Marvell Technology Group (MRVL) reported solid fiscal second-quarter results after the closing bell Thursday. Net revenue of $1.076 billion (+48% YoY) was roughly in line with estimates of $1.066 billion. Adjusted earnings of $0.34 per share (+62% YoY) exceeded estimates of $0.31.
"Marvell delivered record revenue of $1.076 billion in the fiscal second quarter, above the midpoint of guidance, growing 29% sequentially and 48% year-over-year. Growth was driven by the data center, which now represents Marvell's largest end market at 40% of total revenue, benefiting from our growing momentum in the fast-growing cloud infrastructure market," CEO Matt Murphy said in the earnings release.
Murphy went on to credit the revenue growth to the "stand-alone" Marvell business and the acquired Inphi business.
Before going further, we should point out that the Inphi business delivered revenue growth above management's expectations and was accretive to Marvell's adjusted earnings in its first full quarter within Marvell. Murphy helped reshape Marvell through M&A in a tremendous performance. The pending Innovium (INVA) deal announced earlier this month is his next move that will make Marvell even bigger in high performance computing. More on Innovium later.
In addition, this was the first quarter where the company broke out revenues by its five end markets: data center, carrier, enterprise networking, consumer, and auto/ industrial. As we discussed last quarter, we are big fans of this new reporting style. The added transparency should help investors gain a better understanding into Marvell's business and long-term growth outlook.
By product group, revenue from its networking business was $701.712 million (+72.8% YoY, +40.8% QoQ), exceeding expectations of $598 million. Marvell's storage business, which consists of HDD (think traditional hard drives) and SSD (flash memory) controllers, fiber channel adapters, and data center storage offerings, revenue was $341.713 million (+17.6% YoY, +12.8% QoQ), topping expectations of $328 million.
Data center (the company's largest end market) revenue was $433.722 million, representing a growth rate of 57% QoQ and 62% YoY. More than half of the company's revenue in the quarter was driven by the cloud. The strong growth rate this quarter was driven by contributions from the acquired Inphi business, as well as ongoing growth from stand-alone Marvell. The company said its cloud customers drove the vast majority of the growth in the data center. The company's data processing units and storage products contributed to growth, as well. On the call, management discussed how several significant design wins that were announced in the previous quarter are expected to drive a substantial increase in cloud revenue in calendar 2024 to 2025.
Carrier infrastructure revenue was $196.656 million, representing a growth rate of 17% QoQ and 38% YoY. Driving the strong growth figures was the contribution from Inphi, as well as stand-alone Marvell's wireless business, which benefited from ongoing deployments of 5G as well as product ramps at Samsung and Nokia (NOK) . However, these gains were partially offset by an expected China 5G digestion. Marvell discussed a new 5G design win on the conference call by a key base station customer. With this win, Marvell has now secured 5-nanometer designs at three Tier 1 base station customers.
Enterprise networking revenue was $222.732 million, representing a growth rate of 27.4% QoQ and 40.8% YoY. The majority of this revenue growth came from stand-alone Marvell products. Management also said this "remarkable level of organic growth ... was made possible in part by a strong effort from our operations team to address pent-up customer demand." Management expects to see strong demand "for the foreseeable future," however supply constraints will impact its ability to meet demand. From a product perspective, growth in the quarter was driven by Marvell's Ethernet networking portfolio, which is experiencing share gains and is at the beginning of multi-gig adoption.
Consumer revenue was $165.38 million, representing a decline of less than 1% QoQ and growth of 23% YoY. Driving the strong annual revenue growth was Marvell's custom DIY SSD controllers. Consumer used to make up a much larger portion of Marvell's revenues, but management's focus elsewhere has significantly reduced the company's exposure to the consumer market, "which tends to be more volatile with shorter product life cycles," according to Murphy.
Auto/industrial revenue was $57 million, representing growth of 24% QoQ and 125% YoY. Driving the growth in revenue was the ongoing ramps in auto as the company continues to gain recognition from customers for its automotive grade quality and reliability. Auto is still very much in the early innings of growth.
As investors can better understand by this new reporting style where specific end markets are broken out, management has put a lot of emphasis on building out a top-tier data center and carrier infrastructure businesses. The reason behind management's investment into these two end markets is because these markets are characterized by "long product life cycles, sticky design wins and multigenerational engagements," according to Murphy. In other words, these are secular growth markets. Meanwhile, the company has been de-emphasizing the more episodic consumer business, as revenues from this business as a percentage of total revenues has dropped to 15% today. They were about 70% to 80%, when Matt Murphy joined the company. This shift away from cyclical businesses and into faster growing secular growth markets represents one explanation why MRVL's price-to-earnings multiple has significantly re-rated over the past few years. This is not a coincidence.
Looking at guidance for the third quarter of fiscal 2022, management expects revenue to be $1.145 billion +/- 3%, a result that is slightly higher than the $1.135 billion consensus estimate. Adjusted gross margins are expected to be 64% to 65%, and adjusted operating expenses are expected to be $365 million to $370 million. Finally, adjusted earnings-per-share are expected to be $0.38 +/- $0.03 per share, and that's one penny higher than the $0.37 estimate.
By end market, data center revenues are expected to grow in the double digits on a sequential basis. On a year-over-year basis, Marvell is projecting data center revenues to roughly double from a year ago. The sequential growth is expected to be driven by the cloud "with virtually all of our product lines contributing to growth." Marvell also expects to start ramping some additional products next quarter.
Carrier infrastructure revenue is expected to increase on a sequential basis thanks to double digit growth from wireless, partially offset by a decline from wired. The growth in wireless is expected to come from the global rollout of 5G. Also, Marvell sees growth from 5G "significantly accelerating" in the fourth quarter.
Enterprise networking revenues are expected to decline on a sequential basis due to supply constraints, although sales are expected to be up nearly 30% on a YoY basis. Consumer revenues are expected to return to growth on a sequential basis in the third quarter, while YoY revenues growth is expected to be strong in the double-digit percent area. And in auto/industrial, the company expects revenues to grow on a sequential basis, with YoY revenue growth to nearly double. Additionally, management expects its auto business to cross over the $100 million annualized revenue run rate in the third quarter, a milestone that will be achieved faster than their previous expectation.
About Marvell's recently announced plans to acquire Innovium, on the call management said it's looking forward to adding the company's cloud optimized switches to Marvell's broad data center portfolio.
Overall, this was another very strong quarter for Marvell Technologies. Shares are trading a few dollars lower in after hours to around $60.50, but let's remember that MRVL came into earnings very hot. Heading into Thursday night's print, MRVL had rattled off six consecutive positive sessions that pushed the stock to a brand new all-time high earlier in the day. A pullback from the highs is only fitting, especially considering the small magnitude of the beat. Still, we think pullbacks represent long-term buying opportunities, because Marvell continues to fire on all cylinders, thanks to the ongoing strength of its data center and 5G businesses. We will update our price target tomorrow in the Weekly Roundup.