Why Marvell Wants Lumentum: Vertical Integration in AI Optics With Cignal AI

All right. Hello, everyone. Welcome to another semi-doped episode. We are bringing this one. News take to you live. Kind of hot off the press. There's big news about Marvel potentially acquiring Lumentum. And so, Dick and I thought, what better than to bring in our friends from Signal AI to talk about this? So Signal AI is a market research firm. They've existed for a little over 10 years, and they focus on networking components and hardware. They have clients up and down the supply chain from hyperscalers to laser manufacturers. So I wanted to introduce Andrew Smith and Scott Wilkinson. So guys, thanks for coming on. Andrew, do you want to tell us a little bit more about Signal AI? Yeah. So we, our primary focus is providing quantitative and qualitative market research to companies that are in the industry. Our primary focus is not the investment community. It's providing the data and the, you know, what is unseen to the companies that are operating in the industry. And I've been doing this for 10 years. Scott's been doing this for six years now, Scott. I lost track. Yeah. A while. And before that, we were both in the industry. Scott will introduce himself. But my background, I did the market resource for a different firm called Infinetics Research. And before that, I worked for a semiconductor company for a long time called the Test Semiconductor Focus on optical communications. Scott, you want to. Yeah. So I'm the lead analyst here for optical components. That covers everything from inside the data center to the plugable coherent and other coherent devices that are used on long hull. After grad school, I worked primarily as product management and a little bit of marketing for some large companies and some startup companies throughout the world. And I've been here, I think six years, but that's just a job I ever had. I probably should know that. It's been a lot. And one thing I got to add is Scott and I, we talk a lot. We don't always agree. And that's okay. But we haven't even talked about this news. It came out last night. So we're going to really be kind of off the cuff here on terms of opinions. Oh, perfect, perfect. Then it will be even more real. And I think our audience will love it. So yes, thanks for joining us last minute. We literally, I texted Vic this morning because I think it was like last night, I texted Vic last night, my time was like, dude, we have to talk about this news. And then this morning I thought we should bring in some experts. And so Vic said, I'll reach out to them. So thank you guys for just jumping in last minute. I love that you haven't even talked yet. So Vic, why don't you tee up our audience? What is the news that we're about to dive into? Yeah, this is quite news for the optical industry and all this networking stuff. These are the like two of the biggest names in the in the area that is always in the news. And it's like watching like worlds collide when I read this news from Bloomberg. It said, Marvel technology is an advanced talk to buy the, you know, data center optics make a Lumentum. And it puts it in the cusp of a potential mega deal. I'm with the race to scale up in the artificial intelligence sector. I should say super intelligence, perhaps. Anyway, Bloomberg didn't catch on to that. Anyway, the announced the transaction may be announced as soon as next week. And Lumentum has a market value of like 83 billion. And Marvel is like 221 billion. And if Marvel acquires Lumentum, it would likely rank among the 10 biggest tech and telecom mergers ever, according to Bloomberg. So it's anyway, it's like a really big deal because as far as I understand it and we'll hear from our experts, Lumentum is a prime supplier of lasers to the data center industry. And we are at the cusp of transitioning into the optical interconnect world for data centers in a way that we have never seen before in history. And Lumentum in what my perspective is that is the king, you know, it's the top of the pile here at its peak and prime. But why would they sell the company to Marvel? And why would Marvel pay so much for it? So that's the whole question here. What exactly is going on? This episode of semi-doped is presented by Crusoe. They build the power, the data centers and the cloud behind AI. Did you know Crusoe can help you tune an open source model on your own data for just a few bucks? Frontier models are very good, but they don't know your company's terminology, your part numbers, or how you like your reports formatted. So you keep stuffing instructions and context into the prompt of an expensive frontier model to get the job done. 