Marvell'er Technology (Minutes): The growth rate of data centers has collapsed

Marvell Technology (MRVL.O) released its Q4 fiscal year 2025 financial report (ending January 2025) after U.S. stock market hours on March 6, Beijing time:

Below are the minutes from Marvell's Q4 fiscal year 2025 earnings call. For financial report interpretation, please refer to Marvell Technology: Pouring Cold Water on AI Again, ASIC Sounds the Alarm.**

I. $Marvell Tech(MRVL.US) Core Financial Information Review

FY25 Financial Highlights: Q4 revenue for fiscal year 2025 was $1.817 billion, a year-over-year increase of 27% and a quarter-over-quarter increase of 20%; total revenue for the year was $5.767 billion, with a strong 37% growth in the second half compared to the first half; the data center was the largest end market in Q4, accounting for 75% of total revenue.

Gross Margin: GAAP gross margin for Q4 was 50.5%; non-GAAP gross margin for Q4 was 60.1%.

Operating Expenses: GAAP operating expenses for Q4 were $250 million; GAAP operating costs for Q4 were $682 million, including stock compensation, amortization of acquired intangible assets, restructuring costs, and acquisition-related costs, while non-GAAP operating expenses were $479 million;

Operating Profit Margin: GAAP operating profit margin was 12.9%, and non-GAAP operating profit margin was 33.7%;

Diluted Earnings Per Share: Diluted earnings per share calculated under GAAP were $0.23, while diluted earnings per share under non-GAAP were $0.60, a quarter-over-quarter increase of 40%;

Cash Flow and Balance Sheet: Q4 operating cash flow was $514 million; inventory at the end of Q4 was $1.03 billion, an increase of $170 million from the previous quarter; DSO was 51 days, a decrease of 9 days from the previous quarter; returned $52 million to shareholders through cash dividends; repurchased $200 million in stock. Total debt was $4.06 billion, with a total debt to EBITDA ratio of 2.06 times, and a net debt to EBITDA ratio of 1.58 times; as of the end of Q4, cash and cash equivalents were $948 million, an increase of $80 million from the previous quarter

FY26 Q1 Guidance: Revenue is expected to be $1.875 billion, with a variance of plus or minus 5%; GAAP gross margin is expected to be approximately 50.5%, and non-GAAP gross margin is expected to be approximately 60%; GAAP operating expenses are expected to be approximately $712 million, and non-GAAP operating expenses are expected to be approximately $490 million. Other income and expenses, including debt interest, are expected to be approximately $43 million. The non-GAAP tax rate is expected to be 10%. The basic weighted average shares outstanding are expected to be 867 million, and the diluted weighted average shares outstanding are expected to be 818 million.

The GAAP diluted earnings per share are expected to be between $0.14 and $0.24, while the non-GAAP diluted earnings per share are expected to be between $0.56 and $0.66.

II. Detailed Content of Marvell Technology Earnings Call

2.1 Key Information from Executives

Overall Performance and Outlook: Marvell achieved record revenue in the fourth quarter and for the full fiscal year 2025. Driven by demand for artificial intelligence in the data center end market, Marvell achieved record revenue in the fourth quarter and for the full fiscal year 2025. The company reported GAAP profit in the fourth quarter and expects to remain profitable in fiscal year 2026. Marvell forecasts that revenue in the first quarter of fiscal year 2026 will grow by more than 60% year-over-year, reaching the midpoint of the guidance target.

End Market Performance:

Data Center End Market:

In the fourth quarter, data center revenue reached a record $1.37 billion, a year-over-year increase of 78% and a quarter-over-quarter increase of 24%, primarily due to strong shipments of custom AI chip projects, electronic optical products, and Teralynx Ethernet switches. Marvell has made significant progress in AI interconnect technology, such as launching the industry's first 3nm 1.6T DSP and developing a collaborative packaging optical architecture for custom XPU. In the first quarter of fiscal year 2026, revenue from the cloud computing and AI segment of this end market is expected to grow double digits quarter-over-quarter, while the on-premises segment (non-AI part) may experience seasonal quarter-over-quarter declines, leading to a moderate single-digit growth (approximately +5% quarter-over-quarter) in data center revenue.

