Matt Murphy: I think you did a great job summarizing it. The AI piece has obviously become very meaningful and we gave a sense of what that level of revenue is going to be in the fourth quarter. So it’s pretty amazing how fast that’s grown obviously. But to your point, the standard cloud infrastructure side of connectivity is having a nice recovery off of some inventory that was built last year, that’s now becoming a tailwind as that burns down. You pointed out that there’s still a major cloud company to go through their upgrades. So that’s also in front of us. As we transition each of the technologies, in terms of speed, there is always an ASP bump and it makes sense, because you’re delivering, 2x bandwidth for not 2x the price, right?
So, we’re on a nice sort of share the benefits with our customer trajectory there. And even at 1.6T for next year while AI will lead it, right behind it, it’s going to be a key part of the overall infrastructure build probably the year after. And then the regional data center stuff, which is really the ZR products, also just doing extremely well this year. I mean large upsides due to Generative AI. And then, we said in the prepared remarks and we just put out the press release, I think it was today or it was yesterday about 800ZR, and there’ll be more to come on that. But there is another frequency kicker coming in probably faster than we would have thought if you went back six or nine months ago because that between data center bandwidth is actually now becoming a bottleneck.
So just tremendous across-the-board opportunities that are not just AI, but it’s really driving our cloud growth, and that’s — a lot of that we’re seeing in the second half and we’re going to see it through next year. So, we have both of those irons in the fire for Marvell overall growth.
Harlan Sur: Perfect. Thank you, Matt.
Matt Murphy: Yes.
Operator: The next question is from Ambrish Srivastava with BMO. Please go ahead.
Ambrish Srivastava: Hi. Thank you very much. Willem, I had a question on the cash flow side. I was trying to see if there was a discernible pattern of seasonality, doesn’t seem to be. But you gave a reason for DSOs and impacting the (CFO] (ph). Could you kind of just walk us through how should we think about cash flow for the rest of the year?
Willem Meintjes: Yeah, sure. Thanks, Ambrish. Yes, so this quarter certainly DSO was impacted somewhat by linearity. We do expect a nice back — bounce-back in Q3 and some normalization. As we’ve mentioned, we’re really focused on driving down our days of inventory and we’ve consistently reduced that through this year, and we expect to continue driving that down through the rest of this year. And so, yes, you should expect some good improvement in the second half here.
Ambrish Srivastava: Okay. And my quick question for you, Matt. We’re hearing a lot of companies are talking about the pushouts of CapEx, general-purpose CPU towards AI. I know you addressed it in some ways earlier. But are you seeing that manifest in your business that certain projects are being sacrificed at the AI alter?
Matt Murphy: Funny way to phrase it. Yes, I think there’s two aspects. I think one is, were there project reprioritization or not within those companies. And then also, is it affecting our business right now, which is kind of the two pieces. So, our view is, on the first one, at least for Marvell, I can’t comment about everybody, but for us, we really worked through that issue at the end of last year, early this year. There was a big, I’d say kind of re-prioritization that went on, first, driven by the budget squeeze and companies just trying to get more efficient. And then almost in line with that was sort of the release of ChatGPT and the realization that there was this potential massive opportunity, right, for productivity gains through AI and then what are people going to do and then sort of the race was on.
So, from that standpoint, we feel very good about our WIP and what we’re working on and that — at least for us, those decisions and re-prioritizations were made. And some of those are why we were lighter on our custom silicon revenue this year. We sort of talked about that a couple of quarters ago. So those programs got delayed. So, we’ve I guess taken some medicine on that and we moved past it, now we’ve got this off to the races with the AI stuff. And then, on our current business as you saw, we had — in Q2, we had overall data center revenues up pretty nicely and that included on-prem being down, AI being up a lot, but we also said that standard cloud infrastructure was up and it’s going to be up again nicely in the third quarter and it’s going to continue through the fourth quarter into next year.
So, I think we’ve worked through that as well. And probably the reason we don’t get hit quite as much there is that we’re tied more to the networking and connectivity than selling CPUs as an example. And so, that overall kind of network bandwidth needs to continue to get upgraded and deal with it, because a lot of these big data centers are multi-tenant and they’ve got AI sitting in there, and they’ve got specialty built servers and storage for other things, but it all needs to work together and it all needs to ultimately have the right level of bandwidth to support the compute power. So those are some puts and takes. I think the headwind on the whole thing would — for us really would be the storage piece, which shows up in our data center near-line and that we’ve just been kind of — I answered the questions about that already.
So that’s the puts and takes, but overall it’s actually growing very nicely for us. It will be a growth driver for us next year too.
Ambrish Srivastava: Got it. Thank you, Matt.
Matt Murphy: Yeah.
Operator: The next question is from Chris Caso with Wolfe Research. Please go ahead.
Chris Caso: Yes, thank you. I guess the question is digging into the enterprise on-premise a little bit more. If you give some detail on what you include in that, that’s still looking to be down, does that include, for example, fiber channel as well? And do you think that business — that this will mark a bottom to that business? Yeah, obviously, probably difficult to figure out when that starts getting better.
Matt Murphy: Hey, Chris, thanks for the question. Yes, I mean, it’s — enterprise on-premise business has just kept coming down. Now I think the reality is if you look at overall enterprise server shipments and you look at sort of the end data, that’s probably been down for, I don’t know, eight quarters or something. So, the end markets just not doing as well. It’s mostly fiber channel that’s within there. There’s also some Ethernet and some NIC products as well. I don’t know that we’re necessarily calling a bottom, but it’s got to be close just because at some point, people need to — people actually need to buy servers and customers need to work through inventory. So, it’s been a headwind. I think we’re close to it, maybe needs a little more time, maybe another quarter.
But at some point, that will renormalize as well. And it’s obviously within overall data center, all of that sort of inventory adjustment and weakness at the end market levels being just blown away, obviously, by the AI and cloud infrastructure piece, which is still driving very healthy growth into Q3 and then another step-up obviously in Q4. And that’s assuming really no material recovery in the on-prem side. But I do expect over time, if you just sort of step back and look at like fiber channel, it’s been a pretty stable business for us, ever since we’ve owned it through the Cavium acquisition. And we don’t see any reason why, at some point, that just doesn’t come back to where it was. And when it does that, that will also be a positive thing for us.
Hopefully, that’s helpful.
Chris Caso: Thank you.
Operator: The next question is from Quinn Bolton with Needham & Company. Please go ahead.
Quinn Bolton: Hey, Matt, I wanted to ask, you talked about the electro-optics driving most of that $200 million of AI revenue. Can you give us some sense how much of that is InfiniBand versus Ethernet within those 800-gig modules? And do you guys see any share difference between your position in Ethernet versus InfiniBand? I know your share is very high in general in that market, but just wondering if you would say your share is higher either in the Ethernet or InfiniBand. And then I got a follow-up.
Matt Murphy: Yeah, maybe the simple answer is, first of all, as you point out, we’re agnostic. We participate broadly in the connectivity independent of whether it’s InfiniBand or Ethernet. And I’d say that we continue to have very high market share and penetration into both those applications. And the demand we’re seeing is broad-based from both of those as well as multiple customers driving it. So, it’s actually really kind of hard to break it down exactly. And I don’t know that it’s super helpful, because overall, the shares still very healthy, and we’re agnostic. So, the same module can kind of be used in either one.
