Q3 2025 Marvell Technology Inc Earnings Call
Good afternoon, and welcome to Mark out in third quarter of fiscal year, 'twenty 25 earnings Conference call.
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After today's presentation, there will be an opportunity to ask questions.
Speaker Change: Note. 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.
Ashish Saran: Thank you and good afternoon, everyone. Welcome to Marvell took fiscal quarter of 2025 earnings call. Joining me today are Matt Murphy, Marvel's Chairman and CEO, and then Americas our CFO.
Ashish Saran: Let me remind everyone that certain comments made today include forward looking statements, which are subject to significant risks and uncertainties that could cause our actual results to differ materially from management's current expectations. Please review the cautionary statements and risk factors contained in our earnings press release, which we filed with the SEC today and posted on the website.
Ashish Saran: As well as our most recent 10-K 10-Q filings, we do not intend to update our forward looking statements during our call today, we will refer to certain non-GAAP financial measures a reconciliation between our GAAP and non-GAAP financial measures is also available in our earnings press release.
I am pleased to announce that our next Investor day will be held in New York City on June 10, 2025, more details will be shared at an upcoming press release.
Ashish Saran: Now I'll turn the call over to Matt for his comments on the quarter Matt.
Thanks, Ashish and good afternoon, everyone.
Matt Murphy: For the third quarter of fiscal 2020, Fives Marvell delivered revenue of 1.516 billion $66 million above the midpoint of guidance growing 19% sequentially.
Matt Murphy: With the outperformance driven by strong demand and execution.
Matt Murphy: As a result, our non-GAAP earnings per share of <unk> 43 cents was also well above the midpoint of guidance growing by 43% sequentially.
Matt Murphy: This earnings growth rate, which was more than double our topline growth rate highlights the substantial operating leverage in our business model.
And then forecast ramp and custom Silicon was a key contributor to this performance. We believe that continued success in custom silicon will help accelerate our timeline to achieve our long term target operating margin model.
On a year over year basis third quarter revenue grew by 7%, marking a return to year over year growth for Marvell I'm very pleased.
Matt Murphy: With our results and even more excited about our outlook for the fourth quarter, where we project revenue growth to accelerate to 26% year over year growth at the midpoint of guidance.
Matt Murphy: Marvell is entering a new era of growth driven by the substantial volume production ramp of our custom Silicon program, along with continued strong growth in optics.
Matt Murphy: Yesterday, we announced the expansion of our strategic relationship with Amazon Web services through a comprehensive multi generational five year agreement.
This multi generational agreement encompasses a broad range of marvell datacenter semiconductors, including custom AI products optical DSP.
Matt Murphy: Active electrical cable Dsp's Pcie re timers.
Data center interconnect optical modules and Ethernet switching silicon solutions.
Matt Murphy: Additionally, marvell will collaborate with AWS for E D E and the cloud leveraging the advanced and scalable compute capabilities of AWS to accelerate silicon design.
Matt Murphy: This agreement represents a significant step up in the expected volume of business between the two companies in the coming years, and we look forward to working with AWS on custom AI and networking semiconductors that meet the demanding needs of accelerated infrastructure.
Matt Murphy: Let me now discuss our results and expectations for each of our end markets.
Matt Murphy: And our data center end market for the third quarter, we achieved record revenue of $1 1 billion.
Matt Murphy: Growing 98% year over year and 25% sequentially.
Matt Murphy: These strong results were driven by a significant step up in our custom AI silicon ramp.
Matt Murphy: Customers saw increasing demand for the differentiated capabilities offered by these new custom AI chips.
Matt Murphy: We're seeing strong customer demand continue into the fourth quarter and a secured supply chain capacity to support our customers' growth forecasts.
Matt Murphy: Our success in ramping these highly complex 100 billion plus transistor chips from initial samples to high volume production on first pass silicon without any response is a testament to Marvel's robust design methodology and World class Engineering team.
Our seasoned operations team and deep partner relationships were key enablers of the rapid ramp we were able to drive in a constrained supply environment.
Matt Murphy: The superb execution as it is a significant time to market advantage for our customers and has given them even more confidence to expand their collaboration with marvell on their critical silicon projects.
Matt Murphy: In the third quarter, we benefited from higher than forecasted revenue from our electro optics products, which grew double digits sequentially on a percentage basis, we continue to see strong bookings for our market, leading 800 gig Pam products and we also began shipments of the industry's first 160, Pam DSP and five nanometer process technology.
Matt Murphy: We continue to see a strong design win momentum with leading customers for this product and expect a production ramp to accelerate next year.
Matt Murphy: To meet AI is insatiable need for the highest bandwidth at the lowest power Marvell is accelerating the cadence of next generation products today, we announced the industry's first three nanometer 160 DSP.
Matt Murphy: Featuring 200 gig per lane, electrical and optical interfaces.
Matt Murphy: By leveraging three nanometer process technology and advances in electrical and optical cities. This next generation platform is designed to reduce 160 optical module power consumption by more than 20% compared to its predecessor Mark.
Matt Murphy: A significant improvement in energy efficiency.
Are those DSP team remains laser focused on driving the best in class performance schedule and time to market to continue to remain the leader in this large and fast growing electro optics market.
Matt Murphy: And the active electrical cable market, we are starting to see an acceleration in the production ramp of our 100 gig per lane 800 gig DSP with multiple module partners we have.
Also started sampling the industry's first 200 gig for LN 168 E C esp's to address upcoming higher speed short reach copper interconnect applications.
