Everyone, and I'm Vivek Arya from BofA Semiconductor team, and really delighted and honored to have the management team from Marvell join us this morning: Matt Murphy, CEO, and Willem Meintjes, CFO. I'll go through typical fireside questions, but if you have anything you'd like to bring up, please feel free to raise your hand. With that, a very warm welcome, Matt and Willem. Really appreciate you joining our conference. Maybe, Matt, just give us a state of the union as you see it. A lot of kind of macro cross-currents. How are you seeing the demand environment right now versus what you thought at the start of the year? We can get through some of the more detailed questions.
Yeah, great. Thanks, Vivek. It's great to be here. I love coming to the conference, and it's great to see everybody here and also whoever's listening in. Yeah, a couple of things, maybe big picture to start, and then we can go dive as deep as you want. I think the first is, yeah, I'm actually very happy to see where we're at right now, given kind of, to your point, all the churn that's gone on in the macro and the global and tariffs and all these things that I think investors and management teams have been concerned about. I think those concerns are still sort of hanging out there. The fact of the matter is, we just guided the strongest quarter in the history of the company.
We guided $2 billion, which I was thinking back, and four years ago in Q2, we achieved actually like $1.76 billion or something, which was the first quarter with Inphi. That was like when we crossed the $1 billion mark, and we were cracking the champagne per quarter, I'm saying. It was like, how do we get this company up to $4 billion? This is fantastic. Now, basically, four years later, it 's doubled in terms of the growth. I think from a performance perspective, I could n't be more pleased. I mean, our data center business has been growing now annually at a +70% kind of clip. That was off of a strong year-ago compare. This was n't like we had some bottom a year ago. Those numbers are sort of very, very competitive given our scale.
I mean, just think about the overall data center business for Marvell is bigger than the entire company was basically a year ago, whole co. From that perspective, I think very excited. I think the other thing that's really progressed has been the ramp, both of the continued ramp, both of our connectivity and electro-optics business. I think that the asset we purchased from Inphi, plus all the good Marvell stuff we put into it, it's performed very well. There was a lot of concern in 2024 about custom, and could it ramp or not? Are these programs real? Is the football going to get pulled? Can you make it work to production? I mean, remember all these concerns. Is it even going to happen?
Now you look, and we started shipping high volume at the end of last year and now through the second half. There is multiple custom silicon programs now that are in production, with future ones coming to production. We will talk about that more at our Custom Silicon AI Investor event in a couple of weeks. From an overall perspective, I would say super solid. The final one, which is very encouraging, is we had this very sort of strong post-pandemic cyclical decline in some of our core business, which is carrier infrastructure and enterprise networking. Those bottomed at about a $900 million a quarter, a year kind of run rate, where really we think end demand is about $2 billion, something like that. Now you fast forward, and based on our guidance, we are like $1.3 billion-$1.4 billion. That is on the way up.
It did n't come back. I think this stuff never happens linearly, never. There is no linearity in this sort of cyclical stuff in semis. It took a little bit longer than we thought, I think, to rebound. But now the last couple of quarters, we have seen kind of +10% , even mid-teens sequential growth on that business. You can see that fall-through starting to happen now. Operating margins have expanded. Net-net we stand here, given all the challenges in the world and all the dynamics. I am thrilled to have the team, and very proud of the Marvell team for having gotten the company to a revenue scale of an $8 billion annualized run rate with a lot of gas in the tank on the go-forward.
Absolutely. Matt, let's just walk through the different segments, starting from the custom compute side. On this last earnings call, I think you really gave us a good flavor for how the program is ramping at your largest customer, that you have this multi-generational thing. I noticed that the confidence was a lot more than, or maybe at least externally, you were willing to share a lot more. What changed in the last three-plus months to give you that confidence, to give us a better forward view of how that program is shaping up?
Yeah. I think there is two things maybe to decouple. This, I think, is the case with any kind of material piece of business or end market that we'v e gone after. You sort of have your bogey, you said, or your target. Are you more or less confident on that? There is also, as time progresses and you see progress, you can let out a little bit more information. It kind of makes sense. From a confidence standpoint, or kind of where we think things are landing, actually, nothing 's changed. I mean, we had an AI investor event April of last year.
2024, right.
