Q2 2025 Marvell Technology Inc Earnings Call
Participants
Ashish Saran; Senior Vice President - Investor Relations; Marvell Technology Inc
Matthew Murphy; Chairman of the Board, President, Chief Executive Officer; Marvell Technology Inc
Willem Meintjes; Chief Financial Officer; Marvell Technology Inc
Tore Svanberg; Analyst; Stifel, Nicolaus and Company, Incorporated
Toshiya Hari; Analyst; Goldman Sachs & Co. LLC
Timothy Arcuri; Analyst; UBS Securities LLC
Ross Seymore; Analyst; Deutsche Bank Securities
Vivek Arya; Analyst; BofA Securities, Inc.
Matt Ramsay; Analyst; TD Securities (USA) LLC
Christopher Rolland; Analyst; Susquehanna Financial Group LLLP
Harlan Sur; Analyst; JPMorgan Securities LLC
Aaron Rakers; Analyst; Wells Fargo Securities LLC
Srini Pajjuri; Analyst; Raymond James & Associates, Inc
Quinn Bolton; Analyst; Needham & Co. LLC
Harsh Kumar; Analyst; Piper Sandler & Co
Karl Ackerman; Analyst; BNP Paribas Securities Corp
Presentation
Operator
Good afternoon, and welcome to Marvell Technology Inc's second-quarter of fiscal year 2025 earnings conference call. (Operator Instructions)
Please note this event is being recorded. I would now like to turn the conference over to Mr. Ashish Saran, Senior Vice President of Investor Relations. Please go ahead.
Ashish Saran
Thank you, and good afternoon, everyone. Welcome to Marvell's second fiscal quarter 2025 earnings calls. Joining me today are Matt Murphy, Marvell's Chairman and CEO; and Willem Meintjes, our CFO.
Let me remind everyone that certain comments made today include forward-looking statements, which are subject to significant risks and uncertainties that could cause 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 10-K and 10-Q 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 GAAP 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?
Matthew Murphy
Thanks, Ashish, and good afternoon, everyone. For the second quarter of fiscal 2025, Marvell delivered revenue of $1.27 billion above the midpoint of guidance, driven primarily by strong demand from our data center end market.
Higher revenue, combined with disciplined expense control, drove non-GAAP earnings per share of $0.30, also above the midpoint of guidance. Revenue in the second quarter grew by 10% sequentially, and we are projecting significantly higher sequential growth for the third quarter with all our end markets expected to grow. Achieving the midpoint of our third-quarter guidance would also result in a return to year-over-year revenue growth for Marvell.
Let me now discuss our results and expectations for each of our end markets. In our data center end market for the second quarter, we drove record revenue of $881 million, growing 92% year over year and 8% sequentially. These above guidance results were driven by strong demand for our electro-optics products, custom silicon beginning its anticipated ramp, as well as growth in our storage and switch revenue.
Strong bookings continue for our market-leading 800 gig PAM products and 400 ZR data center interconnect or DCI products and we are looking forward to starting shipments of our next-generation 200 gig per lane 1.6 terabit DSPs in the third quarter. As a result, we expect our electro-optics revenue will continue to grow every quarter this fiscal year on a sequential basis.
We are also looking forward to addressing a number of new opportunities within the datacenter. We have begun initial shipments of our 100 gig per lane 800 gig DSPs for active electrical cables or AECs. And we are anticipating the production ramp to accelerate in the second half. In addition, we recently started sampling the industry's first 200 gig per lane 1.6 terabit AEC DSPs to address upcoming higher-speed, short-reach copper interconnect applications.
(inaudible) servers are turning to PCIe Gen 6 technology, which needs higher order PAM4 modulation. Given our leadership position in PAM technology, customers are turning to Marvell to enable this transition, and we are now sampling our new PAM4-based PCIe Gen 6 retimers.
As you can see, we are continuing to broaden our end-to-end product portfolio to address all the critical interconnect needs of our data center customers, positioning us to take full advantage of an interconnect TAM expected to grow at a 27% CAGR to $14 billion by calendar 2028. We are confident in our ability to continue to lead the industry in power and performance with our current optical DSP and DCI franchises, while we expand into new opportunities including AEC DSPs, PCIe retimers, silicon photonics, and longer-distance, 1,000-kilometer-reach DCI modules. As a result, we expect to maintain a leadership position in this large and fast-growing interconnect market.
