that, you know, we saw our bottom there in the first quarter a year ago. And it's seen very steady improvement, actually, each quarter since, but kind of to Ross's question, it hasn't hockey sticked up.
Speaker Change: Yeah, no great great wanted to add Blaine actually.
Speaker Change: Although we don't break it out exactly we I reviewed all these numbers heading into the call. So youre right year over year comps are pretty easy I guess, but it's still a positive trend for sure overall in storage and.
Speaker Change:
Speaker Change: We saw a bottom there in the first quarter, a year ago, and it's and it's seen.
Speaker Change: Very steady improvement actually each quarter sense, but kind of to Ross's question. It Hasnt hockey Sticked up but it's been it's been growing nicely.
Matt Murphy: But it's been growing nicely, and that's on the total storage portfolio and within data center storage. All that's coming back, which is great. And again, they're the end customer commentary. [inaudible] The majority of it's going to be continued rampant AI for sure, Blayne, but storage has been a nice one that's been on the recovery path. I'd say slow and steady, but back on the path to the levels we think it should be at.
Speaker Change: And that's on the total storage portfolio and within data center storage. So.
Speaker Change: All of that is coming back which is great and again, they're the end customer commentary.
Speaker Change: Particularly on the hard drive side seems very encouraging so as they work down again, the inventory that they had accumulated those end market signals.
Speaker Change: At least from what we're picking up at the end customer level are starting to look bullish as well so we're hopeful.
Speaker Change: And that feeds mostly that storage business feeds the datacenter part of it but that is part of our growth.
Speaker Change: We're expecting as well in the second half although.
Speaker Change: The majority of it is going to be continued ramp in AI for sure Blayne, but storage has been a nice one that's been on the recovery path.
Speaker Change: I would say slow and steady but back on the past.
Speaker Change: Yeah.
Speaker Change: The levels, we think it should be at.
Yes.
Speaker Change: Okay.
Speaker Change: Your next question.
Harlan Sur: Your next question comes from Harlan Sur of J.P. Morgan. Your line is already open.
Speaker Change: Comes from Harlan sur of Jpmorgan your.
Speaker Change: Your line is already open.
Harlan Sur: Good afternoon. Thanks for taking my question. On the optical side, you know, you guys are benefiting from the strong growth in 800 gigabit to support all these AI build outs. 1.6G starts later this year with your lead partner NVIDIA. Is this driving optical driving quarter-on-quarter growth here in July and into this year, given that this is the profile of your customers, sort of GPU and compute ASIC deployments. And then secondly, you've got a lot of other potential upside drivers, such as optical, for example, it's right around this time for some of your cloud customers to start the broad data center networking footprint upgrades.
Speaker Change: Yes. Good afternoon, thanks for taking my question.
Harlan Sur: Optical side you guys are benefiting from the strong growth in 800 gig support all these AI build outs.
Speaker Change: Once <unk> starts later this year with your lead partner in video.
Speaker Change: Is this driving an optical driving.
Speaker Change: Quarter on quarter growth here in July and to this year given that this is the profile of your customers.
Speaker Change: GPU and compute ASIC deployments and then secondly, you've done a lot of other potential upside drivers lead in optical for example, it's right around this time for some of your cloud customers to start the broad data center networking footprint upgrades to 400 gig 800 gig, especially with your <unk> 10.
Harlan Sur: 400 gigabytes, 800 gigabytes, especially with your Terralinks 10, Broadcom's Tomahawk 5 platform shipping this year. That will drive, I think, some incremental growth for your 800 gigabyte DSP solutions. And then on top of that, you have two new customers that I think are gonna go for your 400 ZR DCI solution. So I guess the follow-up question here is, are you starting to get some visibility on some of these potential upside drivers in Optical?
Speaker Change: Broadcom Tomahawk five platforms shipping this year.
Speaker Change: That will drive I think some incremental growth from here.
Speaker Change: 100 gig DSP solutions, and then on top of that you have two new customers.
Speaker Change: But I think are going to fire on your 400, ZR Dci solution. So I guess the follow up question. Here is are you starting to get some visibility on some of these potential upside drivers in optical.
