Earnings call transcript: Marvell Technology Q2 2026 results show strong growth

Marvell Technology Inc. (MRVL) reported its second-quarter fiscal year 2026 earnings on August 28, 2025, showcasing robust growth in both revenue and earnings per share (EPS). The company reported a record non-GAAP EPS of $0.67, in line with market expectations, and revenue of $2.006 billion, marking a significant increase of 58% year-over-year. Following the announcement, Marvell’s stock price increased by 3.26% to $76.05 in aftermarket trading, reflecting positive investor sentiment. According to InvestingPro data, Marvell maintains strong growth momentum with a 5-year revenue CAGR of 16% and analysts expect sales growth to continue this year. The company’s Financial Health Score stands at 2.18, indicating fair overall condition.

Key Takeaways

• Marvell’s Q2 revenue surged by 58% year-over-year, reaching $2.006 billion.
• The company’s non-GAAP EPS hit a record $0.67, a 123% increase from the previous year.
• Data center revenue now accounts for 74% of total revenue, driven by AI and cloud services.
• Marvell divested its automotive Ethernet business for $2.5 billion, focusing on core markets.
• The stock rose 3.26% in aftermarket trading, indicating strong market confidence.

Company Performance

Marvell Technology demonstrated impressive growth in Q2 FY2026, driven by its strategic focus on data centers and custom silicon solutions. The company’s revenue increased by 58% year-over-year, supported by strong demand in AI and cloud services. The divestiture of its automotive Ethernet business allowed Marvell to concentrate on its core markets, further strengthening its competitive position.

Financial Highlights

• Revenue: $2.006 billion, up 58% year-over-year and 6% quarter-over-quarter.
• Earnings per share (non-GAAP): $0.67, up 123% year-over-year.
• Non-GAAP operating margin: 34.8%, an increase of 870 basis points year-over-year.
• Operating cash flow: $462 million, up 39% quarter-over-quarter.

Earnings vs. Forecast

Marvell’s actual EPS of $0.67 met the market forecast, showing no surprise. The revenue of $2.006 billion was also in line with expectations, reflecting the company’s consistent performance in meeting its financial targets.

Market Reaction

Following the earnings announcement, Marvell’s stock price increased by 3.26% to $76.05 in aftermarket trading. This movement reflects investor confidence in the company’s growth trajectory and strategic initiatives, positioning it favorably within its 52-week range of $47.09 to $127.48. InvestingPro analysis suggests the stock is currently trading near its Fair Value, with a beta of 1.83 indicating higher volatility than the market. Investors seeking deeper insights can access 12 additional ProTips and comprehensive valuation metrics through InvestingPro’s detailed research report, available for over 1,400 US stocks.

Outlook & Guidance

Looking ahead, Marvell forecasts Q3 revenue of $2.060 billion, representing a 36% year-over-year increase. The company expects data center revenue to remain flat sequentially, with optics revenue projected to grow in double digits. InvestingPro data reveals the company operates with a moderate debt level, maintaining a healthy current ratio of 1.3 and an Altman Z-Score of 7.18, indicating strong financial stability. The company has also maintained dividend payments for 14 consecutive years, demonstrating consistent shareholder returns despite market volatility. Marvell aims to expand its data center market share from 13% to 20% by 2028, supported by strong momentum in custom silicon and electro-optics technologies.

Executive Commentary

CEO Matt Murphy emphasized the significant opportunities ahead, stating, "We see a massive opportunity ahead." He highlighted the company’s strong design win momentum in custom silicon. Sandeep Bharathi, President of the Data Center Group, noted, "We are investing to bring ULINK and Ethernet-based products," underscoring Marvell’s commitment to innovation and market leadership.

Risks and Challenges

• Supply chain execution remains a critical focus, with potential disruptions impacting production timelines.
• Market saturation in key segments could limit growth opportunities.
• Macroeconomic pressures, such as inflation and interest rate fluctuations, may affect consumer demand and investment.

Q&A

During the earnings call, analysts inquired about Marvell’s design win momentum and custom silicon opportunities. The company addressed supply chain execution and inventory management, highlighting its strategic focus on capital allocation following the automotive divestiture. Additionally, discussions on scale-up networking and optical module technologies provided insights into Marvell’s future growth prospects.

Full transcript - Marvell Technology Inc (MRVL) Q2 2026:

Conference Operator: Good afternoon, and welcome to the Marvell Technology Inc. Second Quarter of Fiscal Year twenty twenty six Earnings Conference Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. Please note this event is being recorded.

I will now turn the conference over to Mr. Ashish Sarrahan, Senior Vice President of Investor Relations. Thank you. You may begin.

Ashish Sarrahan, Senior Vice President of Investor Relations, Marvell Technology: Thank you, and good afternoon, everyone. Welcome to Marvell’s second quarter fiscal year twenty twenty six earnings call. Joining me today are Matt Murphy, Marvell’s Chairman and CEO William Menkes, CFO Chris Koopmans, President and COO and Sandeep Parathi, President, Data Center Group. Let me remind everyone that certain comments made today include forward looking statements, which are subject to significant risks and uncertainties that could cause our actual results to differ materially from management’s current expectations. Please review the cautionary statements and risk factors contained in our earnings press release, which we filed with the SEC today and posted on our website as well as our most recent 10 ks and 10 Q filing.

We do not intend to update our forward looking statements. During our call today, we will refer to certain non GAAP financial measures. A reconciliation between our GAAP and non GAAP financial measures is available in our earnings press release. Let me now turn the call over to Matt for his comments on the quarter. Matt?

Matt Murphy, Chairman and CEO, Marvell Technology: Thanks, Ashish, good afternoon, everyone. For the 2026, Marvell delivered record revenue of $2,006,000,000 reflecting a 6% sequential increase and strong 58% year over year growth. Our data center end market continued its strong momentum, growing 69% year over year, fueled by robust AI demand. We also saw solid recovery in our enterprise networking and carrier infrastructure end markets, which collectively grew 43% year over year. We expanded our non GAAP operating margin by eight seventy basis points year over year to 34.8% and delivered record non GAAP earnings per share of $0.67 up 123% year over year.