We are making significant progress in bringing Compute Express Link or CXL technology to the market, having recently introduced two new families of CXL devices to address memory bandwidth and memory capacity challenges in next-generation servers. In our cloud security business, we are pleased that Microsoft will begin integrating Marvell's FIPS 140 level 3 compliant LiquidSecurity hardware modules in their Azure Key Vault offerings. These product offer shares customers the most secure encryption in key management services in the cloud platform.
Let me now turn to our custom silicon business. As investment in AI and accelerated computing continues to surge, tier 1 cloud providers are increasingly focused on using custom silicon to improve their datacenter TCL and drive differentiation. AI is accelerating the cadence of new chip releases resulting in shorter design windows and faster time to production company by significant increases in complexity with each new generation. This trend is driving cloud customers to partner with companies like Marvell, who have extensive experience in delivering multiple generations of high-volume, high-complexity, leading-edge chips, developed using robust design methodologies.
Additionally, cloud customers are seeking access to our differentiated and field-proven technology platform, which include ultra-high-speed [30s], ARM compute, optimized HBM interfaces, security, storage, die-to-die interconnects, silicon photonics, and advanced packaging. Customers are also adopting concurrent product development with staggered platform launches to produce silicon on an annual cadence. The approach reinforces the value of a trusted silicon partner like Marvell who has decades of processor expertise and can take on greater design responsibilities.
As a result, the nature of our customer engagements is shifting from point design wins to multigenerational relationships. Our AI custom silicon programs are progressing very well with our first two chips now ramping into volume production. Development for new customer programs we have already won, including projects within new tier 1 AI customer we announced earlier this year are also tracking well the key milestones.
Looking ahead to the third quarter of fiscal 2025 for our data center end market, we are forecasting revenue growth to accelerate into the high-teens sequentially on a percentage basis. We expect the largest contributor to this growth will be our AI custom silicon programs as they begin to ramp meaningfully in the third quarter, further augmented by ongoing growth from our optics portfolio.
Now let me turn to Marvell's enterprise networking and carrier end markets. In the second quarter, enterprise networking revenue was $151 million, while carrier revenue was $76 million. As expected, these end markets reached a bottom in the first half of this fiscal year and revenue from both end markets collectively was flat sequentially in the second quarter.
Looking ahead, after multiple quarters of inventory digestion, we are starting to see signs of growth for our revenue in both end markets. In the carrier end market, we have begun receiving orders for our next-generation 5 nanometer-based OCTEON 10 DPUs from multiple customers. In enterprise networking, our customers have started to see growth in their orders. We have seen increased bookings for our enterprise products.
As a result, for the third quarter, we project our aggregate revenue from enterprise networking and carrier infrastructure to grow sequentially in the mid-single digits on a percentage basis. While this forecast still anticipates Marvell products shipping below end-market consumption, our order momentum has picked up, and a combined basis, we expect sequential revenue growth from carrier and enterprise networking to further improve in the fourth quarter.
Turning to the consumer end market, revenue in the second quarter was $89 million, growing 112% sequentially following the gaming inventory correction we expected in the prior quarter. Looking ahead to the third quarter, we are expecting revenue from the consumer end market to grow slightly on a sequential basis. Over the next couple of years, we anticipate our revenue from the consumer end market to normalize at approximately $300 million annually, with the majority coming from our custom SSD controller for a leading game console platform. As a result, seasonality of gaming demand will be the primary factor driving our quarterly revenue profile for the consumer end market.
Turning to our automotive and industrial end market, revenue in the second quarter was $76 million, declining 31% year over year and 2% sequentially. These results reflect the broad inventory correction taking place across the automotive end market.
Looking ahead to the third fiscal quarter, we expect growth to resume and are projecting revenue from the auto and industrial end market to grow sequentially in the mid-single digits on a percentage basis. In summary, the Marvell team executed well in the second fiscal quarter, driving 10% sequential top line growth, delivering both revenue and non-GAAP earnings per share above the midpoint of guidance.
AI led the way with data center revenue almost doubling year over year. Our consumer revenue recovered more than doubling sequentially, and we believe that our enterprise networking carrier and auto and industrial end markets found their bottom in the second quarter.
As you may recall, at the beginning of fiscal 2024, we outline the large opportunity developing in AI and accelerated infrastructure, even as we saw slowdown in our storage, enterprise networking, and carrier end markets. We outlined our plan to aggressively reprioritize our investments toward the highest ROI opportunities including strategic roadmap adjustments and combining some of our businesses to reflect changes in the market. This strategy has led to an expansion in our data center TAM and increased pace of new product releases targeted at this market. As we outlined at our AI day, we plan to continue pivoting our resources towards what we believe to be a once-in-a-generation opportunity.
