Marvell Technology Q1 2026 Earnings Call Transcript

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Provided by Quartr
May 29, 2025

Key Takeaways

  • Record Q1 performance: Marvell reported all‐time high revenue of $1.895 billion, up 63% year-over-year and 4% sequentially, driven by strong demand.
  • Data center strength: The data center segment hit $1.44 billion in revenue (+76% YoY, +5% QoQ) on robust AI silicon ramps and electro-optics sales, with mid-single digit sequential growth forecast for Q2.
  • Capital returns and portfolio optimization: The company repurchased $340 million of stock in Q1 and agreed to sell its Automotive Ethernet business to Infineon for $2.5 billion, enhancing financial flexibility.
  • Enterprise and carrier recovery: Combined enterprise networking and carrier infrastructure revenue rose 14% sequentially, and these end markets are forecast to grow mid-single digits in Q2.
  • Consumer and industrial softness: Consumer revenue declined 29% sequentially and automotive & industrial revenue fell 12%, reflecting seasonality and lumpy order patterns.
AI Generated. May Contain Errors.
Earnings Conference Call
Marvell Technology Q1 2026
00:00 / 00:00

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Operator

Afternoon, and welcome to Marvell Technology Inc. First Quarter of Fiscal Year twenty twenty six Earnings Conference Call. Please note that this event is being recorded. I would now like to turn the conference over to Mr. Ashish Sarvan, Senior Vice President of Investor Relations. Please go ahead, sir.

Ashish Saran
Ashish Saran
Senior Vice President, Investor Relations at Marvell Technology

Thank you, and good afternoon, everyone. Welcome to Marvell's first quarter fiscal year twenty twenty six earnings call. Joining me today are Matt Murphy, Marvell's Chairman and CEO and Willem Minkis, our CFO. 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.

Ashish Saran
Ashish Saran
Senior Vice President, Investor Relations at Marvell Technology

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 also available in our earnings press release. Let me now turn the call over to Matt for his comments on the quarter. Matt?

Matt Murphy
Matt Murphy
Chairman and CEO at Marvell Technology

Thanks, Ashish, good afternoon, everyone. For the first quarter of fiscal twenty twenty six, Marvell delivered record revenue of $1,895,000,000 above the midpoint of guidance, reflecting a 4% sequential increase and strong 63% year over year growth. Data center end market continued to deliver strong growth, driven by robust AI demand. In addition, we were pleased to see ongoing revenue recovery in our carrier infrastructure and enterprise networking end markets. Higher revenue versus our forecast also resulted in record non GAAP earnings per share, which came in above the midpoint of guidance.

Matt Murphy
Matt Murphy
Chairman and CEO at Marvell Technology

In addition, we significantly increased our stock repurchases in the first quarter, buying back $340,000,000 a substantial step up from the $200,000,000 repurchased in the prior quarter. During the first quarter, we announced the sale of our Automotive Ethernet business to Infineon at an all cash transaction valued at $2,500,000,000 We are extremely proud of the progress we have made in organically building and expanding this business, which we expect will deliver a compelling financial outcome for Marvell's stockholders. The closing of this transaction, which we expect within calendar 2025, will provide us with additional flexibility in our capital allocation strategy. We started our new fiscal year on a strong note with Q1 results ahead of plan and are forecasting second quarter revenue of $2,000,000,000 at the midpoint of guidance. This represents 57% year over year growth and would set another record revenue level for Marvell.

Matt Murphy
Matt Murphy
Chairman and CEO at Marvell Technology

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 1,440,000,000 in the first quarter, growing 5% sequentially and 76% year over year. Looking ahead to the second quarter, we expect this momentum to continue with data center revenue projected to grow sequentially in the mid single digit range on a percentage basis, while maintaining strong year over year growth. These strong results, along with our second quarter guidance, are being driven by the rapid scaling of our custom AI silicon programs to high volume production, along with robust shipments of our electro optics products for AI and cloud applications. We continue to expand the capabilities of our advanced technology platform to enable our customers to build full rack level custom infrastructure, including innovative technologies such as custom high bandwidth memory and pro package optics.

Matt Murphy
Matt Murphy
Chairman and CEO at Marvell Technology

Marvell's custom HBM compute architecture enhances XPUs by optimizing the IO interfaces between accelerator silicon and the memory embedded in the package. This enables AI custom compute accelerators with much more efficient integration of main memory, which can increase performance and reduce run times resulting in increased utilization. We continue to see strong interest from multiple customers who are targeting the highest performance and optimized TCO for their upcoming AI solutions that leverage the most advanced HBMs. Marvell's breakthrough co package optics platform enables customers to integrate our silicon photonics light engine into future custom AI accelerators. Co package optics can drive a transition from copper interconnects to optical fiber for scale up AI clusters.

Matt Murphy
Matt Murphy
Chairman and CEO at Marvell Technology

This technology will enable larger AI servers with significantly higher total system memory capacity and processing capability, which we expect will provide the scaling headroom required for the next wave of AI models. We expect this transition from copper, which does not contain any active silicon, to optical interconnects to significantly expand Marvell's interconnect revenue and market opportunities. Earlier this month, we announced two new additions to our custom platform. First, we announced a partnership with NVIDIA, adding their NVLink Fusion technology to our expanding custom platform. Marvell Custom Silicon with NVLink Fusion provides customers with an accelerated path to custom scale up solutions, offering greater flexibility and choice in developing next generation AI infrastructure.

Matt Murphy
Matt Murphy
Chairman and CEO at Marvell Technology

This announcement further validates the proliferation of custom XPUs as a strong complement to merchant solutions. In addition, earlier today, we announced Marvell's new multi die packaging platform, the first of many advanced packaging innovations we are bringing to the market. Solution is already qualified and has entered production in support of a customer specific XPU program. The platform enables customers to realize multi die architectures utilizing differentiated Marvell design interposer technology. This approach can enable more efficient die to die interconnect, lower power consumption, increased yields and lower product cost.

