Marvell weakened after its earnings release; is there still an opportunity to position in optical co
迈威尔科技2027财年Q2业绩直播
Key Takeaways (AI-Generated)
Financial Performance
- Record Q2 FY2027 revenue of $2.739 billion, up 13% sequentially and 37% year-over-year
- Non-GAAP EPS of $0.94, exceeding guidance midpoint and up 40% year-over-year
- Data center revenue of $2.17 billion (79% of total), up 18% sequentially and 46% year-over-year
- Non-GAAP operating margin of 36.6%, up 180 bps YoY and 160 bps sequentially
Business Highlights
- Expanded commercial agreement with Google covering custom programs worth up to $120 billion over 6+ years
- Strong momentum in scale-up optics with NPO and CPO solutions driving fiscal 2028 outlook increase
- Multiple deep customer engagements for scale-up switches across UALink, Ethernet, and NVLink protocols
- Leadership transitions: Dan Dern as new CFO, Ross Seymour as new VP Investor Relations
Financial Guidance
- Q3 FY2027 revenue guidance: $3.15 billion (±5%), up 15% sequentially and 50%+ year-over-year
- FY2027 revenue outlook raised to ~$12 billion (~45% YoY growth) from prior $11.5 billion
- FY2028 revenue outlook raised to ~$18 billion (~50% YoY growth) from prior $16.5 billion
- Non-GAAP operating margin expected to enter 38-40% target range in Q4 FY2027
Opportunities
- Scale-up networking creating massive new TAM as AI clusters grow larger and span multiple data centers
- Leadership in next-generation scale-up optical interconnect and switching technologies including NPO and CPO solutions
- Expanded commercial agreement with major hyperscaler covering broad range of custom silicon programs
- Aggressively securing additional supply capacity despite industry constraints to support growth
Full Transcript (AI-Generated)
Operator
Good afternoon and welcome to Marvell Technology Incorporated second quarter of fiscal year 2027 earnings conference call. At this time all participants are in a listen only mode. If anyone should require operator assistance during the conference, please press *0 on your telephone keypad. A question and answer session will follow a formal presentation. Please note this event is being recorded. I will now turn the conference over to Mr. Ross Seymour, Senior Vice President of Investor Relations. Thank you. You may begin.
Ross Seymour
Thank you and good afternoon, everyone. Welcome to Marvel's second fiscal quarter 2027 earnings call. Joining me today are Matt Murphy, Marvel's Chairman and CEO, Dan Dern, CFO, Chris Koopmans, President and COO and Sandeep Barathi, President of our Data Center Group. Let me remind everyone that certain comments today made today include forward-looking statements which are subject to significant risks and uncertainties that could cause our 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 8K10K10Q and other documents that we filed from time to time with the SEC. 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 available in our earnings press release. Let me now turn the call over to Matt for his comments on the quarter. Matt.
Matt Murphy
Thanks Ross and good afternoon everyone. Before I discuss our results and outlook, I want to briefly highlight two management transitions that occurred during our last quarter. First, Willem Manky stepped down as Marvel CFO in mid June. I deeply appreciate Willem's steady hand leadership and tireless commitment to transforming Marvel over his decade with the company, and I greatly respect his desire to spend more time with his family to ensure a seamless transition.
We simultaneously welcome Dan Dern as our new CFO. Dan brings more than three decades of experience in senior finance roles across semiconductor and enterprise technology companies and having most recently served on Marvel's Board of Directors. Dan comes into the role with a deep understanding of our business and strategy as well as a unique appreciation for the significant growth opportunities that Marvel ahead.
Second, in July, we began a transition in our Investor Relations leadership. After eight years with Marvell, Ashish Saran will retire from the company in April 2027. I want to personally thank Ashish for his leadership partnership and countless contributions to Marvell. I also appreciate the thoughtfulness and care he has brought to planning this transition, including helping us identify the right successor.
On that front, I'm very pleased to welcome Ross Seymour, who comes to us from Deutsche Bank covered the semiconductor industry for more than 25 years. Warm welcome to you Dan and Ross. Now let me move on to our results and outlook for the second quarter of fiscal 2027. Marvell delivered record revenue of 2.739 billion reflecting 13% sequential and 37% year over year growth. Revenue and non GAAP earnings per share of $0.94 both exceeded the midpoint of guidance on our last earnings call.
We increased our sequential revenue growth expectation for the third and fourth quarters of this fiscal year to double digit percentage growth, up from our prior outlook of high single digit growth. Since then, our outlook has continued to strengthen and we now expect revenue growth to further accelerate in the second-half. The strength is reflected in our guidance for the third quarter of fiscal 2027, where we expect total company revenue of 3.15 billion at the midpoint, representing growth of 15% sequentially and more than 50% year over year.
We expect growth to further accelerate in the fourth quarter both sequentially and year over year. As a result, we now expect overall Marvell revenue in fiscal 2027 to grow approximately 45% year over year to roughly 12 billion, up from our prior outlook of approximately 11.5 billion just one quarter ago. The increase in our revenue outlook continues to be driven by our data center business, which we now expect to grow by approximately 60% this fiscal year, up from our prior expectation of approximately 50%.
Importantly, this growth remains broad based. Interconnect continues to lead the way. While our custom business is expected to ramp significantly in the second-half for our communications and other end markets, the trajectory remains largely as expected. Despite typical quarter to quarter lumpiness in these businesses, we currently expect fiscal 2027 growth to approach our 10% target.