Within data center, we expect custom silicon to be the largest revenue growth driver, given the size of the opportunity in our expanding design win portfolio. We believe continued success in custom silicon will accelerate our timeline to achieve our target operating margin model. Although custom has a lower gross margin than our merchant products, it benefits from inherently lower operating expense levels given NRE offsets from customers and the sharing of IP with our merchant business.
As a result, custom silicon becomes a larger part of our overall revenue, we see a path for operating expenses as a percentage of revenue decreasing below our current target operating model. For the third quarter, we are forecasting consolidated revenue to grow 14% sequentially at the midpoint of guidance. We expect this growth to be primarily driven by data center AI and further augmented by the start of a recovery in our enterprise networking and carrier end markets.
Given the strong start in the first half of the fiscal year from AI and our expectations for accelerated growth in the second half, we remain confident in our ability to significantly exceed the full-year AI revenue target discussed earlier this year at our AI event.
The Marvell team is executing on all fronts. We expect our AI custom programs to continue ramping up, our bookings continue to strengthen, and we believe that we have secured capacity and set up our supply chain to drive strong revenue growth in the fourth quarter and the next fiscal year.
We are also excited to see our hard work showing up in our financials, strong cash flow generation, which is funding increased capital returns to our stockholders.
With that I'll turn the call over to Willem for more details on our recent results and outlook.
Willem Meintjes
Thanks, Matt, and good afternoon, everyone.
Let me start with a summary of Marvell's financial results for the second quarter of fiscal 2025. Revenue in the second quarter was $1.273 billion, exceeding the midpoint of our guidance, declining 5% year over year and growing 10% sequentially. Data center was our largest end market, driving 69% of total revenue. The next largest was enterprise networking with 12%, followed by consumer at 7%, carrier infrastructure at 6%, and auto industrial at 6%. GAAP gross margin was 46.2%. Non-GAAP gross margin was 61.9%.
Moving on to operating expenses, GAAP operating expenses were $688 million, including stock-based compensation, amortization of acquired intangible assets, restructuring costs, and acquisition-related costs. Non-GAAP operating expenses were $456 million, in line with our guidance. GAAP operating margin was negative 7.9%, while non-GAAP operating margin was 26.1%.
For the second quarter, GAAP loss per diluted share was $0.22. Non-GAAP income per diluted share was $0.30, $0.01 above the midpoint of guidance. Non-GAAP EPS grew by 25% sequentially.
Now turning to our cash flow and balance sheet, cash flow from operations in the second quarter was $306 million. Our inventory at the end of the second quarter was $818 million, decreasing by $8 million from the prior quarter. On a year-over-year basis, we have reduced our inventory by $198 million or almost 20%. We returned $52 million to stockholders through cash dividends.
In addition, we repurchased $175 million of our stock during the second quarter, an increase of $25 million from the prior quarter. We expect to further increase repurchases in the third quarter of fiscal 2025. Our total debt was $4.13 billion. Our gross debt to EBITDA ratio was 2.29 times and net debt to EBITDA ratio was 1.84 times. As of the end of the second fiscal quarter, our cash and cash equivalents were $809 million, decreasing by $39 million from the prior quarter.
Turning to our guidance for Marvell's third quarter of fiscal 2025, we are forecasting revenue to be in the range of $1.45 billion, plus or minus 5%. We expect our GAAP gross margin to be approximately 47.2%. We expect our non-GAAP gross margin to be approximately 61%.
For the third quarter, we project our GAAP operating expenses to be approximately $693 million. We anticipate our non-GAAP operating expenses to be approximately $465 million. For the third quarter, we expect other income and expense, including interest on our debt to be approximately $46 million. We expect a non-GAAP tax rate of 7% for the third quarter. Please note that we forecast our non-GAAP tax rate in fiscal 2026 to step up to 9% in anticipation of a meaningful year-over-year increase in our operating income.
We expect our basic weighted average shares outstanding to be 867 million and our diluted weighted average shares outstanding to be 875 million. This outlook marks an anticipated sequential reduction in our share count, reflecting the positive impact from our ongoing stock repurchases. We anticipate GAAP income per diluted share in the range of a loss of $0.09 to earnings of $0.05. We expect non-GAAP income per diluted share in the range of $0.35 to $0.45.
