Marvell Technology, Inc. (MRVL) Q2 2026 Earnings Call Transcript

Access earnings results, analyst expectations, report, slides, earnings call, and transcript.

Overview

The earnings call revealed strong financial performance with 57% YoY revenue growth and solid guidance. The new partnership with NVIDIA and scaling of custom AI silicon programs are positive catalysts. The Q&A highlighted robust demand and strategic positioning in the data center market, with manageable supply chain issues. While some areas lacked detail, the overall sentiment is positive, supported by strategic initiatives and capital flexibility from the automotive business sale.

Key Financial Performance

Revenue $2.006 billion, reflecting a 6% sequential increase and strong 58% year-over-year growth. Growth driven by strong AI demand in the data center end market and recovery in enterprise networking and carrier infrastructure end markets.

Data Center Revenue $1.49 billion, growing 3% sequentially and 69% year-over-year. Growth led by custom XPU and XPU attached products, as well as electro-optics interconnect portfolio. AI and cloud accounted for over 90% of data center revenue.

Non-GAAP Operating Margin 34.8%, expanded by 870 basis points year-over-year. Expansion attributed to strong revenue growth and operational leverage.

Non-GAAP Earnings Per Share $0.67, up 123% year-over-year. Growth driven by significant operating leverage and revenue growth.

Operating Cash Flow $462 million, up from $333 million in the first quarter. Increase attributed to robust cash flow generation.

Enterprise Networking and Carrier Infrastructure Revenue $324 million combined, growing 2% sequentially and 43% year-over-year. Growth driven by normalizing customer inventory levels and adoption of refreshed product portfolio.

Consumer Revenue $116 million, up 84% sequentially and 30% year-over-year. Growth driven by gaming demand and seasonality.

Automotive and Industrial Revenue $76 million, flat both sequentially and year-over-year. Reflects stable performance in these markets.

GAAP Gross Margin 50.4%, reflecting the overall revenue and product mix.

Non-GAAP Gross Margin 59.4%, reflecting operational efficiencies and product mix.

GAAP Operating Expenses $721 million, including stock-based compensation, amortization of acquired intangible assets, restructuring costs, and acquisition-related costs.

Non-GAAP Operating Expenses $493 million, slightly below guidance, reflecting cost management.

GAAP Operating Margin 14.5%, reflecting overall revenue and expense dynamics.

Debt Ratios Gross debt-to-EBITDA ratio of 1.63x and net debt-to-EBITDA ratio of 1.19x, reflecting improved financial leverage.

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Operating Highlights

Custom Silicon Product Category: Unveiled a new fast-growing custom silicon product category of XPU attach, with 18 multigenerational XPU and XPU attached sockets and over 50 new pipeline opportunities with an estimated $75 billion of lifetime revenue potential.

Electro-Optics Interconnect Portfolio: Began volume shipments of next-generation 200-gig per lane 1.6T PAM DSPs and demonstrated 400-gig per lane PAM technology for future 3.2T optical interconnects.

Data Center Market Expansion: Expanded data center TAM to $94 billion for calendar 2028, a 26% increase from prior view, and plan to grow market share from 13% of a $33 billion TAM in 2024 to 20% of a $94 billion TAM in 2028.

AI and Cloud Market: AI and cloud accounted for over 90% of data center revenue, with strong growth in custom XPU and XPU attached products.

Revenue Growth: Achieved record revenue of $2.006 billion, a 6% sequential increase and 58% year-over-year growth, with data center contributing 74% of total revenue.

Operating Margin: Expanded non-GAAP operating margin by 870 basis points year-over-year to 34.8%.

Cash Flow: Generated $462 million in operating cash flow, up from $333 million in the first quarter.

Automotive Ethernet Business Divestiture: Completed divestiture in a $2.5 billion all-cash transaction to focus on AI opportunities and data center investments.

