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

All right. Good afternoon, everyone. Last session of the day and saved the best for the last. Delighted to have with us Marvell Technology. We have the CEO, Matt Murphy, and VP of Investor Relations, Ashish Saran. I'm going to kick this off just because we've done the whole day, kick it off with a few questions. Halfway, I'm going to pause and see if anyone has any questions in the group, I'm happy to kind of jump in as you want. Thanks a lot for being here. Really appreciate your time.

I guess maybe just to kick things off, I think, Matt, one of the debates everyone seems to be having is what does end demand trajectory look like, right? We've gone from supply constraints to potentially demand constraints in certain places. You folks just had your earnings call recently, and it sounds like AI is doing well, but rest of it is perhaps a bit uneven, if you may. Just touch on a high level, what are you seeing? Then we can dig in kind of from there.

Sure. Yes. Great question, and thanks for having me. Yes, if I summarize -- can you guys hear me okay? If I summarize the last earnings call we had, I think the AI upside is great, and it's great to see how that strengthened throughout the year. And basically, what we said was that's up and everything else is sort of down. So such that just basically don't change your numbers, right? . And we want to -- and I'd say the way we're thinking about it and managing it is, clearly, there was a huge inventory bubble built. This is not like anything I haven't seen before. I mean I've been doing this for almost 30 years kind of on the frontline. So I've seen all the cycles going back to -- my first one was 1995, supply-demand imbalance, and this happens. I think the balance sheets of our customers need to get worked down. I mean you can sort of see that bubble still sitting out there. But I think the way to think about us is that we've really built a very diversified company with a very strong foundational layer in some very, very profitable, very attractive end markets that are going through correction. One of them is enterprise, right, which, by the way, even after we sort of get through the inventory correction, that business is up so meaningfully versus where this was back in 2019, 2020. And that's really mostly organic. It's through our share gains, our content uplift and performance there. So that once it goes through its correction, we'll still be at a significantly higher level than it was before and very profitable. We've built a nice carrier business to kind of layer on that as a foundational layer with both wired and wireless infrastructure. And then we've kind of got the growth stuff layered on top, which is cloud infrastructure, AI, automotive, a few other call options. And so the goal really for us always has been to -- from day one for me was to always think about diversifying the firm, such that when you have to go through down periods, you're going to just, in theory, outperform.

Yes. And maybe just to add just one more, I think, important point is it's not just AI, which is outperforming clearly, but I think we've also started to see growth from what we call standard cloud infrastructure right? So as data centers start to accelerate starting in Q2, and we got it up quite meaningfully in Q3, AI certainly growing quite significantly. . But our networking business, which is really connecting standard cloud infrastructure has also started to recover quite nicely, right? So we saw, call it, a short 2-quarter kind of correction there, and that business is also now looking very healthy. So that's kind of an important point. It's not just AI.

Got it. That's fair. And I'll say this up. If you [ look at ] most of the OEMs, networking enterprise, they are sitting on a lot of inventory, and they'll all tell you it takes 12 months to work down. So maybe there's a little bit of that as you were talking about that, that needs to happen as well.

I mean a simple math. If you just look at those companies and just look at their inventory level, growth year-over-year for the last couple of years and you look at the revenue growth, I mean it was like everything else, right? Imbalance, that's got it correct.

Exactly. Maybe just dig on the AI opportunity, right? I think you folks talked about an $800 million exit run rate at this point. I think it was [ $400 million ] was in the prior expectation, if you may. Obviously, a lot of questions around that, a lot of focus on that. Maybe just touch on what's driving this upside? Is it all around the PAM4 optical? Is it more diversified with customer [indiscernible]? Just talk about what's enabling this big step-up.

Sure. Yes. I think if you look 2 quarters back, we sized the AI business for Marvell, is about $200 million last year. It was going to go to $400 million this year, roughly, double. And then at that time, 2 quarters ago, we also viewed the opportunity it was to double again. And we did that to really try to be helpful to investors that we're trying to sort through all of your different investment opportunities. And how big can this be? And where is the ballpark? And what's the range? So we did that. The latest update is we basically provided incrementally kind of positive news in that, in that the fourth quarter would actually already -- this year would already be at the $800 million run rate. So we didn't -- we're not -- and we're not going to go through in every quarter try to update and call the ball like what's this year with -- it's just it's too complicated, but we do want to -- and it's too uncertain at this point. But the upside and the strength that we've seen for the last 6 months has really been driven primarily by the strength in the PAM4 optics business. And that order backlog and bookings and sort of pull for supply, that really continues to increase at this point. And that will also grow next year as well. So that's a real positive. Beyond that, we'll see where next year lands and where this AI cycle takes us because right now, it's got a significant head of steam on it.

