- Revenue: $1.161 billion, exceeding the midpoint of guidance, declining 12% year-over-year and 19% sequentially.
- Data Center Revenue: $816 million, grew 87% year-over-year and 7% sequentially.
- Enterprise Networking Revenue: $153 million.
- Carrier Revenue: $72 million.
- Consumer Revenue: $42 million, declining 70% year-over-year and 71% sequentially.
- Automotive and Industrial Revenue: $78 million, declining 13% year-over-year and 6% sequentially.
- GAAP Gross Margin: 45.5%.
- Non-GAAP Gross Margin: 62.4%.
- GAAP Operating Expenses: $680 million.
- Non-GAAP Operating Expenses: $454 million.
- GAAP Operating Margin: Negative 13.1%.
- Non-GAAP Operating Margin: 23.3%.
- GAAP Loss Per Diluted Share: $0.25.
- Non-GAAP Income Per Diluted Share: $0.24.
- Cash Flow from Operations: $325 million.
- Inventory: $826 million, decreasing by $38 million from the prior quarter.
- DSO (Days Sales Outstanding): 69 days, decreasing by 8 days from the prior quarter.
- Shareholder Returns: $52 million in cash dividends and $150 million in stock repurchases.
- Total Debt: $4.15 billion.
- Gross Debt to EBITDA Ratio: 2.27 times.
- Net Debt to EBITDA Ratio: 1.8 times.
- Cash and Cash Equivalents: $848 million, decreasing by $103 million from the prior quarter.
- Second Quarter Revenue Guidance: $1.25 billion plus or minus 5%.
- Second Quarter GAAP Gross Margin Guidance: Approximately 46.2%.
- Second Quarter Non-GAAP Gross Margin Guidance: Approximately 62%.
- Second Quarter GAAP Operating Expenses Guidance: Approximately $688 million.
- Second Quarter Non-GAAP Operating Expenses Guidance: Approximately $455 million.
- Second Quarter GAAP Loss Per Diluted Share Guidance: $0.15 to $0.25.
- Second Quarter Non-GAAP Income Per Diluted Share Guidance: $0.24 to $0.34.
Release Date: May 30, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Marvell Technology Inc (MRVL, Financial) delivered revenue of $1.16 billion, exceeding the midpoint of guidance.
- Data center revenue grew 87% year-over-year and 7% sequentially, driven by strong demand from cloud AI applications.
- The company started shipping custom AI compute programs, contributing to revenue growth.
- Marvell's Electro-Optics portfolio and data center interconnect products saw strong demand and design wins.
- The company reduced its inventory by $200 million year-over-year, improving operational efficiency.
Negative Points
- Revenue from enterprise networking and carrier end markets declined due to inventory correction and soft industry demand.
- Consumer end market revenue declined 70% year-over-year and 71% sequentially, reflecting the completion of an end-of-life program.
- Automotive and industrial end market revenue declined 13% year-over-year, impacted by a broad inventory correction.
- GAAP operating margin was negative 13.1%, indicating challenges in managing operating expenses.
- Non-GAAP gross margin is expected to decrease slightly in the second quarter due to a projected change in product mix.
Q & A Highlights
Q: Matt, just to kind of near term, I was hoping you could help quantify how much custom compute accounted for in Q1 and how you are thinking about that about it in Q2. And then as we look into the back half, I think you have given an overall a high number for the data center, but is that a supply constrained number? Just give us a sense for what are the puts and takes in the back half, how much flexibility is in the model to upside expectations from here on?
A: We started production shipments in Q1, and most of the growth in the data center segment for Q2 is coming from custom compute. For the full year, we talked about a floor of $1.5 billion for AI revenue, with about two-thirds in electro-optics and one-third in custom. Both segments are expected to exceed that number. We feel well-positioned to handle upside above and beyond the numbers we've discussed, both on the optics and custom side.
Q: I want to ask about the evolution of the customer basic TAM. You had said it's roughly six I think you said last year and I guess at the Analyst Day you said you'd be at a 10% share very soon. So is it fair to say that you could be at $1 billion in custom compute next year?
A: Yes, we articulated a robust custom silicon TAM in excess of $40 billion going out into the 2028 timeframe. We are well on our way, and our programs are continuing to upsize. We talked about an incremental $1 billion as the floor for next year, going from $1.5 billion to $2.5 billion, largely due to custom programs hitting their first full year of volume.
Q: A question is on gross margins and some of the comments that you made with regard to gross margins in the second half of the year. Could you give a little more detail about some of the puts and takes?
A: Our gross margin is driven by overall product mix and the level of revenue and overhead absorption. Our merchant side of the business has gross margins above our corporate target range. However, key components like data center storage and enterprise networking are going through significant inventory correction. Custom programs, which carry lower gross margins, are ramping. As these other merchant businesses start recovering, it will drive a nice tailwind for us.
Q: Within data center, it looks like the AI portions of your business are about $500 million this past quarter. Can you size the non-AI portion of data center and discuss what you're seeing there both this quarter and going forward?
A: AI has been very strong and continues to look promising. Standard cloud infrastructure is also continuing to invest, and we see growth in both AI and standard cloud infrastructure throughout the year. The on-prem piece, which has been depressed, found a bottom in Q1 and will contribute to growth throughout the rest of the year.
Q: Could you talk about the evolution of the customer basic TAM, and if you think you could be over-indexed to any of those?
A: In the data center custom silicon market, these are multiyear development cycles and multigenerational engagements. These are very defensible, sticky sockets when you partner and do a great job. We have strong visibility over the next couple of years on five nanometer programs, and our three nanometer design pipeline and wins have been very strong. We're already deeply engaged on two nanometer.
Q: Just wanted to come back to the gross margin question. Can you level set us on the pressure on margins as custom compute ramps?
A: We're talking about the short term as custom programs ramp. We have a mix of different business models and product lines. The custom piece, which drives tremendous operating leverage, carries a lower than corporate average gross margin. As we see a strong ramp in custom with margin-rich businesses taking longer to recover, we expect a healthier margin profile once demand normalizes.
Q: Wanted to get to the cyclical parts of your business. Why would the recovery be gradual given the big drops? Is there share loss?
A: We're taking a conservative view on the recovery slope. On the carrier side, despite a weak overall environment, we have growth drivers like new content ramping. On the enterprise side, end market commentary is strengthening, and customers are starting to work down inventory. We expect both businesses to return to growth, but the timing is still uncertain.
Q: On the optical side, you are benefiting from strong growth in 800 gig support. Is optical driving quarter-on-quarter growth? Are you starting to get visibility on potential upside drivers in optical?
A: We're modeling optical business to be flat to slightly up into July. Year-over-year will be very strong. In the second half, we expect standard cloud infrastructure build-outs and upgrades to happen. We also have our switching portfolio and ZR engagements. We see a great setup for the second half, driven by data center and AI.
Q: What are the company's ambitions in PCIe? How big is this market, and when should we see the earliest revenues?
A: We see PCIe as an incremental opportunity leveraging our core capability in PAM-based DSP design. We chose to intercept this market at the PCI Gen six transition. We intend to be a player here, and it's a perfect fit to our connectivity portfolio. We have a lot of customer interest, and we announced the products today.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