Leadership Changes: Promoted Chris Koopmans to President & COO and Sandeep Bharathi to President, Data Center Group, consolidating leadership to capitalize on AI and cloud opportunities.

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Risk or Challenges

Automotive Ethernet Business Divestiture: The divestiture of the automotive Ethernet business reduces revenue diversification, increasing reliance on the data center market. This could expose the company to risks if the data center market faces downturns or competitive pressures.

Data Center Revenue Concentration: With 74% of total revenue coming from the data center market, the company is highly dependent on this segment. Any slowdown in AI or cloud demand could significantly impact financial performance.

Custom Silicon Business Growth: The custom silicon business is growing but faces challenges such as nonlinear growth patterns and the complexity of next-generation XPU and XPU attach products, which could delay revenue realization.

Supply Chain and Inventory Management: Inventory levels remain high at $1.05 billion, which could lead to financial strain if demand forecasts are not met or if there are supply chain disruptions.

Debt Levels and Financial Leverage: The company has $4.5 billion in total debt, which, while manageable, could become a burden if revenue growth slows or if interest rates rise.

Market Competition: The company faces intense competition in the AI and cloud markets, which could pressure margins and require significant R&D investments to maintain a competitive edge.

Economic and Regulatory Risks: Economic uncertainties and potential regulatory changes could impact operations, particularly in international markets where the company operates.

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Guidance & Outlook

Revenue Expectations: Marvell forecasts total company revenue of $2.06 billion for Q3 FY2026, representing 36% year-over-year growth. Excluding the divested automotive Ethernet business, the implied revenue growth for the go-forward business is closer to 40% year-over-year.

Data Center Market: Data center revenue is expected to remain flat sequentially in Q3 FY2026 but grow mid-30% year-over-year. Growth in electro-optics products is anticipated to be offset by lower custom revenue. The company plans to grow its data center market share from 13% of a $33 billion TAM in 2024 to 20% of a $94 billion TAM in 2028.

Electro-Optics Products: Revenue from electro-optics products is expected to grow double digits sequentially in Q3 FY2026, driven by strong demand for AI interconnect solutions.

Custom Silicon Business: The custom silicon business is expected to grow in the second half of FY2026 compared to the first half, with a stronger Q4 than Q3. The company has expanded its design win pipeline to over 50 new opportunities, representing an estimated $75 billion in lifetime revenue potential.

Enterprise Networking and Carrier Infrastructure: Combined revenue from these markets is expected to grow approximately 30% sequentially in Q3 FY2026, driven by normalizing customer inventory levels and adoption of refreshed product portfolios.

Consumer End Market: Consumer revenue is expected to decline sequentially in the low single digits on a percentage basis in Q3 FY2026.

Automotive and Industrial End Market: Revenue is anticipated to be approximately $35 million in Q3 FY2026, reflecting the divestiture of the automotive Ethernet business.

Gross Margin and Operating Expenses: Non-GAAP gross margin is forecasted to be between 59.5% and 60% in Q3 FY2026. Non-GAAP operating expenses are projected to be approximately $485 million.

Earnings Per Share: Non-GAAP earnings per diluted share are expected to range between $0.69 and $0.79 in Q3 FY2026.

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Shareholder Return Plan

Cash Dividends: We returned $52 million to shareholders through cash dividends in the second quarter.

Stock Repurchase: We have repurchased $540 million of stock through the first half of the fiscal year with approximately $2 billion remaining in our authorization. Additionally, we repurchased $200 million of our stock in the second quarter.

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Key Q&A

Q:Can you provide more color on the headwinds in the third quarter for the custom business and the confidence in the fiscal fourth quarter increase?

A:Matthew J. Murphy explained that the lumpiness in the custom business is normal, especially with large hyperscale builds. He mentioned that the optics business is strong and growing double digits, and there is a demand increase in custom for Q4. Overall, custom is expected to be up in the second half over the first half, with a strong Q4 anticipated.