Looking ahead to fiscal 2028, aggregate demand continues to accelerate and our operations team is doing an outstanding. Securing additional supply despite pervasive industry wide constraints. As a result, we now expect Marvel's data center revenue to grow more than 60% year over year in fiscal 2028, driven by strong growth across all of our key data center businesses. This includes custom more than doubling as we indicated last quarter.
We look forward to providing a deeper dive into the specific drivers of our longer term growth at our Investor Day in New York City on October 6th. But the key take away for today is clear the strength of our data center business continues to exceed our prior expectations. Putting it all together, we now expect fiscal 2028 revenue of approximately 18 billion, up 1.5 billion from the 16 1/2 billion dollar outlook we provided just one quarter ago.
And importantly, even as our revenue base becomes significantly larger, our growth rate is accelerating. We now expect fiscal 2028 revenue to grow approximately 50% year over year compared with approximately 45% in our prior outlook. With that, let me provide color on our current business, beginning with data center. In our data center end market, we delivered record second quarter revenue of 2.17 billion, representing 18% sequential growth and 46% year over year growth.
Both sequential and year over year growth accelerated from the first fiscal quarter when data center revenue increased 11% sequentially and 27% year over year. Now looking ahead to the third fiscal quarter, we expect this acceleration to continue with data center revenue forecasted to grow more than 20% sequentially and roughly 75% year over year. The drivers of this growth remain very broad based as AI demand for our products continues to rise. We are seeing strong tailwinds across each of our data center businesses, including interconnect, switching and custom.
Connectivity continues to be a critical enabler of AI performance driven by robust demand for both our interconnect and switching products. Thus far, the largest driver of growth for these businesses has been for scale out applications. Here Marvel's market leading franchises and optical DSPS, switching and broadband analog components continue to see significant demand. On the optical DSP side, 800 gig demand remains strong while our 1.6 T business is ramping rapidly, a trend we expect to accelerate further in fiscal 2028.
Within scale out switching, our business remains on track to more than double this year driven by a strong ramp in our 51.2 T products across a broadening array of customers. And within broadband, analog demand for our industry leading TI as and drivers continues to exceed expectations. Now moving beyond scale out, we expect this connectivity strength to broaden as hyperscalers build significantly larger AI clusters that increasingly span multiple data centers.
As we've discussed on prior calls, aggregate bandwidth requirements for these scale across networks are projected to be more than 10 times greater than those of current front end DCI networks. Marvell is ideally positioned to address this opportunity through our leadership and coherent enabled DSP, coherent DSP enabled 1.6, TZR and ZR plus DCI modules. Finally, we continue to expect the adoption of scale up networking and AI infrastructure to create a massive new Tam for Marvell.
Scale up domains are expected to become significantly larger requiring high bandwidth interconnects closely coupled with high radix low latency switches. Now while customers are initially deploying copper interconnect for scale up networking, as cluster sizes grow, the reach and bandwidth limitations of copper are increasingly driving customers towards optical interconnects as well as purpose built UA link, E Sun and NV link scale up switches.
As a result, we are investing aggressively to lead the industry in next generation scale up optical interconnect and switching technologies. On the interconnect side, pluggable modules remain the primary form factor for scale out networks and we do not expect that to change. However, the significantly higher bandwidth density required by scale up networks is best served by bringing optics much closer to XP, US and switches.
While the transition and scale up networks from copper to optics is expected to take several years with both technologies coexisting, customers are aggressively planning scale up optics deployments starting as early as next year. Given how early we are in this transition, customers are evaluating a broad range of potential solutions with multiple technologies under consideration, including NPO and CPO packaging options with both leveraging advanced silicon photonics as well as three different modulator technologies, MZME AM and MRM.
Each of these choices have has different considerations around cost, power and technology maturity. Importantly, given the breadth of our optical portfolio across modulation technologies, fully supported by our broadband analog TI AS and drivers, Marvell is uniquely positioned to help customers move towards the optical scale of architecture that best meets their needs. The full spectrum of Marvell developed solutions is reflected in Excel. Operating design activity with a broad set of customers.
In addition to our ongoing success in CPO, we are also seeing a strong adoption of our NPO solutions at multiple customers. As a result, our fiscal 2028 revenue outlook for scale up optics has increased meaningfully compared to prior expectations, positioning Marvell to be one of the largest enabler of NPO and AI infrastructure. Moving to scale up switching, we are seeing similar momentum. Marvell is uniquely positioned to support all three purpose built scale up protocols through our internally developed ual and esun switches as well as our expanded partnership with NVIDIA around NV Link Fusion.
Our scale up switches leverage decades of experience developing large retical sized switch silicon combined with our in house best in class high performance Certis technology. The close coupling of optics and switching and scale up networks provides another important differentiator for Marvell given our market leading positions in both technologies. This allows us to deliver highly optimized scale up solutions designed to provide customers with exceptional performance and reliability while accelerating time to market.
As a result, we are engaged with in multiple deep discussions with Tier 1 customers across our scale up switch portfolio with each engagement representing a multi billion dollar lifetime revenue opportunity. Given the expected size of the scale up Tam taken together, we are extremely excited about the continued acceleration and broadening of networking demand as AI architectures require ever increasing performance across scale out, scale across and scale up domains.
