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spk04: Good afternoon and welcome to the Marvel Technologies Physical First Quarter 2022 Earnings Conference Call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. Please note that this event is being recorded. I would now like to turn the conference over to Mr. Ashish Saran, Vice President of Investor Relations. Please go ahead, sir.
spk15: Thank you and good afternoon, everyone. Welcome to Marvell's first quarter fiscal year 2022 earnings poll. Joining me today are Matt Murphy, Marvell's president and CEO, and Jun Hu, our CFO. I would like to remind everyone that certain comments made today may 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 10Q and 10Q 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 available on our website in the Investor Relations section. We closed the acquisition of InFi on April 20th, 2021. Therefore, the results we reported today for the first quarter of fiscal year 2022, include the results from the InFi business for 10 days of the fiscal quarter. Revenue from the acquired InFi business is reported within our networking product group. To provide a direct comparison to the first fiscal quarter business outlook we provided in our earnings call on March 3rd, we have provided a table in our earnings press release which breaks out Marvell standalone non-GAAP results for the first quarter, excluding partial quarter results from the acquired InFi business. We are providing Marvell standalone non-GAAP results only on a one-time basis. As a reminder, there are no GAAP results for standalone Marvell. Matt and Jean's first quarter commentary will primarily focus on the non-GAAP results from the standalone Marvell business as it relates to the guidance we provided on our March 3rd call understated otherwise. Please note that the financial outlook for the second quarter of fiscal year 2022 includes expected results from the acquired inside business for the full quarter. On the subject of revenue reporting, as you know, we currently report revenue in three broad product groups, networking, storage, and other. However, as you may recall, during our investor day presentations, we also described our addressable opportunities by end market. This market focus, we provide more information and transparency about the key growth drivers of our business and was received positively by the investment community. We are now taking steps to align our external revenue reporting to our end markets. We believe this will provide investors with a better and more granular understanding of our business. Accordingly, we will discontinue reporting revenue by product growth, and instead, we will report revenue from the following five end markets, data center, carrier, enterprise networking, auto industrial, and consumer. Please note we will implement this change starting next quarter when we report results for our second quarter of fiscal 2022. In that earnings release, we will report revenue by end market for the second quarter and provide historical end market revenue data for the preceding seven quarters. Matt's discussion of business results and expectations will also transition to this end market view. In our second quarter earnings results, On a one-time basis, we will provide revenue results under both the current product growth process and the new end market process. With that, I'll turn the call over to Matt for his comments on our performance. Matt?
spk18: Thanks, Ashish, and good afternoon, everyone. I'll start with a summary of our first quarter GAAP results for the combined company. Revenue for the combined company was $832 million. GAAP gross margin was 50.2%, and loss per diluted share was $0.13%. I'm now going to review standalone Marvell non-GAAP results, excluding those of Infi. We began fiscal 2022 on a strong note, delivering solid results in the first quarter, driven by the strength of our core businesses and continued operational excellence. Marvell's standalone revenue for the first quarter was $810 million, exceeding the midpoint of our guidance. Revenue grew 17% year on year, driven by robust growth in both our networking and storage businesses. Higher revenue coupled with stronger gross margin and lower operating expenses drove non-GAAP earnings per share two cents above the midpoint of guidance to 29 cents. Non-GAAP EPS grew 61% year-on-year, demonstrating the significant operating leverage in our business model. I'm pleased that Marvell delivered the fourth straight quarter of double-digit year-on-year revenue growth, despite industry-wide supply constraints that have tightened considerably over the same time period. In fact, our year-on-year growth rate accelerated in the first quarter on strong and growing demand across all our end markets, and I'm pleased that our operations team rose to the challenge in a difficult environment. But we have more work to do. The majority of our products are proprietary and sole sourced, and demand for our solutions continues to grow. We need to support our customers with a flexible supply chain capable of delivering to upside demand within a reasonable lead time, something that has not been feasible this year. To further improve our supply, Chris Koopmans, who has played an instrumental role in Marvell's ongoing transformation, has been appointed as our Chief Operations Officer to lead our global operations and supply chain organization, in addition to his current role leading marketing and business operations. Chris is leveraging his deep understanding of our markets and customers to prioritize and align supply to our key growth initiatives. We are extending our planning horizons, strengthening strategic supplier partnerships, and using our balance sheet where appropriate to build more flexibility. Our suppliers value Marvell's focus on data infrastructure as a source of sustainable growth, driven by favorable secular trends compared to other cyclical end markets, and as a result, they are excited to partner with us. Looking to the second half of this fiscal year, we are confident that we have secured sufficient supply to enable accelerating year-on-year revenue growth for standalone Marvell above that of the first half. We expect supply to further improve next fiscal year. In a few moments, I'll discuss NFI's business, where we also expect strong revenue growth throughout the year. Moving on to our merger with NFI and related organizational changes. We received regulatory approval to merge with NFI in April, earlier than originally anticipated, and began integrating the talented NFI team. We have emerged from this transaction as a U.S. corporation, which we believe better positions the combined company for long-term success. Reflecting the larger scale and broader scope of Marvell, several key NFI executives have joined my direct staff. Loy Nguyen and Naraman Yousefi will manage the NFI businesses, and I've also increased their scope to include additional Marvell businesses. Lauren C., NFI's central engineering leader, will manage Marvell's analog and mixed signal organizations. In addition, Raghav Hussain has taken on a broader elevated role as president, products, and technologies to drive strategy, alignment, and growth across the company. Similar to our prior acquisitions, we expect the infusion of in-flight talent will add scale and further strengthen the capabilities of the combined company. We have built a world-class management team with deep technical expertise, vast industry experience, and a proven track record in driving growth and value creation. Let me move on now to discussing our two businesses in more detail. Networking. First, for Marvell standalone networking, revenue during the first quarter was $476 million, consistent with our outlook for strong growth. On a sequential basis, revenue grew 9%, underpinned by growth in all key product lines with the exception of 5G ASICs. However, Overall, 5G revenue continued to grow, marking our seventh straight consecutive quarter of growth. Year-on-year growth was a very robust 21% in networking, with solid contributions from multiple end markets. In 5G, growth was driven by standard and semi-custom product shipments to Samsung and Nokia, partially offset by a decline in ASICs as deployments in China paused. In cloud networking, we continued to benefit from strong customer demand for our SmartNIC DPUs. In automotive, we are growing rapidly, with our Ethernet products shipping into multiple model year 2021 vehicles. Our enterprise networking business also delivered solid results, extending the double-digit growth trend established last year, despite a soft-end market. This performance is a result of our expanding market position, driven by our refreshed Ethernet switches and multi-gigabit PHYs. To the extent the enterprise