Marvell Technology (MRVL) Q1 2026 Earnings Call | Record Revenue & AI Growth | May 30, 2025

Good afternoon and welcome to Marval Technology Inc. first quarter of fiscal year 2026 earnings conference call. Note that all participants will be in listenonly mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. Please note that this event is being recorded. I would now like to turn the conference over to Mr. Ashish Seran, senior vice president of investor relations. Please go ahead, sir. Thank you and good afternoon everyone. Welcome to Marbell's first quarter fiscal year 2026 earnings call. Joining me today are Matt Murphy, Marbell's chairman and CEO, and William Minkis, our CFO. Let me remind everyone that certain comments made today include forward-looking statements which are subject to significant risk 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 10K and 10Q 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 GAP 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, thanks Ashish and good afternoon everyone. For the first quarter of fiscal 2026, Marll delivered record revenue of 1.895 billion above the midpoint of guidance reflecting a 4% sequential increase and strong 63% year-over-year growth. Data center and market continued to deliver strong growth driven by robust AI demand. In addition, we were pleased to see ongoing rec re revenue recovery in our carrier infrastructure and enterprise networking and markets. Higher revenue versus our forecast also resulted in record non-GAAP earnings per share, which came in above the midpoint of guidance. In addition, we significantly increased our stock repurchases in the first quarter, buying back 340 million, a substantial step up from the 200 million repurchased in the prior quarter. During the first quarter, we announced the sale of our automotive Ethernet business to Infinion in an allcast transaction valued at 2.5 billion. We are extremely proud of the progress we have made in organically building and expanding this business, which we expect will deliver a compelling financial outcome for Marvel stockholders. The closing of this transaction, which we expect within calendar 2025, will provide us with additional flexibility in our capital allocation strategy. We started our new fiscal year on a strong note with Q1 results ahead of plan and are forecasting second quarter revenue of 2 billion at the midpoint of guidance. This represents 57% year-over-year growth and would set another record revenue level for Marll. Let me now discuss our results and expectations for each of our end markets. In our data center end market, we achieved record revenue of 1.44 44 billion in the first quarter, growing 5% sequentially and 76% year-over-year. Looking ahead to the second quarter, we expect this momentum to continue with data center revenue projected to grow sequentially in the mids singledigit range on a percentage basis while m maintaining strong year-over-year growth. These strong results along with our second quarter guidance are being driven by the rapid scaling of our custom AI silicon programs to high volume production along with robust shipments of our electrooptics products for AI and cloud applications. We continue to expand the capabilities of our advanced technology platform to enable our customers to build full rack level custom infrastructure including innovative technologies such as custom high bandwidth memory and co- package optics. Marvel's custom HPM compute architecture enhances XPUs by optimizing the IO interfaces between accelerator silicon and the memory embedded in the package. This enables AI custom compute accelerators with much more efficient integration of main memory which can increase performance and reduce run times resulting in increased utilization. We continue to see strong interest from multiple customers who are targeting the highest performance and optimized TCO for their upcoming AI solutions that leverage the most advanced HPMs. Marvel's breakthrough copackage optics platform enables customers to integrate our silicon photonix light engine into future custom AI accelerators. Copackage optics can drive a transition from copper interconnects to optical fiber for scale up AI clusters. This technology will enable larger AI servers with significantly higher total system memory capacity and processing capability, which we expect will provide the scaling headroom required for the next wave of AI models. We expect this transition from copper, which does not contain any active silicon to optical interconnects to significantly expand Marvel's interconnect revenue and market opportunities. Earlier this month, we announced two new additions to our custom platform. First, we announced a partnership with Nvidia, adding their NVLink Fusion technology to our expanding custom platform. Marvel Custom Silicon with NVLink Fusion provides our customers with an accelerated path to custom scaleup solutions, offering greater flexibility and choice in developing next generation AI infrastructure. This announcement further validates the proliferation of custom XPUs as a strong complement to merchant solutions. In addition, earlier today, we announced Marll's new multi-d packaging platform. The first of many advanced packaging innovations we are bringing to the market. Solution is already qualified and has entered production in support of a customerspecific XPU program. Platform enables customers to realize multi-d architectures utilizing differentiated Marbell design interposer technology. approach can enable more efficient die to die interconnect, lower power consumption, increase yields and lower product cost. Marvel's solution offers a compelling alternative to traditional silicon interposers for custom cloud applications. We expect to continue to proliferate this technology more broadly than next generation designs. Moving on to the progress we are making in our custom business, we are benefiting from revenue contributions across multiple programs including XPUs and other accelerators. Our