Matt Murphy
Matt Murphy
Chairman and CEO at Marvell Technology

Our Vault solution offers a compelling alternative to traditional silicon interposers for custom cloud applications. We expect to continue to proliferate this technology more broadly in next generation designs. Moving on to the progress we are making in our custom business, we are benefiting from revenue contributions across multiple programs, including XPUs and other accelerators. Our lead XPU program for a large U. S.

Matt Murphy
Matt Murphy
Chairman and CEO at Marvell Technology

Hyperscale data center customer is doing extremely well and has become a key revenue driver for our custom business. I'm incredibly proud of our team and the close collaboration with this customer to drive this program to volume production with A0 silicon and meet the customer's steep ramp. As I mentioned last quarter, we are fully engaged with this customer on the follow on generation and I'm pleased to report that we have now secured three nanometer wafer and advanced packaging capacity and expect to start production in calendar twenty twenty six. At the same time, our architecture team is working with the customer to support the definition of the generation after that. This is all consistent with the multi generational nature of these engagements, reflecting the benefit of working with Marvell over the long term.

Matt Murphy
Matt Murphy
Chairman and CEO at Marvell Technology

As a result, we anticipate that our revenue from custom AI XPUs for this customer will continue to grow next year, fiscal twenty twenty seven and beyond. At our AI Day last year, we also announced a significant design win for a custom AI XPU with another US Hyperscale. Joint development on this program continues to progress well, and we are already engaged with this same customer on the architecture for the follow on generation of this AI XPU program. I'm very pleased with the strong progress we are making across both our current and upcoming custom programs. This momentum reinforces our confidence in achieving our long term goals for custom revenue.

Matt Murphy
Matt Murphy
Chairman and CEO at Marvell Technology

We will be highlighting our broad and expanding range of opportunities at our custom AI investor event on June 17. I will share more details about this event in a moment. Turning to our interconnect portfolio, our PAM and DCI franchises continue to lead the industry in enabling the build out of AI and cloud infrastructure. At this year's Optical Fiber Conference, we showcased a broad range of products, technologies and ecosystem initiatives designed to power the next generation of scale up and scale out AI deployments, including the industry's first four hundred gig per lane PAM technology, a critical step towards 3.2T optical interconnects, enabling pluggable transceiver modules to remain the dominant solution for scale out connectivity for the foreseeable future. Co package optics and co package copper technologies providing greater interconnect densities and longer reach for scale up networking silicon photonics light engines scaling up to 6.4T consolidating hundreds of components into compact modules optimized for both pluggable and CPO applications.

Matt Murphy
Matt Murphy
Chairman and CEO at Marvell Technology

1.6T linear drive pluggable optical modules using Marvell's silicon photonics light engine. The industry's first three nanometer 1.6T PAM4 DSP featuring 200 gig per lane electrical and optical interfaces, enabling customers to reduce module power consumption by more than 20% compared to its predecessor. Next generation 800 gig DCI modules supporting data transmission over distances up to 1,000 kilometers. Production ready 1.6 T AEC DSPs for emerging 200 gig per lane accelerated infrastructure. Coherent light DSPs enabling power and performance optimized solutions for the emerging market of distributed campus data center interconnects, spanning distances up to 20 kilometers and finally PCIe Gen six and Gen seven SerDes for end to end connectivity over optics.

Matt Murphy
Matt Murphy
Chairman and CEO at Marvell Technology

We received highly positive feedback from customers, partners and industry analysts during the event, making OFC twenty twenty five another home run for the Marvell team. Now let me turn to Marvell's enterprise networking and carrier infrastructure end markets. In the first quarter, enterprise networking revenue was $178,000,000 while carrier infrastructure revenue totaled $138,000,000 Collectively, revenue grew by 14% sequentially, exceeding the midpoint of our forecast and reflecting the ongoing recovery in both end markets. Looking ahead to the second quarter of fiscal twenty twenty six, we expect aggregate revenue from enterprise networking and carrier infrastructure to grow sequentially in the mid single digit range on a percentage basis. In the consumer end market, first quarter revenue was $63,000,000 representing a 29% sequential decline.

Matt Murphy
Matt Murphy
Chairman and CEO at Marvell Technology

Looking ahead to the second quarter, we expect consumer revenue to grow by approximately 50% sequentially. These sequential changes are largely driven by seasonality and gaming demand, which continues to be the primary factor driving our consumer business. Turning to our automotive and industrial end market, first quarter revenue was $76,000,000 declining by 12% sequentially. While we saw sequential growth in our automotive end market, this was more than offset by a decline in our industrial end market, where order patterns can be lumpy in any given quarter. Looking ahead to the second quarter of fiscal twenty twenty six, we anticipate overall revenue from the auto and industrial end market to be flat on a sequential basis.

Matt Murphy
Matt Murphy
Chairman and CEO at Marvell Technology

In summary, in the first quarter of fiscal twenty twenty six, we continued to deliver operating margin expansion, earnings per share growth and new revenue records. These results reflect strong contributions from our AI driven data center end market and ongoing recovery in our enterprise networking and carrier infrastructure end. While there are ongoing macroeconomic uncertainties, we are guiding for continued growth in the second fiscal quarter. We continue to closely monitor the broader environment to assess potential long term impacts. As I mentioned during our March earnings call, AI now represents the majority of our data center revenue, and we expect the relative proportion of AI related revenue to grow further in the coming years, driven in large part by our custom silicon business.