spending recovers later this year, that would be another tailwind to our business. Not only are we winning and ramping in the access, aggregation, and core switching markets, we are also making inroads in the data center with our feature rich and scalable multi-terabit family of switches. As a reminder, these products leverage a modular architecture to deliver multiple capacity points from 3.2 terabits per second to 12.8 terabits for a broad range of data center applications. We have been winning new sockets and expect these design wins to start contributing meaningfully higher levels of revenue next fiscal year. Let me now discuss the outlook for the second quarter of fiscal 2022 for our networking business. This outlook includes revenue from InFi's complete electro-optics platform comprised of their industry-leading PAM and coherent DSPs, high-performance broadband analog drivers and TIAs, highly integrated silicon photonics, and data center interconnect modules. For the second quarter, we anticipate networking revenue to grow just over 70% year-on-year, Let me walk you through the growth expectations from the Marvell and InFi businesses implicit in this guidance. We expect Marvell standalone networking to drive strong year-on-year revenue growth in the high teens on a percentage basis and be up slightly on a sequential basis. Similar to the prior quarter, we expect broad growth from multiple products, off-site by a pause in China 5G. This outlook reflects ongoing supply constraints, which have been more acute for our networking products. However, as I discussed earlier, we believe we have line of sight to supply improvements later this year and next year to support our growth plans. As we look forward, we expect a strong second half ramp compared to the first half in standalone Marvell's networking business, including an acceleration in our 5G business from both our own product ramps and an increase in 5G adoption in the US and other regions. From the acquired InFi business, we expect approximately $215 million in revenue in our second fiscal quarter. I am very pleased that at this level of revenue, we expect the In-Fi business will be accretive to our non-GAAP earnings in the first full quarter as a combined company. We expect this business to drive strong growth above Marvell's growth rate, benefiting from the demand for high-speed connectivity inside and between data centers and in the carrier market. Let me briefly discuss In-Fi's data center growth drivers. Inside data centers, as demand for bandwidth continues to increase, a generational shift is underway from traditional NRZ signaling to more advanced pulse amplitude modulation, or PAM, which enables a significant increase in bandwidth. This is one of the biggest changes in data center connectivity, and InFi is leading this industry transition. InFi is the largest provider of PAM-4 DSPs to the optical connectivity market, having shipped millions of devices. As the market continues to transition to higher speeds, 400 gig adoption has been accelerating. And last year, we started sampling our next generation 800 gig solution, which is seeing strong traction with customers. In collaboration with Microsoft, InFi pioneered pluggable transceiver technology to directly interconnect regional cloud data centers at lower cost, complexity, and power compared to traditional optical transport solutions. The first product, Colors, used PAM4 technology to enable 100 gig per wavelength, which could be multiplexed to support up to four terabits per second of bandwidth over a single fiber for data center interconnect or DCI applications. This product has been shipping in volume and established in five leadership in this category. Building on the success of Colors, which was deployed primarily by one hyperscaler last year, InFi introduced Colors 2, the industry's first pluggable transceiver compatible with the 400 ZR industry standard, which enables 400 gig per wavelength using coherent technology. We expect to maintain our leadership position in the DCI market, and projected Colors 2 deployments will start this year. With an industry standard now in place, we see multiple hyperscalers and additional customers adopting pluggable ZR technology, which creates a significantly larger revenue opportunity for our DCI platform. Turning now to our storage business. Storage revenue for the first quarter was $303 million, growing 17% year on year and declining 7% sequentially. Results were better than our expectations as we benefited from stronger demand for SSD controllers. Stellar year-on-year results were driven by ramps in our custom DIY SSD controller programs and ongoing growth in cloud demand for near-line drives, which benefited our HDD controllers and preamplifiers. The sequential decline was primarily due to our fiber channel business. Looking to the second quarter of fiscal 2022, we expect storage to deliver another strong performance driven by the near-line HDD and data center SSD markets. We are projecting revenue to grow year-on-year in the mid-teens, and in the double digits sequentially on a percentage basis. Our recent results and expectations for ongoing growth reflect the significant transformation of our storage business. In our HDD business, data center has become the largest revenue contributor relative to other markets. Our preamplifier business is now ramped up to an annualized run rate of over 50 million. We believe that we can more than double this run rate. We are continuing to step up the technology cadence for SSD controllers and we recently introduced the industry's first PCIe Gen 5 SSD controller family, designed to address the data movement and security challenges in cloud infrastructure. We are excited to collaborate directly with hyperscalers and NAND vendors to bring this leading solution to market. In addition, I'm pleased to announce that a key NAND OEM has chosen to partner with Marvell to develop custom PCIe Gen 5 and Gen 6 SSD controllers for their enterprise and cloud solutions. The Gen 6 product will be built on our 5 nanometer process. In the storage market, this is a quantum leap in process node cadence and is a testament to Marvell's advanced technology platform. We expect to leverage the leading edge IP we are developing to be deployed in additional advanced node storage solutions. Our strategy to refocus this business on the data center market has been a huge success. Data Center has grown to over 60% of storage revenue from less than 20% in fiscal 2017. In closing, we had a great start to fiscal 2022, and I'm very excited about the growth prospects in front of us as a combined company. When we announced the acquisition of InFi, we increased our long-term target model for revenue growth to 12% to 16% annually. I'm pleased that our recent results and near-term expectations are, in fact, currently trending above the high end of this target range. This is primarily due to our own product cycles combined with sustainable secular growth trends and our data infrastructure markets. The acquisition of InFi has increased our exposure to the data center, which is our largest end market. And within that, cloud is the largest growth opportunity across Marvell, significantly bigger than our 5G opportunity. InFi has already established a strong position within cloud, addressing an opportunity growing at a 60% plus CAGR. The Marvell organic opportunity in cloud is also substantial, which we are addressing with our merchant, semi-custom, and flexible ASIC model for compute, networking, acceleration, security, and storage applications. At our analyst day last year, we discussed this opportunity growing at an expected 19% CAGR to over $5 billion by calendar 2023. The adoption of ARM processors in servers continues to gain traction, and this further increases our cloud opportunity. We expect cloud revenue for the combined company to grow rapidly. As Marvell's 5 nanometer products come to market, we expect a substantial step up in our cloud revenue. I'm very pleased to report that we have been recently awarded a number of significant design wins leveraging our advanced technology platform. Respecting customer confidentiality, we will not be in a position to discuss any specific win. They are with multiple customers across a variety of applications and business models. We expect these products to start ramping into production in calendar 2023, achieving peak revenue in the calendar 2024 to 2025 timeframe. As I approach my five-year anniversary at Marvell, I've never felt stronger about our growth prospects, and I'm grateful to all our employees who have worked hard to transform the company to position us for what we believe will be a very exciting future. With that, I'll turn the call over to Jean for more detail on our recent results and outlook.
