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

Okay. I believe we are live with the team from Marvell Semiconductor, and CEO, Matt Murphy. Matt, thank you so much for joining us. Thank you, Willem. Thank you, Ashish, as well. And thank you for everybody joining us today. Just some housekeeping. I believe your -- if you're a viewer today, you're supposed to have a question box where you can submit an e-mail to me if you have one for question. You can also just submit directly to my e-mail, christopher.rolland R-O-L-L-A-N-D, @sig.com. And with that, let's get into it. Matt, thank you so much for joining us. Thank you, Ashish. Thank you, Willem. Some fireworks last night. I guess the way that I kind of describe it as since you took over, Matt, it's been just a fantastic number of years. But of late, I think Marvell has hit a soft spot here.

And maybe you can get into what's been described as kind of a perfect storm of some things coming together, some headwinds coming together against your business, and perhaps you can give us some reassurance as to the future and why it is indeed bright.

Sure. Yes. Thanks, Chris, and I appreciate the opportunity to be here with you and all the participants. Yes. The first thing I'd say is, it has been a great run. I think if I reflect back even on our results from last year, the company grew 33%. We were -- we had our cloud business grow like 50%. 5G hit $600 million. That was a bogey we set a few years ago, and it's going to grow from here. Automotive hit the $200 million milestone, and enterprise had a phenomenal year. So overall, we -- and on track with gross margins, and we're thoughtful about expenses. So -- and if I reflect back to where we were at the end of '21, thinking about '22, that's basically what we signaled, right? And there was a lot of enthusiasm for the stock and the company at that time. So I think, overall, it was a good year. But certainly, to your point, we've hit a patch of softness at the end of the year. And now in the first quarter here, where for a variety of reasons, we can dig into it. Demand has slowed or decelerated, customer inventory now needs to get burned down. And then on top of that, as we look to our first quarter, there's a -- use your word, perfect storm of mix issues that we're encountering relative to gross margin, driving gross margin to a level we haven't seen in some time. And I'm happy to dig into that, Chris. I think we can -- I'll pause in a second, but you can tell me where you want to go, but probably a walk around that would be helpful, which I can do by end market. But I would just say, while it's -- while we're guiding 60% for Q1, that's really due to an extremely abnormal mix, and we anticipate that as this fiscal year rolls through, the mix will normalize as inventory gets digested. And by the end of the year, we should be back to normal Marvell in terms of mix, and that means gross margins will float up from here.

Yes. Yes, makes sense. Data center, it sounds like storage is the main culprit here. Maybe talk about hard disk versus SSD? Is it the same thing we're seeing there? We can get into the other parts of it, too. I want to drill down there, but maybe first address storage and I think a lot of us were surprised there was another leg down. I thought we were kind of done.

Yes.

And yes, anything else you can describe here, normalized run rates, where you think we get back to? Long-term, where we could go? Anything around that would be great.

Sure. Yes. I think if you think about the data center end market, back in December, we were hopeful that our fourth quarter would have been the low point. It's come down since. And really, I think the dynamic, and this is kind of coupled with the gross margin story, is our drives, fiber channel and actually, in the data center space as well, there's a more modest correction going on, like our PAM4 optics, and that's really due to just the kind of the supply chain that we feed into. So those are all generally gross margin accretive type product lines and higher than the company average, and those are down in a more pronounced manner. If you just look at data center, which has overall been a better than company average gross margin segment for us, that's down like mid-teens sequentially. And so you just sort of do the mental math, and that's a big mover on the mix. That's the biggest issue within data center.

Yes. Maybe, Chris, to your other part of your question, like how do we see it. And I think [indiscernible] -- I mean, we haven't guided it down. But on the positive side, we certainly have seen in storage, right, some of our customers start to have burned through in their finished goods inventory. They're now working, work in process. So they're going to start to revise the run rates, shipping massively below the end market, right? So while it was a little painful right now, the good news is they're starting to recover especially in the back half, right? And other companies really not assuming some kind of end market recovery. It is simply the fact that Hey we just start shipping in line kind of with the end market. And just to remind people, just to part of the question, kind of what's the normal run rate. I think you remember before kind of the supply crunch and kind of the [indiscernible] we're in right now, storage was about $1.4 billion for us, kind of annually by, and 60% of that is really in data center. So do the math, that's like something north of $200 million a quarter. That to us is kind of the typical run rate. We're obviously well below that, right? If you look at our Q1 guide, you're off by more than half essentially, right? And that's probably why the gross margin is where it is. But as we get to the end of the year, whether it's exactly in Q4, plus or minus, but that is the normalized run rate. And again, fundamentally, if you look at what we supply, it's nearline HDDs, it's high performance SSDs drive and fiber channel. These are all fundamentally -- have their own secular growth drivers. So we're very confident that, that is the right level. It's just a question of which quarter do you actually get there.

