Marvell Technology, Inc. Price & Performance (MRVL)

Well as our most recent 10 ks and 10 Q filings. We do not intend to update our forward looking statements During our call today, we will refer to certain non GAAP financial measures. A reconciliation between our GAAP and non GAAP financial measures is also available in our earnings press release Let me now turn the call over to Matt for his comments on the quarter. Matt?

Thanks, Ashish, and good afternoon, everyone. For the fourth quarter of fiscal twenty twenty five, Marvell delivered record revenue of $1,817,000,000 above the midpoint of guidance, growing 20% sequentially and 27% year over year, Our data center end market was the primary growth driver. Fueled by strong AI demand and execution. In addition, we saw continued demand recovery across our multi market business, including carrier, enterprise, networking, and automotive and industrial. I'm pleased to report that we achieved GAAP profitability in the fourth quarter and Our record non GAAP earnings per share of $0.6 exceeded the midpoint of guidance growing 40% sequentially. This earnings growth rate doubled our top line growth rate underscores the substantial operating leverage in our business model. For the full fiscal year 2025, we delivered $5,770,000,000 in aggregate revenue, with our data center revenue growing 88% year over year We ended the year with our AI revenue substantially above our $1,500,000,000 target from April AI Day, and we also expect to very significantly exceed our $2,500,000,000 target in fiscal twenty twenty six. Our overall revenue growth accelerated in the second half of the year driven by our custom [indiscernible] along with continued strong growth in electro optics, In fiscal twenty twenty five, we also drove a record $1,680,000,000 in operating cash flow significantly increased capital returns to our stockholders through stock repurchases and dividends totaling $933,000,000 in aggregate.

I'm extremely pleased with our fiscal twenty twenty five results and even more excited about our outlook for robust year over year revenue growth in fiscal twenty twenty six. We are poised for a strong start to the New Year, forecasting revenue growth of over 60% year over year in the first quarter at the mid [indiscernible] Let me now discuss our results and expectations for each of our end markets. In our data center end market for the fourth quarter, we we achieved record revenue of 1,370,000,000.00 growing 78% year over year and 24% sequentially. These strong results were driven by our custom AI silicon programs ramping to high volume Additionally, we benefited from strong shipments of our electro optic products and TeraLink Ethernet switches, with revenue from both product lines growing double digits sequentially on a percentage basis. Within our electro optics franchises, we continue to see strong demand for our market leading 800 gig PAM products and our 400 ZR DCI products. We also began shipments of the industry's first 1.6 TPAAM DSP and five nanometer process technology. To further optimize AI interconnect performance, we accelerated the cadence of next generation products by introducing the industry's first three nanometer 1.6 T DSP featuring 200 gig per lane electro This Newmar Marvell DSP enables customers to reduce 1.6 optical module power consumption by more than 20% and we expect to go into production in the second half of this year as 1.6t adoption While tremendous focus remains on GPUs and XPUs, the distributed nature of compute and AI makes connectivity just as critical as the individual processors.

As a result, the design of the next generation of accelerated infrastructure is inexorably tied to how efficiently data can be moved on and off the accelerators and throughout the cluster. This increase in the role of high speed networking and AI data centers is perfectly aligned to our strength as an industry leader. And just like compute, hyperscalers are also customizing networking We are seeing similar momentum for flash based storage, HBM and CXL based DRAM pooling. We'd announced the design win at Meta for a custom NIC at OCP last October and we are seeing hyperscalers more broadly adopt This is evident in our recent design wins, where now include multiple custom NICs as well as a follow on custom CXL memory solution. We are also enabling new inter [indiscernible] and coherent light DSPs for emerging campus wide large scale AI data centers. Earlier this year, we announced Marvell's breakthrough co package op architecture for custom XPUs, enabling customers to integrate optics into future custom accelerators. First demonstrated at OFC twenty twenty four, the heart of Marvell's CPO platform is our 6.4T three d silicon photonics engine.

It integrates hundreds of active and passive components in a single unified device and builds on multiple generations of silicon photonics innovations that we have been shipping in high volume in our DCI modules for several years. Op package optics can enable an increase in the size and scale of AI servers We expect this transition from copper to optical interconnects will significantly expand Marvell's interconnect revenue and market opportunities. We are engaged with customers to evaluate this advanced technology and we anticipate a multiyear period of trial system development ahead of wide scale industry adoption for CPO.

Let me now turn to our current custom silicon programs. Marvell has successfully ramp highly complex 100,000,000,000 plus transistor XPUs and CPUs from initial samples to high volume production on first pass silicon. Our custom business continues to gain momentum as customers increasingly rely on Marvell to help them achieve their custom silicon ambitions, As I mentioned, our two leading AI custom programs are on high volume production We expect growth to continue. One of these is a custom ARM CPU, which we expect we'll see expanding adoption at our customers' data centers. The second program is for a custom AIXPU, which is also performing extremely well with significant volume production ahead.