Matt Murphy
Matt Murphy
Chairman and CEO at Marvell Technology

We've made tremendous progress since our AI era event last year, and in light of this momentum, we are hosting a dedicated forum on June 17 for investors to gain deeper insight into Marvell's unique position in the custom silicon market. This event will be broadcast live and provide an ideal setting to showcase our differentiated technology platform and provide an opportunity to hear directly from me and a broad cross section of Marvell's engineering leadership and members of my DIRECT staff. Presentations will be followed by a Q and A session providing investors and analysts an opportunity to ask questions. During the event, we will highlight our expertise in system and semiconductor design, our advanced process and package roadmap, and our comprehensive portfolio of semiconductor platform solutions and IP. Complementing this technical deep dive, the agenda will include a market focused section with updates on the expanding market opportunity for custom silicon, a robust design win pipeline and the growing role of custom silicon in AI infrastructure.

Matt Murphy
Matt Murphy
Chairman and CEO at Marvell Technology

We will also share our progress towards the market share goals we set at our AI era event last year, along with our vision for significant growth in the years ahead. We are excited to share more details about this incredible custom silicon opportunity on June 17. Looking more broadly, we continue to see strong tailwinds in AI, including robust capital expenditure plans from hyperscalers, an increasing number of sovereign data center announcements, and an emerging group of hyperscalers further expanding the market. These fast growing markets present us with a diverse set of opportunities, increasing our confidence in the long term potential of our data center business. In addition, we are seeing an encouraging recovery in carrier infrastructure and enterprise networking, their second quarter forecast representing the fifth straight quarter of sequential revenue growth for these combined end markets.

Matt Murphy
Matt Murphy
Chairman and CEO at Marvell Technology

With that, I'll turn the call over to Willem for more detail on our recent results and outlook.

Willem Meintjes
Willem Meintjes
Chief Financial Officer at Marvell Technology

Thanks, Matt, and good afternoon, everyone. Let me start with a summary of financial results for first quarter of fiscal twenty twenty six. Revenue in the first quarter was $1,895,000,000 exceeding the midpoint of our guidance, growing 63% year over year and 4% sequentially. Data center was our largest end market, contributing 76% of total revenue. GAAP gross margin was 50.3%.

Willem Meintjes
Willem Meintjes
Chief Financial Officer at Marvell Technology

Non GAAP gross margin was 59.8%. Moving on to operating expenses. GAAP operating expenses were CAD682 million including stock based compensation, amortization of acquired intangible assets, restructuring costs and acquisition related costs. Non GAAP operating expenses came in at $486,000,000 slightly below guidance. Our GAAP operating margin was 14.3% while non GAAP operating margin was 34.2%.

Willem Meintjes
Willem Meintjes
Chief Financial Officer at Marvell Technology

For the first quarter, GAAP earnings per diluted share was $0.20 Non GAAP earnings per diluted share was $0.62 reflecting year over year growth of 158%, 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 first quarter was CAD333 million. Our inventory at the end of the first quarter was CAD1.07 billion, an increase of CAD42 million from the prior quarter to support the growth in our business. We returned CAD52 million to shareholders through cash dividends.

Willem Meintjes
Willem Meintjes
Chief Financial Officer at Marvell Technology

In addition, reflecting our strong belief in Marvell's future prospects, we significantly increased repurchases in the first quarter, buying back $340,000,000 of our stock, stepping up from the $200,000,000 we repurchased in the prior quarter. Our total debt was $4,200,000,000 with a gross debt to EBITDA ratio of 1.8 times and a net debt to EBITDA ratio of 1.42 times. Our debt ratios have continued to improve as we have driven an increase in our EBITDA. As of the end of the first fiscal quarter, our cash and cash equivalents were $886,000,000 Turning to our guidance for the second quarter of fiscal twenty twenty six. We are forecasting revenue to be in the range of $2,000,000,000 plus or minus 5%.

Willem Meintjes
Willem Meintjes
Chief Financial Officer at Marvell Technology

We expect our GAAP gross margin to be between 5051%. We expect our non GAAP gross margin to be between 5960%. 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 second quarter, we project our GAAP operating expenses to be approximately CAD735 million. We anticipate our non GAAP operating expenses to be approximately CAD495 million.

Willem Meintjes
Willem Meintjes
Chief Financial Officer at Marvell Technology

For the second quarter, we expect other income and expense, including interest on our debt, to be approximately CAD49 million. We expect a non GAAP tax rate of 10% for the second quarter. We expect our basic weighted average shares outstanding to be $864,000,000 and our diluted weighted average shares outstanding to be $874,000,000 We anticipate GAAP earnings per diluted share in the range of $0.16 to $0.26 We expect non GAAP earnings per diluted share in the range of $0.62 to $0.72 In summary, we continue to drive strong revenue growth, expand our operating margins, generate strong cash flow and returning increasing amounts of capital to our stockholders. We are looking forward to completing the sale of our automotive Ethernet business to Infineon, which will provide us with even more flexibility to execute on our capital allocation strategy. With that, we are ready to start our Q and A session.

Willem Meintjes
Willem Meintjes
Chief Financial Officer at Marvell Technology

Operator, please open the line and announce Q and A instructions. Thank you.

Operator

Thank you, sir. We will now begin the question and answer session. Star then one on your touch tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. And to withdraw your question, please press star then two.

Operator

And in the interest of time, please restrict yourself to one question only. And if you have additional questions, please rejoin the queue. At this time, we will pause momentarily to assemble our roster. And our first question comes from Vivek Arya at Bank of America. Please go ahead.

Vivek Arya
Vivek Arya
Managing Director at Bank of America

Thank you. And thanks, Matt, for clarifying that you have that three nanometer program at your large XVU customer and have the follow on program at the other large customer, just given all the Asia supply chain noise. I guess I had two related questions. One is, what is the direction of content in these next generation programs? You know, is it up, down flat?

Vivek Arya
Vivek Arya
Managing Director at Bank of America

And number two, are you exclusive on these three nanometer XPUs? Or do you expect to share that program, given that your competition also seems to be convinced that they have the program? So just comments on content and exclusivity. Thank you.

