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spk14: 2025 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 the conference over to Mr. Ashish Saran, Senior Vice President of Investor Relations. Please go ahead.
spk02: Thank you and good afternoon, everyone.
spk15: Welcome to Marvell's second 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 the 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-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 also available in our earnings press release. Let me now turn the call over to Matt for his comments on the quarter. Matt?
spk06: Thanks, Ashish, and good afternoon, everyone. For the second quarter of fiscal 2025, Marvell delivered revenue of 1.27 billion, above the midpoint of guidance driven primarily by strong demand from our data center and market. Higher revenue combined with disciplined expense control drove non-GAAP earnings per share of 30 cents, also above the midpoint of guidance. Revenue in the second quarter grew by 10% sequentially, and we are projecting significantly higher sequential growth for the third quarter, with all our end markets expected to grow. Achieving the midpoint of our third quarter guidance would also result in a return to year-over-year revenue growth for Marvell. Let me now discuss our results and expectations for each of our end markets. In our data center end market for the second quarter, we drove record revenue of $881 million, growing 92% year-over-year and 8% sequentially. These above guidance results were driven by strong demand for our electro-optics products, custom silicon beginning its anticipated ramp, as well as growth in our storage and switch revenue. Strong bookings continue for our market-leading 800 gig PAM products and 400 ZR data center interconnect, or DCI products, and we are looking forward to starting shipments of our next generation 200 gig per lane, 1.6 terabit DSPs in the third quarter. As a result, we expect our electro-optics revenue will continue to grow every quarter this fiscal year on a sequential basis. We are also looking forward to addressing a number of new opportunities within the data center. We've begun initial shipments of our 100 gig per lane, 800 gig DSPs for active electrical cables for AECs, and we are anticipating the production ramp to accelerate in the second half. In addition, we recently started sampling the industry's first 200 gig per lane, 1.6 terabyte AEC DSPs to address upcoming higher speed, short reach copper interconnect applications. Accelerated servers are turning to PCIe Gen 6 technology, which needs higher order PAM4 modulation. Given our leadership position in PAM technology, customers are turning to Marvell to enable this transition, and we are now sampling our new PAM4-based PCIe Gen 6 retimers. As you can see, we are continuing to broaden our end-to-end product portfolio to address all the critical interconnect needs of our data center customers, positioning us to take full advantage of an interconnect TAM expected to grow at a 27% TAGR to 14 billion by calendar 2028. We are confident in our ability to continue to lead the industry in power and performance with our current optical DSP and DCI franchises, while we expand into new opportunities, including AEC DSPs, PCIe retimers, silicon photonics, and longer distance thousand kilometer reach DCI modules. As a result, we expect to maintain a leadership position in this large and fast-growing interconnect market. We are making significant progress in bringing Compute Express Link, or CXL, technology to the market, having recently introduced two new families of CXL devices to address memory bandwidth and memory capacity challenges in next-generation servers. In our cloud security business, we were pleased that Microsoft will begin integrating Marvell's FIPS 140 Level 3 compliance liquid security hardware modules, and their Azure Key Vault offerings. These products offer Azure's customers the most secure encryption and key management services in a cloud platform. Let me now turn to our custom silicon business. As investment in AI and accelerated computing continues to surge, tier one cloud providers are increasingly focused on using custom silicon to improve their data center TCO and drive differentiation. AI has accelerated the cadence of new chip releases, resulting in shorter design windows and faster time to production, accompanied by significant increases in complexity with each new generation. This trend is driving cloud customers to partner with companies like Marvell, who have extensive experience in delivering multiple generations of high-volume, high-complexity, leading-edge chips developed using robust design methodologies. Additionally, cloud customers are seeking access to our differentiated and field-proven technology platform. which include ultra-high-speed certies, ARM compute, optimized HBM interfaces, security, storage, die-to-die interconnects, silicon photonics, and advanced packaging. Customers are also adopting concurrent product development with staggered platform launches to produce silicon on an annual cadence. This approach reinforces the value of a trusted silicon partner like Marvell, who has decades of processor expertise and can take on greater design responsibilities. As a result, the nature of our customer engagements is shifting from point design wins to multi-generational relationships. Our AI custom silicon programs are progressing very well, with our first two chips now ramping into volume production. Development for new custom programs we have already won, including projects with a new tier one AI customer we announced earlier this year, are also tracking well the key milestones. Looking