Lumentum Holdings M&A announcement

Good morning, everyone, and thank you for joining us. Earlier today, we announced an agreement for Marvell to combine with Lumentum. To discuss this announcement, I'm joined on the call by Matt Murphy, Marvell's Chairman and CEO, Dan Durn, Marvell's Chief Financial Officer, and Michael Hurlston, Lumentum's CEO. A press release and supplemental information, including an investor presentation about this transaction, are available on the Investor Relations section of our website. Please note that we will be referring to certain pages in this presentation during our call today. This conference call is being webcast live, and a recording will be available via telephone playback and also archived on the Investor Relations section of our website. As a reminder, today's call will include forward-looking statements, including statements about the expected benefits, timing, and financial impact of the transaction, expected synergies, accretion, market opportunity, customer adoption, and product development.

These statements include risks and uncertainties that could cause our actual results to differ materially from the statements made on this call. Please refer to today's press release and each company's most recent filings with the SEC, including Forms 10-K and 10-Q, for information on specific risk factors. Unless otherwise noted, financial figures discussed today are non-GAAP. We ask that you focus your questions on the transaction in the Q&A section, as we will not be addressing current business conditions or other topics. With that, I'll turn the call over to Matt.

Thank you, Ross, and good morning, everyone. Today, we are pleased to announce that Marvell is combining with Lumentum, a leading provider of photonic technologies. We at Marvell have been on a decade-long journey to build a strong position in the core technologies powering the AI industry, creating tremendous value along the way, and this transaction marks a defining next step in that journey. We believe an opportunity like this comes along once in a generation. By combining the two companies, we expect to define and become a category leader for the next generation of AI connectivity. I could not be more excited about this opportunity. As you can see on slides 6 and 7, Marvell and Lumentum are two of the fastest-growing scaled AI enablers in the industry, and together we form a category leader in AI connectivity.

We believe our complementary technology portfolios, deep domain expertise, and world-class engineering talent will accelerate innovation and drive meaningful long-term growth. Combined, we will be the pure play leader in the optical connectivity industry, significantly greater in scale than the next largest competitor. Zooming out, we expect the combined company to become one of the top five largest AI infrastructure semiconductor companies. The strategic alignment of our two companies is remarkable. The product portfolios are highly complementary, and we share a common foundation built on engineering excellence, innovation, and an unwavering commitment to our customers' success. We believe that after the transaction closes, the combined enterprise will be extremely well-positioned to solve some of the most critical challenges in the AI data infrastructure industry, a market that we believe represents one of the most significant technology investment opportunities.

I am also thrilled that upon close of this transaction, Michael and two other members of the Lumentum board will be joining Marvell's existing seven-person board of directors. Michael has guided Lumentum through exceptional growth and transformation since he joined the company, and I have seen firsthand the quality of the organization and the depth of its engineering and business culture. That experience gives me strong conviction in this transaction and in the future success of the combined company. Now let's move on to slide 8. The AI infrastructure industry is at an inflection point. Over the past decade, Marvell has built, integrated, and invested in the capabilities to be at the forefront of the electrical to optical transition. We had the foresight to see where the industry was heading and aggressively invested in positioning ourselves to capitalize on the growth opportunities ahead.

This included building one of the industry's largest engineering teams for electrical and optical connectivity. By combining with Lumentum, we will become one of the largest and most strategic optical and photonic engineering organizations in the world. The operating scale resulting from this combination will significantly increase our ability to innovate and invest in next-generation solutions for our customers. Over the next decade, as AI infrastructure scales at an unprecedented pace, we believe connectivity is becoming critical to solving the top three bottlenecks in AI data centers: performance, bandwidth, and energy efficiency. Rapidly growing bandwidth requirements and the physical limitations of copper-based connectivity are accelerating the transition towards optical technologies. We believe the next decade of networking will be defined by optics, just as electrical SerDes defined the previous era.