Matt Murphy
Matt Murphy
Chairman and CEO at Marvell Technology

Hey, Vivek, thanks for the question. So first, yes, I'm glad you said it. I can certainly appreciate the challenge for investors given the news flow that is coming out on seemingly a weekly basis here. The fact is that these Asia supply chain sources have an incomplete view. We run a very tight ship here at Marvell.

Matt Murphy
Matt Murphy
Chairman and CEO at Marvell Technology

We don't share customer confidential information. We treat that with the highest priority. So they simply have no idea what we're doing for our customer. So let me state the facts as they exist today. We're the incumbent shipping the current generation of this AI XPU.

Matt Murphy
Matt Murphy
Chairman and CEO at Marvell Technology

And as I've detailed, we've had a very successful and rapid ramp on this program from A0, which is first time success, to high volume production. I've talked about this for a couple of quarters. We've been engaged with this customer on the follow on generation of this XPU. This next generation program has continued to move forward. And this quarter, we have secured three nanometer wafer and advanced packaging capacity, and that's for 2026, where we expect to start production, and that would be subject to the typical completion of our customers' qualification cycles, which we now have some experience with.

Matt Murphy
Matt Murphy
Chairman and CEO at Marvell Technology

And so assuming AI CapEx continues to grow, we expect our custom silicon revenue to continue to grow next year through program transitions at this customer. So look, our customers have relationships with many partners, and they do that to build out their whole silicon portfolio. The key point is that irrespective of any of these relationships, we expect our revenue to continue to grow on a multiyear, multigenerational basis with this customer. And given the volumes that have materialized for XPUs, it's certainly possible and likely that customers and our customer may be pursuing multiple paths to meet their requirements. So thank you for asking this important question, Vivek.

Matt Murphy
Matt Murphy
Chairman and CEO at Marvell Technology

I think my answer is as clear as it could be. Thanks.

Vivek Arya
Vivek Arya
Managing Director at Bank of America

Thank you.

Operator

Next question will be from Ross Seymore at Deutsche Bank. Please go ahead.

Ross Seymore
Ross Seymore
Managing Director at Deutsche Bank

Hi Matt, thanks for that color. Following on Vivek's question, one of your primary XPU competitors has talked about engagements at additional customers, not necessarily to front run anything you may or may not say on June 17, but how do you see Marvell's ability to support a broader customer base beyond the initial, I guess, threefour that you have depending upon if we're talking XPUs or connectivity?

Matt Murphy
Matt Murphy
Chairman and CEO at Marvell Technology

Yes. Thanks, Ross. Yes, we'll cover this certainly at the AI investor event we'll be holding. But just to give you some color, we absolutely have the capacity engineering wise to expand our portfolio and expand our engagements. If you look at Marvell's R and D spend over the last few years through cycle, we've made increases there.

Matt Murphy
Matt Murphy
Chairman and CEO at Marvell Technology

And then within that, as part of our capital allocation strategy, we've aggressively repurposed and reallocated our talent and our teams to this massive data center and AI opportunity. So if you look at just the raw R and D spending, the investments we're making in next generation technologies, and again, we're going to cover all this at the AI Day, we are extremely well positioned to support and are supporting multiple increased engagements across a number of programs that we'll detail and we'll talk about and we'll frame at the AI investor event. But I think we're very well positioned to support designs that can really grow the company to even a much larger scale and level. And I would say also, by the way, it's not just the top sort of four, I think there's been a really interesting emergence over the last year or so of the next wave of hyperscale kind of class customers that can benefit from our technology relative to going custom. So we're going to talk about all that in just a couple of weeks out here. Look forward to talking to you then.

Ross Seymore
Ross Seymore
Managing Director at Deutsche Bank

Thank you.

Operator

Next question will be from Thoros Van Berg at Stifel. Please go ahead.

Tore Svanberg
Tore Svanberg
Managing Director at Stifel Financial

Yes. Thank you and congrats on the results. Maybe in the spirit of clarifying things, there's a lot of debates out there about your service technology, especially for 200 gig SerDes. So maybe you could talk a little bit about Marvell's positioning there. Maybe related to that, how this relationship with NVIDIA is gonna work out.

Tore Svanberg
Tore Svanberg
Managing Director at Stifel Financial

I'm sure there's a lot you can't share with us, but I tried anyway.

Matt Murphy
Matt Murphy
Chairman and CEO at Marvell Technology

Yeah, sure. Yeah, on the first topic, and we'll actually be showcasing this at our AI event, our Surtees technology remains best in class, both from a performance standpoint as well as a time to market standpoint. If you recall, we've had now leadership announcements and production by the way on 200 gig, it's performing extremely well. And we just showed off at OFC the first and only 400 gig per lane demonstrations with very aggressive roadmap there. So that is in great shape, our technology across the board, both electrical and optical, SerDes. Tell me your second question?

Tore Svanberg
Tore Svanberg
Managing Director at Stifel Financial

Yeah, it was the NVLink Fusion and how that's going to work out.

Matt Murphy
Matt Murphy
Chairman and CEO at Marvell Technology

Yeah. So so that's we're excited about that partnership. I think we're it's it's I think it's a sign that it kinda demonstrates how well, you know, we're deeply engaged in the ecosystem, Tore, with with key partners. And the second, think it's some validation as well that from a market standpoint, there is a complementary role for custom even as acknowledged by NVIDIA, who can leverage sort of the R and D investment they've already put in, in their RackScale solutions, but with people that want to do their own XPUs. And so we're part of that discussion and we're going to help enable that if that's the direction our customers want to go.

Matt Murphy
Matt Murphy
Chairman and CEO at Marvell Technology

And we just view it as another key piece to the whole portfolio that we offer to customers kind of end to end. And detailed some of those in my prepared remarks as well around things like custom HBM, co package optics, advanced packaging and others. These are really just it's really part of a suite of technologies to give the broadest offerings to our customers with the best in class technology.