Yes, I think even our DCI business, which is a module business within our optics portfolio, to Matt's point, the bulk of this activity is really PAM4, which is connecting clusters inside cloud data centers, and then it switches between each other. . But we started to see upside earlier in the year. In fact, the first upside we saw in [ RAR ] revenue was actually the inflection post-ChatGPT in terms of higher deployments of these data center interconnect modules. Now that's a small part of the revenue, but that's also growing quite nicely. And as you look forward, as you start to think about more and more -- you've spent the money, but your training model not to get it out to all your inference clusters. This is where you'll see a lot more activity, right, between data centers. So PAM remains, obviously, one of the bigger faster growth drivers, but I would put DCI kind of right behind it.

I think I know [ Sienna ] actually talked about this or topic on their call, talking about they starting to see initial, very initial signs of the DCI business starting to ramp up. And they're like this is more of a 24-story. But to your point, like eventually, you have to take the training to the inferences. And that's where data center is -- data center connections will work better.

Yes, DCI, to be clear for us, it's a 23 story. It's a monster upside. This is something in the future we -- kind of the genesis was when it was Inphi, they pioneered this approach, right, for a pluggable data center interconnect module replacing a transport box and replacing sort of the traditional architecture. And so at 400-gig, it obviously has transitioned to 4x the bandwidth and more of an industry standard. But yes, we're -- that business, today, is running significantly higher than anything that Inphi sort of ever sized. And that's this year. And of course, that's going to keep going. And just to put a cherry on top, I mean, just to kind of emphasize the importance of this, we -- as over the last 6 to 9 months is the AI thing has really become real and this trend towards inferencing closer to the source, plus some of the challenges, quite frankly, of actually building mega-scale data centers like physically, like getting enough land, enough power, enough energy permits, you name it, this regionalized approach, I think, is gaining momentum. So we recently announced our 800-gig ZR product, which I think was very much a surprise to the industry. We timed it with our release of our 800 gig coherent DSP for telecom that works in both applications. And so that's a road map change that we pivoted on actually because of AI. So that -- I think the bulk is PAM and that's kind of what everybody talks about. With this coherent technology, DSP, which is used in the DCI application area, is very strategic, very hard to do. And I think both of those are actually going to be very significant growth for Marvell.

Got it. Yes. And you said it's not the intent to keep updating these AI run rate numbers. I do appreciate you giving it right now. But I think one of the concerns that I'll always hear from folks is, what's the durability of these AI numbers for everyone, right? Like is this just like a nice big sugar rush and you're going to have a crash? Or how do you think about the durability of this and the sustainability of these growth rates?

Yes. I would up-level it. The way we're thinking about this is that we strongly believe as a collective team at Marvell that the shift from traditional computing architectures to accelerated computing is accelerating. And it couldn't be more clear just by looking at NVIDIA, right? It's sort of the poster child for that. But it's not just AI, right? And it's not just a GPU, as an example. I mean it's actually all the reasons why all the SAM growth for the last few years, quite frankly, in computing, even in traditional data centers was actually moving to DPUs, customized offload chips, right, trying to optimize around the whole system. That train has been running for a while. It's inflected. But that sort of structural shift is going to create a significant TAM increase in the semiconductor industry. Now that may become at a decrease from somewhere else. But where Marvell has always been pointed is in that area. And it's not just compute for us, right? The -- and we're talking about, it has a ripple through to our optical strategy or ripple through to our DCI strategy or ripple through to our switching approach, our custom silicon TAM gets massively larger, right, as things go to -- from a traditional kind of fixed architecture to very open and customized, things like AECs become critical, CXL. And i could go -- and then we've got a whole bunch of things you guys don't even know about because obviously, we're investing for the future. So to put it in context, there's clearly a massive ramp in AI. It's breathtaking and scale. None of us know how long it's going to last per se and is there going to be a reset period at some point and then it continues. But for us and for me as the CEO, where my main -- #1 job is to allocate capital for the company, we have to think in 5- to 10-year, 7-year kind of time frames. So when I draw a line from here to there, the trend towards traditional computing systems moving to accelerated computing, clearly happening. It has a profound impact and creates an opportunity for Marvell. So I can't comment on when the AI thing is going to happen. That's what everybody wants. Every question is a specific question, and sometimes you don't know the answer. It's unknowable. It's better to tell and at least share with investors that from my standpoint, the thing that I can help affect the most is outcomes that are beyond a bubble or reset, a correction, if you will.

