Marvell Technology, Inc.

Good afternoon and welcome to the Marvell Technologies Fiscal Second 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 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.

Thank you and good afternoon, everyone. Welcome to Marvell's second quarter fiscal year 2022 earnings call. Joining me today are Matt Murphy, Marvell's president and CEO, and Gene 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 10-K and 10-Q filings. We do not intend to update our forward-looking statement. During our call today, we will refer to certain non-GAAP financial measures. A reconciliation between our GAAP and non-GAAP financial measures is available in the investor relations section of our website. As discussed during the prior quarter's earnings call, we have implemented a change in how we report revenue. Starting with the second quarter of fiscal 2022, we have started to report revenue by our 5N market. In our earnings press release we issued earlier today, we have provided historical N market revenue data by quarter, starting with the second quarter of fiscal 2020. In this press release, we have also provided revenue results by product group. Going forward, we intend to only report revenue by N market. In today's call, Matt will comment briefly on our revenue performance by product group, For the second quarter, before transitioning most of this discussion to our results and expectations for each of our five end markets. With that, I'll turn the call over to Matt for his comments on our performance. Matt?

Thanks, Ashish, and good afternoon, everyone. I'll start with a summary of our second quarter GAAP results. Revenue was $1.076 billion. GAAP gross margin was 34.6%. GAAP operating loss was $267 million, and loss per diluted share was $0.34%. Building on the strong results we delivered in Q1, our second quarter results, which include a full quarter of NFI, were equally robust, driven by strength in our diversified end markets and continued focus on operational excellence. Revenue for the second quarter exceeded the midpoint of our guidance and grew 29% sequentially and 48% year over year. I'm now going to review our non-GAAP results for the quarter. Non-GAAP gross margin was 64.8%, 80 basis points better than expectation. Non-GAAP operating expenses were lower than expected, and we delivered $331 million in non-GAAP operating income. Revenue, non-GAAP gross margin, and non-GAAP operating income were all record achievements for Marvell. Higher revenue coupled with stronger non-GAAP gross margin and lower OPEX drove non-GAAP earnings per share to $0.34, $0.03 above the midpoint of guidance. Non-GAAP EPS grew 62% year over year. Our non-GAAP operating margin climbed above 30%, demonstrating significant operating leverage in our business model. In the second quarter, the standalone Barbell business delivered solid year-over-year revenue growth in the high teens on a percentage basis, similar to the growth rate we saw in Q1. I'm also pleased with the strength of our InFi business, which delivered revenue above expectations and was accretive to our non-GAAP earnings in its first full quarter within Marvell. On a product group basis, networking revenue was $702 million, above the midpoint of expectations, and grew 41% sequentially and 73% year-over-year. Storage revenue was $342 million, also above the midpoint of expectations, and grew 13% sequentially and 18% year-over-year. Our storage business, which I would note does not include any contributions from N5, is now running at an annualized revenue run rate of approximately $1.4 billion. This business has been growing double digits year over year in recent quarters, reflecting its remarkable transformation from significant PC exposure to now being focused largely on the data center. Based on the significant improvement in the mixed event markets, combined with design wins we have secured for our SSD controllers, HDD controllers, and preamps, we expect our storage business to continue to grow strongly over the next several years. Let me now move on to discussing our 5N markets. I'll start with a recap of the substantial improvements we have driven over the last few years in focusing the company on data infrastructure, which is evident in the historical data we have provided today. As a result of our strategic multi-year transformation, we have significantly increased our exposure to the data center and carrier end markets, which are characterized by long product life cycles, picky design wins, and multi-generational engagements. At the same time, we have substantially reduced our dependence on the consumer market, which tends to be more volatile with shorter product life cycles. The consumer market is now only 15% of our total revenue. Factors contributing to this change include significantly higher growth we have driven from the other ad markets, our de-emphasis on PC, HDD, and SSD controllers, and the sale of our Wi-Fi business. In sharp contrast, data center is now our largest end market and at 40% of total revenue is about twice as large as any of our other end markets. We believe that data center is positioned to become an even bigger part of Marvell over time when we combine our growing market share with the numerous secular growth drivers in this end market. Over the last few years, data center has become our most diversified end market with revenue contribution from nearly every Marvell product line. Cloud is the primary growth driver in this end market, and it's exciting to note that cloud now represents more than half of our data center revenue, making cloud on its own larger than any of our other four end markets. We have grown our data center business through organic investment in our Nearline HDD controllers and preamps, SSD