Enterprise Networking and Carrier Infrastructure End Market:

In the fourth quarter, enterprise networking revenue was $171 million, and carrier infrastructure revenue was $106 million, with both end markets continuing to recover, showing a quarter-over-quarter revenue growth of 18%. In the first quarter of fiscal year 2026, total revenue from these two end markets is expected to grow approximately 10% quarter-over-quarter. 3) Consumer End Market:

Revenue in the fourth quarter was $89 million, a decrease of 8% quarter-on-quarter. In the first quarter of fiscal year 2026, seasonal factors and game demand are expected to lead to a quarter-on-quarter revenue decline of approximately 35% in this end market.

Automotive and Industrial End Market:

Revenue in the fourth quarter was $86 million, an increase of 3% quarter-on-quarter. In the first quarter of fiscal year 2026, although the automotive end market is expected to continue to grow quarter-on-quarter, the decline in industrial end market revenue is expected to offset this growth, with a high single-digit decline quarter-on-quarter (approximately -8% quarter-on-quarter).

Product and Technology Development: Marvell has successfully increased the production capacity of highly integrated products. Marvell has successfully scaled complex XPUs and CPUs from initial samples to mass production. The company announced the demonstration of the industry's first 2-nanometer silicon IP for next-generation artificial intelligence and cloud infrastructure.

Organizational Structure: Marvell has adjusted its organizational structure, with all products aimed at hyperscale customers now managed by a single cloud data center department, while other end markets have been consolidated into a single multi-market business department.

Market Position and Opportunities: Marvell has solidified its position as a leading supplier of data infrastructure semiconductors, with a unique business model covering everything from fully customized to fully commercial solutions. The company has observed strong investments in accelerated infrastructure from established hyperscale enterprises and new market entrants, and holds an optimistic outlook on both short-term and long-term growth prospects.

2.2 Q&A

Q: Although the company is confident in the growth of its major XPU customer business, there are concerns about competitors vying for market share. How does the company view this?

A: The company is very satisfied with the gradual progress of its major XPU projects. We successfully delivered products with a one-time tape-out. We see that the current generation of products is being mass-produced, and we have already seen data growth since the fourth quarter.

At the same time, the company is also deeply collaborating with this customer on the next-generation AI XPU, planning to enter mass production after completing the sample and certification cycle. The company expects that revenue from customized XPU business with this customer will not only grow in fiscal year 2026 but will continue to grow in fiscal year 2027 and beyond. The company cannot comment on whether the customer will collaborate with other companies on the next-generation XPU, but has clear plans and expectations for the products developed for this customer.

Q: Can you quantify the proportion of AI and non-AI business in the data center business for the fourth quarter and first quarter? Why did the data center and AI business see strong year-on-year growth in the fourth and first quarters, but the extent of the growth was relatively mild compared to the high spending from the largest customer? Is it a supply issue or is it still in the early stages of business?

A: In terms of business growth, the data center business has seen strong growth over the past few quarters, with quarter-on-quarter revenue growth of 25% from the second to the third quarter and from the third to the fourth quarter. From the fourth quarter to the first quarter, AI and cloud business revenue (AI revenue within the data center business) achieved double-digit growth. Year-on-year, data center revenue grew by approximately 77% in the fourth quarter, with a similar situation in the first quarter Currently, AI business revenue has exceeded half of the data center business, and its proportion will continue to increase in the future. Overall, Marvell's data center business revenue accounts for more than 75% of total revenue. Within the data center business, about half is optical business, custom business has grown to about 25%, and the remaining portion consists of other businesses. The company is very satisfied with the growth trajectory of the business.

Q: Previously mentioned that AI accounts for more than half of the data center business, and half of the data center business is optical business, does this mean that AI business is roughly half optical business and half custom ASIC business? The company has guided that AI business will reach $2.5 billion this year, stating that it will "significantly" exceed this target in fiscal year 2026. What does "significantly" specifically refer to, is it to the extent of increasing by $1 billion?