Tore Svanberg
Tore Svanberg
Managing Director at Stifel Financial

Thanks for all that color, Matt.

Operator

Next question will be from Timothy Arcuri at UBS. Please go ahead.

Timothy Arcuri
Timothy Arcuri
Managing Director at UBS Group

Thanks a lot. Matt, I was wondering if you can break down data center revenue a little bit. I think last quarter you said that AI was about 55% of data center. I wonder if it was in the same range. I assume maybe custom silicon grew a little faster because the gross margin was a little bit lower.

Timothy Arcuri
Timothy Arcuri
Managing Director at UBS Group

So I guess that's the first part of the question. And then, and then, obviously, you're running way above this 2 and a half billion dollar number this year for AI revenue. Can you give us just a sense of where it's tracking for the year? Are we talking like 3,500,000,000.0 to $4,000,000,000 Maybe you'll talk about this at day here in a few weeks, but I'm wondering if you can sort of add some color to this for us. Thanks.

Matt Murphy
Matt Murphy
Chairman and CEO at Marvell Technology

Yeah. Thanks, Tim. Yeah, we didn't give an exact number when we talked about it relative to our Q4 was the data point we gave, but we did say that at that time that within data center AI had crossed and was now the majority of our data center revenue. And I think the way to think about it is, because we're not going to break it out on a sort of quarter by quarter basis, but as I've prepared for the call and been looking at the trajectory of the business, and I say this with also you got to factor in that we anticipate the mass market and the core business to continue to recover. We see a path here in the not too distant future where AI is not only the majority of the data center end market, but it becomes the majority of Holco.

Matt Murphy
Matt Murphy
Chairman and CEO at Marvell Technology

And so where that line is exactly, we're not calling it, but that's the trajectory. So I think you the mental shift is like not sort of figuring out within data center what that exact number is, but you can do your own models. You guys are very, very capable there, drawing a line between here and when it can actually cross as a 50% contributor to the whole company. But that's coming.

Timothy Arcuri
Timothy Arcuri
Managing Director at UBS Group

I guess then, is that why so did the customer think business grow a little faster than that, that's why the gross margin was a little lower?

Matt Murphy
Matt Murphy
Chairman and CEO at Marvell Technology

Yes, on that side of things. Yes, there's mix within the quarter and clearly the custom business we have does run at a fundamentally lower gross margin. So that is going to modulate our gross margins on a quarterly basis, and you've seen the impact. But we've also had, I think, strong recovery in some of the other businesses as well. That's always been fundamentally the custom business, a lower than company average gross margin.

Willem Meintjes
Willem Meintjes
Chief Financial Officer at Marvell Technology

Maybe I can add quickly. When you look at our Q2 guide, suddenly custom continues to grow really strongly and that's what you're seeing reflected in that. When we look forward to second half, clearly we're optimistic on custom demand. And that interplay between that and the rest of the business is really going to drive what gross margin will be in the second half. Right now, probably expect it to be in a similar range as what we guided for Q2.

Timothy Arcuri
Timothy Arcuri
Managing Director at UBS Group

Okay, thank you, Will.

Matt Murphy
Matt Murphy
Chairman and CEO at Marvell Technology

Yeah, thanks, Tim.

Operator

Next question will be from Chris Cassell at Wolfe Research. Please go ahead.

Chris Caso
Managing Director at Wolfe Research LLC

Yes, thank you. Good evening. I guess the question is regarding the second half of the year. And I'm sure you're not ready to provide that guidance right now. But could you give us some puts and takes on what your expectations may be?

Chris Caso
Managing Director at Wolfe Research LLC

Do you expect the custom business to continue to grow in the second half of the year? What do you expect with regard to the carrier enterprise businesses? Is this kind of slow steady ramp in those businesses? Any kind of color in the second half, please?

Matt Murphy
Matt Murphy
Chairman and CEO at Marvell Technology

Yes. Thanks, Chris. Yes, maybe just at a higher level, I said this in some of my prepared remarks, but we're yes, we are monitoring the macro and the various dynamics going on out there. So that's always a factor. But at the moment, we see a couple of things happening.

Matt Murphy
Matt Murphy
Chairman and CEO at Marvell Technology

The first is, and just even recently as yesterday, see strong numbers out of NVIDIA and other announcements leading up to that. But we see the AI demand continuing and the data center demand continuing. And then on top of that, we have this nice recovery, strong recovery, actually, we've been driving in our core business, in particular, enterprise networking and carrier. So we expect that to continue to recover and grow throughout the rest of the year as well. So we're not calling on a quarter by quarter basis, but right now, we expect growth kind of across the board through the year with I think what can be a really nice setup for fiscal twenty twenty seven with some of the growth drivers we've articulated before.

Matt Murphy
Matt Murphy
Chairman and CEO at Marvell Technology

So that's where we're at right now, and feel good about it. Thanks.

Chris Caso
Managing Director at Wolfe Research LLC

Got it. Thank you.

Operator

Next question will be from Harsh Kumar at Piper Sandler. Please go ahead.

Harsh Kumar
Harsh Kumar
Managing Director & Senior Research Analyst at Piper Sandler Companies

Yes. Hey, Matt. Congratulations on solid results. When we talk to investors, Matt, we find that there's a desire on part of investors for the data center business to grow faster than, let's say, what you've been putting up mid single in the April and then also the guidance. I know that in the last quarter, Matt, you had some moving parts with on prem, etcetera.

Harsh Kumar
Harsh Kumar
Managing Director & Senior Research Analyst at Piper Sandler Companies

I was hoping that you could clarify the growth of your AI business versus some of the non AI pieces like on prem or some other things that might be moving around and just help us understand how fast maybe your AI business is growing.