lead XPU program for a large US hypers scale data center customer is doing extremely well and has become a key revenue driver for our custom business. I'm incredibly proud of our team and the close collaboration with this customer to drive this program to volume production with a zero silicon and meet the customer Steve Ramp. As I mentioned last quarter, we are fully engaged with this customer on the follow-on generation. And I'm pleased to report that we have now secured 3nanmter wafer and advanced packaging capacity and expect to start production in calendar 2026. At the same time, our architecture team is working with the customer to support the definition of the generation after that. This is all consistent with the multigenerational nature of these engagements, reflecting the benefit of working with Marbell over the long term. As a result, we anticipate that our revenue from custom AI XPUs for this customer will continue to grow next year, fiscal 2027 and beyond. At our AI day last year, we also announced a significant design win for a custom AI XPU with another US hypers scale. Joint development on this program continues to progress well, and we are already engaged with this same customer on the architecture for the follow-on generation of this AIXBu program. I'm very pleased with the strong progress we are making across both our current and upcoming custom programs. This momentum reinforces our confidence in achieving our long-term goals for custom revenue. We will be highlighting our broad and expanding range of opportunities at our custom AI investor event on June 17th. I will share more details about this event in a moment. Turning to our interconnect portfolio, our PAM and DCI franchises continue to lead the industry in enabling the buildout of AI and cloud infrastructure. At this year's optical fiber conference, we showcased a broad range of products, technologies, and ecosystem initiatives designed to power the next generation of scale up and scale out AI deployments, including the industry's first 400 gig perlane PAM technology, a critical step towards 3.2T 2T optical interconnects enabling pluggable transceiver modules to remain the dominant solution for scaleout connectivity for the foreseeable future. C-ackage optics and co-ackage copper technologies providing greater interconnect densities and longer reach for scale up networking. Silicon Photonix light engines scaling up to 6.4T consolidating hundreds of components into compact modules optimized for both pluggable and CPO applications. 1.6T 6T linear drive pluggable optical modules using Marvel's silicon photonic light engine. The industry's first 3nanmter 1.6T PAM 4 DSP featuring 200 gig per lane electrical and optical interfaces enabling customers to reduce module power consumption by more than 20% compared to its predecessor. Next generation 800 gig DCI modules supporting data transmission over distances up to a,000 kilometers. Production ready 1.6 60 AEC DSPs for emerging 200 gig per lane accelerated infrastructure. Coherent light DSPs enabling power and performance optimized solutions for the emerging market of distributed campus data center interconnects spanning distances up to 20 km. And finally, PCIe Gen 6 and Gen 730s for end-to-end connectivity over optics. We received highly positive feedback from customers, partners, and industry analysts during the event, making OSC 2025 another home run for the Marvel team. Now, let me turn to Marvel's enterprise networking and carrier infrastructure and markets. In the first quarter, enterprise networking revenue was 178 million, while carrier infrastructure revenue totaled 138 million. Collectively, revenue grew by 14% sequentially, exceeding the midpoint of our forecast and reflecting the ongoing recovery in both end markets. Looking ahead to the second quarter of fiscal 2026, we expect aggregate revenue from enterprise networking and carrier infrastructure to grow sequentially in the mid-s singledigit range on a percentage basis. In the consumer end market, first quarter revenue was 63 million, representing a 29% sequential decline. Looking ahead to the second quarter, we expect consumer revenue to grow by approximately 50% sequentially. These sequential changes are largely driven by seasonality and gaming demand, which continues to be the primary factor driving our consumer business. Turning to our automotive and industrial end market, first quarter revenue was 76 million, declining by 12% sequentially. While we saw sequential growth in our automotive end market, this was more than offset by a decline in our industrial end market where order patterns can be lumpy in any given quarter. Looking ahead to the second quarter of fiscal 2026, we anticipate overall revenue from the auto and industrial end market to be flat on a sequential basis. In summary, in the first quarter of fiscal 2026, we continue to deliver operating margin expansion, earnings per share growth, and new revenue records. These results reflect strong contributions from our AIdriven data center and market and ongoing recovery in our enterprise networking and carrier infrastructure ends. While there are ongoing macroeconomic uncertainties, we are guiding for continued growth in the second fiscal quarter. We continue to closely monitor the broader environment to assess potential long-term impacts. As I mentioned during our March earnings call, AI now represents the majority of our data center revenue, and we expect the relative proportion of AI related revenue to grow further in the coming years, driven in large part by our custom silicon business. We've made tremendous progress since our AI era event last year. And in light of this momentum, we are hosting a dedicated forum on June 17th for investors to gain deeper insight into Marbell's unique position in the custom silicon market. This event will be broadcast live and provide an ideal setting to showcase our differentiated technology platform and provide an opportunity to hear directly from me and a broad