Marvell Technology, Inc. (MRVL) September 9, 2026 Conference Transcript

Welcome to day two of Citi Global TMT Conference and the lunch keynote. It's my pleasure to welcome Matt Murphy, Chairman and CEO, and Dan Dern, Chief Financial Officer of Marvell Technology. Marvell is the top performing AISMS stock year to date, and according to the baker of the five-layer cake, Jensen Huang, the next trillion dollar company. Matt, before I get started, I want to give you an opportunity to update us a little bit about the state of AI from a company that has evolved from ground zero over the last few years from Chad GPT to the Astra moment. If you can just walk us through the evolution and where we are in the journey.

Sure. can you guys hear me how about now working okay all right well first of all it's great to see everybody enjoy your lunch thanks for having me and I would be remiss if I didn't reflect first of all that this was 10 years ago I my first conference as a CEO was here at Citi I I became CEO in July 2016, came into Citi. It wasn't the friendliest environment. I mean, he had a cell rating on us. I just have to give you shit one more time. Thanks for rubbing it in. It's the 10-year anniversary. Why not? No, but Barvel was in a very different place. But I think to your — I'm bringing this up to your question, which is our pivot to the data center began in 2016. You know, basically, back then, we were a consumer company, 9% of our revenue in our fiscal 17 was from data center, and most of that was just enterprise, it was really enterprise servers and storage. But that's the pivot we made, was to focus on the data center and data center technologies and data infrastructure technologies. So that's been our guiding principle actually for the last decade and you know we we went through I think great cycles and growth and enterprise, great cycles in carrier and 5G and then we've had a very strong data center story for the last five or six years. Just to put it in perspective in calendar 23 we did about 2.2 billion in data center revenue and you know next year we're looking at you know 15 16 billion just to give you a sense so the business is really inflected and while chat gpt and and and the rise of ai has been just an enormous driver and the driver of semi-tam we were already positioned there because this was already our strategy going back from almost a decade ago so i i know now it's the place to be and everybody's figured out who's in semis that that, wow, I better be in data center and I better be in AI, but if you just figured that out over the last couple of years, it's going to take you a long time, is my view. I mean, this has been a company we built brick by brick, year by year, M&As, divestitures, huge organic investment, and now we're sitting here, I think, with one of the best, my view is, you know, positionings relative to the breadth of the products that we offer, the suite of solutions that we have and then really what we think is a best-in-class financial model in growth rate for the next four or five years off of the back of a decade of investment already wonderful to be clear I do have a buy rating on Marvell now that was 10 years ago okay all right and Matt we actually

look at you guys like the Swiss army knife of AI there's a lot of focus on your compute business and XPU sockets and all that but fundamentally we think your networking portfolio is what outshines the peers. I was at the hot chips conference a couple of weeks ago the message was networking is the next compute. NVIDIA rolled out two more scales, scale in and scale context on top of scale out, scale up and scale across. So clearly networking continues to benefit from more connectivity so my first question is on the on the scale of opportunity you know beyond optics as you look at the switching layer where different standards and proprietary approaches like ESUN, UA-Link, NV-Link are all in play how does Marvell think about its silicon switching opportunity across that landscape?

Yeah that's a great question and we think the we see the scale-up opportunity, which we view very much as a combination of the switching platforms coupled with best-in-class optics, both NPO and then fully integrated CPO, which we offer both of. That's going to be an integrated sale, in my view. And it's sort of greenfield at the moment. Now, the backdrop, and I think why we're well-positioned, is we've spent the last five years building out our scale-out switching platform, which we call Terralynx, and we've basically acquired a company, Inovium, five years ago. It had no revenue but was projected to do about $150 million of revenue. We now said that that business is on track to do a billion-plus, and over the next years, we'll probably grow even faster. That fundamental Ethernet architecture we have lends itself very well to Ethernet scale-up networking, which is ESUN, which is the scale-up standard. Even our existing product, our 100T part, which I talked about at Computex, that product already is suitable and applicable to scale-up as is. So we've got a whole suite of products coming on ESUN and a roadmap there. In addition, we see the market still not completely decided on a standard, so we've also got a robust investment as well in UA-Link. And I think what's nice and common between the two is both leverage our high-performance, best-in-class electrical CERDES technology for copper, and then we also are going to offer SKUs with the optics as well. So kind of a very full suite. And then finally, with the investment from NVIDIA and our partnership there, we're also marketing and promoting NVLink with Marvell as a technology partner to enable that as a protocol to enable a lot of network fungibility as well. So there's a lot of shots on goal for us on scale-up networking. It's brand new, and today it's really dominated just by NVLink, but in the next few years, the need to connect more and more GPUs and XPUs together and enable the scale-up opportunity is going to be, I think, a new market and one where Marvell can really make a meaningful impact out the chute.

