Marvell Technology, Inc. (MRVL) Earnings Call Transcript & Summary

Right, everybody. Thanks for dialing in for the next presentation. I'm Ross Seymore, the Semiconductor Analyst, here at Deutsche Bank. We're very pleased to have the management of Marvell here today. CEO, Matt Murphy; as well as the VP of Investor Relations, Ashish Saran. So as with the other presentations, if you have any questions, feel free to e-mail them to me either within the webcast system that you're listening to this with or you can just e-mail me directly at ross.seymore@db.com, and I can ask them anonymously. So with that being said, we're going to just jump straight into the fireside chat with Matt.

So Matt, thank you very much for joining us. I think the high-level question I want to start off with is largely about the transformation of Marvell itself. I know you have a rebranded logo, et cetera, focused on the infrastructure side, data infrastructure. Talk a little bit beyond just the logo, obviously, about the focus of Marvell going forward? And how big a change you've into place over the last couple of years?

Yes. Great, Ross, and thanks for the opportunity today. Yes, it has been a pretty significant transformation process we've driven in the company. I joined in July of 2016 and early in my tenure, we sat down as a management team and really spent time on our mission statement and where we were going to take the company. And at that time, what I wrote, which is still the same statement we have today is that we want to be the leading semiconductor company in the world that makes chips to move data, store data, process data and secure the world's data. We want to do that faster, more reliably and better than anybody else. And we did that with the franchise at the time that was -- had a consumer component to it. And even at that point, we saw a little bit of mobile type of business in there. And so we drove this transformation, Ross, both organically as well as through M&A. Obviously, we added the Cavium, Avera, Aquantia, and then we divested a number of product lines, the most notable of which was Wi-Fi. And so I had a lot on my plate when I first started. And the one thing I did decide upfront was we weren't going to do any external rebranding of the company until there was actually some substance. And so that was an intentional decision to wait. And so the rebrand and the logo change and all the look and feel was really emblematic of all the work we had done over the prior 2 or 3 years to get the company to where it was. And now if you look, our consumer exposure is extremely small. And we're now attached to some of the most exciting high-growth opportunities in the world, including 5G, cloud and automotive. And so as I look forward, with the platform that we've put together with really the key components that you need to be an infrastructure powerhouse, which is best-in-class processing capability, which we have with our partnership with ARM, along with the expertise of the Cavium team for the last 20 years, leadership in networking technology, both from the Marvell side in terms of Ethernet switches and Fis, and also we bolstered that with Aquantia. And then finally, with the addition of Avera, we now have a best-in-class custom ASIC team, which can address very unique opportunities that we couldn't service before in markets like cloud, automotive and also in 5G, there was a segment that we couldn't quite address as stand-alone Marvell. So pretty exciting in terms of the journey that we've been on, and certainly, the brand was one part of it, just to signal externally what our intentions were.

So you mentioned part of this transformation with M&A, and you've done 3 deals of various sizes, but definitely it's transformed the focus of the company to the infrastructure side of things. How is Marvell viewing M&A right now? You've just done 3 deals, 1 divestiture and 2 acquisitions. Are you in more digestion mode right now? Or are there pieces of the puzzle that you still have to fill?

Yes. I think I would say we're more in execution mode, meaning we, I think, very efficiently integrated both Aquantia and Avera. On the IT front, I mean we were done -- in the case of Aquantia, we -- our IT team, the entire lift and shift of the ERP systems in one day. The Avera stuff was within a week. And then the R&D side, we've now fully integrated those 2 teams. So that part is done. What I've seen this year, Ross, as we've narrowed our focus. And by the way, I think the Wi-Fi divestiture, which went very well, again, has helped hone our focus into our core markets. Our design win funnel this year, Ross, has never been larger. Our design activity, especially with the development and now announcement we've made of our 5-nanometer platform has been extremely well received by customers. And we're very busy, right, trying to execute our product road map and pipeline and continue to close design wins at a higher rate than we have previously. And that all bodes well for the future. So we like the assets we have, and we're really in execution mode now, which we've had to really focus on, given the COVID-19 pandemic and shifting all of our engineers to home office environments, but that's gone well. And then what I'd finally add at the highest level, I think it does seem like tech M&A has come back. Certainly, we had 2 big deals over the weekend. And I do think that bodes well for chip and broader tech M&A in general, that there seems to be an appetite to go do that. But for Marvell specifically, we're really just executing this great platform that we've put together right now, and we're busy doing that.

