Marvell Technology, Inc.

Inc.' 's first quarter of fiscal year 2025 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing a star 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, Senior Vice President of Investor Relations.

Please go ahead.

Thank you and good afternoon, everyone.

Welcome to Marvell's first fiscal quarter 2025 earnings call. Joining me today are Matt Murphy, Marvell's Chairman and CEO, and Willem Minkus, 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 DSCC 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. Let me now turn the call over to Matt for his comments on the quarter. Matt?

Thanks, Ashish, and good afternoon, everyone. For the first quarter of fiscal 2025, Marvell delivered revenue of $1.16 billion. above the midpoint of guidance driven by stronger-than-forecasted results from our data center end market. Higher revenue combined with disciplined expense control drove non-GAAP earnings per share of $0.24, also above the midpoint of guidance. The Marvell team executed well in the first quarter, and we are looking forward to revenue growth and financial performance strengthening throughout this fiscal year. Let me now discuss our results and expectations for each of our end markets. In our data center end market for the first quarter, we drove record revenue of $816 million, well above our guidance. The outperformance was driven by strong demand from cloud AI applications for our electro-optics portfolio, including PAM, DSPs, TIAs, and drivers, as well as our ZR data center interconnect products. Data center revenue grew 87% year-over-year and 7% sequentially, with double-digit growth from cloud more than offsetting a higher-than-seasonal decline in revenue from enterprise on-premise data centers. Strong revenue growth was driven by cloud AI as well as standard cloud infrastructure. In addition to strong contributions from our market-leading electro-optics products, we also benefited in the first quarter from the initial shipments of our custom AI compute programs. Turning to the second quarter of fiscal 2025, we expect our overall data center revenue to grow on the mid-single digits sequentially on a percentage basis as our custom AI silicon continues ramping. I'm very pleased with our results and projected guidance for our data center and market. Our continued growth in data center, and AI in particular, is Starting with our interconnect solutions, our 100 gig per lane, 800 gig PAM products are the primary interconnect enabler for state-of-the-art AI deployments today. And customers have already started qualifying our first-to-market next-generation 200 gig per lane 1.60 solutions. Our 1.60 solutions are poised to enable the next generation of AI accelerators. We are seeing similar success with our DCI products, with 400 gig VR shipping in high volume, strong interest for our next-generation 800-gig products, and an expanding DCI customer base with design wins at multiple new data center customers. As we discussed at our recent AI event, we are further expanding our DCI opportunity, enabled by our new coherent DSP, which extends the reach of our DCI modules to 1,000 kilometers, creating what is expected to be a new $1 billion market for Marvell over the long term. In aggregate, we expect our overall market for DCI products to grow to $3 billion by calendar 2028. Complementing our optical interconnect solutions, we have started shipping PAM DSPs for active electrical cables with design ones at multiple Tier 1 cloud customers. This is expected to be another new and completely additive $1 billion market for Marvell over the long term. This morning, we announced that we are entering a new interconnect market with our PCIe Gen 6 retimers. AI applications are driving data flows and connections inside server systems at significantly higher bandwidth, driving the need for PCIe retimers to meet the required connection distances at the faster speeds. PCIe Gen 6 is the first PCIe standard to use PAM4 signaling. Technology Marvell has been leading for many generations. We have also been working closely with key customers and industry partners to intercept this technology transition and are now sampling our new 8- and 16-lane PAM4-based PCIe Gen 6 retimers. These products are designed to help data center compute fabrics continue to scale inside accelerated servers. We look forward to updating you on our progress in this new market. In data center switching, we are looking forward to starting production shipments of our next-generation 51.2T Swiss later this year. We are encouraged by the traction we are seeing with both existing and new customers, which has expanded our opportunity funnel for cloud switching. As we discussed at our AI day, we have also been making excellent progress with our custom compute business. Our custom compute AI programs are beginning to shift in the first half of this fiscal year, and we are expecting a very substantial ramp in the second half of this year, followed by a full year of high volume production in fiscal 2026. The multiple custom cloud products we are ramping today are validating the strategy we put in place following the acquisition of Cavium and Avera, combining decades of experience in both compute and custom silicon. As we gain momentum, we are now even more optimistic about our prospects in benefiting from the rapidly expanding opportunity funnel for custom cloud silicon. In fact, at our AI Day in April, we outlined our significant and growing new design wins for custom AI compute, in addition to our continued work with existing customers on a multi-generational basis. As a result, we are increasingly confident in our ability to meaningfully grow our share over the next several years in the market for custom accelerated compute, which is expected to grow from approximately $7 billion in calendar 2023 to over $40 billion in calendar 2028, a 45% CAGR. Underscoring Marvell's strategy to be the leader in data infrastructure, data center drove approximately 70% of our consolidated revenue in the first quarter. We see a massive opportunity ahead, with the data center TAM expected to grow from 21 billion last year to 75 billion in calendar 2028, at a 29% CAGR. We have numerous opportunities across compute, interconnect, switching, and storage, and as a result, we expect to double our market share over the next several years from our approximately 10% share last fiscal year. Now let me turn to Marvell's enterprise, networking, and carrier end markets together. As expected, reflecting a period of inventory correction and soft industry demand, revenue from both end markets declined in the first quarter. Enterprise networking revenue was $153 million, while carrier revenue was $72 million. In line with our expectations for these end markets to reach a bottom in the first half of this fiscal year, we project our revenue in the second quarter from both enterprise networking and carrier infrastructure to be flat sequential. Enterprise networking, we are encouraged by recent comments from our networking customer start to normalize. As a result, we expect to start to recover in the second half of this fiscal year as we begin shipping closer to end market demand. In the carrier end market, while overall demand remains subdued, we are looking forward to the initial transition to our next generation 5 nanometer based Octeon 10 DPUs at a Tier 1 customer. As previously outlined, while we are shipping the baseband socket in the current generation, we have already secured both the transport and baseband sockets in the next generation. The transition begins towards the end of this fiscal year and more meaningfully next year. We expect Marvell's market share to continue to grow in the 5G market. In aggregate, we are beginning to see encouraging signs that support our expectations for the start of a modest revenue recovery later this fiscal year in both the enterprise, networking, and carrier end markets. While the pace of recovery will depend on how quickly the still elevated inventory levels normalize at our customers, We are looking forward to these two end markets returning to strength for Marvell. Turning to the consumer end market, revenue in the first quarter was $42 million, declining 70% year-over-year and 71% sequentially. These results were in line with our forecast and reflected the completion of deliveries for an end-of-life program in the prior quarter, as well as the change in demand from the game console market. During the quarter, We work closely with our gaming customer to help them quickly complete the realignment of their inventory of our products to their updated production plan. With gaming inventory correction behind us, we were expecting our revenue in the second quarter from the consumer end market to rebound and approximately double on a sequential basis. Turning to our automotive and industrial end market, revenue in the first quarter was $78 million, declining 13% year-over-year, 6% sequentially. These results are reflective of a broad inventory correction taking place across the automotive end market, which is expected to take some time to fully resolve. As a result, we are forecasting revenue from our overall auto and industrial end market for the second quarter of fiscal 2025 to be flat sequentially. Looking further ahead, we expect revenue growth to resume in the second half of this fiscal year, driven by an increase in Marvell's Ethernet content and upcoming model year 2025 vehicles as they enter production towards the end of this calendar year. Marvell continues to deepen relationships with the world's largest automotive OEMs. General Motors recently named its supplier of the year and honored us with the 2023 Overdrive Award for Automotive Ethernet Technology. This prestigious award recognizes suppliers who consistently exceed expectations in their partnership with GM. We are excited that our automotive Ethernet portfolio is being recognized for playing a critical role in the industry. In summary, the first fiscal quarter played out largely as we had expected. Led by AI, data center continued to outperform, with revenue almost doubling on a year-over-year basis, while our other end markets found what is expected to be their bottom. For the second quarter, at the midpoint of guidance, we are forecasting consolidated revenue to grow 8% on a sequential basis. We expect a favorable setup for the rest of this fiscal year, driven by continued growth from data center and a recovery in the rest of our end markets. Our storage revenue has also resumed year-over-year growth, and given positive demand commentary from customers, we are expecting that to continue. We project robust growth to continue from AI with the expected ramp in our cloud custom AI programs to augment our substantial base of electro-optics revenue, which we expect will remain correlated to accelerator shipments. Given the strong start in the first quarter from AI and our expectations for continued growth the rest of this fiscal year, We are confident that we are well on our way to exceed the full year AI revenue target we had discussed earlier this year and at our AI event. So with that, I'll turn the call over to Willem for more detail on our recent results and outcome.