We were getting questions about the multi-generational nature of some of these engagements. What I said back then is that that's what we believe to be happening pretty much across the board, because that is fundamentally the nature of these types of programs. There's a lot of benefit in doing that. From that standpoint, actually, our expectations, really nothing has changed. I think as times progressed, there's certainly been an investor appetite to get more updates here. I think there's kind of been an unprecedented level of noise and kind of something I've never seen, this level of sort of kind of public discussion and news cycle on something that's actually highly proprietary.
We have to balance that, because ultimately, all that really matters here for us to grow the company in the long term is to take care of our customers and make sure that we're really protecting their confidentiality. At the same time, I understand the need for investors to get as much transparency as possible so you guys can make decisions. That's the balance I try to strike every quarter. There was not a confidence change per se. I think since things have elapsed another three months and we have more line of sight, we thought it would be helpful to investors to kind of reassure people that we still see strong growth in the coming year and years beyond on a number of these programs where there's been doubt cast about whether they could continue or not.
We still strongly believe, and we feel really good, and we'll talk about the AI silicon event. I mean, the pipeline of opportunities that we've got across the board, actually, as the whole cloud network ultimately becomes more and more optimized and more and more customized, that's really playing to our favor. It's not just a couple of sockets and that's sort of it. I mean, it's actually, I think the breadth and the scale of some of these things will be interesting to talk about. Yeah, so far, so good. It's all tracking according to what we thought.
I know you would, I assume you would talk a lot more about this at the upcoming AI event. Give us a flavor, Matt. How should people think about Marvell versus some of your Asian counterparts? What helps you win business, and how is it different than the business models, right? Because people tend to equate the two to us. I think it'd be helpful to understand what makes you guys different.
Yeah. H appy to do that. I think we're also planning, as part of this event, to kind of break it down a little bit more simply for people, because ultimately, if you haven't been doing this for a long time, or you're a generalist, or you're just trying to figure out what does all this mean, it might not be intuitive. Historically, the way it's worked and the way it's played out so far is that companies, when they want to do their own custom chip, and this could be for AI, it could be for networking, it could be for consumer, I mean, really anything you want, a lot of the companies that do this in-house with one in ASIC, they typically have what's called a front-end design team. That's the architecture team.
That's the team that's going to actually define the product, do the front-end design. Those companies don't necessarily want to spend all the money on what's called the back end, which would be like the physical design, place and route, maybe package design. Some of those things that doesn't really make sense to get in-house, because you can use, I think, very low-cost suppliers, typically from Asia, Taiwan and China to some extent. That whole design process gets augmented, which is typically in physical designers. It's called PD. That's where that expertise is typically laid. Then maybe they'll license IP from other people, or they'll just use that as part of a bigger chip project, but yet they'll work with a big full turnkey supplier like us or one of our competitors. By full turnkey, I mean, we can do that.
We can certainly do the back end. We can do the package design. We can do the manufacturing, the test. But we can also contribute all the core IP, or at least a lot of it. We can help with architecture. We can assign our front-end design resources. We have a lot of expertise there. We get hired to do that quite often. Then we can deliver literally the full chip and underwrite it, underwrite the quality, underwrite the yields, failure analysis it, send FAEs out if it is not working. I mean, the whole nine yards. It is kind of two models. One is roll your own and use a partner to help you with some part of the design that is n't as critical, and then find somebody else to do it, or go the full turnkey approach. We do n't have a back-end-only business per se.
I mean, where we really add value is when you want to do a very complex, a very large die size, complex packaging, all the different challenges you're going to need in terms of signal integrity, power management, package design, cooling, how to yield it, how to do best-in-class sort of test, how to get it to production without any failures and no respins. You kind of hear about this now, like these big chips, if you need a respin, I mean, it's like six to nine months delay.
Right.
At 3 nm or 5 nm because of the number of the manufacturing cycle time. I mean, we've been able to bring up virtually all of our 5 nm fleets so far with effectively A0 or first-pass success on massive chips. That is a time-to-market advantage. That track record has really helped us with our customers that are like, "Oh my God, you guys are actually able to execute," which was not something Marvell was a hallmark of historically, if you remember the past. I mean, I joined this company. We were spinning chips eight, nine, 10 times. I'm not joking. For simple small die sizes. We 've really built a machine to go and execute these programs and do it where it actually works. The final thing I'll say is it's really about risk. I mean, you can do anything on your own.
