Marvell Technology Q4 2024 Earnings Call Transcript

Quartr
Provided by Quartr
March 7, 2024

There are 13 speakers on the call.

Operator

Good afternoon, and welcome to the Marvell Technology Incorporated 4th Quarter and Fiscal Year 20 24 Earnings Conference Call. All participants will be in a listen only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Mr.

Operator

Ashish Saran, Senior Vice President of Investor Relations. Please go ahead, sir.

Speaker 1

Thank you, and good afternoon, everyone. Welcome to Marvell's Q4 fiscal year 2024 earnings call. Joining me today are Matt Murphy, Marvell's Chairman and CEO and Willem Minkes, our CFO. 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 our website as well as our most recent 10 ks and 10 Q filings.

Speaker 1

We do not intend to update our forward looking statements. During our call today, we will refer to certain non GAAP financial measures. A reconciliation between our GAAP and non GAAP financial measures is available in the Investor Relations section of our Web site. Earlier today, we announced our accelerated infrastructure for the EI ERROC Investor Event, which will be held in New York on April 11. Please refer to our press release for more details.

Speaker 1

We look forward to updating investors on the exciting opportunities we see in front of us from the growth in accelerated infrastructure. Let me now turn the call over to Matt for his comments on the quarter. Matt?

Speaker 2

Thanks, Ashish, and good afternoon, everyone. For the Q4 of fiscal 2024, Marvell delivered revenue of $1,430,000,000 growing 1% sequentially above the midpoint of guidance. In addition, on a non GAAP basis, the Marvell team drove a substantial 330 basis points sequential increase in gross margin, completed execution on the OpEx reduction plan we outlined earlier in the year and delivered earnings per share of $0.46 growing 12% sequentially. As Willem will tell you in greater detail, we also drove another strong quarter of operating cash and increased share repurchases. We are pleased to report these results to you and remains a challenging macro environment.

Speaker 2

In our data center end market for the Q4, we drove record revenue of $765,000,000 above our guidance growing 54% year over year and 38% sequentially. The strong revenue growth in the quarter was driven by the cloud portion of our data center end markets. While AI has been a key growth driver, I am pleased that our standard cloud infrastructure revenue has also grown every quarter and we see that continuing next year. Our 800 gig PAM solutions led our growth in the 4th quarter. We also benefited from higher sequential demand for our storage products as that portion of our data center end market continues its recovery.

Speaker 2

Revenue from our TeraLink's Ethernet switches also grew sequentially in the quarter. Turning to the Q1 of fiscal 2025, we expect our overall data center revenue to grow in the low single digits sequentially on a percentage basis. We expect revenue from both AI and standard cloud data centers to continue to grow sequentially. We project our electro optics revenue to continue to be strong and we also expect to benefit from the initial shipments of our cloud optimized AI silicon programs. Partially offsetting this growth, we are projecting a more than seasonal sequential decline in revenue from enterprise on premise data centers.

Speaker 2

Over the past several years, Marvell has strategically invested in technology, both organically and through acquisitions to become a critical enabler of accelerated infrastructure. The seismic shift driven by AI in the data center market is creating new opportunities and we are actively investing to lead the next wave of innovation. We have in place a full suite of solutions across data center interconnect, switching and compute and the ability to uniquely stitch these together into a unified platform, a true one stop shop for our data center customers. While our 100 gig per lane, 800 gig PAM products are currently the workhorse for interconnect inside AI data centers, customers have begun qualifying our next generation 200 gig per lane 1.6 T PAM solutions. We expect first deployments to start toward the end of this year.

Speaker 2

Complementary optical interconnect solutions, we expect to start ramping our PAM DSPs for active electrical cables. This is a new and completely additive market for Marvell. We expect to be shipping products to multiple Tier 1 cloud customers this year. Our DCI products, which provide connectivity between data centers are critical to our customer success and continue to do very well. We see exciting new opportunities ahead of us from growth in generative AI applications driving cloud customers to build new data centers.

Speaker 2

We also expect a positive uplift from increased investment in inferencing, which will drive more bandwidth between data centers. We are shipping our 400 gig DCI products in high volume today and are seeing strong interest for our next generation 800 gig products. I'm also very pleased to report to you that in fiscal 2024, we significantly expanded our DCI customer base with design wins at multiple data center customers. We expect these design wins to begin ramping next year. As you will remember from prior calls, our Bell Silicon Photonics Bell Silicon silicon photonics technology to enable next generation higher density lower power interconnects.

Speaker 2

In data center switching, our TeraLink's 12.8T products continue to ship in high volume and we are on track for production shipments of our next generation 51.2T switch later this year. The TeraLink's product line you will recall came from our Innovium acquisition. Combined the Innovium team with Marvell's very successful enterprise and carrier switching organization. This larger scale now enables Marvell to accelerate our development to address new cloud opportunities, particularly in switching for AI deployments. We are encouraged by the traction we are seeing with both existing and new customers, which has expanded our opportunity funnel for cloud switching dramatically over the past year.