In parallel, we are fully engaged with this customer on the follow on generation of this XPU and planning for a production ramp once it completes its sampling and qualification cycles. As a result, we expect our revenue from custom XPUs for this customer to not only grow this year, but continue to grow next year fiscal twenty twenty seven and beyond. Additionally, we are making tremendous progress with the new design win announced at our AI Day in April 2024 for custom AI XPU with an additional U. S. Hyperscale. Our Vellis engineering team in close partnership with the customer has successfully completed a number of key technical milestones during the joint development process. As a result, we believe we are well on track to meet our customers' desired schedule to start production in calendar 2026. Engagement is also multi generational we expect it to result in a very significant amount of incremental revenue for Marvell over the next several years. I'm very pleased with our custom revenue achievement for fiscal twenty twenty five driven by multiple program ramps. This success coupled with strong progress on upcoming custom programs gives us even greater confidence in our ability to achieve our long term market share targets for custom revenue.

We are continuing to invest in all app aspects of our technology platform, including advanced process nodes, electrical and optical certies, high speed die to die interconnects, embedded memory, custom HBM, 2.5D and three d packaging and silicon photonics. This week, we announced the demonstration of the industry's first two nanometer silicon IP for next generation AI and cloud infrastructure. Produced on TSMC's two nanometer process, this working silicon is a critical part of the Marvell class CPUs, switches and other technology critical for next generation accelerated workloads. Now let me turn to our outlook for our data center end market for the first quarter of this We forecast that the cloud and AI portion of this end market will continue to drive sequential double digit revenue growth. The on premise portion of our data center end market we expect the seasonal sequential decline in revenue to partially offset growth from cloud and AI. As a result, we expect our overall data center revenue to grow sequentially in the mid single digits on a percentage basis. Now let me turn to Marvell's Marvell In the fourth quarter, enterprise networking revenue was $171,000,000 Carrier Infrastructure revenue totaled $106,000,000 In the fourth quarter, we saw continued recovery in both of these end Marvell, revenue collectively growing 18% sequentially.

Looking ahead to the first quarter of fiscal twenty twenty six, we expect aggregate revenue from enterprise networking and carrier We are pleased with the continued recovery in these two end markets although this forecast still anticipates Marvell products shipping below end market consumption. In the consumer end market, revenue in the fourth quarter was 89,000,000 declining 8% sequentially. For the first quarter of fiscal twenty twenty six, consistent with our prior comments, expect seasonality in gaming demand to drive a sequential decline in revenue from our consumer end market of approximately 35%.

For the next several years, we be approximately $300,000,000 on an annual basis. Turning to our automotive and industrial end market. Fourth quarter revenue was $86,000,000 growing 3% sequentially Looking ahead to the first quarter of fiscal twenty twenty six, we anticipate continued sequential growth in the automotive end market. However, we expect this to be more than offset by a decline in revenue from our industrial end market where order patterns can be lumpy in any given quarter. As a result, we project our overall revenue from the auto and industrial end market to decline sequentially in the high single digits on a percentage basis. In summary, we drove tremendous revenue growth throughout fiscal twenty twenty five. Significantly scaling the company from an annualized revenue run rate of $4,600,000,000 in the first quarter to over $7,200,000,000 by the fourth quarter. Building on this expanded base, we anticipate strong year over year revenue growth in fiscal twenty twenty six. Our AI driven data center end market is expected to remain a key contributor further supported by the ongoing recovery in our multi market businesses. Marvell's Marvell center and market accounted for 75% of consolidated revenue in the fourth quarter. Reflecting this rapid transformation during fiscal twenty twenty five we purposely redirected our investments towards data center relative to our other end markets to fully capitalize on the massive opportunity created by AI.

We recently evolved our organizational structure to fully enable this strategic transformation. All products focused on hyperscale customers are now managed by a single cloud data center group led by Raghav Hussain. Our President of Products and Technologies. We have merged the rest of our end markets into a single multi market business group led by Chris Koopman's our Chief Operating Officer. Arbell has solidified its position as a leading provider of data infrastructure semiconductors with a unique business model spanning full custom to full merchant solutions. We are seeing strong investment in accelerated infrastructure from both established hyperscalers and the number of well funded new market entrants as they race to build million XPU training clusters. These customers are highly incentivized to increasingly use custom infrastructure to augment their merchant solutions. Recent developments in the AI market such as the advent of reasoning models Marvell also expected to continue to driving strong demand for compute, networking and storage semiconductors. As a result, we remain very optimistic about our both our short and long term growth prospects and our role in enabling accelerated infrastructure. We look forward to updating investors on our business model and the significant opportunities ahead of us at our Investor Day on June 10 in New York.

With that, I'll turn the call over to Willem for more detail on our recent results and outlook.

