Earnings Call - QLOGIC CORP

Marvell Technology has been one of the top performers this year and the company's supposed to end all analyst meetings and Matt I've been with you when you had analyst meetings that no one believed in you and they were wrong and you because they thought you were too aggressive they were wrong so I want to ask you Matt what gives you the conviction to make projections that frankly were jaw-dropping including that one by your CFO 30 in 30 30 for 30 that's That's right. Well, look, Jim, I've been CEO for 10 years. I've been in this industry for 32 years. And now you have gray hair. I have gray head. The picture doesn't match the one you guys flashed up. I probably need to redo the photo. But look, I think we always put out what we think is pragmatic, judged and achievable. And so if you look actually two years ago, we were in New York, same hotel, same venue, talking about our AI and data center ramp. And we were talking at that time about a $15 billion dollar data center, 2028 Marvell revenue. If you look at sell side analysts consensus today after our meeting yesterday, the implied data center revenue in 2028 for us is over 30 billion. So basically, it's fundamentally 2x in that period. Now, along the way, we've updated investors, we've been taking people on the journey. But yeah, we have achieved the targets along the way and the business continues to perform really well. On June 2nd, a very famous prediction by Jensen, well, you could be the next trillion-dollar company. It seemed absurd. At 42 times the earnings you made, you will be at a trillion dollars. So it is not absurd, and it could be four years from now. Yeah, it was not rehearsed and shocking when Jensen said that, but at the same time, if you actually take the range of $70 to $90 billion and then you put a multiple on it four years out, you know, who knows what's possible. But he saw it. I need to know whether you saw it first, that it wasn't— It was not the actual, usual kind of GPU versus TPU. It was connectivity. You discovered connectivity. Explain to people what connectivity, which may be bigger for you than actual XPU, TPU... Yeah. No, we're unique, actually, in this AI semiconductor cycle in that you had the three big compute companies, right? Drive massive growth when generative AI first rolled out. And that was followed by a huge memory wave, right, which we've all followed, right? Three large trillion-dollar memory companies, that's what they do really well. And what we're seeing now is there's a gap because there's not enough in the connectivity layer to connect all of those things. So you've got a lot of installed compute, a lot OF installed memory, but guess what? They all need to talk to each other through high-speed optical interconnections, switching networks. And what you don't want is any GPUs or memory sitting idle. And actually, what happens when you start talking about agentic AI and reasoning models, there's more and more diverse kinds of compute, so the connectivity layer even gets more complex. So that was my June 2nd sort of thesis at Computex was, look, we see this as the next big unlock, and our business has just been ripping since. And that's when Jensen came on stage and basically said, yeah, I agree with Matt. His business is doing really well. I mean, it was only April of 24, I think, Matt, when you were talking about your XPU custom total addressable market at $40 billion. Now I think you're saying it's $235 billion. That's right. That's two and a half years. I mean, we know the numbers. We share them every day with everybody in terms of the spending. But is it astounding to you? And what gives you the confidence that number is going to be right? Yeah, the custom number, it really ran on us for sure. I mean – and it was interesting. if you go back two years ago, the debate was actually, can custom even materialize as a portion of the market? Now you fast forward and it's not just us right there. That whole segment has clearly, clearly been solidified as a real thing. And so you roll forward just a few years into 2030 and yeah, you're looking at a $235 billion market just for custom silicon. We participate in that in two areas, by the way. Well, you are 13% or so, aren't you? Something It's a pretty reasonable, it's actually, the crazy thing is we said, hey, our target is $30 billion in revenues in 2030 in custom. And then somebody pointed out in the meeting, look, if you just divide that by the $2.35, it is only 13% market share. And we have got customers there today. I mean, our business in 2028 is going to be $12 billion plus in custom already. So that drive from 28 to 30 is not a stretch, and it's not a huge portion of the market. So I think that's why we gave some headroom, too, on our ranges. We said, look, it's nicht just 80 billion dollar target. There's a range of outcomes. We actually gave ranges on all of our businesses. So, you know, investors can take a look and they can make their own judgments. But we think the midpoint