spk00: Thanks, Matt. Good afternoon, everyone. I'll start with our GAAP results for the first quarter for the combined company, followed by Marvell's standalone non-GAAP performance, and conclude with our outlook. Please note our GAAP financials include 10 days of results from the InFi business and the impact of purchase price counting items, share-based compensation expenses, amortization of acquired intangible assets, legal settlement, and acquisition-related costs. Revenue was $832 million. Gap growth margin was 50.2%. Gap operating expenses were $500 million. Gap operating loss was $82 million. Gap loss per diluted share was $0.13. Turning to the balance sheet, inventory at the end of the first quarter was $538 million, which includes the impact of setting up interest inventory by $187 million due to purchase price accounting. We amortized $14 million of this step-up into cost of goods sold in the first quarter, and we anticipated amortizing the remaining balance by the end of the third quarter of fiscal 2022. During the quarter, we paid $114 million in cash for fees related to the in-flight transactions. Excluding those one-time payments, our cash flow generation from operations would have been $100 million. As a reminder, our cash flow generation has a seasonality and tends to be lower in our first fiscal quarter due to the payment for annual cash bonus to employees. In the first quarter, we distributed $41 million to shareholders in dividends. We accessed the quarter with $523 million in cash and short-term investments. Our long-term debt was $4.7 billion and currently carries a blended interest rate of approximately 2.5%. Our gross debt-to-EBITDA ratio was 3.9% and net debt-to-EBITDA ratio was 3.4% based on combined pro forma EBITDA. we continue to have a strong investment-grade credit profile. Our capital allocation priorities over the next 12 months are to maintain our current dividend level and utilize our free cash flow to pay down debt used for the acquisition of InFi. We believe we can drive strong revenue growth and free cash flow generation to quickly achieve our target ratio of two times growth debt to EBITDA. I'll now move on to standalone Marvell non-GAAP results. As Ashish had noted earlier, we are providing standalone Marvell results on a one-time basis this quarter because our previously provided financial outlook for the first quarter excluded any impact of the InFi acquisition. Reconciliation of our standalone and combined performance as well as GAAP to non-GAAP results available in our press release. Standard model revenue in the first quarter was $810 million, exceeding the middle point of our guidance. Networking represented 60% of our revenue, with storage contributing 36%. Revenue from other accounted for 4%. Non-GAAP growth margin was 64.3% above our guidance, and the 150 basis point improvement from a year ago, primarily due to better product mix. And our teams continue the effort to drive operational excellence. Non-GAAP operating expenses were 297 million as we continue to tightly manage our expenses while investing for growth. Non-GAAP operating margin was 27.7%, an 810 basis point increase from a year ago. demonstrating the strong operating leverage in our business model. Non-GAAP earnings per dialogue this year were $0.29, exceeding the midpoint for guidance range by $0.02, and is up more than 60% year over year. Let me now comment on our plans for operating expenses going forward. After closing the In-Fi acquisition The starting pro forma operating expense trend rate for the combined company was approximately $375 million per quarter. We expect our operating expenses to grow annually in the range of 4% to 5% as we continue to invest to support our long-term growth, including incremental R&D spending for INFA. However, we expect to more than offset this operating expense growth through deal-related synergies We expect total cost of synergies of $125 million from the inside acquisition, with approximately $100 million coming from operating expenses. The middle point of our second quarter OPEX guidance of $372.5 million includes $10 million of synergy achievement on a run rate basis. We expect to achieve half of our targeted OPEX synergy accepting fiscal 2022 and the full synergy realization by the third quarter of fiscal 2023. We'll continue to be disciplined in allocating resources and expect to drive revenue growth significantly higher than OPEX growth to deliver strong earnings expansion. The remaining $25 million for cost synergies will come from cost-good sold which we expect to start to take effect in the first quarter of fiscal 2023 and be fully realized by the third quarter of the same year. Our team has a strong track record of integration execution from prior acquisitions. I'm very confident about our synergy treatment plan. Now turning to our guidance for the second quarter of fiscal 2022, which includes a full quarter of InFi. We are forecasting revenue to be in the range of $1.065 billion, plus or minus 3%. At the middle point of this outlook, we expect approximately $215 million of revenue contribution from the InFi business. As Matt mentioned earlier, at this level of revenue, we expect the InFi business will be accretive to our non-GAAP earnings. We expect our GAAP growth margin in the range of 34.8% to 37.5%. We project our non-GAAP growth margin to be approximately 64%. In a tight supply environment, we expect our non-GAAP growth margin in the near future to remain around this level, subject to product mix change in any given quarter. We project our gap operating expense to be in the range of $633 million to $643 million. We anticipate our non-gap operating expenses to be in the range of $370 million to $375 million. Following the InFi acquisition, the company domicile changed from Bermuda to Delaware. Based on tax deductions and the credits we have, we expect our non-GAAP tax rate to remain at 5% for the remainder of the fiscal year. And the current tax laws, we expect our non-GAAP tax rate to increase by approximately 100 basis points each year for the next couple of years. We expect other expenses will be approximately $34.5 million. which include interest expense of $33 million. We expect our basic weighted average shares outstanding will be $822 million, and our diluted weighted average share outstanding will be $835 million. As a result, we anticipate the gap loss per share to be $0.37, plus or minus $0.04. We expect non-GAAP income per dilute share to be $0.31 plus or minus $0.03. Operator, please open the line and announce Q&A instruction.