Speaker 2

Turning to our cloud optimized silicon platform, we're seeing significant progress with the first set of design wins outlined during our last Investor Day. Expect initial shipments for our 2 AI compute programs to start in the Q1 and are on track for a very substantial ramp in the second half of the fiscal year. Customer bring up of these programs is going extremely well and we are tightly aligned with them on volume expectations and working in lockstep to enable the production. We now have a clear view of demand for both this fiscal year as well as fiscal 2026. We have been working closely with our suppliers and are confident that we have secured capacity for the ramp.

Speaker 2

With the visibility we now have for these programs along with many new opportunities, we are very excited about the potential scale of long term revenue for Marvell from this business. As the initial set of design wins reaches full run rate, we expect annual revenue from cloud optimized silicon has the potential to rival our fast growing data center optics business, which for reference grew to over $1,000,000,000 in fiscal 2024. With the exploding investment in AI and accelerated computing, the demand for cloud optimized silicon has grown significantly. We have successfully executed multiple 5 nanometer designs in the last few years and are deeply engaged with cloud customers on many new 3 nanometer opportunities. These engagements are driving a substantial increase in the size of our design funnel.

Speaker 2

AI is increasing the cadence of new chip releases and this plays well to Marvell's strength as a key partner for our cloud customers with a proven ASIC platform. We have a broad suite of differentiated IP including ultra high speed SerDes, ARM Compute, Security, Storage and Advanced Packaging, including die to die interconnects and chiplets. We are well positioned to act as a force multiplier for our cloud customers, enabling them to scale multiple custom programs in quick succession. Now let me turn to Marvell's carrier and enterprise end markets together. As we have been communicating, these end markets have been dealing with a period of soft industry demand.

Speaker 2

As a result, both were down sequentially in the 4th quarter and we expect them to decline again in the Q1. On a sequential basis, we expect revenue in the Q1 from carrier to decline by approximately 50% and enterprise networking to decline by approximately 40%. Looking ahead, we expect revenue declines in these end markets to be behind us after the Q1 and forecast a recovery in the second half of the fiscal year. Longer term, these are large and enduring end markets, which are critical to the global economy. As a result, we expect both of these end markets to eventually return to contributing over $1,000,000,000 each in revenue on an annual basis once demand normalizes and we begin to realize the benefits of upcoming Marvell specific product cycles.

Speaker 2

Turning to the consumer end market, revenue declined in the Q4 as expected and is projected to decline approximately 70% sequentially in the Q1. This forecast reflects the completion of deliveries for an end of life program in the prior quarter as well as significantly weaker demand from the game console market. Turning to our automotive and industrial end market, revenue in the 4th quarter was 82,000,000 dollars declining 17% year over year and 23% sequentially. As expected, the sequential weakness was primarily driven by a sharp decline in the industrial portion of this end market where order patterns can be lumpy in any given quarter. Fiscal 2024, our automotive business delivered another strong year with revenue growing in the double digits year over year on a percentage basis.

Speaker 2

We are benefiting from growth in Marvell content driven by an increase in the number of Ethernet connected endpoints in cars coupled with the need for more bandwidth. We continue to accumulate new Ethernet design wins across a broad swath of automotive OEMs. While the initial wave of our automotive revenue was driven primarily by EVs and hybrids, we now have also won high volume internal combustion vehicles with major auto OEMs. These wins tend to be multi platform in nature covering numerous models simultaneously. Simultaneously.

Speaker 2

Turning now to our forecast for the Q1 of fiscal 2025, we expect revenue from our overall auto and industrial end market to be flat sequentially. In summary, in fiscal 2024, we delivered total revenue of $5,500,000,000 Our data center revenue accelerated throughout the year growing from about a third of total company revenue in the Q1 to more than half exiting the 4th quarter. As customers continue to shift investment from traditional to accelerated infrastructure, we expect data center to drive the majority of our revenue growth going forward. This transition underscores Marvell's transformation into a leading data center company. AI was a key driver of our data center growth in fiscal 2024, contributing over 10% of total company revenue, well above our initial forecast.

Speaker 2

This was a substantial increase from approximately 3% in the prior year. Our momentum accelerated throughout the fiscal year with AI revenue well over $200,000,000 in the 4th quarter, driven mostly from optics. In fiscal 2025, we expect this trend to continue driving another strong year for our data center end market. We expect our substantial base of electro optics revenue from AI should remain correlated to accelerator shipments. And as those continue to grow, we expect to benefit accordingly.

Speaker 2

In addition, we project significant revenue contributions from our AI cloud optimized programs well in excess of our prior estimate of a couple of $100,000,000 in fiscal 2025. In fact, as our cloud optimized AI silicon programs reach high volume production, we expect our overall cloud optimized revenue to exceed $200,000,000 exiting the 4th quarter. As a result on a run rate basis, this momentum would put our overall cloud optimized silicon revenue above the annual $800,000,000 target we had provided at our last Investor Day. And with a full year of contributions in fiscal 2026, we expect to be way ahead of the prior target. In aggregate, we see a favorable setup for the second half of this fiscal year driven by continued growth from our data center end market, ongoing growth from automotive and a recovery in carrier, enterprise and consumer.

