Marvell to buy chip startup Celestial AI for $3.25 billion, bullish on growth next year
Semiconductor chips are seen on a printed circuit board in this illustration picture taken February 17, 2023. REUTERS/Florence Lo/Illustration
SAN FRANCISCO, Dec 2 : Chipmaker Marvell Technology said on Tuesday it will buy semiconductor startup Celestial AI in a deal worth $3.25 billion and gave a bullish forecast for its next fiscal year.
Marvell's shares were up about 13 per cent in extended trading.
The generative AI boom has sped up chipmakers' development process, as they rush to design the fastest, most energy-efficient equipment for advanced data centers. Marvell and rival Broadcom help cloud-computing companies design custom chips tuned to their specific needs for data center use, and that work has grown into a large business for both companies.
The company expects roughly $10 billion in total revenue for its next fiscal year, including a 25 per cent jump in data center revenue, Marvell CEO Matt Murphy said. It does not expect any major quarterly swings in its custom chip revenue next year.
DEAL GIVES MARVELL ACCESS TO PHOTONICS TECH
Marvell expects its revenue from its custom chip business to grow 20 per cent next year, CEO Matt Murphy said in a conference call. The Santa Clara, California-based company helps Amazon and Microsoft build their in-house AI chips, according to JP Morgan analyst Harlan Sur.
The Celestial deal would allow Marvell to tap into the startup's work on photonics, which uses light rather than electrical signals to create connections between AI chips and memory chips, an area in which it competes with Broadcom and the world's most valuable company, Nvidia.
The Celestial tech will be used in Marvell's next-generation photonics-related infrastructure products, which will contribute to a new $10 billion market for Marvell, Murphy told Reuters.
“We’re going to have a silicon photonics powerhouse at Marvell when this is all done,” he said.
Big cloud computing companies will begin installing photonics tech in 2027 or 2028 for large-scale applications, Murphy said. Eventually, he said, it will become widely adopted.
Under terms of the deal, Celestial AI will receive $1 billion in cash and 27.2 million shares of Marvell common stock worth $2.25 billion.
Marvell said it expects meaningful revenue contributions from Celestial AI beginning in the second half of fiscal 2028, reaching $500 million in annualized run rate in the fourth quarter of fiscal 2028 and doubling to a run rate of $1 billion by the fourth quarter of fiscal 2029.
The deal is expected to close in the first quarter of calendar year 2026.
AMAZON TIES
Related to the Celestial acquisition, Marvell issued a warrant to Amazon for its stock. The agreement allows Amazon to buy Marvell shares based on Amazon's purchase of photonic fabric products through the end of 2030.
Amazon can acquire up to $90 million worth of Marvell stock, or roughly 1 million shares, with an exercise price of about $87.
Marvell projected revenue of around $2.2 billion, plus or minus 5 per cent, for the fourth quarter, compared with analysts' average estimates of $2.18 billion, according to data compiled by LSEG.
Revenue for the third quarter ended November 1 rose 36.8 per cent to $2.07 billion, in line with analysts' estimates.
Ahead of Tuesday's after-hours trading, Marvell's stock was down more than 15 per cent this year amid growing competition in the custom AI chip and networking market and Wall Street's concerns of an AI bubble.
