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

By the way, there's another bottleneck that I think Marvell is addressing or attempting to address and that's the memory wall, right? I mean every connectivity is a big challenge. Memory is also big challenge, especially with the scale of inference. Just in your viewpoint, why is this such a hard problem. And is -- you kind of hear about everyone's working around the memory wall or architecture trying what do you see there? Is that happening?

Yes, a huge amount of activity there. And it predates the memory shortage by the way. So this -- the memory expansion technology we fundamentally possess now was all organically developed at Marvell. So this was something that we decided to do on our own. And the first effort we made there was with kind of an industry standard technology that emerged about 5 years ago called CXL and basically CXL at the time, this is pre-AI, guys. It was envisioned for industry standard servers. And Pat, you know this business very, very well. And you remember traditional CPUs, x86 and ARM all have a fixed number of memory controller ports. And so what was happening even in standard servers is when people wanted to add more DRAM and more memory, you'd have to buy more CPUs which didn't make a lot of sense. And so effectively, people wanted to get put and created a standard and the idea was you could put a CXL memory expander or even later a pooling device, but basically gang up larger amounts of memory not have to scale your CPUs with memory and you could do those things in a disaggregated way, which is where disaggregated memory came from. So that's been happening. Now AI actually kind of accelerated the use cases for this type of thing because, one, in inference. Again, you're going to want to have a disproportionate to memory attached to your XPU for KV cashing, that's one. The other -- and then on top of that, so that whole trend is happening. And then on top of that, with the memory shortages that people are seeing that everyone's getting creative. So we're actually seeing a faster adoption now of customers that we're already designing us in on some of our solutions, trying to go faster because basically, it obviates the need to buy as much memory as they thought before if they can put some level of memory expansion capability in between. So that's become very strategic to us, and we've got multiple customers on either custom-based memory expansion or we have a whole standard product line of CXL expanders, CXL switches, and CXL retimers. So it's an end-to-end kind of offering we have. And I think people were wondering, is this really going to take off after the x86 kind of application slowed down when AI hit, but it's actually it's on turbocharge, and we've called this out as like $1 billion, multibillion kind of business for us in the future. So it's become a real thing. And we have absolute product and market leadership here.

Yes, it's interesting. I think we met 10 years ago right after you started. And back then, I think Marvell, 10% of its revenue was data center. And here we are today with memory solutions, connectivity solutions and Computex Jensen calls you out as the next trillion company. I guess more editorial congratulations. You keep making the right moves. I want to talk about custom silicon. We've chatted about this a lot. You do a lot of it. You have a lot of IP in there. For those who don't live and breathe it like us on here, what does it mean? And why do hyperscalers, why do they continue to invest in it?