How long is it going to take? Is it going to work? I'd encourage everybody to look back over time. How many times did something pop out of the rumor mill supply chain over the last five years about somebody's got some socket with some other, and it just sort of, where did they go? What happened to that one? It did n't work. We continue to believe, and what we see in the market is that there is a place for that model. It certainly there is going to be a revenue generator. There is no question. It is a giant TAM. I mean, we sized this custom thing at like $40-something billion a year ago, and that 's only floated up since. This is like an unprecedented TAM.
The way we see it still is that the vast majority of the volume that is going to ship in the future is still going to be from companies that can provide the full total solution. I think until such time and this market slows down or something, and you have just more time, then maybe you will try to do it a little cheaper on your own. It 's really just a cost issue. If you really want to execute and use the latest nanometers, latest package, and get to market, you are way better off picking Marvell to go do that for you.
One other thing Matt mentioned during the call was that some customers, given that they have these really giant CapEx and a lot of projects, that they could choose multiple paths. Do you see that dual sourcing on the ASIC side become a trend? Because we have heard your other USP also talk about their number of projects has gone from three to seven. There is potentially more competition in the project that they are in. Do you think this becomes a norm where these large hyperscalers just have multiple ASIC projects running, and we just have to get used to it?
Yeah. I think it's still early to make a call on that or not. I do think if you look at the industry perspective and you filter the signal from the noise on a lot of the information that's out there, it seems like that would be the case. I think it would be logical to think that that would be part of the market, because to your point, I mean, I remember even when we bought Avera five years ago, a home run like ASIC project for any ASIC business, actually, even us or our big peer was like, you get like +$100 million a year . I mean, this thing was like you're ringing the bell. It's a gold mine. They just never quit. Now you're talking about these programs that get to like $1 billion a year or more.
When you get to that scale and the criticality of these, it would n't surprise me that, again, from an industry perspective, there is some bifurcation and there is some multi-path that occurs. I am not ready to make that call exactly. I mean, we will see how that all plays out. Just given the scale, I would think that it probably opens up opportunities for multi-party to do things. I do n't think that this is going to end up, and it is really not, unless when we look forward, we are not seeing this. It is not going to be a one-trick pony type of business. There is not going to be two sockets in the world over time that drive all the volume. If you have one, you 've got it, and if you do n't, you are zero.
I think that's some of the discussion we'll have at the AI event. We see just a really strong breadth of opportunities across the stack. Some of them are bigger than others, but they also carry more risk.
Right.
I mean, whenever you chase the big, big shiny object, usually there's a lot more risk with it. I think there's some interesting trends we're seeing, and we'll talk about that more. It certainly wouldn't be out of the question that that ends up becoming somewhat of a trend, just given the pure scale and the revenue.
Does that impact your ability to capture revenue so you continue to grow?
No, it does not.
Even if there is a different player in that same line?
No, I remember we're the up-and-comer. I mean, sometimes I appreciate some of the credit we've gotten, but we just started shipping high-volume custom in this area last year. It's sort of like this is all still in front of us. I think there's obviously a pessimistic view that sort of our best days are behind us. We just got started. These are designs we won in the first generation a few years ago. We've delivered them. We've won subsequent generations. Those are in front of us. From our standpoint, especially given our size and our scale, you just think about a TAM that was $40-something billion a year ago that's going to now be a lot higher. We were, I think last year, well, we overachieved it.
At one point at the AI day last year, I think we said like $500 million of custom revenues last year, and then we shot over it. I mean, that's a very small percentage of the total TAM. If you see that there's a diversity of opportunities and the direction is heading that way, absolutely. These trends are going to happen the way they are, but it doesn't affect our line of sight in terms of the revenue capture we can go get.
Got it. Yeah. I think at last year's April 2024 event, you had also mentioned a third customer that could start to ramp. I think during this earnings call, you also mentioned that you now have these wins. Is that something that helps in 2026? Is that something that helps in 2027? How do you kind of conceptually look at the ramp and contribution from that third customer?
Yeah. I think from the beginning, and again, you're trying to call the ball fairly early on these. We always try to, so in the case of last year, we talked about the fact that our customer wanted to go into production in 2026. The way I signaled it even back then a year ago was just kind of park it as like late 2026, and we'll see how it goes. We'll see. I mean, I think that's still our hope is to do that. Certainly getting some revenue in 2026. 2027, always we said was probably the bigger year, and then it kind of grows from there. As I said in the call, projects are tracking well, and we have no reason to believe that that can't happen. We're all working hard together to make it happen as fast as possible.
That all is our view on that is very consistent still from a year back. Now we also have a lot more track record in terms of the time that's elapsed and the design and everything.