At the midpoint of guidance, we expect revenue in the third quarter to grow 14% sequentially. This is driven in large part from our ramp in our custom AI products. Although this is driving a sequential decline in our non-GAAP gross margin outlook, we project our non-GAAP earnings per share to grow by 33% sequentially at the midpoint, more than twice the revenue growth rate. As our custom programs expand, we expect to continue to drive substantial operating leverage to the bottom line.
We are pleased to forecast sequential growth returning to all our end markets with our AI data center revenue continuing to grow rapidly. As we drive revenue growth and operating leverage, we also remain focused on strong cash flow generation and returning increasing amounts of capital to investors through our active stock repurchase program.
Operator, please open the line and announce Q&A instructions. Thank you.
Question and Answer Session
Operator
(Operator Instructions) Tore Svanberg, Stifel.
Tore Svanberg
-- for strong results. Matt, could you just elaborate a little bit more on your comments there at the end about the operating leverage to gross margin. We all know that the custom ASIC business gross margin is lower. But because of the NREs, it's also very operating margin accretive. So maybe you could just elaborate a little bit, and perhaps give us some milestones, especially in relation to certain revenue run rates.
Matthew Murphy
Yeah. Thanks, Tore. I'll have Willem lead off on this one and then I can come in at the end.
Willem Meintjes
Yeah, Tore, I think when you look ahead beyond the Q3 guide, really see gross margin for the next couple of quarters remaining in a similar zip code. When you look at a couple of dynamics there, first of all, we expect the custom programs to continue ramping very nicely, and that's obviously got lower gross margins. But then we see the recovery and the growth in our core merchant products really mostly offsetting that. And then in addition, we see some really good leverage and additional absorption in our manufacturing overhead as the top line is growing, so we think we're where we guided in Q3 is sort of the right zip code for the next couple of few quarters here.
Operator
Toshiya Hari, Goldman Sachs.
Toshiya Hari
Hi, guys. Thank you so much for taking the question.
Matt, you talked about your confidence in exceeding or significantly exceeding the full-year AI revenue target, you guys shared a couple of months ago -- several months ago. The incremental strength you're seeing in that business, is it between -- you're seeing both in custom compute as well as your optics business? Or is it more skewed toward the custom compute business? And if you can speak to your visibility into next year as well, I think, your target was $2.5 billion going into next year. Should we see continued upside to that number as well? Thanks so much.
Matthew Murphy
Yeah, great. Thank you. Yeah, first of all, the demand has been extremely strong in the AI business, as we mentioned, both in custom and in our optics business, and that's the 800 gig products as well as traditional cloud as well as DCI. So that's all going extremely, well, and for next year, that should absolutely ripple through. We see continued strength next year, above what we had communicated relative to the target for next year, both in custom and optics and the broader portfolio. So very pleased with the progress.
Demand has been strong. Bookings momentum has been extremely strong. And we have a great setup here in the second half, that's going to lead us to what we think is going to be a very strong fiscal '26 for Marvell in AI.
Operator
Timothy Arcuri, UBS.
Timothy Arcuri
Thanks a lot. Matt, I'm wondering since you're giving us these AI targets, I'm wondering if you can give us a little more granularity in the actual numbers that you report. What was the AI revenue in July. I'm thinking it was close to probably $300 million and custom was probably $50 million, something like that. Can you just give us some sense? Is that about right? And then can you give us some sense of where you think AI will be in October and maybe should we expect custom -- it sounds like custom is going to pick up maybe $100 million, $125 million Q on Q. Is those -- are those numbers in the right ballpark?
Matthew Murphy
Yeah, maybe just to keep it at a higher level for the broader investors on the call here, Tim, we had set targets of $1.5 billion for this year and $2.5 billion for next year. As I said earlier, both custom and electro-optics are contributing. It was 00 what we said was at the AI day, just what three, four months ago, about two-thirds of the $1.5 billion was in electro-optics, the other one-third was in custom, and so both of those are doing better.
Obviously, the custom is back-end loaded, but we're going through a very strong ramp right now. So we're not calling those numbers out typically by quarter. But all I can tell you is both of them have upsized both in terms of aggregate revenue, we're going to achieve next this year and next year as well as the slope of the ramp in custom continues to be very strong. And I'll leave it at that for now.
Operator
Ross Seymore, Deutsche Bank.
Ross Seymore
Hi, guys. Congrats on the strong results and guide. Willem, one potentially for you. And I appreciate the commentary on the gross margin stability at the current level through the end of this year, but could you give us an idea of what the puts and takes would be for next year? I mean, we know the custom stuff carries lower margins and it sounds like the merchant business is coming back. But I think a big concern people have is just how should we think about the revenue growth relative to the gross margin next year as accretive as it may be in most of those scenarios on the operating line, either way.