OK, now let's turn to the custom business within our data center and market. As I mentioned earlier, we are seeing a significant acceleration in custom demand in the second-half of this year. We remain confident that this business will more than double year over year in fiscal 2028 and accelerate significantly in fiscal 2029. We expect this growth to be driven by both our XPU and XPU attached products and XPUS. We continue to make strong progress across current and next generation programs at multiple hyperscalers and an XPU attached.
We are benefiting from increasing demand for both CXL and Custom Next. Looking further ahead, we expect our custom business to continue to deliver strong revenue growth as we see ongoing robust design activity with hyperscale customers. The most recent example of this momentum is the 8K we filed last week, disclosing an expanded commercial agreement and associated warrant with a key hyperscaler, one of the largest adopters of custom silicon.
The warrant agreement encompasses custom programs, already an execution that were awarded to Marvell over the past several years, new design wins and future potential programs. The warrant structure reflects the scale and long term potential of the relationship and further aligns common interests as our work together expands expands a broad range of custom silicon programs, including those that attach to the TPU ecosystem such as AI inference accelerators, storage controllers, network interface controllers, memory interface controllers and near memory compute.
We look forward to continue working closely with this customer to enable the next generation of AI infrastructure. This expanding range of attached products in the scale of this agreement provides significant validation of the XPO attached category that Marvell has pioneered. We are excited to see both the use cases and attach rates for this category of products continue to broaden. These products are built upon a rich portfolio of Marvell IP and perform specialized functions designed to significantly improve the performance and efficiency of the overall AI data center.
This is another strong confirmation of Marvell's leadership in connectivity, compute and memory technologies and the increasingly important role they play in enabling our customers to design more advanced AI infrastructure. In terms of the impact of the new warrant agreement, revenue from programs covered by the agreement through fiscal 2028 is already reflected in the overall customer revenue target we have previously provided.
Looking at fiscal 2929 and beyond this agreement along with several additional programs gives us even greater confidence in our ability to grow the custom business to a significantly larger scale in that timeframe. We look forward to sharing more details on the long term trajectory of our custom business at our upcoming Investor Day. Turning to our communications and other end market, we delivered second quarter revenue of 568,000,000, down 3% sequentially and up 10% year over year.
Going forward, we expect to remain revenue to remain somewhat lumpy on a quarterly basis given the mix of businesses in this segment. For the third fiscal quarter, we expect revenue to decline in the low to mid teens percentage range both sequentially and year over year, followed by a solid sequential recovery in the fourth quarter. To summarize, the momentum across our business remains exceedingly strong in the near term. That strength is reflected in the significant increases to our outlook compared with the expectations we provided just one quarter ago.
We've increased our fiscal 2027 revenue outlook by approximately $500 million and our fiscal 2028 outlook by approximately $1.5 billion. The center of this higher outlook is our data center business, where growth continues to both accelerate and broaden. We've increased our forecast for data center revenue growth in fiscal 2027 from our prior expectation of 50% to approximately 60% and we see potential for further acceleration in fiscal 2028.
Within connectivity, we continue to see strength established in areas such as optical DSPS, while also seeing significant growth across broadband, analog, TI AS and drivers, scale across DCI modules and scale out switching. Each of these three businesses is on or ahead of the trajectory toward the billion dollar annualized revenue run rate we highlighted last quarter. Scale up opportunity remains massive and is still largely ahead of us.
Marvella is ideally positioned for the transition toward NPO and CPO optical interconnects as well as the adoption of purpose built scale out scale up switches. Our custom business including both XPU and XPU attached is also on a strong growth trajectory both near term and longer term. The AK we filed last week highlights the expanded scope of our relationship with the key hyperscaler and reinforces our confidence in the increasingly important role custom silicon will play in the ongoing AI infrastructure build out.
We look forward to sharing more about the long longer term growth opportunities we see for Marvell at our Investor Day on October 6th in New York City and we hope to see many of you there. Now with that, I'll turn the call over to Dan for more details on our recent results and outlook.
Dan Dern
Thank you, Matt. Good afternoon everyone. Before I get into the financials, since this is my first earnings call as Marvell's CFO, I want to spend a moment on three things, why I joined Marvell, what I hope to accomplish as CFO and what I believe that should ultimately, ultimately mean for our stockholders. First, I joined Marvell because I believe the company has incredible growth potential. I believe Marvell is at a unique inflection point with a broad and diverse set of capabilities that have been intentionally built and are ideally aligned to enable the future of AI infrastructure.
Second, my goal as CFO is to help Marvell scale efficiently and effectively to capture what I expect to be a tremendous opportunity. The company has a strong history of disciplined execution and maintaining that rigor will remain paramount as we strategically allocate capital to fuel our growth. And 3rd, I expect that growth to translate into significant value creation for our stockholders. I recognize that the growth opportunity ahead must be matched by its quality and I plan to remain intensely focused on expanding operating margins, growing cash flow and driving attractive stockholder returns.
With that, let me turn to our financial results. For the second quarter of fiscal 2027, revenue was 2.739 billion, growing 37% year over year and 13% sequentially. Data center was our largest end market, contributing 79% of total revenue and growing 46% year over year. GAAP gross margin was 53.1%. Non GAAP gross margin was 58.9%, slightly above the midpoint of our guidance.
Moving to operating expenses, GAAP operating expenses were 996,000,000 including stock based comp, amortization of acquired intangible assets, restructuring costs and acquisition related costs. Non GAAP operating expenses were 611 million, slightly above our guidance. GAAP operating margin was 16.8%, while non GAAP operating margin was 36.6%. Non GAAP operating margin expanded 180 basis points year over year and 160 basis points sequentially, demonstrating the significant operating leverage in our model.
