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01/09 22:27
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Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
The earnings call summary and Q&A indicate strong financial performance, with record revenue and EPS growth, improved margins, and effective inventory management. Positive guidance and strategic partnerships, like the one with Amazon, further bolster sentiment. The Q&A reveals confidence in achieving ambitious revenue targets, with strong growth expected across various segments. Despite some management evasiveness, the overall outlook is optimistic, suggesting a strong positive impact on the stock price.
Revenue Marvell delivered record revenue of $2.075 billion, reflecting a 3% sequential increase and strong 37% year-over-year growth. Excluding revenue from the divested Automotive Ethernet business, the implied revenue growth for Marvell's go-forward business was approximately 6% sequentially and 41% year-over-year. The growth was driven by stronger than forecasted demand in the data center end market and robust AI demand.
Data Center Revenue Record third quarter revenue of $1.52 billion, representing 2% sequential growth and 38% year-over-year growth. Revenue exceeded guidance due to increased demand across the networking portfolio, including strong demand for PAM DSPs, TIAs, and drivers, as well as double-digit sequential growth in data center storage and switch businesses.
Communications and Other End Market Revenue Revenue grew 8% sequentially and 34% year-over-year to $557 million. Excluding revenue from the divested Automotive Ethernet business, the implied revenue growth was closer to 20% sequentially and 50% year-over-year. Growth was driven by normalizing customer inventory levels and strong adoption of the refreshed product portfolio.
Non-GAAP Gross Margin 59.7%, an increase of 30 basis points sequentially. The improvement reflects better product mix and operational efficiencies.
Non-GAAP Operating Margin 36.3%, a 150 basis point sequential increase, driven by revenue growth and operational leverage.
Non-GAAP Earnings Per Share (EPS) $0.76, reflecting year-over-year growth of 77% and a 13% sequential increase. The growth was driven by strong revenue performance and operating leverage.
Cash Flow from Operations A record $582 million, growing approximately $121 million from the prior quarter, reflecting strong operational performance.
Inventory $1.01 billion, a decrease of $37 million from the prior quarter, indicating improved inventory management.
Debt Ratios Gross debt-to-EBITDA ratio of 1.47x and net debt-to-EBITDA ratio of 0.58x, showing continued improvement due to increased EBITDA.
Celestial AI Acquisition: Marvell announced the acquisition of Celestial AI, introducing a photonic fabric platform for next-gen scale-up interconnect. This acquisition is expected to close in Q1 of next year and will remain independent through regulatory processes. Celestial AI's technology is designed to address the limitations of copper-based interconnects, offering higher bandwidth, lower latency, and better power efficiency. The acquisition is expected to contribute $500 million in annual revenue by Q4 FY2028, doubling to $1 billion by Q4 FY2029.
Data Center Products: Marvell's data center revenue grew 38% YoY, driven by AI demand. The company is expanding its interconnect, switching, and storage product lines, including advancements in PAM DSPs, TIAs, and drivers. New products like 1.6T Coherent lite solutions and PCIe Gen6 retimers are gaining traction. The data center switching business is expected to surpass $500 million in revenue next fiscal year.
Data Center Market Expansion: Marvell's data center revenue reached $1.52 billion in Q3, representing 73% of total revenue. The company expects data center revenue to grow by more than 25% next fiscal year, driven by increased cloud CapEx and demand for AI infrastructure. The interconnect business is expected to grow faster than cloud CapEx, with custom business growth of at least 20%.
Communications Market Growth: Revenue from the communications end market grew 34% YoY in Q3, driven by enterprise networking and carrier infrastructure. Excluding the divested Automotive Ethernet business, growth was closer to 50% YoY. The enterprise networking segment is expected to reach a $1 billion annualized revenue run rate in Q4.
Revenue and Profitability: Marvell achieved record revenue of $2.075 billion in Q3, a 37% YoY increase. Non-GAAP gross margin was 59.7%, and non-GAAP operating margin was 36.3%. Non-GAAP EPS grew 77% YoY to $0.76.
Stock Repurchase and Dividends: Marvell executed a $1 billion accelerated stock repurchase program and returned $51 million to shareholders through dividends in Q3.
Focus on AI and Data Center: Marvell is doubling down on AI and data center opportunities, divesting non-core businesses like Automotive Ethernet and acquiring assets like Celestial AI. The company is aligning its product roadmap with AI-driven demand and cloud CapEx growth.
