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

Welcome to day 2 of Citi Global TMT Conference and the lunch keynote. It's my pleasure to welcome Matt Murphy, Chairman and CEO; and Dan Durn, Chief Financial Officer of Marvell Technology. Marvell is the top-performing AI semis stock year-to-date. And according to the baker of the 5-layer cake, Jensen Huang, the next trillion-dollar company.

Matt?

That quieted the room.

Right. Exactly. That got the attention. Matt, before I get started, I want to give you an opportunity to update us a little bit about the state of AI from a company that has evolved from ground zero over the last few years from ChatGPT to the Astra moment. If you can just walk us through the evolution and where we are in that journey.

Sure. Can you guys hear me? How about now? Working? Okay. All right. Well, first of all, it's great to see everybody. Enjoy your lunch. Atif, thanks for having me. And I would be remiss if I didn't reflect, first of all, that this was 10 years ago, my first conference as a CEO was here at Citi. I became CEO in July 2016, came into Citi. It wasn't the friendliest environment. I mean he had a sell rating on us. I just have to give you s*** one more time. It's the 10-year anniversary, why not? No. But Marvell was in a very different place. But I think to your -- I'm bringing this up to your question, which is our pivot to the data center began in 2016. Basically, back then, we were a consumer company, 9% of our revenue in our fiscal '17 was from data center. And most of that was just enterprise. It was really enterprise servers and storage. But that's the pivot we made was to focus on the data center and data center technologies and data infrastructure technologies. So that's been our guiding principle actually for the last decade. And we went through, I think, great cycles and growth in enterprise, great cycles in carrier and 5G. And then we've had a very strong data center story for the last 5 or 6 years. Just to put it in perspective, in calendar '23, we did about $2.2 billion in data center revenue. And next year, we're looking at $15 billion, $16 billion, just to give you a sense. So the business has really inflected. And while ChatGPT and the rise of AI has been just an enormous driver and the driver of semi TAM, we were already positioned there because this was already our strategy going back from almost a decade ago. So I know now it's the place to be and everybody has figured out who's in semis that, wow, I better be in data center and I better be in AI. But if you just figured that out over the last couple of years, you're -- it's going to take you a long time, is my view. I mean this has been a company we built brick by brick, year-by-year, M&As, divestitures, huge organic investment. And now we're sitting here, I think, with one of the best. My view is positioning's relative to the breadth of the products that we offer, the suite of solutions that we have and then really, what we think is a best-in-class financial model in growth rate for the next 4 or 5 years off of the back of a decade of investment already.

Wonderful. To be clear, I do have a buy rating on Marvell now. That was 10 years ago. All right. Matt, we at Citi, look at you guys like the Swiss Army Knife of AI. There's a lot of focus on your compute business and XPU sockets and all that. But fundamentally, we think your networking portfolio is what outshines the peers. I was at the Hot Chips Conference a couple of weeks ago. The message was networking is the next compute. NVIDIA rolled out 2 more scales: scale in and scale context on top of scale out, scale up and scale across. So clearly, networking continues to benefit from more connectivity. So my first question is on the scale-up opportunity beyond optics. As you look at the switching layer, where different standards and proprietary approaches like ESUN, UALink, NVLink are all in play. How does Marvell think about its silicon switching opportunity across that landscape?