Thanks, Matt, and good afternoon, everyone. Let me start with a summary of our financial results for the first quarter of fiscal 2025. Revenue in the first quarter was $1.161 billion, exceeding the midpoint of our guidance, declining 12% year-over-year and 19% sequentially. Data center was our largest end market, driving 70% of total revenue. The next largest was enterprise networking with 13%, followed by auto industrial at 7%, carrier infrastructure at 6%, and consumer at 4%. Gap growth margin was 45.5%. Non-GAAP gross margin was 62.4%. Moving on to operating expenses. GAAP operating expenses were $680 million, including stock-based compensation, amortization of acquired intangible assets, restructuring costs, and acquisition-related costs. Non-GAAP operating expenses were $454 million, in line with our guidance. Gap operating margin was negative 13.1%, while non-gap operating margin was 23.3%. For the first quarter, gap loss per diluted share was 25 cents. Non-gap income per diluted share was 24 cents, one cent above the midpoint of guidance. Now, turning to our cash flow and balance sheet. Cash flow from operations in the first quarter was 325 million. As a reminder, our first quarter cash flow results reflect the payment of annual employee cash bonuses for the prior fiscal year. Our inventory at the end of the first quarter was 826 million, decreasing by 38 million from the prior quarter. On a year-over-year basis, we have reduced our inventory by 200 million, or almost 20%. Our DSO was 69 days, decreasing by eight days from the prior quarter. We returned $52 million to shareholders through cash dividends. In addition, we repurchased $150 million of our stock during the first quarter, an increase of $50 million from the prior quarter. We expect to further increase repurchases in the second quarter of fiscal 2025. Our total debt was $4.15 billion. Our gross debt-to-EBITDA ratio was 2.27 times, and net debt-to-EBITDA ratio was 1.8 times. As of the end of the first fiscal quarter, our cash and cash equivalents were $848 million, decreasing by $103 million from the prior quarter. This is primarily due to payment of annual employee bonuses, as we funded stock repurchases and dividend payments for our operating cash flow generation during the quarter. Turning to our guidance for the second quarter of fiscal 2025, We are forecasting revenue to be in a range of 1.25 billion plus or minus 5%. We expect our gap gross margin to be approximately 46.2%. We expect our non-gap gross margin to be approximately 62%. We are forecasting a small sequential decrease in non-gap gross margin due to a projected change in product mix as our consumer revenue rebounds and custom cloud silicon continues to ramp. In the second half, we expect a substantial ramp in our custom silicon programs to drive strong revenue growth, with only a modest recovery in our traditional businesses. As a result, we expect this revenue growth and accompanying mixed shift is likely to be dilutive to our current gross margins, but to be accretive to operating margin and earnings. We expect that a rebound in our traditional businesses to more normalized levels would meaningfully improve our overall gross margins in the future. For the second quarter, we project our gap operating expenses to be approximately $688 million. We anticipate our non-gap operating expenses to be approximately $455 million. For the second quarter, we expect other income and expense, including interest on our debt, to be approximately $46 million. We expect a non-gap tax rate of 7% for the second quarter. We expect our basic weighted average shares outstanding to be $867 million and our diluted weighted average shares outstanding to be $877 million. We anticipate gap loss per diluted share in the range of 15 cents to 25 cents. We expect non-gap income per diluted share in the range of 24 cents to 34 cents. Our guidance for revenue in the second quarter is to grow sequentially in the high single digits at the midpoint on a percentage basis. And we continue to be optimistic about the prospects in the second half of this fiscal year. As we drive revenue growth, we remain focused on delivering robust operating leverage, strong cash flow generation, and returning increasing amounts of capital to investors through our active stock repurchase program. Operator, please open the line and announce Q&A instructions.