spk05: Thank you.
spk04: Thank you. And we will now begin the question and answer session. To ask a question, you may press star then 1 on your touchtone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. In the interest of time, please restrict yourself to one question only. If you have additional questions, please rejoin the queue.
spk05: And at this time, we'll pause momentarily to assemble the roster.
spk04: And our first question today will come from John Pitzer with Credit Suisse. Please go ahead.
spk01: Yeah, good afternoon, guys. Congratulations on the solid results. Thanks for letting me ask the question. Matt, I'm sort of curious when you look at sort of this quarter and the guide, can you help us better understand relative to your ability to capture your supply? The deficiencies grow this quarter. You did a nice job in the core networking business growing almost 9% sequentially, but I'm trying to get a sense as to whether or not demand continues to outstrip supply. And if you could help us understand, is this a wafer issue or are there other issues? And as you think about resolving them in the back half of the year, Why so confident?
spk18: Yeah, great, John. Thanks for the question. Yeah, we're very happy with the results in networking. I mean, as you pointed out, that was a sequential number. So clearly business has been very, very good for us in networking and certainly year over year to do 20% plus is great. The demand, John, continues in Q2 and beyond. We're continuing to work on improving the supply on our networking products. As it turns out, and as you've probably seen, the complexity on our networking business in terms of the manufacturing cycle time supply chain is much more complex and challenging than on the storage side, so we've been able to meet some more of the upsides on storage than we have networking. No, John, business continues to be strong. We do have line of sight to the supply improving in the second half, which is encouraging, and that's why we're continuing to be very bullish about the outlook for our overall networking business because the demand is clearly there, and we've now got supply coming online in the back half as well as into next year. So things are improving for sure.
spk05: Thank you.
spk04: And our next question will come from Vivek Arya with Bank of America Securities. Please go ahead.
spk14: Thanks for taking my question. Matt, I had one more and to kind of extend that question into just second half visibility from two aspects. One is the supply aspect that is supply coming online gradually or are you planning to see perhaps a faster improvement on the supply side? And the other perspective on this is how much of your second half growth, fiscal year growth, is dependent on enterprise and China 5G recovery, which have tended to be quite volatile?
spk18: Sure, Vivek. Yeah, I think, look, in this environment, in general, supply is coming in, not in large chunks, although I would say given the ramp we had been planning for some time, in our case, you know, we do see more significant amount of supply coming in in the second half. So that will improve, and we have visibility of that both on the wafer side as well as on the back end side. And, you know, at the same time, as we ramp our supply position, you know, as I mentioned to John, the demand side continues to outstrip our ability to supply at all. But we're making good progress there. On your second question, in both cases, both in enterprise as well as China 5G, those are not comprehended to have market-related comebacks in that timeframe. On enterprises, you've seen, I mean, we've been growing that business well above double-digit for some time, including in our Q1, and we do anticipate that to continue. Now, that's mostly on the back of our own product cycles, okay? And we've been very successful, I think, in our enterprise, in campus switching, also in our PHI business, and so that continues. So that's in, by the way, in what's been viewed as a very soft market, both by the OEMs as well as other semiconductor peers. So if that end market improves with return to work and vaccinations improving, that would be a pretty significant tailwind on our business. As it relates to 5G in China, maybe just to kind of frame it in the bigger picture, I think first our own team internally, I want to give them credit, they did a good job for, in the first half, telling us last year, you know, mapping out the digestion phase, which is what's happened. So that's actually been in line with our plan. And, you know, we're not necessarily counting on a big recovery in that in the second half. If it does, that would be great. But just to frame it, Vivek, in the bigger picture, our 5G business and exposure in China is actually less than 20% of our overall 5G business, both now and even going forward. And in fact, it probably slowly becomes a smaller percentage over time as our new OEMs ramp up and some of these other initiatives kick in. So again, either of those two came back very strong. That would also be a tailwind on our business.
spk14: Thanks, Matt.
spk04: And our next question will come from Timothy Arcuri with UBS. Please go ahead.
spk08: Thanks a lot. Matt, I know it's probably early to ask this question, but can you give us a sense of sort of what kind of synergies you might see on the revenue side? I know you're not putting any of those into the model, but can you talk about that? And then I guess also, Gene, I was just wondering if you can talk about what the normalized gross margin is. I know you're guided to 64%. but it sounds like that's still being hampered by some constraints. So I'm kind of wondering what is the right normalized number if you didn't have those? Thanks.
spk18: Yeah, Tim, I'll take the first part and then we'll hand it to Gene. So yeah, as you noted, historically we've just by practice not tried to articulate or size revenue synergies when we announce a deal. It's just very hard to do and quite frankly it's very hard to even measure in the rearview mirror. But that being said, you know, on all of these transactions we've done, we can look back and we can actually point to cases where 1 plus 1 was way over 2. And it kind of comes in two pieces. The first is really what I would call the customer revenue synergy, Tim, which would be, you know, we have products that we can sell, for example, into 5G or the cloud and NFI in this case. would as well. And in those discussions, the notion that we can be a better supplier together really comes together. I mean, if you remember back after the Cavium transaction, I think that was very significant what happened in 5G and with Samsung, where together we were able to get effectively the whole platform where apart we had actually very little content. So I'm very encouraged by what we see. I think customers really like the combination to a person, and those are very strong. And I believe we will see cases we can point to. It's already underway. The second part of it is really more of a technical one, which is how do we actually incorporate the intellectual property of the two companies, put it together, and deliver better solutions? Those discussions are also going well, in particular with the InfiCerti's IP, as it relates to our ASIC business, our roadmap into co-package optics, and our vision of optics everywhere, and not just co-packaging them with the switch, but also in things like AI and ML ASICs and DPUs. So that's going to be a very critical piece of the puzzle as we enter these complex markets, and more and more the connectivity moves to Electro-optic solutions so so that I think Tim is we're very very excited about all that I think it's going to work out very well on both both of those fronts I mentioned let me let me hand it over to Jean to cover the second question Hey Tim on your growth margin question as you remember when we announced the infi deal we actually guided the combined company growth margin to be in the range of 64 to 66 percent
spk00: We are actually very pleased with our Q1 growth margin performance. Marvell standalone actually achieved 64.3% and a very tight supply chain environment. As we said before, Infi actually is creative to our growth margin. I think the dynamics, as all of you know, is the supply chain is very tight. And we are trying to really manage it through the supply chain challenge. But we do think the combined company with the in-price margin higher than 65%, we're going to trend higher going forward when we combine both companies, drive the top-line revenue growth.