controllers, as well as significant M&A. We added Cavium's LiquidIO and Liquid Security DPUs, which have been adopted by multiple cloud customers. The Avera acquisition added a custom ASIC platform, which we coupled with Marvell's leading standard product IP. This has proven to be extremely compelling to hyperscale customers who are building custom hardware to deploy incredibly efficient and optimized infrastructure. We recently added InFi's market-leading electro-optics portfolio for high-speed connectivity, both within and between cloud data centers. Finally, the proposed acquisition of Inovium will add their cloud-optimized Ethernet switches to our data center portfolio products. With the broadest technology platform in the industry, we believe Marvell is well positioned to become a semiconductor leader in data center and expect this end market will be the most important growth opportunity for the company over the next several years. In carrier infrastructure, we have been significantly growing our dollar content base station, winning new customers, and growing our overall market share in the 5G market. Just over the last two years, our carrier revenue has nearly tripled, representing approximately 20% of our total revenue. We expect a sustained period of strong revenue growth from this end market, driven by an increase in 5G deployments, which are still in the early stage of worldwide adoption, and the ramp of our full platform of 5G products at multiple customers in their current generation of base stations. We have also one additional socket for the 5 nanometer, which will go into production in next generation base station launches over the next several years. extending the growth from our carrier end market over a long time period. The enterprise networking end market comprises approximately 20% of our total revenue. The revenue contribution from this end market has grown rapidly and kept pace with the strong growth in Marvell's total revenue over the last few years. This is a solid accomplishment against the backdrop of challenging end market dynamics. In fact, over the last two years, our enterprise revenue has grown at 23% annual CAGR, with the majority of the growth coming from standalone Marvell Ethernet switch and five products. These refreshed platforms have been instrumental in driving outsized revenue growth, a testament to the competitiveness of our products and technology. We believe that we are well positioned to continue outperforming the market and are looking forward to a recovery in enterprise spending that would serve as an incremental tailwind to this business. Our revenue from the automotive and industrial end market has begun to accelerate in recent quarters, benefiting from the ramp in our auto ethernet connectivity business. Our automotive business is in its early stages of growth, and given our design wind traction and the growth expected in the adoption of ethernet technology in cars, we expect the revenue contribution from this end market will become a larger portion of our total revenue over time. Let me now move on to discussing our second quarter results and third quarter expectations for each of our end markets, starting with data center. In our data center end market, revenue for the second quarter was $434 million, growing 57% sequentially and 62% year over year. Strong growth was driven by contributions from the acquired InFi business and ongoing growth from the standalone Marvell business. Cloud customers drove the vast majority of the growth in our data center end market. Our electro-optics products continue to benefit from the adoption of PAM-based connectivity inside cloud data centers, as well as the adoption of DCI, or data center interconnect, between regional locations. Marvell's DPUs and storage products also contributed to growth in this end market. Last quarter, we discussed a number of significant design wins, leveraging our advanced technology platform with multiple cloud customers across a variety of applications and business models. These are expected to drive a substantial step up in our cloud revenue in the calendar 2024 to 2025 timeframe. Development is in full swing on these projects, and I am pleased to report that our cloud design momentum continues this quarter with an additional custom ASIC design secured for a cloud networking application. We expect to continue to win sockets and gain share in this market, leveraging the strength of our portfolio and growing engagements with key cloud customers. In our third fiscal quarter, we are expecting another strong performance from data center, projecting robust sequential revenue growth in the double digits on a percentage basis. We expect year-over-year growth will be considerably higher and project data center revenue to just over double from a year ago. We expect the sequential growth to be driven by cloud with virtually all of our product lines contributing to growth. I'm also pleased to note that in the third quarter, we expect to start ramping our second generation of ColorZ DCI products, 400 gigs VR into volume production. With our proposed acquisition of Inovium, we are looking forward to adding their cloud optimized switches to Marvell's broad data center portfolio. We received very positive feedback from multiple key customers following our announcement of the planned combination. They're excited about the prospect of collaborating more closely with us once the acquisition closes to address their need for high performance switches going forward. Turning to our carrier infrastructure and market, Revenue for the second quarter was $197 million, growing 17% sequentially and 38% year-over-year. In addition to the contribution from InFi, year-on-year growth was enabled by standalone Marvell's wireless