# How Marvell makes money

CXProWealth Business Lens · Marvell (MRVL) · Q2 FY2027

Read from the 10-Q for the period 2026-05-03 to 2026-08-01, filed 2026-08-28 with the SEC (accession 0001835632-26-000025): https://www.sec.gov/Archives/edgar/data/1835632/000183563226000025/

Business Lens explains how a company earns, spends and keeps its money, from its own filings. It is insight and context, never a view on the shares, a target, or advice. Figures are raw units as filed; percentages are percentage points.

## Headline figures

- Revenue: $2.7B (+44.5% on the year)
- Operating income: $459.7M (operating margin 16.8%)
- Net income: $308.0M (net margin 11.2%)
- Gross margin: 53.1%
- Free cash flow: $478.8M (17.5% of revenue)
- Cash conversion (operating cash flow / net income): 1.97x
- Capital expenditure: 4.6% of revenue

## Where the money goes (Q2 FY2027)

- Data center → Net revenue: $2.2B
- Communications and other → Net revenue: $567.8M
- Net revenue → Cost of goods sold: $1.3B
- Net revenue → Gross profit: $1.5B
- Gross profit → Total operating expenses: $995.9M
- Total operating expenses → Selling, general and administrative: $257.6M
- Total operating expenses → Research and development: $741.1M
- Restructuring related charges (gains), net → Total operating expenses: $2.8M
- Gross profit → Operating income: $459.7M
- Operating income → Interest and other loss, net: $81.4M
- Interest and other loss, net → Other expense, net: $19.8M
- Interest and other loss, net → Interest expense: $61.6M
- Operating income → Income before income taxes: $378.3M
- Income before income taxes → Provision for income taxes: $70.3M
- Income before income taxes → Net income: $308.0M

## Where the revenue comes from

### Products and services (Revenue - Net Revenue by End Market (Details))

| Member | Value | Share |
|---|---:|---:|
| Data center | $2.2B | 79.3% |
| Communications and other | $567.8M | 20.7% |

The members sum to total revenue.

### ContractWithCustomerSalesChannel (Revenue - Net Revenue by Customer Type (Details))

| Member | Value | Share |
|---|---:|---:|
| Distributors | $1.4B | 50.2% |
| Direct customers | $1.4B | 49.8% |

The members sum to total revenue.

## Income statement, as filed

| Line | Q2 FY2027 | Of revenue |
|---|---:|---:|
| Net revenue | $2.7B | 100% |
| Cost of goods sold | $1.3B | 46.9% |
| **Gross profit** | $1.5B | 53.1% |
| Research and development | $741.1M | 27.1% |
| Selling, general and administrative | $257.6M | 9.4% |
| Restructuring related charges (gains), net | -$2.8M | 0.1% |
| **Total operating expenses** | $995.9M | 36.4% |
| **Operating income** | $459.7M | 16.8% |
| Interest expense | ($61.6M) | 2.2% |
| Other expense, net | -$19.8M | 0.7% |
| **Interest and other loss, net** | -$81.4M | 3.0% |
| **Income before income taxes** | $378.3M | 13.8% |
| Provision for income taxes | $70.3M | 2.6% |
| **Net income** | $308.0M | 11.2% |
| Net income per share — basic (in dollars per share) | $0 | 0.0% |
| Net income per share — diluted (in dollars per share) | $0 | 0.0% |
| Basic (in shares) | 897,400,000 |  |
| Diluted (in shares) | 921,200,000 |  |

## History

| Period | Revenue | Operating income | Net income | Operating cash flow | Capital expenditure | Free cash flow |
|---|---:|---:|---:|---:|---:|---:|
| FY2020 | $2.7B | -$243.4M | $1.6B | $360.3M | $81.9M | $278.4M |
| FY2021 | $3.0B | -$258.4M | -$277.3M | $817.3M | $106.8M | $710.5M |
| FY2022 | $4.5B | -$347.7M | -$421.0M | $819.3M | $169.2M | $650.1M |
| FY2023 | $5.9B | $238.0M | -$163.5M | $1.3B | $206.2M | $1.1B |
| FY2024 | $5.5B | -$567.7M | -$933.4M | $1.4B | $336.3M | $1.0B |
| FY2025 | $5.8B | -$720.3M | -$885.0M | $1.7B | $284.6M | $1.4B |
| FY2026 | $8.2B | $1.3B | $2.7B | $1.8B | $354.1M | $1.4B |

Latest trend (the newest full year against the year before; a reading, not a forecast):

- Revenue: +42.1% (year before +4.7%): accelerating
- Operating income: -83.7% (year before —): too short a history to read
- Net income: -201.7% (year before —): too short a history to read
- Free cash flow: -0.0% (year before +35.0%): slowing

