Marvell Technology, Inc.

Good afternoon and welcome to Marvell's Technologies Fiscal Third 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 third 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 the most recent 10-K and 10-Q findings. We do not intend to update a 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. We closed the acquisition of Inovium on October 5th, 2021. Therefore, the results we reported today for the third quarter of fiscal 2022 include the results from the Inovium business for 25 days of the fiscal quarter. Revenue from the acquired Inovium business is reported entirely within our data center and market. Please note that the guidance we have provided for the third quarter of fiscal 2022 on August 26, 2021 has not included any expectations of the results from Inovium. The financial outlook for the fourth quarter of fiscal year 2020 to provide it today includes expected results from the acquired Inovium business for the full quarter. 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 third quarter GAAP results. Revenue was $1.21 billion, which was above the high end of our guidance and represents another record achievement for Marvell. GAAP gross margin was 48.5%. Gap operating loss was $33 million, and loss per diluted share was $0.08. Revenue grew 13 percent sequentially and 61 percent year-over-year, an acceleration from the first half of this fiscal year. We saw great momentum in all five of our end markets, with revenue growing both sequentially and year-on-year. Our data center, carrier, enterprise networking, and auto industrial end markets all achieved record revenue and performed above guidance. Excellent operational and financial execution resulted in revenue 6% above the midpoint of our guidance. Our operations team continues to do a great job in sourcing incremental supply, and we are starting to see the fruits of their labor. Supply was better than expected in the third quarter, and we expect continued improvements as we move into the fourth quarter and next year. The additional capacity has better positioned us to catch up to the growth in demand, which so far has outpaced increases in supply. Moving on to our non-GAAP results for the quarter. Non-GAAP gross margin was a record, 65.1 percent, and we delivered $418 million in non-GAAP operating income. Non-GAAP operating margin was also a record at 34.5 percent. Higher revenue coupled with stronger gross margin drove non-GAAP earnings per share to 43 cents, 13 percent above the midpoint of guidance, growing 72% year over year, which represents phenomenal growth in earnings. These are tremendous accomplishments, and I am very proud of the outstanding execution by our entire Marvell team in driving such strong results. Let me now move on to discussing our five end markets, starting with data center. In our data center end market, revenue for the third quarter was 500 million, growing 15% sequentially, and 109% year-over-year, exceeding our guidance. Both the standalone Marvell business and the acquired InFi business delivered strong growth driven by robust demand from cloud customers. I would note that our on-premise data center business also grew sequentially and year-over-year. Data center is our most diverse end market with multiple product lines contributing to sequential revenue growth. These include 200 and 400 gig PAM4 electro-optics, data center interconnect ZR modules, SSD and HDD controllers, cloud-optimized SOCs, and Ethernet switches. In addition to strong end market demand, the majority of these product lines are also benefiting from the start of new product ramps, which we expect will continue to drive sustained growth. As an example, in our SSD business, we benefited from a strong ramp of DIY controllers directly to a Tier 1 cloud customer. Remember, you heard at Investor Day, Marvell has been winning a large number of incremental cloud-optimized silicon designs, and these are now in development. In addition, the design wind funnel and level of activity on cloud-optimized silicon engagements continues to accelerate, and we have recently won another socket with our storage accelerator. At our Investor Day, we discussed this new $500 million market for our storage business in cloud storage accelerators. and disclosed our first design win with a cloud customer. Now, a key storage partner, Kioxia, recently announced production availability of their NVMe over fabric SSDs, which will also use our storage accelerators. These SSDs are for Ethernet bunch of flash systems designed for applications such as artificial intelligence, machine learning, and high-performance computing. The Kioxia SSDs connect to the network fabric natively using Ethernet. by integrating a Marvell storage accelerator, which converts NVMe into 25 gigabit Ethernet. We are excited to see this new opportunity take shape with multiple customers starting to adopt our storage accelerators. Turning now to Inovium. During the quarter, we closed the acquisition, adding their cloud optimized switches to our broad data center portfolio. We're pleased that company co-founder and CTO, Puneet Agarwal, and the R&D team have become a part of Marvell. We are confident that our combined switch business businesses are now well positioned to be a strong provider of ethernet switches to data centers. And we see an incredible opportunity ahead for Marvell in this high growth market. We expect the acquisition of Inovium will result in 150 million in incremental revenue next fiscal year. As we ramp switches into a large tier one cloud customer, they had one prior to the acquisition. We are also looking forward to supporting additional cloud customers, such as LinkedIn, who are deploying Inovium's TerraLink space switches in production across multiple data centers with the Sonic Network OS. Sonic is an open network operating system which provides cloud customers with more choice and