Marvell shares surged after the earnings call mentioned AI revenue doubling in each of the next two years.
Marvell FY24 Q1 Earnings:
Revenue $1.322B, down 9% year over year, down 7% sequentially; first decline since 2019 Q4.
GAAP gross margin 45.1%, down 6.8 percentage points year over year and 2.4 percentage points sequentially, a 7-quarter low; non-GAAP gross margin 60%, down 5.5 percentage points year over year and 3.5 percentage points sequentially, lowest since 2016 Q4.
Non-GAAP operating income $334M, down 35% year over year and 29% sequentially; non-GAAP operating margin 25.2%.
Non-GAAP net income $264M, down 41% year over year and 33% sequentially; non-GAAP net margin 20%.
GAAP days in inventory 121 days, down 9 days sequentially.
China revenue 39%, US 14%, Singapore 8%, Malaysia 7%, Finland 6%, Taiwan 4%, Thailand 3%, Japan 3%, Philippines 1%.
Q1 Business Detail:
Data center revenue $436M, down 32% year over year, 33% of revenue; data center down 12% sequentially due to weak storage, PAM DSP/switch business still growing; data center bottomed in Q1, full recovery by Q4, ~75%-80% recovery; strong CXL demand, especially in DRAM market;
Enterprise networking revenue $365M, up 27% year over year, 28% of revenue; enterprise networking custom ASIC strong ramp, other markets still digesting inventory;
Carrier revenue $290M, up 15% year over year, 22% of revenue; wireless contributed 25% of sequential growth, 5G product demand strong; wireline digesting inventory;
Consumer revenue was $142M, down 20% year over year, 11% of revenue. Q2 consumer revenue is expected to grow mid-30s% sequentially, driven by a large sequential increase in custom SSD controller demand. H2 will still decline; it is a non-strategic business with declining share over time. Q2 sequential growth does not signal market recovery but reflects a narrowed product portfolio that is mostly custom.
Auto/industrial revenue $89.3M, flat year over year, 7% of revenue; auto revenue continues growing year over year and sequentially, industrial down sequentially;
Outlook:
Expect Q2 data center revenue flat sequentially; storage up sequentially, H2 also up; cloud revenue up 10%+ sequentially, enterprise on-premise down offsetting cloud growth;
Expect Q2 carrier business down mid-single-digits sequentially;
Expect Q2 enterprise networking revenue down 10% sequentially;
Expect Q2 auto/industrial revenue up low-teens sequentially; auto to continue growing next year;
Q2 consumer revenue is expected to grow mid-30s% sequentially.
Expect H2 overall acceleration; non-GAAP gross margin to return to target range low-end (64%-66%) in Q4; opex lower than previously expected, Q4 ~$430M annualized, 2025 expected growth mid-high single digits;
Cloud optimized silicon design wins backlog >$800M annualized, expect >$200M revenue contribution this year; cloud optimized silicon orders typically 18-24 month delivery; $800M contribution in 2024-2025;
At the prior memory cycle peak, Marvell non-GAAP net income TTM was $1.8B (current market cap $56.2B, ~31x PE). H1 this year $540M, full year unlikely to reach $1.8B. But management is optimistic on next year.
The call highlight that excited the market: management guided FY24 AI revenue $400M, doubling year over year, mostly from PAM4/400ZR optical; expect FY25 AI revenue from networking to grow significantly, doubling again to $800M (AI revenue excludes storage products); and AI chip share of cloud optimized silicon orders rose from 20% to 50%;
Overall, Marvell earnings were mediocre; storage exposure makes weak results unavoidable, Q2 guidance not great. But AI revenue doubling, plus cloud custom silicon tailwind and memory cycle bottom, may be enough to move the market.
Frankly, the AI benefit isn't that large, or at least not that fast; Broadcom, with similar business, may realize revenue faster.