Yes Understood. And Matt, you had mentioned Inphi, I mean we had a great read through. We believe Lumentum talked about this, particularly one customer, your, I believe, lead customer there for PAM -- PAM4. And originally, it was going to be a 1- to 2-quarter correction for them. It was described as inventory that was being digested. I believe it's inventory digested in front of the movement from 400 to 800 but this was later revised this quarter by them for the full year. So I guess, are you seeing the same thing? And is that how you would describe the dynamic?

Yes. Again, we're in a little different position that we obviously feed into the broader optical module supply chain, right, across a wide variety of partners for various Speeds & Feeds for different applications, right? But I think that this is what we started signaling last quarter, right, is that while the primary sort of driver in Q4 was going to be storage, there was some weakness that was forming elsewhere. And then we said, basically, that's continuing, right, in Q1. So while storage is down, the rest of the portfolio needs to go through that level of digestion. I think we're broad enough, what I would just say, without talking about one specific customer partner is that it's at different phases depending on which module company and then who do they sell to. And so I wouldn't put a broad brush on Marvell and say it's going to take x quarters kind of overall. I think some are correcting now. Some are correcting next quarter, some are -- it's kind of rolling through the year, Chris. And I think it's still dynamic. I mean, to your point, what did companies think last quarter versus what are they saying now, the tone has changed, right? And the information has changed. I don't think it's quite completely settled out yet as to how this is exactly going to recover. But I think given our breadth and also the fact that we have so many shots on goal with new ramps coming within the optics portfolio, new technologies kicking in. I mean we just announced our 1.6 terabit solution, we'll be showing it at OFC next week. It's a real product. People are building modules with it. We anticipate that's going to go into production next year. So while there's some short-term flash because we supply pretty broadly to everybody, we think we'll get through it in a reasonable time frame. And then, of course, you got growth underneath, so that helps a lot, too, right? It was not a stagnant market that now needs to correct. It's been growing. So I don't have an exact like it's this quarter because it's too broad, but it's already underway.

Yes. Maybe just on -- just to -- one double-click a little bit deeper, right? So I think on the 200 and 400 gig, which you would consider as kind of run-rate businesses, which are typically used to switch interconnects. Is anywhere this inventory correction commentary [indiscernible] appropriately across market for customers. But also remember, we started to drive a very -- we talked about it, I think, for the first time this quarter, it's -- we started ramping 800 gig last year and this business just took off, right? And that's really used in the AI cluster. So their net investment keeps growing. I mean, I don't have to say a word, ChatGPT, but I think generative AI, to be more generic, I think it's certainly driving that. So I think that's a different dynamic, right, which clearly there's no inventory there, like that's more of a new growth driver. And then again, within the Inphi portfolio, the other thing we have within our data center business is our data center interconnects into our data center connectivity where we just launched our first kind of industry standard 400ZR product last year, and that did extremely well, and we see that growth continue, right? So I think -- I don't think it's -- I wouldn't paint like overall Inphi, right, and the data center under the same brush. I think 200, 400 gig certainly has some inventory correction. But the other parts of the business are -- the demand looks very good. And as I look forward into next year, I think you'll see an even bigger acceleration, especially as Matt mentioned, with 1.6T, there's huge interest in AI, right, while there's certainly be the switching portion flowing on, but I think the AI cluster is going to adopt these very, very quickly.

I guess, finishing up on Inphi, is this all inventory? Or is this, some of this, the movement between 400 and 800? And then is there also the same dynamics taking place in ZR and ZR+?

