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

0:00All 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 Marvell potentially acquiring Lumentum. And so, Vik 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.

0:39So 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 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 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've lost track. Yeah, a while. And before that, we were both in the industry. You know, Scott will introduce himself.

1:22But my background, I did market research for a different firm called Infinetics Research. And before that, I worked for a semiconductor company for a long time called Vitesse Semiconductor, focused on optical communications. Scott, do you want to? Yeah, so I'm the lead analyst here for optical components. That covers everything from inside the data center to the pluggable coherent and other coherent devices that are used on long haul. After grad school, I worked primarily as product management and a little bit of marketing for some large companies and some startup companies around the world. And I've been here, I think, six years, but it's the best job I ever had.

2:03It's a great job. I probably should know that, but it's been a while. 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 that came out last night. So we're going to really be kind of off the cuff here in terms of opinions. 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. It was like, dude, we have to talk about this news.

2:37And 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 like two of the biggest names in the area that is always in the news. And it's like watching worlds collide when I read this news from Bloomberg. It said, Marvel technology is an advanced talks to buy the data center optics maker, Lumentum, and it puts it in the cusp of a potential mega deal amid the race to scale up in the artificial intelligence sector.

3:22I should say super intelligence, perhaps. Anyway, Bloomberg didn't catch on to that. Anyway, 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 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.

4:14And Lumentum, in what my perspective is, is the king. It's the top of the pile here at its peak and prime. But why would they sell the company to Marvell? And why would Marvell 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.

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6:14Link's in the description. Yeah, so let's hand it over to our Signal AI folks. And feel free to zoom us all the way out and just remind listeners, Like what does Lumentum do? What does Marvell do? Why would Marvell acquire them? You guys take it away. Start out of 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 and lamenting.

7:06And 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.

7:46Well, 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, lasers, and modules, right? I can't think of any other. Well, Acacia has maybe some of that. That would be the closest analog, I think. But you're right. I mean, on the scale. Yeah. What does Broadcom play a role in this? Do you think the Marvell acquiring Lumentum 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.

8:30And so you can, you know, Broadcom, their optics business, other than some of the work that they've done at CPO, operates at an arm's 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 PAM4-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.

9:12And 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.

9:48There's not enough capacity right now in the world. 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 of different things. One, I'm hearing talk about for Marvell that this is a vertical integration play so they can own things from the fab to the lasers to the DSPs, potentially all the way up to the transceiver, kind of the whole nine yards.

10:29Um, then on the other hand, I've heard people also talking about, um, maybe this is really just about laser supply and capacity, uh, 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 in the same? Like, how do you feel about it? The second idea is wrong. I mean, they, Marvell doesn't need laser capacity. The only thing they buy are tunable, coherent lasers for their 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.

11:08I 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 Lumintum. That's interesting. So you also mentioned, Scott, that there is a certain competition that's coming up because Marvell is competing against their own customers now. Just so that I have that clear, is that coming from the DSPs that Marvell is doing? and like on on the other side like who who is the competitor that you are referring to and how does the dynamic work really so marvell right now for example they their coherent dsps are used by a lot of people um who build 400 gig uh modules essentially if you're not one of like acacia sienna nokia or one of the chinese guys like huawei you're buying it from marvel almost always there's some others okay sienna sells some acacia sells some but um 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 marvell doesn't play it's like china or you're building a specific device that marvell doesn't build then you're not competing against them but in datacom those differences kind of disappear um so it'll be interesting to see if if anybody cares um again the volumes right now are so big that nobody else could 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.

13:06Now, Lumentum has been doing that with lasers for a while. So it's not entirely unprecedented, but the DSPs are a little harder. So one follow-up question. So if you said Lumentum is doing that internally, they don't build DSPs, do they? So how are they using lasers internally? So 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, 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.

13:53But that's the kind of model to be looking at. We've just never seen that model on a DSP, where somebody is building the DSP internally, using it on their own internal modules and selling it external. I mean, a good example would be Lumentum. They bought a company called CloudLight. They make silicon photonics-based datacom transceivers. So in order to build that, Lumentum takes their own internal CWEM laser. They take and they use that as part of the optical front end that they also manufacture in silicon photonics. then they purchase a PAM4-based DSP from Broadcom, Marvell, or something like that.

14:30And 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, this PAM4 chip. So if Lumentum is building these modules and they have to sort, Or let's just say another company is building these modules and they have to buy the PAM4 chips from Marvell. 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 of PAM4 chips.

