Marvell Technology, Inc. Common Stock 2027 Q2 Earnings Call

Thank you, and good afternoon, everyone. Welcome to Marvell's second fiscal quarter 2027 earnings call. Joining me today are Matt Murphy, Marvell's Chairman and CEO, Dan Durn, CFO, Chris Koopmans, President and COO, and Sandeep Bharathi, President of our 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 8-K, 10-K, 10-Q, and other documents that we file from time to time with the SEC. 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? Thanks, Ross, and good afternoon, everyone.

Before I discuss our results and outlook, I want to briefly highlight two management transitions that occurred during our last quarter. First, Willem Meintjes stepped down as Marvell's CFO in mid-June. I deeply appreciate Willem's steady hand, leadership, and tireless commitment to transforming Marvell over his decade with the company, and I greatly respect his desire to spend more time with his family. To ensure a seamless transition, we simultaneously welcome Dan Durn as our new CFO. Dan brings more than three decades of experience in senior finance roles across semiconductor and enterprise technology companies. Having most recently served on Marvell's board of directors, Dan comes into the role with a deep understanding of our business and strategy, as well as a unique appreciation for the significant growth opportunities at Marvell ahead.

Second, in July, we began a transition in our investor relations leadership. After eight years with Marvell, Ashish Saran will retire from the company in April 2027. I want to personally thank Ashish for his leadership, partnership, and countless contributions to Marvell. I also appreciate the thoughtfulness and care he has brought to planning this transition, including helping us identify the right successor. On that front, I am very pleased to welcome Ross Seymour, who comes to us from Deutsche Bank, where he covered the semiconductor industry for more than 25 years. Warm welcome to you, Dan and Ross. Now let me move on to our results and outlook. For the second quarter of fiscal 2027, Marvell delivered record revenue of $2.739 billion, reflecting 13% sequential and 37% year-over-year growth. Revenue and non-GAAP earnings per share of $0.94 both exceeded the midpoint of guidance.

On our last earnings call, we increased our sequential revenue growth expectation for the third and fourth quarters of this fiscal year to double-digit percentage growth, up from our prior outlook of high single-digit growth. Since then, our outlook has continued to strengthen, and we now expect revenue growth to further accelerate in the second half. The strength is reflected in our guidance for the third quarter of fiscal 2027, where we expect total company revenue of $3.15 billion at the midpoint, representing growth of 15% sequentially and more than 50% year over year. We expect growth to further accelerate in the fourth quarter, both sequentially and year over year. As a result, we now expect overall Marvell revenue in fiscal 2027 to grow approximately 45% year over year to roughly $12 billion, up from our prior outlook of approximately $11.5 billion just one quarter ago.

The increase in our revenue outlook continues to be driven by our data center business, which we now expect to grow by approximately 60% this fiscal year, up from our prior expectation of approximately 50%. Importantly, this growth remains broad-based. Interconnect continues to lead the way, while our custom business is expected to ramp significantly in the second half. For our communications and other end markets, the trajectory remains largely as expected. Despite typical quarter-to-quarter lumpiness in these businesses, we currently expect fiscal 2027 growth to approach our 10% target. Looking ahead to fiscal 2028, aggregate demand continues to accelerate, and our operations team is doing an outstanding job securing additional supply despite pervasive industry-wide constraints. As a result, we now expect Marvell's data center revenue to grow more than 60% year over year in fiscal 2028, driven by strong growth across all of our key data center businesses.

This includes custom more than doubling, as we indicated last quarter. We look forward to providing a deeper dive into the specific drivers of our longer-term growth at our Investor Day in New York City on October 6, but the key takeaway for today is clear. The strength of our data center business continues to exceed our prior expectations. Putting it all together, we now expect fiscal 2028 revenue of approximately $18 billion, up $1.5 billion from the $16.5 billion outlook we provided just one quarter ago. Importantly, even as our revenue base becomes significantly larger, our growth rate is accelerating. We now expect fiscal 2028 revenue to grow approximately 50% year over year, compared with approximately 45% in our prior outlook. With that, let me provide color on our current business, beginning with data center.