Matt, there has been a lot of discussion at a conference around the near-packaged optics roadmap. leading to the co-packaged optics. Can you help us understand how you're positioned to benefit from this near-term wave around near-packaged optics before we enter the co-packaged optics volume?

Sure, so a couple of things there. The first is that we've been investing in NPO. It also used to be called OBO, onboard optics, and these types of solutions for at least five years since we acquired Infi. So if you go back to the InFi acquisition, a lot, and it's been obviously very, very successful. It was a high multiple at the time, but it worked out really well. One of the key capabilities they brought to Marvell was silicon photonics. Now, the way that that's been used in Marvell to date has been primarily in our DCI products. So in our modules that we sell, both for 100 gig, 400 gig, 800 gig, now to 1.6 T, that all uses proprietary Marvell silicon photonics inside these modules. So we've been in high-volume manufacturing for 10 years. So that same team, as a parallel effort, has been developing NPO. And we've demoed that at OFC for the last three years, actually. So this isn't something new that we just came up with. this has been demoed and proven and now its time has come what's happened is along with that we acquired a company called celestial ai back in december 2025 which brought us even more integration in terms of cpo technology so we've integrated those two teams together it's one very very strong combined engineering team and together we're able to show a suite of solutions from npo to cpo Now, on top of that, which is going to layer on even more revenue opportunity for us, is that in third-party NPO modules, where a traditional module manufacturer would be involved, and these are some of the people we already do business with today, on scale-out modules, like at 800 gig and 1.6 T, they're building NPO modules for the hyperscalers. We participate there with our TIAs and drivers, which is our silicon germanium analog product line. This is significant business for us. I mean, we talked about this being a billion-dollar business for us already, just on analog components. That's really in the near term. And then, Atif, as we ramp into NPO, our content is very, very high in the NPO module ecosystem with TIAs and drivers. so that's another leg of growth so when you add all that together the broadband analog NPO CPO and you look at like where we were this year which is effectively zero revenue from those you look into next year to a quarter ago we said it was going to be zero to 300 million this past quarter I said that was going to be much higher and a big part of our guide up for next year was going to be driven by networking and scale-up optics as being one key part of So imagine that number is even greater. So from a velocity standpoint, unbelievable growth. And that's just at the outset, right? So calendar 28, 29, we're going to see a big ramp in NPO with CPO also layering in. So this is not an or. This is going to be an and. And you're going to see simultaneously NPO solutions in the market for some time. You're going to see CPO ramping in. And I encourage all the investors here to get away from treating this, as sometimes we tend to do, as a binary thing. Well, if there's NPO, then it must mean that CPO is now gone. Or it was like saying, well, I don't know, copper is just going to keep going so optical will never exist. I mean, they're all going to coexist. Copper's got a great runway as well, right? But you're going to see all of these coexist in the market for several years. and it's a really exciting time because this is fundamentally new TAM for Marvell that we weren't in before. But now we're very well positioned when you hear about scale-up optics. And of course, now we have the switching as well coming with it. A lot of our competitors don't have that. They may have one piece. And then our expertise on the XPU side, deep design knowledge there, customer partnerships, and our ability to up-integrate CPO and NPO with the XPU is also a skill set we bring. so when we go to our customers we really have the end-to-end and it's a compelling story and at the end of the day atif these are going to be bookended solutions in a lot of cases where you really have to have an understanding of the digital silicon on both sides and then and then the optical link and we're uniquely positioned to um to enable our customers in this market and you're already seeing real revenue next year from this this isn't just a powerpoint slide of what we might do someday Excellent.

On the data center interconnect or scale across, you guys, that market has been more mature and steady in the past, and you've had the leadership position on the DSP with the pluggables. You've been riding the 800G wave, and as we look into the 1.60 transition, competition seems to be coming in as well. How do you feel about your competitive situation at the 1.60?

Yeah, we're really excited about the DCI business. Marvell and Enfi pioneered this business at 100 gig. It was very publicized, a product called Colors with Microsoft. We've maintained a very strong position at 400 and 800 gig, and I think we're as well-positioned as we've ever been at 1.6T. We were first to market on announcing our 2 nanometer DSPs that go inside the module. um the bring up on those has been excellent our silicon photonics platform tracking very well customer interest is through the roof and because of our track record in 10 years of doing this reliably we have like 15 billion device hours of performance and reliability data we can show with best in class performance so i think given our leadership position on the dsp side that's going to really help us. On top of that, the market is going from traditional DCI to what you mentioned, which is scale across. And there's market estimates that that could 2, 3, 4, 5x the size of the DCI market as scale across really layers in. So for us, it's the same fundamental set of components. But the use cases, when you get to 1.6T, enable the scale across architecture to happen. So we have really outsized growth plans right now in DCI. We've got an excellent leader for the business. We're investing not only on the component side, but in manufacturing capacity because we actually make the modules here. And we do sell our DSPs to third-party as well. So there's an ecosystem that Marvell DSPs have created with our own products and then our module partners. But I think the exciting part is the inflection with the scale across use case coming in. But even if you didn't have that, just the DCI business, because you get more ASP per generation of DCI module, the number of ports are going up, the DCI use case alone would justify a lot of growth. But I think scale across, when it layers in, is going to really upsize the market. So more to come on that.