Okay.
Matt Murphy: Looking ahead to the fourth quarter of fiscal 2025 for our data center end markets. We are forecasting strong sequential growth in the low to mid 20% rich.
Matt Murphy: We expect this growth to be driven by another significant step up in our customer revenue as these programs continue to ramp into high volume production.
Matt Murphy: This will be further augmented by strong growth from our from both our Ethernet switch products as well as our interconnect portfolio, which include optical DSP is ti as drivers Acs and Dci products.
Matt Murphy: Now, let me turn to Marvell is enterprise networking and carrier end markets in the third quarter enterprise networking revenue was $151 million, while carrier revenue was $85 million.
Matt Murphy: We began to see a recovery in both of these end markets with revenue collectively growing 4% sequentially.
Matt Murphy: We expect the pace of recovery to accelerate in the fourth quarter with aggregate revenue from enterprise networking and carrier infrastructure are forecasted to grow sequentially in the mid teens on a percentage basis.
Matt Murphy: We were pleased to see our revenue growth and order momentum continued to improve in these two end markets. Although this forecast still anticipates marvell products shipping below end market consumption.
Matt Murphy: Turning to the consumer end market revenue in the third quarter was $97 million growing 9% sequentially.
Matt Murphy: Looking ahead to the fourth quarter, we expect revenue from the consumer end market to decline sequentially in the mid teens on a percentage basis. This is due to seasonality in gaming demand, which typically weakens in our fourth quarter bottoms out in our first fiscal quarter and then begins to rebound in the second quarter.
Matt Murphy: Turning to our automotive and industrial end market revenue in the third quarter was $83 million growing 9% sequentially as we started to see a recovery in this end market.
Matt Murphy: Looking ahead to the fourth fiscal quarter, we are projecting revenue from the auto and industrial end market to grow sequentially in the low to mid single digits on a percentage basis.
In summary, the Marvell team delivered excellent results in the third fiscal quarter, achieving 19% sequential top line growth and delivering both revenue and non-GAAP earnings per share well above the midpoint of guidance.
Matt Murphy: For the fourth quarter, we are forecasting consolidated revenue to again grow 19% sequentially at the midpoint of guidance AI continues to lead the way, enabling our data center revenue to almost double year over year in the third quarter and we expect it to continue driving strong growth in the fourth quarter.
Matt Murphy: With three quarters of strong AI results under our belt for this fiscal year and an even stronger fourth quarter forecast. We are clearly set to significantly exceed the full year AI revenue target of $1 5 billion outlined earlier this year at our AI event.
Matt Murphy: Over the past several years Marvell has strategically invested in technology, both organically and through acquisitions have become a critical enabler of accelerated infrastructure.
Matt Murphy: We have in place a full suite of solutions across data center interconnect switching in compute and the ability to uniquely stitch. These together into a unified platform.
Matt Murphy: Are those data center end market has grown to account for 73% of consolidated revenue in the third quarter driven by AI and we expect this percentage to increase again in the fourth quarter.
Matt Murphy: Marvell has rapidly transformed into an AI first data centers semiconductor company.
Matt Murphy: And we are completely focused on taking full advantage of our strong position in the AI Super cycle.
Matt Murphy: In the third quarter, we made decisions to further solidify and purposefully redirect our investments towards data center relative to our other end markets. These actions resulted in a restructuring charge in the third quarter, which Willem will discuss in his section.
Matt Murphy: The goal of these actions is to increase our R&D intensity towards the data center, our largest and fastest growing opportunity while continuing to drive significant operating leverage going forward.
Matt Murphy: AI technology is advancing at a tremendous pace and the opportunity is expanding rapidly.
Matt Murphy: We're continuing to enhance all aspects of our comprehensive technology platform, including electrical and optical <unk> high speed energy efficient Judy in three D die to die Interconnects advanced packaging and Silicon Photonics.
Matt Murphy: In addition.
Matt Murphy: We are optimizing interfaces for high bandwidth memory, and Soc and compute fabrics.
Matt Murphy: Our two nanometer platform is also progressing very well as we continue to lead the industry and cutting edge process technology.
Matt Murphy: <unk> two nanometer platform includes a broad suite of internally developed best in class IP to enhance performance energy efficiency density and design flexibility.
We're seeing tremendous interest from customers for next generation two nanometer designs.
Turning to our non data center multimarket businesses, which include carrier and enterprise networking. We are encouraged to see the recovery is starting to gain momentum as.
As you May remember, we had invested heavily in these end markets over a long period to successfully gained share and has built an industry leading portfolio of products. We plan to continue investing in a targeted manner to grow revenue in these multi market business.
Matt Murphy: So our bell team is firing on all cylinders and we see a very favorable set up to significantly scale up the company.
Matt Murphy: In addition to strong revenue attainment. The Marvell team is also driving outstanding financial results. This fiscal year, our revenue has grown by 31% from the first quarter to the third quarter.
Matt Murphy: Over that same time period, we have demonstrated tremendous operating leverage growing our non-GAAP EPS by 79%.
It is two five times, our topline growth rate.
Matt Murphy: We've driven strong operating cash flows enable us, enabling us to step up our stock repurchases throughout the year.
This fiscal year, we have cumulatively bought back $525 million through the third quarter.
Matt Murphy: And there are plenty of remaining authorization.
Matt Murphy: As you May recall earlier this year, our board authorized a $3 billion addition to our existing stock repurchase program.
Matt Murphy: We are also focused on reducing our stock based compensation expense as a percent of revenue and we expect significant improvement in this metric going forward.