## Operating figures stated in the filing

- Distributor A share of net revenue: 44.0% (as of 2026-08-01). "Distributor A 44% 34% 45% 35%" (Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations)
- Distributor A share of net revenue: 34.0% (as of 2025-08-02). "Distributor A 44% 34% 45% 35%" (Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations)
- Customer A share of net revenue: 16.0% (as of 2026-08-01). "Customer A 16% 16% 16% 16%" (Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations)
- Customer A share of net revenue: 16.0% (as of 2025-08-02). "Customer A 16% 16% 16% 16%" (Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations)
- Share of net revenue shipped to customers in Asia: 84.0% (as of 2026-08-01). "Sales shipped to customers with operations in Asia represented approximately 84% of our net revenue in the three and six months ended August 1, 2026, and approximately 76% and 75% of our net revenue in the three and six months ended August 2, 2025, respectively." (Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations)
- Share of net revenue shipped to customers in Asia: 76.0% (as of 2025-08-02). "Sales shipped to customers with operations in Asia represented approximately 84% of our net revenue in the three and six months ended August 1, 2026, and approximately 76% and 75% of our net revenue in the three and six months ended August 2, 2025, respectively." (Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations)
- Share of gross accounts receivable held by largest customers: 72.0% (as of 2026-08-01). "Our accounts receivable were concentrated with four customers at August 1, 2026, who represented a total of 72% of gross accounts receivable, compared with five customers at August 2, 2025, who represented a total of 73% of gross accounts receivable." (Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations)
- Share of gross accounts receivable held by largest customers: 73.0% (as of 2025-08-02). "Our accounts receivable were concentrated with four customers at August 1, 2026, who represented a total of 72% of gross accounts receivable, compared with five customers at August 2, 2025, who represented a total of 73% of gross accounts receivable." (Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations)

## Key insights

### Data centers now supply 79.3% of revenue

Data center sales of $2.17B grew 45.7% against 10.12% for the rest, so Marvell's results now track AI infrastructure spending.

Data center revenue was $2.17B of net revenue of $2.74B, 79.3% of the total, up 4.97 points from a year earlier. Communications and other was $567.8M, or 20.7%. The filing ties data center growth to "AI-related demand for a broad range of our products, including electro-optics, custom, storage, and switching", and the communications recovery to "normalizing customer inventory levels". _(from the filing)_
Part of the data center growth is custom silicon. The filing says its ASIC model "tends to have a lower gross margin" and that the share of sales from custom or semi-custom products "has been increasing over the last few years." Gross margin still rose 2.76 points to 53.1% this quarter, which the filing attributes to better cost absorption and product mix. _(from the filing)_
Two growth engines have become one. Communications is recovering from an inventory correction rather than riding AI, so it now moves the total far less than data center does. That makes the mix more profitable while volume rises, and more exposed to a single spending cycle if it slows. _(analysis)_

### Gross margin, not spending restraint, widened operating margin

Gross margin rose 2.76 points while R&D took 1.18 more points of revenue, so operating margin gained 2.32 points from product economics.

Gross profit grew 44.0% to $1.46B on revenue growth of 36.55%, lifting gross margin to 53.1% from 50.4%. The filing credits "better cost absorption driven by higher revenues and better product mix." Research and development grew 42.8% to $741.1M, rising to 27.1% of revenue. Operating income grew 58.5% to $459.7M, an operating margin of 16.8%. _(from the filing)_
R&D took a steady share of the gain. It equalled 50.9% of gross profit this quarter against 51.4% a year earlier, so engineering still consumes about half of every gross-profit dollar. Operating income was 31.6% of gross profit, against 28.7% a year earlier. The filing says the R&D increase came from headcount growth, including employees added with the Celestial AI and XConn acquisitions. _(from the filing)_
The leverage sits in the gross line: volume spreads fixed product costs, and mix shifts toward higher-value parts. That gain can reverse if custom products, which the filing says carry lower margins, grow faster than the rest, or if scarce packaging and substrates raise costs. Whether gross margin holds while R&D keeps rising is the test of the next quarters. _(analysis)_

### An acquisition earn-out decides how much profit reaches net income

Net income was 67.0% of operating income this quarter, against 10.2% the quarter before, as the Celestial earn-out remeasurement shrank.

In the quarter before, operating income of $339.4M became net income of just $34.5M. This quarter, operating income of $459.7M became net income of $308.0M. A year earlier the same ratio was 67.1%, with $290.1M of operating income becoming $194.8M of net income. _(from the filing)_
Part of the Celestial AI price depends on revenue milestones and is remeasured at fair value every quarter, with changes recorded in other expense. This quarter interest and other loss was $81.4M against $56.4M a year earlier; the filing attributes the increase mainly to a higher fair value for that liability, partly offset by a gain on a forward stock purchase contract taken out to hedge it. _(from the filing)_
The earn-out liability rises when Marvell's share price and the odds of hitting the milestones rise, so good news for Celestial's products can lower reported net income. While the earn-out runs, operating income and operating cash flow are the steadier measures of the business. _(analysis)_

### Free cash flow is growing far slower than profit

Free cash flow of $478.8M was 17.5% of revenue against 20.6% a year earlier, as capital spending rose to $126.7M from $47.5M.

