Profits show that this stock of chips we own is a data center, 5G and an automotive powerhouse

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Marvell Technology (MRVL), which we own in the Charitable Trust, reported spectacular third quarter results after the closing bell Thursday.

Net revenue increased 61% year-over-year (year-over-year) to $ 1.211 billion, beating estimates of $ 1.149 billion, according to FactSet. Adjusted earnings per share rose 72% year-on-year to $ 0.43, beating the FactSet consensus of $ 0.38 and exceeding the upper end of management’s forecast. In addition to the flagship results, gross margins and non-GAAP operating margins both hit record highs of 65.1% and 34.5%, respectively.

• By product group, data center revenue grew 15% quarter-over-quarter (QoQ) and 109% year-on-year to approximately $ 500 million on strong demand from cloud customers and also a positive contribution from on-premises data center activity. Management cited specific product lines such as 200 and 400 gigabyte PAM4 electro-optics, ZR data center interconnect modules, SSD and HDD controllers, cloud-optimized SoCs and Ethernet switches as contributors to sequential revenue growth. CEO Matt Murphy said on the conference call that he expects this high level of revenue growth to be sustained as the majority of their product lines benefit from the start of new product ramps.
• Carrier Infrastructure revenue increased 9% quarter-on-quarter and 27% year-on-year to $ 215 million. The driver of growth during the quarter was the ramp-up of Marvell’s 5G products with several customers. In addition, the improvement of the offer in their wireline activity helped to stimulate sequential growth.
• Enterprise networks revenue increased 11% quarter-on-quarter and 56% year-on-year to $ 247 million. This was a big positive surprise as management previously believed that revenues would be declining on a sequential basis. But Marvell was able to deliver and exceed initial expectations thanks to an improved sourcing environment. Marvell’s Ethernet network portfolio, which gained market share, drove revenue growth in the quarter.
• Consumer incomes increased 10% quarter-on-quarter and 20% year-on-year to $ 183 million. Not much to add here other than that the growth is driven by their SSD controllers which are present in video game consoles.
• Automotive / Industrial revenue increased 16% quarter-on-quarter and 114% year-on-year to $ 67 million. Marvell said its automotive business now exceeds $ 140 million in annualized revenue, ahead of previous expectations, in part due to the faster pace of adoption of their Ethernet solutions by leading automakers. to their latest semiconductor-rich models. Outside of connectivity, management continues to believe that the company’s next multi-billion dollar market opportunity is in automotive computing.

If you thought Q3 was strong, wait until you see the forecast for Q4 and beyond. The company expects net sales of $ 1.320 billion +/- 3%, which is better than the estimate of $ 1.208 billion. The adjusted gross margin is expected to be 65%, slightly better than the estimate of 65.6%. And adjusted earnings per share is expected to be $ 0.48 +/- $ 0.03 per share, which is well above estimates of $ 0.42 per share.

In the end market, data centers are expected to have another strong quarter, driven by strong performance from cloud customers across a wide range of products. Data center revenues are expected to more than double year-on-year with sequential double-digit percentage growth.

Also, it’s time to add Marvell Technology to the list of ways to play the Metaverse. Going further back in time, management called large-scale virtual environments (like Facebook’s metaverse) as a growth phase with “immense potential” as this “will dramatically accelerate a number of key trends, which are occurring. already in the cloud today, including the need to store huge amounts of data in a secure environment, connected by high-speed electro-optical links to custom compute engines, ”according to CEO Murphy.

Further, Murphy added that “The metaverse also has the potential to be a killer app for 5G, another area of ​​strength for Marvell. Several cloud customers have already engaged with us as they begin to design. architecture for their next generation of data infrastructure to enable a much richer set of virtual applications and experiences. “

In carrier infrastructure, management expects its 5G business to ramp up sharply by around 30% on a sequential basis. It also appears that the 5G inflection points are there, with Marvell expecting “significant additional growth” over the next few years as 5G adoption increases globally and content gains. earned begin to increase. For the operator’s combined infrastructure in the wireless and wireline end-markets, revenues are expected to increase sequentially in percentage in the low-teens, with year-over-year revenue growth accelerating to more than 40%.

Enterprise networks revenue is expected to grow in the order of a few low to mid digits sequentially and approximately 60% year-on-year. Consumer incomes are expected to increase sequentially in the low single-digit percentage and year-over-year in the double-digit on a percentage basis. Automotive / Industrial revenue is expected to grow double-digit percentage on a sequential basis and above 100% year-on-year.

Management also provided incredibly optimistic feedback for fiscal 2023. The company said it expects demand to remain above the high end of its long-term target model as it continues to boost improvement of the offer. As a result, Marvell expects another great year. Marvell said it expects revenue from the combined operations of Marvell and Inphi to grow 30% year-over-year in fiscal 2023 on a basis of $ 4.4 billion in fiscal 2022. In addition, management expects $ 150 million in revenue next year from the acquisition of Innovium. After doing some quick math, we think management has just guided its revenue for fiscal 2023 to around $ 5.87 billion. This prospect exceeds the consensus estimate of $ 5.209 billion. And by the way, operating expenses are growing at a much slower rate than revenue growth, which implies a lot of leverage in the business model.

It has been a remarkable quarter for Marvell Technology. Under Murphy’s leadership, this company has grown into a leading name in high performance computing. Marvell Technology has been part of the Charitable Trust for years as our favorite way to play the 5G cycle, but it has evolved into much more than that. Marvell is a data center, 5G, and automotive chip powerhouse.

In the absence of supply constraints, we see no reason why the good times should not continue here thanks to the company’s significant exposure to secular growth markets and design cycles, which offer great visibility into future revenues.

In response to the better-than-expected quarter and stronger-than-expected outlook, MRVL stocks jumped about 17% to what would be an all-new all-time high of around $ 83 in aftermarket trading at the time of writing.

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(Jim Cramer’s charitable trust is MRVL long.)