ahead to the third quarter of fiscal 2025 for our data center and market, We are forecasting revenue growth to accelerate into the high team sequentially on a percentage basis. We expect the largest contributor to this growth will be our AI custom silicon programs as they begin to ramp meaningfully in the third quarter, further augmented by ongoing growth from our optics portfolio. Now let me turn to Marvell's enterprise networking and carrier end markets. In the second quarter, enterprise networking revenue was $151 million, while carrier revenue was $76 million. As expected, these end markets reached the bottom in the first half of this fiscal year, and revenue from both end markets collectively was flat sequentially in the second quarter. Looking ahead, after multiple quarters of inventory digestion, we are starting to see signs of growth for our revenue in both end markets. In the carrier end market, we have begun receiving orders for our next-generation 5-nanometer-based Octeon 10 DPUs from multiple customers. In enterprise networking, our customers have started to see growth in their orders We have seen increased bookings for our enterprise products. As a result, for the third quarter, we project our aggregate revenue from enterprise networking and carrier infrastructure to grow sequentially in the mid-single digits on a percentage basis. While this forecast still anticipates Marvell products shipping below end market consumption, our order momentum has picked up. On a combined basis, we expect sequential revenue growth from carrier and enterprise networking to further improve in the fourth quarter. Turning to the consumer end market, revenue in the second quarter was $89 million, growing 112% sequentially, following the gaming inventory correction we expected in the prior quarter. Looking ahead to the third quarter, we were expecting revenue from the consumer end market to grow slightly on a sequential basis. Over the next couple of years, we anticipate our revenue from the consumer end market to normalize at approximately $300 million annually, with the majority coming from our custom SSD controller for a leading game console platform. As a result, seasonality of gaming demand will be the primary factor driving our quarterly revenue profile for the consumer end market. Turning to our automotive and industrial end market, revenue in the second quarter was 76 million, declining 31% year-over-year and 2% sequentially. These results reflect broad inventory correction taking place across the automotive end market. Looking ahead to the third fiscal quarter, we expect growth to resume and are projecting revenue from the auto and industrial end market to grow sequentially in the mid-single digits on a percentage basis. In summary, the Marvell team executed well in the second fiscal quarter, driving 10% sequential top-line growth, delivering both revenue and non-gap earnings per share above the midpoint of guidance. AI led the way, with data center revenue almost doubling year over year. Our consumer revenue recovered, more than doubling sequentially, and we believe that our enterprise networking, carrier, and auto and industrial end markets found their bottom in the second quarter. As you may recall, at the beginning of fiscal 2024, we outlined the large opportunity developing an AI and accelerated infrastructure, even as we saw a slowdown in our storage, enterprise networking, and carrier end markets. We outlined our plan to aggressively reprioritize our investments toward the highest ROI opportunities, including strategic roadmap adjustments and combining some of our businesses to reflect changes in the markets. This strategy has led to an expansion in our data center TAM and increased pace of new product releases targeted at this market. As we outlined at our AI day, we plan to continue pivoting our resources towards what we believe to be a once-in-a-generation opportunity. Within data center, we expect custom silicon to be the largest revenue growth driver, given the size of the opportunity in our expanding design wind portfolio. we believe continued success in Custom Silicon will accelerate our timeline to achieve our target operating margin model. Although Custom has a lower gross margin than our merchant products, it benefits from inherently lower operating expense levels given NRE offsets from customers and the sharing of IP with our merchant business. As a result, as Custom Silicon becomes a larger part of our overall revenue, we see a path for operating expenses as a percentage of revenue decreasing below our current target operating model. For the third quarter, we are forecasting consolidated revenue to grow 14% sequentially at the midpoint of guidance. We expect this growth to be primarily driven by data center AI and further augmented by the start of a recovery in our enterprise networking and carrier end markets. Given the strong start in the first half of the fiscal year from AI and our expectations for accelerated growth in the second half, we remain confident in our ability to significantly exceed the full-year AI revenue target discussed earlier this year at our AI event. The Marvell team is executing on all fronts. We expect our AI custom programs to continue ramping up. Our bookings continue to strengthen, and we believe that we have secured capacity and set up our supply chain to drive strong revenue growth in the fourth quarter and the next fiscal year. We are also excited to see our hard work showing up in our financials, strong cash flow generation, which is funding increased capital returns to our stockholders. With that, I'll turn the call over to Willem for more detail on our recent results and outlook.