We also delivered $462,000,000 in operating cash flow, up significantly from the $333,000,000 in the first quarter. Robust cash flow generation is enabling us to continue to return significant capital to our stockholders. We have repurchased $540,000,000 of stock through the first half of the fiscal year with approximately $2,000,000,000 remaining in our authorization. At the beginning of the third quarter, we completed the divestiture of our automotive Ethernet business and a $2,500,000,000 all cash transaction at a very compelling valuation. I’m pleased with our team’s execution in closing this transaction ahead of schedule.

The proceeds from this transaction provide us flexibility to continue to drive our ongoing stock repurchase program and deploy capital to further bolster our technology platform. The auto divestiture aligns with our strategy to focus the company on what we expect to continue to be a massive AI opportunity in front of us by purposely redirecting our investments towards data center relative to our other end markets. That strategy has been very successful with data center alone now driving three quarters of our total revenue. Divestiture further reduces the relative proportion of revenue from our non data center end markets. As a result, starting in the third quarter, we will consolidate our non data center end markets into a new single communications and other end market.

Willem will cover this in more detail in his prepared remarks. During the quarter, we hosted a highly successful custom silicon investor event in June, where we outlined an expanded $94,000,000,000 data center TAM for calendar twenty twenty eight, a 26% increase from our prior view. We also unveiled a new fast growing custom silicon product category of XPU attach, updated our custom design win board to 18 multi generational XPU and XPU attach sockets and highlighted over 50 new pipeline opportunities with an estimated $75,000,000,000 of lifetime revenue potential. Based on the sockets we have already won, we concluded with our plan to grow our data center market share from 13% of a $33,000,000,000 TAM in calendar ’twenty four to 20% of a $94,000,000,000 TAM in calendar ’twenty eight. Let me now take a moment to share how we are enhancing our leadership structure to further capitalize on significant opportunities in the large fast moving AI and cloud markets.

We have promoted two exceptional leaders, Chris Koopmans to President and COO and Sandeep Bharathi to President, Data Center Group and consolidated substantial parts of the organization under their leadership. Their proven track record of innovation, execution and results positions them to accelerate growth. Chris joined Marvell nine years ago and he has been a key enabler of our transformation to a leader in the data center market. He has successfully led sales, our networking business and most recently global business operations and marketing. I’m pleased to see Chris take on sales again along with managing our non data center businesses and corporate development.

His expanded role now encompasses end to end revenue execution, from go to market strategy and customer engagement to operations and long term strategic planning. Sandeep joined us in early twenty nineteen to lead our central engineering team and accelerate development of our technology platform. He was instrumental in driving Marvell’s leap to five nanometer process technology leadership and integrating Avera, the custom business we acquired that has since become our largest growth opportunity. Under Sandeep’s guidance, our engineering teams have successfully delivered multiple highly complex custom XPU and XPU attached projects in the high volume production with first time silicon success. With this promotion, Sandeep now has overall responsibility for our data center business, in addition to his continued leadership of data center engineering and central engineering.

This unifies full ownership of our largest and most important business under a single leader, spanning the entire product lifecycle from technology platform, IP and roadmap to customer engagement, product definition and chip development. Let me now discuss our results and expectations for each of our end markets. In our data center end market, we achieved record revenue of $1,490,000,000 in the second quarter, growing 3% sequentially and 69% year over year. The strong performance was led by our custom XPU and XPU attached products as well as our electro optics interconnect portfolio. AI and cloud continue to be the primary drivers accounting for over 90% of our data center revenue with the remainder coming from the on premise portion of our data center end market.

We expect on premise revenue to remain stable at an annualized revenue run rate of approximately $500,000,000 Looking ahead to the third quarter, we expect revenue from our electro optics products to grow double digit sequentially on a percentage basis as we continue to benefit from our market leading position in AI interconnect. Our custom business is also performing well and remains on track to grow in the second half of the fiscal year compared to the first. However, we expect growth to be non linear in business with the fourth quarter substantially stronger than the third. As a result, we expect overall data center revenue in the third quarter to be flat sequentially with electro optic strength offset by lower custom revenue. On a year over year basis, we expect data center revenue to continue to deliver strong growth in the mid-thirty percent range in the third quarter.

We are very pleased with the progress of our 18 XPU and XPU attached sockets, several of which are already in volume production. We are making excellent progress on development of the remaining sockets with all of them expected to ramp over the next couple of years. The success of our initial wave of custom programs combined with rapidly growing industry interest in custom silicon has expanded our design win pipeline to over 50 new opportunities. As next generation XPU and XPU attached products increase in complexity, we believe it will become even more critical for customers to partner with a full service custom silicon provider like Marvell. Since our event in June, our team has won additional sockets, adding to the 18 sockets we had already discussed.

Collectively, these new wins represent multibillion dollar lifetime revenue potential and we remain deeply engaged in advanced architectural discussions of many of the opportunities still in the funnel. As next generation AI data centers evolve, scale up networks are becoming essential to tightly interconnect tens, hundreds and eventually thousands of XPUs within and across racks. These require ultra low latency and multi terabit bandwidth to meet the demands of training and inference workloads. Marvell’s multi generational custom engagements with the hyperscalers gives us unique visibility into upcoming XPU architectures, enabling us to design scale up switches supporting both open standard Ethernet and UA link fabrics purpose built for AI. Combined with Marvell’s leadership in Ethernet switching and proprietary high speed, low power, low latency SerDes IP, we are strongly positioned to lead this market inflection.

We are investing in developing scale up switches tailored to each customer’s protocol of choice and look forward to updating you on our progress. Beyond switching, our interconnect portfolio extends the opportunity. While copper dominates the scale up links today, as networks expand and bandwidth grows, optics adoption will follow. This represents a large opportunity for Marvell’s full suite of interconnect products and technologies, including DSPs for active electrical cables or AECs and active optical cables or AOCs, retimers for PCI, Ethernet and UA Link and silicon photonics for near packaged and co packaged XPU optics. Our AEC and AOC DSPs are already in the market and our retimers are in customer evaluation.