spk05: Thank you both.
spk04: And our next question will come from Blaine Curtis with Barclays. Please go ahead.
spk12: Hey, good afternoon. Thanks for checking my question. Just curious on the storage uplift. I heard you say near line and SSD. Is that kind of the seasonal ramp of DIY and any other drivers to point out? And I'm just curious on fiber channel spin kind of yo-yo. Is that going back in July as well?
spk18: Yeah, great question, Blaine, on storage. So a couple things. So on the SSD side, yeah. Yeah, that's actually multiple DIY programs now. Those are kicking in in various end markets, and we see that trend being obviously way up year over year this year, but growing strongly into next year. So I think that strategy to really work closely with some of these system level OEMs, whether it be in the cloud or other applications, It's a pretty compelling business model, so that one's going well. On the Nearline side, I think if you just look at the performance of these large cloud properties and how they're performing in terms of their own revenue growth, there's certainly a scaling that goes on with storage. the need for increased capacity and cold storage continues. We're well positioned with that with our controllers and our preamplifiers, actually, which is a new revenue stream for us as well. So that's still continuing, and that's very strong. And then finally, the fiber channel, it was one of our most stable businesses, Blaine, going back even when Cavium owned it and even when it was QLogic. certainly had a lot of choppiness this year with manufacturing supply disruptions in Southeast Asia. That's started to stabilize. Actually, fiber channel grew quarter over quarter and will continue to get better. And we hope that that will, just by design, that that should be a much more stable business. So yeah, overall, just, you know, I think you've heard in my remarks, I mean, we're just, it's been a journey on the storage side, and I've just got to thank our entire team for fundamentally transforming a business, which if you go back five years ago when I showed up, you know, and this wasn't just me, the whole management team, this was a business that was highly concentrated, HDD controllers only, selling all into two and a half inch notebooks, okay? And that was sort of the the story in the melting ice cube people were worried about and so I'm very proud of the team when I fast forward five years and we've now got greater than 60% of our storage business in data center and these high performance applications and then really the bulk of the balance being in very sticky stable markets and the exposure to things like notebooks being de minimis. I think it's been a great transformation story and the fact that we're having calls talking about our storage business growing double digits and continuing to do that's a great effort. And by the way, we're not milking this business either. I mean, we've been very aggressive to move our platform to 5 nanometer, which effectively jumped at least a node for most people. Probably for most people it's two or three nodes. But for these high performance applications, Blaine, especially in in the data center, you get tremendous power savings by doing this. So that's going to be a first step into a broader platform of products in storage, as well as in our traditional networking businesses like processors and switch chips.
spk05: Thanks, Matt.
spk04: And our next question will come from Ross Seymour with Deutsche Bank. Please go ahead.
spk13: Okay, thanks. Let me ask a question and looking forward to hearing the end market splits last quarter. So thanks proactively for doing that. Matt, I want to go to the networking business again. And the last four quarters has kind of been up 10%, then flat up 10%, then now guided flat again. Overall, year over year growth is really, really strong. So no complaints. But is that lumpiness something that's just inherent to the markets that you're addressing? Was it supply driven? And perhaps more importantly, you talked about an acceleration in the back half of the year. Can you just talk about a few of the Marvell-specific drivers that will allow that acceleration, and do you expect that lumpiness to go away as the breadth of the business improves internally and with the addition of NFI?
spk18: Yeah, great question. So just quickly on the first one. Actually, I'm pretty excited about moving to the end market reporting. I think it's going to give investors a much clearer view of our growth drivers. It actually reflects how we think about allocating the capital of the company. I mean, I've actually managed the company from a market-based philosophy, you know, from the very beginning. And so to now be able to show you, you know, our data center business, there's also peers that report those numbers, so it will give investors a sense of our relative growth rates. And then Carrier, you can capture, you know, our 5G. Anyway, so I think that'll be a real positive thing for everybody. On the networking side, you know, it's interesting, Ross. Individually, some of these businesses are inherently lumpy. I mean, I think we all know that the carrier telecom type businesses tend to be lumpier than others. That being said, when you blend actually our combined networking businesses across things like enterprise and carrier, and even right now automotive is reported in our networking business, Actually, from an end-demand standpoint, you do get a smoother profile, which has all been up into the right by the way. I think in the last year, the dynamic on the quarterly moves has been more supply-related than it has been just, hey, networking was up, and then everybody kind of slowed down together, and everybody's up. Actually, business has been very strong, Ross, since last year. If you recall, we started growing the company – double digits year over year in Q2 of last year. So we've been on this double digit growth rate. Now it's actually accelerating. And during this timeframe, if we could get more supply, it would probably look a lot, look smoother, if you will. But I think you're right to integrate it over maybe a few quarter period, first half, second half, or even one year periods to get the full view. Just because the manufacturing cycle times with some of these products can be, you know, be several quarters. So if you get upside, there's a time to react. But no, if you just sort of blended in demand, Ross, you'd see a very steady increase. And the nice thing is we have a very diversified business in networking, so it's spread across all these end markets, as I mentioned.
spk10: Thank you.
spk04: And our next question will come from Ambrish Srivastava with BMO Capital Markets. Please go ahead.
spk03: Hi, thank you very much, Matt. I wanted to ask about a comment you made at the top of the call, which was you're feeling really confident about just starting a new phase of a multi-year growth. I just wanted to double-click on that. What are the underpinnings of that confidence? Can you talk a little bit about the design wins you have on the cloud side? And then you also gave a bit of a hint when you talked about cloud being a much larger opportunity than 5G. just kind of frame that discussion with that in mind as well. Thank you.