Yes. No, it's a great question. And we think the -- we see the scale-up opportunity, which we view very much as a combination of the switching platforms, coupled with best-in-class optics, both NPO and then fully integrated CPO, which we offer both of. That's going to be an integrated sale in my view. And it's sort of greenfield at the moment. Now the backdrop, and I think why we're well positioned is we've spent the last 5 years building out our scale-out switching platform, which is we call Teralynx. And we've basically acquired a company, Innovium, 5 years ago. It had no revenue, but was projected to do about $150 million of revenue. We now said that, that business is on track to do $1 billion plus and over the next years, we'll probably grow even faster. That fundamental Ethernet architecture we have lends itself very well to Ethernet scale-up networking, which is ESUN, which is the scale-up standard. Even our existing product, our 100T part, which I talked about at Computex, that product already is suitable and applicable to scale up as is. So we've got a whole suite of products coming on ESUN and a road map there. In addition, we see the market still not completely decided on a standard. So we've also got a robust investment as well in UALink. And I think what's nice and common between the 2 is both leverage our high-performance, best-in-class electrical SerDes technology for copper. And then we also are going to offer SKUs with the optics as well. So kind of a very full suite. And then finally, with our -- with the investment from NVIDIA and our partnership there, we're also marketing and promoting NVLink with Marvell as a technology partner to enable that as a protocol to enable a lot of network fungibility as well. So a lot of shots on goal for us on scale-up networking. It's brand new. And today, it's really dominated just by NVLink, but in the next few years, the need to connect more and more GPUs and XPUs together and enable the scale-up opportunity is going to be, I think, a new market and one where Marvell can really make a meaningful impact out the chute.

Great. Matt, there has been a lot of discussion at our conference around the near-packaged optics road map leading to the co-packaged optics. Can you help us understand how you're positioned to benefit from this near-term wave around near-packaged optics before we enter the co-packaged optics volume?

Sure. So a couple of things there. The first is that we've been investing in NPO. It also used to be called OBO, on-board optics. And these types of solutions for at least 5 years since we acquired Inphi. So if you go back to the Inphi acquisition, a lot -- and it's been obviously very, very successful. It was a high multiple at the time, but it turned -- it worked out really well. One of the key capabilities they brought to Marvell was silicon photonics. Now the way that, that's been used in Marvell to date has been primarily in our DCI products. So in our modules that we sell, both for 100 gig, 400 gig, 800 gig now to 1.6T, that all uses proprietary Marvell silicon photonics inside these modules. So we've been in high-volume manufacturing for 10 years. So that same team as a parallel effort has been developing NPO, and we demoed that at OFC for the last 3 years actually. So this isn't something new that we just came up with. This has been demoed and proven and now its time has come. What's happened is along with that, we acquired a company called Celestial AI back in December 2025, which brought us even more integration in terms of CPO technology. So we've integrated those 2 teams together. It's one very, very strong combined engineering team. And together, we're able to show a suite of solutions from NPO to CPO. Now on top of that, which is going to layer on even more revenue opportunity for us is that in third-party NPO modules where a traditional module manufacturer would be involved, and these are some of the people we already do business with today on scale-out modules like at 800 gig and 1.6T, they're building NPO modules for the hyperscalers. We participate there with our TIAs and drivers, which is our silicon germanium analog product line. This is significant business for us. I mean we talked about this being a $1 billion business for us already just on analog components. That's really in the near term. And then, Atif, as we ramp into NPO, our content is very, very high in the NPO module ecosystem with TIAs and drivers. So that's another leg of growth. So when you add all that together, the broadband analog, NPO, CPO and you look at like where we were this year, which is effectively 0 revenue from those. You look into next year, a quarter ago, we said it was going to be 0 to $300 million. This past quarter, I said that was going to be much higher and a big part of our guide up for next year was going to be driven by networking and scale up optics as being one key part of it. So imagine that number is even greater. So from a velocity standpoint, unbelievable growth. And that's just at the outset, right? So calendar '28, '29, we're going to see a big ramp in NPO with CPO also layering in. So this is not an or. This is going to be an and, and you're going to see simultaneously NPO solutions in the market for some time. You're going to see CPO ramping in. And I encourage all the investors here to get away from treating this, as sometimes we tend to do, as a binary thing. Well, if there's NPO, then it must mean that CPO is now gone or it was like saying, well, I don't know, copper is just going to keep going, so optical will never exist. I mean they're all going to coexist. Copper has got a great runway as well, right? But you're going to see all of these coexist in the market for several years. And it's a really exciting time because this is fundamentally new TAM for Marvell that we weren't in before. But now we're very well positioned when you hear about scale-up optics. And of course, now we have the switching as well coming with it. A lot of our competitors don't have that. They may have one piece. And then our expertise on the XPU side, deep design knowledge there, customer partnerships and our ability to up-integrate CPO and NPO with the XPU is also a skill set we bring. So when we go to our customers, we really have the end-to-end, and it's a compelling story. And at the end of the day, Atif, these are going to be bookended solutions in a lot of cases where you really have to have an understanding of the digital silicon on both sides. And then the optical link, and we're uniquely positioned to enable our customers in this market. And you're already seeing real revenue next year from this. This isn't just a PowerPoint slide of what we might do someday.

