Marvell Technology Group Ltd

NASDAQ:MRVL

Earnings Call Analysis

Marvell's AI and Data Center Growth Drive Optimistic Future

Marvell Technology reported $1.27 billion in Q2 revenue, driven by a 92% year-over-year growth in the data center market. Earnings per share were $0.30, bolstered by strong AI and custom silicon demand. The company expects Q3 revenue to rise 14% sequentially to $1.45 billion, driven primarily by AI products. Marvell is confident in exceeding its full-year AI revenue target of $1.5 billion and projected around $2.5 billion next year. Significant investments are planned in custom silicon, AI, and data center technologies to sustain growth and maintain industry leadership.

Strong Second Quarter Performance and Revenue Outlook

Marvell Technology Inc. reported robust results for the second quarter of fiscal year 2025. The company's revenue reached $1.27 billion, surpassing the midpoint of their guidance, driven largely by a strong demand from the data center market. This represented a sequential growth of 10%, though it marked a 5% decline year-over-year. Notably, data center revenue alone hit a record $881 million, showcasing a significant year-over-year increase of 92% and an 8% sequential rise. This outstanding performance in the data center sector was attributed to the ramp-up of electro-optics custom silicon and increased sales in storage and switch revenue. The company expects continued growth in this segment, particularly with the introduction of new technologies like PCIe Gen 6 retimers, further solidifying its leadership position in a rapidly expanding market.

Financial Health and Operational Efficiency

Marvell demonstrated strong financial health with effective expense control measures and solid cash flow. The GAAP operating margin was recorded at -7.9%, while the non-GAAP operating margin stood at 26.1%. Cash flow from operations amounted to $306 million, and the company managed to reduce its inventory by $198 million year-over-year, marking a 20% reduction. Additionally, Marvell returned $52 million to shareholders through dividends and increased stock repurchases to $175 million for the quarter. Looking ahead, Marvell forecasts third-quarter revenues to be in the range of $1.45 billion, plus or minus 5%, with an anticipated sequential growth of 14%, largely driven by the ramp-up in custom AI products.

AI and Custom Silicon as Growth Drivers

AI and custom silicon continue to be significant growth drivers for Marvell. The company expects custom silicon to be the largest contributor to revenue growth due to its extensive design win portfolio. Marvell's AI initiatives have begun to deliver tangible results, with AI-led data center revenue almost doubling year-over-year. The company's strong booking momentum and robust supply chain setup are expected to sustain revenue growth into the fourth quarter and beyond. Key AI products like custom DSPs for active electrical cables and the industry’s first 200 gig per lane, 1.6-terabit AEC DSPs have started to ship, showcasing Marvell’s innovative capabilities in addressing higher-speed data interconnect applications.

Diverse Market Strategy and Technological Advancements

Marvell's market strategy is diversified, with significant contributions from data center, enterprise networking, automotive, and consumer markets. Revenue from consumer markets doubled sequentially, driven by gaming inventory recovery, while the automotive sector is projected to see mid-single-digit growth in the upcoming quarters despite a recent decline. The enterprise networking and carrier infrastructure markets also indicate a promising turnaround with increased order bookings and revenue growth forecasts in the mid-single digits. Crucially, Marvell’s technological advancements in electro-optics, custom silicon, and interconnect solutions position the company to capitalize on the rapid expansion of data-driven applications and infrastructure.

Guidance and Future Outlook

Looking forward, Marvell is confident in its ability to achieve ambitious revenue and earnings targets. For the third quarter, the company anticipates GAAP gross margins to be around 47.2% and non-GAAP gross margins approximately 61%. GAAP operating expenses are expected to be around $693 million, with non-GAAP operating expenses at $465 million. Marvell’s strategic focus on high-ROI opportunities, particularly in AI and data center infrastructure, underpins its growth projections. The company expects to exceed its full-year AI revenue target, driven by strong demand in both custom compute and optics businesses. Overall, Marvell’s robust financial management, strategic market positioning, and innovative product offerings indicate a strong growth trajectory for the foreseeable future.

Earnings Call Transcript 2025-Q2

[Operator]

Good afternoon, and welcome to Marvell Technology Inc.'s Second Quarter of Fiscal Year 2025 Earnings Conference Call. [Operator Instructions] 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.

[Ashish Saran, executive]

Thank you, and good afternoon, everyone. Welcome to Marvell's Second Fiscal Quarter 2025 Earnings Call. Joining me today are Matt Murphy, Marvell's Chairman and CEO; and Willem Meintjes, our CFO.

Let me remind everyone that certain comments made today include forward-looking statements, which are subject to significant risks and uncertainties that could cause our actual results to differ materially from management's current expectations.

Please review the cautionary statements and risk factors contained in our earnings press release, which we filed with the SEC today and posted on our website as well as our most recent 10-K and 10-Q 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 also available in our earnings press release.

Let me now turn the call over to Matt for his comments on the quarter. Matt?

