Marvell Technology, Inc.

Good afternoon, and welcome to the Marvell Technology Incorporated second quarter of fiscal year 2024 earnings conference call. All participants will be in 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 this conference over to Mr. Ashish Saran, Senior Vice President of Investor Relations. Please go ahead.

Thank you and good afternoon, everyone. Welcome to Marvell's second fiscal quarter 2024 earnings call. Joining me today are Matt Murphy, Marvell's Chairman and CEO, and Willem Minkies, our CFO. Let me remind everyone that certain comments made today include forward-looking statements, which are subject to significant risks and uncertainties that could cause our actual results to differ materially from management's current expectations. Please review the cautionary statements and risk factors contained in our earnings press release, which we filed with the SEC today and posted on our website, as well as our most recent 10-K and 10-Q filings. We do not intend to update our forward-looking statements. During our call today, we will refer to certain non-GAAP financial measures. A reconciliation between our GAAP and non-GAAP financial measures is available in the investor relations section of our website. Before I turn the call over to Matt for his comments on our performance, let me highlight several new product announcements starting with our electro-optics portfolio. First, we announced the release of Orion, the industry's first 800 gig coherent optical DSP for pluggable modules. Orion is our fifth generation of coherent DSPs and is produced in 5-nanometer technology, incorporating our 112-gig SerDes, enabling 800 gigabits per second of throughput within the tight power and space constraints of small form factor pluggable optical modules. Orion enables high-performance probabilistic traffic shaping in addition to supporting standards-compliant transmission modes. We expect that Orion is well positioned to continue to drive Marvell's leadership and coherent technology in both the carrier optical transport market, as well as data center interconnects or DCI in the cloud market. In parallel with Orion, we launched the industry's first 800 gig DCI ZR module, our colors 800 platform. We will be demonstrating our 800 ZR module at the ECO conference in October. Marvell pioneered DCI technology at 100 gig, followed by a 400 ZR platform, which has been shipping in volume since last year. COLORS 800 will be our third generation of DCI modules. Powered by a new Orion DSP, COLORS 800 incorporates Marvell's innovative silicon photonics technology, which integrates multiple discrete components on a single die. Marvell's 800 ZR modules provide twice the bandwidth of current solutions while lowering power and cost per bit by 30%. Our 800 ZR modules will enable the deployment of next generation 51.2 T switches and routers by cloud operators to support the massive increase in traffic between data centers driven by continuing growth from generative AI. Moving to our copper connectivity portfolio, we announced the industry's first 5-nanometer multi-gigabit PHY platform. This platform represents a significant leap in performance compared to products on the market today and is a key milestone in Marvell's journey to physical layer technology leadership. It is based on an innovative architecture that includes optimized circuit design, custom digital logic, and enhanced DSP algorithms. This PHY platform will deliver 10 gig performance at half the power of previous generation Marvell devices and will become the building block for multiple standalone PHY products, integrated SOCs, and custom ASICs optimized for specific markets and applications. We expect the adoption of multi-gig PHYs will continue to grow in enterprise networking. In our automotive end market, we announced the industry's highest capacity automotive central Ethernet switch to support the zonal networking architectures of next-generation vehicles. This addition to our BrightLane family of auto Ethernet switches delivers 90 gigabits per second of bandwidth, nearly two times higher than current commercially available solutions. The new switch family also includes a combination of advanced security features not found together in any other automotive switch product. These features include MACsec link security on every port, deep packet inspection for heightened intrusion detection, and an embedded hardware security module for encryption. This product has started sampling to multiple leading automotive customers and partners. Let me now turn the call over to Matt for his comments on the quarter. Matt?