spk16: Thanks, Matt, and good afternoon, everyone. Let me start with a summary of Marvell's financial results for the second quarter of fiscal 2025. Revenue in the second quarter was $1.273 billion, exceeding the midpoint of our guidance, declining 5% year-over-year, and growing 10% sequentially. Data center was our largest end market, driving 69% of total revenue. The next largest was enterprise networking with 12%, followed by consumer at 7%, carrier infrastructure at 6%, and auto industrial at 6%. Gap growth margin was 46.2%. Non-GAAP gross margin was 61.9%. Moving on to operating expenses. GAAP operating expenses were $688 million, including stock-based compensation, amortization of acquired intangible assets, restructuring costs, and acquisition-related costs. Non-GAAP operating expenses were $456 million, in line with our guidance. Gap operating margin was negative 7.9%, while non-gap operating margin was 26.1%. For the second quarter, gap loss per diluted share was 22 cents. Non-gap income per diluted share was 30 cents, one cent above the midpoint of guidance. Non-gap EPS grew by 25% sequentially. Now, turning to our cash flow and balance sheet. Cash flow from operations in the second quarter was $306 million. Our inventory at the end of the second quarter was $818 million, decreasing by $8 million from the prior quarter. On a year-over-year basis, we have reduced our inventory by $198 million, or almost 20%. We returned $52 million to stockholders through cash dividends. In addition, we repurchased $175 million of our stock during the second quarter, an increase of $25 million from the prior quarter. We expect to further increase repurchases in the third quarter of fiscal 2025. Our total debt was $4.13 billion. Our growth debt to EBITDA ratio was 2.29 times, and net debt to EBITDA ratio was 1.84 times. As of the end of the second fiscal quarter, our cash and cash equivalents were $809 million, decreasing by $39 million from the prior quarter. Turning to our guidance for Marvell's third quarter of fiscal 2025, we are forecasting revenue to be in the range of $1.45 billion, plus or minus 5%. We expect our gap gross margin to be approximately 47.2%. we expect our non-GAAP gross margin to be approximately 61%. For the third quarter, we project our GAAP operating expenses to be approximately $693 million. We anticipate our non-GAAP operating expenses to be approximately $465 million. For the third quarter, we expect other income and expense, including interest on our debt, to be approximately $46 million. We expect a non-GAAP tax rate of 7% for the third quarter. Please note that we forecast our non-GAAP tax rate in fiscal 2026 to step up to 9% in anticipation of a meaningful year-over-year increase in our operating income. We expect our basic weighted average shares outstanding to be $867 million, and our diluted weighted average shares outstanding to be $875 million. This outlook marks an anticipated sequential reduction in our share count, reflecting the positive impact from our ongoing stock repurchases. We anticipate gap income per diluted share in the range of a loss of 9 cents to earnings of 5 cents. We expect non-gap income per diluted share in the range of 35 cents to 45 cents. At the midpoint of guidance, we expect revenue in the third quarter to grow 14% sequentially. This is driven in large part from a ramp in our custom AI products. Although this is driving a sequential decline in our non-GAAP gross margin outlook, we project our non-GAAP earnings per share to grow by 33% sequentially at the midpoint, more than twice the revenue growth rate. As our custom programs expand, we expect to continue to drive substantial operating leverage to the bottom line. We are pleased to forecast sequential growth returning to all our end markets, with our AI data center revenue continuing to grow rapidly. As we drive revenue growth and operating leverage, we also remain focused on strong cash flow generation and returning increasing amounts of capital to investors through our active stock repurchase program.
spk02: Operator, please open the line and announce Q&A instructions. Thank you.
spk14: We will now begin the question and answer session. To ask a question, you may press star, then one on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star, then two. In the interest of time, please restrict yourself to one question only. If you have additional questions, please rejoin the queue. At this time, we will pause momentarily to assemble our roster. Your first question comes from Tor Spanberg with Stifel.
spk04: Your line is now open.
spk13: The strong results. Matt, could you just elaborate a little bit more on your comments there at the end about the operating leverage to gross margin? You know, I think we all know that the custom basic business gross margin is lower, but because of the NREs, it's also very operating margin accretive. So Maybe you could just elaborate a little bit and perhaps give us some milestones, you know, especially in relation to certain revenue run rates.
spk06: Yeah, thanks, Tory. Hey, I'll have Willem lead off on this one, and then I can comment at the end.
spk16: Yeah, Tory, I think, you know, when you look ahead here beyond the Q3 guide, really see gross margin for the next couple of quarters remaining in a similar zip code. You know, I see... When you look, there's a couple of dynamics there. First of all, we expect the custom programs to continue ramping very nicely, and that's obviously got lower gross margin. But then we see the recovery and the growth in our core merchant products really mostly offsetting that. And then in addition, we see some really good leverage and additional absorption in our manufacturing over it as the top line is growing. So we think where we guided in Q3 is sort of the right zip code for the next few quarters here.