interoperability, as well as the ability to scale. We recently announced our commitment to supporting Sonic across both our Prestera and TerraLink products. Moving on to our expectations for revenue from our data center and market in our fourth fiscal quarter. Similar to the third quarter, we are expecting another strong performance led by cloud customers across a broad range of products. We expect data center revenue to more than double from a year ago, and we project sequential growth in the double digits on a percentage basis in the fourth quarter. We are pleased with the strength we are seeing from the cloud and market, which we expect will remain a strong driver of sustained growth for Marvell. Looking out further in time, we are also excited by the immense potential for another phase of growth as large-scale virtual environments, such as Facebook is doing with their metaverse, start to gain traction. For simplicity, while I will use the metaverse as a general descriptor for this discussion, we expect many different implementations of virtual environments enabled by a broad set of companies and ecosystems. Regardless of the form these environments take, the data sets will be exponentially larger compared to the current internet, which is largely two-dimensional, and latency will need to be extremely low to realistically simulate a real-world environment. As a result, we expect the metaverse will significantly accelerate a number of key trends which are already occurring in the cloud today, including the need to store huge amounts of data in a secure environment, connected by high-speed electro-optic links to custom compute engines. This next level of massive scaling makes the metaverse an even stronger candidate for cloud-optimized silicon solutions that Marvell is currently enabling. This meshes perfectly with the core competencies we have already developed across compute, storage, security, networking, high-speed electro-optics, and customization, which are driving our current success and these are equally applicable to the variety of virtual environments which will develop over time. The metaverse also has the potential to be a killer app for 5G, another area of strength for Marvell. Multiple cloud customers have already engaged with us as they start designing the architecture of their next generation of data infrastructure to enable a significantly richer set of virtual applications and experiences. Turning now to our carrier infrastructure and markets. Revenue for the third quarter was 215 million, growing 9% sequentially and 28% year over year, exceeding our guidance. Growth was driven by our 5G products, ramping at multiple customers. We were also able to improve supply for our wired business to enable sequential growth. Looking at the fourth quarter, we expect a strong ramp in our 5G business of approximately 30% sequentially. And as a result, we project our combined carrier infrastructure revenue across our wireless and wired-in markets to grow sequentially in the low teens on a percentage basis, while year-on-year growth is expected to accelerate to over 40%. It's exciting to see this step up in our 5G business, and we expect significant additional growth over the next several years as 5G adoption continues to grow around the globe, combined with Marvell content gains from designs we have won but not yet begun to ramp. Moving on to our enterprise networking end market. Revenue for the third quarter was $247 million, growing 11% sequentially and 56% year over year, with the majority of the growth coming from standalone Marvell products. This performance was significantly better than our expectations, as our operations team did an excellent job securing additional supply to better address the increase in demand for our products. From a product perspective, in the third quarter, the continuation of strong year-on-year growth was driven primarily by Marvell's Ethernet networking portfolio. We have been gaining share and benefiting from the very deliberate investments we have made in our enterprise Ethernet switch platform, as well as the combined Marvell and Equantify portfolio. In addition, our content has been growing, driven by an increase in multi-gig Ethernet adoption. Looking ahead to the fourth quarter for our enterprise networking end market, we project revenues sequentially to be up in the low to mid single digits on a percentage basis, and year-over-year growth is expected to remain very strong at approximately 60%. We expect the strong growth to be driven by continued share gains from Marvell products combined with ongoing recovery in the enterprise networking end market. Turning to our automotive and industrial end market, which is served primarily by standalone Marvell businesses, revenue for the third quarter was $67 million, growing 16% sequentially and 114% year over year, driven by ongoing ramps in our auto business. I'm pleased to report that our team has now driven our auto business to over a $140 million annualized revenue run rate in the third quarter, ahead of our prior expectations. We are benefiting from a faster pace of adoption of our Ethernet solutions by auto OEMs, who are prioritizing the production of their latest models, which tend to have higher semiconductor content. We are confident that we are well on our way to driving a multi-hundred-million-dollar revenue stream from our auto Ethernet business over the next few years. Looking beyond connectivity, our next multi-billion-dollar market opportunity for Marvell is in automotive compute. The future of technology in cars is all about electrification and intelligence with embedded security and onboard storage in a fully networked environment. Similar to the rise of optimized silicon and cloud, Automotive OEMs are realizing that to differentiate their products and deliver the most value to their customers, they need unique technology and IP to be