Right. Fair enough. Actually also think about this as the amount of cost savings the company is going to get through to deploying AI properly, right, like IBM will talk about 30% labor reduction, if you can do it well. It would be logical for them to keep investing in AI. Those are real savings you can end up with, so you might be lumpy. But to your point, the 5 10-year journey has to be much higher at year 5, year 10?

Yes. I think they're -- yes, at a much higher level. I think there -- yes, there's absolutely a massive productivity unlock. And probably we haven't seen an opportunity in a long time in the world where there's a technology that could actually enable significant productivity to be [ unlisted ]. And then that will, in theory, justify the capital. The question is the mismatch and the timing and when does that happen. And again, hard to know, but it seems real from sort of top to bottom. And again, we have to look through cycle to think about our investments.

The only way I can think about it, it's not as big as deployment of BlackBerry back in the day in terms of how they unlock productivity, but everyone got a BlackBerry because it was so much more efficient [indiscernible]. Perfect. I guess maybe just broadly talk about the breadth of your design pipeline, what resonates with customers when it comes to AI stuff versus not? And clearly, the DSP optical stuff resonating very, very well. But how about things like Ethernet switching or custom silicon or photonics, just talk about the breadth of what you're doing here.

Yes. Well, I think it's actually the power of the portfolio that's resonating the most. The reason why I say that. And I would say that this is true all the way to the very highest levels of these customers we have. And sort of the reason is that for these companies who are especially hosting services and doing that for a living, I mean, this inflection on AI represents like a massive opportunity for them and a massive threat. They don't get it right. And this is sort of where market shares move and history gets made. And so I think strategically, all of our customers and everybody in the ecosystem thinking about this is thinking about how do I with whatever unique set of applications or competitive advantage I have, leverage my own somewhat unique approach to drive a TCO advantage. I mean at the end of the day, if you don't have a TCO advantage or some kind of competitive sustainable advantage, you're going to get commoditized out, and you're just going to be competing on price, and it's going to blow your whole value prop up. So the reason I frame it all that way is when -- if you're a customer and you actually look at like, "Well, who is a supplier of technology that can really enable all this?" having that all come together is really important. As an example, the switching platform technology we have or you can even say custom silicon, think of those as the large digital blocks. Those need to directly inter-operate and interface to the outside world through optics as an example, could be PAM4, could be a road map for new modulation technologies to enable faster throughput in the future. Once PAM at some point runs out of gas, we have a road map there. Co-packaged optics is one angle. Linear direct drive is another angle. You have the ability then to optimize those solutions together. And it's not just taking, well, somebody had a part that got it defined 3 years ago and here's the part, so can you make a better part? It's like -- I mean everything down to the NIC, to the switch, to the interconnect, it's all going to get rethought because it's a completely different application and set of applications. And so I think somebody that can do the customized silicon approach, have all the right connectivity and interfaces between those? Have they upper layer networking to actually move the data around? I mean, we have incredible storage assets as an example. Maybe there's a new way to [ skin ] the cat on how these large language models use that. So I think we have like all the pieces, that's what we've been building in Marvell for like our data infrastructure strategy. So we're kind of here, and now you have the ultimate sort of killer application that's going to drive a lot of need for innovation. And you can't just do this overnight. You can't sort of be on like a corporate board and say, "Oh, wow, hey, this AI things happening, do we have a solution for that? And some companies, "I don't even know what all the stuff is." I mean we spent like 7 years, right, to put all this together, plus you layer on process technology leadership, packaging leadership, IP leadership in terms of controlling our destiny on IO, both optical and electrical, it's a pretty powerful combo. And then to be able to come in, in a very partner-oriented way and also have a culture of collaboration inside our company, which allows all these different groups to actually come together, and that is a very, very powerful value prop that I don't think is really matched or at least if there is, there's a couple of people, right, that have that sort of combination. It's a [indiscernible] of us. And so I think as I look at this way to accelerated computing and AI and what customers want, I think what we have, we're one of the companies that really has what these customers want because we can actually do this. And we can execute it. And it's not like, "Oh, yes, I'll get a couple of people," and then groups that never talk to each other are trying to show up in a meeting and one person's on some other flow or had some other vision of the future. So we -- we're driving a lot of internal alignment so that the whole company gets rallied behind this and all the groups and all the technologies come together, and we look like one unified partner to our customers.

