Marvell Technology, despite its Avengers-sounding name, doesn’t look much like a superhero. Company sales for its fiscal first quarter (ending April) fell 12%, to $1.16 billion, compared with the year-earlier quarter. Weakened by that slump, it suffered a net loss of $216 million, a 28% increase on the figure it reported this time last year. The chips it makes for data centers are being snapped up to support the needs of artificial intelligence (AI). But other businesses, such as the unit that makes chips for telecom networks, are struggling. In pre-market trading on the Nasdaq, shares were down nearly 5%.
The telecom performance is a further sign of the market’s current plight. When Marvell first started to break out telecom revenues, its filings with the Securities and Exchange Commission (SEC) showed that annual sales had soared from just $370 million in its 2020 fiscal year (ending in January of that year) to an impressive $820 million two years later. The “carrier infrastructure” unit then accounted for nearly a fifth of sales. Yet for the most recent quarter, it contributed as little as 6% of the total, with telecom revenues tumbling 75% year-over-year, to less than $72 million.
Just what is going on? Among other things, Marvell develops custom silicon used in 5G equipment to handle the most resource-hungry network functions. Back in 2020, it became a beneficiary of earlier delays at Intel, which had failed to deliver 10-nanometer chips to Nokia in time for the Finnish kit maker’s first set of 5G products. Nokia had initially fallen back on costlier field programmable gate arrays (FPGAs) as 5G components before it introduced Marvell as a new supplier. This contract with one of the planet’s largest 5G vendors, signed while operators were investing in the new-generation technology, likely explains the revenue surge that Marvell experienced.
The good times continued into 2022 (Marvell’s fiscal 2023), when carrier infrastructure sales were up nearly a third, to almost $1.1 billion. But the superhero cape lost some of its shine last year. Telecom sales dipped 3% for the full year after a miserable final quarter, when they fell 38%. Circumstances in the subsequent quarter, with revenues down 75%, look even worse.
Less gusto
Marvell still counts Nokia as a customer and has a similar deal in place with Samsung, the third-biggest 5G kit vendor outside China, after Ericsson and Nokia. But telcos are no longer spending on 5G with the same gusto. According to research conducted by Omdia, a Light Reading sister company, revenues from the sale of radio access network (RAN) products fell 11% in 2023. This year, Omdia is guiding for a drop of between 7% and 9%.
One issue is a former build-up of inventory in North America, after supply chains had been rattled by the pandemic and its lockdown measures. Rather than visiting the Ericsson, Nokia and Samsung stores, big telcos have simply been living off stock they previously bought. AT&T, for instance, plans to cut overall capital expenditure from $23.6 billion to between $21 billion and $22 billion this year. Verizon says it will spend between $17 billion and $17.5 billion, down from $18.8 billion in 2023.
More broadly, telcos have not seen the need to upgrade networks. That is partly because their own sales remain stubbornly resistant to growth. Telco returns on investment in 5G look weak. The message from the bosses of Ericsson and Nokia is that operators will eventually have to reinvest to support data growth on their mobile networks. But other research shows the rate of growth is slowing down. William Webb, the chief technology officer of consulting firm Access Partnership, predicts a flattening by 2027.
Marvell, however, is relatively sanguine. On a call with analysts about the recent set of results, CEO Matt Murphy said there were “encouraging signs” that carrier revenues would start a “modest” recovery later this fiscal year. Marvell is also due to begin shipping a new 5-nanometer chip to a Tier 1 customer (unidentified, but likely to be either Nokia or Samsung). “The transition begins toward the end of this fiscal year and more meaningfully next year we expect Marvell’s market share to continue to grow in the 5G market,” he said.
Competitors in this market include Intel, Qualcomm and Nvidia, with Ericsson and Huawei appearing to be more active in the design of their basestation silicon than other equipment makers. The risk for Marvell stems from its seemingly heavy exposure to Nokia. AT&T last year cancelled a contract with the Finnish company – which has historically supplied RAN products for about a third of the US operator’s mobile sites – and is now replacing it with Ericsson. The setback cannot be good for Marvell, which has no equivalent arrangement with Ericsson in place.
Samsung, however, has picked up 5G work in North America and Europe, where it is in pole position to land additional contracts with Vodafone. The UK-headquartered telco says it is carrying out a tender for around 170,000 basestations across Europe and Africa and is under some pressure from European government authorities to replace Huawei. But unlike Nokia, which uses Marvell in all its 5G products, Samsung has options for either Intel or Marvell in its virtual RAN lineup. Guided by product readiness and customer preferences, it appears to have relied heavily on Intel so far. Marvell will pray that changes.
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