Speaker 2

As we continue to drive revenue growth, we remain focused on strong cash flow generation and returning capital As you saw earlier today, Marvell's Board has approved the largest repurchase authorization in our history. We view the emergence of accelerated infrastructure as one of the most significant technology inflections of our time. Thank all our dedicated employees and leaders for executing on our strategy to fully capitalize on this remarkable opportunity. During a tumultuous period for the semiconductor industry, we have taken control of our destiny and are strategically investing to win. Earlier today, we announced the extension of our long standing collaboration with TSMC to develop the industry's first technology platform to produce 2 nanometer semiconductors optimized for accelerated infrastructure.

Speaker 2

This new platform will enable Marvell to deliver substantial advancements in performance, power and area critical for next generation accelerated workloads. We are very optimistic about and our role in enabling accelerated infrastructure. We look forward to updating investors on the massive opportunity in front of us at our accelerated Infrastructure for the AI Era event on April 11 in New York City. With that, I'll turn the call over to Willem for more detail on our recent results and outlook.

Speaker 3

Thanks, Matt, and good afternoon, everyone. Let me start with a summary of our fiscal year 2024 results. Marvell delivered $5,500,000,000 in revenue with a strong second half performance from our data center end market. Driven by AI applications, our data center revenue in the second half grew by approximately 50% over the first half. GAAP gross margin was 41.6 percent, GAAP operating margin was negative 10.3% and GAAP loss per diluted share was $1.08 Our non GAAP gross margin was 61.2%.

Speaker 3

Non GAAP operating margin was 29%. And our non GAAP earnings per diluted share was $1.51 We returned $357,000,000 to shareholders through dividends and buybacks. Moving on to our financial results for the Q4. Revenue in the Q4 was $1,427,000,000 exceeding the midpoint of our guidance, growing 1% on a year over year and sequential basis. Data center was our largest end market driving 54% of total revenue.

Speaker 3

The next largest was enterprise networking with 19%, followed by Carrier Infrastructure at 12%, Consumer at 10% and Auto Industrial at 5%. GAAP gross margin was 46.6%. Non GAAP gross margin was 63.9%, growing 3.30 basis points sequentially, driven by a significantly better product mix as we had expected. Moving on to operating expenses. GAAP operating expenses were $697,000,000 including stock based compensation, amortization of acquired intangible assets, restructuring costs and acquisition related costs.

Speaker 3

Non GAAP operating expenses were $429,000,000 in line with our guidance. These results reflect the successful completion of our fiscal 2024 cost reduction plan we had outlined at the beginning of the year. GAAP operating margin was negative 2.3%, while non GAAP operating margin was 33.8%. For the 4th quarter, GAAP loss per diluted share was $0.45 Non GAAP income per diluted share was $0.46 growing 12% sequentially. Now turning to our cash flow and balance sheet.

Speaker 3

Cash flow from operations in the 4th quarter was 547,000,000 dollars I'm pleased to report to you our 2nd straight quarter delivering robust operating cash flow of over 500,000,000 Our inventory at the end of the Q4 was $864,000,000 decreasing by $77,000,000 from the prior quarter. Our DSO was 77 days, decreasing by a day from the prior quarter. We returned $52,000,000 to shareholders through cash dividends. In addition, we repurchased $100,000,000 of our stock during the Q4, doubling from the prior quarter. We expect to further increase repurchases in the Q1 of fiscal 2025.

Speaker 3

As you saw earlier today, Marvell's Board has approved the largest repurchase authorization in our history, increasing our current plan by $3,000,000,000 which brings our total available authorization to $3,300,000,000 Our total debt was $4,170,000,000 dollars Our gross debt to EBITDA ratio was 2.19 times and net debt to EBITDA ratio was 1.69 times. As of the end of the 4th fiscal quarter, our cash and cash equivalents were $951,000,000 increasing by $225,000,000 from the prior quarter. Turning to our guidance for the Q1 of fiscal 2025. We are forecasting revenue to be in the range of 1,150,000,000 dollars plus or minus 5%. We expect our GAAP gross margin to be in the range of 44.5% to 47.2%.

Speaker 3

We expect our non GAAP gross margin to be in the range of 62% to 63%. We are forecasting a sequential decrease in non GAAP gross margin due to lower revenue impacting fixed cost absorption. Looking forward, we expect that the overall level of revenue and product mix will remain key determinants of our gross margin in any given quarter. For the Q1, we project our GAAP operating expenses to be approximately $676,000,000 We anticipate our non GAAP operating expenses to be approximately 455,000,000 dollars This forecast includes a step up from the prior quarter due to typical seasonality in payroll taxes and employee salary merit increases. For the Q1, we expect other income and expense, including interest on our debt to be approximately 48,000,000 dollars We expect our non GAAP tax rate of 7% for the Q1.