Thank you.

Thank you.

We will now begin the question and answer session. To ask a question, please press star 1 in your touchtone phone. If you're using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, please press star 2. In the interest of time, please restrict yourself to one question only. If you have additional questions, please rejoin the queue.

At this time, we will pause momentarily to assemble our roster.

Our first question comes from Vivek Arya of Bank of America Securities. Your line is already open.

Thanks for taking my question. Matt, just kind of near term, I was hoping you could help quantify how much custom compute accounted for in Q1 and how you are thinking about it in Q2. And then as we look into the back half, I think you've given an overall AI number for the data center. But is that the supply constraint number? Just give us a sense for what are the puts and takes in the back half? How much flexibility is in the model to upside expectations from here on?

Hey Vivek, hey, thanks for the question. Yeah, so we started production shipments, which was great, in our first quarter. And, you know, that's on its way up. If you look at our Q2, you know, most of the growth in the data center segment is coming from custom. So that's a positive. And then the whole thing, you know, in Flex, meaningfully in the second half, And I'd say from a full-year perspective, the way to think about it, maybe some additional color would be, you know, we talked about a floor of $1.5 billion for AI revenue for Marvell for this fiscal year with about two-thirds in electro-optics and a third in custom. And we see now both of those, you know, exceeding that number. And then kind of to flow into your second part of your question on the supply constraints in the second half and how do we think about it, we feel like we're in a good position. On the optics side, we did get that initial very strong upside about a year ago, if you recall, and the team did a great job and we've been reacting, as you saw in our fourth quarter and in our first quarter where we overachieved on our revenues there. And so we're continuing to manage that supply chain very, very carefully and in a very focused manner to make sure we have the flexibility we need, Vivek. And the same is true for the second half, both on the optics and the custom side. And so we're positioning ourselves very much to handle upside above and beyond the numbers we've talked about. Thanks.

Thank you, Mike.

Our next question.

Comes from Timothy Arcuri of UBS. Your line is already open.

Thanks a lot. Matt, I wanted to ask about the evolution of the custom ASIC TAM. You had said it's roughly 6-6, I think you said last year. And I guess at the analyst day, you said that you'd beat a 10% share very soon. So is it fair to say that you could be at a billion dollars in custom compute next year? I mean, I would think that the TAM gets to roughly 10 billion next year. So do you think you can get to that billion-dollar in custom compute number next year? And then also, I'm just kind of wondering if you can talk about the upside. You know, data center came in $30, $35 million better in fiscal Q1. What was that from? It sounds like it wasn't necessarily custom compute because that's still pretty small. So is it more on the connectivity side? Thanks.