Matt Murphy
Matt Murphy
Chairman and CEO at Marvell Technology

Yeah. Thanks, Harsh. Yeah. And I think the way to think about it is is is helpful is to contextualize. You know, it's it's not a one a one quarter snapshot.

Matt Murphy
Matt Murphy
Chairman and CEO at Marvell Technology

So if you look at the last few quarters, we had a very dramatic step up from Q3 to Q4, '20 percent plus in the data center business. It grew 4%, we're guiding it up mid single. I just kind of gave some indication that it'll keep growing. And so if you look at the year so that's one way to think about it is we did have a significant step up. And Q2, as signaled, is looking like it's going to grow slightly faster than Q1, so that's a good sign.

Matt Murphy
Matt Murphy
Chairman and CEO at Marvell Technology

But also, I'd point you to the fact that, look, a year ago, we were in a very strong position relative to our data center and how it was growing. So the comparables are also telling, right, when you're talking about data center year over year revenues for a company at our scale growing 70% plus on a year over year basis, we feel good about that. So I think with that setup, if you look at just the last two, three quarters and you look at year over year, we feel really good about the trajectory of the business. And AI continues to be the fastest portion of that in terms of our data center business. And as I said earlier, to answer Tim's question, at some point that will just flip over and become you know, half half of Holco.

Matt Murphy
Matt Murphy
Chairman and CEO at Marvell Technology

So that I think that's that's that's the context I can give you at the moment. Thanks.

Harsh Kumar
Harsh Kumar
Managing Director & Senior Research Analyst at Piper Sandler Companies

So so, Matt, hopefully, you can talk about the on prem piece if possible or other parts that are moving?

Matt Murphy
Matt Murphy
Chairman and CEO at Marvell Technology

Well, yeah, the on prem is is pretty small at this point. So it it it has some effect and it's it's it's it's it's it's always, you know, continue to be a little bit of a drag. But but, the overall data center revenue is driven primarily by AI and the other stuff is performing pretty much in line. I don't think it's a drag going forward. I think if you're worried about like where does it land in the next few quarters, it's not as big a contributor as it used to be and it's probably where it is, maybe it comes back a little bit, but it's the spending has shifted just so dramatically, right, in the data center.

Matt Murphy
Matt Murphy
Chairman and CEO at Marvell Technology

The enterprise on prem piece is just not getting the spend anymore. So I think it was down a little bit in Q1, but it's relatively stable.

Harsh Kumar
Harsh Kumar
Managing Director & Senior Research Analyst at Piper Sandler Companies

Thank you so much.

Operator

Next question will be from Tom O'Malley at Barclays. Please go ahead.

Thomas O'Malley
Thomas O'Malley
Director - Equity Research at Barclays

Hey, guys. Thanks for taking my questions. I have two quick ones. First one's for Vilan. You are guiding data center up mid single digits into the out quarter, and you're saying custom silicon is growing quite strongly.

Thomas O'Malley
Thomas O'Malley
Director - Equity Research at Barclays

Is there something going on with optical? Is that flattening out a bit? Is there anything going on? Could you give us an update on the health of optical and what you're embedded in your guide? And then the second is, Matt, in your announcement with Amazon, you talked about a bunch of other products other than custom silicon that you guys were engaging with over the next couple of PCIe cables, PCIe retimers, AAC.

Thomas O'Malley
Thomas O'Malley
Director - Equity Research at Barclays

Could you maybe try to size what that impact is right now? Some of your competitors in that space are putting up some bigger numbers. Would love to see how significant that is for you guys. Thank you.

Matt Murphy
Matt Murphy
Chairman and CEO at Marvell Technology

Yes. Thanks, Tom. Maybe I'll take the second part first. Yes, I think those engagements are going very well. You're right, in our broader agreement, was there was actually a lot of different exciting opportunities on the networking connectivity side.

Matt Murphy
Matt Murphy
Chairman and CEO at Marvell Technology

Those are progressing, no major updates there. And then with respect to how the optics business is doing, it's done quite well. And in fact, we see that business growing throughout the year, this year. So we see both growth from custom as well as optics, and then again on the Amazon agreement progressing well. I would say just at a high level too, we have in some of these new emerging categories, we do have AECs ramping this year, I wanted to note that, and as well as continued revenue growth in switching. So a lot of good things happening there, Tom.

Willem Meintjes
Willem Meintjes
Chief Financial Officer at Marvell Technology

Yes, Tom, and I'll just add quickly in terms of the puts and takes on gross margin. The other one to take into account there is the strong snapback on consumer. That's seasonal and expected. But that's another area that's typically slightly below average when you look at the overall.

Ashish Saran
Ashish Saran
Senior Vice President, Investor Relations at Marvell Technology

Can we have the next question, please?

Operator

From Harlan Sur at JPMorgan.

Harlan Sur
Executive Director - Equity Research at JP Morgan Chase & Co

Hey. Good afternoon. Nice job on the quarterly execution, guys. The lead AI GPU vendor, I think, is getting ready to commence shipments of the next generation platform. And in parallel, they're rolling out their next gen x 800 InfiniBand and Ethernet scale out solutions that support 1.6 t optical connectivity.

Harlan Sur
Executive Director - Equity Research at JP Morgan Chase & Co

And typically, like, the optics start to ship ahead of the GPUs and wrap scale platforms. So do you anticipate a strong ramp of your 1.6 t solution starting now? And more importantly, your five nanometer solution, I think, is already qualified with this customer. Are you guys going be mapping your three nanometer DST solution into this next generation, next networking platform?

Matt Murphy
Matt Murphy
Chairman and CEO at Marvell Technology

Yeah, thanks Arlen. And you're right about the sequencing. And so we have commenced shipments on 1.6 T at five nanometer. We have very strong demand for three and we've executed very well on that product development so far. And so I think that's from a 1.6T kind of lifespan perspective, I think that's where the volume is gonna be.