But I'm very pumped on that business. great going to you dan you are no stranger to semiconductors global foundries apply materials welcome to marvel i have a question around your r d prioritization when you look at the portfolio products that marvel has and recently when you look at your operating margin profile helps understand how you're prioritizing your r d focus areas and driving towards that in 38 to 40% target model?

Yeah, I think the first and foremost, we see this incredible opportunity that is multifaceted. And the diversification embedded in the portfolio is a bit of uniqueness in terms of the way we're driving the business. So we're going to orient towards growth. And we're going to take this company structurally larger in size, materially larger in size over time. And we'll have more to say about this in a few weeks at the Analyst Day. embedded in that as a philosophical approach that Matt takes to how we run the business the culture that exists there's a transparent aspect of how we synthesize the most meaningful opportunities that are out there and in a shared decision-making process Matt drives discipline from a capital allocation standpoint across those opportunities so we focus the investments on the most material drivers affecting the company growth drivers affecting the company the opportunities that we see that can also yield the best profitability so there's an entire rhythm and culture that Matt instituted when he came into the company and seeing it on full display over the last month you see a bit of the magic as to why we've been able to tap into those incredible growth drivers and again we'll have more to say about taking the company structurally larger but we also want to grow the company in a very disciplined way so at a moment in time where lots of things are possible how you narrow the aperture focus on the most critical items and do it in a disciplined way and then drive execution with crispness with precision with rigor with discipline makes all the difference in capturing that growth but doing it in a way where your OpEx will grow roughly half the rate of revenue over this time so that we embed significant operating leverage in the model that as we take operating margin standpoint over time, we're going to exit this year entering the long-term target model for operating margin at 38 to 40 percent. We will exit next year touching the top end of that range. And in a few weeks, we'll reset what we think the new long-term target is. And so it's all about discipline, orient towards growth, execute well, and then grow the company in a profitable way.

Let's talk about supply. It's a never-ending debate around how much supply there is available to you guys and your peers. You've raised your 27, 28 outlook last two quarters. How much of that is demand upsiding versus supply unlocking? and can just walk us through the process for the audience's sake? Like, what is that process to get more supply these days?