Speaker 3

We expect our basic weighted average shares outstanding to be 866,000,000 and our diluted weighted average shares outstanding to be 875,000,000. Dollars We anticipate GAAP earnings per diluted share in the range of a loss of $0.18 to a loss of $0.28 We expect non GAAP income per diluted share in the range of $0.18 to $0.28 Operator, please open the line and announce Q and A instructions. Thank you.

Speaker 4

We will

Operator

now begin the question and answer session. Our first question will come from Ross Seymore with Deutsche Bank. Please go ahead.

Speaker 5

Hi, guys. Thanks for letting me ask the question. Clearly, it's kind of tail 2 cities, the data center and AI side is going to be really strong, the rest of it not so much. So why don't we just get the bad news out of the way first. Matt, the magnitude of the drops ex your data center are kind of shocking.

Speaker 5

Can you just walk us through how much of that is something that is not going to come back, some of the stuff in 5 gs, etcetera, versus what do you view as just taking the cyclical medicine and then a snapback should ensue soon thereafter?

Speaker 2

Yes. Hey, great. Thanks, Ross. And yes, definitely a tale of 2 cities. On the carrier enterprise and consumer side, the way to think about it is, sure, the drops are pretty steep in Q4 and Q1.

Speaker 2

We're definitely going through a cyclical downturn in the industry. You've been doing this a long time. So have I. We've seen that happen. And that's what we're going through.

Speaker 2

The way to think about both of those businesses is at their peak together, they were about $2,500,000,000 in revenue and this would sort of be during the pandemic and some of the supply chain, the issues that went on, you can now see we're shipping well below that. And so I my prepared remarks, both of these are very solid businesses, Ross, for Marvell. Both will recover to greater than $1,000,000,000 in revenue over time. The question is when. And remember as well within these businesses, these are very long product life cycles, typically like 7 years in production.

Speaker 2

So these are designed in some cases we won 3 or 4 or 5 years ago, some of them we just won a year or 2 ago. So we feel good about these businesses, but they are going through some demand softness and some inventory correction, but we expect to see that behind us. And to be very specific, none of this is due to any business that's not coming back or share loss. And in fact, when things recover back to a normalized run rate, we do have Marvell product growth drivers in both of those segments, carrier and enterprise, to drive growth going forward. So we're just managing through it in the short term.

Speaker 2

Thank you.

Operator

The next question will come from Matt Ramsay with TD Cowen. Please go ahead.

Speaker 6

Thank you very much. Good afternoon, guys. I guess kind of a 2 part question on the custom silicon business. The first part of it, Matt, you gave us some good color in your script as to how you see $200,000,000 exiting the year and exceeding the $800,000,000 for next. And you kind of referenced the $1,000,000,000 at scale.

Speaker 6

And I just wonder if you could maybe square the rest of that circle. Is that just for business you've won today for fiscal 2026? Or is there more to come? And I guess the second part of the question, my observation is you guys probably have A, more shots on goal for custom silicon and B, each one of the shots on goal could be potentially a very large or larger than expected piece of business given what's happening in the AI trend. But I guess my concern is as you evaluate those opportunities when those programs will be shipping 2, 3, 4 years in advance and trying to figure out how those programs would sort of align with the dominant player in the space's roadmap 2 or 3 years out in the pace of that innovation?

Speaker 6

Like how do you guys evaluate the potential for the size of the business when lots of shots on goal, but the probability of each of those shots on goal being successful might be hard to gauge given how quickly the industry is moving. Hopefully that makes sense. I'm just trying to get an idea of how you're scaling the business and taking on orders given all the volatility and rapid technology advancements in the space. Thanks.

Speaker 2

Yes. Got you, Matt. Okay. Let me just tackle them both. On the first one, yes, super excited about the ramp we're seeing now on the custom silicon programs we won a couple of years back.

Speaker 2

So we're shipping in Q1 on both programs. It's fantastic. We gave some color in the prepared remarks on the exit rate being $200,000,000 plus. I don't want to cap that at this point, but that's but certainly that's sort of the way to think about it is the floor and then we go from there. So that would imply obviously in fiscal 2026 a much larger number than the $800,000,000 we had called out.

Speaker 2

And again, I think it's still dynamic and still early, but we're very excited from the bullish forecast we're seeing from our customers. So $26,000,000 looks very strong from the programs that we've won, and we should be way ahead of the plan that we had articulated a ways back. On the second question, yes, I don't think I've ever seen more design win activity in my career as right now in AI, custom silicon, networking, optics, you name it. This whole transformation that's going on in data center architectures is creating this massive opportunity for Marvell. Specifically on the custom portion of it, I mean, we're talking about a TAM creation that's going to be in the tens of 1,000,000,000 of dollars range.