We have demonstrated our 6.4T silicon photonics light engines and expect our technology to be a key enabler of NPO and CPO implementations once the industry is ready to adopt. Collectively between switching and interconnect, see a massive scale up opportunity for Marvell over time. Turning to our electro optics interconnect portfolio, our PAM and DCI franchises continue to lead the industry in enabling the build out of AI and cloud infrastructure. Demand for 800 gig PAM DSPs remain strong with a long life cycle still ahead. We have also begun volume shipments of our next generation 200 gig per lane 1.6 T PAM DSPs to multiple customers.

We expect adoption to accelerate in the next several quarters. Looking further ahead, we are driving the next optical technology transition. At this year’s Optical Fiber Conference, we demonstrated our 400 gig per lane PAM technology, a critical innovation and step towards enabling 3.2T optical interconnects. This milestone underscores Marvell’s leadership in pushing the boundaries of next generation optical connectivity. Our data center interconnect business also continues to expand with adoption proliferating across large hyperscalers.

Collectively, the custom and electro optics product lines I just described now account for over three quarters of our total data center revenue. The balance comes primarily from our data center storage, switching and security portfolios, each of which is showing solid progress. Our data center storage revenue has improved significantly, reflecting a return to health in both the SSD and HDD markets. In AI and cloud switching, our 12.8T products continue to ship in high volume, while our next generation 51.2T switches are now ramping. Adoption is accelerating and we expect these products to be a major driver of switch revenue growth in the next fiscal year.

In the security market, we recently expanded our collaboration with Microsoft Azure on our hardware security modules, building on a long standing and trusted relationship with this customer. Now let me turn to our enterprise networking and carrier infrastructure end markets. In the second quarter, enterprise networking revenue was $194,000,000 and carrier infrastructure revenue totaled $130,000,000 Combined revenue for these end markets grew 2% sequentially and 43% year over year. Looking ahead to the 2026, we expect aggregate revenue from enterprise networking and carrier infrastructure to grow sequentially by approximately 30%. This growth is driven by normalizing customer inventory levels and strong adoption of our refreshed product portfolio.

As a reminder, we recently migrated these products to advanced process nodes, an investment we expect to yield benefits for many years to come, given the long product life cycles in these markets. In the consumer end market, second quarter revenue was $116,000,000 up 84% sequentially and 30% year over year. Gaming demand and its seasonality continues to be the primary driver of this business. For the third quarter, we expect consumer revenue to be down sequentially in the low single digits on a percentage basis. Turning to our automotive and industrial end market, second quarter revenue was $76,000,000 flat both sequentially and year over year.

For the 2026, reflecting the divestiture of our automotive Ethernet business, we anticipate overall revenue of approximately $35,000,000 from this end market. This includes a mid single digit million dollar contribution from our automotive Ethernet business prior to the transaction closing. In summary, in the 2026, we continued to deliver operating margin expansion, earnings per share growth and new revenue records. Looking ahead, we expect momentum to continue in the third quarter, with total company revenue forecast at $2,060,000,000 at the midpoint, representing 36% year over year growth. Excluding revenue from automotive Ethernet, the implied revenue growth for Marvell’s go forward business would be closer to 40% year over year at the midpoint of our forecast for the third quarter.

We also expect to continue driving operating leverage with non GAAP earnings per share forecast to grow 10% sequentially at the midpoint of guidance, more than double our projected revenue growth rate. Our second quarter results and third quarter guidance reflect robust contributions from our AI driven data center end market, complemented by strong recovery in our enterprise networking and carrier infrastructure end markets. At the same time, our custom AI design engagements that are at an all time high, with customers showing very strong interest in our broad range of differentiated technologies. As I discussed earlier, our team continues to accumulate new wins and we are pleased with the strong progress across both current and next generation custom programs, which reinforces our confidence that we can achieve our long term customer revenue goals. In addition, our market leading electro optics franchises continue to see strong demand for both current and next generation solutions and our scale out switching platforms are positioned for strong growth.

Over time, the emergence of scale up networking for AI infrastructure should provide another strong tailwind for Marvell. With that, I’ll turn the call over to Willem for more detail on our recent results and outlook.

Willem Menkes, CFO, Marvell Technology: Thank you, Matt, and good afternoon, everyone. Let me start with a summary of financial results for the 2026. Revenue in the second quarter was $2,006,000,000 growing 58% year over year and 6% sequentially. Data center was our largest end market contributing 74% of total revenue. GAAP gross margin was 50.4%.

Non GAAP gross margin was 59.4%. Moving on to operating expenses. GAAP operating expenses were $721,000,000 including stock based compensation, amortization of acquired intangible assets, restructuring costs and acquisition related costs. Non GAAP operating expenses came in at $493,000,000 slightly below our guidance. Our GAAP operating margin was 14.5%, while non GAAP operating margin was 34.8%.

For the second quarter, GAAP earnings per diluted share was $0.22 Non GAAP earnings per diluted share was $0.67 reflecting year over year growth of 123%, which is more than double the pace of revenue growth, demonstrating the significant operating leverage in our model. Now turning to our cash flow and balance sheet. Cash flow from operations in the second quarter was approximately $462,000,000 growing by $129,000,000 from the prior quarter. Our inventory at the end of the second quarter was $1,050,000,000 a decrease of $20,000,000 from the prior quarter. We returned $52,000,000 to shareholders through cash dividends.

In addition, we repurchased $200,000,000 of our stock in the second quarter. In June, we completed the public offering of notes totaling $1,000,000,000 and used most of the proceeds to repay existing debt. As of the end of the second quarter, our total debt was $4,500,000,000 with our gross debt to EBITDA ratio of 1.63 times and a net debt to EBITDA ratio of 1.19 times. Our debt ratios have continued to improve as we have driven an increase in our EBITDA. As of the end of the second fiscal quarter, our cash and cash equivalents were 1,200,000,000.0 We recently completed the divestiture of our automotive Ethernet business in a $2,500,000,000 all cash transaction.