business. Our wireless revenue growth was driven by ongoing deployments of 5G, as well as product ramps at Samsung and Nokia, partially offset by an expected decline in custom ASICs shipping into China. Design Wind progress continues in 5G, and I'm pleased to report that we have won a next-generation ASIC design leveraging our 5-nanometer technology platform within the radio unit at a key base station customer. With this win, we have now secured 5-nanometer designs at three Tier 1 base station customers. Our ORAN and VRAM platform, which includes our card-based Layer 1 accelerator, also continues to be adopted by multiple cloud customers and wireless base station OEMs. In the third fiscal quarter, we expect sequential revenue growth from the carrier and market, driven by strong growth from wireless, partially offset by a decline from wired. We project the strong growth in wireless in the double digits sequentially and on a percentage basis to come from an increase in 5G deployments in multiple regions. In addition, we expect growth from 5G to significantly accelerate in the fourth quarter. On a year-over-year basis for our carrier ad market, we project strong revenue growth to continue above 20% in the third quarter. Moving on to our enterprise networking end market. Revenue for the second quarter was $223 million, growing 27% sequentially and 41% year over year, with the majority of the growth coming from standalone Marvell products. This remarkable level of organic growth in the enterprise end market was made possible in part by a strong effort from our operations team to address pent-up customer demand. While we expect strong demand to continue for the foreseeable future, we expect supply constraints will impact our ability to this level of revenue attainment in the third quarter. From a product perspective, growth in the second quarter was driven by our Ethernet networking portfolio, benefiting from ongoing share gains and the beginning of multi-gig adoption. We are also encouraged by strong demand for our products from customers that we believe indicate a recovery is underway in the SEND market. Looking ahead to the third quarter, while we expect a sequential decline in revenue due to supply constraints, We anticipate strong year-over-year growth, approaching 30%. Turning to our automotive and industrial end market, revenue for the second quarter was $57 million, growing 24% sequentially and 125% year-over-year, driven by the ongoing ramps in our auto business. Marvell continues to gain recognition from customers for its commitment to automotive-grade quality and reliability. During the quarter, we received a prestigious Global Supplier Award from the Bosch Group in recognition of Marvell's outstanding performance and quality in the manufacture and supply of leading-edge data infrastructure semiconductors. We are looking forward to our continued partnership and long-term collaboration with Bosch on our broad and growing group of automotive customers and partners. Turning to the third fiscal quarter, we expect our revenue from the auto and industrial end market to grow sequentially. Year over year, we project growth will continue to be very strong and expect revenue to nearly double in the third quarter. We also expect to attain an important milestone in the third quarter. Our automotive business is projected to cross over $100 million annualized revenue run rate earlier than prior expectations. Moving on to our consumer end market, revenue for the second quarter was $165 million, declining 1% sequentially and growing 23% year over year. Most of the revenue in this end market is from standalone Marvell and the strong annual growth is driven primarily by our custom DIY SSD controllers. Looking ahead to the third quarter, we expect revenue to grow sequentially while year-over-year revenue growth will remain strong in the double digits on a percentage basis. In closing, we expect our business momentum to gather strength in the second half of fiscal year 2022. Our recent results and near-term expectations for revenue growth continue to trend above the high end of our target model. Demand for our products continues to significantly outpace supply, and our global operations team is aggressively securing more capacity. We are working closely with our supply partners, leveraging our scale and balance sheet to improve our ability to meet the strong secular growth and demand we expect for our data infrastructure products, both in the short and the long term. For our third fiscal quarter, at the midpoint of guidance, We expect revenue to grow 6% sequentially and 53% year-over-year. We expect growth from the standalone Marvell business to accelerate to over 20% year-over-year in the third quarter, compared to the high teens we achieved in the first half. Additionally, we expect the InFi business to continue to perform well and grow faster than standalone Marvell. Our integration of InFi is proceeding very well, and we successfully achieved our one ERP milestone ahead of schedule. Leveraging the larger scale and broader set of key technologies, the combined teams are working closely together on winning new opportunities at multiple Tier 1 customers. We are also looking forward to completing the proposed acquisition of Inovium, which will broaden our Ethernet switch platform and further increase our exposure to the fast-growing cloud data center market. I'm also pleased to announce that we will be hosting our Investor Day this year on Wednesday, October 6, 2021, at 8 a.m. Pacific. Similar to last year, this will be a virtual event webcasted live on our website. We will provide more event details in a press release shortly. With that, I'll turn the call over to Jean for more detail on our recent results and outlook.