Operating cash flow was $605.5M against $461.6M a year earlier, and capital spending $126.7M against $47.5M. Capital spending took 20.9% of operating cash flow, against 10.3% a year earlier. Free cash flow of $478.8M still exceeded net income of $308.0M, because large costs such as amortization of acquired intangibles and stock-based compensation are not paid in cash. _(from the filing)_
The filing points to capacity as a use of cash. Over the six months, a working-capital outflow was driven mainly by higher prepaid expenses, "primarily due to payments made for capacity fees", and by lower accounts payable. Marvell also has a capacity reservation agreement with TSMC under which it makes advance payments for wafer capacity over several years. _(from the filing)_
The annual figures show the same pattern. Free cash flow was $1.40B in the latest fiscal year and $1.40B in the one before, while revenue rose to $8.19B from $5.77B and operating income swung to $1.32B from a loss of $720.3M. _(from the filing)_
Part of the gap is spending Marvell chose to make to secure supply in a constrained market. The annual figures also show that the earlier operating losses were heavy on non-cash charges, since cash flow stayed positive through them. Whether cash catches up with profit depends on prepaid capacity turning into shipped product. _(analysis)_

### Competitive edge

- **Design wins hold for the life of a product** Once a Marvell chip is designed in, switching is costly for the customer, so $741.1M of quarterly R&D funds wins whose revenue tends to stick.
- **Renting the factory turns volume into margin** Capital spending was only 4.63% of revenue, so rising volume flowed to gross margin, up 2.76 points, and operating income, up 58.5%.
- **A broad product set across the AI data center** The filing credits electro-optics, custom, storage and switching for 45.7% data center growth, and two acquisitions added optical interconnect and switching.

### What to watch

- **One distributor now handles 44% of revenue** Distributor A's share of revenue rose to 44% from 34%, while shipments to customers with operations in Asia reached 84% of revenue, from 76%.
- **AI infrastructure spending may not stay at this pace** With data center at 79.3% of revenue, the filing warns current AI infrastructure capex may not be sustainable and a cut would likely harm results.
- **One foundry and prepaid capacity tie Marvell to forecasts** TSMC is the sole source of Marvell's advanced wafers, and capacity prepayments can be forfeited if target volumes are not bought.

## Investor view

**Data center chips made up 79.3% of Marvell's revenue this quarter, with AI demand behind the growth**

### How it makes money

Marvell designs chips for data infrastructure and has them made by others. The filing calls it "a fabless supplier of high-performance semiconductor products", with TSMC the sole source of its advanced process-node wafers. This quarter, net revenue of $2.74B less cost of goods sold of $1.28B left gross profit of $1.46B, a gross margin of 53.1%. _(from the filing)_
Data center customers bought $2.17B of that revenue, 79.3% of the total. The filing ties the growth to "AI-related demand for a broad range of our products, including electro-optics, custom, storage, and switching." Communications and other markets supplied the remaining $567.8M, or 20.7%. _(from the filing)_
Research and development is the cost that defines the model. It was $741.1M this quarter, 27.1% of revenue and 50.9% of gross profit. Selling, general and administrative costs were $257.6M, 9.4% of revenue. After both, operating income was $459.7M, an operating margin of 16.8%. _(from the filing)_
Half the revenue moves through distributors: $1.37B, or 50.2%, against $1.36B, or 49.8%, sold direct. A single distributor, Distributor A, accounted for 44% of net revenue and the largest direct customer, Customer A, for 16%. Shipments to customers with operations in Asia were 84% of revenue; the filing notes that most shipments to China are for non-China customers with factories there. _(from the filing)_
Part of the business is custom silicon. Under its ASIC model Marvell delivers "a tested, yielded product" designed for one customer, which pays non-recurring engineering fees as milestones are met. The filing says this model "tends to have a lower gross margin" and that the share of sales from custom or semi-custom products "has been increasing over the last few years." _(from the filing)_

