Good afternoon, and welcome to Marvell Technology’s Fiscal First Quarter 2023 Earnings Conference Call. At this time, all participants will be in listen-only mode. After today’s presentation, there will be an opportunity to ask questions. Please note, this event is being recorded. I would now like to turn the conference over to Mr. Ashish Saran, Senior Vice President of Investor Relations. Please go ahead.

Thank you. And good afternoon, everyone. Welcome to Marvell's first quarter fiscal year 2023 earnings call. Joining me today are Matt Murphy, Marvell's President and CEO; and Jean Hu, our CFO. Let me remind everyone that certain comments made today may 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 filings. 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 the Investor Relations section of our website. With that, I'll turn the call over to Matt for his comments on our performance. Matt?

Thanks, Ashish. And good afternoon, everyone. In the first quarter of fiscal 2023, the Marvell team drove another record level of revenue at $1.45 billion, exceeding the midpoint of guidance, growing 8% sequentially and 74% year-over-year. We saw continued strength in bookings in all our data infrastructure end markets. Higher revenue achievement was primarily driven by our datacenter market with additional strength from carrier infrastructure and automotive results, both of which were also above forecast. Due to supply-chain-related impacts, results from our enterprise networking market were below our guidance. However, growth was still very strong with revenue growing a robust 64% year-over-year and 9% sequentially. The Marvell operations team did a great job in navigating a tight supply environment that was further compounded by COVID-related manufacturing challenges at our suppliers in certain geographies. Our team's efforts were a key enabler of our first quarter revenue, exceeding the midpoint of our forecast. We continue to make progress in securing additional capacity with our strategic partners to enable sustained revenue growth. Let me now move on to discussing our five end markets, starting with datacenter. In our datacenter end market, revenue for the first quarter was $640.5 million, leading our guidance, having grown 12% sequentially and 131% year-over-year. Strong performance was broad-based with multiple product lines contributing to excellent results. Cloud continues to be a source of Marvell's strength in the datacenter. We are enabling our hyperscale customers to add new use cases, bringing the benefits of AI and machine learning to businesses, increased process automation and productivity, and drive deeper relationships with their customers. Let me now discuss a number of Marvell product cycles driving strong growth in cloud, starting with electro optics. We are seeing strong demand for our PAM solutions inside datacenters and ZR pluggables between data centers. Inside cloud datacenters, lead Tier 1 customers are currently driving volume deployment of our PAM-based 200-gig and 400-gig solutions. The rest of the market has plans for starting deployments later this year and next year. As bandwidth requirements continue to grow, we expect the role of PAM-based electro optics to expand, replacing legacy solutions and as a result, to grow our opportunity. We believe that the next generation of more powerful server CPUs will accelerate the need for PAM technology. In addition to this expansion, we are also increasing our content per module with our next generation of higher-speed solutions that we are now starting to ship. Driven by the growth in AI deployments, our first quarter results benefited from a ramp in volume shipments of our 800-gig PAM solutions at two large customers. The bandwidth expansion inside datacenters is also driving a significant increase in connectivity between datacenters, creating a growing opportunity for our 400 ZR pluggable optics. Our team is achieving great success by driving the adoption of these solutions at multiple customers, and we are projecting strong revenue growth from these products. Moving on to compute. Our cloud optimized design win momentum continued in the first quarter, and we won a custom SmartNIC at a hyperscale customer. We are seeing more adoption of VPU-based architectures inside data centers, a trend that we are ideally positioned to address with our OCTEON platform, which is now in its tenth generation. This design win is one more example of the growing demand for cloud-optimized silicon, which we see as the largest incremental growth opportunity for Marvell inside datacenters. We are confident that we are uniquely positioned to win these opportunities with our leading portfolio of compute, networking, security, storage, and high-speed electro-optics delivered on our 5-nanometer platform. Moving on to storage within the cloud. In the first quarter, cloud demand for high-capacity storage continued to increase, driving solid growth for our nearline HDD controllers and preamplifiers. Our SSD controllers also contributed to strong year-over-year revenue growth. We are now reaping the benefits from our datacenter SSD business, which we built from the ground up starting in 2016. We increased investment in critical IP development, accelerated our process technology cadence, and quadrupled our firmware team. Working closely with the leading cloud companies, we optimized our SSD controllers to address their quality of service and security requirements. We developed state-of-the-art error correction for the most advanced NAND flash technologies and coupled them with our in-house, low-power drives and accelerated our PCIe roadmap. All the leading SSD devices today are shipping PCIe Gen 4 solutions; Marvell has already won Gen 5 datacenter sockets at three key NAND OEMs. Additionally, we started investing in PCIe Gen 6 in 2019. This development, coupled with our 5-nanometer technology platform, has enabled us to win a key NAND OEM for their Gen 6 SSDs. Our datacenter storage business has been built on a long and sustained period of technology investment, deep system knowledge, extensive customer relationships, and very sticky custom firmware delivered on our advanced process technology platform. We expect our position to continue to strengthen based on our proven technology platform and multiple secured design wins in the next generation of datacenter SSDs. We anticipate that the next big evolution in cloud datacenters will be the adoption of CXL or Compute Express Link, an industry standard for connecting processors, accelerators, and memory, and we are planning to enable that trend. Last week, we held a tech talk in which we explained the fundamentals of CXL technology and its role in bringing new levels of performance to next-generation cloud datacenters. If you're unable to attend, I would encourage you to watch the recording posted in the Investor Relations section of our website. We described how silicon components based on CXL will facilitate new cloud architectures by addressing the multiple memory scaling challenges in current datacenters. Put simply, CXL will finally allow DRAM memory to escape the constraints of being tied down to a single compute device, such as a CPU, and become a shared and pooled resource, utilizing the well-established PCIe fabric as the interconnect. Marvell is uniquely positioned to address the CXL opportunity, given our deep relationships with memory OEMs, our growing position within hyperscale customers, and our advanced PCIe roadmap. We recently bolstered our efforts in this area with the acquisition of Tanzanite, a leading developer of advanced CXL technologies. Their complementary IP and world-class team adds more resources to Marvell, accelerating our CXL roadmap to address opportunities in closed design wins, which are right in front of us at multiple customers. We see opportunities for a host of new products, including CXL expanders, cooling devices, switches, and accelerators. In addition, we see the potential to embed CXL IP in a broad range of our datacenter products, including ASICs, custom compute engines, DPUs, electro optics, retimers, SmartNICs, and SSD controllers. We see a multibillion-dollar PAM expansion opportunity driven by CXL over time, and I look forward to updating you on our progress. Moving on to our expectations for the second quarter of fiscal 2023 from our datacenter end market, we are projecting continued growth to layer on top of the strong first quarter results. We project our datacenter revenue in the second quarter to grow sequentially in the low-single digits on a percentage basis and