Willem Meintjes
I think the way to think about that is for that trend to really continue into next year and so not guiding the full year next year, but I think in that similar zip code, where we continue to see good growth from both optics and then the recovery in the merchant products really offsetting the continued growth in custom. And then in addition, as you see the topline growing nicely, we do continue to get that benefit from better absorption. And then overall, when you look at our OpEx management, we're going to continue to be very disciplined looking at next year. And so we do expect to drive a ton of leverage and operating margin down to the bottom line next year.
Matthew Murphy
Yeah. Hey, Ross, if I could just add. As Willem said, I think the GM side needs to play out. We need to see where this non-AI data center demand recovers to. We're very pleased with the third quarter guide of mid-single, and then in enterprise and carrier, that growth improving from Q3 to Q4, so growing even a little bit faster.
Bookings have picked back up. We're laying in backlog. So that's all a positive sign. And then, of course, you've got to get into next year to see where those traditional core businesses really recover to. That's going to be one factor. As we said earlier as well, we anticipate a lot higher revenue next year, so that's going to help on sort of manufacturing overhead absorption and then to the extent how much custom is really going to be, that's going to be a factor as well.
So we're looking at all that. That doesn't need to play out a bit. But as Willem said, we're very confident and our OpEx management and our plan on spending there relative to our outlook for next year and so we're very excited and feel very confident in the path to our operating margin targets that we've set, kind of independent of where that GM lies. So that's where we're headed right now, Ross. There will be more to come as these markets recover. Thanks.
Operator
Vivek Arya, Bank of America.
Vivek Arya
Thanks for taking my question. Matt, I was hoping to get your views on the competitive landscape in the two parts of your AI business, both on the DSP side and custom silicon. On the DSP side, do you see any captive and merchant competitors challenge Marvell's dominance as the industry transitions to 200 gig per lane or these 1.60 transceivers? And then similarly, in custom compute, do you see any competitive changes from your Taiwan competitors? I know a little bit out there in '26 when the industry moves to the 3 nanometer node, but I was just hoping to get your views on any changes in the competitive landscape in the next one to two years and these two important parts of your business. Thank you.
Matthew Murphy
Yeah, no problem for that. Let me maybe break it into the two pieces you mentioned.
So on the DSP and optics side, you know, look, it's been a competitive market. We got into this as you all remember through the acquisition of Inphi and there's been these competitive dynamics from the beginning. Now this market has gotten big, right? So there's -- that would sort of only intensify, but we've consistently maintained a very high market share in this area through the integration of inside of Marvell. And now as we're positioned going forward, primarily because, one, we've executed extremely well from an engineering standpoint. And also, we have the full platform, which includes DSPs, the broadband analog components like drivers and TIAs. We have the complete architecture and solution and also the partnerships with the module vendors as well as the hyperscalers directly.
And finally, I would say we continue to have a best-in-class roadmap as well in terms of the cadence, the power, and the performance that we're delivering. So we feel very good on these transitions. As an example, we went through the 100-gig transition very successfully. The 200 gig ones in front of us. We're going to start shipping those products this quarter, our 200 gig per lane 1.6 terabit DSPs. And we feel very well positioned. It's going to be competitive of that. But the team is actually really excited about what we can go off and do with the platform we have.
And on custom silicon, I think our thesis is playing out in that given the tremendous increases in complexity of these chips, it's not about just having one piece of it like design service fees or manufacturing capability, but it's everything. It's having the best-in-class technology roadmap in terms of nanometers, advanced packaging, I/O, et cetera, and then the ability to actually go execute these products. These are [100 billion] transistor type of chips, and sort of package them up, get them to yield, shipping them in volume, be ready to work on the next one in parallel, it's a massive sort of effort.
And so we think that that still is going to be the winning strategy. And when we look at it from that point of view, we really have one large competitor that's very capable in this area as well. And we do think long term, given the amount of activity we see in AI, especially on the custom side, it's going to require really scaled up full solution providers and partners like Marvell to compete. So that's the current status of those two from a competitive dynamic.
Thanks for that.
Operator
Matt Ramsay, TD Cowen.
Matt Ramsay
Thank you very much. Good afternoon, everybody.
I wanted to ask a longer-term question on your custom compute business. My incentives went up a little bit. One of the lines in the script, I think, was something to the effect of not just single generation relationships but multi-generation relationships with some of the customers in the custom business. And so I wanted to explore that a little. As we do get questions from investors on not the programs that are ramping now, but the subsequent generation and how confident you are in those.