A: Yes, the statement is accurate.

Regarding guidance exceeding expectations, the company currently does not have a clear numerical expectation. Last year, the company mentioned a target of $1.5 billion, and this year it is expected to exceed that significantly. The business development momentum is good, with many opportunities. Currently, referring to last year's AI Day updates, specific information will be provided at the appropriate time. From the data, data center revenue has accounted for 75% of Marvell's total revenue, which can serve as an important reference for business development.

Q: How sticky are Marvell's custom clients, what factors might lead clients to seek other design partners, and what is the possibility and current status of combining network products with custom clients? What is the specific double-digit growth rate for data center and cloud computing businesses, is it in the teens or higher?

A: Marvell has custom business collaborations with all four major hyperscale data center operators, two of which are in the computing field, and one also has related collaborations. These custom chips are very complex, and clients value several key attributes when choosing partners. First, technological leadership, technology investment, and intellectual property, for example, Marvell recently announced a 2-nanometer work platform with highly competitive products in custom HBM, chip-to-chip, and advanced packaging; second, there must be manufacturing scale, capable of using the correct design methods to achieve successful first silicon and put these highly complex chips containing over 100 billion transistors into production; third, maintaining good relationships with suppliers, as Marvell has invested heavily in the supply chain; finally, the business model must be flexible, providing a range of solutions from traditional ASIC services to fully customized manufacturing. Currently, only Marvell and another large competitor have the capability to serve this market, and client stickiness is very high, but each generation of products requires participation in bidding. From the perspective of design opportunities, the business pipeline continues to expand, with significant design wins even in the fourth quarter. In terms of combining network products with custom clients, network products and custom designs complement each other, and their value has surpassed that of purely computing chips. Marvell can architect computing and networking together, gaining insights into client architecture information when participating in accelerator or CPU projects, thus developing solutions around their needs, which is more attractive to clients than competitors with only a single business Double-digit growth means above 10% but below 20%. Currently, it is just a guideline; the final result will depend on quarterly performance.

Q: Is the other opportunity mentioned in collaboration with the four major hyperscale data center operators the opportunity for customized network cards, and how do you view the logical opportunities of HBM 4 and the timing of its impact on Marvell?

A: The collaboration with the fourth customer is the opportunity for customized network cards, and this opportunity is broader than a single product category. For customized HBM, it remains a key intellectual property for Marvell, aligning with the customers' roadmaps. Marvell is currently working closely with key partners to serve hyperscale customers. Customized HBM can significantly reduce the area of logic chips, allowing customers to integrate more computing functions into the chips, improving the throughput between HBM and computing, and providing higher density memory solutions. This will be an important industry trend for the next generation of high-end accelerator products.

Q: From the optical perspective, especially regarding Co-Packaged Optics (CPO), do you think it will first be applied within the rack or in the aggregation layer? What does this mean for your company's DSP business, and does your company have an advantage in products? How is the inventory health of the recent 800G and 1.6T nodes, and what is the growth trajectory and pricing situation of the 800G market this year?

A: Historically, from the perspective of CPO, the aggregation layer or extension layer adopting CPO has been an ideal goal for the industry for the past decade or even nearly two decades, with many related proofs of concept (POC) and different efforts within the industry. However, from the situation at last year's OFC conference, both companies and large cloud customers believe this is a long-term opportunity. Similarly, the claim in 2023 that linear optics (LPO) could replace DSP-based pluggable modules has not materialized. The current opportunities are in the expansion and connection between accelerators within the rack and within clusters, with many opportunities shifting from passive connections to active and accelerated optical connections. Co-packaged optics is an interesting and attractive way to achieve this transition. The company showcased a 6.4T product a year ago, has made investments in this area, and has made some progress, positioning it as part of the ASIC platform solution. LPO may also find application scenarios at some connection points within the rack. However, there are many technologies that need to be developed in this field, with issues such as manufacturing yield, and achieving large-scale production across the industry will take time. The company believes this is a key part of long-term technological investment, requiring not only first-class DSPs and pluggable modules, AEC, and other connection solutions but also investment in next-generation technologies to achieve significant breakthroughs in power and performance while balancing the complexities of reality.