year-over-year, to grow approximately 50%. We expect revenue from cloud to grow significantly faster than the on-premise market, both sequentially and year-over-year in the second quarter. As we progress into the second half of this fiscal year and beyond, we are looking forward to additional incremental contributions from our cloud Ethernet switches and to ramping our large set of cloud optimized custom design wins. Marvell's unique ability to offer all the critical datacenter IP under one roof, designed to work seamlessly together in a custom solution, is proving very attractive to customers. As a result, our engagements with hyperscalers have moved well beyond pure ASIC programs to include various combinations of Marvell IP delivered in solutions tailored to each cloud's unique requirements. Turning to our carrier infrastructure end market. Revenue for the first quarter was $252 million, above our forecast, growing 5% sequentially and 50% year-over-year. We previously reported a substantial sequential step-up of over 30% in our 5G business in the fourth quarter of fiscal 2022. From this strong base, it was great to see both sequential and year-over-year revenue growth for carrier continue in the first quarter. The growth in 5G deployment, combined with Marvell product ramps at multiple base station customers continue to fuel strong growth in this end market. In wired, we are seeing strong demand for our 400-gig coherent electro-optics portfolio driven by rapid adoption in the metro and long-haul carrier markets. Coherent technology is critical to enabling high-speed data transmission across long distances to meet the ever-increasing demand for bandwidth from operators. Earlier this week, we announced that we have shipped over 100,000 400-gig coherent DSPs, positioning us as the leading merchant provider of these products. We are also aggressively focused on developing and launching our next generation of coherent products. This is a very key piece from the Inphi acquisition as the same technology powers the 400 ZR DCI cloud market you heard about earlier. Looking ahead to the second quarter, we expect revenue from the overall carrier end market to grow in the high-single digits sequentially on a percentage basis, while year-over-year growth is expected to remain strong at approximately 40%. Moving on to our enterprise networking end market. Revenue for the first quarter was $286.6 million, growing 9% sequentially and 64% year-over-year as demand remains strong in this end market. While this end market represents our highest delinquency relative to the size of the business, we remain strongly focused on improving our ability to supply more products to our enterprise networking customers to help them meet their growing demand. Our growth has been driven by share gains and our increase in content starting to materialize as our customers began shipping their new platforms to address enterprise network modernization. We have seen a large increase in the adoption of our multi-gigabit products, which have a significantly higher selling price compared to our gigabit products. We expect the penetration of multi-gigabit ports will continue to increase, creating a tailwind to our business. Our strong growth in enterprise networking is primarily the result of our own unique product cycles. Looking beyond this quarter, we expect growth to continue leveraging our refresh switch and PHY portfolio and incremental revenue from the ramp of custom silicon and our OCTEON ARM-based DPUs displacing alternative architectures. In the second quarter of fiscal 2023, we expect a continuation of strong demand for our products from the enterprise networking end market and further improvements in supply. As a result, we are projecting revenue to be up sequentially in the mid-teens on a percentage basis and year-over-year growth of approximately 45%. Turning to our automotive and industrial end market. Revenue for the first quarter was $89.3 million, growing 12% sequentially and 94% year-over-year. All of the sequential growth came from our automotive business, which drove over 50% of the total revenue from this end market. Although we are still unable to fully satisfy the growing demand for our Brightlane Auto Ethernet solutions, the results supported by incrementally better supply solutions exceeded our guidance. Our auto revenue growth is being driven primarily by our new product cycles. The adoption of Marvell Ethernet technology in cars is continuing to increase, as OEMs design in higher-speed solutions to address the increase in bandwidth, and our dollar content per car is continuing to grow. We are also winning new customers and growing our content at existing customers. We now have Ethernet design wins at eight of the 10 largest auto OEMs worldwide and 36 OEMs in total. Looking ahead to the second quarter of fiscal 2023 for the combined auto and industrial end market, we are projecting sequential revenue growth in the mid-single digits on a percentage basis, while year-over-year growth is expected to be over 60%. We expect strong growth to continue from our automotive business with revenue projected to more than double year-over-year. Moving on to our consumer end market. Revenue for the first quarter was $178.5 million, growing 7% year-over-year. The growth in this end market is being driven by our SSD controllers, partially offset by declines in our PC HDD business. On a sequential basis, revenue declined by 4% in our consumer end market, below our forecast for a flat outlook due to a reduction in demand from the PC HDD market. While we are not the bellwether of global PC demand as it represents a relatively small amount of our revenue, we did see a rapid change in tone from the PC market, and we expect the weakness to continue. From our perspective, the shift from HDDs to SSDs in the notebook PC market is almost complete, and our revenue from notebook HDDs in the first quarter of fiscal 2023 was less than 1% of consolidated Marvell revenue. Looking ahead to the second quarter of fiscal 2023 and our consumer end market, we expect revenue to sequentially decline in the mid-single digits on a percentage basis and be flat year-over-year. In closing, we delivered record results for the first quarter and are guiding for continued strong growth in the second quarter. We are seeing robust demand for our products, and our design win momentum remains strong. With 88% of our revenue coming from beta infrastructure, we are confident that Marvell's favorable end market exposure makes us one of the best positioned semiconductor companies to benefit from strong secular growth trends. In the second quarter, at the midpoint of the range, we are guiding our revenue to grow by 41% year-over-year, which is almost entirely an organic comparison. We expect strong operating leverage in our business model to drive non-GAAP EPS at the midpoint of guidance to grow by 65% year-over-year, significantly faster than our projected growth in revenue. As you heard throughout this call, our unique product cycles have been a big part of our above-market revenue growth. As we look into the second half of this year and beyond, we are confident that our unique growth drivers in our cloud, 5G, Auto and enterprise networking end markets and our strong track record of execution through economic cycles will continue to be a source of strength. You'll remember from our prior calls and our Investor Day presentation that we have already won a significant number of design wins, which we are projecting will add a substantial amount of incremental revenue to Marvell going forward. While the external environment is challenging, Marvell's business continues to be strong, including strong bookings in our core data infrastructure end markets. As we move forward, we intend to continue to act as we always have, being diligent about changes, reacting promptly and managing our business and costs aggressively. On behalf of Marvell's leadership team, I thank our employees for their dedication to driving stellar results. Our employees are the backbone of the company, and we are excited that Marvell recently ranked third overall on the list of Best Places to Work in the Bay Area by the San Francisco Business Times and Silicon Valley Business Journal. Even this award is so special because it is the employees who decide the winners. We have an outstanding team, and this award reflects our culture, values, and dedication to creating a collaborative workplace which fosters creativity and innovation. With that, I'll turn the call over to Jean for more detail on our recent results and outlook.