Do customers come to you and say, "I want all of this from you?" Or do they come and say, "I just want you optical stuff. I'll figure out customer silicon somewhere else. I'll do Ethernet switching?" Or do they want a one-stop shop?

It kind of goes like this. It's like top down, bottom up, right? Bottom up, there's a team, and all they do is optics. And they're like the best in the world, right, at our customers. And they're super detailed and like that's what they're focused on. And then you need another group, and they're doing this. And so -- but if you go actually executive down -- think if you're an executive at one of these companies, like running these big properties, I mean, you've got to be thinking about, "Boy, if I've got all my people running around, doing point solutions, optimizing every little thing and -- am I going to get the best outcome? How am I even going to synthesize what the heck is going on?" And so I think we're trying to do a good job of being very sort of 360, right, with our customers and selling the value at the very, very detailed, detailed level to kind of run the gauntlet let, but also making sure that we're aware. And I think the combination of those is leading us to a much more solution-oriented approach, which ultimately does add a lot more value to our customers. It has content opportunity for us to drive. And it helps drive our road map because then we can think 3 steps ahead. How are they architecting these systems? Where is it going? And if you get the input from the switch group and the optics group and the custom group, we actually have a pretty good view of where these things are heading. And then we actually take that back in, and we work very closely kind of in a bespoke manner with our customers on how we could help them think it through because we can see a lot of their organization that they might not, especially big companies. And this is all we do for a living, right? So it's not like we're -- we've got some other business on the side, like, "Oh, we got to go to creative, is it the TV accounts?" And we'll be back in -- it was like this is all we do. We all do is infrastructure. All we do, the company knows this stuff. They're like super geed out on it. Everybody loves it. It's very esoteric. It's not mainstream, but we're really, really good at it. And so I think the approach seems to be resonating.

Yes. And this is evolved significantly. If you look back 5 years back, I think we'd have to give you a very different answer, which will be more in terms of, "Hey, disappoint solutions." But I think in the last 5 years, as the company has evolved, we've added all this capability, this technology, I think the conversation moved up massively. I think the levels you talk to, Matt, today are very different than what would have been the sales like 5 years back. It's a complete change.

And I have somebody on my staff in charge of this. I mean Loi Nguyen, who is the founder of Inphi, who is one of our most esteemed technologists, business executives, champion of the culture of the company, he runs an entire task force on this with CTO, heads of engineering from the business, product -- and he's driving -- so it's not just like, "Hey, I'm a CEO, go have a task for us." I've got literally an executive whose big part of his remit is to actually really get organized on this front. It's unique.

It's truly very differentiated, like you don't hear that narrative from other some.

Yes.

This is going to be a question on a different topic than what we just talked about since you talked about having a complete system strategy. On the core optical side, where you're actually doing well, can you just tell what the competitive landscape looks like right now? Who you see competing against, the colors kind of platform that you have?

On the DCI side?

On the DCI side.

Well, yes, I think there's always been a very strong competitive competition back in the pre-M&A on two sides, it was really Inphi and a very good company called Acacia, right? And then Acacia was acquired by Cisco, and we acquired -- and I think those are the two that primarily serve that market. There's -- clearly, there's a volume there. There's other people that are kind of from the system side coming in. And like anything, we have in every market we're in, we have very strong, capable competitors. Certainly, we're doing what we do -- what we always do, which is we're driving the innovation really hard. And as an example, the 800 ZR announcements we've made and the speed at which we're able to turn those products, which is really tied to our coherent DSP road map, which we have a whole market for as a merchant supplier, really helps us. But yes, there's really one main competitor.

Got it. And then just on optical attach rate, something that comes up, which is I think traditionally, servers don't have a lot of optical attachment typically, right? It seems to be evolving and changing when it comes to AI-enabled or AI-centric servers. Can you just talk about how does that change? And what does that look like for you folks?

Well, let me tee it up, and you can hit the ball here. I think I'd just say that the answer is that the accelerated computing platforms and AI platforms have significantly higher content of our products in the optical area. And that's primarily because just the raw computing capacity and throughput is such that you just need -- you have a ton more bandwidth coming out. I mean you're talking about 3.2 terabits of computing capacity needing to pass through versus -- well, even more than that, actually down at the digital silicon level, it's probably like 20 or 30 terabits. It's got to go get shoved out through a 3-terabit pipe, and servers are 100 gig, 200 gig, 50 gig, so it's just a different ball game. And so that was an early concern by some investors was, "Geez, these AI systems are really going to -- are they going to get disintermediated, and is there going to be a content issue? It's not as much volume." So -- but as you've seen in our numbers, it's actually turned out to be a very important part of the equation.