Right. Well, I think on the first part of it, you know, if I just contextualize it for a moment, if I go back a year ago this month, you know, post-earnings, I did a fireside chat after this conference to try to clarify for investors how to think about Fiscal 27, which is this year in Fiscal 28. And at that time, I said, basically, look, I think we can do $9.5 billion this year in Fiscal 27. There's not going to be a revenue hole. We haven't lost any business, and things are looking good. And then in Fiscal 28, which would be Calendar 27, I signaled I thought we could do $11 billion. plus let's call it so that's 20 billion over that two-year period you fast forward to today and we've now said we can do 12 billion this year and 18 billion next year so that's 30 billion so in one year we've basically gone from 20 billion over a two-year period to 30 so our supply chain has been able to flex up 50 right over that time on a on a graduated basis i think most of that has come. So it's all in conjunction, Atif, but certainly the demand environment has gotten better, right? CapEx floated up a lot versus what we thought a year ago. That's helped. I think the take-up rate and our success rate on our new products has been very, very strong. Our execution success has been great. We're getting to production 90-plus percent of the time on first-pass silicon on advanced node so that's really helped us on time to market i think we also had some pretty conservative plugs in for kind of market share and our growth and and and probably you know called the ball way too low on on connectivity um and and you know looking back a year later you know haven't missed a beat have executed through our product cycles both on 800 gig which remains very strong and 1.6 t So any of those concerns that were out there, I think we're overblown. That's gone very, very well. We've said that that business this year is growing like 70% plus, right? And that growth rate is going to roll over into next year as well. High growth, we haven't specified exactly, but clearly the raise up to $18 billion, you could assume connectivity and interconnect keeps ripping higher. So all that's been great, right? So supply has continued to perform. And look, I think how you do it, and we had to learn this lesson a little bit the hard way five years ago, is the first five years at Marvell, the company was set up to do smaller packages, was more tactical in nature. We would have three or four suppliers for everything. We would kind of beat people up against each other. We used a very traditional model. And once we acquired Avera and then Infi and Inovium, we got these very complex reticle-sized products that required deep relationships in the supply chain in terms of substrates and back-end capacity that wasn't that fungible. I mean, you basically had to pick your partners. And during that time, we promoted Chris Koopmans to chief operating officer, and he and I basically went off and struck a bunch of deals, long-term deals, with all of our supply chain, not just TSMC, our sole source vendor on the fab side, but also on the substrate side, back-end capacity, et cetera. And that worked really well. I mean, that's basically what's gotten us from, call it $4.3 billion run rate when we bought InFi. That was the run rate the quarter we closed right in 2021. Now here we are in 2026, and we're looking at $12 billion in revenue, right? So we've almost tripled the size of the company. I mean, if you roll it into next year, then it's obviously it's up three and a half, getting close to 4X. So those investments we made helped. We put in CapEx at the time. We did prepays. But we told our story. I think that's the biggest thing, actually, is suppliers are a lot like you guys. At the end of the day, they want to figure out who's the management, where's this company actually going, what end markets are they in, are they credible, do they have a good plan? And you can go to a lot of meetings in the Asia supply chain and they'll be very polite and you'll get a head nod and they'll say, thank you very much, and if they don't believe your story, you're not going to get what you need. In our case, we have a very compelling story that we've been telling consistently for five years, so they trust us. We've gone to fewer suppliers, more deep relationships, that's appreciated. We've upped the capex and the prepays to represent now the scale of the future opportunity five years later so we're re-upping some of those but I just got back from an entire week in Asia visiting you know my supply chain you know new vendors existing suppliers and just kind of reaffirming where we're going and so that has really helped that combination of credibility trust compelling roadmap and then you know capital you put in which is really putting skin in the game right at the end of the day they just want to see you're committed and and you have conviction so I think we feel very good about our prospects we got an investor day coming up on October 6th that's one of the reasons I wanted to do this deep dive with my suppliers is get them on board I mean I gave them a preview hey here's where we're going are you are you all in with me and Marvell or not and all I got last week was a resounding yes and we're going to be there with you with whatever you need and let's plan it out let's plan it out um so yes there's going to be challenges things are tight it's it's it's been constrained since the pandemic it's very acute right now in some areas i'm not making any light of this i'm not saying this is easy but you have to have had a system and a mechanism and a set of relationships that was five years ago if you're going to get what you need if you just popped out of nowhere and you said hey i got a data center part now and I think I need like billions of dollars of revenue next year, I think people are going to look at you like, where were you five years ago? I mean, you can't get some of the substrate capacity until the end of the decade if you haven't started. How are you going to get it if you didn't start five years ago? So that's the advantage we have of having a very single-threaded strategy in data center and data infrastructure is this is all we do. we don't have some consumer side bet that is distracting us and keeping our keeping our keeping us defocused um we're fortunate in a way that our our concentrated effort on data center and now ai has has led us to an ability to tell a very clean story to our suppliers wonderful looks like you're getting your fair allocation on the wafer side matthew you guys have a seat with the hyperscalers you engage with three big ones and then you're working with others on XP you attach sockets so this topic around LPS land power and shell is increasingly coming up with clients and your peers are highlighting that this could be some sort of a bottleneck beyond silicon and supply chain so when you're talking to your hyperscaler customers what are you hearing from them around concerns around whether it's regulatory approval and or the timing of availability around land power and show yeah i'm not sure i have too much new to offer there i think this has been an ongoing an ongoing issue and concern right as we ramp through this kind of outsized capex cycle um you know to to to date you know um uh you know you can you can obviously see the the the demand sides hasn't been curbed by that i think the other one that's hanging out there too that that i mean actually our our suppliers seem worried about is the is the societal pushback right like hey is are people going to allow some of these data centers to happen because they're they're worried about it being in their backyard so there there's there's a bunch of constraints in the system which which in a way i actually think is is not the worst thing because i think in a way i mean look at the growth that companies like marvel are experiencing with all these constraints. And I've been around the block long enough in some eyes to know if you kind of get unfettered access at some point to infinite supply, the industry always overdoes it. And so I actually think there's some degree of healthiness on the AI infrastructure build, which is very durable in nature, very long-term in terms of its planning cycle, and seems to have a lot of legs and is delivering a lot of growth despite the LPS constraints, the pushback regulatory society-wise, and then just like, you know, memory and advanced node wafers, and you can go through all the constraints. But look, I mean, companies that are able to execute are managing through a lot of chaos. And the same thing happened in the pandemic, different framework, but, you know, some companies just were completely upside down on their supply chains, and they were extended, and they didn't know what to do and it was like you know any all these semi cycles you know you emerge either a lot stronger or a lot weaker there's kind of no in between and I think we we are proving to be one of the resilient companies through these turbulent times but but so far we're we're getting what we need I think to deliver to the commitments we made Dan coming back to you this topic of AI financing comes up a lot with clients you've committed 1 billion in fiscal 27 supply prepayments which can make sense but when you're what looking at your peers some of your peers that are

farming partnerships and consortiums with financiers on funding some of these data centers would love to get your thoughts on the risk profile of that as well as what is Marvell position are you also looking at those kind of engagements?