Excellent. On the data center interconnect or scale across, you guys -- that market has been more mature and steady in the past, and you've had the leadership position on the DSP with the pluggables. You've been riding the 800G wave. And as we look into the 1.6T transition, competition seems to be coming in as well. How do you feel about your competitive situation at the 1.6T?

Yes. We're really excited about the DCI business. Marvell and Inphi pioneered this business at 100 gig with a very publicized product called COLORZ with Microsoft. We've maintained a very strong position at 400 and 800 gig. And I think we're as well positioned as we've ever been at 1.6T. We were first to market on announcing our 2-nanometer DSPs that go inside the module. The bring up on those has been excellent. Our silicon photonics platform tracking very well. Customer interest is through the roof. And because of our track record in 10 years of doing this reliably, we have like 15 billion device hours of performance and reliability data we can show with best-in-class performance. So I think given our leadership position on the DSP side, that's going to really help us. On top of that, the market is going from traditional DCI to what you mentioned, which is scale across. And there's market estimates that, that could 2, 3, 4, 5x the size of the DCI market as scale across really layers in. So for us, it's the same fundamental set of components, but the use cases when you get to 1.6T enable the scale across architecture to happen. So we have really outsized growth plans right now in DCI. We've got an excellent leader for the business. We're investing not only on the component side, but in manufacturing capacity because we actually make the modules here. And we do sell our DSPs to third party as well. So there's an ecosystem that Marvell DSPs have created with our own products and then our module partners. But I think the exciting part is the inflection with the scale across use case coming in. But even if you didn't have that, just the DCI business because you get more ASP per generation of DCI module, the number of ports are going up. The DCI use case alone would justify a lot of growth, but I think scale across when it layers in is going to really upsize the market. So more to come on that, but very pumped on that business. Yes.

Great. Going to you, Dan, you are no stranger to semiconductors, GlobalFoundries, Applied Materials. Welcome to Marvell. I have a question around your R&D prioritization. When you look at portfolio of products that Marvell has, and recently, when you look at your operating margin profile, help us understand how you're prioritizing your R&D focus areas and driving towards that 38% to 40% target model?

Yes. I think the -- first and foremost, we see this incredible opportunity that is multifaceted. And the diversification embedded in the portfolio has a bit of uniqueness in terms of the way we're driving the business. So we're going to orient towards growth, and we're going to take this company structurally larger in size, materially larger in size over time, and we'll have more to say about this in a few weeks at the Analyst Day. Embedded in that is a philosophical approach that Matt takes to how we run the business, the culture that exists. There's a transparent aspect of how we synthesize the most meaningful opportunities that are out there. And in a shared decision-making process, Matt drives discipline from a capital allocation standpoint across those opportunities. So we focus the investments on the most material drivers affecting the company, growth drivers affecting the company, the opportunities that we see that can also yield the best profitability. So there's an entire rhythm and culture that Matt instituted when he came into the company and seeing it on full display over the last month, you see a bit of the magic as to why we've been able to tap into those incredible growth drivers. And again, we'll have more to say about taking the company structurally larger. But we also want to grow the company in a very disciplined way. So at a moment in time where lots of things are possible, how you narrow the aperture, focus on the most critical items and do it in a disciplined way and then drive execution with crispness, with precision, with rigor, with discipline makes all the difference in capturing that growth, but doing it in a way where your OpEx will grow roughly half the rate of revenue over this time so that we embed significant operating leverage in the model that as we take [Audio Gap] operating margin standpoint over time. We're going to exit this year entering the long-term target model for operating margin at 38% to 40%. We will exit next year touching the top end of that range. And in a few weeks, we'll reset what we think the new long-term target is. And so it's all about discipline, orient towards growth, execute well and then grow the company in a profitable way.