So the inventory is really -- so 800 gig, it has really not found much usage on the switching side because I think as we all know, right, most of the market is 12.8 and they really want to make a jump to 51.2 here. So we get the 4x, right? And bandwidth, it's kind of worth putting all that effort. The 25.6 would have driven 800, but I think most of 800 has really been AI, right? So I don't think it's connected necessarily. I think on the 100 DCI 100 -- 400ZR, I think that's now -- 400ZR is an industry standard, multiple customers. I think that's on its own kind of brand, right? That's not -- there's no inventory. In fact, I think we were short of supply across the industry still not that far above, right? So I think it's a different dynamic.

Yes, these aren't -- the highest level, they're not transition issues. It's just more growth was here. Now growth is still -- cloud is still growing, but it's not growing at the same rate. And that delta between the 2 is the digestion, but it's not like a product transition per se that we're dealing with. Like with the 12.8 platforms with 400 gig optics with them have a lot of legs. In a lot of cases, people are just going to wait to leap all the way to 51.2.

Yes. Innovium, I would have expected a strong attach with PAM4 and Innovium, but they can move on different cycles and so forth. Maybe describe Innovium? Is it different than what we're seeing in PAM4? Or are there any inventory issues there or buy ahead or lower demand or anything? Or you're still fairly bullish there? And I think you guys gave a revenue number at some point, I want to say, $150 million or $200 million? Any updates there?

Yes. No, it's gone well. It took us probably a little longer than expected to get it to ramp. We bought it in the middle of the supply crisis. And part of the value we brought was actually being able to get the capacity that was needed, but that took a little time to bring online, but we've ramped it and it's in production now. And -- we had set a target for data center switching for Marvell to be in that range, and that's the range that we achieved. And that's where we are and that's going to grow from here. That one's not really got any inventory issues. And part of that is we never could quite supply enough early on, quite frankly. So we were throttled. And so I think that one actually seems okay. I think had we been able to supply it, we may have actually overshot. So in some way, it was probably okay that we sort of the supply came on when it did. But generally, that's been tracking. And then we announced yesterday along with our 1.6T optics, also the whole platform, which includes our next-generation product, which has a combination of Innovium and Marvell IP in it. And so that's our 51.2T solution. And it's kind of a nice combination of actually Inphi plus Marvell plus Innovium and all the IPs coming together in one platform solution.

We expect data center switches to grow nicely this year, just to kind of -- not to put a too fine point on it, but we absolutely expect our data center switching business to grow again this year.

Excellent. Good. First question from the audience. And again, if anybody has any -- probably the easiest way would just be e-mail me directly at christopher.rolland, R-O-L-L-A-N-D, @sig.com. First question is, how is your visibility into hyperscale customer inventory? Obviously, it must be fairly low as it was only at CES that the COO said data center have been derisked.

Yes. That's still obviously became -- I think those companies, especially, I would say, we've learned a lot in the last 8 weeks or so in terms of what their plans are. I think it's been a very dynamic environment, if you look from kind of December when we were guiding what transpired through December and January. I mean, back when we guided in December, there was a little bit of a shock that somebody was -- like us was even going to call out the fact that cloud had some weakness. We were actually early in that. And our view certainly was that, that was largely derisked, but that's -- those companies are still going through their own rationalization, if you will. So I think we're feeling better about -- certainly based on our Q1 guide. Our hope is that this allows the right level of inventory rebalancing to start and then start working up from here, right? So we can actually grow overall as a company in the second quarter. But yes, it's -- the visibility in some ways is challenging because remember, some of that business and data center like in the HDD area, we don't sell directly to them, right? We sell to a hard drive company and then they sell it to a system integrator, and then it goes in the -- and the same on the optics side. So we try our best to triangulate all the inventory in the supply chain. But when you get into storage and optics, there's at least 1, if not 2, steps in between. So that's just become more challenging to figure out. It's just not -- it's just more opaque. And I always ask that any time you sell into a guy who sells into a guy who sells into your customer, you've got the traditional [indiscernible] effect that you deal with, right? But we're -- our best estimate right now in Q1 is that, that takes all that into account.

Got it. Data center, 400 this year, $800 million. These are custom ASICs, primarily for hyperscalers. You now believe it's probably going to be 200 this year because we have some pushouts. Maybe just put people at ease that this is indeed a push out, that these designs are coming. And then as much as you can, I'd love to talk about them. I know you can't get into huge detail. But I'd love to understand, is this 1 or 2 customers? Is this 10? Is this primarily around just networking? Or is it broad or just compute? Or is it broad -- anything you can talk about, I think, would really help investors.