For the second quarter, GAAP earnings per diluted share were $0.33. Non GAAP earnings per diluted share were $0.94, a penny above the midpoint of our guidance and up 40% year over year. Now turning to cash flow and the balance sheet. Cash flow from operations was 606 million in the second quarter, down slightly quarter over quarter, primarily reflecting the higher capacity prepayments to suppliers in support of Marvell's future growth.
Inventory at the end of the second quarter was 1.36 billion, down just slightly from the prior quarter. During the quarter, we repurchased 200 million of our common stock through our ongoing capital return program and return. 54 million to stockholders through cash dividends. At the end of the second quarter, total debt was 4.96 billion with gross debt to EBITDA ratio of 1.32 times and net debt to EBITDA ratio of 0.27 times.
Turning to our guidance for the third quarter of fiscal 2027, we are forecasting revenue of 3.15 billion ± 5%. We expect GAAP gross margin to be between 52.9% and 53.9%. We expect our non GAAP gross margin to be between 57.5% and 58.5%. Revenue levels and product mix remain key determinants of gross margin in any given quarter. With the forecasted acceleration of our custom business creating the sequential headroom in the fiscal third quarter, the sequential head headwind in the fiscal third quarter, we currently expect to maintain gross margin in this range in the 4th fiscal quarter.
We project GAAP operating expense of approximately 1.015 billion in fiscal Q3 and non GAAP operating expenses of approximately 655,000,000. We expect GAAP other income and expense including interest on our debt to be an expense of approximately 86 million. On a non GAAP basis, we expect other income and expense, including interest on our debt to be an expense of approximately 36 million. We expect a non GAAP tax rate of 11%.
Looking ahead, given the significant increase in our revenue and earnings outlook, we expect non GAAP tax rate of approximately 13% in fiscal 2028. We expect basic weighted average shares outstanding of approximately 900 million and diluted weighted average shares outstanding of approximately 921 million, both roughly flat with the second quarter. We anticipate GAAP earnings per diluted share of $0.48 to $0.58. We expect non GAAP earnings per diluted share of $1.05 to $1.15.
As we look ahead, we intend to continue investing in our business to drive substantial revenue growth in the years ahead while delivering operating leverage. For fiscal 2027, we expect non GAAP operating expenses of approximately 2.55 billion, slightly above our prior expectation of 2.45 billion, reflecting the significantly larger revenue opportunity we now see. Importantly, we expect revenue to continue growing substantially faster than operating expenses.
As a result, we expect significant operating leverage with non GAAP operating margin likely to enter our 38 to 40% long term target range in Q4 of this fiscal year. Looking ahead to fiscal 2028, we currently expect non GAAP operating expenses to grow at roughly half the rate of revenue growth in percentage terms. This reflects continued investment against an expanding opportunity set while yielding continued operating leverage to achieve the upper end of our target non GAAP operating MARL of 38 to 40% as we progress through the year.
Moving to cash usage. Based on the design wins we've secured and our confidence in the sustained customer demand, we're aggressively securing additional capacity to support our growth. We remain on pace to make approximately 1 billion of capacity prepayments to suppliers in fiscal 2027, consistent with the guidance we provided last quarter. As a reminder, these prepayments will be applied against future material purchases and will be funded through our strong balance sheet and robust operating cash flow. In parallel, we intend to continue repurchasing shares to manage dilution.
Now let me come back to where I started. I joined Marvell because I believe the company has an exceptional opportunity ahead of it. Having now stepped into the CFO role, I'm even more convinced of the incredible strength of our technology portfolio, our deep customer relationships and the substantial long term growth potential. Our job from here is to execute with discipline as we efficiently scale the company to capture that opportunity and ensure that our growth translates into expanding margins, strong cash flow and compelling returns for our stockholders.
I'm honored to be Marvell CFO at such an important point in the company's evolution, and I look forward to working with Matt and the rest of the team to deliver on the incredible opportunity. Opportunity we see ahead. With that ready to start Q&A. Operator, please open the line and announce the instructions.
Operator
Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press *1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press *2 if you would like to remove your question from the queue. In the interest of time, please restrict yourself to one question only. If you have additional questions, please rejoin the queue. At this time, we will pause momentarily to assemble our roster. And our first question comes from Tom O'Malley with Barclays. Please state your question.
Tom O'Malley
Hey guys, thanks for taking my question. Appreciate it. Good results. I wanted to ask first on the warrants with Google. Obviously a very robust relationship over a multi year period of time. I'd love if you could give a little color on what's contributing to that revenue. Obviously you have an inference accelerator, but you talked a lot about XPU attached, which you guys did kind of start the industry standard on in terms of defining. So maybe you know what XPU attach are you excited about there And like any sort of color you can give us on the percentage of contribution between the inference accelerator and some of the attach that you're seeing there?
Matt Murphy
Yeah, great. Hey, thanks Tom, good to hear from you. So I, I, I think you captured it well. It's a, it's a, it's a very exciting time for Marvell. This engagement and warrant is significant. You can see that in in the scale of the opportunity we have. And as you pointed out, a couple of things I would just validate. The first is it's very broad based. It's a number of products and product lines, which is which is very exciting and it includes inference accelerators as you mentioned, also storage controllers, NICs, memory interface controllers, near memory compute a whole bunch of different products.