Matt Murphy: Given the strong revenue outlook for the fourth.
Matt Murphy: <unk> fourth quarter, and our expectations for robust growth in fiscal 2026, we believe we are well positioned to deliver outstanding financial returns to our stockholders.
Matt Murphy: Before I turn the call over to William I would like to express my heartfelt. Thanks to Lloyd a key member of my team and cofounder of <unk>.
Matt Murphy: After a long and distinguished career in the semiconductor industry lawyers announced his decision to retire in April of next year.
Matt Murphy: Lloyds made incredible contributions to marvell over the past few years, including building a world class team and deep bench of leadership talent. He.
Matt Murphy: He was instrumental in the successful integration of <unk> into Marvell in 2021.
Speaker Change: With this characteristic integrity and thoughtfulness lawyers already engaged in succession planning and ensuring a smooth transition.
Speaker Change: Also looking forward to Lloyd staying connected with Marvell. After he retires. So we can continue to benefit from his insights and expertise.
Speaker Change: We wish him the very best in his well deserved retirement during which he looks forward to spending more quality time with his family.
Speaker Change: And with that I'll turn the call over to <unk> for more detail on our recent results and outlook.
Speaker Change: Thanks, Matt good afternoon, everyone.
Speaker Change: Let me start with a summary of <unk> financial results for the third quarter of fiscal 2025.
Revenue in the third quarter was 151 6 billion well above the midpoint of our guidance growing 7% year over year and 19% sequentially.
Speaker Change: Data Center was our largest end market driving 73% of total revenue for.
Speaker Change: The next Rogers with enterprise networking with 10% followed by consumer and carrier infrastructure at 6%, each and altra industrial at 5%.
Speaker Change: As Matt mentioned in his prepared remarks in the third quarter, we made additional decisions to further re direct investments towards the Davidson pad.
Speaker Change: This resulted in an aggregate restructuring charge of $715 million, which is reflected in our GAAP results for the third quarter.
Speaker Change: Two largest components were impairment charges for acquired intangible assets and certain purchase technology licenses and their future contractual obligations.
Speaker Change: I would also note that approximately three quarters of these restructuring charges are noncash in nature.
Speaker Change: The aggregate restructuring charges are now largely behind us. These.
Speaker Change: These charges are a reflection of the fact that we have invested significantly in updating our enterprise and carrier product portfolios over several years.
Speaker Change: Kind of more targeted advancements in these end markets going forward.
Speaker Change: Continuing to our results.
Speaker Change: GAAP gross margin was 23%.
Speaker Change: non-GAAP gross margin was 65% slightly below our guidance as we saw higher than forecast with revenue from custom silicon.
Speaker Change: Moving on to operating expenses.
GAAP operating expenses were 1.152 billion, including restructuring costs stock based compensation and amortization of acquired intangible assets.
non-GAAP operating expenses were $467 million in line with our guidance.
GAAP operating margin was negative 46, 4%, while non-GAAP operating margin was 29, 7%.
Speaker Change: For the third quarter GAAP loss per diluted share was 78.
Speaker Change: non-GAAP income per diluted share was 43 <unk>.
Speaker Change: <unk> above the midpoint of guidance.
non-GAAP EPS grew by 43% sequentially.
Speaker Change: Illustrative of the leverage in our business model.
Speaker Change: Turning to our cash flow and balance sheet.
Cash flow from operations in the third quarter was 536 million growing by a substantial $230 million from the prior quarter.
Speaker Change: Our inventory at the end of the third quarter with 859 million, increasing by $41 million from the prior quarter to support the significant growth. We are seeing our data center end market.
Speaker Change: We returned $52 million to stockholders through cash dividends. In addition, we repurchased $200 million of our stock during the third quarter, an increase of 25 million from the prior quarter.
Speaker Change: Our total debt was $4 1 billion a.
Speaker Change: Gross debt to EBITDA ratio was two to three times our.
Speaker Change: Our net debt to EBITDA ratio was 176 times.
Speaker Change: As of the end of the third fiscal quarter, our cash cash equivalents were $868 million, increasing by $59 million from the prior quarter.
Speaker Change: Turning to our guidance for fourth quarter of fiscal 2025.
Speaker Change: We are forecasting revenue to be in the range of $1 8 billion plus or minus 5%.
Speaker Change: We expect our GAAP gross margin to be approximately 50%.
Speaker Change: We expect our non-GAAP gross margin to be approximately 60% for.
Speaker Change: For the fourth quarter, we project, our GAAP operating expenses to be approximately 710 million.
We anticipate our non-GAAP operating expenses to be approximately $480 million.
Speaker Change: For the fourth quarter, we expect other income and expense, including interest on our debt to be approximately 46 million.
Speaker Change: We expect our non-GAAP tax rate of 7% for the fourth quarter.
Speaker Change: Please note that we forecast our non-GAAP tax rate in fiscal 2026.
Speaker Change: Step up to be in the range of 10% to 11% in anticipation of a meaningful year over year increase in our operating income.
Speaker Change: We expect a basic weighted average shares outstanding to be $867 million.
Speaker Change: Our diluted weighted average shares outstanding to be $877 million.
Speaker Change: We anticipate GAAP income per diluted share in the range of 11 to 21 states.
Speaker Change: non-GAAP income per diluted share in the range of 54.
Speaker Change: To 64.
Marvell delivered strong third quarter results and we are guiding for significant acceleration in our year over year revenue growth in the fourth quarter.