Long-term Growth Strategy: Marvell expects strong growth in fiscal 2027 and 2028, driven by AI, data center, and communications markets. The company is investing in new technologies and expanding its addressable market through strategic acquisitions and product innovations.
Regulatory Reviews for Acquisition: The acquisition of Celestial AI is subject to customary closing conditions, including regulatory reviews in the United States. This could delay or potentially block the acquisition, impacting Marvell's strategic plans to strengthen its data center portfolio.
Copper-Based Interconnect Limitations: Copper-based interconnects in scale-up systems are approaching their fundamental limits in reach and bandwidth, creating a compelling need for optical solutions. Failure to transition effectively to optical solutions could hinder Marvell's ability to meet market demands.
Customer Dependency in Custom Business: The custom business remains tied to a few specific sockets, and any disruption in these relationships or transitions to next-generation XPUs could create revenue volatility.
Economic Uncertainties: Economic uncertainties could impact cloud CapEx growth, which is a key driver for Marvell's data center revenue. A slowdown in cloud CapEx could adversely affect revenue growth.
Supply Chain Challenges: Marvell's ability to meet strong demand signals and execute on long-term technology roadmaps depends on coordinated capacity planning. Any disruptions in the supply chain could impact product delivery and revenue.
Technological Transition Risks: The transition to next-generation technologies like 1.6T and 3.2T solutions requires significant investment and execution. Delays or failures in these transitions could impact Marvell's market leadership and revenue.
Integration Risks for Celestial AI: Post-acquisition, integrating Celestial AI into Marvell's operations could pose challenges, including cultural integration and alignment of strategic goals, potentially delaying expected revenue contributions.
Market Competition: Marvell faces competitive pressures in its interconnect and data center businesses. Failure to maintain technological leadership could result in loss of market share.
Revenue Growth: Marvell expects total company revenue to grow to $2.2 billion in Q4 FY2026, representing 6% sequential and 21% year-over-year growth. Excluding the divested Automotive Ethernet business, the implied year-over-year revenue growth is approximately 24%. For FY2027, data center revenue is expected to grow by more than 25%, with overall company revenue growth driven by strong demand across the portfolio.
Data Center Business: Data center revenue is forecasted to grow by more than 25% in FY2027, with interconnect business growing faster than cloud CapEx, custom business growing by at least 20%, and other data center products (storage, switching) growing by at least 15%. Revenue growth is expected to accelerate in FY2028, driven by strong demand for AI-related products and new product cycles.
Acquisition of Celestial AI: The acquisition is expected to close in Q1 FY2027, with meaningful revenue contributions starting in the second half of FY2028. Revenue from Celestial AI is forecasted to reach $500 million annualized run rate by Q4 FY2028 and $1 billion by Q4 FY2029. The acquisition positions Marvell to capitalize on the $10 billion scale-up interconnect market opportunity.
Communications End Market: Revenue from the communications end market is expected to grow by 10% in FY2027, with enterprise networking reaching a $1 billion annualized revenue run rate in Q4 FY2026. Carrier business recovery is expected to continue, aligning with carrier CapEx growth.
Capital Expenditures and Operating Expenses: Non-GAAP operating expenses are expected to increase at roughly half the rate of revenue growth in FY2027. The acquisition of Celestial AI will add approximately $50 million in annual operating expenses post-closing.
Long-Term Growth Drivers: Marvell anticipates strong market tailwinds and new product cycles to drive significant growth in FY2028 and beyond. Data center revenue growth is expected to accelerate meaningfully above 25% in FY2028, supported by AI capacity expansion and customer partnerships.
Cash dividends: Returned $51 million to shareholders through cash dividends in the third quarter.
Accelerated stock repurchase program: Executed a $1 billion accelerated stock repurchase program in the third quarter.
Ongoing buyback program: Repurchased $300 million of stock through the ongoing buyback program in the third quarter.
The earnings call summary and Q&A indicate strong financial performance, with record revenue and EPS growth, improved margins, and effective inventory management. Positive guidance and strategic partnerships, like the one with Amazon, further bolster sentiment. The Q&A reveals confidence in achieving ambitious revenue targets, with strong growth expected across various segments. Despite some management evasiveness, the overall outlook is optimistic, suggesting a strong positive impact on the stock price.
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.
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