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You can try it on how you write emails, pick a task, compare the tuned model to your current prompt, and see how it does. Crusoe's giving all new accounts five dollars in credit to get started today. That's enough to start tinkering with fine-tuning right now. Links in the description. Yeah, so let's hand it over to our signaling AI folks. And feel free to zoom us all the way out and just remind listeners, like, what does Lumentham do, what does Marvell do, why would Marvell acquire them? You guys start out, take it away. I don't have a little history. So the thing, if you were to rewind the clock 10, 15 years ago, there were tons of small optical component companies. At least seven or eight that I could think of off the top of my head. And over the last 10 years, there was a consolidation of all these companies into just a few. And in essence, right now, the two biggest suppliers of optical components, not counting people who do the assembly, like some of the folks in China, are coherent in Lumentham. And so we transitioned from a period of time where there were tons and tons of companies all competing with each other to really just having two major suppliers of lasers for inside the data center, lasers to power coherent optics and components that are used in line systems. And now what we're seeing is that these components are obviously a lot more valuable today than they were five years ago. And people, I think, are beginning to recognize the importance of vertical integration. If you want to be strong in the market, particularly in a period of time where things are moving fast, you need to control the development and you need to control the supply chain. Well, in that case, you need to have both the chips and the optics in order to have a solid footing. But to be clear, this will be the first company that owns DSPs, all the DSPs, lasers, and modules, right? I can't think of any other. Well, Akasha has maybe some of that. That would be the closest analog, I think, but you're right. I mean, on the scale. What is Broadcom play a role in this? Do you think the Marvell acquiring Lumentham puts them the closest because Broadcom actually has internal lasers too, and now Marvell will have internal lasers too? Yeah, I think the difference is that Marvell is heavily in the module business and Broadcom is not. Broadcom, their optics business, other than some of the work that they've done at CPO, operates at an arms length from the rest of what they do. But at Marvell, they're very closely coupled on the coherent side in terms of building DSPs and shipping those modules. So it's reasonable to think that they would do the same thing for PM4-based data center optics if they were to bring something like this in. But what's interesting is that with Marvell, they have the coherent DSPs, and they've done very, very well, especially 400 gig. The idea was that they would sell them to anybody, but they would also build their own. And that's been relatively successful. There's a lot of people out there using them, but if you look in terms of volume, it's very hard to compete against somebody who's supplying you and competing against you. And that's what some of Marvell's customers have sort of complained under the covers about, that it's hard to compete against Marvell when they're building the same thing that you're building. But on the DataCom side, that's never been an issue because they've sold DataCom DSPs to everybody, and they've never built a module before. Well, it'll be interesting to see how that plays here. Certainly, on the DataCom side, any module anybody can build someone's going to buy it. There's just not enough capacity right now in the world, and that's not the same on the coherent side. But it'll be very interesting to see for the first time we have somebody who is trying to be a commercial provider of the DSPs. and competing against those customers with their own completely vertically integrated internals. That'll be unusual. Totally. So, I'm hearing a couple different things. One, I'm hearing talk about for Marvel that this is a vertical integration play. So they can own things, you know, from the fab to the lasers, to the DSPs, potentially all the way up to the transceiver, kind of the whole nine yards. But then on the other hand, I've heard people also talking about maybe this is really just about laser supply and capacity, just essentially like they're trying to buy capacity to make sure that they can do what they were already planning on doing. Are those two different ideas? Are they one and the same? Like, how do you feel about it? Yeah, the second idea is wrong. I mean, Marvel doesn't need laser capacity. They buy a tunable coherent lasers for the ZR modules. And they have very strong relationships with several suppliers. So I don't think that's it. No, this will be a new business. I mean, they have sort of a startup company that they're working with to do CPO with their stuff. But that doesn't need the kind of supply we're talking about with Lumintham. That's interesting. So you also mentioned Scott that there is a certain competition that's coming up because Marvel is competing against their own customers now. Just so that I have that clear, is that coming from the DSPs that Marvel is doing? Yeah. And like on the other side, like, who is the competitor that you are referring to? And how does the dynamic work really? So Marvel right now, for example, they their coherent DSPs are used by a lot of people who build 400 gig modules. Essentially, if you're not one of the Acacia Sienna. Nokia or one of the Chinese guys like Huawei, you're buying it from Marvel almost always. There's some others. CNSL, some Acacia, some but a lot of folks out there are buying them from Marvel and building those modules. And