Proceeds from this sale give us flexibility to continue to drive our ongoing stock repurchase program as well as invest further in our technology capabilities. Turning to our guidance for the 2026. We are forecasting revenue to be in the range of $2,060,000,000 plus or minus 5%. As a reminder, this forecast includes revenue in the mid single digit millions of dollars from the automotive Ethernet business before the completion of the divestiture. If the divestiture had not taken place and we had operated the automotive Ethernet business for the full quarter, we would have added approximately $60,000,000 to our guidance.

We expect our GAAP gross margin to be between 51.552%. We expect our non GAAP gross margin to be between 59.560%. Looking forward, we anticipate that the overall level of revenue and product mix will remain key determinants of our gross margin in any given quarter. For the third quarter, we project our GAAP operating expenses to be approximately $719,000,000 We anticipate our non GAAP operating expenses to be approximately $485,000,000 For the third quarter, we expect GAAP other income and expense, including interest on our debt and the gain from the divestiture of our automotive Ethernet business to be an income of approximately 1,800,000,000.0 Non GAAP other income and expense, including interest on our debt, is expected to be an expense of approximately $33,000,000 We expect a non GAAP tax rate of 10% for the third quarter. We do not expect the recently passed Tax Bill Act to have a material effect on our current year’s non GAAP tax rate.

We expect our basic weighted average shares outstanding to be $863,000,000 and our diluted weighted average shares outstanding to be $870,000,000 We anticipate GAAP earnings per diluted share in the range of $1.98 to $2.08 We expect non GAAP earnings per diluted share in the range of $0.69 to $0.79 As Matt mentioned, we plan on updating our revenue by end market classification beginning next quarter. Over the past several years, our strategic focus on expanding revenue in the data center market has delivered strong results, driving significant growth in this end market. On a relative basis, data center revenue has more than doubled as a percentage of total company revenue from 34% in the 2024 to 74% in the 2026. As a result, in our most recent quarter, our four other end markets collectively represented only 26% of total company revenue. The divestiture of our automotive Ethernet business further reduces the relative contribution of our non data center end markets.

Looking ahead, we expect data center to continue outpacing all other end markets in both size and growth rate. As a result, our fiscal Q3 results will be the last quarter with the current classification and our Q4 guide will reflect the streamlined revenue reporting. Results will be reported in two categories, data center and communications and other. The composition of our data center end market will remain unchanged. The new communications and other end market will consolidate revenue currently reported separately from our enterprise networking, carrier infrastructure, consumer and auto industrial end markets.

We will continue to provide qualitative commentary in our earnings discussions, highlighting notable developments within submarkets in the consolidated communications and other end market. We expect most of the revenue in the new communications and other end markets come from our current enterprise networking and carrier infrastructure end markets, which have both continued to recover. On a combined basis for these two end markets, our guidance for the third quarter of this fiscal year implies an annualized revenue run rate of approximately $1,700,000,000 compared to the low point we saw in the 2025 of approximately 900,000,000 Consistent with prior comments, we expect these two end markets to collectively generate approximately $2,000,000,000 in annual revenue over time. Additionally, as we have stated previously, we anticipate annual revenue of approximately $300,000,000 from our consumer end market. And following the divestiture of our automotive Ethernet business, approximately $100,000,000 from our industrial end market.

In conclusion, we are executing on our strategy, driving strong revenue growth and expanding our operating margins towards our long term target. In addition, our balance sheet has continued to strengthen and provides a solid foundation to support our growth opportunities. With that, we are ready to start our Q and A session. Operator, please open the line and announce Q and A instructions. Thank you.

Conference Operator: Thank you. We’ll now be conducting a question and answer session. Session. Thank you. Our first question is from Ross Seymore with Deutsche Bank.

Ross Seymore, Analyst, Deutsche Bank: Hi, guys. Thanks for letting me ask a question. I want to dive into the guidance for the custom business, Matt. I appreciate the lumpiness of it, but could you give any more color on what the headwinds are in the third quarter? And then what gives you the confidence and any sort of magnitudes on the increase in the fiscal fourth quarter?

Matt Murphy, Chairman and CEO, Marvell Technology: Yes. Thanks, Ross. And I think you captured the right phrase, which is lumpiness. I think this is normal to see particularly with the large hyperscale builds that happened and especially as you ramp them into production which we’ve done this year on a number of programs. So this is not unusual.

Fortunately, our optics business is quite strong in the coming quarter and that’s growing double digits. And then as we said, as I said in the prepared remarks, we see a demand increase again in custom. So yes, there’s nothing unique there Ross other than we’ve spent the last couple of years ramping these into production and we’ve got kind of a one quarter digestion with the recovery in Q4. I will say that overall we expect custom to be up in the second half over the first half and so you should expect a strong fourth quarter for

Ashish Sarrahan, Senior Vice President of Investor Relations, Marvell Technology: custom. Thanks.

Matt Murphy, Chairman and CEO, Marvell Technology: Thank you.

Conference Operator: Our next question is from Swatburne with Stifel.

Jeremy, Analyst, Stifel: Yes, good afternoon. This is Jeremy calling for Tore. Maybe if you could provide a little bit more clarity on the design wins that you’re seeing. How much of your custom products revenue that you expect in the second half is coming from some of these new programs and how much is coming from some of your existing design wins? Any kind of color or clarity you can provide would be very helpful.

Matt Murphy, Chairman and CEO, Marvell Technology: Yes. Hey, thanks Jeremy. Good to hear from you. And yes, I’ll actually turn this one over to Chris to talk about the design win momentum we’re seeing and the opportunity set as it relates to your question. Thanks.

Go ahead,

Chris Koopmans, President and COO, Marvell Technology: Yes. Thanks, Matt. So yes, it’s truly an exciting time to be in the custom silicon business for center. We have a tremendous amount of design activity, more than I’ve ever seen in my nine years at Marvell. And ultimately, we’re seeing that across XPU, XPU attach, emerging and existing hyperscalers.