Speaker Change: We see a strong set up for next fiscal year as well we remain focused on continuing to drive strong operating leverage expanding our operating margins.
Speaker Change: Don stock based compensation as a percentage of revenue and efficient cash flow generation to continue to return meaningful cash to shareholders.
Speaker Change: I'm also pleased with our guidance to return to GAAP profitability in the fourth quarter and we are looking forward to continue to drive improvement in this metric.
Speaker Change: Operator, please open the line and announce Q&A instructions. Thank you.
Speaker Change: Please allow me to.
Speaker Change: To begin the question and answer session.
Speaker Change: Western you May Press Star then one on your Touchtone phone if youre using a speakerphone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then Q in the interest of time. Please restrict yourself to one question only if you have additional question. Please rejoin the queue at this time, we will pause momentarily to assemble our.
Speaker Change: Roster.
Speaker Change: Your first question comes from Vivek Arya with Bank of America. Your line is now open.
Speaker Change: Thanks for taking my question, Matt I was hoping you could help quantify the AI revenues for fiscal 'twenty five overall.
Speaker Change: And then how we should start thinking about fiscal 'twenty six given the upside in fiscal 'twenty five and when you look at that fiscal 'twenty six funnel what is that determined by is it a demand visibility is it supply. So just more kind of quantification on color on these metrics would be very helpful. Thank you.
Speaker Change: Yeah, Hey, Vivek. Thanks for the question.
Speaker Change: So just to calibrate everybody, we had our AI day back.
Speaker Change: Several months back in April.
Speaker Change: We talked about.
Speaker Change: $1 5 billion this year for AI and $2 5 billion.
Speaker Change: For next year, you know last quarter, we updated that and said we were we were tracking ahead and as you can see from our third quarter results and fourth quarter guide for this year, where we're tracking significantly ahead now both for this year and for next year, you know and.
Speaker Change: And this is for this year on the order of hundreds of millions of dollars. So the business has done fantastic. It's actually had a stronger than expected results I think every quarter this year and when we so so again very strong outlook for next year and then to your question about on the funnel in the end what's.
Speaker Change: Giving it.
It's demand I mean on the supply side, we've done a great job of aligning with our partners, we're extremely well positioned to capture the plan, we have an upside to that and.
Speaker Change: The team is all in to drive and support what our customers need next year, which at the moment looks very very strong both on the customer side, but as well as our optical interconnect portfolio and switching as well on a year over year basis, so firing on all cylinders vivek. Thanks.
Speaker Change: Thank you.
Speaker Change: Your next question comes from Ross Seymore with Deutsche Bank. Your line is now open.
Speaker Change: Hi, guys. Thanks for asking the question I guess first congratulations to Loy on the retirement and then if I may just a clarification and then a question I guess the clarification, Matt obviously, you've been very successful at marvell, but that seemingly is getting noticed in the press with some other management opportunities.
Speaker Change: I'll ask both questions at once but could you comment at all on kind of your commitment to Marvell are looking elsewhere and then my second question is more on the customer diversification, how do we think that the business diversify us whether it's by multiple products in the custom compute or by customers as we go through calendar 'twenty five 'twenty six is that still the same.
Speaker Change: Timetable that you talked about at your AI day or have things moved around.
Speaker Change: Yes, Thanks, Ross and always appreciate your direct.
Matt Murphy: Frank Nature of your question. So couple of thoughts the first as you know I've been CEO at Marvell now for eight years and when I started here. This was a massive turnaround situation. Many of you remember this the enterprise value at that time, I think it's up to about $3 billion.
Matt Murphy: And over the last eight years me and my team.
Matt Murphy: Have worked tirelessly.
All out.
Matt Murphy: To transform.
Matt Murphy: Drive growth and position Marvell for what is now the biggest single Tam opportunity I've seen.
In my career, which is the AI super cycle and datacenter opportunity.
Matt Murphy: I am all and Okay on Marvell, we've got the best team at this company of people.
Matt Murphy: The company's outstanding.
Matt Murphy: The technology is best in class.
Matt Murphy: I can't think of a better place to work.
Matt Murphy: Then marvell.
Matt Murphy: So just let me be clear on this topic Ross for you and everyone. That's listening.
Matt Murphy: As the chairman and CEO of this company I'm, 100% focused on Marvell.
Matt Murphy: Okay.
Matt Murphy: With that said customer diversification.
Speaker Change: Yes, we're actually in great shape here. If you go back to the AI day, and you look we presented actually a range of design wins, we had both on.
Speaker Change: AI accelerators, and compute as well as a variety of other.
Speaker Change: Uh huh.
Speaker Change: Custom opportunities. So the breadth is very good across multiple customers across all of them actually with custom solutions.
Speaker Change: And we have multiple large volume opportunities driving us right now both and we call. These out the AI. They both on the accelerator side as well as the compute side.
Speaker Change: Both are tracking well with two different customers. There is other programs going into production next year and then we have our third large customer coming.
In the future. So that's again another proof point of our data point that gives us a lot of confidence in our ability to drive our long term ambitions.
Speaker Change: In custom silicon so.
Everything is tracking well and the final thing I would say is on the technology front as I said in my prepared remarks, but very very good progress on our two nanometer platform.
Speaker Change: Extremely complex and broad suite of IP, that's best in class and that's also getting a lot of attention from our customers about not just the current sort of designs, they're thinking of but but even beyond thank you.
Speaker Change: Thanks, Matt.
Speaker Change: Your next question comes from Harlan sur with Jpmorgan. Your line is now open.