Matt Murphy: Yeah, excellent questions, Harlan. I think you actually got the narrative pretty well nailed down, but maybe some additional comments. I'd say in the short term, the way to think about the optical business into July is You know, we're modeling it right now, and our guide is flattish to slightly up. And the reason for that is, you know, it outperformed pretty big in both Q4 and Q1. So, in fact, I'd say since last year when chat GPT hit and the whole AI thing hit, we've been beating those numbers every quarter. And we're positioned from a supply standpoint to do that. But it's just that it ramped up very fast.
Speaker Change: Yeah excellent questions Harlan I think.
Speaker Change: You actually got the narrative.
Harlan Sur: Pretty well pretty well.
Harlan Sur: Nailed down, but maybe some additional comments I'd say on the short term the way to think about.
Harlan Sur: The optical business into the into July is.
Matt Murphy: And it's continued to hold there and outperform. So as we look at it, in July, we're modeling it to be flat to slightly up. It may do better, you know; let's see where the order trends come in. But year over year, you know, we'll, we'll, we'll be very strong because also in the second half, to your point, those traditional standard cloud infrastructure, build outs, and upgrades are going to happen. And so that's part of our model as well.
Harlan Sur: We're modeling it right now and our guide is flattish to slightly up.
Harlan Sur: And the reason for that is you know it outperformed pretty big both in Q4 and Q1. So in fact, I would say since last year when sort of chat GPT hitting the whole AI think head.
Harlan Sur: Been beating those numbers every quarter and we're positioned from a supply standpoint to do that but it's just it ramped up very fast.
Harlan Sur: And it has continued to hold there and outperform so as we look into July we're modeling it to be flat to slightly up it may do better, let's let's see where the order trends come in.
Matt Murphy: And the second half is seeing standard cloud infrastructure ramp up on the optical business. You know, and then we've got our switching [inaudible] And then also ZR, we've engaged with, you know, multiple customers now. That's probably more of a next year thing, but again, some contribution this year. And then we've got AECs as well.
Harlan Sur: But year over year.
Harlan Sur: <unk> will be very strong because also in the second half.
Speaker Change: To your point those traditional standard cloud infrastructure.
Speaker Change: Build outs and upgrades are going to happen and so thats part of our model as well in the second half of seeing standard cloud infrastructure ramp on the optical business.
And then we've got our switching portfolio you mentioned.
Speaker Change: And then also ZR, we've engaged with multiple customers now that's probably more of a next year thing, but again some contribution this year and then we've got a CS as well so there's a lot happening.
Matt Murphy: So there's a lot going on in this area. And that's why when you look at sort of Marvell in the second half of this year, you know, we guided the whole company up 8% for Q2. And, you know, when I look at the second half, total company revenue is going to be up, more than that, in Q3 and Q4, with growth accelerating, primarily driven by data center and AI and primarily driven by the trends, all of which you mentioned are dynamics that we see. So yeah, we see a great setup for the second half. Very, very optimistic. I appreciate it.
Speaker Change: In this area and that's why when you look at sort of Marvell in the second half of this year, we guided the whole company up 8% for Q2 and.
Speaker Change: When I look at the second half total company is going to be up.
Speaker Change: More than that.
In Q3, and Q4 with growth accelerating primarily driven by data center, and AI and primarily driven by the trends all of which you mentioned are dynamics that we see so yes, we see a great setup for the second half very very optimistic.
Harlan Sur: I appreciate that. Thank you, Matt.
I appreciate that thank you Matt.
Christopher James Muse: Your next question comes from CJ Muse of Cantor Fitzgerald. Your line is already open.
Speaker Change: Your next question comes from C. J Muse of Cantor Fitzgerald. Your line is already open.
Christopher James Muse: Yeah, good afternoon. Thank you for taking the time to answer the question. I guess Matt wanted to follow up on your prepared remarks where you talked about increasing optimism about the custom silicon prospects and funnel. And I guess, you know, as you think about that, is there visibility to units? Is that visibility to winning next-generation projects at existing customers? Is it selling, you know, additional silicon content to those customers? Or are you also potentially seeing a greater breadth of vertically integrated players, you know, contemplating their own silicon? Thanks so much. Yeah, thanks.
Good afternoon. Thank you for taking the question I guess, Matt wanted to follow up on your prepared remarks, where you talked about.