And I should say that, even since our event in June, where we said that the XPU attach opportunities were in the sort of several $100,000,000 design win lifetime, that’s grown from there. Some of the ones we’re chasing now are much, much larger than that, just that these hyperscalers build out these rack scale infrastructure. So and yes, since June, the design wins that we’ve added, these are very meaningful, thinking the billions of dollars for the new design wins. If you put it all together, it just gives us even more confidence in our 20% share target in this incredibly fast growing market.

Jeremy, Analyst, Stifel: Great. Thank you. And maybe a follow-up in terms of is there any impact that you’re seeing from supply constraints, anywhere along the supply chain, any impact from tariffs that you can see from your end? Thank you.

Matt Murphy, Chairman and CEO, Marvell Technology: Yes, great. Let Chris runs our global operations, so I’ll have him cover that. And then Willa, maybe you can make a quick comment on the tariffs and I’ll add if need.

Chris Koopmans, President and COO, Marvell Technology: Sure. Yeah. Certainly the supply chain is very tight, requires very tight coordination with our customers and very strong execution by our team. I’m very proud of our team to have met this ramp over the last year and very confident in our ability going forward. We’ve really been able to meet everything that our customers have needed, but it is tight and we have very strong coordination and execution.

Willem Menkes, CFO, Marvell Technology: Yes. And Jeremy, tariffs, it remains a very dynamic environment, but really we haven’t seen any impact on our business to date. We keep tracking it very, very closely. But as we look across all the different end markets that we’re addressing really haven’t seen any significant impact.

Jeremy, Analyst, Stifel: Jeremy. Thank you very much. Thank you.

Conference Operator: Our next question is from Aaron Rakers with Wells Fargo.

Aaron Rakers, Analyst, Wells Fargo: Yes. Thanks for taking the question. Kind of building on the earlier question, just a level set as we think about the lumpiness in the custom XPU business. I’m curious, you’ve had obviously a very talked about lead customer. I’m curious as you’re looking at the business today, how concentrated are you amongst your lead customer?

And if we look out, let’s say, months or even twelve months from now, how do we expect to see some of these additional design wins start to fold into the XB revenue stream? I’m just I’m trying to gauge the timing of some of these additional opportunities.

Matt Murphy, Chairman and CEO, Marvell Technology: Yes. Thanks, Aaron. And I think you said it right. We had started a few just a few years back a couple of AI days ago really talking about a handful of sockets that we’re going be kind of our initial lead and those have now ramped and are ramping albeit lumpiness we’re seeing in the short term. But those are happening.

And then on top of it, the 2018 we talked about just a couple of months ago at the AI Day, those are all either starting now, next year, really in the next sort of I’d call it between now and the next eighteen to twenty four months those will all start to layer in. And then as Chris mentioned, we’ve actually secured some incremental wins. Think of it as kind of 18 plus. So there’s journey there from a handful to 18 plus to beyond. And that’s really what we’re focused on is driving our market share from where we were just a couple of years back at 10% share in 2023, 2320 the year after and driving to 2020 over time.

We’re certainly getting a lot of confidence in that with just the recent design activity that Chris talked about. It’s kind of unprecedented. It’s almost episodic right now. Thanks.

Willem Menkes, CFO, Marvell Technology: And then as a quick follow-up, I

Aaron Rakers, Analyst, Wells Fargo: know NVIDIA this week talked about scale out or scale across network. I’m curious of how Marvell sees this opportunity moving from just not scale out and scale up, but scale across DCI. Any framing of how big of an opportunity that might represent for Marvell?

Matt Murphy, Chairman and CEO, Marvell Technology: Yes. Maybe I’ll have I’ll comment and Sandeep will comment. It’s certainly something we’re aware of. There’s a number of different opportunities that keep layering in that would leverage our networking and our connectivity technology. Sandeep, I don’t know if you have any additional thoughts, but this is something that is relatively new.

But Sandeep, go ahead if you’ve got some thoughts.

Sandeep Bharathi, President, Data Center Group, Marvell Technology: Yes. Thank you, Matt. So in terms of scale up opportunities, there is certainly aside from the lead GPU player who has its own proprietary scale up fabric, there’s a huge demand for Ethernet and purpose built fabrics such as the ULINK. And we see a lot of traction over the next couple of years for the scale up requirements. And we are investing heavily to bring our scale up switches to the market, And we see momentum in the next couple of years.

So we will have standard products using our state of the art low latency scale up switching IP portfolio, some of which we acquired from Inovion, which has been a great asset for us. So we are very confident of scale up switches being a key growth driver for us in the next couple of years.

Matt Murphy, Chairman and CEO, Marvell Technology: Yes. And then more to come in the future Aaron on the other type of opportunities. But thanks for covering that same day. Appreciate it.

Conference Operator: Our next question is from Vivek Arya with Bank of America.

Vivek Arya, Analyst, Bank of America: Thanks for taking my question. Just a near and longer term question on your custom business. So just near term, Matt, do you think Q4 your data center growth can accelerate year on year from the Q3 levels that you gave just so that we kind of level set our models. And then as we look at 2026, one of your XPU competitors has suggested their business can grow 60%. Think yesterday Jensen kind of threw a 50% or so.

So whatever industry growth rate seems to be in this 50% or so zip code for next year, do you think Marvell has the visibility today around timing and magnitude your large projects to kind of say that your business can sort of grow in line with what industry expectations are? Or are there other puts and takes we should keep in mind? Thank you.

Matt Murphy, Chairman and CEO, Marvell Technology: Thanks Vivek. Yes, a couple of things. I think one is our custom. We don’t do an annual guide and we typically just guide a quarter at a time. I’ll get to Q4 in a minute, but just as a baseline.

And then I would say on annual stuff, we’ve only done that very, very rarely and that’s typically been later in the year as we have more visibility. So just to set the stage. Look, I think the overall momentum in the business has been very strong for several quarters now. And I think I gave you some of the data points, which is that custom would be up in the second half versus the first half. You can look at our optics performance, Q2, Q3, especially the Q3 up double digits.