Yeah, great. Hey, thanks, Tim. Yeah, so we articulated the AI day, you know, a very robust custom silicon TAM. in excess of $40 billion going out into, you know, 2028 timeframe, and that TAM growing very significantly. And, yeah, I think your numbers are about right in terms of the share. You know, we're going to end up with near-term, and then Raghav articulated, you know, our goal to drive that in the custom silicon area to 20%. So you've got to draw a line kind of from here to there in terms of the opportunity, and obviously the TAM's got to materialize. But, yeah, we're well on our way. Our programs continue to kind of upsize in terms of the magnitude we're looking at. I'd just say we didn't give the breakout exactly for next year, but we did talk about an incremental billion dollars is the floor for next year from this year, so going from $1.5 to $2.5 billion. And a lot of that is going to be due to the custom program's you know, hitting their first full year of volume. So we're not calling out the exact split for next year, but maybe that will help you triangulate in the middle in terms of where we are today, where we're trying to drive the business, and then also where we see the overall AI business for next year. And I'm confident you and the team can come up with a great model around that. On Q1, yeah, most of the – because it's custom, it just started – Again, our optics business continued to be very strong, outperformed again, and all indications are that business, certainly on a year-over-year basis, will perform very well and be above the targets we outlined even at the AI Day.

Great, Matt. Thank you so much. Thanks, Sam. Yeah.

Your next question comes from Chris Casso of Wolf Research. Your line is already open.

Yes, thank you. Good afternoon. Question is on gross margins and some of the comments that you made with regard to gross margins in the second half of the year. Could you give a little more detail about, you know, some of the puts and takes of that, you know, understand that some of the lower margin segments You know, such as consumer, I guess you would include, you know, some of the carrier business and that coming back will will will weigh on margins. You know, what are the segments in the traditional businesses that need to come back to bring the gross margins back to more normalized levels?

Yeah, thanks. Let me take that. So when we look at our gross margin, it's still very much driven by overall product mix, as well as the overall level of revenue and the overt absorption that we get. If you look at the merchant side of our business, those gross margins continue to be extremely healthy, actually quite a bit above our overall corporate target range. However, some of the key components of that, you know, if you look at data center storage, enterprise networking, enterprise on-prem are already going through a significant inventory correction. And so at the same time, you know, we're seeing the beginning of a very strong ramp on our custom programs. And those are typically lower growth margin. However, we get a ton of leverage on the OPEX. especially as we're able to recognize the NRE on that as contra R&D. And so as a result, that really drives really strong operating margin for us. So overall, you know, I'm not going to guide more than one quarter here at a time. I think, you know, you'll have to triangulate with what we're indicating here. But, you know, we do see you know, as those other merchant businesses start recovering, that drives a nice tailwind for us, you know, across next year.

Yeah, thanks, Willem. And Chris, just one more add, and then we can go to the next question. I'd say in addition to that, which is really, as Willem said, both the on-prem data center, the enterprise networking, those types of segments being being weaker that are healthier gross margins. The other one that is poised for a stronger recovery as well is automotive in the second half. And that's been a strong driver for us as well. So there's some goodness out there for sure. We'll have a better read, obviously, as this current quarter progresses in terms of what the second half is going to look like on those other businesses. But we do expect them to recover and return to growth. It's just a timing issue. So hopefully that's helpful to think about the different drivers of gross margin.

Next question.

Your next question comes from Carl Ackerman of BNB Paribas. Your line is already open.

Yes, thank you. Within data center, it looks like the AI portions of your business are about 500 million this past quarter. And so I was hoping you could just also size the non-AI portion of data center And I guess what you're seeing there, both this quarter and going forward, because there does appear to be green shoots within the storage ecosystem and perhaps even fiber channel from a seasonal basis. So if you could just discuss the non-AI portion of data center, both this quarter and throughout the balance of fiscal 25, that would be very helpful. Thank you.

Yeah. Hey, Carl. Thanks. Yeah. So, yeah, without getting into the granularity by quarter relative to the pieces within data center, The way I'd say it is the AI, as we discussed, has been very strong. It continues to upside and it continues to look very promising this year and next year. But to your point, a couple other things are going on that we see playing out through the year. The first is in standard cloud infrastructure, those companies providing those services in particular are continuing to invest for sure. And that... And so when we are seeing our recent results, we're seeing growth in both AI and standard cloud infrastructure. And we see that continuing throughout the year. And then as it relates to the on-prem piece, which has been very depressed relative to just what's happened with traditional server shipments over really probably the last eight quarters or so, we do very much see a bottom in our first quarter in that business. And so that's going to be part of the growth throughout the rest of the year as well as some of that coming back to normalized levels. And that ties back to Willem's comment earlier about some of the gross margin improvement we can look forward to as those businesses recover. So I see growth in all three, kind of from here, but with different dynamics driving those.

Thanks.

Your next question comes from Tom O'Malley of Barclays.

Your line is already open.