Yes. I think at a high level, to your point, right, servers individually the first hop from a server to a top-of-rack switch has traditionally been like direct attached copper right? Because you're dealing with 10s to maybe 100, maximum 200 gigabits per second of capacity, and that's fairly bad. It's mostly 50 to 100, right? You don't need an optical connection. It's really at the switch connection. So now you're like 1 or 2 hops above the actual servers is where you have up our 200-, 400-gig optical products shipping in volume for the last few years. What changes in an AI cluster is essentially you're driving the first hop itself from an accelerator, whether it's a GPU or it's a custom ASIC, is optical right from the start. And you can imagine every other hop switch to switch has also to be optical. So the attach rate is think of many servers in traditional cloud, driving, call it, 1 or 2 optical links versus you've got basically a higher ratio. You've got more than 1 optical DSP required for 1 accelerator. So it's like a massive, massive difference, right? And that's what we see today. And as we look forward, as you can imagine, the compute power of the next-generation of AI chips will be even higher. There's actually -- as Matt said, it's a big mismatch in what's inside the box versus how much you can actually connect out. And the value of AI really is it's a distributed compute application, right? So the value of the cluster is how much can you network. And we see that actually growing as we go forward.

And so the way you think about such is how underutilized do you want your GPU clusters to be if you're running...

That's right. You're spending all this money on compute, right? You want to feed the monster as fast as you can, right? And like I said, as you look forward, these AI applications don't fit in a single accelerator, even 10, could be 100, could be even 1,000, you have to network them together versus than a standard server, a lot of applications fits on a single CPU, which is why you virtualize them and actually slice up the application, right, because you can't actually use a full CPU for one application, completely different world when it comes to AI.

Fair enough. Maybe I'll pause there for a minute, see if there's any questions in the group.

Wonder if you could talk a little bit more about the 51T switch upgrade cycle, and whether you see that primarily being driven in applications or as well as traditional infrastructure as well?

I think it's both. Simple answer. I think that the current installed base and sort of state-of-the-art, that's broadly deployed is at [ 12.8T ]. Today in traditional cloud infrastructure, there's been -- there's sort of everybody generically decided to skip [ 25.6 ] and wait for 51.2, you get sort of the quadruple effect, and there's a big lift to go do one of these cycles. So that that's going to happen independently. Then on top of that, I think the just increased bandwidth and network capacity required is going to have a kicker on AI. And I think there's very specific sort of AI features as well that probably need to get integrated into a future release as well. So I think there's going to be a ton of activity. I think it's going to be a very strong industry upgrade cycle going on in networking, in cloud infrastructure, driven by the [ 51T ] platforms that are becoming available.

Yes. And I think we're very well positioned. As you know, we just basically just announced, we started sampling our product, so I think we should see a lot of activity on this front. There's lot of excitement from customers as we go forward.

Any way you can size that opportunity?

I mean the data center switching market is already a very large multibillion dollar market today, right? And as you go from generation to generation, as you give your customer, call it, 4x more bandwidth, he also sees a pretty nice content uplift, right? So not only do port counts continue to expand for a number of reasons like I talked about, from AI as one example, total throughput is going to keep increasing on top of that as you go from [ 12.8 ] to 51.2. You also get a pretty nice ASP uplift. So the market is going to be growing at a very, very fast rate.

Yes, multibillion dollar SAM today and going to grow at a very healthy rate actually, going forward, just given the content side of it.

Perfect. All right. I guess maybe switch gears a little bit on custom silicon. Maybe just touch on like -- what do you see the opportunity over here? What sort of design opportunities are you engaging around the custom silicon side? And then what is Marvell's kind of value proposition in these products?

Yes, sure. I think this is the journey we started down, custom silicon was really when we acquired a company called Avera, which was a few years back, and this is the old IBM internal ASIC, which they've done probably close to 1,000 designs worldwide. And what we saw as an opportunity as we saw cloud customers start to focus on really building out massive internal data centers and having very unique workloads [indiscernible], they were starting to look at building their own, augmenting what they buy from kind of the merchant market, and we saw that initially as really -- think of these as server offload devices, accelerators. And as you moved into the AI era, you've now seen one -- more than one public example of some very large applications, right, which are going towards custom silicon. And again, the idea there is especially for workloads where it's kind of their own data stream, they want to be able to understand how they can extract the maximum value, how do you differentiate. And they're looking for partners because these are incredibly complex devices, especially the type of activity we're engaged in, right, which is typically advanced process geometry, typically very high I/O rates, you need someone who has the world's best [ facilities ] essentially, which we are 1 or 2 companies, I would say, which have the world's best [ facilities ] at this point in time. The ability to invest consistently, it's not just 5-nanometer today, it's 3 nanometers now, and it's 2 nanometers going forward, right? And having very advanced packaging capabilities. So think of these as -- this is really a core design effort, where kind of the very front end is done by the customer because they have a unique understanding of what they want to implement, but they're looking for a partner who can now take this design into something which can be manufactured with very high yield on time, first time right. And that's really the capability we provide. And soon after we did Avera, jumped to 5 nanometers, really had this custom platform available for the first time, we won a host of design wins. A number of products are in production today, and they're looking forward to ramping additional much larger AI programs as we get into the next year.