The company feels very positive about the optical business. Orders surged significantly in the second half of last year, and demand remains strong this year, especially for 800G, which is very healthy. While transitioning to 1.6T, 800G remains the main product. The company is ready to support 5nm 1.6T devices, while 3nm products have received good market feedback for saving 20% of power consumption per link, with overall demand continuing to be strong Q: Is the new follow-up XPU plan for training XPU? Will it be mass-produced in 2026? Will it use a 5nm or 3nm process? Inventory increased by 20% month-on-month, but the total revenue guidance for April only indicates a 3% month-on-month increase. How do you explain this discrepancy?

A: Due to confidentiality reasons, the new follow-up XPU plan is a high-capacity project that continues the existing business. Next-generation devices typically involve technological advancements and process changes. Regarding mass production timing, the company will be prepared and manage the transition at the appropriate time, with specific timing depending on actual circumstances. Regarding inventory issues, the inventory increase is mainly to support the continued growth of customized projects this year and the strong growth of the optical business. If calculated by days, inventory is actually flat month-on-month.

Q: What is the basis for the company's judgment on digestion period risks? Will different risk assessments be conducted for the communication chip and processor businesses?

A: The company conducts comprehensive analysis when forecasting the data center business, considering top-down data such as capital expenditure trends. However, since the company's products are closely tied to customer projects, many products are the sole source for customers, and the company carefully plans the supply chain together with customers. Looking at the company's business development over the past few years with the emergence of ChatGPT, the company has grown together with customers and often exceeds expectations. From a multi-year perspective for the remainder of this year, the outlook is very optimistic. The company has new customized projects underway, additional market space, and customers are undergoing technological transformations, with many positive driving factors. Currently, the company is monitoring the supply chain and needs to continue reviewing it, but overall, for fiscal years 2026 and 2027, the company is expected to achieve strong growth, thanks to the advancement of customized projects and the recovery of businesses such as connectivity, high-level networks, and storage. (The company did not explicitly mention conducting different risk assessments for the communication chip and processor businesses.)

Q: Can AI business revenue achieve month-on-month growth within the year? How confident is the company in this, and can the customized business help the company achieve its long-term goal of $15 billion in the data center by 2028?

A: After experiencing a 25% month-on-month growth in the data center business, the company's data center business (excluding on-premises deployment) is expected to achieve double-digit growth in the first quarter. Although no comments were made on the full-year situation, given the strong performance and development momentum of the business, it is reasonable to assume that the business will continue to grow from a year-on-year perspective. In the long term, the company is making very good progress toward its goal of achieving a 20% market share. The company's market share is increasing from 2023 to 2024 and will continue to increase from 2024 to 2025. To achieve the $15 billion revenue target, the market share needs to be increased from about 10% to 20%, and the market size needs to grow to $75 billion. Currently, both aspects are showing positive trends. In fact, the market and company growth situation for 2024 and 2025 is currently exceeding the compound growth rate required from 2023 to 2028. Moreover, since the company provided relevant insights last April, market conditions have changed, absolute capital expenditures are increasing, and various new projects are emerging. The company believes that the market size and its own opportunities are much larger than a year ago, and the overall situation is very optimistic Q: With the changes in GPU or XPU architecture, where are the company's biggest opportunities, and when can we see the results of these opportunities?

A: The incremental total addressable market (TAM), the opportunities brought by vertical expansion, we have pointed out multiple times that this is a suitable opportunity for potential market expansion. And it seems that at some point, all of this will be realized. So this is entirely the incremental part. It’s not to say that if this happens, the company's digital signal processor (DSP) revenue will suddenly decline or anything like that; the vertical expansion and such connectivity technologies bring opportunities for revenue growth and market growth.

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