Good afternoon, guys. Thanks for taking my question. Matt, this one's for you, and it's sort of a follow-up from the AI day. You talked about wins in kind of training, inference, and CPU, and when you look into the future, could you talk about, you know, if you think any of the three are more or less defensible, do you think you could be over-indexed to any of those? I know that you spent a lot of time at the AI Day saying this is really a process that both involves your chip design as well as the customer's design, so I understand that where flags are planted today, there may be some defensibility, but just could you talk about those three opportunities and

uh where you where you see more defensibility and where you may have seen some more success yeah hey tom thanks for the question i i think i would i would you know bucket them all largely in the same camp okay and what i mean by that is if you're in the data center custom silicon market as we are and providing a wide variety of solutions raghav showed those types of solutions on a slide at the AI Day, plus a bunch of other ones that we're involved in. But these are multi-year development cycles. These are multi-generational types of engagements we have because you're talking about developing literally the most state-of-the-art semiconductor products in the industry. Some of these are 100 billion type of transistors and up. It's the most advanced packaging, the most advanced process node, the most advanced IO. And as a key partner, we have to be able to put all that together for the customer and then actually deliver it in high volume with high yield, high reliability, as well as have the parallelism to be working on the next generation. And these plans typically get set well in advance. The first wins we talked about on these custom programs was in 2021, Tom. And then we're sort of looking out to the 2024 ramp we're seeing. I'm talking about calendar now, and then really 2025 for kind of full year. So, and that's moving heaven and earth, you know, with the engineering teams in both companies. So these are very defensible, very sticky sockets when you partner and when you do a great job. And I wouldn't I wouldn't sort of put one over the other. There's various dynamics within all the different kinds of custom silicon investments our customers are making with us. But in general, once we're in and we prove our execution and our partnership, it typically leads to the next one. So I feel really good about our position there, and so does Raghav, and that's why we're very confident in our ability to drive share gains over the next few years. And if the market really develops, like I think we all think and hope it will, it will be very meaningful for Marvell.

So thanks for the question.

Your next question comes from Quinn Bolton of Needham. Your line is already open.

Thank you. Hey, Matt, just wanted to come back to the gross margin question. Obviously, I understand the ramp of custom compute. is a bit of a headwind. But when you talk about sort of the pressure on margins as custom compute ramps, can you just level set us? Are you kind of talking relative to the long-term model of 64 plus, or are you sort of talking about pressure from sort of the July quarter guidance level of 62?

Yeah, thanks for the question, Quinn, and the clarification. Yeah, we're really talking about In the short term here, as we think about these custom programs ramping and what that's going to do to the business, you know, starting in Q2 and through this year, you know, we have a mix of different business models and different product lines, as you know. And we're in a period right now where, you know, the custom piece is well-indicated, which does drive tremendous operating leverage, does carry a lower than corporate average gross margin. So in the near term, as we see a very strong ramp and inflection on that business with the sort of more margin-rich businesses taking longer to recover, I think that's what we're trying to say. We've successfully managed for some time now the ability to drive a healthy gross margin across the portfolio of products, but we still got to kind of get through this post cyclical period we're in and get back to a period of normalcy in terms of demand. And I think when that happens and you see those other more margin-rich businesses return to their run rates that they were at and then grow from there, I think we'll have a much healthier margin profile. That's really sort of beyond, I would say, the next few quarters. And that's really what we're just trying to signal to everybody on how to think about the business as you model it in the near term. Willem, do you have anything to add?

No, I think that's perfect, Matt. Nothing else. Okay, thanks.

Your next question comes from Ross Seymour of Deutsche Bank. Your line is already open.

Hi, guys. Thanks for asking the question. Wanted to get to the cyclical parts of your business. Matt, you talked about kind of a slow recovery and the combination of the enterprise networking and carrier business. Just wondered if they're dropping so hard and so abruptly over the course of a couple of quarters, why would it be such a gradual increase? Usually, if you have those kind of big drops, you'd have big step ups. Are you just being conservative in that? Is there share loss? Just what sort of slope would you expect in that recovery? And I think last quarter you said they should get to be billion-dollar businesses individually, so $2 billion overall. The timetable for that is, can you get there next year? Is it further off? Any color on those two topics would be helpful.