[Matthew Murphy, executive]

Thanks, Ashish, and good afternoon, everyone. For the second quarter of fiscal 2025, Marvell delivered revenue of $1.27 billion, above the midpoint of guidance, driven primarily by strong demand from our data center end market. Higher revenue combined with a expense control drove non-GAAP earnings per share of $0.30, also above the midpoint of guidance. Revenue in the second quarter grew by 10% sequentially, and we are projecting higher sequential growth for the third quarter with all expected to grow. Achieving the midpoint of our third quarter guidance would also result a return to year-over-year revenue growth for Marvell.

Let me now discuss our results and expectations for each of our end markets. In our data center end market for the second quarter, we drove record [ $881 ] million, growing 92% year-over-year and 8% sequentially. These above guidance results were driven by strong demand for our electro-optics custom silicon beginning its anticipated ramp as well as growth in our storage and switch revenue.

Strong bookings continue for our market-leading 800 gig PAM products and 400 Zeta Center Interconnect or DCI products, and we are looking forward to starting hence of our next-generation 200 gig per lane, 1.6-terabit DSPs in the third quarter. As we expect, our Electro optics revenue will continue to grow every quarter this fiscal year on a sequential basis.

We are also looking forward to addressing a number of new opportunities within the data center. We have begun initial shipments of our 800-gig DSPs for active electrical cables for ADCs, and we are anticipating the production ramp to accelerate in the second half. In addition, we recently started sampling the industry's first 200 gig per lane, 1.6-terabit AEC DSPs to address upcoming higher speed or reach copper interconnect applications. Data center servers are turning to PCIe Gen 6 technology, which needs higher order PAM4 modulation. Given our leadership position in PAM technology, customers are turning to Marvell to enable this transition, and we are now sampling our new PAM4-based PCIE Gen 6 retimers.

As you can see, we are continuing to broaden our end-to-end product portfolio to address all the critical interconnecting of our data center customers, positioning us to take full advantage of an interconnect TAM expected to grow at a 27% CAGR to $14 billion by 2028. We are confident in our ability to continue to lead the industry in power and performance with our current OPTAVSP and DCI franchises, while we expand into new opportunities, including AEC, DSPs, PCIe retimers, silicon photonics and longer-distance 1,000-kilometer reach DCI modules. As a result, we expect to maintain a leadership position in this large and fast-growing interconnect market.

We are making significant progress in bringing Compute XpressLink or CXL technology to the market, having recently introduced 2 new families of CXL devices to address memory bandwidth and memory capacity challenges and next-generation servers. In our cloud security business, we are with Microsoft will begin integrating Marvell's FIPS 140, Level 3 compliant, liquid security hardware modules in their Azure Keval offerings. These products offer assures customers the most secure encryption and key management services in a cloud platform.

Let me now turn to our custom silicon business. As investment in AI and accelerated computing continues to surge, Tier 1 binders are increasingly focused on using custom silicon prove their data center TCO and drive differentiation. AI has accelerated on the cadence of new chip releases, resulting in shorter design windows and faster time to production, come significant increases in complexity with each new generation. This trend is driving cloud customers to partner with companies like Marvell, who have extensive experience in delivering multiple generations of high volume, high complexity, leading-edge chips developed using robust design methodologies.

Additionally, cloud customers are seeking access to our differentiated and field-proven technology platform, which include Ultras high-speed SerDes, ARM compute, optimized HBM interfaces, security, storage, guided eye interconnects, silicon photonics and advanced packaging. Customers are also adopting concurrent product development with staggered platform launches to produce silicon on an annual cadence. The approach reinforces the value of a trusted silicon partner like Marvell, who has decades of processor expertise it can take on greater responsibilities. As a result, the nature of our customer engagement is shifting from point design wins to multigenerational relationships.

Our AI custom silicon programs are progressing very well with our first 2 chips now ramping into volume production. Development for new come programs we have already won, including projects with the new Tier 1 AI customer we announced earlier this year are also tracking well to key milestones.

Looking ahead to the third quarter of fiscal 2025 for our data center end market, we are forecasting revenue growth to accelerate into the high teens sequentially on a percentage basis. We expect the largest contributor to this growth will be our AI custom silicon programs as they begin to ramp meaningfully in the third quarter, further augmented by ongoing growth from our optics portfolio.

Now let me turn to Marvell's enterprise networking and carrier end markets. In the second quarter, Enterprise Networking revenue was $151 million, while carrier revenue was $76 million. As expected, these end markets reached the bottom in the first half of this fiscal year and revenue from both end markets collectively flat sequentially in the second quarter. Looking ahead, after multiple quarters of inventory digestion, we are starting to see signs of growth for our revenue in both end markets. In the care end market, we have begun receiving orders for our next-generation 5-nanometer-based OCTEON DPU from multiple customers.

In Enterprise Networking, our customers are starting to see growth in their orders, and we have seen increased bookings for our enterprise products. As a result, for the third quarter, we project our aggregate revenue from enterprise networking and carrier infrastructure to grow sequentially in the mid-single digits on a percentage basis. While this forecast to anticipate Marvell product shipping below end market consumption, our order momentum picked up. And on a combined basis, we expect sequential revenue growth from carrier and enterprise networking to further improve in the fourth quarter.