Thanks, Matt, and good afternoon, everyone. I'll start with a review of our financial results for the first quarter and then provide our current outlook for the second quarter of fiscal 2023. Revenue in the fourth quarter was $1.447 billion, exceeding the middle point of our guidance, growing 8% sequentially and 74% year-over-year. Datacenter was our largest end market, driving 44% of consolidated revenue. Enterprise networking was next largest to be 20% of total revenue, followed by carrier infrastructure at 18%. Consumer added 12% and the auto industrial at 6%. GAAP gross margin was 51.9%. Non-GAAP gross profit was $947 million or 65.5% of revenue, another record driven by rich product mix. GAAP operating expenses were $681 million and included the cost of share-based compensation expenses. Amortization of acquired intangible assets, legal segment, and acquisition and divestiture-related costs. Non-GAAP operating expenses were $435 million, reflecting the increase in R&D headcount and project expenses to execute design wins across all our data infrastructure end markets. As we outlined at our Investor Day last year, we plan to continue to invest in R&D, given the tremendous opportunities we have in front of us while keeping OpEx growth well below top line revenue growth to drive to our long-term target model. GAAP operating income was $70 million, we achieved record non-GAAP operating profit of $512 million, up 123% from a year ago, and our non-GAAP operating margin was 35.4%. During the first quarter, our GAAP income tax expense was $205 million. This included the impact from a one-time non-cash tax charge of $240 million offset by other tax benefits in the quarter. The $240 million non-cash tax charge was due to the measurement of our net deferred tax asset as a result of obtaining and expanding a lower foreign restricted tax incentive. For the first quarter, GAAP loss per diluted share was $0.20. Non-GAAP income per diluted share was $0.52, up 79% year-over-year, exceeding the middle point of our guidance. Now turning to our balance sheet and cash flow. During the quarter, cash flow from operations was $195 million as we increased our working capital investment to support the top line revenue growth in a very tight supply chain environment. The increase in working capital was primarily driven by increased inventory, especially raw materials and work in progress to help us manage through ongoing supply chain disruption. We also made $86 million in payments during the quarter to secure long-term capacity with our suppliers. As of the end of the first fiscal quarter, our cash and cash equivalents were $465 million, and our long-term debt was $4.5 billion. Our gross debt-to-EBITDA ratio was 2.3 times, and net debt-to-EBITDA ratio was 2 times. We returned $66 million in cash dividends and $15 million in share repurchases during the first quarter. Subsequent to the end of the first quarter of fiscal 2023, over the first three weeks of the second quarter, we repurchased an additional $50 million of our shares through our 10b-5 program. We are pleased that we have restarted the share repurchase program as we believe it's in the best interest of the company and our long-term shareholders. In summary, the Marvell team executed exceptionally well, delivering accelerated top-line revenue growth and strong earnings expansion significantly faster than revenue growth. Turning to our guidance. For the second quarter of fiscal 2023, we expect the following results: revenue in the range of $1.515 billion plus or minus 3%. GAAP gross margin in the range of 49.6% to 51.9%. Non-GAAP gross margin in the range of 65% to 65.5%. GAAP operating expenses to be approximately $669 million. Non-GAAP operating expenses to be approximately $435 million, which assumes that we will complete the acquisition in the second quarter. For the second quarter, we expect a non-GAAP tax rate of 6%. We expect our basic weighted average shares outstanding will be 853 million, and our diluted weighted average shares outstanding will be 862 million. As a result, we expect GAAP earnings per share in the range of $0.02 to $0.10. We expect non-GAAP income per diluted share in the range of $0.53 to $0.59. Operator, please open the line and announce Q&A instructions. Thank you.