Yes. It's interesting how that's evolved. We got into this business through an acquisition we did in 2019 of a company called Avera Semiconductor, which was a spin-out of Globalfoundries, which had all of its roots, and it was IBM's original custom silicon design team, which was a very successful team, they really needed to be able to operate at the leading process nodes. And so in Globalfoundries decided to focus on mature and specialty technologies. They spun the group out. We put them right on TSMC and on our technology platform. And we pointed at the data center market and we ended up winning a number of custom silicon sockets pretty quickly in the data center. And Pat, to your point, there was a debate just a few years ago, whether these would ever go to production, right? I mean there was a debate whether the custom XPUs could actually penetrate a reasonable part of the market. And if you fast forward to today, companies like ourselves and a few other large peers have taken into production very complex custom XPUs that are being deployed and now running training workloads on them or inference workloads on them and customers are using them. So this is -- and we had sized this 2 years ago that maybe you'd have like 25% penetration of custom silicon versus merchant. I think the prevailing view is that number is probably going to be higher in terms of units. And the reason that happens is customers have found reasons why they believe for their own workloads, which they know better than anyone else that for a portion of their fleet. They see a lot of economic advantages and technical advantages and architectural advantages to doing some of that themselves. Now the notion that custom is going to take over all of the market, I've been not of that opinion consistently for a long time. It will coexist. It will be a part of the market. That's where we come in. And by the way, you mentioned Jensen in NVIDIA, they did do a $2 billion investment into us earlier this year and part of that agreement was actually us being able to use a lot of their very rich IP in our custom products, so we can actually interoperate with their merchant products. So they're not fighting it either, and they see that this is the way the market is evolving, and they're just trying to make sure that the ecosystem ultimately supports the best possible technology that gives you the best performance and returns for our customers. So we're very active in this area, both on the -- what gets talked about a lot is the accelerator itself. A lot of excitement about that. A lot of people want to talk about that. A lot of articles, pretty much every day, you'll see something. And we're in that business and customers rely on us for that. But there's another category that we basically called out and defined ourselves, which we call XPU attach. All of the key custom silicon components around the XPU, which one of the -- some of those Daniel or memory expansion, -- but also, we see the next or the network interface products also being customized, security products. I can go on and on. And so that whole category, which was looked at is, oh, maybe that's just too small, it's too nascent. Our design win momentum here is significant. And if you think about these different ecosystems that have now developed, the TPU ecosystem, the tranium ecosystem, the MTI ecosystem. There are several of these now. And by the way, we also do XPU attach, which can work with somebody else's custom XPU or a merchant GPU, by the way. Some of these get deployed on servers from both. And so that business is doing extremely well for us and customers see real value because ultimately -- and as far back as 2020, we were saying this, basically, every cloud is different. Every cloud is going to be its own market, its own architecture. And everyone, ultimately, all the pieces of it will require some level of customization. We said that 5 years ago and now it's happening. And I think we said a year ago at our AI day, we had like 15 or 18 different design especially in conjunction with the XPUs we have, but also just the broader business we have with these hyperscalers.

Yes. We've entered the era of abundance, I call it. There's this kind of perpetual narrative in the market that someone has to lose for someone to win, and I think that's been wrong whole way up. We continue to revise our forecast map, but we have close to $700 billion of cumulative just XPU between now and 2030. And I think that number continues to rise with every quarter when we revise it, the number keeps getting bigger. I think we've -- I mean we did a recent data center CapEx forecast that I think it went from like $10.7 trillion cumulative between now and 2030, [indiscernible] to over $12 trillion in just 3 months. just as we keep watching this grow. So -- and I think your attach story got missed for a long time, but I do think the market is beginning to appreciate it, which is funny because you've been doing it and saying it all along.

Right. Well, I think it's funny. Some of it actually because of our point you made, there was a point in time. I think that's gone away, but where it was viewed like there's 3 sockets, it's a 1 or 0 if you don't have -- if you have one, you're grade, if you don't have when you've lost and then everything else is an excuse. So I actually think in some ways, when we articulated our XPU attach strategy, people thought it was it was like, hey, just go look over here.

That's right.

And we're like, that's fine. But we're just -- we're going to kind of do it like we always do at guys like very consistent, talk about our business, frame the opportunity, go execute against it. And if I look over the last decade, we've been very, very consistent and very accurate, right, in how we sort of frame these things. So there was no other conspiracy theory on this. We basically said, look, there's XPUs and we're doing well there, and here's how big this is. There's all these other sockets we've won, and it's not 1 or 2. It's like a dozen plus, couple of dozen, and they will generate meaningful revenue for us. And they're also very strategic because they ultimately are like a very bespoke part of our customers' architecture that gives them advantage in what they're trying to do. And then when you combine that with our strength in connectivity in switching, then you're talking about a very nice architectural end-to-end approach we can take and share a lot of that IP as well between all these different solutions. And customers see that, especially in an era where you can't miss, you've got to execute on time and you've got to have large reliable suppliers to count on. And it's absolutely not a 1 guy wins and 1 guy loses and it's like -- this thing is absolutely, at this point, this market is not a zero-sum game. And it's -- there's enough market growth that the key participants will all I think, do really well.