Turning to the consumer end market. Revenue in the second quarter was $89 million, growing 112% sequentially, following the gaming inventory correction we expected in the prior quarter. Looking ahead to the third quarter, we are expecting revenue from the consumer end market to grow slightly on a sequential basis. Over the next couple of years, we anticipate our revenue from the consumer end market to normalize at approximately $300 million annually, with the majority coming from our custom SSD controller for a leading game console platform. As a result, seasonality of gaming demand will be the primary factor in our quarterly revenue profile for the consumer end market.

Turning to our automotive and industrial end market. Revenue in the second quarter was [ $76 ] million, declining 31% year-over-year and 2% sequentially. These results reflect broad inventory correction taking place across the automotive end market. Looking ahead to the third fiscal quarter, we expect growth to resume and are projecting revenue from the auto and industrial end market to grow sequentially in the mid-single digits on a percentage basis.

In summary, the Marvell team executed well in the second fiscal quarter, driving 10% sequential top line growth, delivering both revenue and non-GAAP earnings per share above the midpoint of guidance. AI led the way with data center revenue almost doubling year-over-year. Our consumer revenue recovered more than doubling sequentially, and we believe that our enterprise networking, carrier and auto and industrial end markets found their bottom in the second quarter.

As you may recall, at the beginning of fiscal 2024, we outlined the large opportunity developing an AI and accelerated infrastructure, even as we saw a slowdown in our storage, enterprise networking and carrier end markets. We outlined our plan to aggressively reprioritize our investments toward the highest ROI opportunities, including strategic road map adjustments and combining some of our businesses to reflect change in the market. This strategy has led to an expansion in our data center TAM, increased pace of new product releases targeted at this market. As well as our AI day, we plan to continue pivoting our resources towards what we believe to be a once in a generation opportunity.

Within data center, we expect custom silicon to be the largest revenue growth driver given the size of the opportunity and our expanding design win portfolio. We believe continued success in custom silicon will accelerate our time line to achieve our target operating margin model. Although custom has a lower gross margin than our merchant products, it benefits from inherently lower operating expense levels given NRE offsets from customers and the sharing of IP with our merchant business. As a result, as custom silicon becomes a larger part of our overall revenue, we see a path for operating expenses as a percentage of revenue decreasing below our current target operating model.

For the third quarter, we are forecasting consolidated revenue to grow 14% sequentially at the midpoint of guidance. We expect this growth to be primarily driven by data center AI augmented by the start of a recovery in our enterprise networking and carrier end markets. Given the strong start in the first half of the fiscal year from AI and our expectations for accelerated growth in the second half, we remain confident in our ability to significantly exceed the full year AI revenue target discussed earlier this year at our AI event.

The Marvell team is executing on all fronts. We expect our AI custom programs to continue ramping up. Our bookings continue to strengthen, and we believe that we have secured capacity and set up our supply chain to drive strong revenue growth in the fourth quarter and the next fiscal year. We are also excited to see our hard work showing up in our financials strong cash flow generation, which is funding increased capital returns to our stockholders.

With that, I'll turn the call over to Willem for more detail on our recent results and outlook.

[Willem Meintjes, executive]

Thanks, Matt, and good afternoon, everyone. Let me start with a summary of Marvell's financial results for the second quarter of fiscal 2025. Revenue in the second quarter was $1.273 billion, exceeding the midpoint of our guidance, declining 5% year-over-year and growing 10% sequentially. Data center was our largest end market running 69% of total revenue. The next largest was enterprise networking with 12%, followed by consumer at 7%, carrier infrastructure at 6% and auto industrial at 6%. GAAP gross margin was 46.2%. Non-GAAP gross margin was 61.9%.

Moving on to operating expenses. GAAP operating expenses were $688 million, including stock-based compensation, amortization of acquired intangible assets, restructuring costs and acquisition-related costs. Non-GAAP operating expenses were $456 million, in line with our guidance. GAAP operating margin was negative 7.9%, while non-GAAP operating margin was 26.1%. For the second quarter, GAAP loss per diluted share was $0.22. Non-GAAP income per diluted share was $0.30, $0.01 above the midpoint of guidance. Non-GAAP EPS grew by 25% sequentially.

Now turning to our cash flow and balance sheet. Cash flow from operations in the second quarter was $306 million. Our inventory at the end of the second quarter was $818 million, decreasing by $8 million from the prior quarter. On a year-over-year basis, we have reduced our inventory by $198 million or almost 20%. We returned $52 million to stockholders through cash dividends. In addition, we repurchased 175 million of our stock during the second quarter, an increase of 25 million from the prior quarter. We expect to further increase repurchases in the third quarter of fiscal 2025.