spk04: Your next question comes from Toshia Harry with Goldman Sachs.
spk14: Your line is now open.
spk01: Hi, guys. Thank you so much for taking the question. Matt, you talked about your confidence in exceeding or significantly exceeding the full-year AI revenue target you guys shared a couple months ago or several months ago. The incremental strength you're seeing in that business, is it between – you're seeing it both in custom compute as well as your optics business, or is it more skewed toward the custom compute business? And if you can speak to your visibility into next year as well, I think your target was $2.5 billion going into next year – Should we see continued upside to that number as well? Thanks so much.
spk06: Yeah, great. Thank you. Yeah, first of all, the demand has been extremely strong in the AI business, as we mentioned, both in custom and in our optics business. And that's the 800 gig products, as well as traditional cloud, as well as DCI. So that's all going extremely well. And for next year, That should absolutely ripple through. We see continued strength next year, you know, above what we had communicated relative to the target for next year, both in custom and in optics and the broader portfolio. So very pleased with the progress. Demand has been strong. Booking's momentum has been extremely strong. And we have a great setup here in the second half. that's going to lead us to what we think is going to be a very strong fiscal 26 for Marvell in AI.
spk04: Your next question comes from Timothy Arkery with UBS.
spk14: Your line is now open.
spk10: Thanks a lot. Matt, I'm wondering, since you're giving us these AI targets, I'm wondering if you can give us a little more granularity in the actual numbers that you report. What was the AI revenue in July? I'm thinking it was close to probably $300 million and custom was probably $50 million, something like that. Can you just give us some sense? Is that about right? And then can you give us some sense of where you think AI will be in October and maybe should we expect custom? It sounds like custom is going to tick up maybe $100, $125 million Q1Q. Are those numbers in the right ballpark?
spk06: Yeah, maybe just to keep it at a higher level for the broader investors on the call here, Tim. You know, we had set targets of $1.5 billion for this year and $2.5 billion for next year. As I said earlier, both custom and electro-optics are contributing. What we said was that the AI day, you know, just, what, three, four months ago, About two-thirds of the billion five was in electro-optics. The other one-third was in custom. And so both of those are doing better. Obviously, the custom is back-end loaded, but we're going through a very strong ramp right now. So, you know, we're not calling those numbers out typically by quarter, but all I can tell you is both of them have upsized both in terms of aggregate revenue we're going to achieve this year and next year, as well as the slope of the ramp in custom continues to be very strong.
spk03: And I'll leave it at that for now.
spk04: The next question comes from Ross Seymour with Deutsche Bank.
spk14: Your line is now open.
spk09: Hi, guys. Congrats on the strong results and guide. Willem, one potentially for you, and I appreciate the commentary on the gross margin stability at the current level through the end of this year, but could you give us an idea of what the puts and takes would be for next year? I mean, we know the custom stuff carries lower margins, and it sounds like the merchant business is coming back. But I think a big concern people have is just how should we think about the revenue growth relative to the gross margin next year as accretive as it may be in most of those scenarios on the operating line either way.
spk16: Yeah, I think the way to think about that is for that trend to really continue into next year. And so, not guiding the full year next year, but I think it's in that similar zip code where, you know, we continue to see good growth from both optics and then the recovery in the merchant products really offsetting the continued growth in custom. And then in addition, as you see that top line growing nicely, we do continue to get that benefit from better absorption. And then overall, when you look at our OPEX management, we're going to continue to be very disciplined looking at next year. And so we do expect to drive a ton of leverage and operating margin down to the bottom line next year.
spk06: Thank you. Hey, Ross, if I could just add. As Willem said, I think the GM side needs to play out. We need to see where this non-AI data center demand recovers to. We're very pleased with the third quarter guide of mid-single. And then in enterprise and carrier, that growth improving from Q3 to Q4, so growing even a little bit faster. Bookings have picked back up. We're laying in backlog. So that's all a positive sign. And then, of course, we've got to get into next year to see where those traditional core businesses really recover to. That's going to be one factor. As we said earlier as well, we anticipate a lot higher revenue next year, so that's going to help on sort of manufacturing overhead absorption. And then to the extent how much custom is really going to be, that's going to be a factor as well. So we're looking at all that. That does need to play out a bit. But as Willem said, we're very confident that and our OpEx management and our plan on spending there relative to our outlook for next year. And so we're very excited and feel very confident in the path to our operating margin targets that we've set, kind of independent of where that GM lies. So that's where we're headed right now, Ross. There'll be more to come as these markets recover. Thanks.