Matt Murphy
Matt Murphy
Chairman and CEO at Marvell Technology

And I think that's gonna be a much stronger ramp next year. And and some of that I say too because the 800 gig has continued to be so strong kind of across the board that just as a as a as a kind of a percentage of the total, it's still largely dominated this entire year by 800 gig. But yes, we're shipping now, the part works well, but there's just a lot of demand to initial ramps and customers will be on five nanometer, but there's a big push in the ecosystem to drive it to three nanometer given the compelling power savings and the performance of our product. So all that's going well. We're well positioned for the 1.6T ramp and ecosystem expansion.

Harlan Sur
Executive Director - Equity Research at JP Morgan Chase & Co

Thanks for the update, Matt.

Matt Murphy
Matt Murphy
Chairman and CEO at Marvell Technology

Yes. Thanks, Harlan.

Operator

Next question will be from Blayne Curtis at Jefferies. Please go ahead.

Blayne Curtis
Blayne Curtis
Managing Director at Jefferies Financial Group

Hey, good afternoon. Thanks for taking the question and thanks for clarifying all that ASIC stuff. I just kind of wanted to ask, going back to the gross margin. So I think there's been a lot of discussions about what an ASIC vendor can charge for and not charge, whether they can charge for memory. I think you guys kind of put a line in the sand at a certain gross margin for ASIC. I'm curious if that's still the right level.

Blayne Curtis
Blayne Curtis
Managing Director at Jefferies Financial Group

And when you look at these next generations, I'm glad you're involved with all those. How should we think about sustainable AI ASIC gross margins? Is it still in the original range you're looking at?

Matt Murphy
Matt Murphy
Chairman and CEO at Marvell Technology

Yes. Thanks, Blaine.

Matt Murphy
Matt Murphy
Chairman and CEO at Marvell Technology

Yes, when we look at our overall custom business as a whole, we've been able to manage the gross margins even with these ramps in the range we've talked about. But within custom, there is a range and it's like the old adage in semiconductors, the higher the volume, you're going to see lower gross margins, but you're going to see a lot more operating income. And so that's what we see. I wouldn't say that the percent change is really any different relative to how it stacks up on the opportunity set. Things that are a lot more Marvell contribution as an example, where we leverage a lot of the IP and maybe more outside the XPU, those tend to be a little higher.

Matt Murphy
Matt Murphy
Chairman and CEO at Marvell Technology

And of course, they don't grab the limelight, but we're to talk about those at the AI Day because they actually, in aggregate, add up to a very nice revenue pipeline for us and opportunity set with also that same multigenerational aspect to it. But from a percent standpoint, we're managing the business fine and the AI portion, the XPU is always going to be lower. It's just that as the XPU, depending on the magnitude of that, that may move that mix around. But I there's a certain range for these programs and projects, and we haven't really seen that change. The magnitude of the volume has changed, but I'd say that's across the board, by the way, not only of the XPUs that we have going in flight or in production increased a lot from when we won them, but now these other types of accelerators or custom networking or custom NICs or things of that nature, those have also, quite frankly, those are a lot more volume than we had anticipated and those carry a little bit higher margin.

Matt Murphy
Matt Murphy
Chairman and CEO at Marvell Technology

So I hope that context is helpful, but we're still managing the business in the same way.

Willem Meintjes
Willem Meintjes
Chief Financial Officer at Marvell Technology

Matt. But maybe one additional add is just on operating margin. So I think the one thing that's consistent across all these programs is that we're driving accretive operating margin to our model. And so clearly, there is a range. But as you scale those programs, it's a finite investment.

Willem Meintjes
Willem Meintjes
Chief Financial Officer at Marvell Technology

And you've seen that leverage in our model over the last couple of quarters here.

Matt Murphy
Matt Murphy
Chairman and CEO at Marvell Technology

Yeah, I think you're seeing it in operating margin dollars flowing in, Blaine, and also in EPS, right, which still continues to grow like twice the rate of revenue at this point. And we don't see that changing relative to the leverage we get on these big programs, very operating margin rich in terms of just the dollars.

Blayne Curtis
Blayne Curtis
Managing Director at Jefferies Financial Group

Thanks, guys.

Matt Murphy
Matt Murphy
Chairman and CEO at Marvell Technology

Yeah. Thanks.

Operator

Next question will be from Quinn Bolton at Needham and Company. Please go ahead.

Quinn Bolton
Senior Analyst at Needham & Company

Hey. Thanks for taking my question. Matt, I wanted to follow-up on the VECS question or maybe just a clarification on whether these ASIC programs could potentially be dual sourced. I think towards the end of your answer, said that there could be multiple paths, I'm not sure if you're sort of suggesting there might be different versions of an XPU or whether they could actually be dual sourced. To the extent that they're dual sourced, you spent a couple years designing these programs.

Quinn Bolton
Senior Analyst at Needham & Company

Do you guys have guarantees that you don't get blanked at the end of the year if they take the other path?

Matt Murphy
Matt Murphy
Chairman and CEO at Marvell Technology

Quinn, I appreciate the question. I was quite lengthy in my prepared remarks and even my, I think Vivek answer in terms of what I the perspective I can offer you on that. So I think I've said it and if I wasn't clear, I did say that given the volumes, it's certainly possible that there are multiple paths pursued. For us in our business, and what I said in the prepared remarks as well as we feel very confident and very good about our revenue continuity on the initial program and the revenue ramp on our additional program. We're planning production, we're tracking, we're doing that.

Matt Murphy
Matt Murphy
Chairman and CEO at Marvell Technology

So I see the noise coming in, but I'm also just need to kind of focus on what I'm hearing from my customer and what we need to go do to execute to to be a good Got it.