of 80 billion is very achievable at the company level. That's interesting because the streets elated pretty much at all the targets. but I think it was Morgan Stanley that said they're happy, but we don't know whether Marvell needed to raise the bar this high. Was there any discussion about hedging bets? Yeah, you know, it's interesting. There's always this debate. Are you conservative? Are you aggressive? What do you like? And actually, I never like to use those words. I always look at most probable outcome judged and pragmatic, and we call it like we see it, and we give a range. And that has served me and the company, I think, extremely well for the last 10 years. You know, we've grown the revenue from basically low $2 billion in revenue 10 years ago. We're looking at $20 billion next year. We've taken investors on the journey. And, yeah, I Think you could say I've made some moves that are very—would be aggressive. Maybe forecasts we gave or acquisitions we did or divestitures we did. But in my mind, all of them were very rational, thoughtful, and pragmatic. And that's how we think about it. So no change in how we're running the place, no change in me. So when you look out to our targets in 2030, it's very consistent with how we've been doing it. But you have a particular edge that people have to understand, which is that you figured out and know how to break through the copper wall. Copper wall, right. I mean, if you think about it, if go back like 15, 20 years, inside the data center, today you look at a data center. There's optical cables everywhere, right? You see all these fiber optic cables plugged in and out. Those all used to be passive copper at one point. And because of the data bandwidth, the data rates required and the bandwidth required, more and more of the datacenter links have been moving from copper or passive to optical. So that's driven our business quite nicely to date. But there's another wave. Basically, what's happening now is there's two terms. One's called scale-out networking, and then there's scale-up networking. Scale-out is connecting all of the racks together, all the networking inside the datacionner. But now, people want to hook up and coherently connect GPUs and XPUs together. In the rack, you mean? In the racks. Is that all copper still? Inside the rack. It's all copper today. And it's going to move to optical because you're running... Explain to people why copper's not good. When does that actually happen? Oh, it's gonna start next year. Yeah, we have a category, a sub-business we call Scale-Up Optics. And it $0 this year. And we said next year, actually two quarters ago, I said it would be $300 million in revenue. I then said it was going to be material higher than that last quarter. And then it's gone up again. So this is ramping now. Is this the fourth leg you were talking about or no? That's the third leg. David, there's always one more leg. All right. That's how we do it here. You can't just stop like one or two years out. No, you've got to have four. It's a four-legged stool. Okay. Yes. All right, so. I think there are people out there who say, wait a second, there are moratoriums going all over the place. The political situation is not good. You've got to worry. Matt, it doesn't sound like when you're using a $400 billion total addressable market that you're that worried about the political implications of data centers. Yeah, I mean, we think about the external environment all the time. And I think we battle that constantly. And we have to think about it at a company-level scale. scale. But I got to tell you, at the end of the day, we're a semiconductor company. We build world-class chips for a living. We work directly with our customers. And right now, our customers in particular are the largest hyperscalers who have been executing their data center plans and build-out for many years, right? So they've got a flywheel that they're building on. We've got line of sight to where they want to take their business. We're going to be part of that. Yes, we have to be aware of the external environment, but we see no impact from any of these externalities right now on our market potential, and certainly not right now, even in the near term, on our revenue growth. I mean, we basically said for next year, we took everybody up next year from $18 to $20 billion, primarily because of connectivity, actually, is what I just mentioned. So even inthe near term, we don't see that impacting our business. I want to congratulate you, Matt, for everything that's happened. I do want to point out that twice the press has befuddled you and people have attacked you. And what do you do? You went IN THE OPEN MARKET AND BOUGHT HOW MUCH STOCK? I BOUGHТ SOME SHARES. I Bought TWICE, ACTUALLY. I BOUT TWICE IN THE 70s. THANK YOU FOR COMING ON THIS SHOW AND TELLING PEOPLE, LISTEN, HERE'S MY ANSWER TO THE DOUBTERS. I JUST BOUGHt A MILLION DOLLARS WITH THE STOck. YOU CALL IT LIKE IT IS MATT MURPHY RUNS BARBELL TECHNOLOGY. THANKS, GUYS. APPRECIATE IT.