Yeah, no, it's a great question, Ross, and maybe I'll give you one example. So to answer the first part, yeah, I think we're taking, you know, given the magnitude of the drop, we are taking a conservative view on the recovery slope, I would say, until we really see the bookings and the backlog laying in. And I'd say when it's here, it'll be much easier to call. I know that sounds a little bit snarky, but it's not. It's just the reality is when something drops, you want to be a little thoughtful about the recovery. But that being said, I've seen this pattern too. In fact, look at our consumer business. You know, it had a down Q1 and now it's doubling going into Q2, right, as that inventory worked through and we realigned. And so that was like a, you know, that was a fairly quick one. On those two dynamics, it's probably important for me to take a second on what we're seeing there in both the carrier and enterprise markets. And we do and I do see those returning. back to their uh to kind of you know call it two billion combined one billion each run rates but it's very different i think the paths and and maybe a little counterintuitive in terms of what we're seeing but but here it goes on the carrier side you know the overall environment um the end environment with operators and capital spending still looks very weak uh you know and and it still looks depressed however you know we have some of our own growth drivers in this market, in particular on the wireless side, with some new content ramping. And in this area, we've actually seen bookings and demand improve in terms of the outlook for later this year. And so when you start getting those orders for the second half and really kind of into Q4, it starts to give us a lot of confidence in that return to growth, even in sort of a broader more depressed environment. So that one, counterintuitively, we're feeling pretty good about just in terms of because we're seeing the order activity. On the enterprise side, it's a little bit different. The end market commentary continues to strengthen, which is good. Our end customers are talking about improvements in their order backlog and their sales activity, and they're also starting to modestly work down their own internal inventory and even talk about their customer inventory starting to work down. So that's positive. But I think given the magnitude of the inventory out there, we still haven't seen that recovery as, you know, yet. And so, you know, hopefully that's helpful in terms of how you think about modeling it. But I'm hopeful within, you know, the next quarter we'll have a much better visibility on the second half for both of those businesses. But I'd say kind of to my surprise, carriers started to pick back up first. But we do expect enterprise to follow. The question is when. But I'd say if anything, like the carrier example, it wasn't share loss. It was actually share gain we've got going forward. It's just a tough, depressed environment at the moment. But all of our indications are they will return to growth, and hopefully we'll have a better second half.

Thank you.

Your next question comes from Blaine Curtis. of Jefferies. Your line is all ready.

You guys, thanks for taking my question. Actually, my question was similar to Ross, but I was wondering, you did a pretty good explanation there, if you could talk in data center, right? So outside of the lecture optical, we know the ASIC ramp is going to be what it is. I'm just kind of curious the cyclical correction. I thought you said storage was up year-over-year, but I think it's a pretty easy comp. So if you look at kind of storage and kind of the other bits of data center that aren't the AI and optical, What kind of cyclical corrections going on there? How much, I don't know if you can comment on how much is down and kind of are you seeing any improving trends there as well?

Yeah, no, great one to add, Blaine, actually. You know, although we don't break it out exactly, I reviewed all these numbers heading into the call. So you're right, year over year comps are pretty easy, I guess, but it's still a positive trend for sure overall in storage in that, you know, we saw our bottom there in the first quarter a year ago. And it's seen very steady improvement, actually, each quarter since. But kind of to Ross's question, it hasn't hockey-sticked up, but it's been growing nicely. And that's on the total storage portfolio and within data center storage. So all that's coming back, which is great. And again, there the end customer commentary. Particularly on the hard drive side seems very encouraging so as they work down again the inventory that they've accumulated those end market signals At least from what we're picking up at the end customer level are starting to look bullish as well, so we're hopeful That that that and that feeds mostly that that storage business feeds the data center part of it, but that is part of our growth we're expecting as well in the second half although I The majority of it's going to be continued rampant AI, for sure, Blaine. But storage has been a nice one that's been on the recovery path. I'd say slow and steady, but back on the path to the levels we think it should be at.

Thanks. Yep.

Your next question comes from Harlan Soar of JP Morgan.

Your line is already open.

Good afternoon. Thanks for taking my question. On the optical side, you guys are benefiting from the strong growth in 800 gigs to support all these AI build-outs. 1.6T starts later this year with your lead partner, NVIDIA. Is optical driving quarter-on-quarter growth here in July and through this year, given that this is the profile of your customers' GPU and compute ASIC deployments? And then secondly, you've got a lot of other potential upside drivers right in optical. For example, it's right around this time for some of your cloud customers to start the broad data center networking footprint upgrades to 400 gig, 800 gig, especially with your TerraLynx 10, Broadcom's Tomahawk 5 platform shipping this year. That will drive, I think, some incremental growth for your 800 gig DSP solutions. And then on top of that, you have two new customers that I think are going to fire on your 400 ZR DCI solution. So I guess the follow up question here is, are you starting to get some visibility on some of these potential upside drivers in optical?

Yeah, excellent questions, Harlan. I think you've actually got the narrative pretty well nailed down, but maybe some additional comments. I'd say on the short term, the way to think about the optical business into July is You know, we're modeling it right now, and our guide is flattish to slightly up. And the reason for that is, you know, it outperformed pretty big both in Q4 and Q1. So, in fact, I'd say since last year when sort of chat GPT hit and the whole AI thing hit, we've been beating those numbers every quarter. And we're positioned from a supply standpoint to do that, but it's just it ramped up very fast. And it's continued to hold there and outperform. So as we look into July, we're modeling it to be flat to slightly up. It may do better. Let's see where the order trends come in. But year over year, we'll be very strong. Because also in the second half, to your point, those traditional standard cloud infrastructure build outs and upgrades are going to happen. And so that's part of our model as well in the second half is seeing standard cloud infrastructure ramp on the optical business. And then we've got our switching portfolio you mentioned. And then also ZR, we've engaged with multiple customers now. That's probably more of a next year thing, but again, some contribution this year. And then we've got AECs as well. So there's a lot happening. in this area. And that's why when you look at sort of Marvell in the second half of this year, you know, we guided the whole company up 8% for Q2. And, you know, when I look at the second half, you know, total company is going to be up, you know, more than that in Q3 and Q4 with growth accelerating, primarily driven by data center and AI and primarily driven by the trends all of which you mentioned, are dynamics that we see. So, yeah, we see a great setup for the second half. Very, very optimistic for the second half.