Got it. Makes sense. On the electro-optic side, Matt, so size of clusters growing, need for connectivity growing. At the same time, we have also been hearing about incremental competition as people, whether it's the move towards CPO, whether it is some competitors coming up with DSPs at the 1.6 TB generation. Marvell has been such a dominant part of that electro-optics market. How do you see the competitive landscape shaping up in that industry?
Yeah. I'd say a couple of things. First, I mean, we're in great shape. We're in great shape from a competitive standpoint. Never been stronger. I was following this from the outside looking in, and you can go back in time too, take your time machine back. If you remember when the PAM transition happened, and there was like how many companies were hanging around the hoop that all had some PAM DSP revenue plan that was going to go, all add them all up, they're way over 100% of the market. Ultimately, the team at Inphi just really executed well. It's just a top-notch team that now we supercharged with the Marvell engineering teams as well. The first wave of PAM did great. We've continued that trend, 400 GB, 800 GB, 1.6 TB.
We've been the clear leader at OFC the last three years in terms of technology leadership, whether that's demonstrations or announcements of new products and technologies. Most recently, now the transition to 400 GB. It's really funny. People in our company, including some of our engineers, they do listen to the earnings call. They picked up on the question about, "Hey, is Marvell's SerDes durable? And is there any problem with it?" I can't tell how many irate emails I got. I mean, they're ready to unload. I mean, they're just like, "Where is this coming from?" Our technology base, optical and electrical SerDes, and the leadership we've demonstrated is clearly going to keep us in that top position. Now, markets expanded dramatically.
I mean, the whole transition from NRZ to PAM, that kind of opened up a new TAM because all of a sudden you had DSPs in the mix, and now all the ports have happened. There has been increased competition. Certainly, there's people today that are still saying there's going to be solutions at 1.6 TB, just like 800 GB and 400GB. We have to deal with that. When you're first and you have the incumbency and you've got the best products and technology, we're confident in our ability to keep our share and keep growing. We're very excited about the coming years here. A lot of exciting programs are involved in.
Got it. Now, this is a little bit of a nitpicky kind of short-term question, but I get it. So I am going to ask you. When people look at Marvell's earnings revisions, they seem to be a little more modest than what we, so year-on-year growth rates are obviously exceptionally strong. When we look at sort of these quarterly run rates, they seem to be a little more modest than what we see from some of the peers. How do you address that issue that Marvell's business is strong yet predictable? I know predictable can be a good thing or not a good thing, but how do you address this issue of kind of more modest earnings revisions through the year?
Yeah. It's a great one. I guess I never thought I'd be punished for being consistent, but apparently t hat is what's happened. That is how we historically have run the company. I mean, guys, I've been CEO for nine years, and I'm open to change. Just if you look at kind of this isn't a last three-quarter thing. I mean, in general, we've been very focused and over time, I think, have demonstrated that just consistently managing the business and trying to be very thoughtful about the expectations we set and doing what we say has kind of been the mantra. Certainly, we've been dinged in cases where peers at different times have had beaten raises, and we sort of deliver in line, and then there's a little expectation. We're in a cycle now where the stock has retreated.
People are like, "Hey, why aren't you beating and raising?" There was a time when we were doing the same thing and outperforming. I remember during the pandemic getting a similar type of criticism at times, which is, "Hey, everybody's blowing their numbers out. Hey, there's mobile phone companies blowing their numbers out, or there's these auto things blowing their numbers out, and then analog guys blowing their numbers out." Look what happened. I mean, if you look at, go track it, go back to pre-pandemic and draw a revenue line for the analog bucket. W hat's it done? Fully round-tripped. Some companies have outperformed, some haven't. Look at all the mobile phone stuff, round-tripped. Look at the x86 package. One did well, one didn't, round-tripped. Now, the data center-focused companies and the ones that executed have just outperformed.
Like I gave you our numbers, we've doubled in the last four years. I don't think, so I think along the way, we'll find quarters where people are disappointed because we didn't have the same. I'm not being defensive. I just think that that's how we've run it. If we get a bluebird, we get a bluebird. Certainly, I think in the market we're in right now, big raises are sort of appreciated. Long-term, I think consistency is what matters. I try to do that for you guys in terms of being predictable. Also, even in long-term, new markets we get into, "Hey, here's automotive. Here's what we think it can do. Here's custom silicon. Here's what we think it can do. Here's 5G.