spk09: Thanks, Matt.
spk14: Your next question comes from Vivek Arya with Bank of America. Your line is now open.
spk12: Thanks for taking my question. Matt, I was hoping to get your views on the competitive landscape in the two parts of your AI business, so both on the DSP side and in custom silicon. On the DSP side, do you see any captive or merchant competitors challenge Marvell's dominance as the industry transitions to 200 gig per lane or these 1.60 transceivers? And then similarly in custom compute, Do you see any competitive changes from your Taiwan competitors? I know a little bit out there in 26 when the industry moves to the three nanometer node, but I was just hoping to get your views on any changes in the competitive landscape in the next one to two years in these two important parts of your AI business. Thank you.
spk06: Yeah, no problem, Vivek. Let me maybe break it into the two pieces you mentioned. On the DSP and optics side, you know, look, it's been a competitive market. We got into this, as you all remember, through the acquisition of InFi. And there's been, you know, there's been these competitive dynamics from the beginning. Now, this market has gotten big, right? So there's, it would sort of only intensify. But we've consistently maintained a very high market share in this area through the integration of InFi into Marvell. And now as we're positioned going forward, primarily because, one, we've executed extremely well from an engineering standpoint, and also we have the full platform, which includes DSPs, the broadband analog components like drivers and TIAs. We have the complete architecture and solution, and also the partnerships with the module vendors as well as the hyperscalers directly. And finally, I would say we continue to have a best-in-class roadmap as well in terms of the cadence, the power, and the performance that we're delivering. So we feel very good on these transitions. As an example, we went through the 100 gig transition very successfully. The 200 gig ones in front of us, we're going to start shipping those products this quarter. Our 200 gig per lane, 1.6 terabit DSPs. And we feel very well positioned. It's going to be competitive of that, but the team is actually really excited about what we can go off and do with the platform we have. And on custom silicon, You know, I think our thesis is playing out in that, you know, given the, you know, tremendous increases in complexity of these chips, it's not about just having one piece of it, like a design service piece or a manufacturing capability, but it's everything. It's having the best in class technology roadmap in terms of nanometers, advanced packaging, I.O., et cetera, and then the ability to actually go execute these products. These are 100 billion transistor type of chips. And so to package them up, get them to yield, ship them into volume, be ready to work on the next one in parallel, it's a massive sort of effort. And so we think that that still is going to be the winning strategy. And when we look at it from that point of view, we really have one large competitor that's very capable in this area as well. And we do think long term, given the amount of activity we see in AI, especially on the custom side, it's going to require really scaled up full solution providers and partners like Marvell to compete. So that's the current status of those two from a competitive dynamic. Thanks, Vivek. Thank you, Matt.
spk14: Your next question comes from Matt Ramsey with TD Cowen. Your line is now open.
spk19: Thank you very much. Good afternoon, everybody. Matt, I wanted to ask a longer-term question on your custom compute business. My antennas went up a little bit. One of the lines in the script, I think, was something to the effect of not just single-generation relationships, but multi-generation relationships with some of the customers in the custom business. And so I wanted to explore that a little bit, as we do get questions from investors on the not the programs that are ramping now, but the subsequent generation and how confident that you are in those. So maybe you could speak to that. And I think the second part of the question, as you're evaluating custom programs and compute, this isn't a question for just your company, but for your competitor as well. How much visibility do you guys get and when to the software that will be run on those compute engines as they're deployed? I think that's pretty important in evaluating what volume might end up being or not being versus merchant suppliers. Thanks.
spk06: Yeah, thanks, Matt. And I think your question is one we get. I mean, I think since we won these designs, there's been a lot of noise in this area in custom in terms of from some of our international competitors in particular. I mean, look, the reality is, despite wherever whatever's been said so far, we have executed these programs. They've upsided tremendously from when we won them and even as we signaled over the last year and a half and now they're ramping into production. We, in all of our engagements across the board that we see as we get deeper into this, there is absolutely a desire on the part of these customers to have a multi-generational view because the amount of work you put in to do one of these It's a diminishing return to pivot too quickly, assuming you're doing a great job. So we feel very good about it, Matt, is the bottom line. We have multiple engagements across multiple generations on different types of ICs that we're doing for these customers. We just announced as an example at the last AI Day, we had one additional customer for AI Silicon. And all of those are tracking well. So that's all I can say at the moment. I think you've got to also look at what the results are and what our outlook is. And if you believe the thesis I gave you around what's important relative to being a long-term reliable partner that's going to be there for the long term over multi-generations, we think we're extremely well positioned. Thanks, Matt.