We will now begin the question-and-answer session. Our first question is from Toshiya Hari with Goldman Sachs. Please go ahead.

Good afternoon. Thank you so much for taking the question, and congrats on the strong execution. Matt, I was hoping you could speak to your expectations for the second half, both from a demand perspective and a supply perspective. I think last quarter, there was a little bit of confusion as it pertains to the full-year outlook. So, if you can kind of confirm how you're thinking about your overall business, but particularly datacenter into the second half, that would be super helpful and then again if you have the supply to support the strong outlook. Thank you.

Yeah. Thanks, Toshiya. Great to hear from you. Yeah, so we're pleased with the results and execution in Q1. And as you saw, we had a very strong quarter in datacenter, which I'll come back to in a minute. But just to kind of reframe from the demand side in all of our end markets, except consumer, we see very strong demand trends, Toshiya. Bookings have been very strong in the last two quarters. Our demand outlook for the year continues to be strong. And with respect to datacenter specifically, we did have a strong Q1 better than expected. We still have pent-up demand and a lack of supply there for the second quarter, but we expect actually a reacceleration in the datacenter in terms of our growth in Q3 and Q4, i.e., the second half. And on top of that, we have incremental new design wins that we've secured over the last 12 to 18 months, which we've sized roughly at, call it, $400 million incremental next year and $800 million the year after. That's actually going to start layering in as well in the second half. So from our perspective, ex-consumer demand continues to be very strong. Datacenter in particular is going to have a great first half and a great second half. And then relative to supply, we really, first of all, credit to our operations team doing a great job in the first quarter, navigating all of the different impacts going on, particularly in China, and delivering a strong quarter. Looking forward, we're starting to see the benefit of all the investment we put in over the last year into our supply chain. Whether that be the improvement in systems and tools, the relationships and the capacity that we've secured, and so we believe that, that's going to continue. And we do see a much-improved supply outlook not only in the short term as you can see from our results both beating in our Q1 and then guiding strongly for Q2, but also in the second half, Toshiya. And again, I think that's the result of a lot of hard work and transformation in our supply chain to meet our growth plans. So, in summary, we have very strong demand driven by datacenter but also in 5G and automotive and the other things we've talked about, and we've seen real improvements in our visibility into the supply we're going to get to go meet that customer demand.