Speaker 2

And we'll talk more about that at our AI Day, but very significant sort of opportunity that's emerging in front of us. And that being said, I view that it's very complementary to the merchant leader in this space. I think both are have a place given the workloads that are required, given the scale of computing that's needed. And I don't think it's a zero sum game. I've been saying this for a while.

Speaker 2

I think both segments, the merchant side as well as the custom side are going to grow to be very enormous TAMs. And so, yes, we're right in the mix on all the major opportunities and programs. We have assembled an incredible team, an incredible portfolio of technology. We announced today our continued partnership with TSMC with a very full and robust roadmap of IP and technology to specifically address AI and accelerate computing applications for the next generation. So that's got a lot of excitement with the customers as well.

Speaker 2

So, yes, overall, we're very bullish and we think the whole all the boats are going to lift on this one and certainly for Marvell creates a huge new TAM opportunity that we really didn't have just a few years ago. Thanks, Matt. Thank you. Yes.

Operator

The next question will come from Christopher Rolland with Susquehanna. Please go ahead.

Speaker 7

Hey, thanks guys. I guess, first of all, Matt, thanks for giving that the custom ASIC opportunity numbers. Again, I think that means probably means you guys have a pretty strong pipeline. But would love to drill down on that a little bit more. So I guess, first of all, maybe you can talk about these opportunities, training versus inference, how you see that versus perhaps just compute?

Speaker 7

And then what's kind of the do you have a secret sauce that's landing these like your competitor has really used their at the time leading edge, SerDes IP as a driver of those wins. Is there something that you have winning these? Thanks.

Speaker 2

Yes. Thanks, Christy. Great to hear from you. And yes, hopefully some of the custom numbers were helpful. Investors last year and this year was a lot of interest in sort of what the size of that was.

Speaker 2

And now that we've got the visibility, it's great to start articulating where we think that is. I think on your second sort of piece of your question around training versus inference and compute, at this point, I would just put it in a very large bucket of what I'm calling deca billions in TAM creation. I don't know that we're I'm on this call certainly prepared to slice it out. And I don't even think we know where this is going to be in 3 to 5 years relative to that exact split. But I would say the opportunity set for us crosses all of those applications, okay?

Speaker 2

And then relative to where we are in terms of our technology, our competitiveness, I mean, it's pretty astonishing if you think about it. When we won the designs we won, Chris, at 5 nanometer, that was really our first time with as Marvell to compete in this segment, especially in the data center. The origins of this business go back to our purchase of Avera in 2019. We pivoted that roadmap during the pendency of the close and right after from 14 nanometer technology all the way to 5. And even though it was our first time out, Surtees was competitive packaging technology, interconnect, manufacturing scale, strategic partnerships up and down the supply chain.

Speaker 2

And that enabled us to win a significant share of ASICs in business, which is now coming to fruition here in fiscal 2025 and 2026. We followed that up with our 3 nanometer platform, which has now been a big part of the opportunity set and the funnel we're competing in today. We are in a completely different position now relative to 5 nanometer because we had the learnings, we had the readiness. And now we're really leaning in, okay, in terms of being a first mindset around not just nanometers, but die to die interconnect, packaging, 30s technology, optics and really in chiplets and thinking about how to stitch all this together. And on top of that, with the scale of Marvell and our strategic partnerships, we really look to our customers like an incredibly solid, trustworthy, long term partner for their needs to really help them realize their AI silicon ambitions.

Speaker 2

So that's where we are today. I mean, we did great on 5. We're going to do great on 3, but we're and we're going to do great in the future. Thanks.

Speaker 7

Congrats. Thanks, Matt. The

Operator

next question will come from Quinn Bolton with Needham and Company. Please go ahead.

Speaker 5

Hey, guys. I'm going to follow-up on the CloudHouse ASIC question as well. But I guess I'm coming at it from a margin perspective, Matt. You look at some of these programs on the cloud compute side to the extent that they integrate high bandwidth memory. It certainly does nice things to the ASP, but there's also a pretty significant cost that you may have to pass through.

Speaker 5

And so I'm wondering, can you talk about the gross margins on some of these ASIC platforms? How does that compare to the corporate average? And as you ramp, especially if cloud ASICs get to be similar in size to the optics, which I know are good margins, how do you see the margin mix changing with this now very, very strong ramp of cloud ASIC programs? And then I've got a quick follow-up if I can sneak it in.

Speaker 2

Sure. Yes. I mean, on the way we've talked about that business actually since Avera in 2019 is that it would always due to the nature of custom business be at a lower gross margin overall than the company average and the target. At the same time, because of the NRE and non recurring engineering that we receive as part of the customer funding of these programs, the operating margins of this business tend to be very competitive and over time in line with our company targets. When you start talking about these very, very large programs, you've got opportunity given the volume and scale on the OM line to really drive a lot of leverage in the model.