Right. Let's talk about supply. It's a never-ending debate around how much supply there is available to you guys and the peers. You've raised your '27, '28 outlook last 2 quarters. How much of that is demand upsiding versus supply unlocking? And can you just walk us through the process for the audience's sake, like what is the process to get more supply these days?

Right. Well, I think on the first part of it, if I just contextualize it for a moment, if I go back a year ago, this month, post earnings, I did a fireside chat after this conference to try to clarify for investors how to think about fiscal '27, which is this year, and fiscal '28. And at that time, I said basically, look, I think we can do $9.5 billion this year in fiscal '27. There's not going to be a revenue hole. We haven't lost any business, and things are looking good. And then in fiscal '28, which would be calendar '27, I signaled I thought we could do $11 billion plus, let's call it. So that's $20 billion over that 2-year period. You fast forward to today, and we've now said we can do $12 billion this year and $18 billion next year. So that's $30 billion. So in one year, we've basically gone from $20 billion over a 2-year period to $30 billion. So our supply chain has been able to flex up 50%, right, over that time on a graduated basis. I think most of that has come -- so it's all in conjunction, Atif, but certainly, the demand environment has gotten better, right? CapEx floated up a lot versus what we thought a year ago. That's helped. I think the take-up rate and our success rate on our new products has been very, very strong. Our execution success has been great. We're getting to production 90-plus percent of the time on first pass silicon on advanced node. So that's really helped us on time to market. I think we also had some pretty conservative plugs in for kind of market share and our growth and probably called the ball way too low on connectivity. And looking back a year later, haven't missed a beat, have executed through our product cycles, both on 800 gig, which remains very strong and 1.6T. So any of those concerns that were out there, I think were overblown. That's gone very, very well. We've said that, that business this year is growing like 70% plus, right? And that growth rate is going to roll over into next year as well, high growth. We haven't specified exactly. But clearly, the raise up to $18 billion, you could assume connectivity and interconnect keeps ripping higher. So all that's been great, right? So supply has continued to perform. And look, I think how you do it, and we had to learn this lesson a little bit the hard way 5 years ago, is the first 5 years at Marvell, we were -- the company was set up to do smaller packages, was more tactical in nature. We would have 3 or 4 suppliers for everything. We would kind of beat people up against each other. We used a very traditional model. And once we acquired Avera and then Inphi and Innovium, we got these very complex reticle-sized products that required deep relationships in the supply chain in terms of substrates and back-end capacity that wasn't that fungible. I mean you basically had to pick your partners. And during that time, we promoted Chris Koopmans to Chief Operating Officer, and he and I basically went off and struck a bunch of deals, long-term deals with all of our supply chain, not just TSMC, our sole-source vendor on the fab side, but also on the substrate side, back-end capacity, et cetera. And that worked really well. I mean that's basically what's gotten us from, call it, $4.3 billion run rate when we bought Inphi. That was the run rate the quarter we closed, right, in 2021. Now here we are in 2026, and we're looking at $12 billion in revenue, right? So we've almost tripled the size of the company. If you roll into the next year, then it's obviously, it's up 3.5, getting close to 4x. So that -- those investments we made helped. We put in CapEx at the time. We did prepays, but we told our story. I think that's the biggest thing, actually, is suppliers are a lot like you guys, okay? At the end of the day, they want to figure out who's the management, where is this company actually going? What end markets are they in? Are they credible? Do they have a good plan? And you can go to a lot of meetings in the Asian supply chain, and they'll be very polite and you'll get a head nod and they'll say, thank you very much. And if they don't believe your story, you're not going to get what you need. In our case, we have a very compelling story that we've been telling consistently for 5 years. So they trust us. We've gone to fewer suppliers, more deep relationships, that's appreciated. We've upped the CapEx and the prepays to represent now the scale of the future opportunity 5 years later. So we're re-upping some of those. But I just got back from an entire week in Asia visiting my supply chain. New vendors, existing suppliers and just kind of reaffirming where we're going. And so that has really helped that combination of credibility, trust, compelling road map and then capital you put in, which is really putting skin in the game, right? At the end of the day, they just want to see you're committed and you have conviction. So I think we feel very good about our prospects. We got an Investor Day coming up on October 6. That's one of the reasons I wanted to do this deep dive with my suppliers is get them on board. I mean, I gave them a preview. Hey, here's where we're going. Are you all in with me and Marvell or not? And all I got last week was a resounding yes, and we're going to be there with you with whatever you need, and let's plan it out. Let's plan it out. So yes, there's going to be challenges. Things are tight. It's been constrained since the pandemic. It's very acute right now in some areas. I'm not making any light of this. I'm not saying this is easy. But you have to have had a system and a mechanism and a set of relationships that was 5 years ago, if you're going to get what you need. If you just popped out of nowhere and you said, hey, I got a data center part now, and I think I need like billions of dollars of revenue like next year, I think people are going to look at you like, where were you 5 years ago? I mean you can't get some of the substrate capacity until the end of the decade if you haven't started. How are you going to get it if you didn't start 5 years ago? So that's the advantage we have of having a very single-threaded strategy in data center and data infrastructures. This is all we do. We don't have some consumer side bet that is distracting us and keeping our -- keeping us defocused. We're fortunate in a way that our concentrated effort on data center and now AI has led us to an ability to tell a very clean story to our suppliers.