As AI infrastructure scales to increasingly complex architectures, particularly scale-up and scale-in, we see the industry shifting from discrete modular components towards highly integrated optical solutions that require much closer co-design of electrical and optical technologies to deliver greater bandwidth, performance, and energy efficiency. In fact, what's really needed is extreme co-design, which is why we believe that now is the ideal time to do this combination. This transition to next-generation architectures is still in its early stages, but it's clear this is truly a once-in-a-generation opportunity to define and lead the AI connectivity category. This is why we are acting now as scale-up begins to ramp next year. The optical content opportunity in next-generation architectures is expected to be significantly larger than scale-out.

Upon completion of the transaction, we estimate that our combined total addressable market will expand to $550 billion by 2030, and we believe the combined company will be well-positioned to capture a greater share of that significantly larger opportunity. Slide 9 puts this combination in the context of Marvell's broader track record of creating value. For more than a decade, Marvell has systematically built its business through a combination of organic innovation and disciplined strategic acquisitions. Our M&A efforts are anchored by four pillars: strategic foresight, world-class integration, being a destination for talent, and robust value creation. We have successfully integrated a series of significant acquisitions, bringing together complementary technologies, products, and teams to strengthen our competitive position each time. Simply acquiring a company does not create value.

It is our relentless focus on aligning to the right themes, integrating effectively, and investing in the businesses we acquire that drives meaningful and lasting value creation. We have established a proven track record of identifying major industry transitions, making decisive acquisitions, and then investing to build much larger businesses. To illustrate that point, let me take you back to the acquisition of Inphi. We saw the transition from NRZ to DSP-based optical connectivity in scale-out networking, acquired Inphi at the right inflection point, and invested with conviction to scale the business. That business is on track to grow by over 10x from the time we announced the transaction to this year, and we expect significant growth continuing. Now, fast-forward to today. We believe another architectural shift presented by scale-up and scale-in networking is creating an inflection of even greater magnitude and positions us to create enormous value for our stockholders.

Marvell has a strong track record of integrating leadership and engineering talent from acquired companies, with executives from those organizations taking on significant roles in shaping and leading the business. Lumentum brings exceptional expertise in compound semiconductors, optical technologies, and advanced manufacturing that we believe will further strengthen the combined organization. We look forward to welcoming the Lumentum team to Marvell after closing. Our acquisition strategy has helped build a leading technology platform, expand our addressable markets, and create substantial shareholder value. As you can see from the chart, our stock price has appreciated very significantly over the last decade, reflecting the compounding impact of our M&A and organic execution since I became CEO in 2016.

Okay, now let's turn to slide 10. This transaction is about bringing together Marvell's connectivity capabilities with Lumentum's photonics expertise to create a category leader in AI connectivity for the era of integrated optics. We believe this new era requires end-to-end extreme co-design between the XPU, switch, and the entire electrical to optical signal chain. As we will discuss in subsequent slides, we believe the customer benefits of this move to integrated optics are fully optimized when all of these critical technologies reside under one roof. Now, turning to slide 11. Both companies address large and compelling TAMs independently, but as the teams began to compare our opportunity sets, it became clear that the combination would result in an opportunity together that is far larger than the sum of its parts.

As a result, we expect a combined TAM of $550 billion in 2030, with the majority of the incremental upside coming from NPO and CPO. Importantly, we believe that we can capture a greater share of this opportunity. For all these reasons, it's clear to us that now is the time to join forces and take advantage of this generational opportunity. Now, let me turn the call over to Michael to go deeper into this technological inflection point. With that, Michael, over to you.

Thank you, Matt, and good morning, everyone. Before I begin, I want to thank the Lumentum team, whose extraordinary work made today possible. Before I dive into the slides, let me provide some high-level perspective from the Lumentum side. Lumentum has built its reputation on being equipped to solve the toughest optics challenges in support of our customers' most demanding requirements. As the industry moves toward highly integrated optical solutions, we recognize that delivering increasing levels of technical difficulty requires unprecedented scale and capability. When we looked at Lumentum's path forward, we considered all the options available to us, including continuing to execute as a standalone company and potential acquisition targets of our own. What became clear through that process is that a combination with Marvell stands in a category of its own.