Great. Thanks for all the details.

The next question is from Chris Caso with Raymond James. Please go ahead.

Yeah. Thank you. I wonder if you could talk a little bit about the enterprise networking business. And I guess it came in a little below your expectations, but yet you're still speaking about supply constraints in that area. Is that a situation where your customers are supply constrained elsewhere and you're waiting for them? Maybe just give some explanation of the dynamics in that part of the business.

Yeah. Thanks, Chris. Yeah, this was definitely a quarter where the mix wasn't exactly where we thought it was going to be from when we guided. As you could see, we overachieved in datacenter and we underachieved on enterprise. But as I pointed out in my comments, the delinquency and kind of the unfulfilled backlog relative to the size of the business is actually still the highest in enterprise. So this was really a case of just us being unable to execute our supply plan for the quarter, nothing to do with demand. In fact, the demand from our enterprise customers continues to be very robust looking into the second quarter and throughout the year. So it was nothing to do with them. They want more of our product, and you can see somewhat of a catch-up in Q2 with a very strong guide sequentially into the second quarter. But we see that continuing, Chris. So, I know there's been a lot of noise out there around enterprise, but from our perspective and talking to our customers, demand remains very strong. And in fact, we're behind in terms of our supply to catch up. But I think consistent with what Toshi was asking, we are looking to improve that in the second quarter and also through the second half.

Thank you.

The next question is from Gary Mobley with Wells Fargo Securities. Please go ahead.

Hey, thanks for taking my question. Congratulations on the good results. Wanted to ask about the supply situation and you just articulated improving supply coming online for the balance of the year. To what extent is that being driven by you perhaps giving your foundry partners a better forecast? How much of it is being driven by maybe you growing some more money their way in prepayments? And to what extent is it being influenced by some shifting of fungible capacity as the semiconductor market is no longer universally strong? So maybe you're benefiting from redistribution of supply?

That's a great question. I believe it involves several factors. Looking back at our achievements, we've undertaken a significant education effort across Marvell's supply chain, helping stakeholders understand how our M&A activities and market focus fit together. I think we successfully communicated the Marvell opportunity, leading to increased support for our growth, which is evident in our year-over-year performance following a strong previous year. Additionally, we've established agreements to secure capacity, as shown in our recent filings about partnerships we've formed. Some of those agreements involve down payments and supply commitments to ensure we have adequate capacity. It's difficult to pinpoint everything, but there may be some early signs of flexible capacity coming into play. However, we primarily attribute our current supply situation to our efforts. I want to clarify for everyone that we are still facing challenges. Our unfulfilled backlog continues to increase each quarter, and we are working diligently to address that. We are focused on actual demand and ensuring we deliver to the right customers, which we believe we've managed well to keep our clients supplied without disruptions. Regarding the potential for reduced demand in the PC and consumer markets impacting supply, that could become a factor later in the year, but it's not fully materialized yet. We do see some opportunities opening up, but identifying their exact sources is challenging. I hope this information is helpful, as it’s a mix of factors that you've accurately identified.

Thanks, Matt.

The next question is from Timothy Arcuri with UBS. Please go ahead.

Thanks. Matt, I have just a broad question kind of on demand signals. To some degree, because supply has been so tight, it does create the potential that some of the orders, and I'm not saying for you, but I'm just saying broadly, are being placed just to secure their spot in line and not really backed by underlying sell-through at the customer or even the customer's customer level. And it sort of creates the risk that the chip companies are going to see more of a delay in sort of the demand signals at this time. I think it's less of a risk for you. But I guess my question is, how do you assess that as a risk? And really, the question, I guess, is on the tenor of your discussions with your customers? Do you get the sense that there are some examples of customers placing bookings just to get in the queue because you have such long lead times? I asked because some of the big large cloud customers are beginning to slow some of their hiring, things like that. So I'm just wondering what the tenor is of your talks with them. Thanks.