So maybe you could speak to that. And I think the second part of the question as you're evaluating custom programs and compute, this isn't a question for just your company, but for your competitor as well. How much visibility do you guys get and when the software that will be run on those compute engines as they're deployed? I think that's pretty important in evaluating what volume might end up being or not being versus merchant suppliers. Thanks.
Matthew Murphy
Thanks, Matt. And I think your question is one we get. I mean, I think since we won these designs, there's been a lot of noise in this area in custom in terms of from our international competitors, in particular. I mean, look, the reality is, despite wherever -- whatever has been said so far, we have executed these programs. They have upsided tremendously from when we won them and even as we signaled over the last 1.5 year another ramping into production. All of our engagements across the board that we see as we get deeper into this, there is absolutely a desire on the part of these customers to have a multigenerational view because the amount of work you put in to do one of these, it's a diminishing return to pivot too quickly, assuming you're doing a great job.
So we feel very good about it, Matt, is the bottom line. We have multiple engagements across multiple generations on different types of ICs that we're doing for these customers. We just announced, as an example, at the last AI day, we have won additional customer for AI silicon. And all of those are tracking well. So that's all I can say at the moment.
I think you got to also look at what the results are and what our outlook is. And if you believe the thesis I gave you around what's important relative to being a long-term reliable partner, that's going to be there for the long term over multi generations, we think we're extremely well-positioned.
Operator
Christopher Rolland. Susquehanna.
Christopher Rolland
Hey, guys. Congrats on the results.
I have an Inphi question primarily. And Matt, you talked about 1.6 T. That's pretty exciting. If I understood that correctly, you're going to be ramping in 3Q. Perhaps you can talk about the profile of this ramp, what it looks like in 3Q, 4Q, and into '25, I think. The Street's all over the place on this node, but if you could talk about that and maybe even the economics, what it means for you guys, that would be fantastic. Thank you.
Matthew Murphy
Yeah, hey, thanks, Chris. Yeah, it's still early. We were first to market in this area having introduced these products at OFC a year ago. It's great to see that they're going into production. We will know a lot more when we start to see how our customers are planning to deploy it. But we are seeing initial shipments now. The way I would think about it, though, is 800 gig right now and through next year is still going to be the workhorse high volume platform and even some of the newer launches that are coming, as an example, are going to still support 800 gig as well as 1.6 T.
So it's really hard to call exactly. It's going to be an important transition. There's no question. The only question is the timing of which, and Chris, I think we'll be in a better position to comment on that probably as we get closer to the end of the year. We start looking at the setup for calendar '25 and what our customers are thinking. But either way, we're going to be well positioned for both of those opportunities for next year.
Operator
Harlan Sur, JPMorgan.
Harlan Sur
Good afternoon. Thanks for taking my question and good to see the strong growth outlook. We've seen multiple quarters now of strong growth in nearline HDD to the cloud. And you know, those guys continue to expect anticipated growth sort of going forward. In addition to that, you guys have, I think, numerous next-generation PCIe Gen 5 enterprise SSD platforms ramping. I know it's been a couple of years, but I think those ramps are finally starting to happen.
Is this all kind of contributing to the second half strength in the data center business and then more on the memory side, as customers are thinking about next gen HBM 4, 4e, sort of these next-generation architectures, there is the potential for customization on the base advanced logic data. It's a fairly complex piece of silicon. You guys have a lot of IP here. I'm wondering if you're winning any custom ASIC opportunities for some of these upcoming programs?
Matthew Murphy
Yeah. Thanks, Harlan. Yeah, let me take the two pieces. On the first one, we're very pleased to see the recovery in data center storage. I think we're on like sixth quarter now of the turn, which is great. We bottomed out last year. It was a pretty severe downturn that we saw. It's been growing basically every quarter and we see this trend back over time. We had called it basically. It's getting back to like $200 million a quarter. It's not there yet, but it's on its way and that's had a nice recovery.
It hasn't been too spiky. It's just kind of been slow and steady on the way back up as inventories consume, as supply chain revitalizes, and quite frankly, it's great to see the end market commentary because that just gives us more confidence on that return over time.
And then even actually had it in my prepared remarks as one of the key offerings that we have on our AISC and AI platform is, we think, as you mentioned, that HBM and how to stitch all that together from a memory interconnect standpoint is going to be extremely important and it's complex and it's going to be, I think, a key part of the solution, just given how much -- how memory-intensive the current set of accelerators are, but also how they're looking at positioning for the next generation. So that's a key IP that Marvell is developing, and that will bring to the table as part of our platform offering for AI accelerators from a customer standpoint.