Thanks, Ashish, and good afternoon, everyone. For the second quarter of fiscal 2024, the Marvell team continued to execute, delivering revenue of $1.34 billion. These results were above the midpoint of our guidance, primarily driven by demand from AI applications growing faster than our prior forecast. Our non-GAAP operating expenses were better than guidance due to an acceleration of the cost reduction plan we outlined last quarter. As a result, our non-GAAP earnings per share was $0.33, one cent above the midpoint of our guidance. We are pleased with our performance for the quarter in a challenging macro environment. Let me now move on to reviewing our results and expectations by end market, starting with data center. In our data center end market, revenue for the second quarter was $460 million, growing 6% sequentially, well above our guidance for a flat outlook. We were able to outperform our guidance in this end market because of accelerating demand for our optical products to meet the continuing expansion of cloud AI deployments. Our overall revenue from cloud grew over 20% sequentially. Notably, revenue from both cloud AI and standard cloud infrastructure grew sequentially, with AI growing faster. As expected, revenue from the enterprise on-premise portion of our data center and market declined significantly on a sequential basis in the second quarter, reflecting a weakening enterprise market. As you heard in detail last quarter, AI infrastructure requires a staggering amount of high bandwidth connectivity, best provided by an optically connected infrastructure operating at the highest available speeds. Marvell is enabling AI with a broad range of solutions, which include PAM4-based optical DSPs and AECs, for connecting accelerator clusters inside AI data centers, DCI products for connectivity between regional data centers, low latency, high capacity Ethernet switches for fabric connectivity inside data centers, and custom silicon for compute acceleration. We are confident that the breadth of Marvell's technology positions us as one of a scarce few semiconductor companies that can enable the industry to capitalize on the rapid growth in AI. Marvell's market-leading PAM4 optical DSPs are indispensable for the pluggable optical module ecosystem that cloud customers rely upon to build their massively scalable networks. Our DSPs enable full interoperability and backward and forward compatibility. They also provide the advanced telemetry and diagnostics critical to maintaining an extremely resilient and serviceable network. We've been shipping the industry's highest speed 800 gig PAM4 DSPs in high volume for several quarters and have begun sampling our next-generation 1.6T platform. We are seeing demand for connectivity between regional data centers accelerate as inference is deployed across multiple locations. As Ashish told you, Marvell has been a key enabler of this application with our DCI products, and we just announced our plan to demonstrate the industry's first 800 ZR modules in October based on our new Orion Coherent DSP. Looking at the future of optical connectivity, we are uniquely positioned in the industry with a leadership position in both PAM and coherent technology. We are also excited about the opportunity for our next generation of Ethernet switches, our 51.2T TerraLynx 10 platform, which we announced earlier this year. We have begun sampling this product, and we are seeing strong interest from customers. Last quarter, we told you how cloud customers are enhancing their AI offerings by building custom accelerators of their own. trend is leading to a larger and faster growing opportunity for Marvell's custom compute portfolio. We have won a number of custom silicon programs tied to AI, and these are well on their way to start ramping into volume production next year. Let me now talk about what we are seeing in storage and data center. As we expected from a low base in the first quarter, we saw sequential storage data center revenue growth in the second quarter, and we are expecting modest sequential growth in the third quarter. However, Storage and market demand remains significantly depressed and customer inventory remains high. As a result, the industry's expectations for a data center storage recovery have pushed out meaningfully. Looking ahead to the third quarter, we expect sequential revenue growth from overall cloud to accelerate above last quarter's performance, driven by continued strong growth from cloud AI as well as standard cloud infrastructure. Demand for our AI products continues to grow at an extraordinary rate, and we are working very closely with our customers to meet their rapidly evolving needs. On the other hand, enterprise on-premise is expected to continue to trend down. As a result, we are projecting overall data center revenue in the third quarter to grow in the mid-teens sequentially on a percentage basis. Turning to our carrier infrastructure and market, revenue for the second quarter was in line with our guidance at $276 million, declining 3% year-over-year and 5% sequentially. Sequential and year-over-year decline were driven entirely by the wired portion of our carrier end market, reflecting ongoing demand weakness and inventory