Thanks, Matt, and good afternoon, everyone. Let me start by summarizing our full fiscal year results. In fiscal twenty twenty five, Marvell delivered $5,767,000,000 in revenue, with strong 37% growth in second half revenue compared to the first half. This growth was primarily driven by our AI programs in the data center end market as well as continuing recovery in our other end Marvell. For the full year on a GAAP basis, our gross margin was 41.3%, Operating margin was negative 12.5% and loss per diluted share was $1.02 On a non GAAP basis, our gross margin was 61% Operating margin was 28.9% and earnings per diluted share was $1.57 We delivered over 1,000 basis point improvement in our non GAAP operating through fiscal twenty twenty five. From 23.3% in the first quarter to 33.7% in the fourth quarter. We also drove a record $1,680,000,000 in operating cash flow and significantly increased capital returns to our stockholders. Returning $933,000,000 through dividends and buybacks. Moving on to our financial results for the fourth quarter of fiscal twenty twenty five. Revenue in the fourth quarter was $1,817,000,000 exceeding the midpoint of our guidance growing 27% year over year and 20% sequentially. Data center was our largest end market contributing 75% of total revenue.

GAAP gross margin was 50.5% Non GAAP gross margin was 60.1%.

Moving on to operating expenses. GAAP operating expenses were $682,000,000 including stock based compensation, amortization of acquired intangible assets, restructuring costs and acquisition related costs. Non GAAP operating expenses came in at $479,000,000 in line with our guidance. Our GAAP operating margin was 12.9% while non GAAP operating margin was 33.7% For the fourth quarter, GAAP earnings per diluted share was $0.23 Non GAAP income per diluted share was $0.6 reflecting sequential growth of 40% which is double the pace of revenue growth demonstrating the significant operating leverage in our model. Now turning to our cash flow and balance sheet. Cash flow from operations in the fourth quarter was $514,000,000 Our inventory at the end of the fourth quarter was 1,030,000,000.00 an increase of 170,000,000 from the prior quarter. To support the strong growth we are experiencing in our business. Our DSO was fifty one days, decreasing by nine days We returned $52,000,000 to shareholders through cash dividends In addition, we repurchased $200,000,000 of our stock during the fourth quarter. Our total debt was $4,060,000,000 dollars with a gross debt to EBITDA ratio of 2.06 times and a net debt to EBITDA ratio of 1.58 times. We have seen continuous improvement in our debt ratios as we have driven an increase in our EBITDA through fiscal twenty twenty five.

We were pleased to receive an upgrade to our investment grade credit rating from Fitch in January citing their positive outlook on mobile, strong operating momentum from robust data center demand structurally improved leverage metrics, strong market position and strengthened cash flow profile As of the end of the fourth fiscal quarter, our cash and cash equivalents were $948,000,000 increasing by $80,000,000 from the prior quarter. [indiscernible] Turning to our guidance for the first quarter of fiscal twenty twenty six. Are forecasting revenue to be in the range of 1,875,000,000.000 plus or minus 5% We expect our GAAP gross margin to be approximately 50.5%. We expect our non GAAP gross margin to be approximately 60%. Looking forward, we anticipate that the overall level of revenue and product mix will remain key determinants of our gross margin in any given quarter. For the first quarter, we project our GAAP operating expenses to be approximately $712,000,000 We anticipate our non GAAP operating expenses to be approximately $4.00 9,000,000,000 a modest increase of approximately 2% from the prior quarter It is worth noting that this step up in OpEx is lower than what we would normally expect due to the typical seasonality in payroll taxes and employee salary merit increases in the first quarter.

This is because we expect more leverage from our custom model and expect higher NRE in the first quarter on a sequential basis. As a reminder, NRE is treated as contra OpEx. For the first quarter, we expect other income expense, including interest on our debt to be approximately $43,000,000 We expect a non GAAP tax rate of 10% for the first quarter. We expect our basic weighted average shares outstanding to be $867,000,000 and our diluted weighted average shares outstanding to be $818,000,000. Dollars We anticipate GAAP earnings per diluted share in the range of $0.14 to $0.24 We expect non GAAP earnings per diluted share in the range of $0.56 to $0.66 I am very pleased with Marvell's execution on all our key financial metrics throughout fiscal twenty twenty five. As we enter fiscal twenty twenty six, we intend to continue driving strong operating leverage and expect to make significant progress towards our long term non GAAP operating margin target of 38% to 40%. We will also remain focused on generating strong cash flow and returning capital to our stockholders. I'm very excited about our future prospects and look forward to strong year over year revenue growth in fiscal twenty twenty six.

With that, we are ready to start our Q and A session. Operator, please open the line and announce Q and A instructions. Thank you.

If you have additional questions, assemble our roaster. Your first question comes from Ross Seymore with Deutsche Bank. Your line is now open.

Hey, guys. Thanks for it. May I ask your question? I want to go back to the comments you had in your strip about the confidence in growing with your lead XPU customer, not only this year, but next year. There's as I'm sure you appreciate a ton of debate about a competitor taking sockets, etcetera, Marvell share. How would you suggest we reconcile your confidence and their confidence simultaneously? It doesn't seem like both sides would be correct.