Yeah, so every company will do what they feel is right to facilitate the growth for their company. I would say our approach is going to be focused on bringing industry-leading technology to market, differentiating ourselves with that technology, and enabling customer success. That's what we've been doing for a very long time. That's what we're going to continue to do. Solve your customers highest value problems drive their success drive our success we're gonna stay focused on being a technology leader and a key enabler of our customers and you know I won't comment on what other companies are doing and risk profile I just know that we're focused on being the the industry's best enabler of our customers in those highest value sockets and I just make One broad statement that I do think it does point just broadly that the amount of kind of the breadth of investment that's now happening has gone from being kind of very concentrated to much broader in nature because at the end of the day a lot of smart people are looking at the economics and saying this makes sense.

And so I think it's going to be good to see this outside capital at the end of the day come in to really make sure that the financing was there and the capitalization is there to really enable the AI returns to happen. So as Dan said, we're really not in that. I mean, we're kind of just heads down focused on doing what we do really well as a best in class semi-company. But I think, you know, the positive for me is that there's a lot of legs behind the capital commitments coming in for the AI build. And they've broadened.

All right. On the NVIDIA NVLink Fusion relationship with NVIDIA as both an investor and a partner via NVLink Fusion, how do you manage the tension between supporting NVIDIA's ecosystem and and winning your own custom XPU sockets in the networking?

Yeah, I would say it's the opposite of tension. I think what, first of all, it's a, you know, the partnership that we struck with them is, as you know, is far-reaching, you know, NVLink Fusion kind of being one of the core pillars which we can utilize as a partner of theirs to really enable, like, network fungibility, ultimately, and drive that standard more broadly, because it is the most widely adopted scale-up interface in the world. Now, that being, and I think, but that being said, we're gonna go where our customers wanna go, and so we have multiple shots on goal right now. We have a ground-up UAL investment. We talked about that earlier on scale-up switching. We have ESUN, which gets a lot of leverage from our scale-out, and then we have NVLink. So from an NVIDIA point of view, you know they know we're working together to promote we promote their solutions we actually and we were unique and that we can offer it at multiple layers of the stack but I you know at the end of the day everyone understands customers are going to want to do what they're going to want to do we just need to make it make a compelling case for each of them and then let them choose and I think it's it's money well spent right now to have multiple shots on goal here and that team ultimately is pretty common there's a lot of common investment especially on the 30s so at some point if one standard wins or we need to move it harder one way or the other we've got the scale of the engineering team that can really go go execute but right now we're very comfortable with the shots on goal we have and the partners well we really appreciate all their support but as you saw from the announcement it's It's broad reaching, there's DSPs, there's a collaboration on optics, there's a project on AI-RAN, there's a number of things that we're doing with them that were a continuation of what we were already working on, but this definitely memorialized the types of opportunities So it's very strategic in nature in the long term.

And so we'll see how that goes, but we're actively promoting NVLink Fusion as a key standard in the industry and trying to help enable their vision awesome let's talk about the custom ASIC or the XPU business another theme that came out of the hot chips conference was this theme around desegregation that the industry is moving towards prefilled decode and many different types of chips around SRAM different memory architectures to improve the flow of data and particularly in the agentic AI era so you guys the knock on your stock a couple of years ago was that you had too much concentration risk with one hyperscaler that you were ramping on this XPU socket and and waiting for the other one to kind of layer on but most excitingly you guys have announced another partnership with Google recently in the 120 billion warrant like revenue structure my question is really around that engagement the timing of the engagement when should we expect revenues to kind of flow from that deal that you have signed with Google yeah no great great questions so a couple of thoughts the first is you're you're right you know when when we started on this custom journey you know you got to start from somewhere okay and and we