Speaker 2

But the GMs, just

Speaker 4

due to the nature of that business model

Speaker 2

will always be will be a little bit lower than the total. I would say though at the same time because the sort of follow on sometimes is see if that happens and what happens to the overall company gross margin profile. And remember, we still have very strong gross margin merchant businesses in storage and in networking, automotive. Some of those were even under shipping demand right now. So as the year plays out, some of those businesses will come back and that should be a little bit of a margin offset to some of the custom stuff.

Speaker 2

So we're still managing to our long term target model. But yes, the cloud stuff, especially if these volumes certainly allow lower risk margin.

Speaker 5

Great. If you

Speaker 2

got a quick one for the second, we can do it. Otherwise, we got to Yes.

Speaker 5

Quick one on the second. You mentioned sort of ramping AECs at multiple hyperscalers this year. Just wondering if you might be able to give us some sense. Is that meaningful? Any sense on the magnitude of that ramp?

Speaker 2

Yes. I think what I'd say is it's absolutely a real market. We felt that way for some time. Even back when we acquired Inphi, that was sort of shot on goal we thought was possible. I think the big news is that we're qualifying at multiple hyperscalers now.

Speaker 2

We're starting to go into production this year. We'll get a very nice solid kind of more full year ish ramp in fiscal 2026. But it's definitely an incremental additive category to Marvell. And it really leverages our high speed our high performance DSP and PAM technology, which is really now inflecting in this wave of AC. Before it was based on the older modulation techniques, which where we didn't participate.

Speaker 2

So yes, really excited about it, but let's let it play out for a few more quarters. Thanks. Thanks, Matt.

Operator

Your next question will come from Harsh Kumar with Piper Sandler. Please go ahead.

Speaker 8

Yes. Hey, guys. Thanks for letting me ask a question. Matt, so AI is hot. There's no other way to put it.

Speaker 8

You are in kind of a pole position with your optical piece, the old Inphi piece. Can you give us a sense of the magnitude of the size of that business either quarterly or last year? Anything you can throw at us that helps us size it? And also kind of what kind of growth rate you expect to see from this business? And then Matt, when you say the bottom is for some of the pieces like consumer and networking, the bottom will be this 1Q timeframe.

Speaker 8

What piece do you think will come off the bottom in 2Q? Or do you expect all the pieces to come off the bottom in 2Q?

Speaker 2

Okay. Let me do this. I'll take the first one and I'll let Willem take the second one. So I can take a breather and he can also answer your question.

Speaker 4

Yes, on

Speaker 2

the first one, I think we gave some pretty good color. I mean, if you think about it, the Q4 exit rate on AI, right, was well north of $200,000,000 And the bulk of that, as we said, was in optics. So if you just and then you can start extrapolating, well, geez, then you got to add in how much revenue is Marvell getting on standard cloud side in optics and that's another very nice chunk. And then you've got some of the stuff that we have that shows up in the carrier side, which you're talking about Inphi now, on the coherent DSPs, there's some ASICs that we have. So the overall Inphi business, if that's what you're asking since we bought it, has clearly outperformed the deal model and has just become an incredibly strategic asset for us both in terms of just the technology we picked up, but the team, the synergy with the other portfolio, the other product lines we have.

Speaker 2

And so just super positive about that. And it just looks like that whole opportunity is going to be much larger than I think we were in Faiza just a few years back. Willem, do you want to take off take the second part of it?

Speaker 3

Yes. Thanks, Matt. Hey, Harsh. Yes, so we're really working with customers to focus on Q1 being the bottom, really confident that that's the bottom. And then we see growth resuming in the second half across enterprise networking, carrier and consumer.

Speaker 3

So yes, really just trying to make sure that we put this behind us really quickly and see growth in the second half.

Speaker 8

Thank you.

Operator

Your next question will come from Vivek Arya with Bank of America. Please go ahead.

Speaker 4

Thanks for taking my question. I had one more on electro optics. I think near term it seems in Q1 there's probably a little bit of a breather after several strong quarters. But the more important question is that should we assume that your electro optics that is related to AI should grow somewhat proportional to the growth in Accelerators? So for example, if you look at Accelerator growth this year, I've seen various numbers between 50% to 100% kind of year on year growth.

Speaker 4

So should the AI part of your Electro Optics grow kind of commensurate with that or is there something different? And then when does 1.6 to 1.60, sorry, When does that start to play a role in your electro optics business?

Speaker 2

Yes. Thanks Vivek. Well, I think it depends on how you with the definition of breather you use. I mean, basically, it's ramped up just so significantly, right, the electro optics business, Q2 to Q3, Q3 to Q4 and it's staying strong in Q1. Maybe it's a breather from the sequential growth point of view, but we still have not seen that slowdown.

Speaker 2

And then on the let's see, I got your second one your third one was on 1.6 t. Let me come back to your second one in a second. That is going to ramp later this year. That's gone really well, the QUALs and the product bring up. We announced it at OFC last year and a lot of demand and interest.

Speaker 2

And then sorry, your second question on AI?

Speaker 4

Yes. So should your electro optics grow kind of proportionately the growth in Accelerate?