Speaker Change: Increasing optimism on the custom silicon prospects in funnel and I guess.
Speaker Change: As you think about that is that visibility to units is that visibility to winning nextgen projects at existing customers is it selling additional silicon content to those customers or are you also potentially seeing greater breadth.
Speaker Change: Like many related players contemplating their own silicon. Thanks, so much.
Matt Murphy: Yeah, thanks, CJ. Yeah, no, the comment was really focused on the existing design wins we have that are ramping into production for this year. And that right now, those are all doing better than we thought. Even from certainly last quarter, when we talked about the business, or even from AI Day, all of those have strengthened in terms of the total revenues we expect both this year and next year from those businesses.
Yeah. Thanks T J, Yeah, I know the comment was really focused on the existing design wins, we have that are ramping into production for this year and that right now those are all doing better than we thought.
Speaker Change: Even even from certainly last quarter, when we talked about the business or even from the AI day.
Speaker Change: All of those have strengthened in terms of the total revenues, we expect both this year and next year from those businesses. So.
Matt Murphy: So I think the demand remains very strong for AI, both for custom silicon and for optics, and for the whole portfolio. And we have not seen that slow down; we've only seen our customers raise their estimates on us and their requirements. And so we're working with our supply chain partners and making sure we can meet it. And then on the, I'd say, additionally to that, though, the customer engagement side, and momentum remains very strong.
Speaker Change: I think the demand remains very strong for AI, both for custom silicon and for optics and for the whole portfolio and we.
Speaker Change: We haven't we have not seen that slow down we've only seen our customers raise their estimates on us and their requirements and so we're working with our supply chain partners and making sure we can meet it.
Speaker Change: And then on the I'd say, Additionally, that though the customer engagement side and momentum remains very strong we're in execution phase on a number of new programs, many of which we talked about it.
Matt Murphy: You know, we're in the execution phase on a number of new programs, many of which we talked about at AI Day. So yeah, we're heads down driving teams, driving technology, driving innovation, driving the schedule. And it's a pretty exciting time to be in the part of this market in the semiconductor industry right now and have such a such a unique role. So yeah, activities are off the charts, both demand, revenue, and design wins. Thanks. Your next question comes from Tore Svanberg of TIFL. Your line is already open.
Speaker Change: At the AI day.
Speaker Change: So yes, we're heads down driving teams driving technology, driving innovation driving the schedule and.
Speaker Change: It's a pretty exciting time to be in the part of this market in the semiconductor industry right now and have such a such a unique role so active.
Speaker Change: Activities off the charts.
Speaker Change: Demand revenue and design wins.
Speaker Change: <unk>.
Speaker Change: Your next question comes from Tori that Sandburg of Stifel. Your line is already open.
Speaker Change: Yes. Thank you.
Speaker Change: I had a question on pcie.
Speaker Change: What exactly are the companys ambitions, there I mean, it's a concentrated supplier base today, I think the largest competitors getting into the market as well so.
Speaker Change: Big is this market what are your ambitions from a market share perspective, and when should we see the earliest revenues for P. J.
Tore Egil Svanberg: Yeah, hey, Tori, thanks for the question. And, you know, for us, we really look at this as an incremental opportunity to leverage our core capability in PAM-based ESP design, and we've known about this market for some time, obviously, you know, as you, [inaudible] I mean, I remember working on this kind of stuff back when I was at Maxim, okay, for early PCIE. So I've sort of been around this market for a while.
George: Yeah, Hey, George Thanks for the question and.
For us we really look at this as an incremental opportunity to leverage.
George: Our core capability and.
George: And Pam based DSP design, and we've known about this market for some time, obviously as you.
George: As you know well because youre really deepen this stuff, but people can just look at it. This is pcie Gen. Six so there was re timers on Gen five and Gen four and Gen three and so forth.
Speaker Change: I mean, I remember working on this kind of stuff back when I was at Maxim Okay for like early Pcie.
Speaker Change: I've been around this market.
Speaker Change: And the thing that we've looked at always at Marvell going back a couple of years was.