Yes, sure. Yes. On the first one, it is a push. Chris, when we look back historically, when we've guided investors on our new growth areas, we've sized them, but we haven't put a time frame on it, and that's allowed investors to understand like our automotive story and our 5G story. And I think if you even look at last year, we had talked about $100 million in automotive, at some point it to $200 million. We had talked about $600 million. So that's kind of worked for us. I think the difference on the cloud optimized as we committed to 2 time frames, which in retrospect sure, wish hadn't done that because I still think it's going to go 400, 800, but it's not going to be in that exact 4-quarter period that we had anticipated a couple of years back when we sized it. So it has moved, it has moved to the right. But if -- to the extent [indiscernible] programs were it to be canceled or rescheduled, then we would talk about that as being part of the issue. But right now, that's not the case. And even in a kind of reframing in all these companies own budgets and their own deployment plans, we've figured out where we fit in, and these programs continue to have high priority. So we have parts in the fab, stuff that's taping out, there's a lot of pressure to get these chips executed. And that's kind of a way that we also look at what's the R&D intensity that's being we're applying to it and put upon us. So those are intact. And then again, it's a little -- because of the sensitive nature of these, you're right, it's a little bit like how do you talk about them, but they're -- first of all, there's only really 4 major hyperscalers, plus there's the guys in China and the Tier 2s. But this is really -- these are really centered around more of the large companies in the space. That's where our design wins are -- but it's broad within that segment and then the applications range from compute-based applications, leveraging our ARM expertise, some for offload or for acceleration. And then there's products that are levered to AIML. And then there's -- some of these are also in the networking area as well. So my hope, Chris, is as we get closer and these things start to come to fruition and to the extent we can even get a -- get some public announcements around these that would really help, I think. But we're early enough on and the sensitivity level is high enough that I think what I've given you is probably hopefully a helpful mosaic for now. And then as we get closer, we can try to hone in.

How much visibility do you think your customers are going to give us into these wins? Do you think we'll see half of it? Or do you think it will be all opaque or you can't tell?

Don't know, but I'd assume it'd be opaque.

Okay. Because these guys, they like to brag. They like to brag about their custom silicon.

It's their chip. I mean, we help -- look, we're very content to be a key partner, the guy behind the guy, help them achieve their silicon ambitions, and no problem with that. I know there's a desire for everyone to say, "Well, how is Marvell exactly connected", and I get that. Would love it if it could just be all. But the reality is we're very blessed to have these relationships, these trusted relationships with these companies. And I'm more than happy at the end of the day for it really to shine for them. And as long as they're delivering what we thought we were -- they were going to deliver in terms of the economics for Marvell and the long-term growth, we're thrilled with it, right? And eventually, if it's in the P&L and you guys are seeing it. You're going to be perfectly happy too, no matter what the little -- what the thing is that we built.

Perfect. Another one from the audience. Broadcom's infrastructure and storage grew 31% year-over-year in January and 20% into April. Why are you undergoing in this segment year-over-year?

Yes, Chris, I think the interesting thing about this cycle we're in, first of all, it's a very long cycle. And if you -- I'm just taking it back to 30,000 feet relative -- rather than getting this company versus this company because every company has got its own moving pieces and composition. And you got to look at also people's results over a longer period of time as well. But if you step back, what surprised me is that normally, when you have these episodic inventory, supply demand imbalances followed by inventory correction, typically, they're fairly bunched together. Companies are within 1 or 2 quarters of each other, everybody kind of got over their skis and it's a little bit agnostic company or market. Pretty much everybody feels unless they've got some completely unique growth driver underneath that they power through. This is a case where large semiconductor companies, as early as like last June, started talking about as interest rates increased and economy started to slow down. And so you've got this long period of time where started with consumer and it's rolling through. So I think my view right now is every company is on their own journey. And every company has got their own way that they're managing it. All I can comment at right now is on Marvell. And I would just say that our -- what we're seeing and saying is highly correlated with what the end customer and end market is saying and doing. To the extent people are not doing that, I think you need to just ask them because clearly, there they've got their own set of initiatives and things that they're doing to successfully manage their companies. So it's hard for me to comment, and I haven't studied all of it, and I don't know that specific comparison, but...