embedded in compute silicon optimized to their specific platforms. You don't need to look too far to see evidence for this sea change. Recent industry commentary, including from Ford and Volkswagen, talks about their focus on developing internal silicon design expertise, desire to customize off-the-shelf compute, and their intentions to design and develop their own shifts for autonomous vehicles. Similar to our successful strategy of partnering with hyperscale customers for cloud optimized silicon, we are confident that our co-development business model and rich IP portfolio is equally attractive to automotive OEMs. In this model, the design is done in true partnership with the customer focusing on the portions proprietary to their platform and Marvell bringing our own unique compute, security, Ethernet networking, and storage silicon IP to the table. The end solution is a semi-custom design which represents the best of both worlds, allowing our customers to achieve their ambitions and retain control of their roadmap. In doing so, they can not only preserve their differentiation with a faster time to market, but it will also enable a lower level of investment thanks to Marvell. We see compute becoming an increasingly important part of our growing automotive business, adding to our very successful Ethernet connectivity solutions. Reflecting this broadening of our portfolio, I'm very pleased to introduce Marvell's new brand for automotive solutions, Brightlane, which includes our gigabit and multi-gigabit Ethernet switches and PHYs for connectivity and our Octeon processors for compute. At our investor day, we had discussed our first major auto compute win based on our Octeon Brightlane platform. The semi-custom design is now in development. We are seeing a significant increase in compute-related activity with additional auto OEMs, both traditional and new market entrants. And I look forward to updating you on our progress in this exciting new long-term growth pillar for Marvell. Turning to the outlook for the fourth fiscal quarter for our auto and industrial end market, we expect strong revenue growth to continue. We project sequential growth in the double digits on a percentage basis, and year-over-year growth to remain above 100%. Moving on to our consumer end market, revenue for the third quarter was $183 million, growing 10% sequentially and 20% year-over-year. Looking ahead to the fourth quarter, we expect revenue to grow sequentially in the low single digits on a percentage basis and year-on-year growth in the double digits on a percentage basis. We are benefiting from strong growth driven by our SSD controllers that we have targeted at differentiated, sticky, long-lived, and high ROI applications, such as game consoles. In closing, we delivered very strong results for our third quarter, and we expect this momentum to continue in our fourth quarter and next year. Both the acquired InFi business and the standalone Marvell business are firing on all cylinders. In the third quarter, the standalone Marvell business delivered strong year-over-year revenue growth, close to 30 percent. The InFi business performed even better. The midpoint of our guidance for revenue in the fourth quarter implies a similar approximately 30 percent year-over-year growth rate for each of these businesses. We are proud of these results and our outlook for growth in the fourth quarter, which is well above the high end of our long-term revenue growth target of a 15 to 20 percent CAGR. Securing capacity for growth remains the highest priority for our operations team, even as the supply expansion comes with an increase in input costs. As we have done throughout the supply crunch, we are working with our customers to adjust prices to offset the impact of these cost increases, which let us jointly benefit from sustained growth. As we look at next fiscal year, we will continue to drive supply improvements, and we expect demand to remain above the high end of our long-term target model. As a result, we anticipate a sustained period of strong revenue growth for Marvell. From a base of approximately $4.4 billion in fiscal 2022, we expect to combine Marvell and InFi business to continue growing in fiscal 2023 at the 30% year-on-year rate we are currently achieving. On top of this, we expect an additional $150 million of revenue in fiscal 2023, resulting from the Inovium acquisitions. We are also excited about the setup for growth beyond fiscal 2023. At our investor day, you heard us describe our participation in end markets collectively expected to grow at a 13% TAGR. In addition, we have a number of growth drivers which we expect will result in our revenue growing faster than our end markets. We discussed our expectations for a step up in incremental revenue from the start of new design win ramps. We updated our expectations for revenue from cloud optimized silicon design wins to ramp to $400 million in fiscal 2024, a year earlier than prior projections. These wins are further projected to double to $800 million in revenue in fiscal 2025. In 5G, starting in fiscal 2024, we expect to benefit from an increase in content at Nokia when we start ramping our 5-nanometer Octeon embedded processors into their 5G base station. Over the same timeframe, our auto Ethernet connectivity business is expected to make significant progress towards driving revenue over $500 million annually, and our Electro-Optics PAM, Coherent, and ZR portfolio is also projected to remain on a high growth trajectory. In summary, while we have been delivering strong results for multiple quarters, we are confident that we are still in the early stages of a sustained high growth period for Marvell. We are looking forward to reaping the benefits of the investments we have made in our business over the last few years. With that, I'll turn the call over to Jean for more detail on our recent results and outlook.