Our total debt was $4.13 billion. Our gross debt-to-EBITDA ratio was 2.29x, and net debt-to-EBITDA ratio was 1.84x. As of the end of the second fiscal quarter, our cash and cash equivalents were $809 million, [ decreasing ] by $39 million from the prior quarter.

Turning to our guidance for Marvell's third quarter of fiscal 2025, we are forecasting revenue to be in the range of $1.45 billion, plus or minus 5%. We expect our GAAP gross margin to be approximately 47.2%. We expect our non-GAAP gross margin to be approximately 61%. For the third quarter, we project our GAAP operating expenses to be approximately $693 million. We anticipate our non-GAAP operating expenses to be approximately $465 million. For the third quarter, we expect other income and expense, including interest on our debt to be approximately $46 million. We expect a non-GAAP tax rate of 7% for the third quarter. Please note that we forecast our non-GAAP tax rate in fiscal 2026 to step up to 9% in anticipation of a meaningful year-over-year increase in our operating income.

We expect our basic weighted average shares outstanding to be 867 million and our diluted weighted average shares outstanding to be 875 million. This outlook marks an anticipated sequential reduction in our share count, reflecting the positive impact from our ongoing stock repurchases.

We anticipate GAAP income per diluted share in the range of a loss of $0.09 to earnings of $0.05. We expect non-GAAP income per diluted share in the range of $0.35 to $0.45. At the midpoint of guidance, we expect revenue in the third quarter to grow 14% sequentially. This is driven in large part from a ramp in our custom AI products. Although this is driving a sequential decline in our non-GAAP gross margin outlook, we project our non-GAAP earnings per share to grow by 33% sequentially at the midpoint, more than twice the revenue growth rate. As our custom programs expand, we expect to continue to drive substantial operating leverage to the bottom line.

We are pleased our sequential growth returning to all our end markets, with our AI data center revenue continuing to grow rapidly. As we drive revenue growth and operating leverage, we also remain focused on strong cash flow generation and returning increasing amounts of capital to investors through our active stock

Operator, please open the line and announce Q&A instructions. Thank you.

[Operator]

[Operator Instructions] Your first question comes from Tore Svanberg with Stifel.

[Tore Svanberg, analyst]

The strong results. Matt, could you just elaborate a little bit more on your comments there at the end about the operating leverage, the gross margin. I think we all know that the custom ASIC business gross margin is lower. But because of the NRE, it's also very upper margin accretive. So maybe you could just elaborate a little bit and perhaps give us some milestones, especially in relation to certain revenue run rates?

[Matthew Murphy, executive]

Thanks, or I'll have Willem lead off on this one and then I can comment at the end.

[Willem Meintjes, executive]

Yes. Tore, I think when you look ahead here beyond the Q3 guide, really see gross margin for the next couple of quarters remaining in a similar ZIP code. I see -- when you look, there's a couple of dynamics there. First of all, we expect the custom programs to continue ramping very nicely, and that's obviously got lower gross margin. But then we see the recovery and the growth in our core merchant products, really mostly offsetting that. And then in addition, we see some really good leverage and additional absorption in our manufacturing over it as the top line is growing. So we think where we guided in Q3 is sort of the right ZIP Code for the next couple of few quarters here.

[Operator]

Your next question comes from Toshiya Hari with Goldman Sachs.

[Toshiya Hari, analyst]

Matt, you talked about your confidence in exceeding or significantly exceeding the full year AI revenue target you guys shared a couple of months ago or several months ago. The incremental strength you're seeing in that business, is it between -- is it -- you're seeing it both in custom compute as well as your optics business? Or is it more skewed toward the custom compute business? And if you can speak to your visibility into next year as well. I think your target was $2.5 billion going into next year. Should we see continued upside to that number as well?

[Matthew Murphy, executive]

Yes. Great. Thank you. Yes, first of all, the demand has been extremely strong in the AI business, as we mentioned, both in custom and in our optics business, and that's the 800-gig products as well as traditional cloud as well as DCI. So that's all going extremely well. And for next year, that should absolutely ripple through. We see continued strength next year above what we had communicated relative to the target for next year, both in custom and in optics, and the broader portfolio. So very eased with the progress. Demand has been strong. Bookings momentum has been extremely strong, and we have a great setup here in the second half that's going to lead us to what we think is going to be a very strong fiscal '26 for Marvell and AI.

[Operator]

Your next question comes from Timothy Arcuri with UBS.

[Timothy Arcuri, analyst]

Matt, I'm wondering since you're giving us these AI targets, I'm wondering if you can give us a little more granularity in the actual numbers that you report. What was the AI revenue in July? I'm thinking it was close to probably $300 million and custom was probably $50 million, something like that. Can you just give us some sense, is that about right? And then can you give us some sense of where you think AI will be in October? And maybe should we expect custom? It sounds like customer is going to tick up maybe $125 million Q-on-Q. Is those -- are those numbers in the right ballpark?