And then obviously when you look at the big picture, we’re very pleased which no one’s asked a question about yet, but it layers into the big picture on overall Marvell performance is the very strong recovery in the core business in enterprise networking and carrier. I mean, for reference on that business, we hit a low point during the inventory recovery cycle at about a $900,000,000 annualized run rate. And implied in our Q3 guide, business goes back up at like a 1.7 run rate. So very, very strong recovery both on inventory as well as on new programs that are kicking in and new products that are in the next technology node. So that’s all a positive in terms of the setup for Q3 and Q4.

Jeremy, Analyst, Stifel: Thank you. Thanks.

Conference Operator: Our next question is from Tom O’Malley with Barclays.

Ashish Sarrahan, Senior Vice President of Investor Relations, Marvell Technology0: Hey guys, thanks for taking my question. And Mal, I’m going to hit on the ASIC topic again, apologies, just want to dive in for a little more clarity. But when you look at what digestion that’s occurring in the October is, is that one project winding down while another is then winding back up in the fourth quarter? Is that just a temporary pause? Like any color on what’s happening there?

Is that just traditionally you see certain pockets where customers take product and then they stop? But is there anything to do with the product transition there as well? Any help there would be useful.

Matt Murphy, Chairman and CEO, Marvell Technology: Yes. Thanks, Tom. No problem for the question. Yes. No, at a high level these are existing programs and it’s really just a timing issue in terms of how we deliver the product and when the customers builds are occurring and when they want the product from us.

So given that this is as I said earlier, we’re in the early stages of custom. This is really our first big first year with the handful of sockets that will translate over to many more. It’s really just the timing issue between the quarters. So it’s more apparent. Now over time we do see a lot more diversity in this part of the business in Marvell as additional programs ramp.

But obviously we’re starting from a pretty low base just a couple of years back. Thanks.

Chris Koopmans, President and COO, Marvell Technology: Helpful. And then just as

Ashish Sarrahan, Senior Vice President of Investor Relations, Marvell Technology0: a follow-up on the optical business, you’re guiding to double digit growth in the October. You’ve heard others during this earnings period talk about supply constraints, particularly on the laser side. You’re obviously a component provider that’s going into these modules. But in terms of the ecosystem, are you seeing any stops and starts there in terms of product ramps as well? Or are you hearing about any component issues?

Or are you relatively immune from that in your ramp?

Matt Murphy, Chairman and CEO, Marvell Technology: Yes. I’ll lead off and I’ll let Chris comment if it’s appropriate. I mean, look, I think we’ve ramped this optics business just massively, okay, over the last few years and very successfully by the way. So I want to just echo what Chris said. Our business unit team, sales team and operations team have done a great job.

We have deep partnerships up and down the supply chain and with the key module companies to really plan our business together. So there seems like there’s always something going on, but I think we’ve been able to just manage through it and continue to grow quite dramatically if you look at the ramp over the last few years. So I think there’s always noise in the system, relative to different pieces of it. But I’d say overall, we’re tracking really well. Chris, do you have anything to add or did I capture that?

Chris Koopmans, President and COO, Marvell Technology: I think you captured it. Just very strong partnerships with our customers and trying to stay one step ahead of all the changes and executing very well.

Matt Murphy, Chairman and CEO, Marvell Technology: Our

Conference Operator: next question is from Timothy Arcuri with UBS.

Ashish Sarrahan, Senior Vice President of Investor Relations, Marvell Technology1: Matt, so you’re guiding data center flat, and optics is up double digits. Since you’re guiding optics up double digits, can you give us a sense of sort of what the baseline is for the optics business? I know you did provide that the AI revenue would crossover half of the total company revenue. Is that happening as soon as fiscal Q3? So is optics plus custom at 50% of the total company revenue?

I’m just kind of wondering because you’re guiding optical, I’d like to see if you can give us some sense of what the baseline was coming off fiscal Q2?

Matt Murphy, Chairman and CEO, Marvell Technology: Yes. Let me just start off real quick and I’ll see if Willem wants to add. I mean, we haven’t updated that number, I don’t think since Q4 where optics was about half, custom was about a quarter and then other was about 25%. Obviously optics and custom have both come up since then. But we haven’t exactly put a beat on that and updated that exact mix.

Willem, anything any commentary that would be helpful? It’s obviously something, Tim, we’re probably not going to update on a quarterly basis. I totally get the question. But Wilam, anything to add?

Willem Menkes, CFO, Marvell Technology: No. That’s the right framework. And exactly what Matt said, right, take that guidance we gave in Q4 and you can apply your growth rates. And it’s just not a number we’re going to be sharing every quarter, but that should give you a good sense of what it is.

Ashish Sarrahan, Senior Vice President of Investor Relations, Marvell Technology1: Okay. But is the total just because Matt you did say last quarter that the total AI number would be half the company before the end of the fiscal year. I mean, can you at least provide a sort of a milepost that? Is that happening in fiscal Q3 or will that happen more in fiscal Q4?

Matt Murphy, Chairman and CEO, Marvell Technology: Yes. I think I’d have to give you a follow-up, Tim. I don’t have the spreadsheet right in front of me on that. But it’s clearly I mean the yes, I

Aaron Rakers, Analyst, Wells Fargo: think

Matt Murphy, Chairman and CEO, Marvell Technology: with the puts and takes, custom up second half over first, strong optics, yes, I don’t have that number right at the tip of my fingers. But it’s definitely trending the same way. I wouldn’t say there’s any directional change there.

Ashish Sarrahan, Senior Vice President of Investor Relations, Marvell Technology1: Okay. Awesome. Thank you.

Matt Murphy, Chairman and CEO, Marvell Technology: Yes. Thanks.

Conference Operator: Our next question is from Harsh Kumar with Piper Sandler.

Ashish Sarrahan, Senior Vice President of Investor Relations, Marvell Technology2: Yes. Hey, guys. I had a question on the scale of the AI business. I think mentioned you had eighteen months before you might have picked up. I think you suggested a couple of more wins.