Sure, Tim. It's not unlike other cycles where there is concern among investors, especially in the semiconductor space, about whether customers have over-ordered. This raises questions about what happens when demand decreases. We have taken this matter very seriously. Recently, I spent a significant amount of time with my team reviewing each of our product lines and engaging with customers to assess the current demand and whether there is any inventory buildup. What I found is that there aren't any significant examples or overarching themes indicating excess inventory. In some respects, we may actually benefit from having previously operated at lower capacity levels, even though we've managed to keep production moving. As we look ahead, particularly with the global economy starting to stabilize, we can reassess our situation, especially with improved supply, and ensure we are allocating resources effectively. Although I don't have specific instances of inventory concerns, I acknowledge that we were transparent in our prepared remarks about the consumer segment, which represents 12% of our business. A smaller portion of that relates to actual consumer products like PCs, which has definitely seen a slowdown in demand and some resulting inventory buildup. However, there are other factors at play, even within the consumer segment, that are balancing this out. To summarize, while I don't have many concrete examples, we're actively monitoring the situation. The majority of my discussions indicated strong demand signals, particularly with cloud companies, our 5G business, and enterprise wired. There are many promising opportunities ahead, driven largely by Marvell's product cycles rather than being caused by specific market trends. Overall, the new product ramps across various segments appear to be on track.

Thanks, Matt. Yes, I mean, I think in the continuum of companies that have risk, you're at the kind of bottom of the list. But thanks for the questions or the answers. Thanks.

The next question is from Vivek Arya with Bank of America Securities. Please go ahead.

Yeah. Thank you for taking my question. Just wanted to clarify, Matt, if you have seen already or are baking in any supply or demand effects of the China lockdown or Europe turmoil. But my bigger question is, how do we conceptually align this notion of rising delinquency or unmet demand with rising inventory at both on semiconductor company balance sheets and even at some of the large networking OEMs? At what point does this rising inventory across the supply chain start to become a concern?

Thank you, Vivek. Regarding your first question, as you know, due to the timing of our reporting, we're experiencing similar challenges as everyone else. We had to consider the month of April in relation to the China lockdown, but we managed it quite well. One reason for this is that when the pandemic first began and major lockdowns were enforced in China and Southeast Asia, our operations team effectively built supply chain redundancy and resilience over the last two years. We nearly dual-sourced everything we could from China and other regions. Although there was some minimal impact on product revenue where we could have sourced supply from China, it was very small. This allowed us to be fairly agile in managing our logistics. Regarding the war in Ukraine, while we don’t have direct operations in Ukraine or Russia and thus weren’t impacted directly, we do see effects in the consumer segment, particularly people's tightening budgets, which may relate to some commentary on the consumer market. Concerning the rising inventory issue, I am very aware of it. Many companies are reporting inventory growth that outpaces revenue growth, which is something we're closely monitoring. We're engaging deeply with our customers on this. However, we believe—similar to many of our customers—that end demand, especially in enterprise, cloud, and our 5G product cycle, remains strong. There are complexities, such as the golden screw issue that some customers face, and we aim to avoid being part of that problem while maintaining a clear understanding of current inventory levels and their implications for our business. We are closely examining it down to a part-level detail to ensure we allocate our supply prudently, but it's definitely an area we need to keep watching.

Yeah. And to add to what Matt said is we actually chose to increase our inventory to support the revenue growth in the second half. We have a very broad set of product lines, and we see strong demand. So the flexibility we need to have raw materials and the way to support the revenue growth is really critical. So we did choose that to make sure we can support the customers and the future revenue growth.

Do you have a target Jean on days of inventory?

The current level is what we are comfortable with. We think we can help and manage the supplies for the second half. I think if the environment is normalized, we definitely will have a lower inventory like 120 days. That's what we think we should keep. But right now, we definitely chose to increase it to provide more flexibility.

Thanks very much.

Yeah. Vivek, just to chime in on Jean's comments, I fully agree. If you look at just the steepness of the revenue ramp we're dealing with. Clearly, the work-in-progress has to go up, right, just to sort of support the growth. So that part we're comfortable with. And given the lockdowns and all the volatility, I think having that extra inventory carry for us is very prudent. And we watch it, and we'll certainly work it down. But I don't think you're going to see many companies go back to the good old days of 80 days or something like that unless they truly get into trouble. I just think for a while, we're all going to have to be mindful that there's a lot of volatility in the world. But we're sort of in the range now, and we're very conscious in terms of what we're doing here.

The next question is from Matt Ramsay with Cowen. Please go ahead.

Yes, thank you very much. Good afternoon. Matt, in your remarks, you mentioned the upcoming server launches that will feature new technologies and some CXL support for shared memory. You have done an excellent job explaining the potential impact on your Accelerator business and provided us with an outlook. I was wondering if you could elaborate on how PCIe 5 might enhance support for that technology in storage and network peripherals. Is that important for growth in the second half of the year? How much visibility do you have regarding this? Also, a quick follow-up question I frequently receive concerns visibility on cloud CapEx. Looking at your cloud business, do you have visibility for quarters or years? How long are we talking about before you feel confident? There are definitely some concerns in this area. I appreciate your insights. Thank you.

