Marvell Technology, Inc. (MRVL.US): ASIC rings the alarm for AI "cold water" again

Marvell Technology, Inc. (MRVL.US) released its fourth quarter financial report for the fiscal year 2025 (ending in January 2025) after the US stock market on March 6 Beijing time: 1. Overall Performance: Business continues to improve. Marvell Technology, Inc. achieved revenue of $1.82 billion in the fourth quarter of the fiscal year 2025, a year-on-year increase of 27.4%, in line with market expectations ($1.8 billion). The growth in revenue in the quarter was mainly driven by the ASIC and data center business. Marvell Technology, Inc. achieved a net profit of $200 million in the fourth quarter of the fiscal year 2025, turning positive. Excluding the impact of acquisition amortization, the company achieved an adjusted operating profit of $390 million this quarter (compared to $216 million in the previous quarter). 2. Specific Business Segments: Data center is the biggest growth point. From the breakdown of the company's business, driven by the continued growth in AI demand, the company's data center business has increased to over 70% of the total. 1) Data Center Business: Revenue for this quarter was $1.366 billion, a year-on-year increase of 78.5%. The growth in the company's data center business was mainly driven by the growth of ASICs and optical module DSP chip sales. The AI business revenue for this quarter was around $700 million, mainly driven by the increased demand for customized ASIC products from customers like Amazon.com, Inc. 2) Enterprise Networking and Operator Infrastructure Business: Revenue for these two businesses this quarter was $171 million and $106 million, respectively. Both businesses showed signs of recovery with double-digit growth both year-on-year and sequentially. 3) Consumer Electronics and Automotive/Industrial: Revenue for these two businesses in this quarter was $89 million and $86 million. The automotive business continued to grow, but consumer electronics and industrial products remained relatively weak. 3. Marvell Technology, Inc. Performance Guidance: The company expects revenue of around $1.88 billion for the first quarter of fiscal year 2026, in line with market expectations ($1.87 billion). The company also expects a GAAP gross margin of 50.5% for the first quarter of fiscal year 2026, compared to the market expectation of 50%. Overall Opinion: The financial report data is decent, but the guidance deepens concerns about the growth of AI. Marvell Technology, Inc. achieved double-digit revenue growth this quarter, meeting market expectations, mainly driven by the growth in data center and AI demand. Due to factors such as acquisition amortization and restructuring expenses affecting the previous quarter, gross margin saw a significant decline. However, when excluding these impacts, the gross margin for this quarter has also improved. Looking at specific business segments, the company's data center business saw a significant growth of 78.5% year-on-year this quarter, with AI being the main growth driver. Traditional businesses like enterprise networking and operator infrastructure also showed signs of recovery. The market is particularly concerned about the company's AI business performance: The Dolphin estimates that out of the $13.66 billion revenue from the data center business this quarter, the AI segment contributed around $7 billion in revenue (with custom ASIC revenue contributing approximately $3.4 billion), representing a 30-40% sequential growth. Therefore, the growth of the AI business this quarter has been satisfactory. However, looking at the guidance for the next quarter, it is speculated that the growth of the AI business will significantly slow down. As the enterprise networking and infrastructure business continues to recover next quarter, the incremental growth provided by the data center business will be less. The Dolphin speculates that the revenue from the AI business in the next quarter will be around $8 billion, with ASIC revenue accounting for about $4 billion, and the sequential growth expected to drop below 20%. With cloud service giants showing a trend of "low in the front, high in the back" in capital expenditure in 2025, the market has also shifted its focus from Trainium 2 to Trainium 3 for major customer Amazon.com, Inc. There were already reports before this financial report about the reduction of the company's CoWoS orders and the fierce competition that Trainium 3 products faced from Alchip. However, the guidance for the next quarter from the company will undoubtedly further deepen the market's concerns about the growth of the company's AI business. Although the company has reiterated that AI revenue for the fiscal year 2026 will exceed the previous guidance of $2.5 billion, buyers have already raised their expectations for AI revenue to around $3.5 billion. However, with the company's expectations for the performance of the AI business next quarter, it will to some extent shake the market's confidence in the company's AI and ASIC