Tore Egil Svanberg: And the thing that we've always looked at at Marvell going back a couple years was when the PCIe Gen 6 transition, which is happening now with the products that we announced are sampling, is when the modulation scheme moves from NRZ to PAM. And so that was our decision to intercept this market at this juncture. And I would just say, you know, I think it's a proven market size; I think it probably grows from where it was, you know, in Gen 5 to Gen 6.
Speaker Change: On the Pcie Gen six transition, which is happening now on the products that we announced are sampling is when the modulation scheme moves from NRC to Pam and so that was our decision to intersect this market at this juncture.
Speaker Change: And I would just say I think it's a proven market size I think it probably.
Speaker Change: Gross from where it was you know in Gen five to Gen six.
Matt Murphy: It'll be led by probably a lot of the, just like the rest of the market, a lot of the AI stuff first, and then when the standards are sort of formalized and ratified, then you'll see it in broader adoption over the next couple years. But we intend to be, you know, a player here. It plays to our strengths. It's in our wheelhouse.
Speaker Change: It'll be led by probably a lot of the just like the rest of the market a lot of the AI stuff first and then went on to the standards of sort of formalized and ratified then youll see it in broader adoption over the next couple of years, but we intend to be a player here it plays to our strengths.
Speaker Change: It's in our wheelhouse and we have world leading capability in this area and so and it's a perfect fit to our whole connectivity portfolio and as you think about US we are the one stop shop in terms of connectivity solutions for our customers across the board when you think about.
Matt Murphy: And we have world-leading capability in this area, so it's a perfect fit to our whole connectivity portfolio. And as you think about us, we are the one-stop shop in terms of connectivity solutions for our customers across the board. When you think about optical DSPs, AECs, these re-timer products, you name it.
Speaker Change: Optical DSP is.
Speaker Change: <unk>.
Speaker Change: These re timer products.
You name it.
Matt Murphy: You know, we have the breadth of technology and breadth of product offering, and it's proven, and people know what they're dealing with. So we're optimistic. It's early, Tori. It's still an, you know, emerging standard, but we definitely have a lot of customer interest, and that's why we announced the products today.
Speaker Change: We have the breadth of technology and breadth of product offering and it's proven and people know what theyre dealing with so.
Speaker Change: We're optimistic it's early torey, it's still emerging standard, but we definitely have a lot of customer interest and that's why we announced the products today.
Speaker Change: Thanks, Thank you for that.
Srinivas Reddy Pajjuri: Your next question comes from Srini Pajjuri of Raymond James. Your line is already open.
Your next question comes from <unk> jewelry of Raymond James Your line is already open.
Srinivas Reddy Pajjuri: Thank you. Matt, my question is also on custom silicon. I guess, you know, you're ramping pretty aggressively the second half of this year. And you said, you know, the first full year of growth is going to be next year. I'm just curious; I guess most of these ramps are five nanometer design wins. I'm just curious as to how long each generation typically ramps. And then when you go to the next generation, I'm just trying to understand how the transition typically works.
Thank you Matt My question is also on custom silicon.
Speaker Change: I guess you are.
Speaker Change: Ramping pretty aggressively second half of this year and you said.
Matt Murphy: The first full year of ramp is going to be next year I'm, just curious I'm guessing most of this ramp their five nanometer design wins I'm, just curious as to how long each generation typically ramps and then when you go to the next generation I'm just trying to understand how the transition typically works because if you look at the largest gpus.
Srinivas Reddy Pajjuri: Because, you know, if you look at the largest GPU supplier, they have kind of switched from a two-year cadence to a one-year cadence. I don't know how the custom silicon programs that you're engaged with are, you know, what your customers are thinking about the cadence of those products. But I guess I'm just trying to understand how long we should expect the current generation to ramp up, and then when they actually ramp down, and then when the next generation starts, how should we think about that transition?
Matt Murphy: Supplier they are kind of switched from a two year cadence to one year cadence I don't know how the custom silicon programs that you're engaged with are.
How your customers are thinking about the cadence of those products, but I guess I'm just trying to understand how long should we expect the current generation to ramp and then when they actually ramped down and then when the next generation starts how should we think about the transition.
Matt Murphy: Yeah, thanks, Srini. And kind of the first point you mentioned, yeah, the ramp is very steep this year. You know, we talked about it at AI day, exiting this year at a $200 million, kind of plus run rate on custom, so very strong. You know, these are, you know, for kind of full year, these are probably two plus year kind of cycles once they hit.