spk18: Sure, Ambrish. I mean, I would say both in the relative near term, okay, and over the next several years. I'd actually break it into three phases. There's the sort of second half of this year, looking into next year and the year after, and then I would say out a few years beyond that. I think, and I didn't quite answer Ross's question, but I'll weave it in here. His last one was What do you see in the second half? So on networking, for example, I mean, we have the 5G ramp for us will pick up, will accelerate. That's primarily due to increased adoption in the United States and deployments there, plus design wins that we had won several years ago ramping into production. You've got very strong Marvell business in the cloud with our SmartNIC product line. That's been growing very, very nicely and will continue in the second half. You know, I'm surprised no one's asked a question about NFI yet, but, you know, we're very pleased to guide, you know, 215 for NFI in Q2, which is, I think, well above what anybody thought. That business is also going to continue to accelerate in the second half, both on the Intra Data Center business and PAM4, as well as the 400 ZR ramp, which we think will be meaningful next year, but starting this year. And then finally, as I mentioned, the Ethernet switch and PHY business. You could also throw automotive in there. I mean, we've got almost all these growth drivers we mentioned continue. So that's right in front of us. I think what I get very excited about, as you alluded to, is the design wind momentum in the company has been extremely strong. and not probably as strong as I've ever seen it in the past five years I've been here, and any kind of prior record I could find. And those are things that, as we noted in my remarks, would be designs we win now that would ramp up, starting probably in calendar 23, 24, and then go beyond that. And that's also, you should kind of tie it together with that, was when our 5 nanometer platform will be really in full production across multiple end customers, end markets, and end applications. So that's one that kind of layers on top of all of this and candidly would extend beyond what we talked about at the last investor day. So I think if you draw a line between here and there, there's all kinds of goodness in different areas, Ambrish, but I think we're feeling really good about the investments we made. I think the acquisitions that we did positioned us really well, and they fit together in their own way. And finally, I would say that the customer go-to-market, our brand promise to our customers, the way we engage, the way we partner, resonates really well in this environment. And we're just, we're viewed as a very credible and reliable partner with scale now, especially within FIENN. to really deliver the most complex, critical products that our customers need.
spk03: Now, I'm sorry, just for clarification, this design wind momentum does not include InFi, so that would be on top of this, right? So this is what you're talking about the organic business has been working on, right?
spk18: Yeah, this is just Marvell standalone. So all those comments on, you know, largest sort of design wind, you know, achievement we've seen plus the funnel, That's all from the organic Marvell business, okay? Starting next quarter, we're going to have the InFi team in our results and in our internal results in terms of our design funnel and momentum. But yeah, and they've done a great job too. I mean, that's a whole other story. But I'm just saying standalone Marvell with our five nanometer platform and our 5G cloud strategy, automotive, all the things we articulated, at the investor day pre-INFY, that's all tracking obviously in line or better than we thought.
spk03: Sorry about that. Thank you, Matt.
spk04: Yeah. And our next question will come from Harlan Sir with J.P. Morgan. Please go ahead.
spk02: Good afternoon and congratulations on the solid results and outlook. On the newly acquired INFY business, it looks like inside cloud data center upgrade to 200 and 400 gig PAM for optical connectivity is accelerating as we move into the second half with two more cloud Titans, just starting the upgrade cycle. And then on top of that, it looks like the first one or two cloud Titans are starting to fire on the data center to data center DCI optical upgrade to the new 400 gigs VR standard. As you mentioned, the team has a strong leadership position in both of these areas. Are you guys already starting to see this ramp in your bookings or backlog for the second half, or maybe even some of these already starting to fire here in the July quarter? And it seems like we're still in the very early innings of both of these upgrade cycles, but just wanted to get your views.
spk18: Yeah, thanks, Arlan. Yeah, no, I think we're going to start maybe at the end first. We're in the early innings of both these upgrade cycles. I think your commentary overall is right. Both of those are accelerating. On the PAM side, you know, I would say probably by the end of, you know, 23, certainly if you draw a line between now and the end of, I'm sorry, calendar 22, our fiscal 23, you'll see most of this conversion from these legacy NRZ solutions, you know, move over. And that's still, you know, a decent, a decent amount of the connections today. So there's a big lift between now and then. That's pretty exciting. And then, of course, you've got other hyperscalers around the world outside the U.S. On 400ZR, that is also just at the beginning phases. I think that's going to be much more broad, obviously, than Colors was, which was 100 gig, and it was really for one customer. And that is both of those. We have strong backlog, bookings, visibility, you know, heads down to plan the supply and to plan the ramp. So those are very much intact, which was really, you know, part of our deal thesis for doing InFi in the first place.
spk05: Yeah, great insights. Thank you.
spk04: And our next question will come from Christopher Roland with Susquehanna. Please go ahead.
spk11: Thanks for the question. Matt, you did mention the pause in spending, 5G spending, and you also did talk about China as well. But I was wondering if maybe we could talk about some of the other geographies, how they're ramping, and then In terms of your 5G lead customers, how close do you think we are to a full run rate in terms of their ramps? Thank you.
spk18: Sure. Yeah, no, I think in general the 5G momentum is quite strong. I think, you know, obviously you saw the impact on people last year with China, which was which was very meaningful. And that will, by the way, over time, you know, we're debating is it second half or when is it, but those deployments will obviously continue. They're not done. Then the U.S. is really, I think, where we're going to see a lot of traction this year. India is a little more unclear. I think, you know, the latest is certainly trials will be, you know, conducted at the end of this year. Candidly, I think with the impact of COVID-19 in the country that's probably delayed things. We saw that last year, if you remember, there was supposed to be a much larger U.S. build-out, and COVID delayed that. We're watching that. But no, I think overall, it's been a very meaningful technology transition, and so we think that's going to be very broad. We've still got a ways to go, to be honest with you. There's a lot in front of us relative to getting to full run rate with the full platform at our two lead OEMs. In one case, we have the platform, but they're really ramping their business based on their geographies that they participate in. And then with our second customer, those chips are still, a lot of those are in development, although our first products are ramping very nicely, and we're pleased to see that both those companies are participating very actively in the global 5G rollouts. So that was all positive. And by the way, even with China stays flat, as I mentioned, we do see a very strong second half for our 5G business. And we just came off our seventh quarter in a row of growing that business sequentially. So it's been a real tailwind for us. I did want to just make one comment before we move to the next question. I actually misspoke earlier. There was a question about fiber channel. And it was Ross's about it being lumpy. So I had my quarters off. So it was down, Fiber Channel was down in Q1. That was part of the lumpy down. It's going to be up in Q2. And then we anticipate it, unless there's some other disruptions, you know, that should be a generally flat business going forward. And obviously in the scheme of things in the combined company, I don't, and reported by end market, I don't anticipate we're going to be having lots of discussions about Fiber Channel anymore, but. If something happens, we'll let you guys know.