We didn't have much, I mean, we basically got the core of the custom capability from Avera, which was a spin out of Global Foundries, it was the custom ASIC team that ultimately had come from IBM, right, it was IBM's custom ASIC team, they've been doing this for 30 years, you know, taped out over a thousand products, a very experienced capable team, but they were in Global Foundries where the roadmap on advanced node had been curtailed and so they needed a home and so they ended up in Marvell. Well, so the whole run rate business of all of Avera was like 300 million bucks, you know, when we bought it and very, very little to no data center revenue. But I knew and we knew that that market was coming because we were getting asked by all these customers to do custom for them and we didn't have a team that could do it. So we started from nowhere. You know, we pretty quickly got it to, you know, a billion and a half dollars, but it was really concentrated in like one big customer to your point with another one coming but we said also we got more design wins right but but that wasn't really making investors very happy it was like hey this is this is just too much and and you know it's the curse of the mega socket right i mean you you want to win it it's so exciting it's so great and then you win it and you realize you're over your skis you're concentrated and everybody runs for the hills on the multiple but in 2025 And I'll come to the relationship with Google in a moment, but in June 2025, we tried to assuage some of this concern, and we did a full-blown custom AI Silicon event where we showed, like, look, we got, like, you know, 18, it's now 20-plus design wins across all the four U.S. hyperscalers of both XPU and what we called XPU Attach. And then at that time, I think there was a view that, and we called that as about a $15 billion market in 2028, which, again, people sort of said, well, that looks kind of small, which I think that looks pretty big. I mean, when I started at Marvell, the whole TAM of all of Marvell was like $8 billion, right? So this XPU Attach actually is very meaningful, and we talked about all the technologies we have for it in terms of our die-to-die, high-speed I.O., custom SRAM, right? We had a whole presentation on that. Mark currently stood up, detailed it because that was a whole IBM thing that came over with that acquisition that we still kept the team around on that's used in high-performance networking chips plus high-performance AI chips. So laid out all the technology, and I think there's still a fair degree of skepticism. But if you look at what we just, you know, filed on with the SEC, the 8K with a warrant with with google that is really an xpu attach relationship and it covers all the same product categories actually we talked about a year ago nix cxl storage controllers near memory compute ai acceleration i mean a a a a suite of these and if you look at the total scale of the potential of the warrant at max performance it's it's pretty stunning right what it what it could do now there's a lot of questions about it and investors trying to model you know where does it layer in and how much do i put in and and we have a great opportunity at our investor day coming up to contextualize that in terms of where our custom business is going but the way you guys should think about it is there's no one trick pony in there this is going to be a very diversified business within Marvell, I'm talking about the custom business, that's a number of sockets across all the big hyperscale customers that'll be very diversified and very rich in Marvell IP, especially the XPU attached side, because in many cases on those products in general, we get asked to do a chip for them, but it's a build to SPAC. A lot of cases, it's actually Marvell doing the whole chip, but it's got the customer name on it because they don't either have the team size to go complete the project on their own, or they just don't have the people to do it that have the skill set. So it'll be a mixture of XPU, XPU attached, but it's going to be, so we'll contextualize, and we'll contextualize a range of outcomes actually because I think no one knows exactly how to call the ball with precision in 2030 on anything. so I think some some ranges are important but the key takeaway should be that that XPU attached was not a hey look over here strategy from the investor day it was we think this is a meaningful new market in a market that Marvell is actually pioneering and as a leadership position in so somebody asked us earlier today well can other people do these XPU attaches and how does the competitive landscape work and we talked about that which we feel very good about because this is this again is Marvell homegrown IP a lot of it going all the way back to the acquisitions we did like Cavium like in five like Inovium but I did jokingly say you know at some point I think a whole bunch of companies are gonna come out with their XPU attached strategy right all of a sudden there's this market now and here's what we're doing and here's how we're gonna go you know take Marvell's business but I think we were ahead of the curve on that one which has served us well because while other people thought it was a distraction look at the magnitude with one account with one account and we're working you know across the whole spectrum of customers of which we we don't have warrants with eight k's on them so you don't know how big the other ones are but you should assume that this is a very big category for us and so between xpu xpu attach it's it's a meaningful you know opportunity but i don't want anyone here also to get go back to the future where we were in 24 and 25 and get hung up that there's one big socket we got to go obsess over and also think that custom is the only game in town i mean marvell as a company is driven by its connectivity technology that's our core that's what we're the market leader in we are the category leader in interconnect in connectivity that's the bulk of our revenue i showed this at computex you know that that's a differentiator of Marvell. We have compute, and we have custom, and that's a great base piece of our business. It's going to grow really fast, but that's all going to be led on the back of our leadership in I.O., in connectivity, and that's the delivery mechanism, right, for our large digital silicon chips. The other day, you were joking around about, hey, you know, it was so crazy, you know, Marvell hired an analog guy to go run Marvell. Well, it turns out, back to the future, all the key proprietary technologies we have and why we win is in the analog mixed signal domain and dsb that's where the value is and that's what marvell is driving and now it's moving by the way last comment from from you know electrical certes and electrical io and and copper interconnect to optical and so when you go i'm now merging us over to this other discussion of connectivity but But when you go to the optical domain and you then look at XPUs of the future, XPU attached of the future, switching in the future, having that core capability in CPO and NPO and the ability to integrate, I think is going to be the key to the kingdom for the next 20 years. So we can do both simultaneously. But again, I think there's very few companies that can lead in the electrical domain on connectivity and I.O. and lead in the optical domain or at least do both of those very well simultaneously. And again that is going to be the key to the kingdom on all these larger digital silicon ships that that sort of get a lot of Excitement news. I think it at the end of the day. It always comes down to the I.O. And that's what we're really good at You know, I gotta give you guys credit on the XP you attach term you guys came up with first and definitely delivering there Stay tuned for the investor day But for now you guys have said that you're on track to get to that 10 to 11 billion custom basic fiscal 29 number and it's custom sales are doubling next year it's not a good track it's really very consistent and kind of programmatic and prescriptive on this one because I think in the past some of the custom expectations would run a little wild sometimes you get third-party data somebody post on X there's some some tracker and the correlations and and I totally get it there's a there's a there's a need to kind of try to contextualize the market and I think our approach we kind of flipped at the end of last year was we're just kind of trying to tell you what we're going to go do and then we're just going to go do that and give you a number. And I think for the investor day, we probably need to give a range for the future just because I think there is a range of outcomes. But even the base case would be very compelling and certainly compared to a year ago at our custom AI day or even earlier, two years ago at our broader AI event in New York, I think customs sort of only floated up, but the rest of the business is ripped also beyond, I think, what we had even thought was possible.