Operator
Aaron Rakers, Wells Fargo.
Aaron Rakers
Yeah, thanks for taking the question. I wanted to ask about the data center switching opportunity. Now that the 51.2 T silicon is in the market. Just if you could give us kind of a thought of like how we should expect that to ramp, appreciating that's more in the next fiscal year. But any kind of visibility in terms of how you how we should think about that opportunity to participate in these AI fabric build-outs going forward at Marvell? Thank you.
Matthew Murphy
Yeah. Hey, Aaron. Thanks for the question. We outlined this opportunity at the Investor Day we did for AI. And basically, on the 51.2 T cycle we're in, we think we're well positioned. We had great success from an engineering standpoint to get the product to market pretty quickly relative to after -- relative to integrating the Innovium asset into Marvell and then bringing that product out with full Marvell 5 nanometer platform.
We see strong interests not only on the 51.2 T generation that we're now starting to go into production to this year with a lead customer, but also our roadmap, we believe, is very compelling as well. And while we're a smaller player here today, we do have tremendous interest in this platform. And we think it's very strategic to Marvell relative to our investments in custom silicon and being the leader in interconnect and also even driving future technologies like silicon photonics.
So to bring it back around, we're not quite sizing it yet in terms of what it can be. It's still early from the standpoint of when that technology is actually going to go into full bore production, but we think we're doing well, and we look forward to providing updates on that, Aaron, as kind of this develops. But we feel good right now. Thanks.
Operator
Srini Pajjuri, Raymond James.
Srini Pajjuri
Thank you. My question is about the traditional businesses, Matt. It's nice to see both of them recovering. And I think you're guiding for sequential growth into Q4 as well. Given that they are down so much, I think one's down [50], the others down almost [70] from its last year's levels, I'm just wondering how to think about the normalized run rate on a quarterly basis and when do you think we'll get there? And then once we get there, how do we think about, I guess, longer-term growth of these businesses? Thank you.
Matthew Murphy
Yeah. Great. Thanks for the question. Yeah, you're right. Those businesses have been down significantly from a year-over-year perspective. Some of that is due to also the overshoot that went on in post-pandemic fueled buildout that occurred and also all the dynamics we've seen across the industry, right, relative to people over ordering and then having too much inventory and then having to go deal with it.
The good news is we've now seen that business after a flat first half pickup guiding both enterprise and carrier up mid-single over the third quarter and then growing faster than that in the fourth quarter and that the bookings have improved as well. So that's all positive.
The way to think about it is we're trying to drive both of those businesses back and we believe we have line of sight to provide both of those businesses back to about $1 billion each, call it $2 billion in aggregate, maybe $2.2 billion of run rate on an annualized basis. So we hit the bottom in the first half. It's coming up in Q3, coming up in Q4, and we're monitoring the setup for next year. But we do believe that that is very achievable. That's the plan right now.
And then long term, if you go back to all of our Investor Days, probably for the last four or five years when we've done them, we've always signaled these markets to be kind of low- to mid-single growers, and then -- from a market standpoint, and then with some content or share gain, you can do a little bit better. 5G was a great example. We had very little content in 4G. We rocketed up in 5G. That changed the trajectory. But going forward, in that kind of a business as well as, or say, enterprise, you should assume the market grows at a fairly modest rate.
And I think for investors to think about our growth rates in those areas being in those types of ranges, maybe whatever, mid-single kind of plus, if you can -- if we can continue to execute. I think that's fairly safe. They're not going to be great, enormous growth markets necessarily, but they are very accretive and they're very profitable businesses for Marvell. And they're important because they're long term and they're part of the portfolio.
So that's some additional color on how to think about it. We are investing there. We're going to make sure that we continue to grow those businesses. But if you just step back, we've got 70% of our revenue today in data center. We've got a great, great opportunity with AI and accelerated infrastructure. We're continuing to pivot our R&D in that area overweight. And we think that from a financial return standpoint, this is the best place to put our precious R&D dollars. And so that's the way to think about Marvell going forward, only getting bigger in data center and really maintaining and driving a very healthy enterprise and carrier business long term. Thanks.
Operator
Quinn Bolton, Needham.