spk04: And our next question will come from Gary Mobley with Wells Fargo Securities. Please go ahead.
spk06: Hey, guys. Thanks for taking my question. On the topic of COVID spreading in different geographies, I guess we got a little tick up in Taiwan. I'm wondering if you can share with us, you know, based on your conversations with your supply chain, whether or not you're possibly facing any production interruptions out of that region and then, Gene, You know, given the different moving parts in the OPEX, the 5% growth as you articulated over the long term, and then the weaving into the $125 million in synergies, when would you expect the quarterly OPEX to bottom, whether in absolute terms or relative terms, that $372.5 million Q2 guide? Thank you.
spk18: Yeah, Gary, I'll take the first one. I think you're just highlighting a very important reminder for everybody on this call, who I believe probably everybody here is calling in from the United States, where things are opening up and things are feeling like they're getting back to normal. And as you point out, we're monitoring very closely the situation, not only in Taiwan. Obviously, we don't have production in India, but many chip companies have significant India operations in terms of of R&D. You've got other countries in Southeast Asia that are having outbreaks. Malaysia would be one. So we're watching this very, very closely. It's been just an unprecedented year between weather and the virus on the supply chain. But we're watching it, and we've comprehended as much as we could on any of these things and do our guidance. We do that every quarter. But certainly it's a dynamic situation. I mean, we had a water issue in Taiwan recently. I guess with the recent improvement there, some of that's backed off. So yeah, it's something we've got to watch and manage very dynamically, Gary. But we've comprehended all of that in our outlook. Jean, do you want to answer the second question?
spk00: Yeah. Okay, Gary, on the OPEC side, given the opportunities and the revenue momentum we have been seeing in front of us, we definitely want to continue to invest. The 5% increase for next year, really, it's incorporated the Marvell side of regular increase. We typically at the 2% to 3%, but on the InFi side, there are tremendous opportunities. So the R&D investment is higher. So we're looking really just next year. And on the synergy side, we talk about 100 million OPEX synergy achievement. The way to think about it is accepting fiscal 22, we should be able to achieve 50% of that 100 million run rate synergy. And then, as you know, Q1 always seasonally OPEX is a little bit higher because of the payroll increase in Q1, then Q2, Q3, by the Q3 time, we should get the OPEX to the run rate, which should achieve the full synergy at the same time, you know, contemplate the increase, the offset, the increase of the year over year. In the longer term, you should expect us to continue to focus on to grow revenue significantly faster than OPEX so we can expand the earnings quickly.
spk04: Thank you. And our next question will come from Quinn Bolton with Needham & Company. Please go ahead.
spk17: Two for Matt. First, sort of near-term, Matt, with supply, you know, line of sight to supply increases in the second half of the year, have you been able to stabilize lead times to customers? And then my second question, kind of a longer term, with the ramp of 400 and 800 gig modules in the data center, that business potentially being even bigger than the 5G for you, are you starting to get questions from customers about Morvell developing its own internal switch fabric, or are customers happy for you to partner on SERDES and optical co-packaging and other opportunities without owning the switch fabric?
spk18: Yeah, great. Thanks, Gwen. Yeah, on the first one, yeah, certainly we have, as I mentioned, line of sight on our supply through the end of the year and encouraged by what we're seeing also for for next year as well. Look, lead times are very extended for everybody at this point. We've asked our customers for significant backlog, and not only the backlog, but really the detailed sort of discussion behind the backlog relative to what are the drivers, how much of it is for buffer, how much do you have now, what are your plans, so we can get better line of sight to allocate the material. And we've also worked with many of them and are in the process of doing that to really firm up those orders relative to their ability to reschedule and cancel them, but we're giving them time to sort of figure that out. So I think that's been a healthy exercise, but lead times are not coming down. They're extended, not because we want to keep them extended, but the supply chain given just the volume on it, there's just queues. And you just have to make sure you plan for that. And then on the data center side, we certainly have many of the key pieces, if not almost all the key pieces, to really be a big player in the cloud infrastructure side with our ASICs, with the PAM products you mentioned. O-RAN, all kinds of things. On the switch side, it's an interesting discussion because we're very aggressively promoting and developing a co-package optic solution that will be very much open source for the industry, so we want to be an enabler of that. We think that's going to be a good thing, whether somebody wants to do their own ASIC or co-package it with a partner. And that's a discussion that we're having. I think we're encouraged because when you look at our, and I noted in my comments, we introduced about 18 months ago our multi-terabit switch family where, just as a reminder, these are at 3.2, 6.4, and 12.8 terabits per second. It's a modular design architecture. Now it's fully featured. which has its advantages in many applications because that's really what customers want. On the other hand, there's a lot of optimization you can do if you really want to do a high-end switch for just speeds and feeds. And I think everything's on the table in terms of looking at all that in the context of InFi coming in, in particular. And those are just some very active discussions we're having. But the roadmap notwithstanding, we're extremely pleased with this high-end platform that we announced. It's done really well in the market. Revenue's ramping significantly, and it's going to have a very good year next year and beyond. So I think that was a good investment that we made, and that really positioned us, Quinn, as a full provider from SMB switches to enterprise and campus switches, core and aggregation, all the way into the fully featured data center type applications. So it would be logical for us to consider broadening the portfolio there.
spk04: Great. Thanks for that detail, Matt.
spk14: Yep.
spk04: And our next question will come from Serini Pajera with CNBC. Nico, please go ahead.
spk16: That's CNBC, Nico. Thank you. Thanks for taking my questions. I have a clarification on the question. Matt, first on the outlook for the networking segment, if my math is correct here, I think you're guiding N5 to be up at least mid-teen sequentially. And your core networking business, you said it's going to be up slightly. So I'm just trying to understand, is the difference primarily on the supply side or is it demand, if you can clarify that? And then my second question, more of a longer-term question, you mentioned ARM servers, and obviously you've been the leader in that market for a long time. And there's been a lot of buzz, as you mentioned, lately, and some of your peers are also announcing design wins. So my question is, When can we expect to hear from Marvell in terms of the design means of revenue contribution from that market?