Can you talk about how big could this opportunity get over time? And then maybe somewhat related to that, one of the questions always on custom silicon is, what do the margins look like? Are the gross margins better or worse than the corporates? Just anything on those two fronts.

Yes. Maybe I'll talk about margins first, right? So I think first, at the end of the day, what you're trying to drive is, bottom line, EPS growth, operating margin dollars, right? So I think if you think about the way we manage the business is essentially that the operating margin profile of custom silicon is no different than what it is for our merchant products. . The difference is your gross margin will be lower because the customer is fronting some of the NRE and as well as doing some of the design work. So my R&D spend is going to be a lot lower, right? So the net-net of it is the business model essentially is the same, which is you want to be able to drive our long-term corporate average, which for us is 30 to 40 points [ above ] margin. And that's essentially what we see in the custom silicon business.

Got it.

In terms of the opportunity size. I mean...

And just to clarify for the team here, the way that we treat the NRE and the customer funding side as offset to R&D., so it's contra OpEx. So that's where you get the you get the margin flow-through. So it doesn't show up in the top line. So it's just -- so it's like you take whatever -- if you start with our target model, just build it back up and you say, well, how much funding are you getting and then you sort of get the difference of the two, and you can figure out the gross margin. But...

Okay. Got it. So the NRE is not a revenue number. It's [ opposite ] to the OpEx in the [indiscernible].

Correct. Exactly. So we really -- so in that business, for most of the reasons Ashish mentioned, we -- and from day 1, even when we bought Avera, that was the thesis that we laid out from day 1 is, yes, it's going to be a lower gross margin. Nobody panic because we have [ upward ] business model, we're targeting for that business, will be in line with the Marvell corporate average target. And that's still true today. That was 5 years ago, by the way. And that's -- and we've been managing that business since then. And in fact, it didn't start off that way. I mean, we've gotten it scaled up. We've grown the business. It's actually the custom business and Marvell has grown at a faster rate than the overall company average, if you look back to when we bought Avera. So you would think, "Well, gosh, if a business is growing faster and it's lower gross margin, oh my god, what happened?" But actually, we have all these other businesses that are better than the average. And so we just sort of manage the portfolio. And along the way, we've chunked the operating margin up over time. And that's how we think about it. I just want to add one other point strategically, maybe this is where you're going, but not -- it's actually -- and this is also by design from going back to the Avera days, is we concluded for us to be a real leader in our field, table stakes was going to be process packaging, IP leadership. And that was not the prior strategy. Prior strategy was -- and you still hear the remnants of this and other smaller companies who sort of, "Hey, Marvell got away with this for a while," which is, "Oh, don't worry, we're a node behind. We're 2 nodes behind. But we have better design than the other guys." So therefore, we can do the same chip for the -- it's like total fake news, like table stakes is also you have to have a really good circuit design, really good architecture, really good engineers. -- and you need leadership, okay? It's just how it works. So that's a decision that we and my team made very early on is we got to pivot this company or we're just going to be an [ also-ran ]. And so part of doing Avera was the fact that it was going to drive the company, being in an ASIC business, for advanced infrastructure applications. It was going to drive the node train. And we just hooked on to it, right? And between that, between the Cavium business always being a node behind, we needed to get that caught up because it was processors. I mean, things like Innovium, things like these coherent DSPs, I mean, switch every one of these -- it's kind of required or else you're not competitive. You follow me? So going back to it, "Why have an ASIC business that drives lower gross margins? Oh, boy, that's not good." Well, if it can drive EPS and equivalent operating margin and literally be the pipe cleaner, if you will, that the whole company benefits on because all we do is infrastructure. So all the IPs we do for that, they all flow back to the mother ship. So it's super strategic. It's not like a sideshow business, "Hey, let's go run around and get into the ASIC business." And then "let's go run over here and get into this business." Like in my mind, when we map this whole thing out and where we wanted to take this company, it was just a critical piece of the puzzle. And so we're going to go after that business, even if it is lower gross margin. But if it's at the equivalent sort of net income level, and you can get outsized top line growth and addresses huge emerging SAM and you can get a whole bunch of extra EPS, I think investors are going to be cracking the champagne if we are successful. Even if the blended average gross margin is not as high as -- because at some point, you get your gross margin up too high, your growth peters out. We've seen that movie. So we balance all that. I think in general, other than going through this downturn, we've managed extremely well for the last 7 years in terms of managing around a gross margin target, dealing with all the different sort of dynamics. But yes, ASIC is always going to be lower, but it's not a bad thing. It's a good thing.

