Marvell-Lumentum deal targets AI optics, adding $60 billion to market opportunity

Combining Marvell’s AI semiconductors with Lumentum’s optical technology could expand their addressable market by $60 billion. The proposed combination would broaden their data center connectivity offerings from individual components to integrated systems.

In a Fox Business interview on November 2, Marvell Technology Chairman and CEO Matt Murphy and Lumentum CEO Michael Hurlston said the combination would accelerate the convergence of AI connectivity chips and photonics. Murphy said the transaction would increase earnings per share.

Murphy pointed to the expansion of scale-up networking inside data centers as a central reason for the deal. Connecting GPUs and other processors into a large computing fabric is increasing demand for optical connections, he said. He expects Marvell’s scale-up optics business to grow rapidly next year, with the trend strengthening in 2028.

The market opportunity would exceed the sum of the companies’ existing markets, Murphy said. He put Marvell’s total addressable market at $400 billion and Lumentum’s previously stated market at $90 billion. During due diligence, the companies identified opportunities that he said would add $60 billion to that combined market, bringing the total to $550 billion.

Murphy said the combination could allow the companies to supply complete modules where they previously sold individual components, particularly in near-packaged and co-packaged optics. Customers increasingly want a complete solution spanning processors, switches and optical connections, he said. Bringing those capabilities together could accelerate customer designs and production schedules, supporting revenue, market share and profitability.

Hurlston cited Lumentum’s results and guidance as evidence of strength in its existing business. He said the company had met its targets for the September quarter, its fiscal first quarter, and issued December-quarter revenue guidance of $1.6 billion, with a projected gross margin of 53%. Both businesses were executing well, he said, and he expected them to perform better together in two years than they would independently.

Hurlston also highlighted opportunities to expand cooperation with Nvidia. He said Murphy had explained the proposed combination to Jensen Huang early in the discussions and that Nvidia’s response had been very positive. Nvidia has invested in both companies, he said, and the combination could enable them to deliver more products to Nvidia more quickly.

Asked whether market volatility had prompted any hesitation over announcing the deal, Murphy said the companies had remained committed. Because the transaction is entirely in stock, he said, the central consideration is the relative ownership negotiated between them. He emphasized sustainable, predictable results and long-term competitive advantages over short-term share-price movements.

Combining Lumentum’s revenue guidance with consensus estimates for Marvell’s fourth quarter would put the businesses at an annualized revenue run rate of $21 billion, with operating margins above 40%, Murphy said. He argued that AI connectivity could become an industry category comparable in importance to computing, memory and semiconductor manufacturing. Describing the combination as a “once in a generation opportunity,” he said the aim was to establish a leader in that emerging category.