I appreciate that. Thank you, Matt. Yep.

Your next question comes from CJ Muse of Cantor Fitzgerald. Your line is already open.

Yeah, good afternoon. Thank you for taking the question. I guess Matt wanted to follow up on your prepared remarks where you talked about increasing optimism on the custom silicon prospects and funnel. And I guess, you know, as you think about that, is that visibility to units? Is that visibility to winning next-gen projects at existing customers? Is it selling, you know, additional silicon content to those customers? Or are you also potentially seeing greater breadth of vertically integrated players, you know, contemplating their own silicon? Thanks so much.

Yeah, thanks, CJ. Yeah, no, the comment was really focused on the existing design wins we have that are ramping into production for this year, and that right now, those are all doing better than we thought. Even from certainly last quarter when we talked about the business or even from the AI day, all of those have strengthened in terms of the total revenues we expect both this year and next year from those businesses. So, I think the demand remains very strong for AI, both for custom silicon and for optics and for the whole portfolio. And we have not seen that slow down. We've only seen our customers raise their estimates on us and their requirements. And so we're working with our supply chain partners and making sure we can meet it. And then I'd say additionally to that, though, the customer engagement side, And momentum remains very strong. You know, we're in execution phase on a number of new programs, many of which we talked about at the AI Day. So, yeah, we're heads down, teams driving technology, driving innovation, driving the schedule. And it's a pretty exciting time to be in the part of this market in the semiconductor industry right now and have such a unique role. So, yeah, activities off the charts, both demand, revenue, and design wins.

Thanks.

Your next question comes from Tory Sandberg of Stifel. Your line is already open.

Yes, thank you. Matt, I had a question on PCIE. What exactly are the company's ambitions there? I mean, it's a concentrated supplier base today. I think the largest competitor is getting into the market as well. How big is this market? What are your ambitions from a share perspective? And when should we see the earliest revenues for PCI?

Yeah, hey, Tori, thanks for the question. And, you know, for us, we really look at this as an incremental opportunity to leverage our core capability in PAM-based ESP design. And we've known about this market for some time, obviously, you know, You know well because you're really deep in this stuff, but people can just look at it. You know, this is PCIe Gen 6. So there was retimers on Gen 5 and Gen 4 and Gen 3 and so forth. I mean, I remember working on this kind of stuff back when I was at Maxim, okay, for like early PCIe. So I've sort of been around this market. And the thing that we've looked at always at Marvell going back a couple of years was on the PCIe Gen 6 transition, which is happening now on the products that we announced are sampling, is when the modulation scheme moves from NRZ to PAM. And so that was our decision to intercept this market at this juncture. And I would just say, you know, I think it's a proven market size. I think it probably grows from where it was, you know, in Gen 5 to Gen 6. It'll be led by probably a lot of the, just like the rest of the market, a lot of the AI stuff first, and then when the standards are sort of formalized and ratified, then you'll see it in broader adoption over the next couple of years. But we intend to be a player here. It plays to our strengths. It's in our wheelhouse. And we have world-leading capability in this area. And it's a perfect fit to our whole connectivity portfolio. And as you think about us, we are the one-stop shop in terms of connectivity solutions for our customers across the board. When you think about optical DSPs, AECs, these retimer products, you name it, we have the breadth of technology and breadth of product offering, and it's proven, and people know what they're dealing with. So we're optimistic. It's early, Tori. It's still an emerging standard, but we definitely have a lot of customer interest, and that's why we announced the products today.

Thanks. Thank you for that.

Your next question comes from Srini Pajuri of Raymond James.

Your line is already open.

Thank you. Matt, my question is also on custom silicon. I guess you're ramping pretty aggressively second half of this year, and you said the first full year of ramp is going to be next year. I'm just curious. I'm guessing most of these ramps are five nanometer design wins. I'm just curious as to how long each generation typically ramps. And then when you go to the next generation, I'm just trying to understand how the transition typically works. Because, you know, if you look at the largest GPU supplier, they have kind of switched from a two-year cadence to one-year cadence. I don't know how the custom silicon programs that you're engaged with are, you know, how your customers are thinking about the cadence of those products. But I guess just trying to understand how long should we expect the current generation to ramp and then when they actually ramp down. And then when the next generation starts, how should we think about that transition?