digestion at wired customers. In contrast, our wireless revenue continued to grow in the second quarter, building upon the 25% sequential growth we saw in the first quarter, and we are expecting additional growth in the third quarter. As a result of significant share in content gains from Marvell products in conjunction with the 5G upgrade cycle, We have grown our wireless revenue significantly over a multi-year period. While the full conversion to 5G in the world's installed base of wireless infrastructure will take many years, a number of regions are completing their initial phase of 5G deployments and are taking a pause in a challenging macroeconomic environment before they upgrade the balance of their networks. As a result, following an extended period of strong growth, we are expecting a significant sequential reduction in our wireless revenue in the fourth quarter. However, we expect that once customer and operator inventories normalize and carrier CapEx returns to more healthy levels, we can resume growth in our overall carrier and market and start to realize additional share gains. These will come from five nanometer base station designs we have won, but which are not yet in production. In addition, we expect the launch of our next generation 800 gig Orion coherent DSP platform will drive long-term growth from the wired optical transport market. Moving to our outlook for the third quarter, we expect revenue from our overall carrier end market to grow in the low single digits sequentially on a percentage basis, driven by wireless. Turning to our enterprise networking end market, revenue for the second quarter was 328 million, declining 4% year over year and 10% sequentially. As we have been signaling for the last few quarters, we continue to see inventory corrections impact customer demand in this end market. We expect this inventory renormalization to take a few quarters to resolve as customer balance sheets get worked down over time. While we deal with these market dynamics in the near term, I would note that enterprise networking has been an important contributor to Marvell's successful transformation to a leader in data infrastructure. The Marvell team has driven an extended multi-year period of exceptional revenue growth, with enterprise networking revenue essentially doubling over the last few years. This was enabled by significant share in content gains, a testament to the consistent investment we made in refreshing our enterprise networking product portfolio. As Ashish told you, we continue to introduce new products, such as the industry's first 5-nanometer multi-gig Ethernet PHY transceiver. Looking ahead to the third quarter of fiscal 2024, we project our enterprise networking revenue to decline in the low teens sequentially on a percentage basis due to the market dynamics outlined earlier. Turning to our automotive and industrial end market, revenue in the second quarter was $110 million, above guidance, growing 32% year-over-year and 23% sequentially. Year-over-year growth was led by our automotive business, which continued to benefit from the growing adoption of Ethernet in cars. We also closed on a number of new automotive Ethernet design wins with multiple top 10 automotive OEMs during the quarter. Looking to the third quarter of fiscal 2024, We project revenue from our auto and industrial end market to be flattish sequentially and to continue growing year-over-year in the 30% range. Moving on to our consumer end market, revenue for the second quarter was $168 million, growing 2% year-over-year and 18% sequentially. Revenue is below guidance as deliveries for an end-of-life program were rescheduled to the third quarter. As a result, we are forecasting consumer and market revenue to grow sequentially in the low teens on a percentage basis in the third quarter. In summary, we delivered revenue and earnings above the midpoint of guidance for the fiscal second quarter. We are forecasting revenue growth to accelerate in the third quarter, accompanied by gross margin expansion. We intend to remain disciplined on operating expenses to help us deliver strong operating leverage. Looking ahead, while inventory digestion in some end markets is taking longer to resolve, demand from AI applications continues to strengthen, and Marvell is well positioned to benefit from that trend. Based on our latest demand outlook for our electro-optics products, we now expect revenue from AI to exit this year at over a $200 million quarterly revenue run rate, or $800 million annualized. This is well above what we had outlined last quarter. To put this in perspective, this would put us at the run rate we had previously communicated for all of next year. Looking forward, between the ongoing strengths from electro-optics and the expected ramp of multiple custom compute programs, we are expecting continued outsized growth from AI. Our results and outlook continue to validate our strategy to focus on developing the most advanced silicon for data infrastructure. The diversification in our end markets is serving us well, with strong growth from AI and cloud carrying us through a softening macro environment. With that, I'll turn the call over to Willem for more detail on our recent results and outlook.