Yes. Hey, Ross. Thanks for the question. And And I very much understand the debate that's out there and I appreciate a lot the significant interest from the analyst community and our me try to be as helpful as I can given the constraints we've got around customer confidentiality and their concerns about their own programs and their confidentiality. Okay. So So we're very pleased with the ramp of our current lead XPU program. We delivered this [indiscernible] We see significant volume production on the current generation in front of us and you can already see the ramp in our numbers from starting in Q4. In parallel, we have been deeply engaged on the next generation of this AIXPU with this customer. I said this in my prepared remarks, but I'll just go over it again. And we're planning for a production ramp once it completes its sampling and qualification cycles. So to be crystal clear, we do expect revenue from these custom XPUs with this customer not only to grow in fiscal twenty twenty six, which is the year end, but to grow in fiscal twenty twenty seven, and beyond. And I just want to also note that I'm not including revenue here that would be from other products that such as networking or connectivity, That would be incremental.

To custom and certainly we've got a great setup. I think overall with this account relative to the opportunity set, but it's really on both. And then with respect to the question that our customer may be working with someone other than Marvell Marvell, [indiscernible] a next generation, next PU. It's just something we can't comment on. What I can comment on is visibility for the products that we will be building for the customer, And as I said, this extends to the next generation of our current AI XPU program. Thank you. [indiscernible] Your next question comes from Vivek Arya with Bank of America.

Your line is now open.

Thank you for taking my question. Matt, just one clarification, if you could help quantify the mix between AI and non AI. In your data center for Q4 and Q1? Is it like two thirds, one third? So any quantification there would be helpful. Then a little more genetic question, which is that when we look at Q4 and Q1 data center and AI, they Marvell very strong on an year on year basis, but the extent of the beats is somewhat modest. When we contrast that with a very strong spending at your largest customer. So any commentary there would be very helpful. Is it a supply issue? Is it just early days?

Of the ramp. So any commentary there would be helpful. [indiscernible] Thanks Vivek. Maybe I'll answer the second part first just on the overall setup. If you look at it, we've seen very strong growth the last few quarters. I think really really actually above overall market. I think we were up data center revenues 25% sequentially Q2 to Q3, 25% Q3 to Q4, As I said in the prepared remarks, our AI and cloud revenue is that portion of the data center business is up double digits. From Q4 to Q1. So these are all sequential numbers by the way. Of course on the year on years, if you look at Q4, we're like up 77% or something in data And I think Q1 were pretty similar. So we're very pleased with the trajectory of this business in terms of just the sequential and year over year growth rates. I think it's That's tracking really well. On the AI side, and how we think about it is, and I'll just give you kind of a maybe a flash point just just as we sort of exit the year, but a good overall proxy. So today AI is more than It is more than half the revenue.

So it's now the majority it's crossed over And I think as we go forward, that's going to just continue to increase. And so because overall Marvell is now 75% of our revenue kind of plus going forward in data center that's going to end up being a really good proxy Underneath that about half of that is If you just look at overall data center now, just to provide a little more color, about half of that is in electro optics and custom now. Has grown to about 25%. About a quarter, a little bit more of the of the data center revenue and then the balance is made up of everything else. So again, it's a nice trajectory here. We've got AI that sort of outgrown the total. It's the majority driving the business. Data centers now significant total portion of overall Marvell. And then the mix continues to grow nicely with custom really ramping. So hopefully some of those data points are helpful, but we're very pleased overall with the trajectory of the business. Thanks, Matt. [indiscernible] Can we get the next question, please? [indiscernible] I'm checking Folks, please hold while we get the operator back online.

Your next question comes from the line of Timothy Arcuri from UBS. Your line is now open.

Thanks a lot. Matt, I wanted to clarify You said more than half is AI, which I get of data center. And then you said half of data center is optics. Did you mean half of AI's optics so that the AI breakdown is basically roughly half is OpEx and then then half is custom ASIC. Is that What you meant? [indiscernible] for the clarification. To be precise, it's overall data center of those numbers I gave you.

Okay. And then you had guided AI to $2,500,000,000 this year. I think you said you used the word very [indiscernible] What does that mean? I guess most of the sell side is thinking like $3,500,000,000 So that certainly would qualify as very significantly. But is that what you mean when you say very significantly by like a $1,000,000,000 is that the type of thing that would qualify as that? Thanks.

Yes, Tim. Thanks for the question. Yes, we're definitely leaving this year open ended in terms of what we can go do. Last year, we had talked about $1,500,000,000 We blew through that. This year, again, we anticipate being substantially above that. I'm not putting a number on it just yet. I think that there's a lot to go here. Terms of the momentum in the business and the opportunity set in front of us. And so we're right now we're kind of keying off the last update we did, which was in the [indiscernible] the AI Day from last year and then we'll find the right appropriate time in the future. But right now we're trending extremely well. You can really start to see it in the numbers. As I mentioned earlier, at some point, this data center revenue is now 75% of Marvell Marvell. Where and I gave you the AI percent, so you can start using that as I think a really good proxy for where things are going.

Okay, Matt. Thanks.

Yeah.

Your next question comes from the line of Harsh Kumar from Piper Sandler. Your line is now open.