Quinn Bolton
Hey, Matt. I'll ask questions, but if you don't answer, maybe I'll follow up. You guys are talking about nice upside to the $1.5 billion and $2.5 billion target for AI. Is that something you think you're closer to $2 billion than $1.5 billion when all is said and done this year. I mean, can you give us any sort of quantification of the upside in AI revs? And if not, I'll follow up with a product question?
Matthew Murphy
Yes, I don't think we're -- we're sort of fresh off $1.5 billion update from a few months back when we had our AI day. But I think if you if you look at the even like Q3, right, where overall revenue for the whole company is growing in mid-teens and then obviously guiding up data center much higher than that with AI driving it, and then saying also, Q4 is going to be extremely strong in data center and AI. You can probably draw a line of sight to it, but we're clearly, clearly exceeding the $1.5 billion, that's for sure.
And then again, the setup for next year is really good because from an exit standpoint, we'll be at a very healthy level by [4] gig. We've added additional customers. So it's become a very important and strategic business for Marvell. And then to your point, in front of us, that roadmap is getting invested in very aggressively, both at 800 gig and then longer term, 1.6 T for DCI. So each of these different key technologies that we have now at interconnect, they're going gangbusters today, but there's also a next generation and the generation after [N+2L] that we're investing in very aggressively to maintain market leadership.
Yeah, thanks a lot. I think we got two questions left, operator.
Operator
Harsh Kumar, Piper Sandler.
Harsh Kumar
Yeah. Hey, guys.
First of all, let me just give my congratulations on very strong guide. The story is coming along. All businesses turning.
Matt, I wanted to ask you, you seem extremely enthusiastic asked about custom ASIC near term as well as next year. Could you talk about some of the major drivers or major products, however, you want to do it, that are hitting -- that's giving you this optimistic viewpoint of the near, mid, and call it, even the next year outlook?
Matthew Murphy
Yeah. Well, I think, as we had outlined in the past, there's been several programs that we won, a broad range of them actually, in custom silicon for data center. And then, the ones that were levered to AI have just taken off and you're starting to see that in our financials. And so I mean, maybe not to make it too simple, but the reason we're excited is we're getting bookings and we have backlog and we're planning our capacity ramps for next year, and we're talking about the next generation.
And so I think, this was -- these went from design wins a few years ago to trying to execute NPI and get the chips taped out to then trying to get them qualify and make sure that they worked relatively quickly once they came back, which they did. And now they're ramping. So it's just part of the evolution.
But I mean, it feels really good when you have backlog and you have bookings and you have a strong outlook from your customer and you're planning your future together. So that's really it. I mean, I can't go into what they're using it for and their workloads and all that kind of thing. But the conviction from our customers on the programs we have are very strong in terms of their commitment to deploy and to deploy very aggressively using us -- using their chips plus Marvell as their key partner and we'll go let them get all the glory as they deploy and they achieve their silicon ambitions with us, kind of, in the backdrop to make sure we're there to help them. But let them go, do what they need to do.
Operator
Karl Ackerman, BNP Paribas.
Karl Ackerman
Yes, thank you. Good afternoon, and thank you for squeezing me in. Could you talk about the breadth of cloud titans you have, ramping 800 gig electro-optics that anchors your view on the second half? And given your industry-leading position in electro-optics, have you seen growing evidence that US cloud titans are seeking to diversify the procurement of optical transceivers outside of China? I ask because that would appear to be a share opportunity for you. Thank you.
Matthew Murphy
Yeah, thanks, Karl. I'd say, just broadly, we're -- the market share in aggregate is pretty high for us in this area. So we tend to be engaged pretty much with everybody. And I think that trend you mentioned about the supply chain diversification and kind of concerns about geopolitical risk across the supply chain by the hyperscale customers is a real thing. They really care about it. What I would say is there are efforts from both international suppliers into that space of modules as an example to diversify their supply chains and also the US-based folks trying to make sure that they have a supply chain as well. That's acceptable.
So look, we're happy to work with everybody. We've driven a very broad ecosystem of partnerships. And I think, in any case, we should be just fine. I'm not sure there's going to be any major shifts. This has kind of been going -- it's been underway for many years, quite frankly, relative to just those concerns you mentioned being out there. So we've kind of tracked with those pretty well. We've stayed, I think, very competitive and very neutral relative to how to support everybody and ship as much revenue as we can.
Okay, operator, I think we can end the call. Thanks for everybody for joining. Really appreciate it. I look forward to all the catch ups in the callbacks and then also when we're on the road at the conferences.
Thanks, everybody.
Operator
This concludes the question-and-answer session. And thank you for attending today's presentation. You may now disconnect.