No, that means -- seems like it's a key part of the integrated offering for infrastructure companies. It's dilutive gross margins, but it's good on operating margins and certain net income-accretive sales.

Big time. And to your point, at the first point, it's super strategic. I mean it's as strategic you get of any kind of hardware decision that any one of these major companies is going to make, not just in the 4 hyperscale companies, but all of the ASIC things that we do, it becomes like one of the key decisions because that chip architecture is ultimately going to drive the hardware, which is ultimately going to drive the value prop along with software and other things that those companies offer. But it's -- so when you have that, you're just in the complete sort of center of the decision in terms of the block diagram, if you will, go back to the old days. You want to like drive the block diagram and attach, like, boom, that's the main thing. And then if you do a good job on that, it's like, "Well, geez, we're betting the farm on this company. Let's give them more business, right?" So...

I was going to ask you this later, but since we have had this discussion already on the integrated solution of M&A, I think you folks have actually created a lot more value through deals that I've typically seen from companies. And one of the things it always stood out because a lot of the founders are still at Marvell after -- I assume the vestings are all done, and they are -- they can do what they want. As you reflect back, like what have you done to integrate these assets and this kind of the strategy behind it because it is somewhat unique to have all these folks still at the company together?

Yes, I think there's a couple of angles on the M&A. First, I think it has worked out really well for us, both in that on every deal we've done, and we review the history after the fact, we've always exceeded the cost synergies that we've committed to. The -- I'm going to get to the straightforward stuff first, but it's important because it's part of the track record, right? The second is really strong team that we and I built from the very beginning in terms of the sort of, call it, the IT, the infrastructure, like how do you get those done. I mean we did some of these ERP migrations in like 3 months, like done. I mean companies go years sometimes, and they struggle, and they get underwater, so we really -- and early on, we hired like really, really good people kind of punching above our weight just in case we were going to go do that. So that part has been really clean. And then you kind of get up to the next layer. It's like [indiscernible] , if you can do that, that's great. That's a value creator, perfect. And we always -- in general, Inphi was the exception, try to justify these deals kind of on that basis. Can you get enough sort of cost synergies out and integration? The top line revenue synergy side, which if you look on any of our deals, we never committed a number, I never mentioned the word revenue synergy ever as part of a deal rationale. But monster revenue synergies have come from all this, right? If you look at 5G, right, how did we actually get all this stuff going, it wasn't because we have this one baseband we pulled in [ L2 ], and we pulled the switch and we did all these things. And then with Inphi, it was like a beyond home run because it had this sort of second-order effect of a tailwind on the custom business, a tailwind on another thing. So I'm going up the stack now. And then you go, "Okay, cool, good job. You got the IT done, good job. You took the cost out, good job. Ho, you got to get some revenue synergy. That's pretty cool. Well, did you like blow up the company in the process and everybody hates your guts and all the founders quit because it was like a terrible place to work and you're sorry about that." But I got the other's [ REIT ]. And I think I'm very proud of the fact that the key people, not just -- but the founders, but the key people, in general, we've had a really excellent retention on. So they say, "Well, why?" And by the way, just on the founders, we have Raghib Hussain, who is Co-Founder of Cavium, he is on my staff. Loi Nguyen, who's Founder of Inphi, he's on my staff. Puneet Agarwal, who is the founder of Innovium. He's the Chief Architect and CTO for our switching platform business. I could rattle off a few others. A few others, by the way, stayed, Founder of Aquantia stayed for a while, remain. He went off to go to a startup. We actually helped him out. We funded him to go do that. I mean it was not like, "Oh, I quit. I hate this play." It was like, "Hey, I want to go do my own. Here's some money." So we -- and so what's the reason? What's the reason? And the reason I think, and you can comment, is that from the very beginning, my -- also my feeling in becoming the CEO of this company was that to build a really kind of built-to-last organization and one that could execute the strategy I wanted to do, which was to be this infrastructure leader and get a team that could work together, it was -- what resonates is the company's culture, the core behaviors that we espouse, the value the respect that we show, right, the way we always use the word we're going to merge, we're not going to acquire you. We -- and then also making sure we take care of the people, both in terms of meaningful scope when they come in, every one of those leaders I rattled off, everybody got more scope. Some of my existing executives gave stuff up. I mean, when I acquired Cavium, Chris Koopmans, who's my COO, he was running our networking business. He gave it to Raghib, gave it to him. And that Raghib said, "Cool, now I'm running the Cavium business and the Marvell networking." When Loi joined, I gave him like a $1 billion business to manage. It was bigger than Inphi. "Wow, thank you for that trust." And so I think we -- and we benefited huge from their leadership, right? And they're -- and -- but they really like the culture, they like working for the company.