Yes. Hi. Thanks for allowing me ask question. Matt, I think you mentioned that you have three kind of customer specific customers for you. I wanted to talk about wanted some color on the stickiness of these customers.

Kind of what are some of the triggers that might cause some of these customers to go look for another design partner? Is it price? Or is it just 100% performance if you can produce and start looking And what is the second part of the question is, what is the possibility of you being able to attach a networking products to some of these custom ASICs?

Players? Or if you do, could you just help us understand what's being attached today?

Yes.

Thanks for the question. I think the first is that we actually have custom engagements with all four of the major hyperscalers and then then two of them in compute with a with a third coming just to clarify. And these look, these are very complex chips.

And our view is consistent with sort of what we've been saying, which is When you look at the TAM that's out there, which is I mean we sized back in April of last year at for Marvella like the $75,000,000,000 Marvell center TAM, which is probably if anything just gotten stronger and a big portion of that coming from custom The reality is the service that the customer base is really looking for partners with a couple of key attributes. The first is technology leadership and technology investment and IP and we just announced as example just a couple of days ago our working two nanometer platform we've got a very competitive offering on custom HBM, die to die, advanced packaging. So So that's part of it. The second is to have the the manufacturing scale, the ability to go drive the right design methodology in terms of first pass silicon success be able to actually ramp these highly complex upwards of 100,000,000,000 transistor type of chips into production And they're also looking for partners that have the relationships with their suppliers like at Marvell Marvell an example. We've invested heavily in in the supply chain. And then finally, partners that are flexible in their business model that can Look at different approaches to different shifts all the way from traditional ASIC services to to full blown build the spec type of solutions and we provide all those.

So in the end, those are the types of different things. And when you sort of add all that up, there's really our view still is that it's ourselves and one other very large competitor of ours that can service that market. So these sockets are very sticky. At the same time, Each generation, you've got to go bid and you've got to go compete. But we've been very successful since we started winning these big custom silicon programs back in 2021 getting awarded those and now taking those into production and then looking at the next generation we're very comfortable with where we stand. So there is a high degree of stickiness, there's a high barrier to entry, but at the same time, you got to win them each time.

And then the final thing I'd say is just from a design opportunity perspective, that pipeline just continues to expand and within that we continue to close very significant designs as recently even as our fourth quarter So those are the dynamics we still see. And it's competitive and everybody is in a race. But we feel like we're in the best position we've ever been in quite frankly relative to the technology, the platform, and our ability to go really drive in a very, very focused manner the execution around what would I think is the biggest opportunity I've seen in a very long time in the semiconductor Thanks, Matt. And then for my follow-up, I was curious if you could expand on your comment around you said, I think growth in data center cloud plus AI will be double digit, on prem will be down, Can you help us think about what you mean by that? What is double digit? Is it teens or higher than that?

Just because investors are super sensitive to growth rate in your cloud and AI business?

Yes. I mean, we're getting a little more precise and certainly this is the guide, but double digits is double digits and it's not it's not 20% or something. I mean, it's above 10% and that's the way you should think about it. And clearly, we'll see where the quarter lands, but that's what we're seeing at the moment. You also asked me about attaching networking, so I just want to cover that real quick and we'll go to next question. That has proven to be extremely sticky obviously and that is probably the other leg that goes hand in hand with the custom designs is that is that I said some of this in my prepared remarks, but the the value of the solution now is really moved just beyond who can do the best sort of individual compute piece of silicon. I mean if that's critical and you've got to have the right sort of performance and you've got to take advantage of Moore's Law and all those things. But the way to get ultimately outsized performance in the solution is you've got to couple that with the networking and the connectivity. And I think the IO from scale up to scale out to all the various different interconnect type of solutions we have is proving to be a very compelling reason for customers to use us because we can co architect those together and we actually get with the With the compute custom silicon opportunities And when we do that, by the way, and especially when we engage on something like an accelerator or CPU, we get very early information and perspective on the customer architecture.

Again, not just the piece of compute, but then all the IO that's required and then we drive our solutions around that. So this is all by design in terms of how we formulated our technology platform approach. [indiscernible] is a much more compelling value prop for our customers versus maybe competitors of ours that only have one of those pieces. Very helpful, Matt. Thank you, CapEx. Your next question comes from the line of Aaron Bakers from Wells Fargo.

Line is now open.

Yes. Thanks for taking the question. I'm going to stick with the AI question as well. Matt, you had mentioned that you had four customers in the hyperscaler journey you engaged and you mentioned two in compute and the third one coming.

The fourth, I just want to be clear, is that also compute opportunity or is that referring to the NIC custom NIC opportunity that you're currently engaged in? And then also in that same narrative, how do you think about the custom logic opportunity around HBM4 and the timing of when that might be impactful for Marvell Marvell?