Hey, Matt. It's great to hear from you, and you raised some important questions. Yes, you’re right that the upcoming CPU cycles greatly depend on the IO, particularly with the upcoming release of PCIe Gen 5, which we've been preparing for. This is crucial for us, especially in our storage and data center storage business. One of the main things we need to integrate into our product roadmap is ensuring we meet the PCIe IO roadmap, which is quite complex, involving not just the controller but also the PHY and making sure everything is qualified and operational. Our team has excelled in this area, and we’re well positioned for PCIe Gen 5 storage. Additionally, as I mentioned, we have already secured projects for Gen 6, even though that is still some time away and will provide further growth opportunities. You’re also correct that the PCIe standard will be foundational for CXL, and our efforts in both Gen 5 and Gen 6 will significantly enhance our approach to disaggregation, especially regarding memory and emerging solutions around CXL. This is very strategic for us. We consistently make critical make-or-buy decisions on technologies, and for the PHY layer for PCIe, we have chosen to develop in-house, where we excel, and we integrate this into our broader system-on-chips (SoCs). The biggest impact from Marvell will be the wider adoption of our datacenter flash controllers, which are well positioned with various NAND OEMs and products that we've developed with cloud OEMs over the years. It's shaping up to be a favorable cycle for us. As for cloud CapEx, I don't have specific insights. We review all the publicly available data, which has been looking positive recently. However, for Marvell and the investors on the call, the overall cloud CapEx environment can act as a tailwind, or it could be challenging for suppliers. It's important to note that most of our cloud revenue comes from new product cycles that are quite specific to Marvell. For instance, regarding PAM, a year ago, there were only a couple of companies using it compared to older NRZ solutions. Now, we have more companies moving toward it in 200 and 400-gig applications, and we’re also ramping up our 800-gig product for AI clusters. Whether CapEx increases or decreases, there are new applications and replacement cycles happening. Moreover, in our Cloud Ethernet switch area, we've secured new wins from the Innovium team we acquired last year, and we anticipate ongoing strong growth from that product line. Our new cloud-optimized silicon in ASICs and DPUs, developed over the past couple of years, will also start ramping up. We’re closely monitoring these developments, Matt, but it’s similar to our 5G business where we see fluctuations in the market. With strong product cycles that involve either content expansion or market share gains alongside new customers, we expect to navigate through these changes successfully. We are very confident in our cloud business, particularly in the second half of this year and next year as it relates to cloud hyperscale, and we'll keep an eye on the CapEx trends, although most of our products operate independently of those trends.

Thanks, Matt. Appreciate all the color.

The next question is from Ross Seymore with Deutsche Bank. Please go ahead.

Hey, guys. Thanks for letting us ask a question. Jean, I wanted to ask you one on the margin side of the equation. You guys always run a very tight ship in this, but there's lots of moving parts. Matt's talked a lot about more supply coming on in the back half of this year. Sometimes that can come at a higher price these days. And then even the OpEx side of things, wage inflation, etc., and some acquisition integration that you talked about. So generally speaking, can you walk us through the puts and takes on the gross margin and the OpEx side of things for the rest of the year?

Yeah. Ross, thanks for the question. I think our team has been very disciplined to manage OpEx to make sure we follow our overall business model right, grow revenue significantly faster than OpEx growth, and keep the gross margin right in the middle or even above the middle of our long-term target model so we can drive the earnings expansion much faster than top-line revenue growth. When you look at the OpEx in Q1, as I said earlier, we increased headcount and project expenses to really execute on all the design wins we have won. In Q2, we keep it flat. In the second half, it's going to go a little bit higher, slightly higher, but it's largely because we are going to grow revenue in the second half to support the revenue growth, you have certain variable expenses that will increase slightly in the second half. In the longer term, you should continue to expect us to drive top-line revenue growth and OpEx around 50% slower than top-line revenue growth so we can continue to get the earnings expansion. So in Q2, if you look at the midpoint of our guidance, our operating margin is already above 36%. We are very, very driven to get our operating model to the 38% to 40% range.

Next question is from Tore Svanberg with Stifel. Please go ahead.

Yeah, thank you. And congratulations on the strong results. Just had a follow-up on the storage question, but this time on Gen 6, not on Gen 5. So just, Matt, can you maybe frame a little bit Marvell's positioning here? I mean I think about the PAM4 IP you have; obviously, you talked about CXL. I know it's still early days, but if you could just frame a little bit sort of layman's terms, you’re positioned for PCI Gen 6, that would be great. Thank you.