Fair enough. So this is probably where we can talk a little bit about gross margins as well. But the next question is, pure-play ASIC shops typically have 35% gross margins. Is that what we're thinking about for your business? I would imagine not. But you have said that, that was lower. And how does the margin profile change over the life of a project as we go from NRE to first production to high volume?

Yes. I think at the highest level, maybe a benchmark we've already given is when we first really got into this business, we purchased Avera from GLOBALFOUNDRIES in 2019, which was the original IBM custom silicon team. We've been very happy with that purchase. The team has done a great job. We said at the time, that business was around 50% gross margins. But the NRE component of the projects was such that we believed in it, and it has delivered very competitive operating margins over time because we get a net already offset to the R&D, which delivers very solid profitability. And that business, by the way, has grown probably as fast or faster than overall Marvell, okay, since we bought it. So it's been in the numbers, Chris. It's been in the P&L. It's been flowing through. And again, even if you assume it grew a little faster than the overall, you'd say, "Well, how did you go from where you were now to -- well, that's because we have other higher margin accretive products in the diversified portfolio we have that's allowed us to manage this. And I think it's been a great blend, to date. And we've always said we're going to have a diversified mix of product lines with different structures, but it's our job to manage the mix such that it delivers to the model. So it's not 35% as an example. It's but it's probably -- it's a 5 handle type of stuff versus 6 handle would be the company average and then some of the higher gross margin things we do that are very differentiated, that are emergent, that are very unique, can be 70-plus. So it is a range in Marvell, it's a portfolio. And I think today, we've managed it very efficiently. Q1, obviously, we're not -- the volatility was such that we couldn't -- highest gross margin product lines are down, the lowest ones are growing like crazy, and that's the result. And it is what it is, but it's not due to some other extraneous event, like we didn't cut the price or there's not a weird input cost problem. A lot of that stuff is getting back under control. It's but the mix within each of these segments has moved around quite a bit.

We haven't talked a lot about 5G. 5G has been aging, but there are maybe some specific drivers for you guys that are interesting, like, for example, India and Samsung's presence there, also Nokia's presence there. Can you help us balance all of this and understand what growth might look like for 5G moving forward?

We had very strong growth last year, and we sort of ticked off the $600 million bogey, which was great. We have guided up our Q1 which is positive to see. India certainly is very helpful in this regard. It's a whole big geography that's finally kind of got legs. Now other markets have gone through their deployments and still are, this was always one that was in front of us. I would also say that, this is carrier business always, no matter which company you're talking about, semiconductor company, it's always a little lumpy. So we are seeing a pretty big growth, but it's growth, and it's kind of stepping up our run rate in 5G a little bit more. And 5G overall, even if it's a strong first half, if you think about it, it's still going to be up year-over-year again over last year. So I think that's been a positive story, and it's because we have a diversified set of customers and we're pretty much in all the geographies, except China, and those are the ones that are kind of still in front of us. And then we have some content gain rolling through and some other things going on. So it's despite the lumpiness of carrier, it's been a pretty good opportunity for us.

Yes. And there is a question here around that as well. As you're guiding for growth and others like ADI have seen a downtick post-CES. Is the delta there around content growth?

Yes. And I think the way to think about that, again, without comparing ourselves to any specific company, I'd say that a lot of the large semi companies that supply into carrier and into the wireless segment, typically had pretty decent positions in 4G. They had a good content and LTE systems and then they sort of leveraged it to 5G and they probably got some content gain, and it's been a good story for them. But -- we're kind of 5G only almost, if you will. So we're in the segment of the CapEx spend that still actually got momentum in leg. So if you've got some legacy business, that's probably doing some offsetting, it would be my guess. And over time, when 5G becomes fully deployed in a few years, and it's been -- this business will normalize, right? But that's still -- it's still got growth in front of us right now. So that's what I think that it's just we don't have a lot of the legacy carrier because we really didn't have a big content 4G, that would be my guess.

Next question is Samsung was the sole supplier at Jio. Now they're sharing the business with Nokia, Ericsson, does that impact the blended dollars per unit? Or just more broadly, does that affect your outlook?