cross-section of Marvel's engineering leadership and members of my direct staff. Presentations will be followed by a Q&A session providing investors and analysts an opportunity to ask questions. During the event, we will highlight our expertise in system and semiconductor design, our advanced process and package roadmap and our comprehensive portfolio of semiconductor platform solutions and IP. Complementing this technical deep dive, the agenda will include a market focus section with updates on the expanding market opportunity for custom silicon, a robust design win pipeline, and the growing role of custom silicon and AI infrastructure. We will also share our progress towards the market share goals we set at our AI era event last year along with our vision for significant growth in the years ahead. We are excited to share more details about this incredible custom silicon opportunity on June 17th. Looking more broadly, we continue to see strong tailwinds in AI, including robust capital expenditure plans from hyperscalers, an increasing number of sovereign data center announcements, and an emerging group of hyperscalers, further expanding the market. These fast growing markets present us with a diverse set of opportunities, increasing our confidence in the long-term potential of our data center business. In addition, we are seeing an encouraging recovery in carrier infrastructure and enterprise networking. their second quarter forecast representing the fifth straight quarter of sequential revenue growth for these combined end markets. With that, I'll turn the call over to Will for more detail on our recent results and outlook. Thanks, Matt, and good afternoon, everyone. Let me start with a summary of financial results for first quarter of fiscal 2026. Revenue in the first quarter was 1.895 895 billion, exceeding the midpoint of our guidance, growing 63% year-over-year and 4% sequentially. Data center was our largest end market, contributing 76% of total revenue. GAP gross margin was 50.3%. Non-GAAP gross margin was 59.8%. Moving on to operating expenses, GAAP operating expenses were 682 million including stockbased compensation, amotization of acquired intangible assets, restructuring costs, and acquisition related costs. Non-GAAP operating expenses came in at 486 million, slightly below guidance. Our GAP operating margin was 14.3% while non-GAAP operating margin was 34.2%. For the first quarter, GAP earnings per diluted share was 20 cents. Non-GAAP earnings per diluted share was 62 cents, reflecting year-over-year growth of 158%. Which is more than double the pace of revenue growth, demonstrating the significant operating leverage in our model. Now turning to our cash flow and balance sheet. Cash flow from operations in the first quarter was 333 million. Our inventory at the end of the first quarter was 1.07 billion, an increase of 42 million from the prior quarter to support the growth in our business. We returned 52 million to shareholders through cash dividends. In addition, reflecting our strong belief in Marll's future prospects, we significantly increased repurchases in the first quarter, buying back 340 million of our stock, stepping up from the 200 million we repurchased in the prior quarter. Our total debt was 4.2 billion with a gross debt to ratio of 1.8 times and a net debt to IBID ratio of 1.42 times. Our debt ratios have continued to improve as we have driven an increase in our IBIDA. As of the end of the first fiscal quarter, our cash and cash equivalents were 886 million. Turning to our guidance for the second quarter of fiscal 2026. We are for forecasting revenue to be in the range of 2 billion plus or minus 5%. We expect our gap gross margin to be between 50% and 51%. We expect our non-GAAP gross margin to be between 59% and 60%. Looking forward, we anticipate that the overall level of revenue and product mix will remain key determinants of our gross margin in any given quarter. For the second quarter, we project our GAP operating expenses to be approximately 735 million. We anticipate our non-GAAP operating expenses to be approximately 495 million. For the second quarter, we expect other income and expense, including interest on our debt, to be approximately 49 million. We expect a non-GAAP tax rate of 10% for the second quarter. We expect our basic weighted average shares outstanding to be 864 million and our diluted weighted average shares outstanding to be 874 million. We anticipate gap earnings per diluted share in the range of 16 cents to 26 cents. We expect non-GAAP earnings per diluted share in the range of 62 cents to 72 cents. In summary, we continue to drive strong revenue growth, expand our operating margins, generate strong cash flow, and returning increasing amounts of capital to our stockholders. We are looking forward to completing the sale of our automotive Ethernet business to Infinian, which will provide us with even more flexibility to execute on our capital allocation strategy. With that, we are ready to start our Q&A session. Operator, please open the line and announce Q&A instructions. Thank you. Thank you sir. We will now begin the question and answer session. To ask a question, you may press star then one on your touchtone phone. If you are using your speaker phone, please pick up your handset before pressing the keys. And to withdraw your question, please press star then two. And in the interest of time, please restrict yourself to one question only. And if you have additional questions, please rejoin the queue. At this time, we will pause momentarily to assemble our roster. And our first question comes from VC area at Bank of America. Please go ahead. Uh thank you and uh thanks Matt for clarifying that you have that uh 3 nanometer program at your large XPU customer and have the followon program at the other uh large customer just given all the Asia uh supply chain noise. I guess I had two related uh questions. Uh one is what is the direction of content in these next generation programs? You know, is it up