Yes. Thanks, Aaron, and great two questions. So, yes, on the first one, I think you I think you got it right. You actually nailed it. So that and that opportunity set bigger than just that product as an example, but but yes, the fourth customer, we had we're in production and we publicly announced with a custom Nick in that area. And then on custom HBM, yes, that continues to be actually a a critical IP for us and I think a critical part of what we see customer roadmaps aligning around And so we're very engaged right now both with the key memory partners of ours, who we work with jointly with our hyperscale customers and the benefits are quite significant that we're able to propose and each front area reduction, on the logic die, the ability for our customers significantly more compute packed into that die and then also improving the throughput between the HBM and the compute and then actually being able to have a higher density memory solution wrapped around our customers' compute die. So all those are still very valid and I think that's going to be a significant sort of industry trend that we're going to see in the next generation of these, high end accelerator products.

Thanks.

Thanks.

Your next question comes from the line of Tom O'Malley from Barclays. Your line is now open.

Hey, guys. Thanks for taking the So I kind of wanted to pivot a little bit to the technology side. So Matt in the script you talked about increasingly optical connections taking over areas where electrical connections were today. So I kind of wanted to get your opinion, like when you look at the world of just optics in general and particularly co pack optics. Do you see that at first happening inside of the rack? Or do you see that happening in the aggregation layer? And then what does that mean for your DSP business? Like obviously your share of the optical world is a little bit different than your share of the switching world.

I just would love your commentary on where you see kind of co package optics coming first and then kind of as it relates to your product set where you feel like you have some strength?

Yes, great. Thanks, Tom. So yes, maybe some perspective. So I think the first is in in the history of CPO, I think this is really prior to this C type change in the last few years of of the growth in accelerated computing The holy grail that's been out there for a decade plus, maybe close to twenty years is that the aggregation layer or the scale out was ultimately could go to CPO. There's been a lot of POCs in this area. There's been a lot of different efforts in the industry. I mean, I OSC Last year, and that's kind of where a lot of the air really did come out of the balloon. I think I think not just from us, but our big cloud customers sort of have said that's a very long term type of opportunity. And that's been our view too by the way that it's something that we're paying attention to. We've got some investment there. But what's really happened in the last and by the way, same thing sort of happened with LPO which was linear optics. 2023, there was a ton of noise on topic that that would be able to replace DSP based pluggables.

That has not happened But what's emerged as I mentioned in my prepared remarks, is that in the scale up and the connectivity in the rack in between accelerators and inside the cluster, that's where there's a lot of opportunity to go active and accelerated in terms of the connectivity and to go optical from passive. And that could be accomplished a couple of different ways and co package optics is a very interesting and compelling way to do that. We demoed our 6.4 T product a year ago at OFC. We're definitely investing in this area. And we have a lot of traction here relative to us presenting that as a solution as part of our ASIC platform, And then also with LPO, same thing. I think that may find a home in some of these connection points again within the rack, But these will be important applications, especially in closed systems. There's a lot of technology that needs to get developed and a lot of work to do. But we're very much investing here and we will be in this business to compete with best in class technology. The question is when does it want to get adopted?

What is the qualification process? What are all the manufacturing and yield issues we're going to have to deal with? So it's complex Tom, but this is not something that we're backing off of. In fact, we think it's a critical part of our long term technology investment to not only have best in class DSPs and pluggables, best in class AECs as an example, retimers, a whole suite of connectivity solutions, but also investing in the next generation where we can enable significant breakthroughs in power and performance We just have to balance those off with the reality of this is very complex new and not traditional sort of basic CMOS technology these are more complex.

So, you'll see more from us at OFC on this and certainly this is an area to watch but we think it's going to take some time for it to finally work its way through industry wide into real high volume production. [indiscernible] Super helpful. And then just on the near term, obviously, on the optical side, it sounds like things are are better there. But there's been noise as there is about many things these days in relation to AI about potentially some headwinds in terms of inventory at 800 gig or the pricing dynamic as you move to 1.6 gig. Could you maybe comment on the health of both of those nodes and kind of what you're seeing in terms of the growth trajectory for the 800 gig world this year and just the health of pricing etcetera, just because there's a lot of noise there? Thank you, Matt.

Yes. No, we feel really good. Optics has been very, very strong for us. We saw a big uptick the second half of last year in terms of orders. We've been fulfilling those.

We see demand very strong this year, particularly in 800 gig.

Very healthy demand. We do see one point 1.6 T transition happening, but quite frankly, 800 gig continues to be the workhorse and we'll be ready to support both our five nanometer 1.6 T device but we're very excited about our three nanometer product that's getting a lot of great traction because of the power savings. I mean, it's 20% per link. So it really adds up when you talk about the massive scale and the number of interconnect points in these these massive clusters that are being built. So all that looks very positive, Tom. And of course, there's always noise in the system. This is a very hot area. I'm saying AI overall but from a Marvell perspective, Sharon Marvell, we see, we see very healthy strong demand continuing.

Your next question comes from the line of Harlan Sur from JPMorgan. Your line is now open.

Hey, good afternoon guys. Thanks for taking my question. Great to see that you captured the follow on AI XPU program after your current XPU program, which is ramping now with your major cloud and hyperscale customer?

Matt, just to clarify, so is the new follow on XTU program a training XPU as well? Is that a calendar '26 ramp?