[Matthew Murphy, executive]

Yes. Maybe just to keep it at a higher level for the broader investors on the call here, Tim. We had set targets of $1.5 billion for this year and $2.5 billion for next year. As I said earlier, both custom and electro-optics are contributing. It was -- what we said was that the AI day, just what, 3, 4 months ago, about 2/3 of the $1.5 billion was in electro-optics. The other 1/3 was in custom. And so both of those are doing better. Obviously, the custom is back-end loaded, but we're going through a very strong ramp right now. So we're not calling those numbers out typically by quarter. But all I can tell you is both of them have upsized both in terms of aggregate revenue we're going to achieve next -- this year and next year as well as the slope of the ramp in custom continues to be very strong. And I'll leave it at that for now.

[Operator]

Next question comes from Ross Seymore with Deutsche Bank.

[Ross Seymore, analyst]

Congrats on the strong results and guide. Well, one potentially for you, and I appreciate the commentary on the gross margin stability at the current level through the end of this year. But could you give us an idea of what the puts and takes would be for next year? I mean we know the custom stuff carries lower margins, and it sounds like the merchant business is coming back. But I think a big concern people have is just how should we think about the revenue growth relative to the gross margin next year as accretive as it may be in most of those scenarios on the operating line either way?

[Willem Meintjes, executive]

Yes. I think the way to think about that is for that trend to really continue into next year. And so you're not guiding the full year next year. But I think it's in that similar ZIP code where we continue to see good growth from both OpEx and then the recovery in the merchant products really offsetting the continued growth in custom. And then in addition, as you see the top line growing nicely, we do continue to get that benefit from better absorption. And then overall, when you look at our OpEx management, we're going to continue to be very disciplined looking at next year. And so we do expect to drive a ton of leverage and operating margin down to the bottom line next year.

[Matthew Murphy, executive]

Ross, if I could just add. As Willem said, I think the GM side needs to play out. We need to see where this non-AI data center demand recovers to. We're very pleased with the third quarter guide of mid-single. And then in Enterprise and Carrier, that growth improving from Q3 to Q4, so growing even a little bit faster. Bookings have picked back up, we're laying in backlog. So that's all a positive sign. And then of course, we've got to get into next year to see where those traditional core businesses really recover to. That's going to be one factor. As we said earlier as well, we anticipate a lot higher revenue next year. So that's going to help on sort of manufacturing overhead absorption. And then to the extent how much custom is really going to be, that's going to be a factor as well. So we're looking at all that. That does need to play out a bit. But as Willem said, we're very confident in our OpEx management and our plan on spending there relative to our outlook for next year. And so we're very excited and feel very confident in the path to our operating margin targets that we've set, kind of independent of where that GM lies. So that's where we're headed right now, Ross. There'll be more to come as these markets recover.

[Operator]

Your next question comes from Vivek Arya with Bank of America.

[Vivek Arya, analyst]

Matt, I was hoping to get your views on the competitive landscape in the 2 parts of your AI business, so both on the DSP side and custom silicon. On DSP side, do you see any captive or merchant competitors challenge Marvell's dominance as the industry transitions to 200 gig per lay in all these 1.60 transceivers? And then similarly, in custom compute, do you see any competitive changes from your Taiwan competitors? I know a little bit out there in 2016 when the industry moves to the 3-nanometer but I was just hoping to get your views on any changes in the competitive landscape in the next 1 to 2 years in these 2 important parts of your AI business?

[Matthew Murphy, executive]

Yes. No problem, Vivek. Let me maybe break it into the two pieces you mentioned. So on the DSP and optics side, look, it's been a competitive market. We got into this, as you all remember, through the acquisition of Inphi. And there's been these competitive dynamics from the beginning. Now this market has gotten big, right? So there's -- it would sort of only intensify. But we've consistently maintained a very high market share in this area through the integration of Inphi and Marvell and now as we're positioned going forward. Primarily because, one, we've executed extremely well from an engineering standpoint. And also, we have the full platform includes DSPs, the broadband analog components like drivers and TIAs. We have the complete architecture and solution and also the partnerships with module vendors as well as the hyperscalers directly.

And finally, I would say we continue to have a best-in-class road map as well in terms of the cadence, the power and the performance that we're delivering. So we feel very good on these transitions. As an example, we went through the 100-gig transition very successfully. The 200 gig ones in front of us, we're going to start shipping those products this quarter. Our 200 gig per lane, 1.6-terabit DSPs, and we feel very well positioned. It's going to be competitive, Vivek, but the team is actually really excited of what we can go off and do with the platform we have.

And on custom silicon, I think our thesis is playing out in that given the tremendous increases in complexity of these chips, it's not about just having one piece of it, like a design service piece or a manufacturing capability, but it's everything. It's having the best-in-class technology road map in terms of nanometers, advanced packaging, I/O, et cetera, and then the ability to actually go execute these products. These are 100 billion transistor type of chips and so to package them up, get them to yield, ship them into volume, be ready to work on the next 1 parallel. It's a massive sort of effort. And so we think that, that still is going to be the winning strategy. And when we look at it from that point of view, we really have one large competitor that's very capable in this area as well. And we do think long term, given the amount of activity we see in AI, especially on the custom side, it's going to require a really scaled up full solution providers and partners like Marvell to compete. So that's the current status of those two from a competitive dynamic.