No. I think we're okay just based on that particular system configuration and based on the content we have with all the players, which varies, but there's still content kind of broadly in India. And so when we look at that mix of probably who's going to get what -- and you can see it already in our in our guide for next quarter, we're forecasting the business to grow. So I wouldn't point that out. I think to be specific for that investor question, I wouldn't worry so much about, hey, did Samsung get more, did they get less, and is that really going to -- I think we've got enough content now broadly that some points of market share move wouldn't be what would drive volatility in 5G this year. I think what's going to drive volatility is it's just lumpy. Always has been, always will be. And we know that, right, which is why -- we got -- we went to the cloud and we tried to build that business, right? The whole company goal has been over time to diversify among end markets and smooth out to the extent we can. Now in Q1, we're not smoothing out. Q1, we're going through an inventory correction. But in general, that's been the business model, right, is get attached to secular growth drivers, drive enough diversity in the portfolio to weather the storm. And so yes, 5G will be a little lumpy, but we have other markets, too.

Next question is, can you talk through gross margin by segment and various variants within each segment, including how does semi-custom gross margins compared to ASIC gross margin is semi-custom at corporate average or 65% actually was the number they gave.

Yes. I think there's kind of 2 questions in there, right? One is kind of what's going on with each of the segments. And we talked about data center, right, and the dynamic there with our gross margin product lines being down more than the rest. I think if you go to enterprise, the merchant part of the portfolio is going through its own inventory correction, channel inventory, customer inventory. That's on the merchant side. Those typically are higher gross margin that we have we have custom ASIC ramping within enterprise. Carrier, we talked a little bit about the 5G, which carries a lower GM. And on top of that, the wired, the other half of the or not even half, but the other portion of the carrier business being wired, that actually does carry a higher gross margin. It had a great year last year, but that also has its own lumpiness to it. So that's one that's down. So if you kind of think about 3 big segments, within each of them, they have their own mix issue that's being driven down. And then on the sort of semi-custom question, I think it really depends on the job. Some of these are more hey, basically, you're not contributing a whole lot of IP, we need really strong back end and packaging services. We need this -- okay, fine, that's got one margin profile. If we're building the whole chip to spec, then that's another one. But in general, high-volume, very digitally intensive products are generally blended below the corporate average, right? Just -- you would just expect that, given the nature of the beast there. But then again, we offset that with higher margins in the physical layer, higher margins in storage, higher margins in automotive, higher margins than optics. And that's the goal over time, Chris, is to continue to drive a blended portfolio that's more stable. We're obviously not doing that in Q1 as an aberration out of, I think, a long track record of being able to manage our diversified portfolios, gross margins and product lines.

Yes. I think you guys said you'd be returning to the low end of the range by the end of the year in terms of gross margin. What could help accelerate that? Could we be above? Or like when do we go back to that -- getting back into that range? Is it early next year? What has to happen for that to move in?

I think step one is we just got to get all the inventory that's in there normalized back to customer demand, right? That's sort of just like step one. I mean, it's obvious, but that needs to happen. And then on top of that kind of get back to where we're shipping to consumption. We believe we're shipping below consumption now. So if you think about exiting the year at kind of normal Marvell and maybe the GMs are creeping up, maybe they're in the range, maybe they're a little below the range, but they're heading in the right direction. Clearly, we're really looking out to our fiscal '25 calendar '24 kind of full year with all of that behind us and looking at the blended portfolio to drive back into the model. But there's a lot of wood to chop between here and there. So that's what we're going to go through right now. But that's the way we think about it, Chris. And then I think by the way, any goodness next year as we get growth drivers can get higher revenue. That will also -- will help GMs, just like we're taking a little bit of hit on overhead absorption as revenues have fallen, you will get that benefit. Plus we're like laser focused on gross margin, cost reduction initiatives, you name it, right? So we're going at this very hard so that the setup at least heading into fiscal '25 is to deliver the performance that people expect of us. But first half of '23 -- calendar '23 or fiscal '24, we got to go deal with what we got to go deal with. And that's -- that's just the market. That's just what people want. But we do think as we get to the end of the year, that's -- the goal is to get to a normal Marvell by the fourth quarter.

Okay. Good. That's good. In the few minutes we have left, there's a couple more questions, and then I may have one. Can you elaborate on the legs to the 400G cycle? And does that mean we should expect to smooth the tone past to 800 and 1.6?