15:14So 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 datacom transceiver 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.

16:07But at the same time, they have this new business of selling the end-to-end component, the transceiver, 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 is, in essence, you're making the trade that by vertically integrating, I can gain more value than by selling the piece part, even if it means I might sell fewer of those parts.

16:47But I mean, it really goes beyond all this that we've been focusing on because Scott's done a ton of work on OCS. that's an emerging area where there's a ton of startups, but really only one supplier that's shipping in major volume. And that's going to become a critical piece of infrastructure in the next five to 10 years inside data centers. And Lumetum also has, as you pointed out, a lot of work that's been done in high power lasers for CPO and NPO. And so that dovetails 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.

17:27I mean, assuming this goes through, but I think it might even happen. Yeah, it may not even happen, but I think if my business card said DSP salesman, I'd be a little worried. Looking at it from Lumentum's side, they have pretty good technology across many domains, 200 gig EMLs, ultra high power lasers for CPO, So 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 Lumentum, right? So this is one company that has all this portfolio of products, and why would anybody consider getting acquired by Marvell?

18:14Like, wouldn't the board of directors turn it down and say, like no our growth prospects are like far more superior because we have all the best technologies so why why would they even entertain this acquisition deal when you get somebody's offering you a deal that'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 i don't um i mean it's a question evaluation. Yeah. Locking the value down. Yeah. So I, um, that's not our, that's not our jam, right? We don't, we don't look at stocks. We don't come up with valuations. We don't try to figure that out.

18:54But my, my guess is, is that's, that's the calculus that they would be going through. And if, if I recall the CEO, Hurlston of Lumentum, you know, his, his last posting was at Finisar and he was, 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 Lumentum is probably just as valuable or more valuable in the hands of someone else who wants to vertically integrate.

19:36You're talking about even companies like, let's say, NVIDIA. I mean, NVIDIA bought Mellanox 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 down that path of vertical integration on the component side, they do need an optical component and they also need an OCS component. And remember, NVIDIA put$2 billion into Lumintum. Yeah, also into Marvell, though. And coherent. Yeah. So what happens in this crazy dynamic of NVIDIA being involved in this? So what happens to... I have like several things can happen.

20:20So what happens to NVIDIA's$2 billion in Lumentum when it lands in the hands of Marvell, who also got$2 billion? That's one question. Secondly, now that nobody else other than Marvell has access to Lumentum'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.

21:05They 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 indium phosphide capability, what, four times in the last couple of years? I don't remember 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, spill lasers to a lot of people. I don't think they could use them all internally.

21:40Right, 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 we're saying? Marvell is not making Datacom transceivers. So it's not like they're sourcing those internally anyway. They would take essentially the source and the sync both internally. So it's not like there's some new demand that's going to materialize because of that. Yeah. Unless they up their capacity for transceivers, which they could do. But it's not like if they're already scaled to sell lasers externally and use them internally within Lumentum, that's not going to change if they become part of Marvell.

22:19It's just that other component of it, the DSP, becomes less expensive. That makes sense. And in terms of indium phosphide capacity, when it goes to the hands of Marvell, Do you think Marvell is in a better position to help expand indium 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. Okay. I don't think there's any real link there. Okay. Okay, 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...

23:11If you have to tie it all together and come up with a conspiracy theory of why Marvel would get Lumentum, what's your theory? It's what we started off the conversation with. It's about vertical integration. So it's vertical integration, okay. 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.

23:47And that's the opportunity that's being seen here. There's also the co-development aspect of, you know, if you're controlling the optics, you're 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 and to 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.

24:22It was a little surprising, but it does make sense. Yeah. I mean, honestly, the combination of semiconductors and the chips with the lasers, this 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 the 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 you know if you're a chip company you have to 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 it was 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, doesn't matter.

25:18But there's just a lot of importance assigned to that gross margin percentage number in terms of investment. Yes. Calculations that nobody did that. And so now the ironic thing is we have a company like Marvell who could have bought Lumentum 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 of the margins. I will say that he's done a great job in terms of extracting the value of the product in the current environment.

26:02And that industry has 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 Lumentum, 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 like unique unicorn devices from Lumentum? Is it the OCS or something else? I mean, they were really one of the first ones out with 200 gig EMLs.

26:42You know, everyone knows about the OCS. Everyone knows about the high power lasers. A lot of debate about, you know, 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 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 who say they're going to get into this business.