So we'll get into the different revenue segments and product segments here in a bit. But since you mentioned about the M&A side that got announced today with a couple of big deals, a lot of your business, the Octeon side of things, the ThunderX side of things, a decent amount of what is going on at Cavium and even some portions, I believe, of Classic Marvell, are based on the ARM architecture. What are your thoughts on the proposed deal of NVIDIA and ARM? Does it have any implications for your road map or create any concerns or opportunities for Marvell?

Sure. Yes. So obviously, I've seen the rumors and then saw the announcement today. And I think everything that's being presented, certainly makes sense. As you point out, ARM is an integral partner for our company, and it spans pretty much all of our products. We use ARM-based microcontrollers and CPUs as embedded inside of many of our products that don't even see the outside world and then all the way to the Thunder-based platforms, which is server-class CPU. So long history there. I'd also say that we have a very good working relationship and history with NVIDIA. If you look at what -- some of the announcements we've done with them over the last few years with them -- with the 2 companies together working on their GPUs plus our high-end CPUs for high-performance computing applications. So we'll have to see where all this goes in terms of what their -- now their detailed plans are going to be. But at a high level, I think having somebody like NVIDIA involved has the potential to accelerate the development of their high-end part of their portfolio and their high-end cores, which we certainly can utilize for our business, and potentially, there's opportunities to work together. But I'd say also we have to see what their exact plans are now that this is announced. But I think net-net, it certainly could be a positive, but we'll have to see.

And with the historical licensing agreements with ARM, how much IP exchange is there? And how much concern could that create if you're exchanging IP with ARM? Historically, that, that's one thing, but if it's a potential competitor, is there something that would need to be more limited than it was in the past?

No, I don't think so. There's not a lot of exchange per se from our side to theirs. I think we've had -- we certainly license. We have an architecture license. We have teams that design their own CPUs based on that. We also license directly from them IP and cores, and we instantiate those in our products. And I think for this deal to get through candidly and be successful in the market, I think NVIDIA will need to follow through on its commitment to keeping this as a separate entity and as a licensing arm where the customer base of ARM is not disadvantaged in any way. And so that's really what I mean by watching how this plays out. But no, I don't sense any -- I don't have any concerns at this point about competitive issues. And I think if those were to arise, they would impact us and many other partners in the ecosystem. And I think that's where challenges could occur from a regulatory approval standpoint. So I would believe that their intent would be to do everything they can to obviously maximize the value of their investment they're making, and also keep their partners and customers and the ecosystem happy so that ARM remains a vibrant architecture in the industry for people to use. And especially given how the landscape has changed, in terms of customers wanting choice and ARM now, not only just at the low end in IoT applications, but also you see it knocked beyond and even our high-end processors, really the market opening up on the infrastructure side, I think there's just a big opportunity for companies like Marvell, who historically, in partnership with ARM, have been very successful. And I think have a very bright future in that market. So we'll have to see, though, Ross. It's only day 1.

Great. Well, let's get off that topic and go to one other aspect that you mentioned as far as kind of the new Marvell and the transformation of the company. And that is specifically on the manufacturing technology side, you have a big relationship now in partnership with the 5-nanometer node and probably beyond with TSMC. Talk about the importance of that relationship and where Marvell falls now in kind of the hierarchy of chip companies with its ability to address the bleeding edge of Moore's law.

Sure. Yes, I think it's unique and important on a number of levels. And certainly, you could look at it and just say, well, everybody has access to nanometers. If you want to go get 5, you just go get 5 and you develop a product, and that's it. And the reality is that it's very difficult to assemble the team, the intellectual property set and be able to execute in a cost-efficient manner, the development of any of these advanced process nodes. And historically, Marvell as a stand-alone company always was a fast follower, typically would be one node behind, but differentiate and innovate on architecture, software, circuit design techniques, et cetera, to gain the advantages back, and it was very similar with Cavium, right? They could never sort of invest in the bleeding, bleeding edge, but they had this very amazing team of architects and developers to develop very, very competitive products and compete head to head with much larger-scale companies. And even Avera has been really on IBM/GLOBALFOUNDRIES process platform, which was -- has not been in a leadership position for some time. So the unique part, Ross, is that we've now got the scale and the leverage to invest and bring all 3 companies into the bleeding edge. And that's important because we've achieved a fair amount of success to date with this prior strategy. So we're going to keep the architectural innovation going whether it's our chiplet-based approach or whether it's uniqueness in the microprocessor architectures we have or the features that we add to our products, let's say, in our networking area. But they're going to be now in the best-in-class technology. And so when I look to the future, and we see this in the design win momentum that we're seeing this -- having this platform in 5-nanometer is very unique. And I think it could give us, a, over time, a step function change in our relevance in the markets that we play in. So it's a pretty big deal, and it's not something that everybody can do. And it's not something that we decided overnight either. We've been at this for almost 2 years in terms of developing the IP set in the platform. And now we expect this year to get our first silicon back from a samples perspective from the shuttle and then actually sample real products at the end of next year in 5 nanometer, which I think is a big deal in our industry.