Yes. For the inside data center business, kind of the way -- here's the way we think about it, and I'll have Ashish add at the end here. But the 400 cycle has been underway. It's been a strong ramp for us, going through its own little correction we talked about right now. But as long as those 12.8T systems remain in the fleet and in the production, that's just going to keep going. We see there's probably some interim step that some of the customers that will adopt 25.6, but that is a little bit of a tweener is what it sounds like right now that really people want to leap over and go to 51.2. So I think on the traditional sort of 400, 800 to 1.6, I think it's going to be more of a 400 to 1.6 jump on the sort of the switch attach. The 800, which we've been in volume production on and products doing extremely well, that's almost been driven completely by AI. And that typically always leads it, right? So that's kind of on its own track. So I think AI will be the main driver of 800 gig, and then that will convert to 1.6. So I think 1.6 is probably where it all comes together would be my view. And then that architecture we've developed, we believe, can scale pluggables to 3.2, which would be even beyond that. So that's kind of how we think about it. But it's dynamic. We'll see who ramps up, but we're kind of well positioned across the whole product portfolio to supply 400, 800, 1.6 for the variety of applications that are out there.

Yes. Maybe the only thing I'll add, Chris, is there is still a set of customers, which hasn't actually on demand-based products, right? They're still using NRZ lower speed products. And we do see them start to adopt, right? And they'll probably start more with probably a 400-gig product. So that is still also in front of us right. So there's been, call it, a few hyperscalers, which have really converted to PAM in volume. And that's become the run rate business, but there is a set of customers which still haven't actually -- just because of their internal architectures right, they were able to [indiscernible] NRZ for a little bit longer. But as time goes on, as each wing goes up in speed, right this pressure. So I think you'll start to see some of those convert to 400 as well. That's also complete in front of us.

Great. Maybe just one more for the audience and we'll wrap up. Hard disk, you've talked about $200 million a quarter as a normalized run rate. How confident are you in that $200 million moving forward?

Yes. Just to clarify, I think that's really a total storage number, right, for data center, right? Our overall business is a lot, lot bigger. So again, you go back to on a normalized basis, the last time we took break stores down was like a $1.4 billion business, right. And call it 60% was in data center. And I think confidence is high because if you think about -- this is really supplying nearline HDDs. Right, which basically aren't the volume driver for cloud storage, right? And that's going to continue to grow. So once the inventory correction is done, right, that business basically goes back to where it used to be. And then we actually are growing share, quite frankly, on the SSD controller side, right, for the enterprise data centers side, right? We already have new design wins in PCIe Gen5, Gen 6 in front of us, right? And then finally, a small amount of business is fiber channel, which that's, again, generally been a fairly stable business, right? So there's some there's really some a seasonality in Q1, but that business goes back again. So overall, I think the comfort level is higher. We're not going to call a particular quarter. But we're shipping so far below kind of the end market, right? And you started to see those customers try to break down their inventory, especially on the finished goods side. So that's going to over time translate to buying more components. So overall, I think, again, not calling a particular quarter, but, yes, I strongly believe we'll get overall storage, not just data center, back to [indiscernible] typical run rate and then you go back to slow growth from that base.

Right. Well, again, Matt, I think it's a soft patch for you guys, but if there's any leader out there that I have the confidence that you'll get this thing back on track, it's you. And I guess with that, if you just want to take us home, that would be great.

Yes. Thanks, Chris. No, it's -- appreciate the time today to be able to talk to everybody. This is one of those periods where it is softer, it is much more dynamic than what we've experienced the last few years. We're well equipped to manage through it, and we will manage through it. We're laser-focused on our initiatives, right, that we can control. So that's things like making sure capital allocation is spot on, and we're continuing to invest in the right projects, right, driving gross margin initiative improvements, really looking at project cost. Those are things we can do independent of kind of the market and the cycle and the inventory correction, right? Making sure we have the right leaders in place in the right organizations to really drive the growth coming out of the cycle. And that's our goal. I mean we were there in 2019. We had a reset at the beginning of the year. There was this industry downturn. We had to go kind of reorient, and that was a year where we doubled down on automotive. We doubled down on 5G. We've got the ASIC business in place. And we just -- we're shot out of a cannon coming out of that cycle. So we got to go double down, and we appreciate the support from our investors so far, and we will continue to execute for you guys, and come out of this even stronger. But we'll have to manage here in the short term, and we're going to go do that.

Great. Well, thank you very much, Matt. Thank you, Ashish. Thank you, Willem, we greatly appreciate your time.

Thanks, guys.

Yes. Thanks, Chris.

Thanks, Chris.

Thank you. Bye-bye.