we have at least at least one supplier who was doing that told us that they are essentially going to have to exit that market because they can't compete against someone who's vertically integrated with their own DSP. Now, if you're working in a specific market where Marvel doesn't play, like China, or you're building a specific device that Marvel doesn't build, then you're not competing against them. But in Datacom, those differences kind of disappear. So it'll be interesting to see if anybody cares. Again, the volumes right now are so big that nobody else can build as many as need to be built. So at least for a short while, I don't know that it will matter, but it will be the first time that that's happened where someone is building the DSP using it internally and selling it externally. Now, Lumint has been doing that with lasers for a while. So it's not entirely unprecedented. But the DSPs are a little harder. One follow up question. So if you said, Lumentum is doing that internally. What they don't build DSPs do they? So how are they using lasers internally? So they they, Lumentum sells some modules. Those modules primarily use their own internal lasers, except when they've talked about sometimes it's cheaper to buy them externally and internally build higher margin things. And that has not been a problem. It doesn't appear to be at least that they've been able to do that. Coherent, their competitor essentially doesn't sell the lasers externally. They use them all internally. But that's the kind of model that we're looking at. We just never seen that model in a DSP where somebody is building the DSP internally using it on their own internal modules and selling it externally. So I mean, a good example would be you'll Lumentum, they bought a company called Cloudlight. They make Silicon Photonix-based data-com transceivers. So in order to build that, Lumentum takes their own internal CWDM laser. They take and they use that as part of the optical front end that they also manufacture in Silicon Photonix. Then they purchase a PAM4-based DSP for on Broadcom, Marvell, or something like that. And those two things, the optics, PAM4 chip are almost all of the value that are inside the transceiver. The remaining value is putting it together. So the challenge becomes, there's this one part that's very valuable is PAM4 chip. So if Lumentum is building these modules, or let's just say, another company is building these modules and they have to buy the PAM4 chips from Marvell. Well, it's that you're in a situation where Marvell isn't necessarily going to sell those PAM4 chips at such a price that they could be undercut by their competition. The only thing that's different about this market is there are other suppliers at PAM4 chips. So even if they become vertically integrated, somebody like Interlight can still go to Broadcom. They can maybe even go to NVIDIA. They can go to Credo and source these things. So there is a market for these DSPs. But as Scott said, this is the first time we would see somebody who's completely vertically integrated on the data conference either side. I have a follow up question there. So if Marvell has a ton of shares selling these DSPs, and now they're buying the laser so that they can do the optical engine and the DSPs. But with that, they're essentially competing with their customers. That would suggest that over time their customers are going to start sourcing their DSPs from someone else and that Marvell's DSP share could be eroded a little bit. But at the same time, they have this new business of selling the end-to-end component, the transfer of the module to these big hyperscalers. Is this something where maybe they're okay with losing some DSP business to gain this other business? And by the way, if we're moving to NPO and CPO where it requires less and less of a DSP, is this the right kind of long-term trajectory anyway? I think that's a great way of looking at it. In essence, you're making the trade that, you know, bi-vertically integrating, I can gain more value than by selling the piece part, even if it means it might sell fewer of those parts. But I mean, it really goes beyond all this that we've been focusing on because, you know, Scott's done a ton of work on OCS. That's an emerging area where there's a ton of, you know, startups, but really only one supplier that should be an in-major volume. And that's going to become a critical piece of infrastructure in the next five to ten years inside data centers. And Lou Menta also has, as you pointed out, a lot of work that's been done in high-power lasers or CPO and NPO. And so that, that dubtails well with the direction that Marvell is going in terms of trying to move to greater photonic integration. Yeah, it'll be a strategic decision internally. I mean, assuming this goes through, but I think it might be enough. Right. Yeah, it may not even happen. But I think if my previous card said DSP salesman, I'd be a little worried. Looking at it from Lou Menta's side, they have pretty good technology across many domains, 200-giggy MLs, ultra-high-power lasers for CPO. OCS. And when you mentioned Andrew, that there's only one company shipping this at any kind of volume, even though there are a ton of startups working on all kinds