[Operator]

Your next question comes from Matt Ramsay with TD Cowen.

[Matthew Ramsay, analyst]

Matt, I wanted to ask a longer-term question on your custom compute business. My antennas went up a little bit. One of the lines in the script, I think, was something to the effect of not just single generation relationships, but multi-generation relationships with some of the customers in the custom business. And so I wanted to explore that a little bit. As we do get questions from investors on not the programs that are ramping now, but the subsequent generation and how confident that you are in those. So maybe you could speak to that.

And I think the second part of the question, as you're evaluating custom programs and compute, this isn't a question for just your company but for your competitors as well. How much visibility do you guys get and win to the software that will be run on those compute engines as they're deployed? I think that's pretty important in evaluating what volume might end up being or not being versus merchant suppliers?

[Matthew Murphy, executive]

Yes. Thanks, Matt. And I think your question is one we get. I mean, I think since we won these designs, there's been a lot of noise in this area in custom in terms of -- from some of our international competitors in particular. Look, the reality is, despite wherever whatever has been said so far, we have executed these programs. They have upsided tremendously from when we won them and even as we signaled over the last 1.5 years and now they're ramping into production.

In all of our engagements across the board that we see as we get deeper into this, there is absolutely a desire on the part of these customers to have a multi-generational view because the amount of work you put in to do one of these, it's a diminishing return to pivot too quickly, assuming you're doing a great job. So we feel very good about it, Matt, is the bottom line. We have multiple engagements across multiple generations on different types of ICs that we're doing for these customers. We just announced, as an example, at the last AI day, we had won an additional customer for AI silicon.

And all of those are tracking well. So that's all I can say at the moment. I think you got to also look at what the results are and what our outlook is and -- if you believe the thesis I gave you around what's important relative to being a long-term reliable partner that's going to be there for the long term over multigenerations, we think we're extremely well positioned.

[Operator]

Next question comes from Christopher Rolland with Susquehanna.

[Christopher Rolland, analyst]

Congrats on the results. I have an Inphi question primarily. And Matt, you talked about $1.60 million, that's pretty exciting that. If I understood that correctly, you're going to be ramping in 3Q. Perhaps you can talk about the profile of this ramp, what it looks like in 3Q, 4Q and into '25. I think -- The Street is all over the place on this node. But if you could talk about that and maybe even the economics, what it means for you guys, that would be fantastic.

[Matthew Murphy, executive]

Yes. Thanks, Chris. Yes, it's still early. We were first to market in this area, having introduced these products at OFC a year ago. It's great to see that they're going into production. We'll know a lot more when we start to see how our customers are planning to deploy it, but we are seeing initial shipments now. The way I would think about it, though is 800 gig right now and into the end next year is still going to be the workhorse high-volume platform and even some of the newer launches that are coming as an example, are going to still support 800 gig as well as $1.60 million. So it's really hard to call exactly. It's going to be an important transition. There's no question. The only question is the timing of which -- and Chris, I think we'll be in a better comment on that probably as we get closer to the end of the year, we start looking at the step for calendar '25 and what our customers are thinking. But either way, we're going to be well positioned for both of those opportunities for next year.

[Operator]

Your next question comes from Harlan Sur with JPMorgan.

[Harlan Sur, analyst]

Good to see the strong growth outlook. We've seen multiple quarters now of strong growth in nearline HDD to the cloud. And those guys continue to expect anticipated growth sort of going forward. In addition to that, you guys have, I think, numerous next-generation PCIe Gen5 enterprise SSD platforms ramping. I know it's been a couple of years, but I think those ramps are finally starting to happen. Is this all kind of contributing to the second half strength in the data center business? And then more on the memory side, if customers are thinking about next-gen HPM for sort of these next-generation architectures. There is a potential for customization on the base advanced logic die. It's a fairly complex piece of silicon. You guys have a lot of IP here. I'm wondering if you're winning any custom ASIC opportunities for some of these upcoming programs.

[Matthew Murphy, executive]

Yes. Thanks, Harlan. Yes, let me take the two pieces. On the first one, we're very pleased to see the recovery in data center storage. I think we're on like 6 quarter now of the turn, which is great. We bottomed out last year, was a pretty severe downturn that we saw. It's been growing basically every quarter, and we see this trend back over time. We had called it basically as getting back to like $200 million a quarter. It's not there yet, but it's on its way. And that's had a nice recovery. It hasn't been too spike. It's just kind of been low and steady on the way back up as inventories consumed, that supply chain revitalizes. And quite frankly, it's great to see the market commentary because that just gives us more confidence that return over time.