down flat? And number two, are you exclusive on these three nanometer XPUs or do you expect to share that program given that you know your your competition also seems to be convinced that they have the program? So just you know comments on content and exclusivity. Thank you. Yeah. Hey VC, thanks for the question. Um so first yeah I I'm I'm glad you said it. I I can certainly uh appreciate the challenge uh for investors given the news flow that is coming out on seem seemingly a weekly basis here. Um the fact is that these Asia supply chain sources um have an incomplete view. We run a very tight ship here at Marll. Uh we don't share customer confidential information. We treat that with the highest priority. So they simply have no idea what we're doing for our customer. Um so let me state the facts as they exist today. Uh we're the incumbent shipping the current generation of this AI XPU and we as I've detailed we've had a very successful and rapid ramp on this program from A0 which is first time success to high volume production. Uh I've talked about this for a couple of quarters. uh we've been engaged with this customer on the follow-on generation of this XPU. Um this next generation program has continued to move forward and this quarter we have secured 3 nanmter wafer and advanced packaging capacity. Uh and that's for 2026 where we expect to start production and that would be subject to the typical completion of our customers qualification cycles which we now have some experience with. And so assuming AI capex continues to grow, we expect our custom silicon revenue to continue to grow next year through program transitions at this customer. So look, our customers have relationships with many partners. Um, and they do that to build out their, you know, whole silicon portfolio. Uh the key point is that irrespective of any of these relationships, we expect our revenue to continue to grow on a multi-year, multigenerational basis with this customer. Um and given the volumes that have materialized for XPUs, it's certainly possible and likely that customers and our customer may be pursuing multiple paths to meet their requirements. So thank you for asking this important question, VC. Um I think my answer is as clear as it could be. Thanks. Thank you. Thank you. Next question will be from Ross Seymour at Deutsche Bank. Please go ahead. Hi Matt, thanks for that color. Following on VC's question, um, one of your primary XPU competitors has talked about engagements at additional customers and not necessarily to frontr run anything you may or may not say on June 17th, but how do you see Marll's ability to support a broader customer base beyond the initial I guess three4 that you have depending upon if we're talking XPUs or connectivity. Yeah, thanks Ross. Um yeah, we'll we'll cover this uh certainly at the at the AI uh investor event we'll be holding, but just to give you some some color, uh we absolutely have uh the capacity engineering wise to expand our portfolio and expand our engagements. Uh if you look at Marll's um R&D spend over the last few years through cycle, we've we've uh made increases there. And then within that, as part of our capital allocation strategy, we've aggressively repurposed and reallocated our our our talent and our teams to this massive data center and AI opportunity. So, if you look at just the raw R&D spending, the investments we're making in next generation technologies, and again, we're going to cover all this at the AI day. um we are extremely well positioned to support and are supporting uh multiple increased engagements across a number of programs um that we'll detail and we'll talk about and we'll frame at the AI investor event. Um but I think we're we're very well positioned to support uh designs that can that can really grow the company to even a much larger scale and level. Um and and and I would say also by the way it's it's not just you know the the top sort of four. Um I think there's been a been a really interesting emergence over the last year or so of the next wave of hypers scale kind of class um uh customers that can benefit from our technology uh relative to going custom. So we're going to we're going to talk about all that just a couple weeks out here. Look forward to um talking to you then. Thank you. Next question will be from Toris Vandberg at Stiffel. Please go ahead. Yes, thank you and congrats on the results. Um, maybe in the spirit of clarifying things, uh, you know, there's there's a lot of debates out there about your service technology, especially, you know, for 200 gigs. Uh, so, you know, maybe you could talk a little bit about Oral's positioning there. Uh, and and and, you know, maybe related to that, you know, how this relationship with Nvidia is going to, you know, work out. I'm sure there's a lot you can't share with us, but uh you know uh I tried anyway. Yeah, sure. Yeah. I um on on the first topic and and we'll actually be showcasing this at our AI event. Um R30's technology remains best-in-class both from a performance standpoint as well as a time tomarket standpoint. Uh if you recall, we've had now leadership announcements and and production by the way um on 200 gig. It's performing extremely well and we just showed off at OFC the first and only 400 gig per lane uh demonstrations with you know very aggressive uh roadmap there. So that that is in great shape uh our our technology across the board both electrical and optical certis um and tell me your second question. Yeah. Was the uh Envy Link Fusion and how that's going to work out. Yeah. So, so that's I we're excited about that partnership. I think we're it's it's I think it's a sign that um it kind of demonstrates how well well one you know we're deeply engaged in the ecosystem uh Tori with with key partners and the second I think it's it's some validation as well that from a market standpoint there is a complimentary role for custom even as acknowledged by Nvidia who you know can leverage sort of the R&D investment they've already put in in