Speaker Change: Hey, good afternoon, and congratulations on the strong results and outlook.
Speaker Change: Great to see the strong ramp in execution on your five nanometer AI training custom solution at your large cloud customer.
Speaker Change: This customer has been articulating for several months now rates are strong.
Speaker Change: <unk> strategy for these asics that same customer today announced its next generation custom solution at three nanometers, which would be ramping according to them and those next year. So calendar 'twenty five imagine like many others. They are pulling in their AI programs. So given what appears to be strong.
Speaker Change: One of your five nanometer program and the total ramped by Marvell team. The multiyear agreement with this customer that was announced a few days ago. Your characterization on sort of multi generational roadmap with them.
Speaker Change: Fair to assume that you will be the ASIC vendor supporting your customer on this next gen. Three nanometer training ASIC targeted throughout late next year. The only reason why I ask is because they are just continues to be a lot of competitive noise out there around this three nanometer program.
Speaker Change: Yeah. Thanks for the question Harlan. So first we're very excited to see the role that custom silicon is playing.
Speaker Change: It's obviously in news all the time, it's gained tremendous momentum I'd say, even since our AI day in terms of where we think that can go.
Speaker Change: So we see that as a validation of our strategy that we started many years ago and it continues to be in full swing.
Speaker Change: For everybody on the call we at our AI day, we called it a total Tam of $75 billion for data Center 40 billion to that.
Speaker Change: <unk> and custom silicon and we set and the team set a 20% market share target on that for that $40 billion. So that's $8 billion.
For context, we had said for this year.
Speaker Change: As part of our AI numbers about 500 million from custom going to $1 billion next year and of course, we're overshooting on those two right now so the way I would think about this is take your 500 million plus this year take your billion plus next year draw a line to that bogey of 20% market share in the future.
Speaker Change: That's what we're driving.
Speaker Change: And the announcement we made.
With AWS is very significant for both companies.
Speaker Change: For us as a supplier to them as you pointed out first of all for the five year agreement. It covers AI custom products as well as a broad range of networking products at <unk>.
Speaker Change: <unk> and its.
Speaker Change: And the revenue that it is going to drive for us and most importantly, it is multi generational in nature.
Speaker Change: So with this agreement and with these kinds of relationships that we're building with these customers.
Speaker Change: Have even more confidence than before.
Speaker Change: To achieve our goals that we're driving.
Thanks.
Speaker Change: Yep, great insights. Thank you yes.
Speaker Change: Your next question comes from Toshi Hari with Goldman Sachs. Your line is now open.
Toshi Hari: Hi, Thank you so much for taking the question.
Toshi Hari: Matt I had a two part question on your electro optics business.
Toshi Hari: Within the context of AI.
Speaker Change: I'm curious how you would characterize customer inventory levels of optical DSP is in the marketplace today and I ask the question because I think some investors are a little worried about inventory.
Inventory build.
Speaker Change: Your customer sites, particularly with tariff fears coming up and then part B is if you can kind of speak to the 160 transition over the coming.
Speaker Change: Quarters in years, and what that means for your content or your ASP expansion going forward. Thanks, so much.
Speaker Change: Thanks, Yeah on the inventory side.
Speaker Change: Look the dynamic right now as we continue to have very strong demand very strong bookings and order visibility.
Speaker Change: And.
Speaker Change: And in a large quantity of orders continue to come in inside lead time.
Speaker Change: We built.
Speaker Change: Through the pandemic and to today, a very robust supply chain capability and so we're able to drive and meet the upsides of our customers.
Speaker Change: Look on the overall picture, we always are mindful as best we can about.
Speaker Change: Optical module inventory.
And this was even a concern if you go back a year ago as a I started to ramp what was going to happen where people are getting ahead of their skis.
Speaker Change: Et cetera, So we continue to be diligent here and monitor but as it as it appears right now demand is strong bookings continued to be strong visibility is great. We expect that business to grow significantly for us next year.
Speaker Change: On the $1 60, as it relates to that that will be part of the growth. We see next year, we're shipping that product now.
Speaker Change: Production it'll be a contributor next year, but I don't want to take away from the very strong 800 gig cycle that will continue to be driven through our fiscal 'twenty six next year. So so far so good.
Speaker Change: Thank you.
Speaker Change: Your next question comes from Blayne Curtis with Jefferies. Your line is now open.
Speaker Change: Hey, Thanks for taking my question and congrats on a great quarter I actually wanted to ask on the enterprise and carrier you've talked in the past I think about getting back to maybe 2 billion plus run rate I mean, you've carrier spin I guess with the guidance now you're looking at double digits two quarters in a row. So just curious how broad base that recovery is and you can kind of how quickly do you think you.
Speaker Change: Get back to.
Speaker Change: Of that $2 billion plus run rate annually.
Speaker Change: Yeah. Thanks, Blayne, Yeah, we're going to get back to the 2 billion run rate. The question is when and certainly we're very encouraged to see that combined enterprise and carrier up.
Speaker Change: Uh huh.
Speaker Change: 4% in Q3, but then if you think about Q4, we've got ended up mid teens, which quarterback we were sort of talking about double digit so net net between sort of in the second half.
Speaker Change: Those end markets together have recovered and grown faster than we thought, albeit still shipping below end market consumption, which is your question.
Speaker Change: As we as the and so that's going to continue through next year.
Speaker Change: That recovery as as both inventory is corrected.