You can all win, right? It's -- the era of abundance. You guys are in the tray and the rack and the data center and across the data centers and there's opportunities in all of those. So gone pretty deep and appreciate that, Matt, as we sort of wrap this up and get into our day here at SixFive Summit, we ask you a bigger question, just a broad viewpoint. There's debate constantly. Pat and I go on CNBC or different places -- people will say, what inning are we in or how early are we here? How far into this AI revolution are we. I've proclaimed that we're still in the pregame, tailgating. I've heard people go on and say we're in the third inning. Just kind of curious like where do you think we are? How early or late is this -- and how would you answer that question?

I'd refer to it as early innings. I don't know if I can get that precise, but clearly, there's momentum, right? There's things are happening and we -- I mean when ChatGPT dropped, and it was sort of like early 2023, we were trying to figure out what's our content. How much -- how are we attached to this? I mean, I knew we had design wins. I knew our content because I knew even back when we acquired Inphi, are doing diligence on these guys in 2020, and they showed me the whole team, all of their GPU clusters they had won. I mean, we saw them all. And so -- but how do you quantify it? That was definitely a pregame early inning, right? No question. And then by the way, it was crazy at that time. We said in May 2023, we're going to do -- we're going to do $200 million this year in AI and $400 million next year. And it was like our stock went up like 40% one day on that. I mean we're doing our data center business is like north of $2 billion a quarter right now, just to give you a sense. So we definitely progressed. But when I look going forward, the TAM opportunity is massive and the technological advancement right now is still early. I mean the real big 1 is, is where the connectivity comes in, guys, just to kind of wrap this. You still haven't seen mass deployments of GPU and AI accelerators scaled up. You haven't seen it. This is all in front of us. I mean think about the compute and memory power that's going to get unlocked when you can gang up in daisy chain now, multiples of TPUs inside a rack, multiple racks and pods together scale across is one that we didn't really talk about, but that DCI application I talked about, which was just sending data traffic between data centers, you're going to be able to fairly soon coherently connect up clusters in different data centers and have them operate as one. So this era of connectivity, I'm telling you is going to unleash a whole new wave of innovation. It's going to enable new use cases. It's going to enable cost to come down, performance to go up. None of this has happened yet. So when you hear about all the scale-up market, it's going to be big. Yes, because it's the next way you can actually drive the scale of compute that's required by the AI market. So that's why I think it's still very early. And we're still looking at right now, like, for example, CPO, I'll give you 1 last one. That's coming. And we have certain customers that are going to adopt it. But like what's hit us in the last like 6 months is that NPO or near package optics probably will hit first in a bigger way and then CPO is coming. So it's all coming, but it's just not going to come at once. So I think there's many, many years in front of us here. And I mean I'm just getting off of our annual strategic review. We do it once a year at this time of the year every year since 2016. I was CEO for 5 weeks, put it together, reviewed the whole portfolio, deep dive. I'm doing it right now. And I'm telling you, I've never seen anything like this in terms of the TAM in front of us, all the solutions we can go after. So from our standpoint, we're very early innings in what we can go do as a company, but also where the AI market is in terms of its kind of technological advancement relative to the silicon that's required.

It's a great answer. So I'll submit it for our audience that if the game is really long, if we're willing to acknowledge that this is like a cricket game that can go like 2 days, it's the early innings. If it's a shorter game, maybe I was right and we're in the pregame, I'm not putting words in your mouth. But the fact is utility like where actually industries stuff are using it is really just getting started. The build-out is probably, like you said, a little bit further along. Matt Murphy, Chairman and CEO. Thank you, Matt, so much for joining us.

Yes. Great to see you guys. Thanks for having me on.

And everybody, stay tuned, Day 2. It's on. Stick with us.