of variations of OCS, you're referring to Lou Menta, right? So this is one company that has all this portfolio of products and why would anybody consider getting acquired by Marvell? Like, wouldn't the board of directors turn it down and say, like, no, our growth prospects are far more superior because we have all the best technologies. So why would they even entertain this acquisition deal? When you get somebody's offering you a deal, it's probably, you know, beyond 10X, your current revenue. It's kind of hard to turn that down. I mean, things can go wrong. So I don't -- it's a question of valuation. Yeah. Luck in the value now? Yeah. So I -- That's not our -- that's not our jam, right? We don't look at stocks. We don't come up with valuations. We don't try to figure that out. But my guess is, that's the calculus that they would be going through. And if I recall the CEO, Hurlston of Lou Menta, his last postings was at Finisart. He was there for only -- I can't remember exactly how long, but it wasn't long maybe a year or so. And he organized the deal to sell the company to coherent. So it's consistent with some of the work that he's done in the past. So we'll see. We'll see what happens. My personal feeling is that that Lou Menta is probably just as valuable or more valuable in the hands of, you know, someone else who wants to vertically integrate. You know, you're talking about, you know, companies like, let's say, Nvidia. I mean, Nvidia bought Melanox years ago as a way to vertically integrate the networking components with the GPUs. And it's logical to think that if they want to continue that down that path of vertical integration on the component side, they do need an optical component. and they also need to know CS component. And remember, Nvidia put $2 billion into the momentum. Yeah, also in the Marvell, though. And coherent. Yeah. So what happens in this crazy dynamic of Nvidia being involved in this? So what happens to-- I have several things can happen. So what happens to Nvidia's $2 billion in momentum when it lands in the hands of Marvel, who also got $2 billion? That's one question. Secondly, now that nobody else other than Marvell has access to the momentum's lasers, will everybody flock to coherent? Well, first of all, I think Nvidia got equity. So they already own a small portion of Lumentum and Marvell. So that's really-- I don't think that that merger was really much of an issue. They would just end up owning some of those companies. I don't want to speculate what would happen in terms of people flocking from Lumentum to coherent. That's kind of far down the road. And a lot of that will be dependent on how Marvell manages the merger. They may come up with arrangements that give their current DSP customers or Lumentum's current optics customers the peace of mind that they need to continue to use those products. So it's too early to jump to conclusions about something like that, I think. Yeah, Lumentum has expanded their any-of-phosphide capability what four times in the last couple of years. I don't know exactly the numbers, but they had a two time and then they had another doubling. So they are definitely scaled to sell to a lot of people, spell lasers to a lot of people. I don't think they could use them all internally. Right, right. So Lumentum is not taking-- Marvell will not take Lumentum capacity away from customers. They'll continue to sell to Lumentum's customers, right? Is that what you're saying? Marvell is not making data-com transceivers. So it's not like they're sourcing those internally anyway. They would take essentially the source and the sink both internally. So it's not like there's some new demand that's going to materialize because of that. Unless they up their capacity for transceivers, which they could do. But it's not like they're-- if they're already scaled to sell lasers externally and use them internally with Lumentum, that's not going to change if they become part of Marvell. It's just that other component of it, the DSP becomes less expensive. That makes sense. And in terms of Indian-phosphide capacity, when it goes to the hands of Marvell, do you think Marvell is in a better position to help expand Indian-phosphide capacity by further building out more fabs? Or is that like nothing to do with it? I think Lumentum is perfectly capable of doing that without Marvell. Yeah, OK. I don't think there's any-- there's any real lick there. I am-- no. OK, OK. So it has nothing to do really with the fabs and the expansion capacity whatsoever. So in your mind, I would say, what do you think is the grand plan behind this entire-- what's your-- if you have to tie it all together and come up with a conspiracy theory of why Marvell would get Lumentum, what's your theory? Well, it's what we started off the conversation with. It's about vertical integration. So it's vertical integration, OK? Yeah, we've gone through a period of consolidation in the component industry where these products used to sell for 25% gross margins. They're now selling for almost double that. And the value of those components is recognized to be much higher. So if you can take those and integrate them into a larger system, essentially wrap sheet metal around them, you can make more gross margin