Speaker Change: Some end market growth resumes, but also we have some of our own unique drivers, which really is more pronounced in carrier. Then it is an enterprise enterprise would be more broad based in the carrier side, we're not really counting on a huge market recovery, it's really our own product cycles and specifically in base stations, where we have a new socket.
Speaker Change: That's ramping as a as a.
Speaker Change: Layer two processor that incremental new sockets, something we won a few years ago. It took a little bit longer than we thought to get into production, but it's in production now so that's going to be a contributor Blaine and so between the two.
Speaker Change: We're just going to keep marching along and keep driving the business up and really as it as it recovers its really just a tailwind for us in terms of operating income and profitability and topline and so we'll see how it goes we'll keep updating everybody on a quarterly basis, there, but so far so good, especially the the plus mid teens on the on the Q4 guide.
Speaker Change: Thanks, Matt.
Speaker Change: Your next question comes from Tom O'malley with Barclays. Your line is now open.
Tom O'malley: Hey, Matt Thanks for taking my question and congrats on the great results.
Tom O'malley: I wanted to ask on some of the parts of the Amazon announcement. So AUC was mentioned Pcie re timers.
Tom O'malley: Switching products. So youre hearing just a lot from other smaller companies that are seeing some big robust revenue ramps could you just do your best to maybe size how significant those are for you today and then when you look out kind of over the next 12 months what area of those non optical DSP businesses are going to be the most significant for you.
Speaker Change: Just generally where are you going to see the most growth outside of that core optical DSP business. Thanks, Matt.
Speaker Change: Yeah, Thanks, Tom Yeah. So.
Speaker Change: As part of the.
Speaker Change: The agreement.
Speaker Change: Both the custom side and the networking side are extremely important.
Speaker Change: It's not.
Speaker Change: It's not massively massively.
Speaker Change: Suede between between the two so on the networking side all.
Speaker Change: All of those product areas are in our wheelhouse and they're all in various stages of maturity.
Speaker Change: Look on the on the switching front, we had a great acquisition with an OEM, we announced our TL Tan.
Five nanometer 51, <unk> switch that's gone into production interest is very very strong in that product more to come there and also a roadmap, which we think is very compelling and our team. There has done an excellent job. So that one we think has not only growth.
Speaker Change: Heading into next year, but on a long term basis, we see that as being a very strong area for us.
Speaker Change: <unk> is definitely a bright spot that's an area that we're ramping now through our module partners.
Speaker Change: And we again see very strong take up of Marvell solutions.
Speaker Change: In the next year and then some of the other more emerging categories are still to come but those are areas. We're investing in so I think the way to think about it as a five year type of arrangement. There's just a lot of opportunity to drive innovation together to drive new solutions, sometimes things, we haven't even thought of.
Speaker Change: We're just very excited about what the two companies can do together and then with with.
Speaker Change: US as a customer of theirs.
Speaker Change: We've just seen great success in using AWS as our supplier for EDA cloud services and it's allowed us to complete some very complex designs and very very short time to market with very good burst capacity and performance. So the whole relationship is really.
Speaker Change: When when and where it's really an honor for us to be associated with them.
And the final thing I would say is I think it's also a testament to the all in.
Speaker Change: Data Center first strategy that Marvell has put together and to see that get recognized with the type of landmark agreement like this I think is.
Speaker Change: Really a good sign for us and for the team for our investors.
Your next question comes from Mark <unk> with Evercore. Your line is now open.
Speaker Change: Hi, Thanks for taking my question.
Speaker Change: I also had a clarification and a question if I may I think Matt did you suggest $40 billion of.
Custom AI.
Speaker Change: AI Tam at <unk> 75 billion. So does that suggest you believe custom is about half the market roughly speaking and then the question is.
Speaker Change: How would you characterize the landscape the competitive landscape for <unk>.
Speaker Change: For what Youre doing on the custom side, how many how many companies can do what you guys do on the on the custom side and maybe as part of that can you help us understand why this is happening why the custom silicon is becoming a thing it seems just like five years ago everything was run.
Speaker Change: On a standard every workload was run on a standard <unk> six server chip and now.
Speaker Change: You're helping your customers did custom silicon Nvidia has.
A whole bunch of different skus for Blackwater.
Speaker Change: Why is why is custom becoming a thing thank you.
Mark: Yeah. Thanks, Mark so refer back to the AI day, so what we called out was a.
40 billion dollar <unk>.
Mark: Custom Tam.
Mark: Okay, and then of that our goal is to drive 20% market share kind of plus okay. So that's the numbers and then.
Mark: And then within that we really see ourselves and one other very large highly scaled up competitor, who can who can do these types of solutions now theres going to be there's going to be a lot of different ways that people are going to try to get there in terms of some of these customer approaches.
Mark: There's already been a lot of noise in the system around these types of opportunities and applications, but our strong view is that in the end.
Mark: It's actually going to ship and represent.
Mark: Vast majority and bulk of the volume of shipments in custom silicon for accelerators is going to be from scaled up companies like marvell. The companies that have the IP the combination of the IP roadmap.
Mark: <unk>, including <unk> and <unk>.
Mark: Yes.
Mark: [laughter] interconnect and packaging.
Mark: I can go on and on but the capabilities is first the second as a team a team that's experienced enough to execute the design with.
Mark: With a zero quality and with a zero means is first past silicon, which is incredibly hard to do when you are talking about $100 billion type of transistor designs in the most advanced nodes.