So I wanted to understand, of all the custom and attach ships that Marwal is working on, how many of them are actually producing revenues today? I want to understand kind of like where we are today because we understand that you are aiming for 20% of $94,000,000,000 by 2028. So I’m trying to understand where we stand today and kind of knowing where we’re headed to.

Matt Murphy, Chairman and CEO, Marvell Technology: Yes. Thanks Harsh. Chris, you want to give some commentary on that one?

Chris Koopmans, President and COO, Marvell Technology: Sure. Yes. So certainly there are multiple several that are in production today and have been since late last year. And of those 18, they’re all either sort of they’re all either going to production now or have gone to production this year or into next year. So what you’re seeing is pretty much every quarter you’re seeing new parts of those programs moving into production.

And ultimately, see that just continuing to grow over time.

Ashish Sarrahan, Senior Vice President of Investor Relations, Marvell Technology2: Okay. And then, just maybe broadly, very broadly help us understand, and I’m not asking for any customer specific customer, but if most of your wins or all of your wins, largely speaking, are on track. And the reason why I’m asking is when we talk to clients, investors, there’s just a lot of controversy. So any kind of statement that you can make would be helpful.

Matt Murphy, Chairman and CEO, Marvell Technology: Well, there’s always controversy, Harsh. I mean, I think that’s why, at the end of the day, was a big motivation for us with respect to you guys and the broader investor community around our AI Day was really trying to frame where we’re driving the business, what the technology differentiation is, what the opportunity set is, breaking it actually in a lot more granularity than I think we’ve done before relative to hyperscale versus emerging XPU, XPU attach, the relative size of those opportunities. And so that’s and we gave some commentary today just that we’re tracking against those and have now closed some. So that’s going to be the focus of how we think about the go forward. But given the design win momentum we’re seeing, clearly, we’re continuing to garner new incremental business from really across the board, the traditional big hyperscalers as well as the emerging generation.

So that’s hopefully, that’s helpful. Thanks, Harsh.

Ashish Sarrahan, Senior Vice President of Investor Relations, Marvell Technology2: Thanks Matt and Chris.

Conference Operator: Our next question is from Jim Schneider with Goldman Sachs.

Ashish Sarrahan, Senior Vice President of Investor Relations, Marvell Technology3: Good afternoon. Thanks for taking my question. I was wondering if you could maybe address capital allocation from a high level for a moment. If you look at your automotive Ethernet business, that’s a very attractive price you’re able to get from that. So maybe you can maybe talk a little bit about the intended use of the proceeds with your bias is more towards tuck in acquisitions that allow you to pursue the AI strategy even faster or buybacks?

And then more broadly, are you open to potential sale of other components of the business at the right price whether that be carrier, consumer or otherwise? Thank you.

Matt Murphy, Chairman and CEO, Marvell Technology: Yes. Thanks, Jim. It’s a thoughtful question and I’ll up level it just for a second. So yes, this is a driving force our capital allocation framework on how we run the company. And it the automotive divestiture and then the proceeds are just kind of an output of that.

And I’ll in a minute, I’ll just have Willem comment on that. But as a background, we have run since August 2016, so basically, six weeks after I became CEO, we implemented a strategy process, which was really our capital allocation framework on how we think about investing our R and D dollars primarily. At that time too, there were some opportunities around buybacks and so forth given where Marvell was at that time. But primarily, we drive it from the strategy first. And our vision since and by the way, we just completed our tenth strategic review a couple of weeks ago.

So we’ve been doing this kind of year in and year out. And what you’ve hopefully seen is that over time, we’ve continued to evolve the company from really a consumer enterprise kind of focused company to a data center AI first company. And I’d say even in the last few years as we made the pivot, we’ve now got our R and D spending well north of 80% of our total spending in AI and data center. And that number has come up probably from, I don’t know, 60% just a few years ago. And then way back when, it was almost nothing because we had no business there.

So that and so around your question then, and when we looked at automotive as an example, it was just it was a great business. We had built it up from scratch. It was it continued to stay a small portion of our total revenue. And as the AI thing took off, it became even smaller. And then we had this opportunity to

Sandeep Bharathi, President, Data Center Group, Marvell Technology: give it

Matt Murphy, Chairman and CEO, Marvell Technology: a great new home in Infineon, which they found. And for Marvell, we obviously got significant and compelling valuation for that. We have the proceeds and so now we’re looking at how to deploy those. And I think it’s going to be some it’s not decided at the moment. We just closed this.

And by the way, job to the team. I think this was we had said end of the year and we closed it in early August. So that huge was win for everybody involved. Then I’ll let Willem comment in a moment, but I think the answer is probably some of both. I mean, we’re definitely going to keep looking at our organic investments to figure out how to differentiate Win and AI.

If there are tuck ins and things we can do, that’s obviously on the table. But we’re we’ve been consistent really since for probably the last four or five years, which was we invested early and heavy in M and A to build the portfolio we wanted. We’ve done a lot organically to build up our capability. So we’re in great shape there, but we’re always going to look. Willem, maybe a little bit to add to this.

I know it’s a long answer, but it’s I think helpful for investors to know how we think. Willem, anything to add?

Willem Menkes, CFO, Marvell Technology: Yes. I’ll add a couple and just also call out to the team for doing a phenomenal job on getting this deal closed in effectively four months. A deal of this size and complexity is just a phenomenal job. So when Jim, when you look back at last couple of quarters here, we’ve really driven an increased level of buybacks really through much more consistent execution on our free cash flow. And so as a basis, you should expect for us to continue to driving that and having a focus on very consistent free cash flow execution, driving higher level of buybacks.

And then as Matt mentioned, I think this additional capital really gives us a lot of flexibility around being opportunistic on doing more buybacks. But at the same time, we’re at this historic moment in terms of the size of this AI market and where we do see tuck ins that can accelerate our roadmap towards addressing that, we’ll take advantage of that.

