Date: March 5, 2026 | Source: Motley Fool (fool.com) / company press release
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Matthew Murphy (President & CEO): Thanks, Ashish, and good afternoon, everyone. Let me begin by extending a warm welcome to the Celestial AI and XConn team. We recently closed both acquisitions, and the teams are working closely together with joint product roadmap discussions in full swing with customers. These highly strategic additions further strengthen our technology platform and significantly enhance Marvell's position in the rapidly emerging AI scale-up networking market.
Now turning to our results and business outlook. In Q4 2026, Marvell delivered record revenue of $2.219 billion, reflecting 7% sequential growth. Revenue exceeded the midpoint of guidance driven by our strong demand in our data center end market. As a result, non-GAAP earnings per share of $0.80 exceeded the midpoint of guidance by $0.10. Turning to our full-year results, fiscal 2026 was an exceptional year. Revenue grew 42% year over year to approximately $8.2 billion as reported, and approximately 45% year over year excluding the divested automotive Ethernet business. Our data center revenue surpassed $6 billion, growing 46% year over year, driven by robust demand for our interconnect, switching, and storage products along with a strong ramp in our custom business, which doubled in fiscal 2026.
As we begin fiscal 2027, we are seeing very strong demand across our entire data center portfolio, with bookings accelerating at a record pace. This robust demand is reflected in our guidance for Q1 2027, with total company revenue forecasted to grow 8% sequentially at the midpoint to $2.4 billion. Looking ahead, we expect to grow revenue every quarter this fiscal year at a similarly strong sequential rate, which would result in Q4 revenue exceeding $3 billion exiting this year. The forecast also implies that our year-over-year revenue growth rate will accelerate each quarter throughout fiscal 2027. As a result, we now expect overall Marvell revenue in 2027 to grow more than 30% year over year, approaching $11 billion. Notably, this outlook is meaningfully higher than what we communicated in our prior updates — it raises our forecast by almost another $1 billion. Importantly, this outlook is driven by our organic businesses, as the recently closed acquisitions are not expected to contribute meaningfully until fiscal 2028.
As a result, we now see our fiscal 2027 data center revenue growing by 40% year over year. Notably, we expect our interconnect business to grow more than 50% year over year, well above our prior expectation of 30% growth. For our communications and other end market, we expect 10% revenue growth in fiscal 2027.
Looking ahead to fiscal 2028, while we assume the rate of CapEx growth moderates from the current fiscal year, we expect continued robust data center revenue growth. We expect our interconnect business to significantly outpace cloud CapEx growth, our custom business to at least double year over year, and our Ethernet switching business to continue to ramp meaningfully. In addition, we expect Celestial AI and XConn to contribute approximately $250 million in aggregate revenue in fiscal 2028. As a result, we expect data center revenue in fiscal 2028 to grow close to 50% year over year. Achievement of our forecast would result in three straight years of data center revenue growth compounding at well over 40%. So in aggregate, we expect Marvell's overall revenue in fiscal 2028 to grow close to 40% year over year, reaching approximately $15 billion, roughly $2 billion higher than the outlook we provided in our December earnings call, and driving our non-GAAP EPS to well over $5.
With that, I will provide more context on our numerous growth drivers across our end markets, beginning with data center. In our data center end market, we delivered record fourth quarter revenue of $1.5 billion — well, $1.65 billion — representing 9% sequential growth and 21% year-over-year growth. Revenue exceeded our guidance driven by increased demand across our interconnect portfolio. We achieved sequential growth across all key product lines, including optical interconnects, custom silicon, switching, and storage.
Let me now highlight the broader trends across our established data center and our newer growth initiatives. I will organize the discussion into three categories: interconnect, switching, and custom. I will begin with interconnect, where we offer the industry's broadest and most comprehensive high-speed connectivity portfolio addressing scale-out, scale-across, and scale-up networking. In our scale-out PAM franchise, demand remains robust for our 800G products. We are also seeing very strong bookings from multiple Tier 1 customers for our 1.6T solutions, which entered production in Q4 2026. Reflecting this demand and our first-to-market technology leadership, we expect our 1.6T revenue to ramp very rapidly in fiscal 2027, with substantial additional growth projected in fiscal 2028. Marvell is the first company to productize 200 gigabit per lane technology, enabling the 1.6T transition now underway. We have already demonstrated 400 gig per lane technology, which will position us to enable the industry's subsequent transition to 3.2T.
