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Negative Points

Non-GAAP gross margin expected to decline to 57.5%-58.5% in Q3 FY2027 due to product mix, particularly the ramp of Custom business.

Communications and Other end markets revenue expected to decline low-to-mid teens sequentially and year-over-year in Q3 FY2027, with lumpiness persisting.

Cash flow from operations decreased slightly quarter-over-quarter due to higher capacity prepayments to suppliers, with ~$1 billion in prepayments planned for FY2027.

Management transitions (CFO and IR leadership) could pose execution risks during a critical growth period.

Custom business growth is back-end loaded, with significant revenue contribution expected only in FY2029 and beyond, creating near-term uncertainty.

Gross margin is expected to remain in a similar range in FY2028, limiting near-term margin expansion despite revenue growth.

Q & A Highlights

Q: Can you provide more color on the expanded commercial agreement and warrant with a key hyperscaler (Google), specifically regarding the revenue contribution from XPU attach products and the breakdown between the inference accelerator and attach products?A: Matt Murphy (Chairman and CEO) confirmed the engagement is very broad-based, covering a number of product lines including inference accelerators, storage controllers, NICs, memory interface controllers, and near-memory compute. He noted that Marvell pioneered the "XPU attach" category and that all projections to date have been under-called, with the opportunity continuing to grow more significant. He declined to call out any one product specifically but emphasized the total envelope of the opportunity is "massive" and "game-changing" for Marvell over the next 6 to 6.5 years.

Q: Given the $120 billion cumulative revenue potential over six years from the Google commercial program, how should we think about the fiscal 2029 Custom revenue target, which was previously $10 billion to $11 billion?A: Matt Murphy (Chairman and CEO) explained that revenue from programs covered by the warrant through fiscal 2028 is already reflected in the current custom revenue targets. The significant impact will be in fiscal 2029 and beyond. He reiterated that Custom is expected to more than double in fiscal 2028 and that the prior $10 billion-plus target for fiscal 2029 now has significant upside bias. He deferred detailed sizing to the upcoming Investor Day on October 6, where the team will provide a robust review of revenue through the end of the decade.

Q: Can you provide an update on the other large XPU program ramping next year and its potential opportunity over time?A: Matt Murphy (Chairman and CEO) stated the team remains very encouraged by the custom setup for next year, with the new program being part of the "double plus" growth. He noted continued progress in design execution, supply, and commercials. He indicated that while Custom is part of the $1.5 billion raise for fiscal 2028, the most meaningful part of that raise actually comes from scale-up optics and switching. He reaffirmed that this program represents one of Marvell's largest revenue opportunities and is tracking well for this year and beyond.

Q: How is the CXL opportunity evolving architecturally, and how have the Celestial AI scale-up optics numbers progressed relative to initial targets?A: Matt Murphy (Chairman and CEO) described CXL as a "home run," with the technology now being deployed at multiple hyperscalers in extremely high volumes for memory expansion and inferencing. He noted that memory scarcity is driving customers to adopt more of this technology, and Marvell has secured additional design wins. On scale-up optics, he stated the opportunity is accelerating significantly, with the category (including NPO and CPO) being a major driver of the $1.5 billion fiscal 2028 raise. He emphasized this is an "and" not an "or" scenario, with customers pursuing multiple architectures simultaneously, and Marvell is uniquely positioned with its end-to-end portfolio.

Q: How does success in copper scale-up translate to the optical transition, and are these separate decisions?A: Matt Murphy (Chairman and CEO) explained that success in Ethernet switching (Teralynx) has proven Marvell can deliver complex solutions in volume, which translates seamlessly to scale-out and scale-up. He noted that while there are near-term opportunities in copper, the long-term win comes from convincing customers Marvell can execute on the full end-to-end solution, including NPO and CPO optics. He emphasized that point solutions won't get it done in scale-up; customers need a partner that can handle the entire link, and the optics attach will effectively double the SAM of switching over the next few years.

Q: With the $120 billion Google deal, are we looking at big step-ups in fiscal 2029 and 2030, and how should we handle this into the Analyst Day?A: Matt Murphy (Chairman and CEO) validated the math, noting that most of the warrant revenue is already comprehended in next year, so the big impact is in fiscal 2029 and beyond. He stated that Custom numbers will be "a lot larger" than anyone has been modeling, and the deal provides comfort that Marvell has secured a big set of programs. He deferred detailed quantification to the Analyst Day but emphasized the scale of the opportunity, noting Marvell was an $8 billion company last year, is guiding to $12 billion this year, and $18 billion next year, with the warrant providing an incredible step-up in scale.

Q: How does the fungibility of compute, networking, and memory, particularly with current memory pricing, support new design wins?A: Matt Murphy (Chairman and CEO) agreed with the industry view on fungibility, noting that Marvell's ability to quickly execute custom and semi-custom designs is a key capability. He highlighted CXL and memory expansion as examples where customers are rapidly adapting, along with AI inference accelerators as a market trend. He emphasized that Marvell is in a "monetization era" where cost and performance relative to tokens generated matter, driving a big pickup in activity across Custom, networking, storage, and memory solutions.

Q: Can you provide an update on the growth rates for Connectivity, given the incremental strength?A: Matt Murphy (Chairman and CEO) stated the $500 million raise for this year and $1.5 billion for next year is broad-based, with Connectivity being the largest driver. Underneath that, scale-up optics (NPO, CPO, SiGe) is a key contributor, along with the transceiver market for scale-out and optical DSPs, which continues to be "absolutely on fire." Switching is also biasing higher. He noted that Connectivity is the biggest bucket net-net of the $1.5 billion raise, encompassing scale-out, scale-up, and switching.

Q: Is the Custom business the fastest-growing segment within Data Center driving the lower gross margin guidance for the October quarter?A: Matt Murphy (Chairman and CEO) and Dan Durn (CFO) confirmed that mix is the primary driver of the sequential gross margin headwind in Q3, with a strong ramp in Custom. Dan Durn added that Q4 will see a much larger step-up in revenue, broad-based across Custom, Connectivity, and a rebound in comm and other. He stated Q4 gross margins are expected to be in the same range as Q3, and for fiscal 2028, gross margins are expected to be in a similar range

For the complete transcript of the earnings call, please refer to the full earnings call transcript.