27:17It'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. um i'm and then but then we're in this like ai era where some of these components it's kind of been like the bottleneck trade there's like some of these components are a bottleneck there's crazy demand from 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 or do something first where sure it was a component but now you have these 200 gig EMLs, or you're like kind of first to OCS, and therefore you can really charge for your value, let's say.

28:21Does 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 like this AI dynamic change things. Like, for example, I think of Credo, like when I first heard about AECs, I was just like, oh, okay, it's a cable. Yes, they have the DSP. It just, it, 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. Um, so yeah, like zooming way out, like help me, how should we think about the components structural, the component industry structurally And is it changing?

29:06I don't know. I don't know what you think, Scott. 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 are not possible. So but we have those things I like to call IEEE lottery. Right. 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 percent of the volume.

29:41And I don't think that that's going to be any different as you start looking at these new technologies. You've 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 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 to 800 gig e and now they're i think the number two in the world just because they had the capacity to build as many as anybody wanted um 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?

30:30And when it's a terrible ethernet, it's 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 it's a little different this time, but only because we're capacity limited. I think 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?

31:13What's their revenue associated with that investment? But when you look at, if my AI cluster has access to 1.6 terabit 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 at massive volumes as compared to previously?

32:01Yeah, I mean, the customer concentration is definitely new as well. I mean, you have companies who, I mean, OCS is a great example. You can build a massive business with one customer, right? It wasn't like that before. I mean, maybe if you had won AT &T or Verizon, that was a big piece of business. But now we see the same thing on the hyperscale side, and the numbers are even larger. There are modules being built for a single customer, like 2.4 gig coherent light, one customer in the world that wants 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.

32:42Yeah, Marvell did the same thing. I should say Infi did the same thing with ColorZ 100 gig at Microsoft. 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 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 design business and having relationships, potentially designing for these exact hyperscares we're talking about, what, you know, think, yeah, XPUs, TPUs, that kind of thing.

33:28Are 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 CPO is mainstream, right? That's the one thing that is out there. And you have, at this point, essentially TSMC, which is the gatekeeper to having production-grade CPO 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.

34:18That'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 end game would certainly be prominent in terms of where they're going to take the company. Yeah, it's interesting 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 Mellanox. But NVIDIA is building systems and data centers. Marvell is not. Their biggest business, as far as I understand, is they're building custom ASICs and others that people put into systems.

35:00So the link directly between that business and modules is pretty tenuous, at least the way it's set up right now. Not like NVIDIA. NVIDIA, you can see them very tightly together. They want to build you the box. They want to plug their optics into it. They want to build the switches and routers that go with it. They want to save you the software. Marvell is not really doing that. So it looks like they have different parts of the business. This was a question I think somebody asked at Computex, I think, or 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 this 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.

35:46You 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 Marvell'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, certes 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?

36:28Yeah, that's outside my strike zone. Yeah, it's getting outside our wheelhouse pretty far. Then you start talking about software integration. This is all very, you know, it's always easy to speculate on what somebody could do. It's another thing. What is a realistic path that they can take? I mean, back to vertical integration, 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. They were one of the first ones to bring both the Ethernet switching silicon and the copper fives and all the physical layer stuff together.

37:12So if you wanted to go build a 10 gigabit ethernet switch, you'd go to Broadcom, they'd give you the switch chip, they'd give you all the copper files, they'd 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 they 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.

37:54And I think when you look at what as this going to this transition to CPO, that strategy is going to be even more valuable is if you can build the chips and you have the FIs 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 FI. You buy my NPO, you know, it's going to work with my ASIC. I'll take care of it. I've got it covered. 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.

38:33Yeah, absolutely. Love it. Um, I, not to take this too far, but do you have any other like thoughts around this whole acquisition? What should we, we look a potential acquisition, I should say, what should we be looking for next apart from the approval process? Uh, what, But what would you expect is coming down the pipe based on your long experience in this industry? I think a good chance is going to be a bidding war. And it wouldn't. I mean, the fact is, is this information leaked? And 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.

39:15It's clear that somebody leaked the information in an intentional way. I mean, this is probably not an accident. And so we'll see. Potentially, maybe they're trying to generate more interest for other bidders to let them know that there's activity. I think there's a good chance there's going to be other people looking to pick up this company and run the same vertical integration playbook that we were just talking about. And NVIDIA is a potential customer 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.

39:48I think that makes a ton of sense to me, whether it's being able to co-design, being able to run faster, win 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.

40:18you