Conference Operator: Our next question is from Harlan Sur with JPMorgan.

Ashish Sarrahan, Senior Vice President of Investor Relations, Marvell Technology4: Good afternoon, guys. Thanks for taking my question. This goes back to one of the previous questions. The noise level out of Asia on your lead customers follow on three nanometer XPU program continues at a deafening pace, right? With your Asia competitor, they’re essentially claiming victory on three nanometers.

So what’s the update with Marvell’s three nanometer XPU follow on program with your lead customer? I think last earnings call, Matt, you talked about securing three nanometer wafer capacity, packaging capacity production in calendar twenty twenty six. Is this program still tracking? What’s the confidence level on this program still driving growth next year? And then maybe just an update on your third XPU customer win at three nanometer, which was supposed to ramp back half of calendar twenty twenty six.

How is this program tracking as well?

Matt Murphy, Chairman and CEO, Marvell Technology: Yes. Thanks, Arlen. I appreciate the question. I understand the noise. As I said in my answer to the earlier question, we’re at a point where the initial programs and wins we have are ramping.

We’ve increased our opportunity set pretty significantly to from a handful of sockets to this 18 plus. And we’re really driving to the market share targets in the future. And just given the massive sort of focus in this area and sensitivity, commenting on just the individual sockets at this point is only probably increasing the noise level. And what we’re really focused on is winning incremental designs, executing on the ones we’ve got and driving the business forward and ultimately trying to get 20% of a $90 plus billion TAM in the future. That’s where that’s at.

Conference Operator: Thank you. Our last question is from Quinn Bolton with Needham and Company.

Ashish Sarrahan, Senior Vice President of Investor Relations, Marvell Technology5: Hi guys. Thanks for squeezing me in. Matt, I wanted to follow-up just kind of on the scale up switch fabric opportunity. It seems like it’s a bigger part of the XPU attach market and there are different flavors, Ethernet, UA link. Just wondering, can you give us a sense when Morvell may have its first products ramping to revenue?

Is that a calendar twenty twenty six event? Or is it going to be more UA link based and more likely a calendar twenty twenty seven event? And then I’ve got a follow-up.

Matt Murphy, Chairman and CEO, Marvell Technology: Yes. Thanks Quinn. I think maybe I’ll ask Sandeep add a little bit more, but I think he did a good job framing it. I will just say though that maybe up level it for a second. I think on the scale up, it really is a great combination of key Marvell IPs all into one, especially our low latency switching IP, our SerDes and then just the ecosystem we’re living in relative to XPUs and then this being a key XPU attached that’s fundamentally almost a chipset type of a decision.

So Sandeep, anything else to add on that? I think we haven’t really articulated a lot yet publicly on what we’re doing, there’s a huge amount of momentum here and we’re engaged very broadly in this area. Sandeep, thoughts in closing remarks on this one?

Sandeep Bharathi, President, Data Center Group, Marvell Technology: Thank you, Matt. So definitely we are investing to bring UOLINK and Ethernet based products. As we engage with our customers and working very closely with our customers’ timeline, what I would say is product introductions in the UOLINK and Ethernet space, what scale up specifically will be in the next two years. And certainly, with the assets that we have, not only are we looking at UOLINK based products, in interconnect, we’re already starting to see the use of AECs in the near term and AOCs all for which is active electrical cables and active optical cables positioning us to participate in these markets. So for UOLINK and Ethernet based specifically, it will be in the next two years.

Conference Operator: Got it.

Ashish Sarrahan, Senior Vice President of Investor Relations, Marvell Technology5: Thank you. And then just wanted to ask, know you guys obviously have a very substantial business in the DSP based optical modules. A few of your peers have started to note that, I believe three hyperscalers are beginning to ramp LPO modules. Can you just kind of frame for us, do you think that the are there substantial LPO developments beginning to occur? Are they pretty niche applications?

I mean, any sense of LPO penetration of the overall optical transceiver market? Is it likely to stay in the low single digit percentages? Do you see it getting bigger than that over a couple of years? Just like to hear your thoughts since you guys are obviously the incumbent.

Matt Murphy, Chairman and CEO, Marvell Technology: Yes. Thanks, Gwyn. Yes. No, it’s happening at a smaller scale. And by the way, we’re in some of those too.

We have active wins and we’re going to production in those types of modules as well. But just given the sheer scale of the DSP based pluggables, it just ends up being a very small number and more of a niche use case. But a valuable one if the customer really needs it and can implement it and get it working in a production, it can be a benefit. But the vast majority we see today still is and for the foreseeable future is pluggables. It.

Yes, cool. All right. Operator, I think that’s it. I’m just going make some closing remarks. Okay.

So anyway, thanks everyone for joining. I appreciate all of your interest in Marvell and joining the call and listening in. Just a couple of points. I think the first is, as I indicated and Chris and also Sandeep talked about, I mean the design win momentum in custom has been very, very strong even since the AI Day. I feel really good about that $75,000,000,000 pipeline that we’re really bringing to close some of those key opportunities within that.

I think that pipeline by the way from what we can see is probably going to just keep growing. And by the way this is across XPU, XPU attach, it’s at the large hyperscalers and then continuing to increase around the emerging. Optics continues to be very strong. We’re managing the execution quite well and growing the business there. And then the core business, which was a point of consternation in the past about when would that come back and what would that ramp look like.

It’s nice to see in Q3 the strong sequential in enterprise networking and carrier. I think it’s like 30% sequential and 80% plus year over year, so very strong recovery there. And finally, it’s showing up in the numbers. I mean, we’re getting a lot of leverage here. Looked at Q2 EPS, it’s up like 123% year over year and Q3 if you look at the guide, EPS would be up like 70%, so much faster than revenue, same thing on the sequential.

So overall, we’re very pleased with the performance of the company. We see a massive opportunity ahead and I appreciate everybody’s interest in Marvell and we’ll talk to you all soon. Thank you so much.

Conference Operator: Ladies and gentlemen, thank you for your participation. This does conclude today’s conference. Please disconnect your lines and have a wonderful day.

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