Great. Dan, as semiconductor investors, we get fixated on gross margins, and the nature of the XPU custom business is because you guys share the IP with your customers is intrinsically lower gross margins. So my question is really around, you know, navigating. Is there a structural flow to the gross margins for custom business where you walk away from certain sorts of sockets? And how you guys are kind of optimizing the portfolio around the gross margins?

Yeah, so there's multiple parts to the business. As Matt keeps saying, you know, it's a multi-pronged strategy not geared on one particular socket. We've got a great merchant business with a clear leadership position. with an enviable market position and a margin structure that reflects that. As we think about custom, not all custom opportunities are built the same. In an XP you attach, think of it as semi-custom. Think of it a lot of it as Marvell IP that's just customized in several ways for the environment that that chip goes into. that has a very different margin profile than maybe, say, an XPU opportunity. So you've got different parts of the business. As custom grows, as the mix of custom grows, you will see incremental step down from a gross margin standpoint. But the operating margin opportunity will grow. You see that in the current environment. You see a slight tick down as we're ramping custom into the back half of the year. Slight tick down from a gross margin standpoint. But in the most recent quarter, you see 180 basis point improvement in operating margin. You're going to see sequential increase in operating margin in Q3 and again in Q4, getting us to the low end of our long-term target range of 38% to 40%. At a similar range of gross margin as we window into the next year, calendar 27, fiscal 28, you're going to see that operating margin walk from touching the low end of the 38% to 40% range to touching the high end of the 38 to 40 range. And we'll have more to say about this as we get into the analyst day and give the ranges of outcomes as it relates to merchant, as it relates to custom, the interplay, and what it ultimately means at a structurally larger scale for how the margin profiles, particularly from an operating margin standpoint over that window, to drive EPS growth in a very attractive way. We'll have more to say about that, but clearly, the mix will play out, and we've got multiple aspects of the business, both very attractive merchant business as well as an attractive custom business that is going to produce a very nice EPS trajectory over time.

And maybe just to add, I think Dan said almost all of it, but just to add for some investors that are new to the story, the custom business, and we actually, I mean, we articulate this from day one when we acquired Avera, is while the custom business carries a lower gross margin, you know, it's got the ability to deliver commensurate operating margins with the overall company. And then you might say, well, how is that possible given the differential? And again, for people new to the story, the way it works and how we account for it is a custom program, you're getting customer funding to do it because it's for them. So they're going to pay you a bunch of money to basically go in and make this custom chip for them. And in some cases, the NRE is very meaningful because the development costs are high. And so when you do that, the way we treat it from an accounting standpoint is an offset or contra R&D. So in the end, even if the product's carrying a lower gross margin, you get that offset. and so the the om and the flow through is actually very very competitive so so that's you know just part of the dynamic that's why as dan said as we're ramping with with a little bit of margin compression in the second half this year and it's not a lot it's not a crazy amount it's coming down mildly but we're delivering very strong operating margin leverage through there and i would just say for next year we we were you know usually you get beat up on gross margin questions when it goes down um we were having a meeting today where people were saying geez you know next year you guys said it would kind of hang in there at the same level as as the exit rate but your custom business is doubling next year but you're not doubling as a company so how how is that possible and i think that's a positive story i mean you know we're we're managing it is is what i would tell you we have great we have you know margin-rich opportunities within within the rest of the business right that's kicking in and remember also when we were before we were you know saying maybe you probably assume margins come down a little bit gross margins next year a quarter or two ago that's when marvell revenue was like 13 and a half billion next year with custom about the same as it is today right so as we've raised from 13 and a half to 18 most of that raise has come from interconnect and switching and storage and some from custom some but custom's been been pretty consistent in terms of the double so that's helping us right if you you know um so and and i think the key point i want to make sure everyone knows here is we're managing the business i mean we're we're we're not just going to print the results that just show up i mean we're going to also manage manage the business and that means you know cost reduction mix allocation price the whole nine yards right to make sure that we're managing a competitive gross margin for the company despite you know mix under the hood now if custom just goes and becomes half our business someday of course the company gross margin is going to come down but the flow through on om and eps is going to be so massive it'll be worth worth that for every investor okay but i'm saying even in the short term next year given the mix we're looking at today and that could always change if things buy us up or down we're actually able to manage with a lot of growth in customer you know an operating a a gross margin flattish with om expansion so not a bad story you know at least heading into next year we'll see how the year plays out.