their rack scale solutions but with people that want to do their own XP to use. Um, and so we're we're part of that discussion and we're we're going to help enable that if that's a direction our our customers want to go. And we just view it as another key piece to the whole portfolio that we offer to customers kind of end to end. And I and I detailed some of those in my prepared remarks as well around things like custom HPM, co-ackage optics, advanced packaging, and others. These are really just it's really part of a suite of technologies to to give the broadest offerings to our customers with the with the best-in-class technology. Thanks for all that caller, Matt. Yep. Next question will be from Timothy Aruri at R UBS. Please go ahead. Thanks a lot. Um Matt, I was wondering if you can break down data center revenue a little bit. I think last quarter you said that AI was about 55% of data center. I wonder if it was in the same range. Uh I assume maybe custom silicon grew a little faster because the gross margin was a little bit lower. Um so I guess that's the first part of the question. And then um and then obviously you're running way above this $2.5 billion number this year for AI revenue. Can you give us just a sense of where it's tracking for the year? Are we talking like 35 to four billion? Maybe you'll talk about this at the at the you know day here in a few weeks, but I'm wondering if you can sort of you know add some color to this for us. Thanks. Yeah, thanks Tim. Yeah, we didn't give an exact number uh when we talked about it in relative to our our Q4 was was the data point we gave, but we did say that that at that time that within data center AI had had crossed and was now the majority of our uh of our data center revenue. And and I think the way to think about it is because we're not going to break it out on a sort of quarter by quarter basis, but but as I've um prepared for the call and and been looking at the trajectory of the business, and I say this with with also you got to factor in that we we anticipate the the the mass market and the the core business to continue to recover. you know, we see a path here in the not too distant future where AI is not only the majority of the data center uh and market but it becomes the majority of Hulkco and so where that line is exactly you know we're not calling it but that's that's the trajectory so so I think you but the mental shift is like not sort of figuring out how within data center what that exact number is but you you know you can do your own models you you guys are very very capable there drawing a line between between here and when it can actually cross as as a 50% contributor to the whole company. Um, but that's coming. But I guess then is that why so so did the custom async business grow a little faster, Matt? That's why the gross margin was a little lower. Oh yeah, on the on on on that side of things, yeah, there there's there there's mix within the quarter and clearly um the the custom business we have does run at a fundamentally lower gross margin. So that that is going to modulate our our gross margins on a quarterly basis and you've you've seen the impact. But we've also had I think strong recovery in some of the other businesses as well. But but that's always been fundamentally the custom business uh uh a lower than company average gross margin. Yeah. Maybe I can add quickly uh to you know when you when you look at our Q2 guide certainly uh custom you know continues to grow really strongly and and that's what you're seeing reflected in that um you know when we look look forward to the to the second half clearly we're we're optimistic on on custom demand um and that interplay between that and the the rest of the business is is is really going to drive uh what gross margin will be in the second half. I mean right now probably expected to be in a similar range as what we guided for K2. Okay, thank you Will. Yeah, thanks Tim. Next question will be from Chris Castle at Wolf Research. Please go ahead. Uh yes, thank you. Good evening. Um, I guess the question is regarding uh the second half of the year and I'm sure you're not ready to provide that guidance right now, but could you give us some puts and takes on, you know, what your expectations may be? Do you expect the custom business to continue to grow in the second half of the year? Uh, you know, what do you expect with regard to, you know, the carry enterprise businesses? Is this kind of a, you know, kind of slow steady ramp in those businesses? Any kind of color in the second half, please? Yeah, thanks Chris. Yeah, maybe just at a higher level, you know, and and I said this in some of my prepared remarks, but we're yeah, we are monitoring, you know, the uh the macro and and the various dynamics going on out there. Um so, so that's always a factor, but at at the moment, you know, we see a couple things happening. The first is and and just even recently as yesterday you see strong numbers out of Nvidia and other announcements leading up to that. But we see the AI demand uh you know continuing and our data in the data center demand continuing and then on top of that we have this nice recovery strong recovery actually we've been driving in our um in our core business in particular enterprise networking and carriers. So we expect that to continue to recover and grow throughout the rest of the year as well. So we're not calling on a quarter by quarter basis, but right now we expect growth kind of across the board um through through through the year with with I think what can be a really nice setup for fiscal 27 with some of the growth drivers we've we've articulated before. So so that that's that's where we're at right now. Um and I I I feel good about it. Thanks. Thank you. Next question will be from Harshkumar at Piper Sandler. Please go ahead. Yeah. Hey Matt, congratulations on uh solid results. Uh when we talk to investors Matt, we we find that there's a desire on part of investors for the data center business to grow faster than