Speaker Change: Yeah, Yeah. Thanks screening in Canada. The first point you mentioned, yes. The ramp is very steep this year, we talked about at the AI day.
Speaker Change: Exiting this year at a $200 million.
Speaker Change #100: And a plus run rate on custom so so very strong.
Speaker Change: Yes.
Speaker Change #101: Yeah. These are.
Speaker Change #101: Full year. These are probably two plus year kind of cycles once they hit.
Matt Murphy: I would just say that without talking about specific engagements, I'd say that the custom side is keen on making sure they're at the next node and have the latest technology just as fast as the biggest merchant supplier, as they want to complement their offerings. So that's where some of the comments I made earlier around being in execution mode on next-generation products and design activity; you're going to see that same trend.
Speaker Change #102: I would just say that without talking about specific engagements I would say that the.
Speaker Change #102: The custom side is as.
Speaker Change #102: Keen on making sure they're at the next node and have the latest technology, just as fast as the biggest merchant suppliers. They want to complement their offerings. So that's where some of the comments I made earlier around and being in execution mode on next generation products and design activity.
Speaker Change #102: See that same trend, but for at least the current ones. We have now thats part of your question, we have very strong visibility over the next couple of years on the five nanometer programs.
Matt Murphy: But for at least the current ones we have now, if that's part of your question, we have very strong visibility over the next couple of years on the five nanometer programs. The three nanometer design pipeline and WINS have been very strong, and then we're already deeply engaged on two nanometers. So it's almost the way it's working now; you've got five in production, and three sort of in flight, and two is the next one.
Speaker Change #102: The three nanometer design pipeline and wins have been very strong and then we're already deeply engaged on two nanometer. So it's almost the way. Its working now is you've got five in production in three sort of in flight and two is the next one and how all that plays out <unk> is going to is still a bit dynamic but.
Matt Murphy: And how all that plays out, Srini, is still a bit dynamic, but you're going to see the same kind of intensity in terms of R&D and technology requirements on the customs side as you see on the merchant side. We just have to meet the power and TCO requirements that the market needs, and we're well positioned to do that and support our customers on it. And they're very motivated to make that happen as a way to have both in terms of the breadth of their spend, and AI is going to require them to have both types of solutions, both from the leading merchant supplier as well as augmenting with their own. All right. Thank you. I think we've got, [inaudible]
Speaker Change #102: Youre going to see the same kind of intensity in terms of R&D and technology requirements on the custom side as you see on the merchant side you just have to you to meet the power.
Speaker Change #102: And tcl requirements that the market needs.
And we are well positioned to go do that and support our customers on it.
Speaker Change #102: They're very motivated to make that happen as a way to.
Speaker Change #102: We have both right in terms of the breadth of their spend and AI is going to require then that both types of solutions, both from the leading merchant supplier as well as augmenting with their own.
Speaker Change #102: Okay.
Speaker Change #103: Alright, thank you.
Speaker Change #104: A couple more questions here.
Christopher Adam Jackson Rolland: Your next question comes from Christopher Rolland of Susquehanna.
Speaker Change #105: Your next question comes from Christopher Roland.
Speaker Change #106: Susquehanna Your line is already open.
Speaker Change #105: Okay.
Christopher Adam Jackson Rolland: Hey guys, just a quick follow-up on the PCIe retimer and then and then my question, just if you have any idea on the TAM and how you're viewing that market, that'd be great. But my question is really around storage, enterprise networking, carrier, you know, some of your and wireless, you know, wireless carrier and consumer. Of these markets, they've previously been driven by product cycles, a lot of them, you know, whether it's consoles or 5G or campus upgrades or, you know, near-line drives. Are there any product-specific drivers for these markets that can get them beyond a cyclical recovery that you've identified?
Christopher Adam Jackson Rolland: Hey, guys.
Speaker Change #108: Just a quick follow up.
Speaker Change #108: On the Pcie re timer and then and then my.
Speaker Change #108: My question, just if you have any idea on the Tam and how you're viewing that market that would be great. But my question is really around storage enterprise networking carrier.
