Release Date: December 03, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Marvell Technology Inc (MRVL, Financial) delivered revenue of $1.516 billion for the third quarter, exceeding the midpoint of guidance by $66 million, driven by strong AI demand.
- Non-GAAP earnings per share grew by 43% sequentially, highlighting substantial operating leverage in the business model.
- The company announced a significant multigenerational five-year agreement with Amazon Web Services, expected to drive substantial revenue growth.
- Marvell's data center end market achieved record revenue of $1.1 billion, growing 98% year over year.
- The company is forecasting strong sequential growth in the data center end market for the fourth quarter, driven by custom AI revenue and Ethernet switch products.
Negative Points
- Marvell Technology Inc (MRVL) incurred a restructuring charge of $715 million in the third quarter, primarily non-cash, due to redirecting investments towards the data center.
- GAAP gross margin was 23%, significantly impacted by restructuring charges and higher custom silicon revenue.
- The consumer end market is expected to decline sequentially in the mid-teens percentage due to seasonality and weakening gaming demand.
- Despite recovery signs, enterprise networking and carrier infrastructure revenues are still shipping below end market consumption.
- The company is facing challenges in maintaining gross margins above 60% due to the mix of custom silicon products.
Q & A Highlights
Q: Matt, could you help quantify the AI revenues for fiscal '25 overall and how we should start thinking about fiscal '26 given the upside in fiscal '25?
A: We initially projected $1.5 billion for AI in fiscal '25 and $2.5 billion for fiscal '26. However, we're now tracking significantly ahead for both years, with this year's AI revenue exceeding by hundreds of millions of dollars. The demand is driving this growth, and we're well-positioned to meet it with our supply chain capacity.
Q: Can you comment on your commitment to Marvell amid reports of other management opportunities? Also, how do you see customer diversification evolving in the coming years?
A: I've been with Marvell for eight years, transforming it into a leading AI-first data center semiconductor company. I'm fully committed to Marvell. Regarding customer diversification, we have a broad range of design wins across multiple customers, and we're on track with our long-term ambitions in custom silicon.
Q: Is Marvell the ASIC vendor for AWS's next-gen 3-nanometer training ASIC, given your multigenerational agreement with them?
A: Our agreement with AWS is significant, covering AI custom products and networking solutions. It's a five-year, multigenerational deal, reinforcing our confidence in achieving our custom silicon goals. While I can't comment on specific customer plans, we're well-positioned to support AWS's needs.
Q: How would you characterize customer inventory levels of optical DSPs, and what does the 1.6 T transition mean for your business?
A: Demand and bookings for optical DSPs remain strong, with no significant inventory concerns. The 1.6 T transition is underway, contributing to growth next year, alongside the ongoing 800-gig cycle.
Q: How quickly do you think you can get back to a $2 billion-plus run rate for enterprise and carrier markets?
A: We're on track to reach a $2 billion run rate, with enterprise and carrier markets recovering faster than expected. The recovery is driven by both market dynamics and our new product cycles, particularly in carrier base stations.
Q: Can you discuss the significance of the Amazon announcement and which non-optical DSP businesses will see the most growth?
A: The agreement with AWS is significant for both custom and networking products. We expect strong growth in switching and AECs, with our TL10 switch and AEC solutions ramping up. This partnership highlights our data center-first strategy and innovation potential.
Q: How do you view the competitive landscape for custom silicon, and why is custom becoming more prevalent?
A: The custom silicon market is primarily driven by two large players, including Marvell. The shift to custom silicon is due to total cost of ownership benefits, allowing for optimized solutions tailored to specific workloads, which coexist with merchant offerings.
Q: What are your expectations for gross margins and operating leverage as custom business ramps next year?
A: We aim to maintain gross margins above 60% next year, driven by strong optics growth and better overhead absorption. Operating leverage will improve as top-line growth outpaces OpEx, with operating margins approaching the lower end of our long-term range.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
