Q1 2025 Summary
Published Feb 14, 2025, 5:43 PM UTC- Marvell's custom AI compute programs are ramping aggressively, with strong visibility over the next couple of years on 5-nanometer programs and engagements on advanced nodes like 3nm and 2nm, indicating future growth in this area.
- The company's leading position in optical interconnect solutions, including 800G products supporting AI build-outs and being at the forefront of 1.6T optical products, is expected to drive significant growth, with a big product cycle starting later this year and more volume next year.
- Marvell is seeing positive trends and recovery in its storage business, which, along with expected growth in standard cloud infrastructure and on-premise data centers, will contribute to overall growth.
- Gross margin pressure is expected as lower-margin custom compute programs ramp up, while higher-margin traditional businesses like data center storage and enterprise networking are still recovering from significant inventory corrections, potentially impacting profitability in the near term.
- The recovery in enterprise networking and carrier businesses is expected to be slow despite significant declines, indicating prolonged weakness in these key markets and uncertainty about the timing of recovery.
- Growth in the optical business is anticipated to be flat to slightly up in the near term after prior outperformance, suggesting a potential plateau in this segment's growth.
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AI Revenue Growth and Supply Constraints
Q: How much did custom compute contribute in Q1, and what's the AI revenue outlook?
A: Custom compute began production shipments in Q1, significantly contributing to growth. In Q2, most data center growth comes from custom. We've set a floor of $1.5 billion for AI revenue this fiscal year, with both electro-optics and custom exceeding that number. We're confident in our supply chain to handle upside in the second half. -
Custom Silicon TAM and Share
Q: Will custom compute revenue reach $1 billion next year as TAM grows?
A: The custom silicon TAM is expected to exceed $40 billion by 2028. We're targeting near-term share of about 10%, aiming for 20% over time. Next year, we anticipate an incremental $1 billion in AI revenue, increasing from $1.5 billion to $2.5 billion, largely due to custom programs reaching full volume. -
Gross Margin Outlook
Q: Which segments need to recover to normalize gross margins?
A: Gross margins are impacted by product mix and revenue levels. Our merchant business margins are above corporate targets, but areas like data center storage, enterprise networking, and on-premises are undergoing significant inventory corrections. The ramp of lower-margin custom programs adds pressure, but recovery in these segments and automotive in the second half will improve margins. -
Custom Silicon Defensibility
Q: Are certain custom silicon areas more defensible or over-indexed?
A: Our custom silicon engagements are multi-year, multi-generational, involving state-of-the-art semiconductor products. These partnerships are sticky sockets, as we collaborate closely on advanced technology, ensuring long-term relationships and ongoing projects. -
Cyclical Recovery in Enterprise and Carrier
Q: Why is the recovery in enterprise networking and carrier gradual despite steep drops?
A: Given the magnitude of the previous drop, we're conservatively viewing the recovery slope. In carrier, we've seen improved bookings due to new content ramping, suggesting growth later this year. In enterprise, while end-market signals are strengthening, large inventories mean recovery hasn't yet materialized. -
Storage and Non-AI Data Center Trends
Q: What are the trends in storage and other non-AI data center segments?
A: Our storage business has been steadily improving each quarter since bottoming out a year ago. While not a sharp increase, it's a positive trend. Encouraging signals from hard drive customers indicate bullish end-market demand as inventories are reduced. -
Optical Business and 1.6T Adoption
Q: Is optical driving growth, and what's the outlook with 1.6T adoption?
A: Optical business is expected to be flat to slightly up in July after outperforming in previous quarters. In the second half, standard cloud infrastructure upgrades will contribute to growth. 1.6T products will ship later this year, with more substantial contributions next year. -
Strength in Custom Silicon Pipeline
Q: Are custom silicon prospects and design wins improving?
A: Existing design wins are performing better than expected, with customers raising estimates and requirements. Demand for AI in custom silicon and optics remains very strong, and we're actively working on new programs. -
PCIe Retimer Market Entry
Q: What are the company's ambitions in the PCIe retimer market?
A: We're entering the PCIe Gen6 retimer market, leveraging our PAM-based DSP expertise. This move aligns with our connectivity portfolio, and while the market is emerging, we see it as a significant opportunity to play to our strengths. -
Custom Silicon Node Transition
Q: How do technology node transitions affect custom silicon ramps?
A: Current ramps are on 5-nanometer designs, with cycles typically lasting 2+ years. Customers are eager to adopt the latest nodes quickly. We're already engaged on 3-nanometer and moving into 2-nanometer, ensuring continuous progression. -
Product Cycles in Other Markets
Q: Are there product drivers beyond cyclical recovery in storage, enterprise, wireless, consumer?
A: In carrier, new content ramping adds growth despite a weak environment. In networking, we're increasing share and content, with transitions to higher bandwidth and Multi-gig. Consoles continue as before, with modest growth expected as markets recover. -
1.6T Optical Volume Timing
Q: When will 1.6T optical products see volume adoption?
A: Volume shipments are expected in the back half of this year, with more meaningful contributions next year. The ramp is aligned with customer schedules, and all parties are moving rapidly to market. -
Growth in AI and Standard Cloud Infrastructure
Q: How are AI and standard cloud infrastructure trends shaping up?
A: We're seeing growth in both AI and standard cloud infrastructure, with investments continuing. The on-premises data center segment, though depressed, is expected to bottom in Q1 and contribute to growth through the year.