let's say what you've been putting up mids single in the April quarter and then also the guidance. I know that in the last quarter Matt you had some moving parts with onrem etc. I was hoping that you could clarify the growth of your AI business versus some of the non-AI pieces like onrem or some other things that might be moving around and just help us understand how fast maybe your AI business is growing. Yeah, thanks Harsh. Yeah, and I think the way to think about it is you is is helpful is to contextualize you know it's not a one a one quarter snapshot. So you know if you if you if you look at the last few quarters you know we had a very dramatic step up from Q3 to Q4 you know 20% plus in the data center business it grew four we're guiding it up mids single we we I just kind of gave some indication it'll keep growing and and so if you look at the year so so that's one way to think about it is we we did have a we did have a significant step up and and Q2 as signaled is is looking like it's going to grow slightly faster than than Q1. one. So, that's a good sign. But also, I'd point you to the fact that, you know, look, a year ago, we were in a we were we were in a very strong position relative to our data center and how it was growing. So, the the comparables are are are also telling, right, when you're talking about data center year-over-year revenues for a company at our scale growing, you know, 70% plus on a on a year-over-year basis, we we feel good about that. So um I think with that that setup if you look at just the last you know two three quarters and you look at year-over-year we feel really good about the trajectory of the business and you know AI continues to be the fastest portion of that in in terms of our data center business and as I said earlier to answer Tim's question you know at some point that'll just flip over and become you know h half of Hulkco. So that I think that's that's um that's the context I can give you at the moment. Thanks. So Matt, hopefully you can talk about the on-prem piece if possible or other parts that are moving. Well, yeah, the on-prem is is pretty small at this point. So it it it has some effect and it's it's it's it's it's always, you know, continued to be a little bit of a drag. Um but but you know the the the overall um data center revenue is driven primarily by by AI and the other stuff's performing pretty much in line. I don't think it's a drag going forward. I think it if if you're worried about like where does it land in the next few quarters. It it's it's not as big a contributor as it used to be and it's probably where it is. Maybe it comes back a little bit but it's the the spending has shifted just so dramatically right in the data center. um the the enterprise on-prem piece is just not not getting the spend anymore. So, I think it was down a little bit in Q1, but it it's it's relatively stable. Yeah, thank you. Thank you so much. Yep. Next question will be from Tom Ali at Barclays. Please go ahead. Hey guys, thanks for taking my questions. I have two quick ones. First one's for Villain. You are guiding data center up mid-s single digits into the out quarter and you're saying custom silicon is growing quite strongly. Is there something going on with optical? Is that flattening out a bit? Is there anything going on? Uh could you give us an update on the health of optical and which are embedded in your guide? And then the second is Matt. Uh in your announcement with Amazon, you talked about a bunch of other products other than custom silicon that you guys were engaging with over the next couple years. PJ cables, PJ rettimers, AC. Could you maybe try to size what that impact is right now? Some of your competitors in that space are putting up some bigger numbers. Would love to see how significant that is for you guys. Thank you. Yeah, thanks Tom. Maybe I'll take the take the second part first. Um yeah, I think I think those engagements are going very well. Uh you're right in in our um in our broader agreement. It it was it was uh there was actually a lot of different exciting opportunities on the network and connectivity side those are progressing but but no no major updates there. And then with respect to um how how the optics business is um is doing um it's it's it's done quite well and in fact you know um we see that business growing throughout the year this year. So um we see both growth from custom as well as optics and then and then again on the Amazon uh agreement um progressing well. I would say just at a high level too we have uh you know in some of these new emerging categories we do have AEC's ramping this year I wanted to note that and as well as continued um uh revenue growth and switching so a lot of good things happening there Tom yeah Tom and I'll just add quickly in terms of you know the the puts and takes on on gross margin um you know the other one to take into account there is the the strong snapback on consumer you know that's that's seasonal and and expected. Um but that's another area that's typically slightly below average when you when you when you look at the overall. Could we have the next question please? From Harlon sir at JP Morgan. Hey good afternoon. Nice job on the quarterly execution guys. um the lead AI GPU vendor I think is getting ready to commence shipments of their next generation platform and in parallel they're rolling out their nextg x800 infiniban and ethernet scale out solutions that support 1.6T optical connectivity and typically like the optics start to ship ahead of the GPUs and wrap scale platforms so you anticipate a strong ramp of your 1.6T 6T solution starting now and more importantly your 5nmter solution I think is already qualified with this set with this customer. Are you guys going to be mounting your 3nmter DSD solution into this next generation next uh networking platform? Yeah, thanks Aron and you're you're you're right about the sequencing and so we have commence shipments on 1.6T uh at 5 nanometer. um we have very strong demand for three