spk14: Your next question comes from Christopher Rowland with Susquehanna. Your line is now open.
spk11: Hey guys, congrats on the results. I have an InFi question primarily. And Matt, you talked about 1.6T. That's pretty exciting that if I understood that correctly, you're going to be ramping in 3Q. Perhaps you can talk about the profile of this ramp, what it looks like in 3Q, 4Q, and into 25, I think. the streets all over the place on this node. But if you could talk about that and, you know, maybe even the economics, what it means for you guys, that would be fantastic. Thank you.
spk06: Yeah. Hey, thanks, Chris. Yeah, it's still early. You know, we were first to market in this area, having, you know, introduced these products, you know, at OFC, you know, a year ago. It's great to see that they're going into production. You know, we'll know a lot more when we start to see how our customers are planning to deploy it, but we are seeing initial shipments now. The way I would think about it, though, is 800 gig right now and through next year is still going to be the workhorse high-volume platform. And even some of the newer launches that are coming, as an example, are going to still support 800 gig as well as 1.6T. So it's really... hard to call exactly. It's going to be an important transition. There's no question. The only question is the timing of which, and Chris, I think we'll be in a better position to comment on that. Probably as we get closer to the end of the year, we start looking at the setup for calendar 25 and what our customers are thinking. But either way, you know, we're going to be well positioned for both of those opportunities for next year.
spk03: Thanks, Matt. Yep.
spk14: Your next question comes from Harlan Sir with JP Morgan. Your line is now open.
spk05: Good afternoon. Thanks for taking my question. And good to see the strong growth outlook. You know, we've seen multiple quarters now of strong growth in near-lying HDD to the cloud. And, you know, those guys continue to expect anticipated growth sort of going forward. In addition to that, you guys have, I think, numerous next-generation PCIe Gen 5 enterprise SSD platforms ramping. I know it's been a couple of years, but I think those ramps are finally starting to happen. Is this all kind of contributing to the second-half strength in the data center business? And then more on the memory side, you know, as customers are thinking about next-gen HPM4, 4E, sort of these next-generation architectures, There is the potential for customization on the base advanced logic die. It's a fairly complex piece of silicon. You guys have a lot of IP here. I'm wondering if you're winning any custom ASIC opportunities for some of these upcoming programs.
spk06: Yeah, thanks, Harlan. Yeah, let me take the two pieces. On the first one, we're very pleased to see the recovery in data center storage. I think we're on like six quarter now of the turn, which is great. You know, we bottomed out last year. It was a pretty severe downturn that we saw. It's been growing basically every quarter. And we see this trend back over time. We had called it basically as getting back to like 200 million a quarter. It's not there yet, but it's on its way. And that's had a nice recovery. It hasn't been too spiky. It's just kind of been slow and steady on the way back up as inventories consume, that supply chain revitalizes. And quite frankly, it's great to see the end market commentary because that just gives us more confidence on that return over time. And then I even actually had it in my prepared remarks as one of the key offerings that we have on our ASIC and AI platform. is, we think, as you mentioned, that, you know, HBM and how to stitch all that together from a memory interconnect standpoint is going to be extremely important. And it's complex, and it's going to be, I think, a key part of the solution, just given how much, how memory intensive the current set of accelerators are, but also how they're looking at positioning for the next generation. So that's a key IP that Marvell is developing and that we'll bring to the table as part of our platform offering for AI accelerators from a custom standpoint.
spk03: Thanks. Great. Thank you.
spk14: Your next question comes from Aaron Rakers with Wells Fargo. Your line is now open.
spk18: Yeah, thanks for taking the question. I wanted to ask about the data center switching opportunity now that the 51.2T silicons in the market just You know, if you could give us kind of a thought of like how we should expect that to ramp, appreciating that's more in the next fiscal year. But, you know, any kind of visibility in terms of how we should think about, you know, that opportunity to participate in these AI fabric build-outs going forward at Morvell. Thank you.
spk06: Yeah. Hey, Aaron. Thanks for the question. You know, we outlined this opportunity at the investor day we did for AI. And basically on the 51.2T cycle we're in, you know, we think we're well positioned. We had great success from an engineering standpoint to get the product to market pretty quickly relative to after, you know, relative to integrating the Inovium asset into Marvell and then bringing that product out with the full Marvell 5 nanometer platform. We see strong interest, not only on the 51.2T generation that we're now starting to go into production to this year, with a lead customer, but also our roadmap, we believe, is very compelling as well. And while we're a smaller player here today, we do have tremendous interest in this platform, and we think it's very strategic to Marvell relative to our investments in custom silicon, in being the leader in interconnect, and also even driving future technologies like silicon photonics. So to bring it back around, we're not quite sizing it yet in terms of what it can be. It's still early from the standpoint of when that technology is actually going to go into full bore production. But we think we're doing well, and we look forward to providing updates on that, Aaron, as kind of this develops. But we feel good right now.