Turning to scale-across interconnects, a technology we pioneered with our 100G modules, we continue to lead the market with coherent 400G and newer 800G solutions. We are winning new customers and expect to supply DCI modules to all five major U.S. hyperscalers this year. Industry forecasts project the DCI pluggable TAM to grow by more than five times by calendar 2030. Earlier today, we announced our latest innovations, including the industry's first secure 1.6T ZR and ZR+ DCI modules powered by our new 2nm coherent DSP, plus a new 2nm 800G DSP for second-generation lower-power 800G DCI modules.
Now let us move to scale-up interconnects, an entirely new and rapidly emerging market. We are very excited about what we believe to be a massive opportunity unlocked by Celestial AI's Photonic Fabric technology, as well as growing customer traction for our AEC and retimer solutions. Our chiplets will be co-packaged into both custom XPUs and the scale-up switches connecting them on both sides of the link. With the acquisition now complete, our engineering and operations teams are fully engaged in bringing Celestial's first-generation chiplet into high-volume manufacturing. We remain on track for our forecast for our CPO revenue from Celestial to reach a $500 million annualized run rate in 2028, doubling to a $1 billion annualized run rate by 2029. We believe the scale-up interconnect market could exceed $10 billion by 2030.
In the AEC market, we have secured design wins with three Tier 1 U.S. hyperscalers and several additional customers. We are also seeing strong traction for our retimers. As a result, we expect combined AEC and retimer revenue to more than double year over year in fiscal 2027, to roughly $200 million.
Turning to data center switching, we delivered strong growth in fiscal 2026 with revenue exceeding $300 million driven entirely by scale-out applications. Given sustained demand for our current 12.8T products and the strong ramp of next-generation 51.2T products, we now expect data center switch revenue in fiscal 2027 to surpass $600 million, up from the $500 million we had indicated last quarter. Our 100T switch delivers industry-leading power efficiency and lower latency that are especially critical for AI applications. In scale-up switching, the combination of Marvell and XConn creates a significantly larger team to address rapidly emerging UA Link and Ethernet-based opportunities. We remain on track to sample our UA Link 115T solutions in the second half of this fiscal year, with volume production expected in fiscal 2028.
Turning now to our custom business. This remains one of the most compelling growth drivers for Marvell. In just a few years, we have scaled from zero revenue to $1.5 billion in fiscal 2026. We doubled our custom revenue year over year. We expect custom revenue to grow more than 20% year over year in fiscal 2027, higher than our prior view. We continue to see growth from our lead XPU program this year, including a transition to its next generation. As I noted last quarter, we have purchase orders covering the entirety of this fiscal year for this next-generation program and are now ramping production. In addition, several XPU attach programs are ramping in fiscal 2027, including our initial CXL and NIC products. CXL demand is accelerating, partly driven by tight memory supply. We continue to expect custom revenue to at least double year over year in fiscal 2028 from three primary drivers: continued growth from existing custom programs, multiple XPU attach programs reaching high volume (particularly custom NIC and CXL), and our new Tier 1 XPU program ramping into high-volume production. We have line of sight to revenue exceeding $2 billion by fiscal 2029 from just the NIC and CXL use cases.
Turning to our communications and other end market. We delivered fourth quarter revenue of $567 million, up 2% sequentially and 26% year over year. For the first quarter, we expect low single-digit sequential growth and approximately 30% year over year.