And then I even actually had it in my prepared remarks as one of the key offerings that we have on our ASIC and AI platform is, we think, as you mentioned, that HBM and how to stitch all that together from a memory interconnect standpoint is going to be extremely important. And it's complex and it's going to be, I think, a key part of the solution just given how much how memory intensive the current set of accelerators are, but also how they're looking at positioning for the next generation. So that's a key IP that Marvell is developing and that will bring to the table as part of our platform offering for AI accelerators from a custom standpoint.

[Operator]

Next question comes from Aaron Rakers with Wells Fargo.

[Aaron Rakers, analyst]

I wanted to ask about the data center switching opportunity. Now that the 51.2T silicons in the market, just if you could give us kind of a thought of like how we should expect that to ramp, appreciating that's more in the next fiscal year. But any kind of visibility in terms of how we should think about that opportunity to participate in these AI fabric build-outs going forward at Marvell?

[Matthew Murphy, executive]

Aaron, thanks for the question. We outlined this opportunity at the Investor Day we did for AI. And basically, on the 51.2T cycle we're in, we think we're well positioned. We had great success from an engineering standpoint to get the product to market, pretty quickly relative to after -- relative to integrating the Innovium asset into Marvell and then bringing that product out with the full Marvell 5-nanometer platform. We see strong interest, not only on the 51.2T generation that we're now starting to go into production to this year with a lead customer, but also our road map, we believe, is very compelling as well. .

And while we're a smaller player here today, we do have tremendous interest in this platform, and we think it's very strategic to Marvell relative to our investments in custom silicon in being the leader in interconnect and also even in future technologies like silicon photonics. So to bring it back around, we're not quite sizing it yet in terms of what it can be. It's still early from the standpoint of when that technology is actually going to go into full bore production, but we think we're doing well, and we look forward to providing updates on that, Aaron, as kind of this develops, but we feel good right now.

[Operator]

Your next question comes from Srinivas Pajjuri with Raymond James.

[Srinivas Pajjuri, analyst]

My question is about the traditional businesses, Matt. It's nice to see both of them recovering and I think you're guiding for sequential growth into Q4 as well. Given that they're down so much, I think one is down 50%, the other is down almost 70% from its last year's levels. I'm just wondering how to think about the normalized run rate on a quarterly basis? And when do you think there? And then once we get there, how do we think about, I guess, longer-term growth of these businesses?

[Matthew Murphy, executive]

Yes. Great. Thanks for the question. And yes, you're right, those businesses have been down significantly from a year-over-year perspective. Some of that is due to also the overshoot that went on in sort of this post-pandemic fueled build-out that occurred and also all the dynamics we've seen across the industry right, relative to people over ordering and then having too much inventory and then having to go deal with it. The good news is we've now seen that business after a flat first half pickup guiding both enterprise and carrier up mid-single for the third quarter and then growing faster than that in the fourth quarter and that the bookings have improved as well. So that's all positive. The way to think about it is we're trying to drive both of those businesses back, and we believe we have line of sight to provide both of those businesses back to about $1 billion each, call it, $2 billion in aggregate, maybe $2.2 billion of run rate on an annualized basis.

So we hit the bottom in the first half. It's coming up in Q3, coming up in Q4. And we're monitoring the setup for next year, but we believe that, that is very achievable, that's planned right now. And then long term, if you go back to all of our Investor Days, probably for the last 4, 5 years, when we've done them, we've always signaled these markets to be kind of low to mid-single growers, and then -- from a market standpoint. And then with some content or share gain, you can do a little bit better. 5G was a great example. We had very little content in 4G. We rocketed up in 5G and that changed the trajectory. But going forward, in that kind of a business as well as, say, enterprise, you should assume the market grows at a fairly grade.

And I think for investors to think about our growth rates in those areas, being in those types of ranges, maybe whatever, mid-single kind of plus -- if we can continue to execute. I think that's fairly safe. They're not going to be great enormous growth markets necessarily, but they are very accretive and they're very profitable businesses for Marvell, and they're important because they're long term and they're part of the portfolio.

So that's some additional color on how to think about it. We are investing there. We're going to make sure that we continue to grow those businesses. But if you just step back we've got 70% of our revenue today in data center. We've got a great, great opportunity with AI and accelerated infrastructure. We're continuing to pivot our R&D in that area overweight. And we think that from a financial return standpoint, this is the best place to put our precious R&D dollars. And so that's the way to think about Marvell going forward, only getting bigger in data center and really maintaining and driving a very healthy enterprise and carrier business long term.

[Operator]

Your next question comes from Quinn Bolton with Needham.

[Quinn Bolton, analyst]

I'll ask a question, but if you don't answer it, maybe I'll follow up. You guys are talking about a nice upside to the $1.5 billion and $2.5 billion target for AI. Is that something you think you're closer to $2 billion than $1.5 billion when all of a sudden on this year. I mean can you give us any sort of quantification of the upside in AI revs? And if not, I'll follow up with a product question.

