Marvell Technology Q2 FY2026 Earnings Call Transcript

Marvell Technology Inc. (NASDAQ:MRVL) released its second-quarter results after Thursday’s closing bell.

Below are the transcripts from the second quarter earnings call.

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OPERATOR

Good afternoon and welcome to the Marvell Technology Inc. Second quarter of fiscal year 2026 earnings conference call. At this time, all participants are in a listen only mode. If anyone should require operator assistance during the conference, please press Star-0 on your telephone keypad. A question and answer session will follow the formal presentation. Please note this event is being recorded. I will now turn the conference over to Mr. Ashish Saran, Senior Vice President of Investor Relations. Thank you. You may begin.

Ashish Saran (Senior Vice President of Investor Relations)

Thank you and good afternoon everyone. Welcome to Marvell’s second quarter fiscal year 2026 earnings call. Joining me today are Matt Murphy, Marvell’s Chairman and CEO Willem Menkes, CFO Chris Koopman, President and COO and Sandeep Bharati, President, 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 10-K and 10-Q filing. 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 Murphy (Chairman and CEO)

Matt thanks Ashish and good afternoon everyone. For the second quarter of fiscal 2026, Marvell delivered record revenue of $2.006 billion, reflecting a 6% sequential increase and strong 58% year over year growth. Our data center end market continued its strong momentum, growing 69% year over year fueled by robust AI demand. We also saw a solid recovery in our enterprise networking and carrier infrastructure end markets which collectively grew 43% year over year. We expanded our non GAAP operating margin by 870 basis points year over year to 34.8% and delivered record non GAAP earnings per share of $0.67, up 123% year over year. We also delivered 462 million in operating cash flow, up significantly from the 333 million in the first quarter. Robust cash flow generation is enabling us to continue to return significant capital to our stockholders. We have repurchased 540 million of stock through the first half of the fiscal year with approximately 2 billion remaining in our authorization. At the beginning of the third quarter, we completed the divestiture of our automotive Ethernet business in a 2.5 billion all cash transaction at a very compelling valuation. I’m pleased with our team’s execution in closing this transaction ahead of schedule. The proceeds from this transaction provide us flexibility to continue to drive our ongoing stock repurchase program and deploy capital to further bolster our technology platform. The auto divestiture aligns with our strategy. To focus the company on what we do best. Expect to continue to be a massive AI opportunity in front of us by purposefully redirecting our investments towards data center relative to our other end markets. That strategy has been very successful with data center alone now driving three quarters of our total revenue. The auto divestiture further reduces the relative proportion of revenue from our non data center end markets. As a result, starting in the third quarter we will consolidate our non data center end markets into a new single communications and other end market. Willem will cover this in more detail in his prepared remarks during the quarter. We hosted a highly successful custom Silicon Investor event in June where we outlined an expanded $94 billion data center TAM for calendar 2028, a 26% increase from our prior view. We also unveiled a new fast growing custom silicon product category of XPU Attach, updated our custom design win board to 18 multi generational XPU and XPU attached sockets and highlighted over 50 new pipeline opportunities with an estimated 75 billion of lifetime revenue potential based on the sockets. We have already won. We concluded with our plan to grow our data center market share from 13% of a $33 billion TAM in calendar 24 to 20% of a $94 billion TAM in calendar 28. Let me now take a moment to share how we are enhancing our leadership structure to further capitalize on significant opportunities in the large and fast moving AI and cloud markets. We have promoted two exceptional leaders, Chris Koopmans to President and COO and Sandeep Bharathi to President Data Center Group and consolidated substantial parts of the organization under their leadership. Their proven track record of innovation, execution and results positions them to accelerate Marvell’s growth. Chris joined Marvell nine years ago and he has been a key enabler of our transformation to a leader in the data center market. He has successfully led sales, our networking business and most recently global business operations and marketing. I’m pleased to see Chris take on sales again along with managing our non data center businesses in corporate development. His expanded role now encompasses end to end revenue execution from go to market strategy and customer engagement to operations and long term strategic planning. Sandeep joined us in early 2019 to lead our central engineering team and accelerate development of our technology platform. He was instrumental in driving Marvell’s leap to 5 nanometer process Technology leadership and integrating Avera, the custom business we acquired that has since become our largest growth opportunity. Under Sandeep’s guidance, our engineering teams have successfully delivered