Q:How much of the custom products revenue in the second half is coming from new programs versus existing design wins?

A:Christopher Koopmans stated that there is significant design activity in the custom silicon business for data centers, with new design wins since June being very meaningful, amounting to billions of dollars. This gives confidence in achieving a 20% market share target in this fast-growing market.

Q:Are there any impacts from supply constraints or tariffs?

A:Christopher Koopmans noted that the supply chain is tight but manageable with strong coordination and execution. Willem A. Meintjes added that tariffs have not significantly impacted the business to date.

Q:How concentrated is the custom XPU business among lead customers, and when will additional design wins contribute to revenue?

A:Matthew J. Murphy explained that the business started with a few lead customers and is now expanding to 18+ design wins, which will start contributing between now and the next 18-24 months. The goal is to grow market share from 10% to 20% over time.

Q:What is Marvell's view on the scale-out and scale-up opportunities in data center interconnects?

A:Sandeep Bharathi highlighted the demand for Ethernet and purpose-built fabrics like UALink for scale-up requirements. Marvell is investing in scale-up switches, leveraging its low-latency switching IP portfolio, and sees momentum in the next couple of years.

Q:Can you provide guidance on data center growth in Q4 and the long-term growth potential of the custom business?

A:Matthew J. Murphy stated that custom will be up in the second half versus the first half, with strong optics performance. He did not provide an annual guide but emphasized the strong momentum in the business and recovery in core segments like enterprise networking and carrier.

Q:What is causing the digestion in the custom business in Q3, and is it related to product transitions?

A:Matthew J. Murphy clarified that the digestion is due to timing issues in product delivery and customer builds, not product transitions. As the business diversifies with additional programs, such timing issues will become less apparent.

Q:Are there any supply constraints affecting the optics business?

A:Matthew J. Murphy and Christopher Koopmans stated that while there is always some noise in the system, Marvell has managed the optics ramp well through strong partnerships and planning, with no significant issues affecting the business.

Q:What is the baseline for the optics business, and when will AI revenue cross 50% of total company revenue?

A:Matthew J. Murphy and Willem A. Meintjes did not provide an updated baseline for optics or a specific timeline for AI revenue crossing 50% of total revenue but indicated that the trend is positive and consistent with previous guidance.

Q:How many custom and attached chips are producing revenue today, and are most wins on track?

A:Christopher Koopmans stated that several programs are in production, with all 18 design wins either in production or moving to production this year or next. Matthew J. Murphy emphasized that the company is focused on executing existing wins and securing new ones.

Q:What is Marvell's capital allocation strategy following the automotive Ethernet business sale?

A:Matthew J. Murphy and Willem A. Meintjes explained that the proceeds provide flexibility for opportunistic buybacks and potential tuck-in acquisitions to accelerate the AI strategy. The focus remains on consistent free cash flow execution and strategic investments in AI.

Q:What is the update on Marvell's 3-nanometer XPU programs and the third XPU customer win?

A:Matthew J. Murphy declined to comment on individual sockets but emphasized the focus on winning incremental designs, executing existing programs, and achieving a 20% market share in the $90+ billion TAM.

Q:When will Marvell's scale-up switch fabric products ramp to revenue?

A:Sandeep Bharathi stated that product introductions for UALink and Ethernet-based scale-up products will occur within the next two years, with active electrical and optical cables already seeing near-term use.

Q:What is the outlook for LPO modules in the optical transceiver market?

A:Matthew J. Murphy noted that LPO modules are a niche use case with limited scale compared to DSP-based pluggables, which dominate the market and are expected to continue doing so.

Q:Review of Unclear Management Responses

A:Management avoided providing specific details on the baseline for the optics business, the exact timeline for AI revenue crossing 50% of total revenue, and updates on individual 3-nanometer XPU programs. Responses were vague or deferred, increasing uncertainty in these areas.

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Earnings Word Cloud

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