Yeah, thanks, Srini. And kind of the first point you mentioned, yeah, the ramp is very steep this year. We talked about it at the AI Day. Exiting this year at a $200 million plus run rate on custom, so very strong. You know, these are, you know, for kind of full year, these are probably two plus year kind of cycles once they hit. I would just say that without talking about specific engagements, I'd say that the custom side is as keen on making sure they're at the next node and have the latest technology just as fast as the biggest merchant suppliers. They want to complement their offerings. So that's where some of the comments I made earlier around it being in execution mode on next generation products and design activity. You're going to see that same trend. But for at least the current ones we have now, if that's part of your question, we have very strong visibility over the next couple of years on the five nanometer programs. You know, the three nanometer, you know, design pipeline and winds have been very strong. And then we're already, you know, deeply engaged on two nanometer programs. So it's almost the way it's working now is you've got five in production and three sort of in flight and two is the next one. And how all that plays out, Srini, is still a bit dynamic, but you're going to see the same kind of intensity in terms of R&D and technology requirements on the custom side as you see on the merchant side. You just have to to meet the power and TCO requirements that the market needs. And we're well positioned to go do that and support our customers on it and they're very motivated to make that happen as a way to, you know, have both, right, in terms of the breadth of their spend, and AI is going to require them to have both types of solutions, both from the leading merchant supplier as well as augmenting with their own.

All right, thank you. I think we got a couple more questions here.

Yeah, your next question comes from Christopher Rowland of Susquehanna. Your line is already open.

Hey, guys. Just a quick follow-up on the PCIe retimer and then my question. Just if you have any idea on the TAM and how you're viewing that market, that would be great. But my question is really around storage, enterprise networking, carrier. uh, you know, some of your, and wireless, you know, wireless carrier and consumer, um, uh, of these markets, they've previously been driven by product cycles. A lot of them, you know, whether it's consoles or 5g or campus upgrades or, you know, um, uh, near line drives, uh, are, are there any product specific drivers, uh, for these markets that can get them beyond, uh, a cyclical recovery that you've identified?

Yeah, thanks, Chris. Let me, on the first one, yeah, we haven't spelled out the TAM yet. We thought it was a bit early when we were doing our AI day to do that. But it'll be, our view is it was significant enough of an opportunity to enter the market and develop the products. And that's something we can provide information on in the future. But there's there's quite frankly pretty good market reports out there that you're probably very... But that's something we can provide in the future for sure. On the product cycle side, you know, some of these are really going to be driven by us in terms of our own design wins. You know, the carrier is a good example, both on adding an additional socket that ramps up. That's content gain, right, as well as Once the wired side picks up as well, there'll be a nice transition from 400 gig to 800 gig coherent. So we've got those going on. Those are two examples. I think consoles are what they are. And then in networking, we've just been gradually over time increasing our share, increasing our content. I don't see that changing, but we've always kind of said that business is... GD plus kind of grower in terms of a market and we can do better. Now we had several years there were on like 20% or 30%. We had some really nice performance in terms of the, the, um, share we were able to capture. Uh, but from here on out, I think we've consistently said it's just all we, in fact, we've always said, even sort of say, and then we beat it, but it's always, I think better to be conservative on the enterprise side in terms of modeling, um, which is, you know, call it mid-single digit, kind of a grower as a market, and we can do a little bit better. That's once all the inventory and all that stuff is normalized. I don't see any major product cycle there other than just, you know, as multi-gig continues to ship more than one gig, we get an ASP uplift, and in the switching side, you know, the ASP per port goes up as the bandwidth goes up. So there's some nice trends there, Chris, but I think we did a good job of establishing a very solid footprint from a share perspective. And so the model going forward should really be kind of market growth plus our own content and modest share gain. I think with that, we got one more question and then we can wrap it up.

We will take our last question from Atif Malik of Citi. Your line is already open.

Hi, thank you for taking my final question. Matt, in response to Harlan's question, you talked about optical flat to slightly up on 800 gig. I'm curious, when are you thinking about the volume adoption of 1.60, and what is holding that if it's not the DSPs, are the lasers not ready, or is it just waiting for the blackwell?

Yeah, great. Thanks, Atif. I think the way to think about it is just timing relative to the system builds, our customers' qual schedule, their ramp, et cetera. So we start seeing, yeah, this one at the moment doesn't have It's not a, I mean, I remember all these issues in the past, right? You know, there was a green laser problem. There's this problem or that. And there's always some issue in this optical space. But this time it's really everyone's going a million miles an hour trying to get their products ramped. Our module partners are ramping up with our solution. Our end customers that are driving this. are going as fast as they can. So it's just more of a timing issue that we need to intercept the platforms as they're ramping, and we're doing that. So think of that as sort of shipments in the back half, but really contributing much more meaningfully next year on the 1.6T transition. But it's definitely underway, and we see a clear path to help enable this part of the next generation of accelerators to be able to ship in volume with the latest optical standards. And we're at the forefront and in the lead in that regard. So yeah, it will be later this year and then more volume next year. And it'll, I think, be a big product cycle for us. I think with that, that would be the last question. So I think we can wrap up the call from here. Thanks, everybody, for your interest in Marvell and in the company. And I look forward to seeing all of you you know, in the coming months. And Adif, I'll see you probably in September at the city conference. So, all right. Take care, everybody. Thanks.

Ladies and gentlemen, this concludes our question and answer session. Thank you for attending today's presentation. You may now disconnect.