spk00: Hey, Sereny, maybe I'll answer your first question on the InFi guide, right? So what we guide for Q2 combined company, InFi revenue, we said it's about $215 million. So in Q1, we only had 22 million of InFi business. So you really cannot compare sequentially. Year over year, if you look at 215 million InFi revenue, it means almost a 24% year over year increase. On the Marvell side, I would say we guided basically, as Matt said earlier, slightly up sequentially for the Marvell networking. So if you add Marvell networking, plus impact $215 million. That's what our guide for Q2 networking business. I'll let Matt answer your second question.
spk18: Yeah, that's right, Jean. And I mean, I think the bigger picture, Srini, on the first one is just, you know, the blend of these two businesses are growing, you know, around 20% a year on networking kind of plus, right? So it's a very strong performance. And I noted the issues earlier on our side. On ARM, it really is a trend that's been happening. We certainly have a lot of capability in this area. There's a lot of confidentiality around this market. I can't really comment on us or the other people because I think it's also a little dangerous at times to talk about things. Is it a development type of opportunity? Is it a real production thing? So I think our pivot in our business model last year was really to move this business from being one where, in a lot of ways, our Thunder product line really was a prototype type of capability that we enabled the whole industry on. But in the end, what we found is nobody actually wanted to buy the standard product. So we're very pleased with the pivot we made. We have, we believe, the best set of IPs you know, true ability to stitch together these very large high-end complex processors. I mean, if you think about the things that we're doing for 5G or for networking or even what we built on Thunder, we have a second to none capability there. And you should just assume that we're very active in this market, but in a different kind of a business model where we engage directly with these customers. There's an NRE type of arrangement. We build them exactly what they want. and the use cases and the benefits of moving to ARM are significant, and I think publicly it's out there, the instances that are being moved more and more within AWS's platform to Graviton, which is their own, we obviously don't participate in that, but it's just a great proof point for the industry. It's real and it's happening. ARM and infrastructure, and our view is we would be the leading company for anyone to talk to about not only be able to design the chip and productize it, but then to supply it in the kind of volumes that's required, that's a key part of the equation now.
spk05: Thank you.
spk04: Our next question will come from Chris Casso with Raymond James. Please go ahead.
spk07: Yes, thank you. Good afternoon. Just some clarification regarding the additional supply. And with the additional supply coming on, you know, what point do you expect to be, you know, back at the level where you're shipping all your customers' orders? Do you think you get there by the end of the second half, or is that going to take longer? You know, just following on from that, you know, we've heard from a lot of others, you know, obviously with the tight supply conditions, order visibility stretching out customers are placing orders far in advance. It sounds like from your prior comments that you're not forcing those customer orders to be non-cancellable at this point. Maybe just clarify that a little more and talk about what additional visibility that gives you going forward.
spk18: Sure. Yeah, Chris, thanks for the question. As I noted earlier, we've been growing this company double digits since a year ago, and it's only accelerating. And as we've done that, that's been great. But Candidly, we haven't made a real dent in the delinquency. And in fact, I think our business momentum is growing, but I think the demands on us are growing even faster than our supply. So we're working hard on it. But I would say... Anybody that tells you in this industry that they know when this is going to get better, like, hey, it's going to happen in a quarter. I don't think that you're probably getting a realistic answer is my view. I think it's very dynamic. It's unprecedented. And at this point, there's so many industries that are up and to the right and everybody's clamoring for product. But we're working on it, and like I said, we're the type of company, Chris, that I think we're more focused on the long-term, slow and steady, keep cranking it out every quarter, keep blocking and tackling through this time period, and keep making sure our customers are up. And then on your second question, no, we are ensuring that we have protection, and not only protection, but I would say mutual commitment with our customers around the supply. So we do have a large portion of our backlog, which is only getting more, to be honest, that is non-cancellable. We are being somewhat flexible around building in some reschedule capability. Maybe you can do it once. And we're trying to work with our customers on this, but we're having to make commitments, especially with the growth that we see in front of us. which I'm very comfortable doing, but I also want to have the backstop of my customers. And this environment has created a dynamic where at pretty much the CEO level at all of our major accounts, they're willing to engage in this type of discussion and activate their materials teams and get everybody together so that we can plan this thing as a combined team, a Marvell team and a customer team versus two independent entities off doing their own thing. And the era of customers, you know, being secretive about their volumes or hiding the ball or not wanting to do it just in time, that's kind of all out the window at this point. And so the visibility is pretty good that we're getting, but we are ensuring that we, when we're making commitments, we've got some backstop from the customers that want the product.
spk05: Thank you.
spk04: And our next question will come from Harsh Kumar with Piper Sandler. Please go ahead.
spk09: Yeah. Hey, guys. First of all, congratulations on solid results and also being so clear about all the numbers. It really helps us out. I had a question, Matt. I was wondering if you could break down your networking business, let's say just even for Core Marwell organically, the split or rough color between 5G, cloud, and enterprise, And also, if Nokia is, is it running at ramp or has it got still room to run from here?
spk18: Yeah, well, Harsh, all of your wishes are going to come true next quarter because we're going to break out for you in detail. The data center business of Marvell, which is going to have the cloud in it. We're going to break up the carrier, which you'll be able to – and we'll talk to all of these, by the way, right? So you'll be able to get a sense of the moving pieces of 5G. We're going to have an auto industrial, which is obviously the big growth there is going to come from the automotive. And then our enterprise networking, which I think is a great proxy as well. So I think we're going to give you what you want, and we're going to give you seven quarters of history, and we're going to guide it. So you'll be like a kid in a candy store. And then on the second question on Nokia, yeah, that's still ramping. You've heard their commentary. They're ramping up. We're kind of replacing their legacy solutions within their reef. They have their reef shark portfolio. We're part of that. They talk openly about sort of replacing FPGAs with reef sharks, so we're just part of that growth. And then, of course, we've got future... where we're going to intercept with them the new sockets over time. So that's still in a ramp phase, though. It's still early.
spk05: Understood. Thank you, guys.
spk04: Yep. Ladies and gentlemen, this will conclude the question and answer session, also concluding today's call. We'd like to thank you for attending today's presentation. And at this time, you may now disconnect your lines.
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