spk03: Thanks.
spk14: Thank you. Your next question comes from Sriniva Pajuri with Raymond James. Your line is now open.
spk00: Thank you. My question is about the traditional businesses, Matt. It's nice to see both of them recovering, and I think you're guiding for sequential growth into Q4 as well. Given that they're down so much, I think one's down 50, the other's down almost 70 from last year's levels. I'm just wondering how to think about the normalized run rate on a quarterly basis, and when do you think we'll get there? And then once we get there, how do we think about, I guess, longer-term growth of these businesses? Thank you.
spk06: Yeah, great. Thanks for the question. And yeah, you're right. Those businesses have been down significantly from a year-over-year perspective. Some of that is due to also the overshoot that went on in sort of this post-pandemic-fueled build out that occurred and also all the dynamics we've seen across the industry relative to people overordering and then having too much inventory and then having to go deal with it. The good news is we've now seen that business after a flat first half pick up, guiding both enterprise and carrier up mid-single for the third quarter and then growing faster than that in the fourth quarter and that the bookings have improved as well. So that's all positive. The way to think about it, is we're trying to drive both of those businesses back, and we believe we have line of sight to drive both of those businesses back, to about $1 billion each, call it $2 billion in aggregate, maybe $2.2 billion of run rate on an annualized basis. So we hit the bottom in the first half. It's coming up in Q3, coming up in Q4, and we're monitoring the setup for next year, but we do believe that that is very achievable. That's the plan right now. And then long-term, if you go back to all of our investor days, probably for the last four or five years when we've done them, we've always signaled these markets to be kind of low to mid-single growers. And then from a market standpoint, And then with some content or share gain, you know, you can do a little bit better. 5G was a great example. We had very little content in 4G. We rocketed up in 5G. That changed the trajectory. But going forward in that kind of a business as well as, say, enterprise, you should assume the market grows at a fairly modest rate. And I think for investors to think about our growth rates in those areas, you know, being in those types of ranges, maybe whatever, you know, mid-single kind of plus, if we can continue to execute, I think that's fairly safe. They're not going to be great, enormous growth markets necessarily, but they are very accretive and they're very profitable businesses for Marvell. And they're important because they're long-term and they're part of the portfolio. So that's some additional color on how to think about it. We are investing there. We're going to make sure that we continue to grow those businesses. But if you just step back, we've got 70% of our revenue today in data center. We've got a Great, great opportunity with AI and accelerated infrastructure. We're continuing to pivot our R&D in that area overweight. And we think that from a financial return standpoint, this is the best place to put our precious R&D dollars. And so that's the way to think about Marvell going forward, only getting bigger in data center and really maintaining and driving a very healthy enterprise and carrier business long term.
spk03: Thanks. Thank you.
spk14: Your next question comes from Quinn Bolton with Needham. Your line is now open.
spk08: Hey, man, I'll ask a question, but if you don't answer it, maybe I'll follow up. You guys are talking about a nice upside of the $1.5 billion and $2.5 billion targets for AI. Is that something you think you're closer to $2 billion than $1.5 when all is said and done this year? I mean, can you give us any sort of quantification of the upside in AI revs? And if not, I'll follow up with a product question.
spk06: Yeah, I don't think we're sort of fresh off the 1.5 update from, you know, a few months back when we had our AI day. But I think if you look at the even like Q3, right, where overall revenue for the whole company is growing in mid-teens and then obviously guiding up, you know, data center, you know, much higher than that with AI driving it and then saying also Q4 is going to be extremely strong in data center and AI. You know, you can probably draw a line of sight to it, but we're clearly, clearly exceeding the 1.5. That's for sure. And then again, the setup for next year is really good because from an exit standpoint, you know, we'll be at a very healthy level by the fourth quarter.
spk08: The question, if you don't mind answering, just kind of thoughts on the latest DCI traction. I know 400 gig is ramping now. Are you seeing demand or starting to ship 800 gigs ER and of the total electro-optics business, is DCI kind of 10%, 20% of that total product portfolio, or is there a different percentage you might give us?