Speaker 2

Yes, yes. Sorry, yes, the Accelerate would yes. So yes, for sure, the way we think about it is the that business year over year should grow in line with accelerator growth, accelerator unit growth. We think it's we view it as very correlated. Obviously, there's some timing issues in terms of supply chain and things like that.

Speaker 2

But that's a simple way to think about it. And everyone's got a little bit of a different model at this point about what that number is. But our view is we're highly correlated to accelerator shipments in our optics business.

Operator

The next question will come from Gary Mobley with Wells Fargo. Please go ahead.

Speaker 9

Hey, guys. Thanks for taking my question. Is a way to think about win or hit rate for your custom basic business when engaging with prospective customers in the future, how should we think about the increasing competitive environment from the ARM ecosystem, ARM specifically with more versions of Neo verse, it's a total design ecosystem, its compete subsystems and as well all the ASIC design community. First of all, how do you feel about ARM essentially becoming more of a competitor? And then as well, how do you think about the way in which you'll compete against that and succeed?

Speaker 9

Thank you.

Speaker 2

Yes. Thanks, Gary. I think look, I think there's a there in this market today, there's obviously a lot of excitement because of the opportunity in front of us. I mean, the way that we were working is there's a number of companies that are our partners, solution providers, etcetera, that may or may have their own offering or not, whether it gets taken up or not is we'll have to see. Where we come together really is we pull it all together.

Speaker 2

We're able to actually deliver with Marvell intellectual property, design methodology and techniques, our IP and our know how, pull together with our customers' RTL and IP and partners the total solution, which means we actually lay the chip out, we package it up, we manufacture it in high volume, we QA it, we test it, we yield it, we drive reliability, we drive cost improvement and we drive it through the cycle. And that is a very piece that goes in. And so ARM has been our partner for a long time. We use them in our products kind of all over the place. And as they evolve and others evolve, we'll figure that out too.

Speaker 2

But in the end, it comes down to, we believe, for these large volume, mission critical big compute silicon chips, it's going to require somebody like a Marvell with the manufacturing scale, the design techniques and know how to really execute it. And so we haven't seen any change there. And in fact, I think at this sort of 3 nanometer node we're at and beyond, it's going to be even more critical to have a partner who's got your back, who can help you get to production quickly and spend derivatives quickly, which is now increasingly looking like what's going to be needed, more SKUs, higher faster beat rate in terms of when products are released and then obviously ramping them very hard and quickly given the competitive environment.

Speaker 9

Thanks, Matt.

Operator

The next question will come from Harlan Sur with JPMorgan. Please go ahead.

Speaker 10

Yes. Good afternoon. Thanks for taking my question. Matt, you mentioned initial shipments of your AI ASIC programs. Can you just clarify, because I know last you updated us, these programs were in qualification.

Speaker 10

So have you guys passed qual on both these programs? And this is sort of the initial start of the full production ramp or maybe you're still in qual, but you've got enough line of sight to passing the qual just given you're at the tail end of this process? And maybe more importantly, have you guys secured the follow on AI programs for these 2 initial projects?

Speaker 2

Yes. Thanks for the question, Harlan. So yes, we are in the initial start of the production ramp on both products. And then as far as the follow ons, like I said, the opportunity funnel we see across all of the various opportunities right now is significant. And we're involved in, we believe, we think every single one of them.

Speaker 2

So yes, and there'll be more to come sort of at our AI day, but I would just say our 3 nanometer funnel and our 3 nanometer hit rate and design win rate is very encouraging. And it really gives us this tremendous confidence in where this business is headed. It also has a side benefit by driving this advanced technology for the custom ASIC side is it's pulling along the technology development that benefits all the other businesses in Marvell, like our high performance switching, our DSPs for optics, etcetera. So there's actually kind of a virtuous cycle happening where being at that bleeding edge is now we're able to show our other solutions that interoperate with this custom silicon, really a best in class roadmap there. But more on the overall strategy and opportunity side of the AI there.

Speaker 2

I'll give you some color to it. That's great. Thank you, Matt.

Speaker 4

Yes.

Operator

The next question will come from Tore Svanberg with Stifel. Please go ahead.

Speaker 11

Yes. Thank you. Matt, I had a question on the 800 gig upgrade cycle. So you mentioned that ramping, but you also mentioned 1.6 terabit ramping later this year. My understanding is that we're still in the early stages of the 800 gig.

Speaker 11

And I'm just wondering if you expect a more broad based 800 gig upgrade cycle before 1.6 really starts to take up or will we potentially see kind of both ramping at the same time?

Speaker 2

Yes. I think there's 3 different pieces we should talk about. So the first is 1.60. I would just call that early shipments, 1st volumes type of thing in the second half, end of the year and then more next year. And that's really, I'd call it the early adoption of that technology.