And is that at five nanometer or three nanometer? Any Any more color there would be helpful. And then for Willem, your inventories were up 20% sequentially, which in a strong demand and product cycle environment like typically implies strong future growth, but you compare that to the 3% sequential total revenue guide for April, there seems to be some disconnect. So is the way to interpret this is that the 20% sequential growth in inventories is more reflective of the AI strong growth profile ahead for the team?

Yes, I'll start off I'll start off Harlan. So yes, so a couple of things. So again, given the confidentiality wrapper we've got, here we go. The first is you should assume this is It's a very high volume program. And it's a continuation of what we're doing And you should assume just on just in general on every next generation type of device you're going to see no transitions in technology advancements as you go forward, so you should assume that. And then also on a timing perspective, All I can say there is we'll be ready Ready to ramp when it's time and we'll manage that transition We're very confident in our ability to manage that transition successfully. With our customer, but that timing is something that We're just going to have to see when when that's ready and we'll time it around that. And I can't really comment on what my plans are in this kind of detail. They just They just don't like it, and I don't blame them.

And I'll give I'll let Willem take the inventory question. Thanks.

Yes.

Thank you.

Hey, Holler.

On inventory, that's really in support of continuing growth in our custom programs that we see over this year as well as very strong growth on the optics side. It's really those two dynamic driving inventory. But if you look at it on a day's, it's actually flat quarter over quarter.

Got it. [indiscernible] Your next question comes from the line of Marvell Lipasas from Evercore ISI.

Your line is now open.

Great. Thanks for taking the question. Matt, I think there's always a concern in the market around this risk of a deceleration in spending or maybe even a digestion period and you seem to express confidence in the visibility as you go through this year.

And I wonder if you can help us understand the TELUS that you look for on your dashboard that tell you that there's this risk of a digestion period? And I think maybe as part of that, I guess, I've always thought of Marvell as like a COMIC company. Now you just have this processor business that's that's really ramping. And I wonder if you if you kind of try to deconstruct that risk assessment, you think about those two businesses differently Yes, okay. Yes, I'll break it into the into the two pieces. So So we do a lot of triangulation Marvell, as a company relative to how we forecast our data center business in particular, And so we do take a lot of the top down data into account in terms of CapEx trends and things like that. But ultimately, we're so joined at the hip because of these key the key nature of these programs and ultimately our products and especially where they're just completely sole source being a potential gate for our customers We've been we plan our supply chains very carefully together. And I think you can see the evidence of that over the last two years as we ramped with sort of the advent of Chat GPT, it's amazing to think of where we were.

If I actually go back to this call two years ago and the big breakthrough was we were saying we were going to do $200,000,000 in AI revenue in calendar twenty twenty three and $400,000,000 in '24. And now we just finished '24 and we're talking about blowing through $1,500,000,000 and doing $2,500,000,000 plus. So just just as a quick side note, it's just kind of remarkable, but we scaled right along with our customers and generally continue to sort of exceed expectations and be able to ramp with what they need. So when we look to the rest of the year and even quite frankly on a multiyear view, it's a very strong outlook and some of that is our own our own specific things because we have new programs, let's say in the custom area that are ramping that are incremental. We also have we just have additional sockets. We have customers transitioning from a technology perspective, let's say, an interconnect. We have a lot of positive tailwinds. Now we're monitoring and certainly the supply chain It needs constant review, But at the moment, again, we see a very strong setup for strong growth in our fiscal twenty twenty six.

And our fiscal twenty twenty seven driven by both custom programs ramping as well as continued growth and strength in connectivity and in higher layer networking and in things like storage coming back. So all these look like a positive setup. At the moment.

Great. Thank you. Very helpful. [indiscernible] Your next question comes from the line of Ben Rises from Melius Research.

Your line is now open.

Hey, guys. Thanks for the question and thanks for the intermission there in the middle. That was a nice break. Question that I have is with regard to sequential growth, Matt. And then a long term question. Did you clarify that AI revenue could grow sequentially through the year? And when Tim asked his question earlier and if so what's your confidence and then If you could just kind of step back also, Matt, a lot of noise due to the speculation around that customer and content there. But when you step back, you have a goal of $15,000,000,000 for the data center long term. By calendar year '28. Are you seeing the progress in your custom business still to hit that number? Because nobody on the street is even close to that? Thanks.

Yes, Ben. Thanks for the questions. So on the assumptions through the year, yes, I didn't I think what I said was in Q1, our data center business ex the on prem stuff was going to be up double digits coming off of overall data center like 25% a quarter sequentially. So I didn't comment throughout the whole year, but you should just you should just assume it's not a bad assumption, right? Or would be a fair assumption to think that it's obviously going to continue given the strength in the business and the momentum that we're seeing. Just from what we're looking at from a year over year perspective, On the long term, I think we're tracking extremely well to our to our 20% market share number When we look back to calendar 2023 and then 2024 and 2025 and you start bouncing it up against what we said at the AI Day I think it looks very favorable. We're definitely gaining share from '23 to '24 and we'll definitely gain more share from '24 to '25 And so so to get to that revenue target, you got to get there both ways. You got to grow the share right, from kind of 10%, let's call it to 20%.