Sure, Tore. Regarding Gen 6 and its relation to storage, you are correct. With the increase in IO throughput and data rates, transitioning to a PAM-based architecture was necessary, which aligns with our strengths. We were quick to adopt this with our 5-nanometer technology platform, allowing for significant advantages and reuse. This has positioned us strongly, and I commend our storage business unit for their leadership in this area. They have essentially advanced two nodes beyond others in terms of power and performance from these solutions. Additionally, the ability to push the IO down to 5-nanometer while utilizing PAM has been a significant asset due to its complexity. We've seen these advantages also reflected in our optical business, where Inphi has improved performance over time by implementing PAM on a new process node, and we're experiencing similar results here. This strategy is becoming increasingly important. We are currently at the launch stage, but we like to highlight our future plans. This platform aligns well with our capabilities. When considering CXL, it's important to note that aspects such as link closure, the need for retimers and re-drivers, and applications for pooling require robust Gen 6 IP that can integrate into various SoCs. Currently, the CXL design opportunities we are seeing are extensive, and they are all based on our 5-nanometer platform. Everything connects well, Tore, and I believe you see this as well as others do. The integration of the various IPs from our acquisitions, along with the Marvell technology platform, has opened the door for us to offer semi-custom solutions effectively in this next generation of cloud-optimized silicon.

Excellent, thank you.

The next question is from Harlan Sur with JPMorgan. Please go ahead.

Good afternoon. Great job on the quarterly execution. I saw the announcement regarding shipping 100,000 400-gig coherent DSP chipsets. You're still in the early stages of this transition, but you have already shipped nearly $200 million worth of products, based on my calculations. The impressive aspect of this product family is its consistent underlying architecture, which you are leveraging to pursue various markets, such as datacenter interconnect with 400 ZR and long-haul metro with your 400-gig Canopus solution. Adoption appears to be occurring at a quicker pace. Is this contributing to the growth in your datacenter and carrier segments? Additionally, I understand that your deployment is currently driven by just one major cloud provider. Are you expecting other cloud providers to start ramping up as the year progresses?

Thanks for the question, Harlan. To start off, I want to clarify how strategic coherent DSP technology is. Inphi had previously tried to develop their own coherent solutions before acquiring ClariPhy, which they ultimately chose to follow in their roadmap for coherent DSP. This is a complex area, and once it’s designed correctly, the product life cycles are quite long, especially in metro and long-haul markets, which is where our current revenue is coming from. Additionally, the same technology and chips are also applicable in the ZR 400 DCI cloud market, providing a dual advantage. We are a strong leader on the merchant side, with plans to expand our roadmap to include 800-gig, which will align well with our next-generation DCI products. Looking ahead, there are discussions about the future modulation technology in data centers transitioning to coherent, making this a key strategic area for Marvell. Regarding the ZR DCI aspect, we actually have multiple customers for this technology, not just one, and we expect those numbers to grow in the coming year. We are already achieving record results with our DCI products, primarily driven by one initial customer, but more are on the way. We're really excited about this development. We also have a robust ecosystem in place with several module partners for various applications. It’s definitely something we’ll discuss more in the future, potentially in a tech talk, but this technology from Inphi is incredibly important and supports many of our initiatives.

Yeah. Great insights. Thank you, Matt.

The final question today will be from C.J. Muse with Evercore. Please go ahead.

Yeah, good afternoon. Thank you for taking the questions and squeezing me in. I guess a question on gross margins. You guided down 25 basis points sequentially. Obviously, a very small amount. But just curious if there's anything mix-wise and/or higher input costs that we should be thinking about there? And then just as a quick follow-up to Jean, are we at the net leverage level now where you plan to return free cash flow via buybacks? Or is that still in more of the opportunistic phase? Thank you.

Yeah. So, CJ, thanks for the question. First, on the net leverage, if you look at our Q2 guidance at the middle point of our guidance, our net leverage ratio will be below 2, gross debt-to-EBITDA ratio will be around 2, but the net leverage will be below 2. As I said earlier, we have restarted share repurchase program even after the end of Q1; subsequently, we did purchase additional $50 million through our 10b-5 program. So our capital allocation principle is still the same, right? We want to invest, but we are also committed to returning more than 50% of free cash flow to shareholders, primarily through share repurchase. On the gross margin, our gross margin, we are very pleased with the Q1 gross margin, which is a record in the Q2 guide; it's all both above the middle point for our long-term target. So the Q2 is really just a mix. We have so many different product lines quarter-over-quarter, you will see the mix change up and down of our middle point I would not predict that closely. But in general, it should be around 65% sometimes higher.

I completely agree with Jean. To remind everyone, our target gross margin model is between 64% and 66%. We achieved a record 65.3% in Q4 and then reached another record of 65.5% in Q1. For Q2, we are guiding towards 65.25%, which falls within that range. Operating around that 65% figure is beneficial for our company. If we can maintain our growth trajectory, enhance leverage, secure design wins, and stay competitive, we're in a solid position. While it’s reasonable to expect some fluctuations in the mix, as Jean mentioned, our main focus is to keep it within the appropriate range and drive strong top-line growth while leveraging our operations throughout this cycle.

Thank you.

This concludes our question-and-answer session, and the conference has also now concluded. Thank you for attending today's presentation. You may now disconnect.