Speaker 2

But it's very promising because that's obviously what's going to follow. The 800 gig for AI still got tons of legs, right? And it's going to be very, very strong this year, very, very strong next year. And then there'll be some transition over time. And then I think what you're also indicating is at some point, you're going to see an 800 gig transition on traditional cloud infrastructure from either 200 gig to 400 gig to the So I don't I think they're going to end up happening kind of all of them in parallel a little bit, right?

Speaker 2

You're going to have leading edge people adopting 1.6. You're going to have the bulk of the volume on AI still driving 800 gig for the next few years. And then you're going to have a transition on the traditional PAM side as well that's going to upgrade. So I think they're all going to be in production in parallel for different reasons, which is great because it just ends up being multiple customers, multiple SKUs and kind of a rich portfolio of solutions that we're offering so that people can optimize their systems for the best TCO and the best performance that they need. Thanks, Tony.

Speaker 11

Excellent. Thank you.

Operator

We will take our last question today from Srini Pajjari with Raymond James. Please go ahead.

Speaker 12

Thank you. Hi, Matt. Just a follow-up to one of the previous questions, Matt, about the custom silicon opportunity going forward. Obviously, there are 4 big cloud customers, hyperscale customers. And based on what we know so far, most of them seem to be investing in custom silicon, either 1 or 2 chips.

Speaker 12

So it does feel like the number of opportunities are relatively small. Of course, these are very large opportunities. Just curious how you see that evolving? Do you see this continuing with 1 or 2 programs for each customers which are in a multi billion opportunities? Or are you seeing spreading out or kind of more diverse opportunities as we I guess as AI becomes bigger and broader?

Speaker 12

Just want to hear your thoughts on that.

Speaker 2

Yes. So, Sheena, the way I think about it is, if you go back just a couple of years, when AI was emerging, there was kind of one chip, one program that would sort of happen. It would take several years, then you'd gear up for the next one. And there was definitely a serial type of approach and that was probably fine. I think what we've seen to your point is really multiple programs now across all the key customers.

Speaker 2

And that's kind of where I'd leave it. I think getting more specific, I don't really want to do that with respect to my customers, but I would just say what we hear is very much a need for each of them needing their own very differentiated unique solutions, needing more SKUs and at a much more rapid rate by far than we've seen so far. And so I just think it's creating I think I know it's creating just a very significant now opportunity in custom silicon that really wasn't there before in terms of the total dollars that are available, the number of chips and then the speed that they want to go. And that's why earlier I had said, if you look at this kind of 3 nanometer cycle we're in, it's significantly larger than we saw back at 5 nanometer. Even if you account for the fact that some of these 5 nanometer TAMs have gone up a lot because the market went up.

Speaker 2

So even if you sort of factor that in, what we're looking at is a lot more. And I think that's just going to continue for the next few years. But sure, by design, I think any of these high volume data center applications are always going to in any product line, by the way, always concentrate down to a few key partners. That's just the way the business works. But super exciting time.

Speaker 2

There's a lot of activity here. Thanks, Srini.

Speaker 12

Thanks, Matt.

Speaker 2

All right. Was that the last question or the

Operator

Yes, sir.

Speaker 2

Oh, perfect. Yes, thank

Operator

you. Go ahead, sir. Take the floor.

Speaker 2

Excellent. Thanks. All right. So, first, everybody, appreciate the participation in the call today. It's a very exciting time in the semiconductor industry relative to sort of the opportunity that's in front of us.

Speaker 2

We see a huge transformation underway right now with fundamentally a complete overhaul of data centers and data center architectures. And Marvell, we've been on this journey for the last 4 or 5 years to really transition and transform ourselves into a data center company. And as you've seen from our recent results now, that is our largest end market. It's where we're putting the majority of our R and D effort and we're positioning the company to win big here. We chose the strategy years ago to be really levered to the accelerated computing and infrastructure part of the market, which includes and the most prominent piece being AI.

Speaker 2

It's become much larger of an opportunity than we thought a few years ago, but it's a market we clearly chose to invest in. There's we're expecting a lot of growth in the coming year in our data center business. We're very excited about that. And some of these programs, as I indicated, they're just getting started. And some of them are ramping in the second half.

Speaker 2

Some of them are starting to ramp now. But it really gives us a great setup for our fiscal 'twenty six. And kind of final couple of comments, I get a lot of thought about and we did a lot of work with our customers over the break this past December. And early January, I did a fireside chat with Harlan at JPM and there was a lot of excitement after that call because we had gained confidence at that point about some of the production ramps. I would say just a couple of months later now sitting here on this call, our confidence in our growth this year and the robustness of these programs has only gotten stronger and only increased.

Speaker 2

So we're very excited about where the company is positioned. I appreciate everybody's support and interest in Marvell, and I look forward to seeing everybody at the AI Day. Team is working extremely hard and they will not disappoint. So thanks everybody. We'll see you soon.

Speaker 2

Bye.

Operator

Thank you for attending today's presentation. You may now disconnect.

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Earnings Conference Call
Marvell Technology Q4 2024
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