Quinn Bolton
Senior Analyst at Needham & Company

The second question is just a follow-up on the NVIDIA Fusion. Are you guys NVIDIA sort of open up their NVLink and you design your SerDes to be compatible with that and you offer that out as an IP block to your ASIC customers? Or is there an IP transfer from NVIDIA to yourselves involved in that NVLink Fusion offering?

Matt Murphy
Matt Murphy
Chairman and CEO at Marvell Technology

Yeah. Yeah. The the the the initial intent is it's planned as a as a chiplet solution. And so we we could, for example, work with the customer, do the do the the XPU design with them, and then through IO chiplets, take die to die interface between the XPU and the NVLink chiplet, and then that interfaces the scale up network. There's probably other models that can exist.

Matt Murphy
Matt Murphy
Chairman and CEO at Marvell Technology

I think the higher level notion that Jensen and the team are driving is really trying to open up and make sure that they that customers can take advantage of the investment they've made in their infrastructure, even if they have unique needs down at a more granular level like at the XPU. So we'll see how that all evolves, but we were very happy to be asked to participate and be a partner. And we've already received a whole bunch of interest from customers on what this engagement might look like. So we'll see where it goes, but I think that the high level concept is what is important.

Quinn Bolton
Senior Analyst at Needham & Company

Got it. Thank you.

Operator

Next question will be from Srini Pajjuri at Raymond James. Please go ahead.

Srini Pajjuri
Srini Pajjuri
Managing Director at Raymond James Financial

Thank you, Matt. My question is on the optical side. I know you said your expectation for this year is for the optical business to grow. Obviously, you have the 1.6T ahead of you and you also said 800 gig demand is quite strong. But a couple of questions we get from investors.

Srini Pajjuri
Srini Pajjuri
Managing Director at Raymond James Financial

One, can you speak to your market share as we go from 800 to 1.6T? Zero and also the potential impact from any technology transitions such as LPL? And then the second question is, can you speak to the extent you have visibility, what is the current inventory that you see at your customers? Because that question keeps coming up given how strong this cycle has been so far. Thank you.

Matt Murphy
Matt Murphy
Chairman and CEO at Marvell Technology

Yes, thanks. So yes, we see we've maintained very strong market share in the 800 gig wave. We let it a few others have come in, but we still have a very, very strong position, commanding position there. We were first to market at 1.6T, five nanometer, first to market at 1.63nm. We're driving 400 gig IO, which is going to enable 3.2T based on PAM.

Matt Murphy
Matt Murphy
Chairman and CEO at Marvell Technology

So I don't see any fundamental shift at all in the market share. And quite frankly, the faster we execute and the faster we ramp these ramp, the better because of the lead we have. So we feel good about that. Any impact any adoption, I should say, not impact of new technologies like LPO, I view this as very incremental, those would be for things like scale up. And we will participate in those.

Matt Murphy
Matt Murphy
Chairman and CEO at Marvell Technology

We have solutions based on our broadband analog technology and we'll participate in LPO when it happens. Our view still is that's going to be a smaller portion of the market, but we will be there and we're engaged right now. And then I think your last question was just about the broader inventory at our customers. So that looks pretty good. I mean, service this business direct.

Matt Murphy
Matt Murphy
Chairman and CEO at Marvell Technology

We through a number of channels, but key data points like distribution inventory and things like that, that's very low. We had strong sell through last quarter. We're looking at the whole year and it looks like a still looks like a good year. We got to wait and see. We're only doing one quarter at a time here, but high level this year and next year, especially with the 1.6 transition, we see continued strong growth in our optics business.

Srini Pajjuri
Srini Pajjuri
Managing Director at Raymond James Financial

Got it. Thank you.

Operator

We will take our last question from Josh Buchalter at TD Cowen. Please go ahead.

Joshua Buchalter
Director - Equity Research at TD Cowen

Hey, guys. Thank you for taking my question. I wanted to follow-up on a couple of previous ones. Can you maybe elaborate on on what you would expect to see from a potential customer who's exploring multiple tracks? Is that generally a performance skew and efficient skew?

Joshua Buchalter
Director - Equity Research at TD Cowen

Or or could you see instances where your HyperScale customers are engaged on completely different ASIC programs for completely different workloads? Thank you.

Matt Murphy
Matt Murphy
Chairman and CEO at Marvell Technology

Yes, thanks. Nice to meet you. Yes, I think for the I think I've covered kind of as much as I'm going to on the topics from today. But I do think there'll be some discussion probably at the AI Day around some of the different business models that are out there and different things customers are looking for. But at the moment, I think I've given kind of the max color we're going to do on this. So I but I appreciate the question. Thank you.

Operator

Thank you. This concludes our question and answer session. I will now turn the call over to Matt Murphy, Marvell's CEO, for closing remarks.

Matt Murphy
Matt Murphy
Chairman and CEO at Marvell Technology

Great. Thank you, operator. And look, I'd just like to thank everybody for your interest in Marvell and for joining the call. We're off to a great start with our first quarter in fiscal twenty twenty six. I'm very excited to be guiding a $2,000,000,000 quarter for the second quarter and seeing that all the effort that the Marvell team has put in is coming to fruition relative to ramping some of these key programs and executing to meet our customer needs.

Matt Murphy
Matt Murphy
Chairman and CEO at Marvell Technology

And I'm looking forward to connecting with everybody at the custom silicon event for investors in a couple of weeks and giving a deeper dive into this quite large opportunity in front of us. So thanks, everybody, and we'll talk soon. Bye.

Operator

Thank you, sir. Ladies and gentlemen, this does indeed conclude our conference call for today. Once again, thank you for attending. And at this time, we do ask that you please disconnect your lines.

Executives
    • Ashish Saran
      Ashish Saran
      Senior Vice President, Investor Relations
    • Matt Murphy
      Matt Murphy
      Chairman and CEO
    • Willem Meintjes
      Willem Meintjes
      Chief Financial Officer
Analysts
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