Marvell Technology, Inc. (MRVL) Earnings

Management highlights

- **Leadership Transition**: Matt Murphy announced the appointment of Dan Dern as the new CFO, replacing Willem Menke, citing Dern's deep understanding of Marvell's strategy and semiconductor experience. Ashish Saran is retiring from Investor Relations. - **Data Center Momentum**: Revenue growth accelerated significantly, driven by broad-based demand in interconnect, switching, and custom silicon. Optical DSP demand for 800G remains strong while 1.6T is ramping rapidly. Scale-out switching is on track to more than double for the fiscal year. - **Scale-Up Networking Opportunity**: Management highlighted a massive new Total Addressable Market (TAM) for scale-up networking. Marvell is positioned to lead in next-generation optical interconnects (NPO and CPO) and purpose-built switches supporting UALink, ESUN, and NVLink protocols. - **Custom Silicon Growth**: The custom business is accelerating, particularly in the second half of the fiscal year. A significant warrant agreement with a key hyperscaler (Google) covers expanded commercial programs including inference accelerators, storage controllers, and NICs. This validates the 'XPU-attached' category pioneered by Marvell. - **CXL and Memory Expansion**: Organic investments in CXL technology are yielding strong results, with deployments at multiple hyperscalers driven by inferencing demands and memory scarcity. Additional design wins have been secured in this area.

Guidance

- **Q3 FY2027 Revenue**: Midpoint raised to $3.15 billion, implying 15% sequential and >50% year-over-year growth. - **Full Year FY2027 Revenue**: Outlook increased to approximately $12 billion, reflecting ~45% year-over-year growth, up from the previous estimate of $11.5 billion. - **Data Center FY2027 Growth**: Expected to grow approximately 60%, up from the prior expectation of 50%. - **FY2028 Revenue**: Expectations raised to grow approximately 50% year-over-year, up from the prior outlook of 45%. Data center revenue is expected to grow >60%. - **Q3 FY2027 Gross Margin**: Non-GAAP gross margin expected between 57.5% and 58.5%, slightly below Q2 levels due to the mix impact of the ramping custom business. - **Operating Expenses**: Non-GAAP operating expenses for FY2027 expected at ~$2.55 billion; however, revenue is growing faster than expenses, driving operating leverage toward the 38-40% long-term target range by Q4 FY2027.

Segment performance

Marvell reported record total revenue of $2.739 billion, representing 13% sequential and 37% year-over-year growth. The Data Center segment was the primary driver, contributing 79% of total revenue with $2.17 billion in sales (18% sequential and 46% year-over-year growth). The Communications and Other segment contributed $568 million, representing 21% of total revenue, with a 3% sequential decline but a 10% year-over-year increase.

Risks & headwinds

- **Supply Chain Constraints**: Pervasive industry-wide constraints require aggressive capacity prepayments (approx. $1 billion in FY2027) to secure supply, which impacts cash flow timing. - **Margin Mix Impact**: The rapid ramp of the custom business creates sequential headwinds on gross margins in the near term (Q3), though margins are expected to stabilize in Q4. - **Execution Risk on New Architectures**: The transition to scale-up optics involves evaluating multiple technologies (NPO vs. CPO, various modulator types). While Marvell is well-positioned, customer adoption rates and architectural choices remain variables.

Analyst Q&A

• Q: Tom O'Malley asked for details on the Google warrant, specifically the contribution of XPU-attached products versus the main accelerator. /

  A: CEO Matt Murphy stated the engagement is broad-based, covering inference accelerators, storage controllers, NICs, and memory interface controllers. He emphasized that Marvell defined the XPU-attached category and that the total opportunity is massive, game-changing over the next 6-6.5 years, though specific percentage splits were not disclosed.

• Q: Harlan Suhr questioned if the $120B Google warrant implies huge step-ups in FY2029/30 beyond current models, given only ~$5-6B custom revenue is guided for FY2028. /

  A: Murphy confirmed that most warrant-related revenue is already included in the FY2028 guidance. However, he indicated that FY2029 will see significant upside, with custom revenue potentially exceeding the previously modeled $8-10B range. He deferred detailed sizing to the upcoming Investor Day.

• Q: Vivek Arya requested an update on another large XPU program starting next year, noting modest initial assumptions (~$600-700M). /

  A: Murphy expressed strong encouragement regarding the custom setup for next year, stating the new program is part of the broad-based $1.5B raise. He reiterated that custom silicon remains one of Marvell's largest long-term revenue opportunities and that prospects are tracking well.

• Q: Aaron Rakers asked about the evolution of CXL architecture and progress on scale-up optics targets (Celestial AI/CPO). /

  A: Murphy described CXL as a 'home run,' ideal for memory expansion and inferencing, with strong upward bias. Regarding scale-up optics, he noted the opportunity is accelerating significantly beyond last quarter's estimates. It includes both CPO and NPO solutions, leveraging Marvell's end-to-end portfolio of switches and optics, making it a much larger business than initially comprehended.

• Q: Ben Reitzes/Quinn Bolton asked how to model the financial impact of the Google deal, specifically regarding FY29/FY30 step-ups and margins. /

  A: Murphy validated that the full performance of the warrant would represent a 'monster number' and a significant step up in scale. He advised investors to assume custom numbers will be substantially higher than previously modeled starting in FY29. Margins should be consistent with Marvell's standard custom business financial model.