and we've executed very well on that um on that product development so far and so I think that's for from from a 1.6T kind of lifespan perspective. I think that's where the volume is going to be and I think that's going to be a much stronger ramp uh next year and and some of that I say too because the 800 gig has continued to be so strong kind of across the board that just as a as a as a kind of a percentage of the total it's still largely dominated this this entire year by 800 gig. But yeah, we're shipping now. The the part works well, but there's just a lot of demand to um you know, initial initial ramps and customers will be will be on five nanometer, but there's a there's a big push in the ecosystem to drive it to 3 nmter given the compelling power savings and the performance of our product. So all all that's going well. We're we're well positioned for the 1.6 uh ramp and ecosystem uh expansion. Um thanks for the update, Matt. Yeah, thanks Harlon. Next question will be from Blaine Curtis at Jeffre. Please go ahead. Hey, good afternoon. Thanks for your question and uh thanks for clarifying all that ASIC stuff. Uh I I just kind of wanted to ask going back to the gross margin. So I think there's been a lot of discussions about you know what an ASIC vendor can can charge for and not charge what they can charge for memory. You know I think you guys kind of put a line in the sand at a certain gross margin for AS6. I'm curious if that's still the right level. And when you look at these next generations, I'm glad you're involved with all those, you know, how should we think about like sustainable AI as gross margins. Is it still in the original range you were looking at? Yeah, thanks Blaine. Yeah, when we look at our overall um you know custom business as a whole, the we've been able to manage the gross margins, you know, even with these ramps in the in the range we've talked about, but within within custom, there is a range and and and it's like the old, you know, the old uh adage in semiconductors, you know, the the higher the volume, you're going to see you're going to see lower gross margins, but you're going to see a lot more operating income. And so that's what we see. Um, I wouldn't say that the percent change is really any different relative to how it stacks up on on the opportunity set. you know, things that are uh a lot more Marll contribution as an example where we leverage a lot of the IP and maybe more outside the XPU, those tend to be um a little higher and um you know, and of course they don't grab the limelight, but we're going to we're going to talk about those at the AI day because they actually, you know, in aggregate add up to a to a to a very nice revenue pipeline for us, an opportunity set with also that same multi-generational aspect to it. But from a percent standpoint, we're managing the business fine and and the AI portion, the XPU is always going to be lower. It's just that as the XPU depending on the the magnitude of that that may move move that mix around, but I I you know there's there's a certain range for these programs and projects and we haven't really seen that change. Um the magnitude of the volume has changed, but I'd say that's across the board by the way. Not only have the XPUs that we have going in flight or in production increased a lot from when we won them, but now these other these other types of accelerators or custom networking or custom nicks or things of that nature, those have also quite frankly um you know those are a lot more volume than we had had anticipated and those carry a little bit higher margin. So I hope that context is helpful but but we're still managing the business in the same way. Thanks man. Yeah. Yeah, Blake, maybe one one additional add is just on on operating margin. So, I think the one thing that's consistent across all these programs is that we're driving accretive operating margin to our model. Um, and so, you know, clearly there is a range. Uh, but as you as you scale those those programs, it's a it's a finite investment. Um, and and you've seen that uh leverage in our model over the last couple of quarters here. Yeah. I mean, I think you're seeing it in operating margin dollars flowing in Blaine and also in EPS, right, which still continues to grow like twice the rate of revenue at this point. So, um and and and we don't we don't see that changing relative to the leverage we get on um these big programs, ve very operating margin um rich in terms of just the the dollars. Thank Yeah. Thanks. Next question will be from Quinn Bolton at Medium and Company. Please go ahead. Hey, thanks for taking my question. Matt, I wanted to follow up on the VEX question or maybe just a clarification on whether these ASIC programs could potentially be dual sourced. I think towards the end of your answer, you said that there could be multiple paths and I'm not sure if you're sort of suggesting there might be different versions of an XPU or whether they could actually be dual sourced. To the extent that they're dual sourced, you spent a couple years designing these programs. Do you guys have guarantees that you don't get blanked at the end of the year if they, you know, take the other path? Yeah. So, um, no, Quinn, I appreciate the question. I I was quite lengthy in my prepared remarks and even my I think VC answer in terms of what I the perspective um I can offer you on that. So I I think I've said it and and if I wasn't clear, you know, I I did say that given the given the volumes, it's certainly possible uh that that there are multiple paths pursued uh for us in our business. And what I said in the prepared remarks as well is we feel we feel very confident and very good about our um revenue continuity on the initial program and the revenue ramp on on our additional program. Um, we're planning production, we're tracking, we're we're doing that. So, you know, I I see the noise coming in. Um, but I'm also just need to kind of focus on what I'm hearing from my customer and what we need to go do to execute