The third part of that you've got to have the manufacturing capacity and capability and knowhow to drive yield to drive quality and then be able to service the products once they get into the field to meet the dynamic needs that these customers have in terms of the supply chain. So when you stack all that up the barrier to entry to actually.
Mark: Ship one of these products is very high and we know firsthand because we've done several of them now.
So that's <unk>.
Mark: Still the view, we have on the competitive landscape despite.
Mark: And this despite whats out there and then on the why.
Mark: It really comes down to Tcl and it's not a zero sum game it doesn't mean that.
Mark: If somebody implements accustomed silicon design is going to just completely who surf and take over whatever the merchant offering as.
Mark: These are going to coexist.
Mark: Where there's workloads that are big enough that they're going to get the bang for the Buck on the optimization. It makes a ton of sense to.
Go to custom from a <unk> basis, and <unk> is obviously the cost of the product and what it takes to implement it as well as the performance you get and the other factor is when Youre doing a custom silicon ship, it's not just the chip. It's also our customers network and the way they implement the solution and the way that they know better than anyone else how they get.
Mark: The maximum performance out of their system with the accelerator being one piece of it we try to be helpful to come in and not only be the partner of choice for the custom chips, but also come in with our point of view and our help around the interconnect and higher layer switching and ways to think about how to drive.
Mark: Total cost of ownership and the low at the lowest possible power.
Mark: And so those are the dynamics Mark we see today and we'll keep you updated but its only moving in this direction and I think just based on the announcements. This week and you can see in our revenues the custom train is definitely happening.
Perfect. Thank you.
Mark: Yeah.
Your next question comes from tourists Van Berg with Stifel. Your line is now open.
Speaker Change: Yes, thanks, Matt Congratulations on the strong execution and also congratulations to lay on his retirement.
Speaker Change: You announced the Ara three nanometer 160, DSP today I think it's only about 18 months ago. Since you announced the know about five nanometer so ill.
Speaker Change: A little bit surprised about the timing there.
Speaker Change: Reading too much in there or is there something going on in the marketplace, where there's a big push now towards three nanometer and lower power.
Speaker Change: Any more color you can add on the on the timing of IRA will be great.
Speaker Change: Yeah, I think what Youre seeing is.
Speaker Change: Is obviously the need for lower power consumption solutions for all the reasons you can see if you look all the way back up to the data center level and the power consumption of.
Speaker Change: The data centers themselves, but the reality is.
Speaker Change: Laurie we need to move at Hyperscale speed.
Speaker Change: The beat rate debt.
Speaker Change: We think we need to be at to be competitive and to lead the market means we have to be faster and faster on our time to market.
Speaker Change: And this is absolutely I've been doing this for 30 years, okay in the semiconductor industry and I can tell you when you enter an inflection in the growth market. The company with the best in leading technology. That's available you can sample. It works is going to win it's that simple and so our team which is the best in the world at what.
Speaker Change: They do is heads down focused on driving best possible solutions, the best <unk>, the best power and highest performance and the latest process node and youre going to see that continue and across marvell, but particularly in this area of DSP and.
Speaker Change: And broadband analog and the chipsets that we sell we intend to maintain our market share leadership and extend that and be the supplier of choice.
Speaker Change: That's it's as simple as that we're going to we're going faster.
Speaker Change: Perfect. Thank you.
Speaker Change: Yes.
Speaker Change: Your next question comes from C. J Muse with Cisco Your line is now open.
Speaker Change: Cisco Cantor Fitzgerald.
Speaker Change: Thank you to predict the question that I wish I had a question on overall custom silicon I was hoping you could level set us where are we in terms of the total business versus just AI.
Speaker Change: So again it is there any way to kind of size.
The total in the percentage for calendar 'twenty, five and I know where to an earlier question you didn't want to give a growth rate for the AI portion, but perhaps you could speak to what kind of growth you foresee in calendar 2025, and 26 four for the AI part of the business.
Speaker Change: Yeah, Thanks, C J and yes I am.
Speaker Change: I'm pretty sure you didn't go to Cisco since I think you just got a new job, which youre doing great at so congratulations on that.
Speaker Change: On the.
Speaker Change: On the.
Speaker Change: Sorry on your on your.
Speaker Change: Question about.
Speaker Change: Sorry, I lost the question I'm trying to make a joke.
Speaker Change: Tell me your question again, when we're done.
Speaker Change: Total custom silicon versus yes got it.
Speaker Change: Right.
Speaker Change: Look for this year, we said this at the AI day to.
Speaker Change: Custom silicon.
Speaker Change: This year and next year, it's largely driven by AI as the vast majority, but the other programs have come in okay. So they're just in it.
It really happened is.
We have a number of programs that they've done well, but the magnitude of the AI and kind of the upside we've seen relative to the others has just been higher so vast majority is AI for this year vast majority is AI for next year, but I Wouldnt and we said the idea wouldnt sort of write off the other design wins, we have because some of those like we showed up.
Speaker Change: Custom Nick with with meta as an example that was I think a really good showcase we did at OCB. Those types of solutions are also going to come into the market and help drive our growth and then on the non AI AI kind of a custom non custom for this year and next year.
Speaker Change: We're not really breaking that out I'd, just say that by.
Speaker Change: By default the growth rate is going to be higher on the custom side, because it's a lower base and that's been ramping kind of in the second half, whereas electro optics and switching in those other areas has already been in the in the revenue line, but both are going to grow quite a bit next year and drive the top line.
Speaker Change: Thank you.
Speaker Change: Your next question comes from Chris <unk> with Wolfe Research. Your line is now open.