multiple highly complex custom XPU and XPU attached projects into high volume production with first time silicon success. With this promotion, Sandeep now has overall responsibility for our data center business in addition to its continued leadership of data center engineering and central engineering. This unifies full ownership of our largest and most important business under a single leader spanning the entire product lifecycle from technology platform, IP and roadmap to customer engagement, product definition and chip development. Let me now discuss our results and expectations for each of our end markets. In our data center end market we achieved record revenue of 1.49 billion in the second quarter, growing 3% sequentially and 69% year over year. The strong performance was led by our custom XPU and XPU attached products as well as our Electro Optics Interconnect portfolio. AI and Cloud continue to be the primary drivers accounting for over 90% of our data center revenue with the remainder coming from the on premise portion of our data center end market. We expect on premise revenue to remain stable at an annualized revenue run rate of approximately 500 million. Looking ahead to the third quarter, we expect revenue from our Electro Optics products to grow double digits sequentially on a percentage basis as we continue to benefit from our market leading position in AI interconnected. Our custom business is also performing well and remains on track to grow in the second half of the fiscal year compared to the first. However, we expect growth to be nonlinear in the custom business with the fourth quarter substantially stronger than the third. As a result, we expect overall data center revenue in the third quarter to be flat sequentially with Electro Optics strength offset by lower custom revenue on a. Year over year basis, we expect data. Center revenue to continue to deliver strong growth in the mid 30% range in the third quarter. We are very pleased with the progress of our 18 XPU and XPU attached sockets, several of which are already in volume production. We are making excellent progress on development of the remaining sockets with all of them expected to ramp over the next couple of years. The success of our initial wave of custom programs combined with rapidly growing industry interest in custom silicon has expanded our Design Win pipeline to over 50 new opportunities. As next generation XPU and XPU attached products increase in complexity, we believe it will become even more critical for customers to partner with a full service custom silicon provider like Marvell. Since our event in June, our team has won additional sockets, adding to the 18 sockets we had already discussed. Collectively, these new wins represent multibillion dollar lifetime revenue potential and we remain deeply engaged in advanced architectural discussions of many of the opportunities still in the funnel as next generation AI data centers evolve, scale up networks are becoming essential to tightly interconnect tens, hundreds and eventually thousands of XPUs within and across racks. These require ultra low latency and multi terabit bandwidth to meet the demands of training and inference workloads. Marvell’s multi generational custom engagements with the hyperscalers gives us unique visibility into upcoming XPU architectures, enabling us to design scale up switches supporting both open standard Ethernet and UA link fabrics. Purpose built for AI Combined with Marvell’s leadership in Ethernet switching and proprietary high speed low power low latency SERDES IP, we are strongly positioned to lead this market inflection. We are investing in developing scale up switches tailored to each customer’s protocol of choice and look forward to updating you on our progress beyond switching. Our interconnect portfolio extends the opportunity While copper dominates the scale up links today, as networks expand and bandwidth grows, optics adoption will follow. This represents a large opportunity for Marvell’s full suite of interconnect products and technologies including DSPs for active electrical cables or AECs and active optical cables or AOCs retimers for PCIe Ethernet and UA link and Silicon Photonics for near packaged and co packaged XPU optics. Our AEC and AOC DSPs are already in the market and our retimers are in customer evaluation. We have demonstrated our 6.4 T silicon photonics light engines and expect our technology to be a key enabler of NPO and CPO implementations. Once the industry is ready to adopt collectively between switching and Interconnect, we see a massive scale up opportunity for Marvell over time. Turning to our Electro Optics Interconnect portfolio, our PAM and DCI franchises continue to lead the industry in enabling the build out of AI and cloud infrastructure. Demand for 800 gig PAM DSPs remains strong with a long life cycle still ahead. We have also begun volume shipments of our next generation 200 gig per lane 1.6 TPAM DSPS to multiple customers. We expect adoption to accelerate in the next several quarters. Looking further ahead, we are driving the next optical technology transition. At this year’s Optical Fiber Conference we demonstrated our 400 gig per lane PAM technology, a critical innovation and step towards enabling 3.2T optical interconnects. This milestone underscores Marvell’s leadership in pushing the boundaries of next generation optical conductivity. Our data center interconnect business also continues to expand with adoption