spk06: Yeah, I don't think I'd give you a percentage, and quite frankly, I'd have to get out a spreadsheet and calculate it because, as you know, we have many franchises now across this interconnect platform. But I would say that business has just done extremely well, Quinn. I mean, if you look at where that business was when we acquired it. InFi had basically been one customer at 100 gig, and I think back then it was about $100 million-ish kind of business. It's just grown dramatically as we've kept the 100 gig, and then we've added in 400 gig, and we've added in additional customers. So it's become a very important and strategic business for Marvell. And then to your point in front of us, That roadmap is getting invested in very aggressively, both at 800 gig and then longer term 1.6T for DCI. So each of these different key technologies that we have now in interconnect, they're going gangbusters today, but there's also a next generation and a generation after, you know, N plus 2 out that we're investing in very aggressively to maintain market leadership. Yeah, thanks a lot. I think we got two questions left, operator.
spk14: Yes, your next question comes from Harish Kumar with Piper Sandler. Your line is now open.
spk17: Yeah, hey, guys. First of all, let me just give my congratulations. I'm a very strong guy. The story is coming along. All business is turning. Matt, I wanted to ask you, you seem extremely enthusiastic about CustomASIC near term as well as next year. Could you talk about some of the major drivers or major products, however you want to do it, that are hitting customers? that's giving you this optimistic viewpoint of the near mid and call it even the next year outlook?
spk06: Yeah, well, I think as we had outlined in the past, you know, there's been several programs that we won, you know, a broad range of them actually in custom silicon for data center. And then the ones that were levered to AI, you know, have just taken off. And you're starting to see that in our financials. And so, I mean, maybe not to make it too simple, but the reason we're excited is we're getting bookings and we have backlog and we're, you know, planning our capacity ramps for next year and we're talking about the next generation. And so... I think these went from design wins a few years ago to trying to execute NPI and get the chips taped out to then trying to get them qualified and make sure that they worked relatively quickly once they came back, which they did. And now they're ramping. So it's just part of the evolution. But I mean, it feels really good when you have backlog and you have bookings and you have a strong outlook from your customer and you're planning your future together. So that's That's really it. I mean, I can't go into what they're using it for and their workloads and all that kind of thing. But the conviction from our customers on the programs we have are very strong in terms of their commitment to deploy and to deploy very aggressively using us, using their chips, plus Marvell is there. key partner, and we'll go let them get all the glory as they deploy and they achieve their silicon ambitions with us kind of in the backdrop to make sure we're there to help them, but let them go do what they need to do.
spk17: Got it. Thanks, Max. Congratulations.
spk05: Yeah, hey, thanks. I think we got one more.
spk14: And our last question comes from Carl Ackerman with BNP Paribas. Your line is now open.
spk07: Yes, thank you. Good afternoon, and thank you for squeezing me in. Could you talk about the breadth of cloud titans you have ramping 800-gig electro-optics that anchors your view on the second half? And given your industry-leading position in electro-optics, have you seen growing evidence that U.S. cloud titans are seeking to diversify the procurement of optical transceivers outside of China? I ask because that would appear to be a shared opportunity for you. Thank you.
spk06: Yeah, thanks, Carl. I'd say just broadly, you know, we're – You know, market share and aggregate is pretty high for us in this area. So we tend to be engaged pretty much with everybody. And I think that trend you mentioned about, you know, supply chain diversification and, you know, kind of concerns about geopolitical risk across the supply chain, you know, by the hyperscale customers is a real thing. They really care about it. What I would say is there are... There are efforts from both international suppliers into that space of modules, as an example, to diversify their supply chains and also the U.S.-based folks trying to make sure that they have a supply chain as well that's acceptable. So, you know, look, we're happy to work with everybody. We've driven a very broad ecosystem of partnerships. And I think in any case, you know, we should be just fine. I'm not sure there's going to be any major shift. You know, this has kind of been going, it's been underway for many years, quite frankly, relative to just those concerns you mentioned being out there. So we've kind of tracked with those pretty well. And we've stayed, I think, very competitive and very neutral relative to how to support everybody and ship as much revenue as we can. So thanks for the question, Carl. And I think that's, Anything else, Willem or Ashish?
spk02: Yeah, I think that's it. Thanks, Matt.
spk03: Okay, operator, I think we can end the call.
spk06: Thanks, everybody, for joining. Really appreciate it. I look forward to all the catch-ups and the callbacks and then also when we're on the road at the conferences. Thanks, everybody.
spk14: This concludes our question and answer session. Thank you for attending today's presentation. You may now disconnect.
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