In summary, we concluded fiscal 2026 on a strong note with revenue growing 42% year over year and non-GAAP EPS increasing 81%, roughly twice the rate of revenue growth, demonstrating the strong operating leverage in our business model. In fiscal 2026, we divested our automotive Ethernet business for a double-digit revenue multiple and rapidly redeployed the proceeds into two highly strategic acquisitions. At the same time, we continued to execute our capital return program, returning $2.245 billion to stockholders through share repurchases and dividends.
With that, I will turn the call over to Willem for more detail on our recent results and outlook.
Willem Meintjes (CFO): Thank you, Matt, and good afternoon, everyone. In fiscal 2026, Marvell delivered $8.195 billion, growing 42% year over year. For the full year on a non-GAAP basis, our gross margin was 59.5%, operating margin was 35.3%, expanding by 640 basis points year over year, and earnings per diluted share was $2.84, growing 81% year over year. We returned $2.245 billion through share repurchases and dividends in fiscal 2026, an increase of approximately $1.3 billion from the prior year.
Moving on to the fourth quarter of 2026. Revenue in the fourth quarter was $2.219 billion, growing 22% year over year and 7% sequentially. Our data center end market was 74% of total revenue with our communications and other end market contributing the remaining 26%. GAAP gross margin was 51.7%. Non-GAAP gross margin was 59%. Non-GAAP operating expenses came in at $517 million, in line with guidance. Our GAAP operating margin was 18.2%, while our non-GAAP operating margin was 35.7%. For the fourth quarter, GAAP earnings per diluted share was $0.46. Non-GAAP earnings per diluted share was $0.80, reflecting year-over-year growth of 33%.
In the fourth quarter, cash flow from operations was $374 million. Our inventory at the end of the fourth quarter was $1.39 billion, growing $374 million from the prior quarter to support the significant revenue growth we are driving. During the quarter, we repurchased $200 million of our stock and returned $51 million to shareholders through cash dividends. As of the end of the fourth quarter, our total debt was $4.47 billion, with a net debt to EBITDA ratio of 0.57 times.
Turning to our guidance for the first quarter of 2027. We are forecasting revenue of $2.4 billion, plus or minus 5%. We expect non-GAAP gross margin between 58.25% and 59.25%. We anticipate non-GAAP operating expenses of approximately $575 million, stepping up from the prior quarter due to typical seasonality as well as the addition of Celestial AI and XConn, which are expected to add approximately $75 million to our fiscal 2027 annual non-GAAP operating expenses. We expect a non-GAAP tax rate of 11%. We anticipate non-GAAP earnings per diluted share in the range of $0.74 to $0.84. On a sequential basis, we expect non-GAAP OpEx to remain flat in the second quarter and then grow low- to mid-single digits in each of the third and fourth quarters, well below the rate of revenue growth. We have entered a robust multiyear growth period and are looking forward to delivering strong earnings growth to our stockholders. Operator, please open the line for Q&A.
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Ross Seymore (Deutsche Bank): Beyond the magnitudes of revenue growth, can you talk about the profile of demand from a customer perspective?
Matthew Murphy: We are deeply engaged across the entire ecosystem, in an extremely strong position with the top four U.S. hyperscalers, and each has a different concentration and revenue mix. Custom is not that big a percentage of the total, so that is not what is driving our concentration. We are quite diversified within each of them. Over time, even on the custom business, we have 20-plus design wins or product sockets that will layer in across fiscal 2028 and 2029, so diversification only gets better. We are very unique in the breadth of product we offer to serve end-to-end the needs of all of our key hyperscale customers.
Harlan Sur (JPMorgan): With the ramp of your lead customer's next-gen XPU, do you still anticipate a stronger second-half step-up, and what does the exit run rate look like?
Matthew Murphy: Absolutely seeing strong validation for AI compute spend, and a significant portion continues to go to companies building their own XPUs. XPU attach is going with XPUs where we may not even be participating, so we participate across every one of those large companies. Custom was going to be a stronger second half due to a program transition — that is still the case. The type of exit rate is certainly still intact and probably has an upward bias. We're now looking at north of $3 billion company exit rate.
Aaron Rakers (Wells Fargo): Can your electro-optics business outgrow the pace of CapEx spend, and how durable is that growth?