Here's what we think it can do." We've had, I think, a very good track record of kind of sizing opportunities, going after them and beating or exceeding them over time. We'll continue to do that. I got the feedback. You've been telling me for a long time, bigger beats.
That would be nice. In terms of the recent announcement with NVIDIA on this NVLink fusion, can you give us a little more background? What drove that? What is driving that partnership? More importantly, when does it start to actually result in something tangible for Marvell?
Yeah. Actually, this discussion is not a new one with them. As a leading provider of custom silicon, I mean, I probably had a discussion with them, I do n't know, a year or two ago, I mean, on, "Hey, is there a way to kind of co-market our IP together?" Because when you look at it, all the different pieces of custom compute ultimately are complementary, and they are in the same system and network as NVIDIA. Is there some advantage to actually having interoperability through the scale-up by including NVLink with our chips as an example? The manifestation of that was the announcement that they did, of which we are one of the partners. It is not a new concept, but it' s been formalized now, which is good because I think you needed something more concrete.
We have a lot of customer interest so far. It's very early because this sort of was just released broadly at COMPUTEX. We just view it as another addition to our custom platform. It's an offering we have. We're going to do the same thing with other industry standards like UALink . We're on that consortium. We have partners over there. We're doing stuff there. It's really just about having the broadest kind of most open platform to allow our customers that choice. If they want to go down that path, we'll fully support it. We have a long-standing, very good working relationship with NVIDIA across a number of different vectors. I think that ability to go partner and really deliver, I'm very confident we would be the best-in-class partner to go do that for sure.
Got it. One of the TAM expansion, Matt, yesterday, one of your peers on the active electrical cable side had very strong results and outlook. When does AEC start to become tangible for Marvell?
Yeah. I think they did a great job, and I think it's been further validation of that category, which we've been investing in. We are participating now. There's revenue in the system today, and there's more opportunities, especially as that business is transitioning to a PAM-based approach. Remember the initial wins in that area and the initial sort of instantiation of AEC was kind of a full solution, which was NRZ plus kind of with one vendor in a cable. I think there's just going to be, there's just demand from the market as more and more of these links get accelerated optically and electrically that you're going to want diversity of choice. We have a different approach. We've partnered with all the key cable manufacturers to kind of broaden that ecosystem. Then we are bringing our best-in-class PAM technology to that field.
Long story short, it's in the revenue today, and we expect more meaningful contributions throughout the year and next year. I view the performance of the Credo team as they did a great job, and they proved that this category is real. I think that more broadly, kind of the demand for data center connectivity across the board is strong, and that trend is going to continue. We're going to continue to be with our mission being really the one-stop shop, broadest, deepest supplier. Customers have choice on what they want to do. We're not a point solution. We have the breadth and scale to go tackle the most complex tasks.
Got it. One thing you mentioned last year at the AI event, you had given, I think, a total of mid-70s total market, and in that, I think +40 was on the custom compute side. Since that time, you have only seen the AI market size grow much bigger. What do you think is that ASIC versus GPU mix in that? I guess since you guys are smaller, it does n't even matter to some extent because you have that headroom for growth. Do you think that ASIC to GPU mix has evolved since you first thought about it?
Yeah. You want to take this one? You're having the investor day for yourself.
Yeah. I think you're going to have to wait for June 17th.
Oh, no preview?
Yeah. I think this is one of the key messaging. I think just at a higher level, two things. One is you clearly see a proliferation beyond the top four. And so we'll give you some flavor of that. Also, we've been saying very consistently that custom is not just on the compute, but it's the entire system. We'll unpack that a little bit more. Yeah. I think we have some really exciting things to do.
We'll update the TAMs to your point because, yeah, we did get criticized for "lowballing", I guess, last year. We were calling out these $200 billion data center semi-TAMs and $70 billion this and $40 billion. It was just like, "Yeah, you guys are sandbagging." It's like, "Okay, no problem." That's fine. I mean, I think it's given us some headroom to watch the market float up over the last year. I think there's a strong message there about the opportunity only getting bigger. Then to Willem's point, maybe a lot more diversity and optionality for growth from a number of different vectors.
Got it.
Yeah. We'll update those numbers for you.
Excellent. On that optimistic note, thank you so much.
Yeah. Thank you, Meintjes. Really appreciate it.
Thanks, everybody. Have a good one.
Appreciate your support.
Thanks, man. Appreciate it.