And have you guys said or are you willing to say, timing-wise, you just mentioned kind of end of next year sampling to customers. What will be the general product area you're going to target first with this leading edge?

Well, the -- it's -- the nice thing about it, Ross, is that all of our various product lines are now mapping into this 5-nanometer road map. So you would -- the obvious one that you would think of would be our processor platform based on Octeon. That's certainly underway, both for baseband processors as well as the embedded processors. We're working on our tenth generation Octeon processor now. But also our entire ASIC road map. We've been marketing to customers since the fall of last year and targeting designs in. That's all in 5-nanometer. You should assume our networking products, right, are making that jump. Storage will probably be slightly behind just because the dies are typically smaller and don't have the needs, but even they have their own road map. So, Ross, it's going to be very broad in nature. And the way to think of it is we've, in some cases, jumped all the way over 7 and gone directly into 5 and the whole company road maps are converging. So we plan on getting a lot of efficiency out of this development and not having to support a disparate wide array of various process technologies, but be very focused. And then we get the IP reuse and the leverage by having all these various product lines dovetail into 5. So it's not just a one-shot deal. There are multiple products. The first of which will be sampling at the end of next year by 2022, 2023. It's going to be very robust in terms of our product road maps and also product ramps.

Got it. So why don't we pivot over to the revenue segments that you talk about on your call. Within networking, obviously, 5G is the end market that people are most excited, I would say, for your company. Talk a little bit about where we are today. I know you have an analyst meeting coming up early next month. So I don't want you to obviously front run and steal your own thunder too much on that. But talk about the breadth of customer base, the geographic dispersion of that business? Just any sort of metrics that we should use externally to monitor the progress that Marvell is making in that segment of your company?

Sure. Yes, we do have the Analyst Day. I hope all of you can tune in, and we'll certainly do a much deeper dive than what I'm going to cover today. But yes, I think the 5 key opportunity for us is quite unique and has come a long way. If you go back to our last Investor Day, which was in October of 2018, we had closed Cavium, and we'd come out and shown what our combined company strategy was. And part of that was -- which I think was eye-opening at the time was that we had a significant -- we highlighted a significant gain we were seeing in content in 5G base stations, at least with our lead customer, which was Samsung or time. And since that time, we've now had public announcements with companies like Nokia to be a much more important part of their portfolio on multiple products, not just the baseband. We did an acquisition, which was Avera, which came with 2 additional 5G customers that weren't Huawei. So basically, we have now content and share at 4 of the top 5 base station OEMs. We also highlighted on our last call that we've been winning additional designs at companies that are outside the top 5, which in aggregate, will actually make up a fairly reasonable volume over time. And so our platform is clearly shown a lot of success. And so I think the first point is that it's broad from a customer standpoint. The second is that it's broad from a product standpoint. We have chips all the way from baseband processors to the transport processing sockets. We have content now in the radio head for massive MIMO and beamforming. And then we have custom ASIC capability where we've got a number of wins in the digital front-end area. So I think that the second part is multitude of customers, multitude of products. And then all those customers we have are selling into pretty much every geography around the world. We've seen China ramping up this year. There's been a lot of positive announcements about U.S. 5G for next year. Korea was an early adopter in 2019. So as these geographies roll out over time and our customers gain share, in terms of the spend on 5G versus 4G equipment. We see a multiyear opportunity for the company as our new wins layer in, our new customers layer in and then geographies ramp up with significantly higher content or exposure than we ever had as a company as Marvell in 4G.