In our data center end market, we delivered record second quarter revenue of $2.17 billion, representing 18% sequential growth and 46% year-over-year growth. Both sequential and year-over-year growth accelerated from the first fiscal quarter, when data center revenue increased 11% sequentially and 27% year-over-year. Looking ahead to the third fiscal quarter, we expect this acceleration to continue, with data center revenue forecasted to grow more than 20% sequentially and roughly 75% year-over-year. The drivers of this growth remain very broad-based as AI demand for our products continues to rise. We are seeing strong tailwinds across each of our data center businesses, including interconnect, switching and custom. Connectivity continues to be a critical enabler of AI performance, driven by robust demand for both our interconnect and switching products. Thus far, the largest driver of growth for these businesses has been for scale-out applications.

Here, Marvell's market-leading franchises in optical DSPs, switching, and broadband analog components continue to see significant demand. On the optical DSP side, 800G demand remains strong, while our 1.6T business is ramping rapidly, a trend we expect to accelerate further in FY 2028. Within scale-out switching, our business remains on track to more than double this year, driven by a strong ramp in our 51.2T products across a broadening array of customers. Within broadband analog, demand for our industry-leading TIAs and drivers continues to exceed expectations. Moving beyond scale-out, we expect this connectivity strength to broaden as hyperscalers build significantly larger AI clusters that increasingly span multiple data centers. As we have discussed on prior calls, aggregate bandwidth requirements for these scale-across networks are projected to be more than 10 times greater than those of current front-end DCI networks.

Marvell is ideally positioned to address this opportunity through our leadership in coherent DSP-enabled 1.6T ZR and ZR+ DCI modules. Finally, we continue to expect the adoption of scale-up networking and AI infrastructure to create a massive new TAM for Marvell. Scale-up domains are expected to become significantly larger, requiring high bandwidth interconnects closely coupled with high radix, low latency switches. While customers are initially deploying copper interconnect for scale-up networking, as cluster sizes grow, the reach and bandwidth limitations of copper are increasingly driving customers towards optical interconnects, as well as purpose-built UALink, ESUN and NVLink scale-up switches. As a result, we are investing aggressively to lead the industry in next generation scale-up optical interconnect and switching technologies. On the interconnect side, pluggable modules remain the primary form factor for scale-out networks, and we do not expect that to change.

However, the significantly higher bandwidth density required by scale-up networks is best served by bringing optics much closer to XPUs and switches. While the transition in scale-up networks from copper to optics is expected to take several years, with both technologies coexisting, customers are aggressively planning scale-up optics deployments starting as early as next year. Given how early we are in this transition, customers are evaluating a broad range of potential solutions with multiple technologies under consideration, including NPO and CPO packaging options, with both leveraging advanced silicon photonics as well as three different modulator technologies: MZM, EAM and MRM. Each of these choices has different considerations around cost, power and technology maturity.

Importantly, given the breadth of our optical portfolio across modulation technologies, fully supported by our broadband analog TIAs and drivers, Marvell is uniquely positioned to help customers move towards the optical scale-up architecture that best meets their needs. The full spectrum of Marvell-developed solutions is reflected in accelerating design activity with a broad set of customers. In addition to our ongoing success in CPO, we are also seeing a strong adoption of our NPO solutions at multiple customers. As a result, our fiscal 2028 revenue outlook for scale-up optics has increased meaningfully compared to prior expectations, positioning Marvell to be one of the largest enabler of NPO in AI infrastructure. Moving to scale-up switching, we are seeing similar momentum. Marvell is uniquely positioned to support all three purpose-built scale-up protocols through our internally developed UAL and ESUN switches, as well as our expanded partnership with Nvidia around NVLink Fusion.