businesses. Currently, market focus on Marvell Technology, Inc. is on the company's expected performance in the AI business, the progress of ASIC customers' products, and the details of the conference call. The Dolphin will provide further updates on the Long Bridge App, and it is suggested to pay close attention. Detailed analysis: 1. Marvell Technology, Inc. Business Marvell Technology, Inc. started out with storage technology and expanded its business through a series of mergers and acquisitions, with the data center business becoming the company's largest source of revenue. Specific business details: 1) Data Center Business (about 75%): A high-growth business, benefiting from data center and ASIC demand, and currently the main focus of the market. This business includes SSD controllers, high-end Ethernet switches (Innovium), and custom ASIC business (customized chips for Amazon.com, Inc. AWS), mainly used in cloud servers, edge computing, and other scenarios. 2) Other businesses (about 25%):Traditional businesses are greatly impacted by the large-scale construction of 5G and downstream demand. Enterprise networks and carrier infrastructure businesses have seen a noticeable decline after the large-scale construction of 5G; Consumer electronics businesses are influenced by downstream demand for electronic products and home broadband; The automotive and industrial sectors are driven by demands such as connected cars, but their proportion is relatively small.2. Marvell Technology, Inc. Marvell Core Data 2.1 Revenue Marvell Technology, Inc. achieved revenue of 1.817 billion in the fourth quarter of the 2025 fiscal year, a year-on-year increase of 27.4%, exceeding market expectations of 1.8 billion. The growth in revenue this quarter was mainly driven by data center and AI income. Previously, the company had signed a 5-year partnership agreement with Amazon.com, Inc. This quarter, the production acceleration of Trainium 2 from Alphabet Inc. Class C Axion provided incremental revenue for the company. 2.2 Gross Margin Marvell Technology, Inc. achieved a gross profit of 917 million in the fourth quarter of the 2025 fiscal year, an increase of 38.1% year-on-year. The gross margin of Marvell this quarter was 50.5%, a significant rebound. The significant decline in the company's gross margin last quarter was mainly due to factors such as amortization of acquired assets. However, excluding this impact, the adjusted gross margin for the last quarter returned to 59.4%. The adjusted gross margin for this quarter is 59.5%, showing stability and growth, mainly benefiting from the recovery of traditional business this quarter. 2.3 Operating Expenses Marvell Technology, Inc. had operating expenses of 682 million in the fourth quarter of the 2025 fiscal year. Last quarter, the company's operating expenses increased significantly, mainly due to restructuring-related costs. Specifically, when looking at core expenses: 1) Research and Development Expenses: The company's research and development expenses this quarter were 499 million, an 8.6% year-on-year increase. The increase in research and development expenses was mainly directed towards custom ASIC and optical module technologies. The research and development expense rate has now fallen to 27.5%, mainly due to the growth on the revenue side. 2) Sales and Administrative Expenses: The company's sales and administrative expenses this quarter were 196 million, a 7.7% decrease year-on-year. With the scale effect of revenue growth, the company's sales and administrative expense rate continues to decline to 10.8%. 2.4 Net Profit Marvell Technology, Inc. achieved a net profit of 200 million in the fourth quarter of the 2025 fiscal year, returning to profitability. The company's loss expanded last quarter, mainly due to factors such as acquisition amortization and restructuring expenses. Excluding these effects (restructuring expenses and acquisition amortization), the company's adjusted operating net profit for the last quarter reached 216 million, further increasing to 390 million this quarter. The core expense side of the company remains stable, and the performance of operating profit is mainly driven by the growth of the data center business. 3. Marvell Technology, Inc. Marvell Specific Business Situation Marvell Technology, Inc. has been acquiring companies such as Cavium and Innovium since 2018, enhancing the company's capabilities in ASIC and data center. With the growing demand from companies like Amazon.com, Inc., Alphabet Inc. Class C for custom ASIC and data center optical module DSP chips, the company's data center business has grown to account for over 70% of the company's total revenue, making it the biggest driver of the company's performance. In addition, the revenue share of traditional business segments such as enterprise networking, operator infrastructure, consumer electronics, and automotive and industrial has decreased to 10% or less. 3.1 Data Center Business Marvell Technology, Inc. achieved revenue of 1.366 billion in the fourth quarter of the 2025 