And then the Marvell got to develop. Right, obviously. You got to get to the the sort of $75,000,000,000 TAM, but both of those are trending in a very positive direction. In fact, certainly in 2024, and even in 'twenty five, it's just kind of big round numbers. It looks like both the market and our growth, if you just bounce it up against sort of what's the compounded growth rate you needed from 23% to 28%, it's actually growing above that right now. So So now we're in ramp phase, but that's going to continue. So I think we're in very good shape in terms of where we're tracking from a market share perspective. And certainly, if the market by the way is bigger. I mean remember, we gave that point of view in April of last year. And the world has changed then since then in terms of the absolute CapEx, that's being deployed Certainly, even in recent months, all of the various programs from all the different key players and the potential of what's out there sovereign programs, government programs, programs from new entrants. So we just see this we just see quite frankly the TAM and the opportunity for Marvell if anything being way larger than it was when we looked at it almost a year ago, So all those make me feel very good about the market size developing then certainly our progression on the market share.

And you're right, that would be it'd be an absolute home run to get there and that's what me and my team are absolutely driving in this company day in and day out.

It's drive the market share, and help create the market, help make the TAM happen and execute like crazy and do it in a very focused manner, which is also why we reorganize the company with a dedicated data center engineering and business group to drive it. So I think the setup is really good.

Thanks. Thanks, Matt.

Your last question comes from the line of Christopher Rolland from Susquehanna. Line is now open.

Hey, thanks for squeezing me in.

And some of this was addressed, but scale up, you guys have a lot of opportunities here. Some of this could be optical, some of it could be co pack packaged, some of it could be active copper. I think you might even have some like UAL or NVLink like alternatives.

DSP throughout the system, I guess as we see changes in architecture, either GPU or XPU, where do you think your biggest opportunities are? And when might we see some of these wins? Thanks, Matt. Yes. Excellent, Chris. Great, great question. And the session. So first of all, you've done your homework. And I think the key message is we are planning on participating and enabling All of the things you mentioned we have programs underway and developments in all those different areas.

The key thing I want to stress to you and to the investors on the call is this is incremental TAM. The scale up opportunity, we flagged it a few different times as right for sort of a TAM expansion and it looks like that's what's what's going to play out at some point here. So that is all incremental. That's not, hey, if that happens and all of a sudden Marvell's DSP revenue goes down or something. Like then the scale up and this type of connectivity that is a revenue upside, market upside type of opportunity. So that one I think is we're very excited about. And I think you're going to hear a lot more about that from us certainly at things like OFC and our Investor Day and so forth. But But yes, big opportunity there. No question.

Thanks, guys. [indiscernible] Let me now turn the call over to Mr. Murphy for closing comments.

Yes. Thank you, operator. And first of all, I appreciate everybody joining the call. I apologize for the gap there. Hope everybody enjoyed a quick coffee break and we'll certainly figure out what happened. But appreciate the interest in the company. I want to thank Thank everybody for their interest and just kind of reflect on a few things.

I think the first is we had really strong progress in fiscal 'twenty five. We started off at a $4,000,000,000 ish $4.24300000000.0 type of run rate in the first half.

We're now at the 1875 kind of guide well above $7,500,000,000 run rate So that's I think really strong trajectory for the company. Heading into the year and a big change We're also getting leverage in the model. And the operating leverage, cash flow generation, operating margin expansion And you can even see it in things like our Q4 to Q1 OpEx, which normally would go up Willam said, more than we're forecasting, but we're starting to see the benefit of these custom silicon programs kicking in and the NRE contribution and so we're seeing it both on the top line revenue growth, but also on the expense line as well. And that is a great setup We were GAAP profitable as well in Q4, which was great.

We're going to keep driving that. It wasn't just AI. Our standard cloud infrastructure side of things and data center also had a very strong year. The programs that we maybe there was some concern about going back a year ago, can you ramp?

These products are going to get qualified. What's going to happen? I think our team and I want to thank the Marvell team to an excellent job of ramping these very complex devices into full volume production supporting our customers Tom had a question about electro optics. We had a banner year for our electro optics business and it looks very strong heading into next year. Also the multi market businesses that we a source of concern over the past year, the enterprise and carrier and things like that. You're seeing very strong sequential growth now sequential growth out of those businesses as they recover. And they sort of trend back towards their enterprise and carrier, their $2,000,000,000 run rate. And look, we had a beaten raise. We're guiding revenue and earnings growth to continue in the first quarter. Customer engagement is really strong, as I mentioned, very strong design wins in the last year, great execution by our sales team and business units.

To win those key designs that are going to drive our future growth And we're very optimistic about where this head. So I appreciate everybody's interest. Look forward to seeing all of you in various investor meetings coming up and and continue the discussion. Thanks everybody. I appreciate it.

Ladies and gentlemen, this concludes today's conference call. You for your participation. You may now disconnect.