### What shifted

Revenue rose 36.55% from $2.01B a year earlier. Data center sales grew 45.7% and gained 4.97 points of share, to 79.3% of revenue. Communications and other grew 10.1%, a recovery the filing puts down to "normalizing customer inventory levels", partly offset by the automotive ethernet business Marvell sold during the prior fiscal year. _(from the filing)_
Gross margin widened 2.76 points to 53.1%, which the filing attributes to "better cost absorption driven by higher revenues and better product mix." R&D grew 42.8%, faster than revenue, as headcount rose with the Celestial AI and XConn acquisitions. Operating income still grew 58.5%, and operating margin rose 2.32 points to 16.8%. _(from the filing)_
Below the operating line, interest and other loss was $81.4M against $56.4M a year earlier. The filing says the main cause was a higher fair value for the contingent consideration owed to Celestial's former owners, partly offset by a gain on a forward stock purchase contract. Net income rose 58.1% to $308.0M, from $194.8M, and diluted earnings per share were $0.33 against $0.22. _(from the filing)_
Against the quarter before, revenue rose to $2.74B from $2.42B, and net income to $308.0M from $34.5M. Operating income in that earlier quarter was $339.4M; most of the gap to net income came from remeasuring the Celestial contingent consideration, which weighed far less this quarter. The tax provision was $70.3M, 18.6% of pre-tax income of $378.3M. _(from the filing)_
The customer mix moved toward one channel and one region. Distributor A's share of net revenue rose to 44% from 34% a year earlier, and shipments to customers with operations in Asia rose to 84% of revenue from 76%. Four customers held 72% of gross accounts receivable at quarter end, against five holding 73% a year earlier. _(from the filing)_

### Risks in the filing

Customer concentration. A few customers, distributors and direct, provide a large share of revenue, and the filing says most sales are on purchase orders that customers can cancel or delay at short notice. It also warns that large customers may build their own chips, and that consolidation among customers can raise concentration or cut demand. _(from the filing)_
The durability of AI spending. The filing says "the current level of capital expenditure (capex) on AI infrastructure may not be sustainable over the long term" and that a significant reduction "will likely harm our financial results." It names power and water limits, permitting delays and local opposition to data centers as reasons buildouts could slow, along with cheaper alternative technologies. _(from the filing)_
Manufacturing dependence. TSMC is the sole foundry for Marvell's advanced-node wafers, and most assembly, test and packaging sits in Malaysia, Singapore, Taiwan and Canada. The filing describes a supply-constrained environment for advanced wafers, packaging and substrates, and capacity agreements under which unmet purchase targets can forfeit advance payments. _(from the filing)_
Trade and technology shifts. Tariffs, export licensing and restrictions on China could cut demand or push customers there toward their own designs. Separately, the filing warns that AI-driven design tools could lower barriers to entry, speed up in-house chip development at large cloud companies and shorten the commercial life of Marvell's products. _(from the filing)_
The numbers already show the concentration risk building rather than easing: more revenue flows through one distributor and one region than a year earlier, and data center now dominates the mix. The supply risk shows up in the cash flow, where prepayments for capacity were a main driver of the working-capital outflow. The AI-spending risk is the one the quarter cannot show yet, because demand is still rising. _(analysis)_

## Founder view: mechanisms

### Design wins lock in years of revenue

Marvell competes for design wins: it spends on engineering before a customer commits, and once its chip is designed into a customer's system, switching suppliers is costly for the customer, so the win tends to hold for the life of that product. The filing says it can take from six months to three years from selection to commercial shipments. Spending leads; revenue follows, and when it comes it is sticky. _(analysis)_

### Fabless model turns volume into margin

Marvell owns the design and rents the factory. Its main cost, engineering, is largely fixed for a product generation, while manufacturing is bought per wafer from foundries. When volume rises, fixed costs spread over more units, gross margin improves from absorption, and operating profit grows faster than revenue. Little capital goes into plants. _(analysis)_

### Earn-outs share acquisition risk, and move profit

Marvell bought Celestial AI partly with payments contingent on future revenue milestones, payable in cash and shares over the next few fiscal years. That shifts part of the price onto results: the sellers are paid more only if the technology sells. The accounting cost is that the liability is remeasured every quarter at fair value, so net income moves with the share price and the odds of hitting milestones, not only with operations. _(analysis)_

### A distributor reaches the factories

Marvell sells about half its revenue through distributors, which keep inventory on hand and deliver to the contract manufacturers, mostly in Asia, that build customers' systems. The distributor carries logistics, credit and local presence, so Marvell's own effort can go into winning designs with the end customer. The cost is concentration: one distributor now handles a large share of revenue. _(analysis)_

## Member research

Signed-in members read, on the page: what Marvell's numbers depend on from here, and the playbook behind each mechanism (what needs scale, what transfers, how to test it, the metric that would show it).

## Sources

- Marvell 10-Q for the period to 2026-08-01: https://www.sec.gov/Archives/edgar/data/1835632/000183563226000025/ (2026-08-28)

Methodology business-lens-1.0 · schema 1.2.0 · run business-lens-2026-11-02 · as of 2026-11-02