The Six Five Team discusses the latest earnings release from Marvell for Q2 2024.
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Daniel Newman: One of the darlings of last quarter’s momentum after NVIDIA was Marvell. Did that momentum continue Mr. Moorhead? You like these setups? I’m practicing for when I become a host of it on-
Patrick Moorhead: Well, aren’t you the world’s best host or is that J Cal?
Daniel Newman: Well, I don’t know, but in most things, the person that’s the best, I’ve never heard Max Verstappen go on stage and say, “I’m the best driver in the world.” He doesn’t need to say he’s the best driver in the world, he is the best driver in the world. And I just might happen to be the best moderator in the world, but I don’t think I should have to say it.
Patrick Moorhead: Well, when they come up with a finish flag for world’s greatest moderator, let me know. I might even wave it for you as you blow through-
Daniel Newman: Hey, is there a Grand Prix this weekend? I think there is.
Patrick Moorhead: There is. In fact, practice started, I’ve been half paying attention, half watching the race.
Daniel Newman: Is that what you’re watching when I’m talking? Is that what you’re looking over there?
Patrick Moorhead: Yeah, exactly, exactly. It’s not about me, but well kind of about me. But no, let’s talk about Marvell here. So, they had a really good quarter. They had a beat and a beat, a slight beat on the top, a bigger beat on the bottom, and they exceeded their midpoint guidance. By the way, can I get something off my chest? I hate that this stuff always get measured against expectations versus guidance. I really hate that. I get it, but the company will say, “This is what I’m going to do.” And expectations are different in the investment community. And they come in, they meet their guidance, they don’t meet expectations and they get buried.
I really hate that, but they did beat on top line and bottom line. Small ones right on the top by about 0.7% on the bottom by about 2%. But anyways, there was a lot of talk on quarter on quarter versus year-on-year, because quite frankly, year-on-year isn’t pretty. So, I like this strategy from just the point of view that says this is where it starts to turn around. There were some bright spots. Data center revenue did grow 6% quarter on quarter. It was off 29% year over year, but you have to start somewhere. Enterprise networking was down quarter on quarter by 10%. And interestingly enough, down only 4% year-on-year.
Carrier, which is a disaster zone for most, the company was only down 3%. The bright spot, as you might imagine and this is not a small inconsequential business was automotive that was up 32%. Listen, the company’s executing, there’s nothing the company can do during this data center and enterprise and carrier lull. So, I want to end this talking about what I consider as a bright future. So first of all, AI requires a ton of connectivity and we’re seeing increased spend there and we’re seeing, and we did see some very good comments from Marvell on that.
And as a percentage of the TAM though, it can’t make up for the, I’ll call it general compute or the declines in enterprise and the data center. Automotive skyrocketing, like I said, I can’t believe how big that 25% increase for connectivity inside of the car. Finally, hey, copper’s not dead but the future is optical and Marvell is a leader, if not the leader in this space with things like PAM, coherent technologies. They recently released Orion, which I’m pretty sure is the industry’s first 800 gig coherent optical DSP for pluggable modules.
Now, I know that’s a mouthful because folks like Broadcom don’t use that exact configuration. But I think they’re a player and they’re going to be a huge player in the future of networking.
Daniel Newman: They’re not a player, they just crush a lot.
Patrick Moorhead: Yeah.
Daniel Newman: That’s why the world’s the best moderator.
Patrick Moorhead: No, you really are. I’ve asked you before and you told me that. So, it is confirmed.
Daniel Newman: Yeah. So, listen, they were good results. The problem is good isn’t crushing it. And sometimes with the fickleness of this market, it can literally be the day and Marvell reported the same day as NVIDIA, it probably would’ve gone up as a reaction. You have to understand the emotion, so then we have to step back and get away from the emotion, get away from the immediacy of how things trade and think about what is the long-term prognosis here. Longer term prognosis is the underpinnings of AI data centers is going to be optical transport and the ability to move data very, very quickly.
And Marvell has a role to play, Marvell came out originally and talked about having about a $400 million expectation, I think for the year. I believe that’s what they said. And this quarter they showed a run rate more like $800 million. So, they actually are showing a very stable growth in revenue around its products that will support this AI data center growth. But what they couldn’t overcome was the extraordinary slowdown of CPU and traditional silicon in the data center where their products and services acquired.
So, actually, if you look at their AI trajectory is very good. But you look at their core business, and unlike NVIDIA, which their entire business was AI, they are more like an Intel or an AMD where they’re seeing big falloffs in traditional compute. And they’re seeing significant growth in AI compute, but not enough to turn that directionally in the near term. So, then you have to basically make an assessment based upon that and say, “Well, who are the companies that are over maybe 6, 8, 10 quarters going to really benefit?”
And I think Marvell with some level of comfort can say, “Every quarter our AI number will get better.” Actually, that number will start to offset how CPU, and the thing is we’re not at the end of the CPU. But you do have to know that right now what we are is we’re in a buying cycle where dollars are being allocated and when they have a dollar to allocate, instead of maybe 20% going to AI and 80% to CPU, we’ve seen that literally turn on its head right now. Everybody is-
Patrick Moorhead: Well, and Dan also look at what happened with IAS, right? So, what happens is these hyperscalers buy for a year and stuff shows up over like six months. And if you bought more than you would expected to get the capacity in, you’re going to sit on it, you’re not going to deploy all of it. So, that’s the big thing that’s happening there. What was AWS’ growth? 12%.
Daniel Newman: Yeah. It was in the mid-20s, which is a massive fall from a year ago, so you’ve got that. So, stick with me, strength in automotive, 87% of the revenue of Marvell came from data infrastructure, which means they’re very, very solidly placed in the middle of the transport of data, which is a good place to be around AI. Company is being well run, it got cost optimized over the last year, meaning the business got right sized. It’s delivering on its commitments and its promises, but there is no second NVIDIA.
And so, the market really wants to know who the second NVIDIA is and it doesn’t exist. It simply does not exist right now. And so, if you basically don’t destroy your numbers and offer ridiculous guidance, everybody shrugs it off. But I like where the company sits, I think over many quarters consistently it’s in a good position. I like Broadcom here too for the same reason, Pat. But I think it was a bit of an overreaction. I don’t think we can under weigh the fact that we’ve got the Fed speaking today. The fact that we’ve got concerns about persistent inflation, that the economy is not in particularly great shape.
We’ve still got microaggressions with China, we’ve got concerns about Ukraine. There’s a lot of other things and by the way, consumer data is indicative that the second half may or may not be as good as the first half. So, there’s a lot of other concerns weighing on the market. I think Marvell did a good job because doing just good right now though, it’s just we’re in one of those markets where anything less than immaculate and amazing is seen as a shrug. Just keep performing, Marvell, just keep performing and the right things are going to happen for you.