dollars as a result. And that's the opportunity that's being seen here. There's also the co-development aspect of you're controlling the optics and controlling the chips, you're controlling the system, potentially, depending on where these things go. You can more tightly couple and build a superior product. And if there's any time to do it, this is the time to do it. Everything is up into the right. All your projections are going to be positive. You can see upside to just about every decision you make, strike while the iron is hot and do it right now. I can understand that the timing makes sense. It was a little surprising, but it does make sense. Yeah, I mean, honestly, the combination of semiconductors and the chips with the lasers is not a new idea. I've been talking about it for more than 10 years, especially when you had all of these optics companies that were selling for three or four times that gross margin dollars. But the resistance then, because I had conversations with companies in the industry as well as some of the folks on the investment side is, if you're a chip company, you have a 50% gross margin business. Why do you want to go buy a business with 25% or 30% gross margins? Like, everyone's going to hate that on the investment side. Yeah. And to me, it was always hard to understand because who cares what the percentage is? If you're going to be making more money, in terms of dollars, but it's a lower percentage of the total, it doesn't matter. But there's just a lot of importance assigned to that gross margin percentage number in terms of investment calculations that nobody did that. And so now, the ironic thing is we have a company like Marvel, who could have bought Lamentum for $3 billion six or seven years ago is potentially going to pay 30 times that. Yeah. And the margin count, it's interesting, look at what Hurlson's done since he's been there. Almost every call he's had has been focused on improvement margins. But I will say that he's done a great job in terms of extracting the value of the product in the current environment. And that industry is transitioned from one where people would tolerate lower gross margins to really structuring the deals and putting things together to get a lot of value out of these components, which in the case of Lamentum, they have some very unique unicorn type devices that you just can't buy anywhere else. So you don't sell something like that for 25% gross margin. And I think they've done a good job at transitioning out of that mindset. And what are those devices you're referring to that are? Unicorn devices from Lamentum. Is it like $200,000? I mean, they were really one of the first ones out with DOKAP 200 GIG EMLs. Everyone knows about the OCS. Everyone knows about the high power laser is a lot of debate about whether they can sustain that or not. There's a lot of people chasing them. But I mean, I've been in the component industry my entire career. And it's real easy to say that you're going to go do something and build something similar. But then maybe you can build 100 of them. But when you need to go build 50,000 of them or a million of them, totally different ballgame. And so that's the real challenge when you see companies that are small and large, you say they're going to get into this business. It's never that easy. So I'm reflecting on the margin conversation. And it feels like, historically, maybe as a component supplier, that part of the value chain would have these lower margins versus someone who's taking all the components and building like a system, right? Because if you're just a component and there's other people, maybe it feels a little bit more of a commodity, which feel free to push back on that. But then we're in this AI era where some of these components-- it's kind of been like the bottleneck trade. There's some of these components or a bottleneck. There's crazy demand from a hyperscalers and maybe a little bit of limited supply. And so it feels like you can get especially rewarded if you're one of the companies that can get to the next speed, the fastest or do something first, where sure it was a component. But now you have these 200 gig EMLs. Or you're first to OCS. And therefore, you can really charge for your value, let's say. Does it feel like-- since you guys have been in the component industry for a long time, does it feel like we're in this era where component companies can make higher margins than they historically have? And would you see that ever coming back, or has this AI dynamic changed things? Like, for example, I think of Credo. Like, when I first heard about AECs, I was just like, OK, it's a cable. Yes, they have the DSP. It just-- it doesn't feel that important. But then, obviously, it was very important. And they were the first one there. And they could totally charge for the value on that. So yeah, like zooming way out, like, help me-- how should we think about the component industry structurally? And is it changing? I don't know. I don't know what you think. I don't think anything has permanently changed. And the idea that the laws that have governed how this industry works have been somehow repealed or not possible. So-- but there's thing I like to call it IEEE lottery. So there's a new standard