to to be a good Yeah. Um, the second question is just a follow up on the Nvidia Fusion. Um are you guys is Nvidia sort of open up their NV link and you design your certities to be compatible with that and you offer that out as an IP block to your ASIC customers or um is is there an IP transfer from Nvidia to yourselves involved in that NVLink fusion offering? Yeah. Yeah. the the the the initial intent is it's planned as a as a chiplet solution and so um we we could for example work with the customer do the do the the XPU design with them and then through IO chiplets uh take eye interface between the XPU and the um NVLink chiplet and then that interfaces to the to the scaleup network. Um there's probably other models that can exist. I think the the higher level notion that that Jensen and the team are driving is really trying to open up and make sure that they um that customers can take advantage right of the investment they've made in their infrastructure even if they have unique needs down at a more granular level like at the XPU. Um, so we'll see how that all evolves, but we're we're we were very happy to be asked to participate and be a partner and we've already received uh a whole bunch of interest from customers uh on on what this this engagement might might look like. So we we'll see where it goes, but I think that the highle concept is what is important. Got it. Thank you. Next question will be from Swini Perjudi at Raymond James. Please go ahead. Thank you Matt. Um my question is on the optical side. I know you said your expectation for this year is uh for the optical business to grow. Obviously you know you have the 1.6 uh t ahead of you and you also said 800 gig demand is quite strong but a couple of questions we get from investors. One uh can you speak to your market share as we go from 800 to 1.6 6T and also you know the potential impact from any technology transition such as LPL. And then uh the second question is can you speak to you know um to the extent you have visibility what is the current inventory you that you see at your customers because you know that question keeps coming up given how strong this cycle has been so far. Thank you. Yeah thanks. Um so yeah we we see you know uh we've maintained very strong market share in the 800 gig uh wave. We we let it you know a few others have come in but we still have a very very strong position commanding position there. We were first to market at 1.6T uh 5nmter first to market at 1.63 nmter. We're driving 400 gig IO which is going to enable 3.2T 2T based on PAM. So I don't see any fundamental shift at all in the market share and and quite frankly the faster we execute and the faster we ramp these ramp the better because of the the lead we have. So we feel good about that. Um any any impact any any adoption I I should say not impact of of new technologies like LPO I view those as is very incremental. those those would be for things like scale up and we will participate in those you know we've we we will we have solutions um based on our broadband analog technology and we'll participate in in LPO when it happens our view still is that's going to be a smaller portion of the market but we will be there and we're engaged right now um and then I think your last question was just about the the broader inventory right at our customers yeah so Um so that that that looks that looks pretty good. I mean we we uh service this business direct. We service we serve it through a number of channels but key data points you know like distribution inventory and things like that. That's um that's very low. We had strong sell through last quarter. Um you know we're looking at the whole year and it looks like a still looks like a good year. Um we got to we got to wait and see. We're only doing one quarter at a time here, but um high level this year and and next year, especially with the 1.6 transition. We see continued strong growth in our optics business. Got it. Thank you. We will take our last question from Josh Balder at TD Cowan. Please go ahead. Hey guys, thank you for taking my question. Um I wanted to follow up on a couple previous ones. C can you maybe elaborate on on what you would expect to see from a potential customer who's exploring multiple tracks? Is that generally a performance skew and efficient skew or or could you see instances where where your hypers scale customers are are engaged on completely different ASIC programs um for different completely different workloads. Thank you. Yeah, thanks um and nice to meet you. Yeah, we I I think for the I think I've covered kind of as much as I'm going to on the on the on the topics from today, but I do think you know there there'll be some discussion probably at the AI day around some of the different business models that are out there and different things customers are looking for, but at the moment I think I've given given kind of the the max color uh we're going to do on this. So I but I appreciate the question. Thank you. Thank you. This concludes our question and answer session. I will now turn the call over to Matt Murphy, Marvel's CEO, for closing remark. Great. Thank you, operator. And um look, I just like to thank everybody for your interest in Marll and for joining the call. Uh we're off to a great start with our first quarter in fiscal 2026. Um I'm very excited to be guiding a $2 billion quarter for the second quarter. um and seeing that all the effort that that the Marvel team has put in is coming to fruition relative to ramping some of these key programs and executing to meet our customer needs. Um and I'm looking forward to connecting with everybody um at the custom silicon event for investors in a couple of weeks and giving a deeper dive into uh into this quite quite large opportunity in front of us. So thanks everybody and we'll talk soon. Bye. Thank you sir. Ladies and gentlemen, this does indeed conclude our conference call for today. Once again, thank you for attending. And at this time, we do ask that you please disconnect your