Wonderful. Looks like you're getting your fair allocation on the wafer side. Matt, you guys have a seat with the hyperscalers. You engage with 3 big ones and then you're working with others on XPU attach sockets. So this topic around LPS, land, power and shell, is increasingly coming up with clients and your peers are highlighting that this could be some sort of a bottleneck beyond silicon supply chain. So when you're talking to your hyperscaler customers, what are you hearing from them around concerns around whether it's regulatory approval or the timing of availability around land, power and shell?

Yes. I'm not sure I have too much new to offer there. I think this has been an ongoing issue and concern, right, as we ramp through this kind of outsized CapEx cycle. To date, you can obviously see the demand side hasn't been curbed by that. I think the other one that's hanging out there, too, that -- I mean, actually, our suppliers seem worried about is the societal pushback, right? Like, hey, is -- are people going to allow some of these data centers to happen because they're worried about it being in their backyard. So there's a bunch of constraints in the system, which in a way, I actually think is not the worst thing because I think in a way, I mean, look at the growth that companies like Marvell are experiencing with all these constraints. And I've been around the block long enough in semis to know if you kind of get unfettered access at some point to infinite supply, the industry always overdoes it. And so I actually think there's some degree of healthiness on the AI infrastructure build, which is very durable in nature, very long term in terms of its planning cycle and seems to have a lot of legs and is delivering a lot of growth despite the LPS constraints, the pushback regulatory society-wise, and then just like memory and advanced node wafers, and you can go through all the constraints. But look, I mean, companies that are able to execute are managing through a lot of chaos. And the same thing happened in the pandemic, different framework, but some companies just were completely upside down on their supply chains and they were extended and they didn't know what to do. And it was like all these semi cycles, you emerge either a lot stronger or a lot weaker. There's kind of no in between. And I think we are proving to be one of the resilient companies through these turbulent times. But so far, we're getting what we need, I think, to deliver to the commitments we made.

Dan, coming back to you, this topic of AI financing comes up a lot with clients. You've committed $1 billion in fiscal '27 supplier prepayments, which kind of makes sense. But when you're looking at your peers, some of your peers that are forming partnerships and consortiums with financiers on funding some of these data centers. Would love to get your thoughts on the risk profile of that as well as where is Marvell positioned? Are you also looking at those kind of engagements?