[Matthew Murphy, executive]

Yes. I don't think we -- we're sort of fresh of $1.5 billion update from a few months back when we had our AI day. But I think if you look at the even like Q3, right, where overall revenue for the whole company is growing in mid-teens and then obviously guiding up data center much higher than that with AI driving it. And then saying also Q4 is going to be extremely strong in data center and AI. You can probably draw a line of sight to it, but we're clearly, clearly exceeding the 1.5. That's for sure. And then again, the second next year is really good because from an exit standpoint, we'll be at a very healthy level by the fourth quarter.

[Quinn Bolton, analyst]

The prior question, if you don't mind answering just kind of thoughts on the latest DCI traction. I know 400 gig is ramping now, you see demand or starting to ship 800 gig ER. Of the total Electro-Optics business, is DCI kind of 10%, 20% of that total product portfolio? Or is there a different percentage you might give us?

[Matthew Murphy, executive]

Yes, I don't think I can give you a percentage and quite frankly, to get out of spreadsheet and calculate it because, as you know, we have many franchises now across this interconnect platform. But I would say it's -- that business has just done extremely well, Quinn. I mean if you look at where that business was when we acquired it, they were -- -- if had basically been 1 customer at 100 gig with -- and I think back then, it was about $100 million-ish kind of business. It's just grown dramatically as we've kept the 100 gig and then we've added in 400 gig and we've added additional customers. So it's been a very important and strategic business for Marvell.

And then to your point, in front of us, that road map is getting invested in very aggressively, both at 800 gig and then longer term, 1.60 for DCI. So each of these different key technologies that we have now an interconnect. They're going gangbusters today, but there's also a generation and the generation after plus 2 out, we're investing in very aggressively to maintain market leadership.

[Operator]

Your next question comes from Harsh Kumar with Piper Sandler.

[Harsh Kumar, analyst]

First of all, let me just give my congratulations on very strong guide. Stories coming along, all businesses turning. Matt, I wanted to ask you, you seem extremely enthusiastic about custom ASIC, near term as well as next year. Could you talk about some of the major drivers of major products, however you want to do it that are hitting that's giving you this optimistic but point of the near, mid and call it, even the next year outlook?

[Matthew Murphy, executive]

Yes. Well, I think as we had outlined in the past, there's been several programs that we won, a broad range of them actually in custom silicon for data center. And then the ones that were levered to AI have just taken off, and you're starting to see that in our financials. And so I mean maybe not to make it too simple, but the reason we're excited is we're getting bookings and we have backlog and we're planning our capacity ramps for next year, and we're talking about the next generation. And so I think this was -- these went from design wins a few years ago to trying to execute in PI and get the chips taped out to then trying to get them qualified and make sure that they worked relatively quickly once they came back, which they did. And now they're ramping.

So it's just part of the evolution, but I mean it feels really good when you have backlog and you have bookings and you have a strong outlook from your customer and you're planning your future together. So that's really it. I mean, I can't go into what they're using it for and their workloads and all that kind of thing. But the conviction from our customers on the programs we have are very strong in terms of their commitment to deploy and to deploy very aggressively using us -- using their chips plus Marvell is there key partner, and we'll go let them get all the glory as they deploy and they achieve their silicon ambitions with us kind of in the backdrop to make sure we're there to help them, but let them go do what they need to do.

[Operator]

And our last question comes from Karl Ackerman with BNP Paribas.

[Karl Ackerman, analyst]

Could you talk about the breadth of cloud titans you have ramping 800-gig electro optics that anchors your view on the second half? And given your industry-leading position in electro-optics, have you seen growing evidence that U.S. cloud titans are seeking to diversify the procurement of optical transceivers outside of China? I ask because that would appear to be a share opportunity for you.

[Matthew Murphy, executive]

Yes. Thanks, Karl. I'd say just broadly we're -- market share in aggregate is pretty high for us in this area. So we tend to be engaged pretty much with everybody. And I think that trend you mentioned about supply chain diversification and kind of concerns about geopolitical risk across the supply chain, by the hyperscale customers is a real thing. They really care about it. What I would say is there are -- there are efforts from both international suppliers into that space of modules, as an example, to diversify their supply chains and also the U.S.-based folks trying to make sure that they have a supply chain as well that's acceptable.

So look, we're happy to work with everybody. We've driven a very broad ecosystem of partnerships -- and I think in any case, we should be just fine. I'm not sure there's going to be any major shift. This has kind of been going -- this has been underway for many years, quite frankly, relative to just those concerns you mentioned being out there. So we've kind of tracked with those pretty well, and we've stayed, I think, very competitive and very neutral relative to how to support everybody and ship as much revenue as we can.

So thanks for the question, Karl. And I think that's it. Anything else, Willem or Ashish?

[Willem Meintjes, executive]

Yes, I think that's it. Thanks, Matt.

[Matthew Murphy, executive]

Okay. Operator, I think we can end the call. Thanks for everybody for joining. Really appreciate it, and I look forward to all the catch-ups in the callbacks and then also when we're on the road at the conferences. Thanks, everybody.

[Operator]

This concludes our question-and-answer session. Thank you for attending today's presentation. You may now disconnect.