Speaker Change #108:
Speaker Change #108: Some of your and wireless wireless carrier and consumer.
Speaker Change #108: All of these markets they've previously been driven by product cycles, a lot of them.
Speaker Change #108: Whether it's consoles or five G or campus upgrades or.
Speaker Change #108: Near line drives or are there any product specific drivers for these markets that can get them beyond.
Speaker Change #109: Cyclical recovery that you've identified.
Chris: Yeah, thanks, Chris. Let me try the first one.
Christopher Caso: Yes, Thanks, Chris let me.
Speaker Change #111: On the first one.
Matt Murphy: Yeah, we haven't spelled out the TAM yet. We thought it was a bit early when we were doing our AI day to do that. But it'll be, our view is it was a significant enough opportunity to enter the market and develop the products, and that's something we can provide information on in the future. There are quite frankly pretty good market reports out there that you're probably very familiar with. But that's something we can provide in the future for sure on the product cycle side.
Speaker Change #112: Yes, we havent spelled out the Tam yet we thought it was a bit early when we were doing our AI day to do that.
Speaker Change #112: But it'll be our.
Speaker Change #112: Our view is it was significant enough of an opportunity.
Speaker Change #112: Two two to enter the market and develop the products and Thats something we can provide information on in the future.
Speaker Change #113: Because quite frankly pretty good market reports out there that you are probably right.
Speaker Change #113: But that's something we can provide in the future for sure on the.
Speaker Change #113: On the private cycle side.
Matt Murphy: You know, some of these are really going to be driven by us in terms of our own design wins. The carrier is a good example, both on adding an additional socket that ramps up. That's content gain, right, as well as once the wired side picks up as well, there'll be a nice transition from 400 gigabits to 800 gigabits per second. So we've got that going on. Those are just two examples.
Speaker Change #113: Some of these are really going to be driven by us in terms of our own design wins. The carrier is a good example.
Speaker Change #113: <unk> profile, adding an additional socket.
Speaker Change #113: Ramps up that's content gain as well as there once the wired side picks up as well it will be a nice transition from 400 gig to 800 gig coherent.
Speaker Change #113: So we've got those going on those are those are two examples I think consoles are what they are.
Matt Murphy: I think consoles are what they are, and then in networking, you know, we've just been gradually increasing our share, increasing our content. You know, I don't see that changing, but we've always kind of said that businesses, you know, GD Plus, kind of grower in terms of a market, and we can do better. Now, we had several years there on like 20% or 30%. We had some really nice performance in terms of the share we were able to capture.
Speaker Change #113: And then in networking, we've just been gradually over time, increasing our share increasing our content.
Speaker Change #113: I don't see that changing but we've always kind of said that businesses.
Speaker Change #113: Gd plus kind of grower in terms of our market and we can do better now we had several years. Unlike.
Speaker Change #113: Like 20% or 30%, we had some really nice performance in terms of Ah.
Speaker Change #113: Sure we were able to capture.
Speaker Change #113: But from here on out I think we've consistently said, it's just always in fact, we've always said even sort of say it and then we beat it but it's always I think better to be conservative on the enterprise side in terms of modeling.
Matt Murphy: But from here on out, I think we've consistently said it's just all we've always said, even sort of said it, and then we beat it. But it's always, I think, better to be conservative on the enterprise side in terms of modeling, which is, you know, call it a mid single-digit kind of a grower as a market. And we can do a little bit better once all the inventory and all that stuff is normalized.
Speaker Change #113: Which as you know call it mid single digit kind of grower as a market and we can do a little bit better. That's once all the inventory and all that stuff is normalized I don't see any major product cycle there other than just <unk>.
Matt Murphy: I don't see any major product cycle there other than just, you know, as multi gigabit continues to ship more than one gigabit, we get an ASP uplift. And on the switching side, you know, the ASP per port goes up as the bandwidth goes up. So there are some nice trends there, Chris, but I think we did a good job of establishing a very solid footprint from a share perspective. And so the model going forward should really be kind of, you know, market growth plus our own content and, you know, modest share gain. I think with that We have one more question, then we can wrap it up.
Speaker Change #113: Multi gig continues to ship more than one gig, we get an ASP uplift and as in.
