Let's get to the deal of the morning. Some would say the deal of the year. That's Marvell buying Inphi. And both cos join us now. First on CNBC, Matt Murphy and Michael Hurlston. Uh Matt, I'm going to start with you because you are the acquiring company. Please tell us why, what is the rationale behind this deal?
Hey, good morning Jim and great to see everybody. Yeah, this is a really interesting time in the AI data center semiconductor world. This combination takes Marvell, who's a leader in semiconductor technology for AI connectivity. Michael runs Lumentum, which is the leading company in optical technology for AI data center connectivity. We're putting the two together to create the category leader in AI connectivity. Jim, this is a trend that's been happening for some time where optics is moving inside the data center in a more meaningful way. And now in the scale-up world where you want to connect hundreds and thousands of GPUs together in compute systems, you need scale-up technology that needs semiconductors and optical working seamlessly together. And we are going to create a new category of company here.
Okay. And so Michael, let me go to you. Uh we had you on recently and I was thinking your company is on fire. Matt is too. Uh how are the numbers and why would you want to sell with the kind of trajectory that you have created?
Hey Jim, good to see you. Um you know, first the numbers, we just reported our quarter and it was probably some of the best numbers that we've put up. Incredible growth. $350 million of incremental growth on the quarter, uh driving our gross margins now to 53% which is the best we've ever seen. So our numbers are super strong. Why now? Well, we think that the time is right. Matt talked about a previous acquisition that he did with Inphi where he saw around the corners and figured out that there was a trend around optical and we think that the similar trend, seeing around the corner, the similar trend is here where we have a convergence between the semiconductor world and the optical world and if we don't, we aren't the first mover, we're going to be left behind. So, we're moving quickly, acting decisively, and really trying to catalyze this new category that Matt talked about.
Matt, uh, it's David. You know, in speaking to a couple of your shareholders this morning, uh they mentioned to me this question they have and obviously I'd love to hear you answer it, which is do you view Lumentum's key products as sort of differentiated technology or is there a concern, at least they seem to have, that it's really just a commodity that's in short supply and it may not be in short supply by the time you actually get this deal done which could be over 18 months from now.
Right. Hey, hey, David, thank you. Yeah, that we've heard that narrative and I think it's a great opportunity to correct the narrative. So, first of all, this indium phosphide and laser technology that Lumentum produces is highly differentiated. And while there's a discussion of a supply shortage today, there's a supply shortage across the entire global semiconductor and optical industry. The lasers is one of those. The reality is um these light sources and lasers coupled directly with our proprietary semiconductor technology. So you're taking Michael and the Lumentum team's proprietary technology, we're actually going to create solutions around those that are highly sticky and um the reason that they're sold out is because the demand is exploding and we don't see that changing anytime soon. But through cycle, the differentiated and proprietary nature of these products is going to be lasting whether we're in a supply shortage or not. And um I have a lot of experience in these types of technologies. At my prior company, I worked for 22 years at Maxim where we had unique BiCMOS technologies, bipolar technologies, silicon germanium. We fabbed them ourselves. This is very unique. This isn't like just laying down regular CMOS. These are very esoteric black magic process technologies with special people to develop them. So highly proprietary and um and by the way we also were able to cross-check their demand as well versus ours cuz we're all in the same systems and um gave us a lot of comfort in the growth rate of Inphi because we're both in the same sets of designs. Now we can go faster together and enable our customers in a much more meaningful way on time to market.
Okay. Well, you say not changing anytime soon. Uh, and you know, soon could be, I mean, again, I'm curious as to why you believe that. And then beyond that, can you comment at all on the regulatory front? Not here in the US as much, Matt, but concern around China and China approval. It is notable that you don't see closing this deal until the first half of 2028.
Sure. Yeah. Yeah. On the first one again, you know, the transition with what we call the copper wall going from scale-out optics to scale-up optics. By the way, 5 years ago, as Mike mentioned, we acquired a company called Inphi, which was doing about 700 million in annualized revenue. It was at the dawn of the scale-out optical transition. Uh that business looked expensive when we bought it, quite frankly. Uh and now that business has grown something like a factor of 10 in revenues over a 5-year period. That's on the scale-out side. So something that looked expensive back then turned out to be one of the most compelling acquisitions we've ever done. When scale-up hits, the end demand, David, is what's going to drive this because all these systems need to come together for optical connectivity on scale-up and inside the rack. That's going to continue agnostic of any kind of supply demand uh perturbations. On the regulatory front, uh we're very well versed with how to go through that process. Uh the first big acquisition that we did was announced in 2017. It was a company called Cavium. We went through regulatory at that time and closed it in about seven or eight months and that was during the beginning of a lot of the rhetoric and kind of concerns about US-China and how to get things approved. Got that done very efficiently. We went and got Inphi done in about five months which was uh which was very efficient as well. So we have a good sense of what it's going to take to get the deal closed. The businesses are highly complementary and there is no overlap between the two. So from a substantive basis uh it's a very clean deal. We just need to work efficiently as we always do and constructively with the global regulators and uh get it closed. We did allow as we normally do and you see this in semi deals, David, you want to allow for more ample time uh to get it all done, but we're going to be off to the races very soon here.
But China can be a black box, Matt. China can be a bit of a black box. You're confident, though.