fiscal year from its data center business, a year-on-year increase of 78.5%. The growth in the company's data center business this quarter mainly came from custom ASIC and optical module DSP chips, rather than from the AI business, which remained relatively stable this quarter. As the company concentrates products such as data center-related ASICs, optical module DSP chips, storage controllers, and network switches within the data center business, there are several segmented businesses in this sector. Specifically, it is estimated that the company's AI business has grown to around 7 billion this quarter, with custom ASIC business reaching around 3.4 billion, mainly benefiting from the increased shipments to Amazon.com, Inc. Trainium 2, Alphabet Inc. Class C Axion. In addition, AI-related optical module DSP chips contributed nearly 3.9 billion in revenue. Furthermore, the non-AI part of the data center business also grew, but the growth rate was significantly lower than that of the AI part. The AI part of Marvell Technology, Inc.'s data center business has been the main focus of the market. Over the past year, the significant improvement in the company's performance has been mainly driven by the AI business. The company has already provided custom ASIC products to Amazon.com, Inc., Alphabet Inc. Class C, and the products for the third client (presumed to be Microsoft Corporation) are expected to start mass production in 2026. Therefore, the capital expenditure of major companies will directly affect the growth expectations of the company's data center business. Looking at the capital expenditures of the four major cloud companies (Amazon.com, Inc., Microsoft Corporation, Alphabet Inc. Class C, and Meta), the total capital expenditure for the fourth quarter of 2024 reached 795 million.In US dollars, it increased by 22.6% compared to last year to 7 billion. The four major factories also expressed confidence in continuing to increase capital expenditure, and it is expected that the total capital expenditure of the four major factories will still achieve a 40% growth by 2025.Although the big factories currently provide relatively good guidance expectations, Marvell Technology, Inc., as a major participant in the ASIC market, still faces two risks: Capital expenditures for 2025 are showing a "low first, high afterwards" trend for the big factories, and the company's ASIC major customer Amazon.com, Inc. will also shift its focus from Trainium 2 to Trainium 3; Marvell Technology, Inc. also faces competition from Alchip in its customized ASIC products for Amazon.com, Inc. Combined with the company's guidance of only a 3% increase in overall revenue for the next quarter, this undoubtedly further deepens market concerns about the company's AI business growth prospects. 3.2 Enterprise Networks and Operator Infrastructure 1) In the fourth quarter of the 2025 fiscal year, Marvell Technology, Inc. achieved revenue of $171 million in the enterprise networking business, a year-on-year decrease of 35.3%. The year-on-year decline narrowed, and there was a 13.6% increase compared to the previous quarter. The company's enterprise networking business mainly provides network products for companies and campuses, including switch chips, PHY chips, etc. This quarter continued to recover. 2) In the fourth quarter of the 2025 fiscal year, Marvell Technology, Inc. achieved revenue of $106 million in the operator infrastructure business, a year-on-year decrease of 37.8%. The business mainly targets operator infrastructure, including optical communication chips, 5G base station chips, etc. The previous decline in business was mainly due to the decrease in operator capital expenditures after large-scale infrastructure projects. This quarter, the operator infrastructure business continued to recover, with a 25% increase compared to the previous quarter. 3.3 Consumer Electronics, Automotive, and Industrial 1) In the fourth quarter of the 2025 fiscal year, Marvell Technology, Inc. achieved revenue of $89 million in the consumer electronics business, a year-on-year decrease of 38.4%. The company's consumer electronics business mainly includes storage controllers, WiFi chips, and other products, which are greatly influenced by end products. The company expects the consumer electronics business to decline by 35% compared to the previous quarter, mainly due to seasonal factors and gaming demand. 2) In the fourth quarter of the 2025 fiscal year, Marvell Technology, Inc. achieved revenue of $86 million in the automotive/industrial business, a year-on-year increase of 4.1%. The company's automotive/industrial business mainly covers areas such as autonomous driving, in-vehicle entertainment systems, Industrial Siasun Robot & Automation, where the company mainly provides products related to in-vehicle Ethernet. While the automotive business continues to grow, the industrial terminal market remains relatively sluggish. This article is reprinted from the "Dolphin Investment Research" WeChat public account, GMTEight editor: Chen Xiaoyi.