Dan, on the capital allocation front, Marvell historically has been acquisitive, Cavium, InFi, Celestial AI, more of a tuck-in type acquisition recently. So when you look at your priorities of dividend versus share purchase, debt serving, and also M&A, and you guys have a tremendous IP portfolio, like how do you rank order where we go from here?

Yeah, as I think about capital allocation, I typically think of three priorities. First, we're going to orient towards growth. We're going to invest in innovation. We talk about a healthy pipeline from an R&D standpoint, organic growth. We'll complement it from time to time, as you point out, from an inorganic growth standpoint, but pillar one of capital allocation is grow the company. Second, strong and healthy balance sheet. Flexibility in an environment like this is important third return excess cash to shareholders and you see that balanced between both dividends and share repurchase in an environment like this where you're seeing a major inflection shaping the end markets and the end markets are going structurally larger as part of growing the company we want to make sure we have and preserve the flexibility to put order in the supply chain and retire those key pinch points of constraints before they materialize be a rate limiter of growth, so there's another element in terms of growing the company in an environment like this. We work deeply with our supply chain, we've got a great ops team, supply chain team, and a good rhythm around this where we're looking out on the horizon and making sure capital is deployed in a way so that it facilitates the incredible opportunities we see on the horizon.

Grow the company, strong flexible balance sheet, be disciplined capital allocators to investors with excess cash and one last question for for Matt Matt as you look beyond fiscal 29 once the current wave of XPU and XP attached programs matures what's the next multi-billion dollar product category Marvel is building towards or we're under appreciating yeah I think the The biggest one is going to be, and I'd say this in totality, is the scale-up opportunity.

I think if you look at the silicon switching TAM, and then you look at the optics attached, at some point you're looking at optics attached around the switch that's commensurate, I think, to the ASP of the switch, and then if you can bookend the solution, then you're putting in that same amount of optics content on the XPU, GPU side. So it's quite meaningful, depending on where it biases upwards to. But that whole area, which is in scale up, and then also higher layer networking in scale out, again, that's a business we don't talk about as much. We're growing into that. But both of those in total, I think switching plus optics is going to be very big. And I think when you look at that whole franchise, and then, of course, you've got, you know, on the scale up, both UAL and ESUN. So we'll see how that plays out in the mix. But I think that one is a very large future, TAM, where we're investing very heavily. And I think when we look back, that'll end up being one of the big additional growth engines for Marvell. but even the existing businesses were in like I told you like skills you know DCI is going to scale across right that's got a dynamic that's gonna crank the TAM up on the traditional even interconnect business right as we go from on scale out right which which is our which is our biggest business and you go from 800 gig to 1.6 T to 3.2 T you're getting more ASP per generation and the content, the attach rate of optics per GPU and XPU is going up significantly from generation to generation. And the whole industry's been shooting behind the eight ball on transceiver shipments. You can see this, right? Transceiver shipments keep floating up dramatically because I think there was not a good understanding of what those attach rates would look like. I think also CapEx has floated up. There's a bunch of reasons. But if I look out over the next few years, this interconnect story for us on traditional optical DSPs, TIs, and drivers into the module ecosystem, that's going to have a very strong year in calendar 28 and 29. And as you have product transitions, like I said, into 3.2T, and the attach rate keeps going up, that should continue for some time. So don't count out the existing businesses growing at 50% a year plus off a pretty big base but you're right on layering in new things I think the switching plus optics combination you know on a three four five year view out and kind of where a big meaningful chunk of revenue could come from that we don't have today is I think that's that's an area that's very exciting for us and right right in our wheelhouse awesome we'll wrap it up Matt and Dan thank you for coming to the city conference yeah thank you thanks everybody