proliferating across large hyperscalers. Collectively, the custom and electro optics product lines I just described now account for over three quarters of our total data center revenue. The balance comes primarily from our data center storage, switching and security portfolios, each of which is showing solid progress. Our data center storage revenue has improved significantly, reflecting a return to health in both the SSD and HDD markets. In AI and cloud switching, our 12.8T products continue to ship in high volume While our next generation 51.2T switches are now ramping. Adoption is accelerating and we expect these products to be a major driver of switch revenue growth in the next fiscal year. In the security market, we recently expanded our collaboration with Microsoft Azure on our hardware security modules, building on a long standing and trusted relationship with this customer. Now let me turn to our enterprise networking and carrier infrastructure end markets. In the second quarter, enterprise networking revenue was 194 million and carrier infrastructure revenue totaled 130 million. Combined revenue for these end markets grew 2% sequentially and 43% year over year. Looking ahead to the third quarter of fiscal 2026, we expect aggregate revenue from enterprise networking and carrier infrastructure to grow sequentially by approximately 30%. This growth is driven by normalizing customer inventory levels and strong adoption of our refresh product portfolio. As a reminder, we recently migrated these products to advanced process nodes, an investment we expect to yield benefits for many years to come given the long product life cycles in these markets. In the consumer end market, second quarter revenue was 116 million, up 84% sequentially and 30% year over year. Gaming demand and its seasonality continues to be the primary driver of this business. For the third quarter, we expect consumer revenue to be down sequentially in the low single digits on a percentage basis. Turning to our automotive and industrial end market, second quarter revenue was 76 million flat both sequentially and year over year for the third quarter of fiscal 2026, reflecting the divestiture of our automotive Ethernet business, we anticipate Overall revenue of approximately 35 million from this end market. This includes a mid single digit million dollar contribution from our automotive Ethernet business prior to the transaction closing. In summary, in the second quarter of fiscal 2026 we continued to deliver operating margin expansion earnings per share growth and new revenue records. Looking ahead, we expect momentum to continue in the third quarter with total company revenue forecast at 2.06 billion at the midpoint, representing 36% year over year growth excluding revenue from automotive Ethernet. The implied revenue growth for Marvell’s go forward business would be closer to 40% year over year at the midpoint of our forecast for the third quarter. We also expect to continue driving operating leverage with non GAAP earnings per share forecast to grow 10% sequentially at the midpoint of guidance, more than double our projected revenue growth rate. Our second quarter results and third quarter guidance reflect robust contributions from our AI driven data center end market complemented by strong recovery in our enterprise networking and carrier infrastructure end markets. At the same time, our custom AI design engagements are at an all time high with customers showing very strong interest in our broad range of differentiated technologies. As I discussed earlier, our team continues to accumulate new wins and and we are pleased with the strong progress across both current and next generation custom programs which reinforces our confidence that we can achieve our long term customer revenue goals. In addition, our market leading Electro Optics franchises continue to see strong demand for both current and next generation solutions and our scale out switching platforms are positioned for strong growth over time. The emergence of scale up networking for AI infrastructure should provide another strong tailwind for Marvell. With that, I’ll turn the call over to Willem for more detail on our recent results and outlook.

Willem Menkes (Chief Financial Officer)

Thank you Matt and good afternoon everyone. Let me start with a summary of financial results for the second quarter of fiscal 2026. Revenue in the second quarter was 2.006 billion, growing 58% year over year and 6% sequentially. Datacenter was our largest end market contributing 74% of total revenue. GAAP gross margin was 50.4%. Non GAAP gross margin was 59.4%. Moving on to operating expenses, GAAP operating expenses were 721 million, including stock based compensation, amortization of acquired intangible assets, restructuring costs and acquisition related costs. Non GAAP operating expenses came in at 493 million, slightly below our guidance. Our GAAP operating margin was 14.5% while non GAAP operating margin was 34.8%. For the second quarter, GAAP earnings per diluted share was $0.22. Non GAAP earnings per diluted share was 67 cents, reflecting year over year growth of 123%, which is more than double the pace of revenue growth, demonstrating the significant operating leverage in our model. Now turning to our cash flow and balance sheet. Cash flow from operations in the second quarter was approximately 462 million, growing by 129 million from the prior quarter. Our inventory at the end of the second ...