Speaker Change #113: And the switching side you know the Asps per port goes up as the bandwidth goes up so there's some nice trends there, Chris but I think we did a good job of establishing a very solid footprint from a share perspective.
Speaker Change #113: So the model going forward should really be kind of market growth plus our own content and.
Speaker Change #113: Modest share gain.
Speaker Change #113: I think with that.
Speaker Change #114: We got one more question then we can wrap it up.
Atif Malik: We will take our last question from Atif Malik of SETI. Your line is already open.
Speaker Change #115: We will take our last question from <unk> Malik.
Atif Malik: Yeah, great. Thanks, Atif.
City.
Speaker Change #116: Your line is already open.
Speaker Change #117: Hi, Thank you for taking my final question, Matt in response to Harlan question that you've talked about optical flat to slightly up.
Speaker Change #118: 800 gig.
Speaker Change #119: Curious, whether you're thinking about the volume adoption of 160, and what is holding back if it's not the DSP or the laser is not ready or is it just waiting for the black oil.
Matt Murphy: I think the way to think about it is just timing relative to the system builds, our customers' quality schedule, you know, their ramp, you know, etc. So we start seeing it's, yeah, this one at the moment doesn't have It's not a, I mean, I remember all these issues in the past, right? You know, there's a green laser problem, there's this problem or that, and there's always some issue in this optical space.
Latif: Yeah, great. Thanks, Latif I think the way to think about it is it just timing relative to the.
Latif: The system builds our customers qual schedule their ramp et.
Latif: Et cetera, So we start seeing.
Speaker Change #121: Yes. This one at the moment doesn't have.
Matt Murphy: But this time, everyone is really going a million miles an hour trying to get their products ramped up; our module partners are ramping up with our solution. And our end customers that are driving this are going as fast as they can.
It's not a I mean I remember all of these issues in the past right you know Theres a green laser problem. There is this problem or that there's always some some issue in this optical space, but this time, it's really everyone's going a million miles an hour trying to get their products ramped our module partners are ramping up with our solution.
Speaker Change #121: Our end customers that are driving this are going as fast as they can so it's just more of a timing issue that we need to intercept the platforms as they are ramping and we're doing that so think of that as sort of shipments in the back half, but really contributing much more meaningfully next year on the $1 60 transition, but it is definitely underway and we see a clear path.
Matt Murphy: So it's just more of a timing issue that we need to intercept the platforms as they're ramping up, and we're doing that. So think of that as sort of shipments, you know, in the back half, but really contributing much more meaningfully next year on the 1.6 T transition. But it's definitely underway. And we see a clear path to help enable this part of the next generation of accelerators to be able to ship in volume with the latest optical standards.
Speaker Change #121: <unk>.
Speaker Change #121: Okay.
Speaker Change #121: To help enable this this part of the next generation of accelerators.
Speaker Change #121: Two.
To be able to ship in volume with with the latest.
Speaker Change #121: Optical standards and we're at the forefront in the lead in that regard so.
Matt Murphy: And we're at the forefront and in the lead in that regard. So yeah, it will be later this year and then more volume next year. And it'll, I think, be a big product cycle. I think with that, that would be the last question, so... I think we can wrap up the call from here. Thank you everybody for your interest in Marvell and in the company, and I look forward to seeing all of you. You know, in the coming months, and Atif, I'll probably see you in September at the City Conference. So, all right, take care, everybody. Thanks.
Speaker Change #121: So yes. It will be later this year and then more volume next year and it'll it'll be.
Speaker Change #121: Be a big product cycle for us.
Speaker Change #122: I think with that that would be the last question. So.
Speaker Change #123: I think we can wrap up the call from here. Thanks, everybody for your interest in Marvell and in the company and look forward to seeing all of you.
Speaker Change #123: In the coming months.
Speaker Change #123: I'll see you probably in September at the Citi Conference, So alright take care everybody. Thanks.
Operator: Ladies and gentlemen, this concludes our question and answer session. Thank you for attending today's presentation. You may now disconnect.
Speaker Change #124: Ladies and gentlemen, this concludes our question and answer session.
Speaker Change #125: For attending today's presentation you may now disconnect.
Speaker Change #125: Okay.