Q4 2024 Summary
Published Feb 14, 2025, 5:41 PM UTC- Marvell's data center revenue grew by 54% year-over-year and 38% sequentially in Q4 fiscal 2024, driven by strong growth in AI applications and cloud infrastructure. This positions the company well to capitalize on continued growth in the AI and data center markets.
- The company's custom silicon (ASIC) business is exceeding expectations, with initial shipments for two AI compute programs starting in the first quarter, and overall cloud optimized silicon revenue expected to exceed $200 million exiting the fourth quarter. This suggests significant future revenue growth beyond previous estimates.
- Marvell's strategic collaboration with TSMC to develop the industry's first 2-nanometer semiconductors optimized for accelerated infrastructure positions the company at the forefront of technology advancements necessary for AI and data center applications. This can drive future growth and strengthen its competitive position.
- Marvell is experiencing significant revenue declines in its carrier, enterprise, and consumer segments, with steep drops expected in Q4 and Q1, indicating vulnerability to cyclical downturns in these markets. CEO Matthew Murphy acknowledged that the drops are "pretty steep in Q4 and Q1," and the company is "managing through it in the short term."
- The company's expectation of a recovery in these segments in the second half of the fiscal year is uncertain. Any prolonged weakness could further negatively impact Marvell's revenues and profitability. CFO Willem Meintjes stated they are "really working with customers to focus on Q1 being the bottom," but there is no guarantee of recovery as "we see growth resuming in the second half."
- Increased competition in custom ASICs from companies like ARM and others, along with the concentration of opportunities among a few large cloud customers, may constrain Marvell's future growth and market share in this critical segment. As analyst Gary Mobley noted, "ARM essentially becoming more of a competitor," which could impact Marvell's "win or hit rate for your custom ASIC business." Matthew Murphy acknowledged that "any of the high-volume data center applications are always going to... concentrate down to a few key partners."
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Custom Silicon Growth
Q: What's driving the ramp and growth in custom silicon business?
A: Marvell is experiencing a significant ramp in its custom silicon business, shipping in Q1 on both programs, with an exit rate of over $200 million and expecting to be well ahead of the $800 million plan for fiscal '26 due to bullish customer forecasts. The company sees unprecedented design win activity in AI, custom silicon, networking, and optics, creating a TAM in the tens of billions of dollars. Marvell is leveraging its advanced 5nm and 3nm platforms and partnerships with TSMC to compete effectively in this space. -
AI Optics Demand
Q: How significant is the AI-related optics business and its growth prospects?
A: The AI optics business had a Q4 exit rate of well over $200 million, with the bulk in optics. The overall Inphi business has outperformed expectations and is strategic for Marvell, leveraging high-speed DSP and PAM technology. The optics business is expected to grow in line with accelerator unit growth, which is projected at 50% to 100% year-over-year, indicating strong growth prospects. -
Margin Outlook
Q: How will custom silicon growth impact gross margins?
A: Custom silicon products have lower gross margins than the company average due to their nature, but operating margins are competitive and align with company targets over time, thanks to customer-funded NRE. Despite lower gross margins from custom silicon, Marvell manages to its long-term target model, anticipating offsets from strong gross margin merchant businesses like storage and networking. -
AI ASIC Programs
Q: Have the AI ASIC programs started production, and are there follow-on projects?
A: Marvell has begun the initial production ramp on both AI ASIC products. The opportunity funnel is significant, and Marvell is involved in every major program, with a highly encouraging 3nm design win rate, giving confidence in future business growth. -
Competition with Arm
Q: How does Marvell view competition from Arm's ecosystem in custom silicon?
A: Marvell sees its role as providing a total solution by integrating its IP, design methodology, and manufacturing scale to deliver complete chips, which differs from simply supplying components like Arm. At advanced nodes like 3nm, it's even more critical to have a partner like Marvell that can manage the entire process, from design to high-volume manufacturing. -
Recovery of Other Segments
Q: When will other business segments recover from the downturn?
A: Marvell expects Q1 to be the bottom for carrier, enterprise, and consumer segments, with growth resuming in the second half of the year across these areas. The company is working closely with customers to manage inventory corrections and anticipates a return to normalized run rates. -
Optics Upgrade Cycle
Q: What is the outlook for the 800G and 1.6T optics upgrade cycles?
A: Marvell expects 1.6T optics to see early shipments in the second half of the year, with broader adoption later. The 800G optics for AI applications will remain strong this year and next, even as leading-edge customers adopt 1.6T. Additionally, traditional cloud infrastructure is expected to transition from 200G/400G to 800G, resulting in multiple optics products ramping in parallel. -
Custom Silicon Opportunities
Q: Will custom silicon opportunities expand or remain limited to a few programs?
A: Marvell observes multiple programs now across all key customers, with a need for differentiated solutions and more SKUs at a faster pace. This shift from a serial to a parallel approach creates a significant opportunity in custom silicon, with the 3nm cycle being substantially larger than the previous 5nm cycle. -
Electro-Optics Correlation
Q: Will AI electro-optics growth match accelerator growth rates?
A: Yes, Marvell expects its AI electro-optics business to grow in line with accelerator unit growth, which is projected at 50% to 100% year-over-year. The company views the businesses as highly correlated. -
AEC Ramp Magnitude
Q: What is the expected magnitude of AEC ramp at hyperscalers?
A: Marvell is qualifying AECs at multiple hyperscalers, starting production this year, with a more substantial ramp expected in fiscal '26. The company is excited about this incremental market, which leverages its high-performance DSP and PAM technology.