And customers see it, by the way, right, because customers are also happy to see that there's a significant bench strength. There's folks they actually work with individually, right, because that's what made those businesses successful. So they like the fact that there's that continuity as well as that additional leadership you're providing, but there's also like I'm not relying on one single person when I work with. I mean, these are very massive large projects fanning multiple disciplines. So the fact that it's the same group of people but have broader responsibility, much bigger bench strength across the company, I think all of those things are critical because for these customers, you're not like a piece, part supplier at this point, right? They're betting the fact that we're going to work with you for the next 5 to 10 years, not for the next 1 to 3 years. So that's a piece they picked up on as well.

Yes. You can kind of look at these executives as they have different ways to look at it. They're an asset or they're a liability. Too much cost, chop them all out, we don't need those people. They're useless. I just go to that. Or you could say, "Hey, I wonder why these companies were so freaking successful, and they hired so many great people and all those people stay for a long time." And then you meet these amazing people that ran them and you're like, "I want these people on my team." So it's -- and they don't have to do it, to your point. They're very successful. They're very financially independent. But they -- I've -- really just honored to work with them because they love the mission. And we love this infrastructure stuff. I mean it's like -- it sounds super geeky, but this team loves to do this. And so it's like a paradise for engineers. It's a paradise for executives that want to pursue their passion and do it in like a nonpolitical, like good place to work, get rewarded if you do a good job, get a bad feedback, if you did a bad job, move -- I mean, it's very simple. But so far, it's been working, and it's -- just very lucky to work with the people that we do.

Perfect. I'm almost up on my time. Maybe the last one. I think in the past, you've talked about -- the portfolio you have is great. We're good with the way we are in the field. I wonder does AI change that at all from your perspective? Does that create more opportunities? Does it create anything from an M&A basis if you look at it?

Yes. I think it provides a different lens, certainly, when you look at the world is if accelerated computing and our structurally changes, which we believe it will, then it certainly opens up our aperture. We want to look at things always in your strategic context, not "Hey, that looks pretty good. I can get some EPS out of that guy. I can get some accretion out of there." I mean, yes, that's one. But if it's orthogonal, you guys would slaughter me. It's like "Oh, what are you doing? I got you like another $0.10 of EPS and some random thing to do." So we'll always tend to stay very, very focused on our strategy there. But we really, really do have all the organic pieces we need now from the inorganic stuff that it's all one Marvell. And so that's really what we're driving. And it's cleaner. M&A is really hard. It's like really like this is -- it's not easy to do. We're good at it. Certainly, if stuff came along, it would be great, but we don't -- there's not like a must-have. We really did what we needed to do there.

Fair enough. [indiscernible].

Sorry, they have our core bankers in the room that are like "Oh man, it's a bummer. Can I cancel my meeting later?"

I will avoid that one. I'm up on my time. Maybe I'll talk about it.Any closing comments that you could not touch on? You want to...

Appreciate the opportunity. And actually, I appreciate the opportunity to get to talk a little bit more about our company. And actually, what we're trying to accomplish and the vision we have and the people we have, it's not often you get to do that. Quite frankly, I just get pinged all day at these with how many GPUs are going to sell next year times the number of 800-gig PAM4, times the ratio, times the ASP. At some point, I got that, and we're going to be helpful to our investors to create the models you need to size the opportunity. But I also hope for the folks that have a little bit of a longer horizon to realize that we're a very motivated team to build something really great, and you can't -- you could just sort of say that, but if you don't understand the underpinnings, then maybe the story rings a little bit more hollow. So anyway.

Perfect. Thank you very much.