that's going to be coming out. Let's just say, for instance, 1600 ZR. And there's going to be five or six companies that all try and build to that standard and deliver a product. When you fast forward a few years later, the reality is it's always about two companies that ship 80% to 90% of the volume. And I don't think that that's going to be any different as you start looking at these new technologies. You want to be-- you got to be first to market with enough of what's necessary in order to win the initial market share. And at that point, it's a downhill fight. I would say it's a little different this time because-- it's not just being first, it's volume. If you're first to market and you can make 10,000 of these things, it doesn't matter. If you're second to market and you can make a million, you get the business and we see that with companies like eOptoLink coming in a little bit late, maybe 800 gigi and now they're like the number two in the world just because they had the capacity to build as many as anybody wanted. They may not have gotten the initial build but they're certainly getting it now and we're seeing the same thing happening at 1.6, 1.6 gigi right? What does it say, but Ethernet is starting to roll out right now. It's not a huge market. It's starting to grow. The usual guys are sort of there at the top but it's because it's not necessarily that they were the first ones to build a DSP or to build a module or to build a laser. They can build them in volume. So there's it's a little different this time but only because we're capacity limited. I think the other thing that Scott's the other thing I agree with Scott the other thing that's different this time is the amount of value that's attached to the delivery and the enablement of these components is much higher. I mean when you're building coherent lasers and they're going into AT&T's network and it's going to light up some additional capacity and how much is AT&T? What's their revenue associated with that investment? But when you look at, if I can if at my AI cluster has access to 1.6 terabyte interconnect and I can train two or three times as fast that's incredibly valuable. So the optics now are potentially enabling a massive amount more volume excuse me more value that they used to and that is different right that's not how things used to be. Yes so this is really good so there's a lot of value that can be unlocked if you win the IEEE lottery so to speak. Does it matter also that there's like four or five buyers and when they buy they're buying it massive volumes as compared to previously? Yeah I mean the customer concentration is definitely new as well. I mean you have you have companies who I mean OCS is a great example is that you can build a massive business with one customer right that's it wasn't like that before I mean maybe like if you had won AT&T Verizon like that was that was a big piece of business but but now and we see the same thing on the hyper scale side and the numbers are even larger. There there are modules being built for a single customer like 2.4 gig coherent light one customer in the world at once that there are people out there actively competing for that Marvell's one of them competing for that business knowing that they will only ever sell to one customer. Yeah Marvell did the same thing why should say in-fight did the same thing with the color Z 100 gig at Microsoft. Yeah that was essentially a single customer product from the very beginning and a lot of other companies looked at the business and at the time it's like why would I want to go do development for one customer are you crazy and that was the mentality you know of a decade ago and it's not that way anymore. Totally so then taking it one step conspiracy theory further maybe do you think Marvell by having an XPU designed business and having relationships potentially designing for these exact hyperscares we're talking about you know think yeah XPUs TPUs that kind of thing are they even better suited to become vertically integrated potentially you know by Lumentum because they also have that relationship or is it no they're fine as just a networking company anyway they still would have won just as a networking company. I don't think that really comes into play until CPUs mainstream right that's that's the one thing that that that is out there and you have at this point essentially TSMC which is the gatekeeper to you know having production grade CPU technology in volume the end customers don't like that right they want to have multiple sources so if you could have someone who can build the ASIC can package it and then can provide the optics with it that's again vertical integration that's the value that's very compelling but that's down the road a little bit and I mean I don't conspiracy theory isn't really a word I like to use but that would essentially that would most certainly be like if this deal goes through that that end game would certainly be prominent in terms of where they're going to take the company. Yeah so just if you think about Nvidia who people sort of think is their competitor for that kind of business they have a module company they bought Melanox but Nvidia's building systems and data centers Marvel is not they're built their