And you're right, we, we did define the what we call the XPU attached category, you know, a couple of years back. And actually we gave a quite a detailed view of that in our June 2025 custom silicon event. And, and I think all of our projections to date have been, you know, under called meaning that that opportunity continues to get more and more significant. So it's a broad set of products, Tom, that are covered here. And it's very broad based in terms of where we can engage and where we're going to contribute.
And I wouldn't call out any one of them at the moment specifically, but all of them in total you can see represent, you know that if you look at the total envelope for the opportunity, it's just massive for Marvel and and game changing at the sort of peak performance of of what could be achieved now over the the next, you know, six, 6 1/2 years.
Tom O'Malley
Thank you.
Operator
And your next question comes from Harlan Sewer with JP Morgan. Please state your question.
Harlan Sewer
Yeah, good afternoon. Thanks for taking my question and welcome to the team, Dan and Ross. Matt, given the Google commercial programming sign back in late July, 120 billion in cumulative reps over six years. If you hit all of your milestones right, that puts you, if you just analyze it at about 18 1/2 billion dollars per year in revenues just in Google XPU attached custom ASICS, right. I actually thought that that would start to show up in fiscal 28 or count your calendar 27. But given your guidance looks like custom is still going to be around 5 to 6 billion in calendar 27.
But maybe some of the big programs associated with this commercial agreement are more back end loaded. So maybe the better question is, the team has previously targeted 10 to 11 billion in custom revenues in fiscal 29 or calendar 28. What does that number look like now based on the Google commercial agreement and some of the new programs associated with the agreement?
Matt Murphy
Yeah, Yeah, great, Great questions, Harlan. Thank you. So first you're right, if you look out to next year, we have comprehended already you know revenue that would come as part of this warrant in our numbers. Now, now that, that's because some of these programs obviously are already in flight or have already started, but the, the, the programs ahead of us, you know, that are, that are either an execution or just starting production. Those will contribute much more significantly in fiscal 29 and, and for next year.
All I've said by the way is that you know, custom is going to over double. So I haven't capped it, I haven't sized it exactly, but it is going to over double next year. And and then, and then you know, so, so then you look out to fiscal 29 where in our last call I, I talked about a $10 billion kind of plus number for custom in fiscal 29. Which isn't a new number, but by the way that that was something that we outlined back in June 25 and even back in April 24, we were talking about custom revenues in the 8 to 10 billion range.
So we've had a consistent view of what that can look like This this opportunity is, is with with this customer, you know greatly, greatly increases the revenue opportunity for us in custom with some of that potentially starting in 29. I'm not going to size in on the call here today, but you should assume with our investor day coming up, Harlan, you know the Marvel team, we always do a thorough job in our investor in our analyst investor days.
And so you should expect a very robust detailed review of how we step through the revenue, not just through fiscal 29, but really out until the end of the decade. And so we're excited to present that to everybody, which will then really help us contextualize the scale of of the warrant that we just signed along with all the other exciting programs we have in custom. So if you don't mind, hold tight on that one. There'll be more to come. But, but clearly, there's a lot of upside bias in those numbers in fiscal 29 and beyond in custom.
Harlan Sewer
Yeah, absolutely, absolutely looking forward to it. Thanks, Matt.
Matt Murphy
Yeah, you're welcome.
Operator
Your next question comes from Vivek Arya with Bank of America Securities. Please state your question.
Vivek Arya
Thanks for the question and best wishes to Dan and Ross. Matt, I was hoping you could give us an update on the other large XPU program that you're planning to start in the next year. I think the assumptions that are quite modest for next year, 6 or 700 million or so and I was hoping it could give us an update on that. And then what is the the opportunity for that program over time because you know that hyperscaler is just getting started on their XPU, right? Like every one of their competitors, I imagine they want to make that XPU program much larger than than what it is. So give us an maybe an update on what the progress is. Can this be really meaningful program right for you over time?
Matt Murphy
Yeah, thanks Vivek. So, so yeah, we're we're very encouraged by our custom set up for next year on the double plus. That new program is, is clearly part of that. And you know we've been judging that I think in a very conservative and practical manner as we've made progress. But we make, we continue to make progress every quarter, not only on, on on design execution, but also supply commercials and figuring out the the, the sort of the envelope of that opportunity. And that's only gotten better.
So without quantifying it exactly, what I would say is from the last call, if you look at the billion and a half raise we're doing for next year, just at a high level, it's broad based. So some of that is from custom next year. There's also actually the get another question on this one. But the probably the most meaningful part of the next year raise is actually from the scale up optics switching in other areas, but customs definitely part of it, Vivek.
So, you know, even when we sized that opportunity, which which goes back to, you know, a couple of years, we've always said that that is probably 1 of Marvell's largest revenue opportunity, you know, opportunities we have and that's still the case. So we're very encouraged by the project or the, the prospects of this project and, and there'll, there'll be more to come. But it it certainly is tracking and we feel very good about next year and that layering in the year after and beyond.
Vivek Arya
Thank you.
Operator
Your next question comes from Aaron Rakers with Wells Fargo. Please state your question.
Aaron Rakers
Yeah, thanks for taking the question and and, and welcome Dan and and Ross. Maybe kind of building on that last question a little bit. Matt, if you can maybe talk a little bit about what you're architecturally seeing in CXL and and how that's evolving obviously with the Structtera product and it seems to be a broadening ecosystem around that. And then, you know, similar on an architectural perspective, any update on you just touched on scale up, you know, optics, the celestial AI numbers that you've previously outlined, how have those progressed relative to your initial targets? Thank you.