Yes. Thank you good evening.
Question is on margins and if you could help to level set us on the expectation for gross margins as we go into next year as that custom business ramps and then I guess just as importantly on <unk>.
Speaker Change: Operating leverage as you go into next year and I guess, what you said in the past is that.
Speaker Change: The custom business is very good and the operating margin side, how does that flow through the numbers as we go into next year.
Speaker Change: Yes, great I'll, let <unk> take that one well I'm go ahead.
Yes, Thanks, Matt Hey, Chris.
Speaker Change: Yes.
Speaker Change: You start to think the team's done a great job driving gross margin at or above 60% here in the second half.
Speaker Change: Even as we've been ramping the custom programs very significantly right and so when we look at next year clearly the gross margin will continue to be dependent on mix.
Speaker Change: So we continue to see very strong opex growth next year.
Covering our non data center businesses.
Speaker Change: The leverage that we're getting better overhead absorption on higher revenue on the manufacturing side.
Speaker Change: And so when you when you add all that together, we do see a path to continue to be about 60% through through next year now obviously, a custom upsides, even significantly more what we're seeing today.
Speaker Change: That answer would be would be different.
Speaker Change: In terms of the leverage when you look at our Q3 results.
Speaker Change: We came in at around 30%.
Speaker Change: <unk>.
Speaker Change: And even with gross margin guide down about.
Speaker Change: Half a percent operating margin is actually up to 33% so up by 3%.
And so when you look at Opex.
Speaker Change: Control you should expect us to continue to have a very significant focus on levers through next year with the top line, while outgrowing opex right through next year.
Speaker Change: And so really should see a very nice increase in our operating margin through next year really starting to approach the bottom end of all.
Speaker Change: Our long term range towards the end of next year.
Speaker Change: Very helpful. Thank you.
Speaker Change: Your next question comes from Keith <unk> with Citi. Your line is now open.
Speaker Change: Hi, Thank you for taking my question congratulations on hitting the next growth phase, Matt I was listening to the other Mac government.
Speaker Change: Government AWS EU agreement today, and he mentioned that the cranium chip that can do both training and inference.
Speaker Change: So my question to you is.
Thinking about the sales contribution from <unk>.
Speaker Change: Two programs.
Speaker Change: At this customer.
Speaker Change: Ramp changed from 90 days ago.
Speaker Change: No.
No we've been.
Speaker Change: We have been.
Speaker Change: I think we've been able to plan our business together very well with our key customers in this area, especially customer you you have to do that and so I would really defer to Matt and the team to talk about their dynamics, but we're prepared to completely support whatever they need and we've got that in our manufacturing and supply.
And we're going to do it that's probably all I can say I, usually stay away from any more detail about my <unk>.
Customers plan, so to speak but thanks for the question I appreciate it.
Thanks.
Speaker Change: Your next question comes from streaming has you already with Raymond James Your line is now open.
Speaker Change: Thank you Hi, Matt.
Speaker Change: My question is also on the ASIC side.
Speaker Change: Analyst Day, you talked about a third I think you called our customer see ramping sometime in 2026, and I think you alluded to.
Speaker Change: That opportunity being larger potentially larger than customer a and customer b combined and obviously customer b seems to be doing quite well. So I'm. Just curious if there's any any update on customers see how the progress has been and if you still expect that opportunity to be to be larger than the other two customers. Thank you.
Yes, the short answer is.
Speaker Change: Yes.
Speaker Change: It.
Speaker Change: <unk> to be the largest opportunity of the three.
It's tracking well.
Speaker Change: There is great support from both teams and we're executing and unchanged from AI day other than I'd say, just the whole in general custom silicon opportunity set just seems to have continued to gain momentum as each quarter goes on and so we're very optimistic about what we can go achieve.
Speaker Change: With with that customer and also our other two customers we have and then their next generation concepts.
Speaker Change: A lot to go do want to go execute on trading.
Matt Murphy: Thanks, Matt.
Speaker Change: There are no further questions at this time I will now turn the call over to Matt Murphy CEO for closing remarks to remark.
Speaker Change: Great.
Matt Murphy: Thank you so much.
Matt Murphy: Look everybody.
Matt Murphy: Really appreciate all the thoughtful questions.
Matt Murphy: Closing remarks so.
As we finished the year here, we're very optimistic about our fiscal 'twenty six.
Matt Murphy: As we talked about we have a full year ramp of custom happening you've got optics continuing to have a lot of momentum.
Matt Murphy: Our switching business growing and then new areas like Auc's are kind of just going into real volume production for the first time.
Matt Murphy: We're also seeing a very strong recovery, even in our fourth quarter, and our and our multimarket kind of core base business, that's very encouraging in terms of profitability and topline and EPS contributions.
Matt Murphy: We have a very targeted investment plan.
And we're 100% focused on this AI super cycle opportunity and then the really the capital allocation framework to support it.
Matt Murphy: I am excited to have the Investor day mid next year to update all of you comprehensively.
Matt Murphy: With an up with our updated long term model given the sort of new era that we're entering into.
Matt Murphy: As I said in the Q&A.
Matt Murphy: Me and the team are all and.
Matt Murphy: To drive outstanding service and support.
Matt Murphy: For our customers and also extremely strong financial returns for our stockholders.
Matt Murphy: I want to wish everybody on the call and who is listening a very happy holidays and I look forward to seeing you all in the new year.
Speaker Change: Thanks, everybody take care.
Speaker Change: Thank you for attending today's presentation you may now disconnect.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Yeah.