their biggest business as far as I understand is they're building custom ASICs and others that people you know they put into systems so the link directly between that business and modules is pre-tenuous at least the way it's set up right now not like Nvidia Nvidia you can see them very tightly together they yeah they want to build you the box they want to plug their optics into it they want to build the switches and routers they go with that they want to save the software Marvel is not really doing that so it looks like they have different parts of the business and this was a question I think somebody asked at Computex I think or some some conference I was at they were like we look at you you say you're a connectivity company but then if you look at it you have you're this the CXL business that you're doing and then you're doing these like XPU custom silicon design business over here but you're not really like a cohesive business unit you seem to have these pockets of other things that are happening so I think that's your fundamental point is that these are isolated pockets of business within the company the connectivity is probably the most cohesive one but then maybe the XPU is not as related to this at all although maybe I would push back and say shouldn't that be Marvel's North Star of hey now we're going to be fully integrated on the optic side now we have on the XPU side we have all this bespoke IP surgeries and whatnot couldn't they make custom data centers at scale maybe with like the best co-design or the fastest time to market because they are vertically integrated yeah that's outside my strikes yeah that's good now it's fun our wheelhouse pretty far because then you start talking about software integration and it's all this is all very you know it's always easy to speculate on what somebody could do it's it's another thing what's real what is a realistic path that they can they can take I mean back to back to vertical integration you know Broadcom they got super strong over the last 20 years and they ran a playbook across a lot of their businesses and the one that I saw most closely was in the Ethernet switching side is they were one of the first ones to bring both the Ethernet switching silicon and the coppifies and all the physical layer stuff together so if you wanted to go build a 10 gigabit ethernet switch you go to Broadcom they give you the switch chip they give you all the coppifies they give you the software and they would give you the reference design and you could just go build it and they would price that such that if you wanted to buy just a switch it wasn't attractive but if you get the kit price the entire thing it was attractive and they would price the kit in such a way that they could strangle some of their competitors that were just doing point products and that's effectively what they did and that's how they got to be the market share leader is they were really good at building stuff and they built it on time and they built everything and so they sucked all the oxygen out of the room and I think when you look at what as this going to this transition to CPO that strategy is going to be even more valuable as if you can build the chips and you have the fives and you have the optics and you can take that as a kit to an end customer that's going to be a really powerful solution and we've been talking about CPO but NPO matters as well right you could have the same approach with NPO and the chips have a tightly integrated phi you buy my NPO you know what's going to work with my ASIC I'll take care of it I've got to cover it so you know whether whether that's the end strategy I don't know it would seem to be the logical path and it worked very well for Broadcom yeah absolutely love it I had not to take this too far but do you have any other like thoughts around this whole acquisition what should we we look potential acquisition I should say what should we be looking for next apart from the approval process what what what would you expect coming is coming down the pipe based on your long experience in this industry I think the good chance is going to be a bidding war and it wouldn't I mean the fact is this information leaked and if if in fact it is true like I don't I know nothing so first of all I want to be clear on that I don't know anything about this it's clear that somebody leaked the information in an intentional way I mean this is probably not an accident and so we'll see okay potentially maybe they're they're trying to generate more interest for other bidders let them know that there's activity I think there's a good chance it's going to be other people looking to pick up this company and run the same vertical integration playbook that we're just talking about and Nvidia's you know a potential customer for for for that all right I think we can wrap it here this was a great conversation my takeaway is definitely that this is all about vertical integration I think that makes a ton of sense to me whether it's being able to co-design being able to run faster when that IEEE lottery and also just the experience that you can give your customers by being vertically integrated. So thank you, Signal AI guys. This was a lot of fun, and let's do this again sometime. (upbeat music)