Matt Murphy
Sure. So let me start with CXL and then we'll we'll, we'll talk about scale up optics. So with respect to CXLI mean this, this, this investment we made, you know, or organically over the years has, has really evolved and it's turning out to be a home run for a couple of reasons. You know, as you might recall, this started off as a as a server centric, you know, traditional compute centric, you know, memory architecture. It turns out all that investment we've made is just ideal for memory expansion and. Inferencing and so we're seeing this technology now getting deployed at multiple hyper scalers with varying architectures, by the way, in extremely high volumes.
1 is just the demands of inferencing require it. The other is what we're seeing is as a result of the scarcity that's out there in memory, customers are modifying and adjusting their their their plans to actually use more of this type of technology. So this is continuing to have strong upward bias. We've actually secured additional design wins in this area, you know, in the last couple of quarters. We're going to outline all of that at the Investor Day. But that opportunity, Aaron, turns out to be massive.
And I think it's a case where, you know, the pivot we made, you know, about five years ago where we really put the pedal to the metal on organic internal investment on a number of new technologies. This is one that's really bearing fruit. So very exciting. And and you'll, you should expect to see a very comprehensive, you know, memory expansion section in our Investor Day presentation on, on scale up optics. This is turning out to be, I think one of the most exciting areas for us.
Last quarter the way we framed it was we had we had the celestial AICPO photonic fabric solution, which for for reference was about 150 million for next year. We had actually said that overall scale up optics inclusive of that was about 300 million as a category that includes NPO by the way. And as I said, my prepared remarks, all of that together scale up optics is accelerating even further from the number I gave you last quarter.
And so you know a significant driver of the billion and a half raise we have for next year, Aaron is coming from that area. And it's not just a 1 trick pony. I think that's the the thing I want to stress to you is the CPO is absolutely a key part of it. It will be for next year and certainly the year after. But if I look at the the opportunity set that's happening now at a much faster pace in parallel with the CPO programs we have is for NPO and an NPO we participate through a wide variety of design wins we have and partners.
Some of those are with our broadband analog products in silicon germanium, both TI as and drivers which we have. We have a significant market share and content and also on our own organically developed NPO solution, which we call our light engine, which we've been in development on for several years and we've shown it off at OFC for several years. So all of that is a category error and it's really how we think about the business. Certainly celestial and photonic fabric is a key part of that.
But what I want to stress is that this is not an an OR, it's an and. And it's a little bit analogous to when people thought, well, there's 800 gig DSPS and then they're going to move to 1.60 and it's all going to just cut over. That's not how this works anymore. Our customers have varying architectures that they're pursuing. They have a number of different solutions that they're going to you know implement simultaneously. So we see this as an and not an OR.
And I think the magnitude of our scale up optics opportunity next year is much larger than we thought just a quarter ago. The year after is going to be I think way larger than I sort of could have ever comprehended back even last year when we were looking at celestial. And if you look at the solution we're providing, which is here by my last comment, we are pedal to the metal on our switching road map and coupling those optical solutions with our with our switches both ual and Nissan as well as being able to seamlessly integrate and architect with our customers on the XPU Slash GPU side.
So all of that together and having the end to end link that we're able to provide in the the entire solution and the scale in manufacturing, R&D, the diversity of all the technologies we have in terms of packaging modulator technologies, silicon photonics, a decade of experience there. It's a massive opportunity and Marvel is very uniquely positioned to participate in it. And we couldn't be happier with the Celestial team. They've integrated well. They're a key part of the program, but this thing is going to be a much bigger overall business for Marvel.
Aaron Rakers
Thanks. Thanks, Matt.
Operator
Your next question comes from Joe Moore with Morgan Stanley. Please state your question.
Joe Moore
Thank you. Same lines, can you talk about your progress in in copper scale up? And you, you mentioned the sort of success across the three protocols. How do you think about copper scale up as it transitions to optical? Is it, are those initial successes foundational to what you do in optical or are those sort of two separate decisions?
Matt Murphy
Yeah, yeah. So I think you're talking about from a, from a switching perspective, right, as we implement those, those that those electrical, you know, slash copper solutions. And then how does that success translate when we move to optical? So a couple of things. One is on, on the Ethernet side, you know, we've seen great traction and success with our Terra Links architecture, which came from the acquisition we did of of a company called Inovium back in 2021. That business has a significant head of steam on it.
You know we've expanded the customer base, we're driving you know significant revenue there and we've proven to the market that we can deliver these solutions in volume. So that translates itself Joe very seamlessly to scale out. And in fact we're seeing even at 100 T our scale out solutions be applicable to scale up as well. So we're driving that independently of the optics or not, same thing on ual we're aggressively investing in ual switching that product development is coming along nicely and we certainly can intercept any electrical or copper based solution there.
What customers really want to see though, and that's why I'm spending time on it is that's all great. And at this point, you know, they trust us that we can deliver these very complex switching products because we've done it already, which by the way, is no small feat. There's been a lot of companies that have tried and failed to do these radical size, very complex Ethernet switches. And it's only getting harder with the 30s performance and the speeds.
But the next level of that, Joe, is that you then need to show a compelling clear road map that you can execute with credibility on the optic side, both NPO and then all the way to full integration on CPO. And so our discussions, while certainly there's opportunities in the next few years that are going to come and we're going to, we're going to, we're going to have on the copper side. I think why we really win long term is because we convince our customers we can execute on, on the full end to end, which really is what our customers are looking for at the end of the day, especially on scale up.