Matthew Murphy: A big part of the change is in the electro-optics portfolio — it is clearly growing more like accelerator growth now. It is growing 50%-plus this year, and that momentum continues into fiscal 2028. As new XPU/GPU generations are released, we see increased concentration on the attach rate of optics, plus more 1.6T with higher ASPs, plus some pretty exciting new programs. That business has been growing ~50% a year since we acquired Inphi.
Ben Reitzes (Melius): What got $2 billion better in fiscal 2028 since December?
Matthew Murphy: Progression — in September we talked about $9.4 billion-ish for this year, in December ~$10 billion, now more like $11 billion. We've now got very firm requirements, particularly in the interconnect business, which we had called very conservatively. The upward revisions for this year ripple into next year. It's all underwritten by extremely strong bookings and backlog, and detailed conversations with customers around supply planning. We set targets back in April '24 for calendar '28, and we are very much on track to those targets.
Tom O'Malley (Barclays): On AEC and retimers more than doubling — what's the base?
Matthew Murphy: This is still an emerging area, probably in the $200 million range this year. Once these emerging products start doubling, they kind of keep doubling. We leveraged our DSP and PAM technology; we inflected when both AECs and retimers moved from NRZ to PAM.
Vivek Arya (BofA): What was XPU attach last year and the contribution in 2027/2028? How do you handicap exclusivity at the large new customer?
Matthew Murphy: XPU attach was probably in the couple hundred million ballpark last year, doubling this year, maybe over-doubling again the year after — by next year it's probably a $1 billion-type business. On the newer program, these are very deep engagements, multigenerational in nature — two hands on the steering wheel. We feel really good about our position and the sustainability of that.
Tore Svanberg (Stifel): What's the mix between 1.6T and 800G in fiscal '27?
Matthew Murphy: 800G was going to be stronger for longer, and that is still the case. We had significant shipments of 1.6T at the end of last year, and it's going to ramp pretty hard this year, but 800G will still be the majority, probably through next year. Part of the uplift in our interconnect outlook was based on customers revising up, more pronounced in 1.6T.
Joe Moore (Morgan Stanley): Any supply chain challenges with all this growth?
Matthew Murphy: (Chris Koopmans, COO): We've been in a tight supplier environment for anything that touches AI — advanced fab, advanced packaging, large-body substrates — since the launch of ChatGPT. Against that backdrop, we still grew north of 40% last year. We have very good relationships with our suppliers, and what really helps is we've been forecasting this growth for quite some time, giving them multiple years of visibility. I'm very confident we have secured the supply we need for all the growth Matt outlined this year, next year, and beyond.
James Schneider (Goldman Sachs): The $15B revenue / $5 EPS outlook for next year — what's below the top line?
Matthew Murphy: It's like a floor — $5-plus. We're in the mid-30s op margins right now, and that should float up throughout the year. We're going to get leverage. That's a simple way to think about it.
Christopher Rolland (Susquehanna): What does CPO scale-up look like for Marvell, and timing?
Matthew Murphy: On the big picture, our view has been that deployment of CPO in scale-out would be relatively limited — that's still the case. On scale-up, that's a perfect use case where CPO inflects in a pretty big way. Celestial brought us a significant design win in that area. We'll be shipping next year CPO for scale-up at one large customer, and the rest of those deployments will still be copper-based.
Mark Lipacis (Evercore): Why not shift processor resources to focus more on connectivity?
Matthew Murphy: We are absolutely investing to win on interconnect — we're going all in there. At the same time, on the custom business, the XPU attach side is margin-rich and leverages our IP. On the XPU side, we get strategic advantage — being in that business forces us to be at the bleeding edge on nodes, packaging, IP. We've grown custom from zero to $1.5 billion; it's going to grow again this year, double the year after. The business also gets significant funding and NRE from customers. Look at our results and our outlook — do you see me blinking? We're on track to make Marvell one of the big winners in this once-in-a-lifetime AI infrastructure build-out.