US chipmaker Marvell, which counts Nokia as its biggest 5G customer, has been hurt by telco spending cuts and inventory build-up.
Grizzled telecom veterans hardly need further evidence of the slump in network spending by operators that have struggled to make returns on their 5G investments so far. Results from both Ericson and Nokia, the dominant kit vendors outside China, have been a depressing read for several quarters, and challengers seem to have fared even worse. But Marvell Technology’s latest telecom figures certainly add to the gloom.
The US company is among a handful of chipmakers that design silicon for use in 5G basestation equipment. It obviously differs from Ericsson and Huawei, which produce chips only for internal consumption, by selling those 5G chips to the companies that build the networks. This distinguishing feature puts it in an even smaller group of so-called “merchant silicon” vendors. In one of the sub-sectors targeted by Marvell, the only notable players outside China are AMD, Intel, Nvidia and Qualcomm.
Including Marvell, all five offer chips for so-called Layer 1 baseband, the signal-processing activity that largely happens in server boxes (called distributed units in more newly architected networks) separate from the actual radios. But these Layer 1 baseband chips account for a tiny share of the revenues generated by AMD, Intel, Nvidia and Qualcomm. AMD and Intel are concerned mainly with PCs and data-center servers, Nvidia thrives as a monopolistic force in the market for AI chips and Qualcomm – when it is not litigating – provides the modems and application processing units that power many of the world’s smartphones.
This is not the case for Marvell, which made nearly $1.1 billion from “carrier infrastructure” sales last year, nearly a fifth of its total revenues. Unlike AMD, Nvidia and Qualcomm, it has been able to land a major deal with a Tier 1 vendor, benefiting there from the misfortunes of a rival. In 2020, after it was failed by Intel on the delivery of 5G basestation chips, Finland’s Nokia selected Marvell as a new provider of Layer 1 silicon. In the preceding year, Marvell had booked just $370 million in carrier infrastructure sales. By early 2022, annual revenues at this unit had soared to almost $908 million.
Laid low by Nokia
But the business went into reverse this year after telcos hit the spending brake. Sales plummeted 75% for the first quarter, year-over-year, to about $71.8 million, and another 72% for the recent second quarter, to $75.9 million, accounting for as little as 6% of Marvell’s overall turnover.
Today, Marvell’s heavy reliance on one customer – in a market for radio access network (RAN) equipment dominated by a few players – looks far from ideal. While Nokia appears to have gained 5G market share outside China in recent years, its performance so far in 2024 has looked worse than that of Ericsson, its big Nordic rival.
First-half sales at Nokia’s mobile networks business group were down 31% on a constant-currency basis, to about €3.5 billion (US$3.9 billion), while operating profits sank 62%, to €129 million ($143 million). On a reported basis, sales at Ericsson’s equivalent unit fell just 16%, to about 71.4 billion Swedish kronor ($7 billion). And despite that drop, Ericsson managed to grow its mobile network operating profit for the second quarter by 78%, to SEK4.8 billion ($470 million).
Nokia, of course, has suffered a major setback in the US that seems bound to affect Marvell. In December, AT&T, an operator that accounted for between 5% and 8% of all Nokia’s mobile revenues in 2023, revealed it would be tearing up its contract with the Finnish vendor and switching to Ericsson instead. Nokia had previously served about a third of AT&T’s footprint, with Ericsson equipping the rest. The decision, which will leave AT&T heavily reliant on Ericsson, comes a few years after Nokia was beaten by Samsung to a 5G contract with Verizon. All this leaves it with only T-Mobile as a Tier 1 customer in one of the world’s most profitable equipment markets.
Back to a billion
A Nokia revival, though, is probably Marvell’s best hope for a recovery at its carrier infrastructure unit. Market revenues from RAN products fell 11% last year, to about $40 billion, according to Light Reading sister company Omdia, which forecasts another decline of between 7% and 9% this year. The top five vendors accounted for all but 4.9% of those revenues, and smaller companies collectively made no advances last year. The share of Samsung, Marvell’s only other notable customer among the top five, was just 6.1% in 2023. US sanctions rule out Chinese vendors as prospective Marvell customers. Huawei, in any case, designs its own chips, as does Ericsson, relying on Intel to make them.
Marvell CEO Matt Murphy is optimistic the second half of the year will bring improvements in both carrier infrastructure and enterprise networking, another ailing division, after the depletion of inventory in North America, where telcos previously amassed stock. “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 drive 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,” he told analysts on this week’s results call.
Fortunately, while carrier infrastructure, enterprise networking and various other units had a miserable second quarter, Marvell’s data-center business nearly doubled in size, to about $881 million. Like Nvidia, although to a far lesser degree, it has benefited from demand for chips that can support various AI needs. And thanks to that growth, Marvell narrowed its quarterly loss to about $193 million, from $208 million for the year-earlier quarter. But for now, telecom remains a bad place to be.
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