They need to bookend the link and they need to trust it on both sides of it and everything in between. They've got a partner that can handle that job and point solutions at this, at this juncture we believe are not going to get it done. You really have to have the end to end portfolio and that's what we're hearing from our customers by the way. So the existing silicon will do fine, it'll do great. But I'm even more excited about the optics attach once that gets going over the next few years because it's just effectively almost double s the same of the switching in terms of the attach you can get.
Joe Moore
Thanks.
Operator
Your next question comes from Ben Reitzis with Melius Research. Please state your question.
Ben Reitzis
Hey, guys, thanks for the question. Hey, Dan and and Ross. Hey, Matt. So I I want to go back to the Google deal. I think people are just wrestling with this and I and I realize that you have a great Analyst Day coming. So you know, don't shoot me, but for FY, you know they if you look at the 120 billion over the course of the years, that's about, you know 18 billion a year and at the 120 billion, you know, divided by 6 1/2 and that's like adding an FY20 8 marvel, you know every year.
And I realize that we don't know how much is incremental versus what's already in your guides, but are we talking like FY20, 9 and FY30 big step UPS, you know, as a result of this incrementally because these numbers are huge. And and I know you're going to tell us at the Analysts Day, but I think we're all just trying to figure out, you know, how high to go in those out years and is it at the comparable margin and just anymore color, if you're in our shoes, how we should handle it into Analyst Day or just wait, that'd be great. Thanks.
Matt Murphy
Yeah, hey, Ben, thanks. And by the way, you know, fully valid question. I mean, when you look at the, the scale of this, your math is not wrong. And what you can conclude from what I'm saying is because, you know, most of this is comprehended already in, in next year, the big impact would be, you know, in, in 29 and beyond. So it's if if you took the full performance and the full opportunity, then you're right. It's just, it's, it's just a, it's, it's just a, a monster number, what I would say.
And so we, we do need the Analyst Day, though. I think you guys understand to contextualize it and, and probably show some ranges of outcomes. But you should assume in that time frame that on the custom side, these numbers would be a lot larger than, you know, overall custom than anybody's been modeling so far. I mean, I think there's been, there's been doubt for years that we could even do. The 8 to 10 billion, you know, this should give I think investors comfort that we secured, you know, a pretty big set of programs, you know, not just here, but across the broad range of our of our customer set on the on the on the margins.
You know, just in general, this is, this is custom business and we've got a financial model for custom, we've got a financial model for our standard and merchant products. It would be it would be in line with that, but it's it's it's significant and I'm not able to quantify it you know today for you, but you should assume starting in FY20 9 beyond whatever you've modeled previously prior to the warrant for for custom numbers definitely goes higher.
You know how big we'll be happy to show the range of outcomes, but it in the context of where Marvel was been, I mean we were a $8 billion company last year. We just took everybody to 12 billion this year. We haven't even finished that year and and 18 next year. And the, the rough math you do at full performance provides a incredible step up to the scale of the company if all those programs that come to fruition at their Max performance, which which.
But I think what this is helpful to show is just the scale of the opportunity in general that Marvell is participating in because we have significant engagements across the customer base. This one's a little unique because of the warrant that that given the magnitude in the and the equity side, we needed to disclose it. But you know, I think you've seen over the last couple of years, we've entered into very strategic partnerships with other big players in the AI market. And some of that we've done publicly and some of that we're doing just on our own.
So I, I think 1 take away I would have right now, it's just a significant validation of where Marvel sits in the market today. And we're very honored to be a part of the ecosystem, the TTU ecosystem, and we'll see how it plays out. But, but I hope that's enough for now. I thought I want to save a little bit of firepower for my Investor Day.
Ben Reitzis
No, thank you and I appreciate that and Congrats on that deal. I'll see you soon.
Matt Murphy
Yeah, thanks, Ben.
Operator
Your next question comes from CJ Muse with Cantor Fitzgerald. Please state your question.
CJ Muse
Yeah, good afternoon. Thank you for taking the question. I think one of the more interesting takeaways from Nvidia's report last night is Jensen's view of the fungibility of compute, networking and memory to deliver performance in the AI data center in a cost constrained world. And considering your vast experience, an expert piece across all these three areas. You know, how is this backdrop, particularly in light of where memory pricing is today, you know, support your new design wins. And you know, is it really focused on the memory controllers custom HPM to increase shoreline or is it also, you know, driving strength on the XPU side as well? Would love to hear your thoughts there. Thank you.
Matt Murphy
Yeah, thanks, CJ. No, I first of all, I'm, I'm, I'm I see the same thing. I'm very mind melded with what what what they talked about. I think it I think it at the broadest level to start it definitely this fungibility requirement given the dynamic nature of the market and some of the constraints we're seeing, some are supply constraints, some are power constraints, some are architectural constraints. Having our ability to very quickly execute custom and semi custom designs or modify our products or adapt to shifting architectures at Marvell it's a key capability, this flexibility that the company has because we've built, we've built a business around being able to customize quickly and it's been in our DNA even from 2021 investor Day.
You know, we talked about how every hop in the network at some point was going to get some level of customization and it wasn't going to just be the accelerator. And here we are five years later and that's playing out. CXL and memory expansion is one example where very quickly customers are are adapting, but there's also, there's also other opportunities where to optimize for inference as an example. And and this is one of the things that was in, in the warrant, but it's a trend in the market. AI inference accelerators, that's another trend in the market you see.
