Marvell Technology (NASDAQ:MRVL) said it has agreed to combine with photonics provider Lumentum, positioning the combined company to pursue growing demand for optical connectivity in artificial intelligence infrastructure.
Marvell Chairman and CEO Matt Murphy said the transaction would bring together Marvell’s electrical connectivity portfolio with Lumentum’s optical technologies and manufacturing capabilities. He described the deal as a step toward creating a category leader in AI connectivity, particularly as data-center architectures shift from copper-based connections toward more integrated optical systems.
“The next decade of networking will be defined by optics, just as electrical SerDes defined the previous era,” Murphy said during a conference call announcing the proposed transaction.
Focus on AI Infrastructure and Integrated Optics
Executives from both companies said rising bandwidth needs, performance requirements and energy-efficiency demands are pushing optical interconnects closer to computing systems. They described the industry transition through several networking domains, including scale-across, scale-out, scale-up and scale-in architectures.
According to Lumentum CEO Michael Hurlston, copper connections remain common inside racks, trays and packages, but their effective reach declines as next-generation processing units support larger AI clusters and more intensive inference workloads. He said this limitation, which the companies called the “copper wall,” is increasing the need for optical connectivity nearer to the compute engine.
Hurlston said Lumentum recently secured its second major near-packaged optics, or NPO, and co-packaged optics, or CPO, win. The company expects that win to generate more than $5 billion in revenue, though it did not provide a timeline.
The combined company would seek to offer co-designed products spanning lasers, photodetectors, digital signal processors, transimpedance amplifiers, drivers and silicon photonics. Executives said integrated offerings could help customers reduce power consumption, improve performance and shorten development cycles compared with sourcing components from multiple vendors.
Murphy said the companies estimate their combined total addressable market could reach $550 billion by 2030, with much of the incremental opportunity coming from NPO and CPO technologies. He said scale-up optics are expected to begin ramping next year, while scale-in opportunities are expected to emerge later.
Manufacturing and Customer Ecosystem
Lumentum brings what Hurlston described as the world’s largest indium phosphide manufacturing footprint. Indium phosphide is a compound semiconductor material used in lasers and other optical components. Hurlston said Lumentum owns and operates specialty fabrication facilities and combines internal capacity with contract manufacturing for back-end assembly and testing.
Murphy said Marvell would continue its existing relationships with semiconductor supply-chain partners, including foundries and advanced-packaging providers. He said the combined company intends to continue investing “multiple billions of dollars” with supply-chain partners to support anticipated AI-connectivity demand.
Executives also addressed questions about whether the combination could create conflicts with existing optical-module customers. Marvell supplies components such as coherent digital signal processors, drivers and transimpedance amplifiers to module manufacturers, while Lumentum supplies lasers to many companies with which it also competes in certain markets.
Murphy said Marvell plans to maintain a flexible business model that supports both merchant components and modules, while Hurlston said Lumentum would continue supplying lasers across the ecosystem. Both executives said customers had expressed support for the combination.
Financial Outlook and Governance
Marvell Chief Financial Officer Dan Durn said the companies expect more than $1 billion in run-rate synergies, primarily from cost of goods sold. He said the transaction is expected to be accretive to non-GAAP gross margin, operating margin and earnings per share beginning in the first year after closing.
Murphy cited pro forma figures of $17.7 billion in annualized revenue and a 39% non-GAAP operating margin. He added that combining Lumentum’s next-quarter guidance with consensus expectations for Marvell’s next quarter would imply annualized revenue above $21 billion and a non-GAAP operating margin in the low 40% range.
The companies did not provide transaction terms during the call. Murphy said that following the close, Hurlston and two other Lumentum board members are expected to join Marvell’s existing seven-member board.
Both leaders emphasized that the rationale for the deal extends beyond current supply constraints. Murphy said the companies view the transaction as a response to a broader architectural change in AI data centers, while Hurlston said Lumentum’s standalone business remains strong but could pursue scale-up and scale-in opportunities more effectively alongside Marvell’s semiconductor platform.
About Marvell Technology (NASDAQ:MRVL)
Marvell Technology, Inc (NASDAQ: MRVL) is a semiconductor company that develops infrastructure solutions for data centers, telecommunications networks, enterprise systems, automotive applications and other connected markets. Its products are designed to support the movement, processing, storage and security of data across complex computing and communications environments.
The company’s portfolio includes data-processing and networking processors, custom application-specific integrated circuits, Ethernet switches and controllers, storage controllers, connectivity products, and electro-optics solutions.