So I think companies are all looking at how they can maximize their performance, how they can maximize, you know, the, the, the, the cost and performance relative to the tokens generated. And we're in a monetization era. So this stuff really matters. It went from training very, very quickly to inference and to companies now monetizing this. And so we're seeing a big pickup in activity. And it's not just on the custom side. I mean, this discussion we had earlier about CPO and NPO and optics and copper, that's all moving very, very fast because again, companies are architecting at a speed, you know, we really haven't seen to make sure that they have the most competitive solution.
So Marvel fits right in there CJ on, on a number of fronts. It's it's not just quote our custom revenue, but it's the solutions underneath we provide including our networking and our storage and and storage and memory in our compute.
CJ Muse
Thank you.
Operator
Your next question comes from Jim Schneider with Goldman Sachs. Please go ahead with your question.
Jim Schneider
Good afternoon. Thanks for taking my question. I was wondering if you could maybe just give us a little bit of update in terms of the growth rate for connectivity you expect. I think you Matt, you outlined those growth rates for both this fiscal year, next fiscal year, last quarter. Can maybe just give us an update on where those are landing given the incremental strength sounds like most of that's being driven by that sub segment right now.
Matt Murphy
Well, yeah, thanks Jim. I, as I said, I, I, the, the way to think about it is the 500 million raise for this year and the 1/5 for next year. Is, is, is broad based connectivity clearly is, is a driver. And, and I say connectivity at a broader level because underneath that we, we, we spend time talking about scale up optics. That's one which is our NPO and CPO and and Siggy products, but it's also just the transceiver market for scale out and optical DSPS going into that segment that's upsized versus the prior growth rates we talked about. So that's in the that's in the, you know the 500 and the billion five.
That business continues to be absolutely on fire and we're executing well there. And then and then within connectivity as well as a broader segment, you also have our switching which is, which is biasing higher, you know, this year, but also from from our last quarter update again next year. So you really have those 3 plus I'd say custom that are all floating up versus our prior expectations. But Jim, we're really seeing broad based strength. There's there's, there's, I think it's, it's across almost all of our product lines when we look out. But those are a few of the ones I'd highlight. And you're right, the connectivity is a bigger bucket is probably the largest driver net net of the billion 5 raise. If I just look at all those pieces I, I, I mentioned underneath scale out, scale up and and switching.
Jim Schneider
Thank you.
Operator
Thank you. And our last question for today comes from Quinn Bolton with Needham and Company. Please state your question.
Quinn Bolton
Thanks for squeezing me in. I guess, Matt, just wanted to come back to the sort of the near term guidance within data center. I think you guided up greater than 20% sequentially, but with margins coming down 90 basis points quarter and quarter. Is custom the fastest growing segment within data center that drives that lower margin or is there some other mix going on within data center kind of driving the lower 90 or sorry, that 90 basis point lower guidance for the October quarter? Thank you.
Matt Murphy
Yeah, sure. Thanks. And then let me, let me I'll tee it up. But I'm going to have Dan comment because you guys are you guys are sparing him too much on this call. I mean he's the new CFO. You're supposed to be asking him questions, you're asking me all the questions. So joking aside, you know, you can you can clearly see it in the numbers. I mean, you know, stronger Q3 guide, you know, implied much stronger Q4 guide. We did say custom was ramping meaningfully in the second-half. I said that, Dan said that. But Dan maybe why don't you make a few comments on on the margins and how you see that playing out and also you know through through next year as well as we as we you know as as we grow.
Dan Dern
Thanks. Sure. So just jumping in, we clearly see the performance of the company doing well. You see the acceleration in Q2 follow with acceleration in Q3, follow with acceleration in Q4, part of the acceleration story in Q3, as you point out, mix is the primary driver. We've got a strong ramp in custom and so you can see that play out in the profiling of the margins. Not a surprise. We've been signaling that custom ramp for quite some time.
As we window into Q4 that strength, we're signaling a bigger step up, much larger step up from a revenue standpoint if you roll in the $12 billion annual target and that that step up in Q4 is broad based. You see it not only in custom, you see it in connectivity, you see it in a rebound in Comm and other. So broad based performance net it all out. We see gross, Q4 gross margins in the same target range as Q3.
If we use the back half of the year as a jumping off point and think about how that looks going into FY20 8, that broad based strength continues. We take the momentum exiting this year and we push that forward into next year and it's cross cost. Estimates across connectivity, you know, all parts of the business are higher, they're up. Gross margin depends on ultimate mix. My preliminary view is gross margins next year are going to be in a similar range, same range as we're exiting this year, so back half of this year, same range for FY20 8.
So we feel good about the performance of the company. We're going to drive growth at this company. We're going to do it with discipline and we're going to deliver, you know strong margins. But when we think about that margin profile, operating margin still has significant leverage embedded in it. You're going to see it up in Q3. You're going to see us entering our target long term model range 38 to 40% exiting this year. You'll see us achieve the high end of that range as we progress through FY20 8 and we're going to reset that long term target model here in the coming weeks at the Analyst Day. So we feel good about the performance of the company and the broad based strength.
Quinn Bolton
Thanks.
Operator
Thank you. And ladies and gentlemen, thank you all for your participation. This does conclude today's teleconference. You may disconnect and have a wonderful day.
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