Good day, and welcome to the Synaptics webcast call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Jiwa Tai. Please go ahead, sir.
Good morning, or good afternoon. Thank you for joining me today to discuss Synaptics' acquisition of Broadcom's wireless IoT connectivity business. My name is Jiwa Tai. I'm the head of investor relations. With me on today's call are Michael Hurlston, our President and CEO, and Dean Butler, our CFO. Following their prepared comments, we will open up the call to Q&A. This call is also being broadcast live over the web and can be accessed from the investor relations section of the company's website at synaptics.com. We'll be using several slide presentations during this call and will also be posted on our investor relations website. This conference call, the associated press release, and the presentation made available today contain certain forward-looking statements within the meaning of applicable securities law.
These forward-looking statements relate to our financial condition, results of operations, plans, objectives, future performance, and business, including our expectations regarding the proposed transaction between Synaptics and Broadcom, the expected timetable for completing the transaction, and the potential benefits of the transaction. Our estimates and assumptions are subject to a number of risks and uncertainties beyond our control and may prove to be inaccurate, including substantial risks and uncertainties arising from the transaction, the integration of the acquired business into Synaptics, and forming customer retention, substantial competition in the wireless IoT connectivity market, selling price trends, and the risks that our markets and growth opportunities may not develop as we currently expect. Synaptics cautions that actual results will differ materially from any future performance suggested in the company's forward-looking statements.
We refer you to the company's current periodic reports filed with the SEC, including the Synaptics Form 10-K for the fiscal year ended June 29, 2019, which outline the risk factors that could cause actual results to differ materially from those contained in any forward-looking statements. Synaptics expressly disclaims any obligation to update this forward-looking information. The discussion in this conference call will be limited only to the proposed acquisition. In addition, management will also discuss financial metrics on a non-GAAP basis, which exclude share-based compensation, acquisition-related costs, certain non-cash recurring or non-recurring items. As we are in a quiet period, we will not make any comments on the current business environment or on near-term outlook for our business. I will now turn the call over to Michael.
Thanks, Jiwa, and thanks, everyone, for joining us on the call today. I'm excited to talk to you and discuss how the acquisition of Broadcom's wireless IoT connectivity assets fits into our strategy to accelerate our growth and improve our profitability long term. This is a strategically compelling acquisition that increases our footprint in IoT and significantly expands our addressable market. This acquisition is extremely complementary to what we're doing today, adding best-in-class Wi-Fi, Bluetooth, and GPS to our portfolio and enabling us to deliver a more complete solution to our customers. This is a $250 million all-cash transaction that will be immediately accretive to cash flow as well as non-GAAP margins and earnings. In addition to the manufacturing rights we obtain for a wide set of products, we have access to two additional roadmap products without the additional OPEX spend.
These two products are purpose-built for the IoT market and will feature the absolute latest in wireless connectivity technology. Dean will discuss the financial aspects of the acquisition later on the call. For most of our current IoT solutions, whether they are targeted OTT video streamers, smart home devices, fax and printers, or even automobiles, the end products also need wireless connectivity. Adding this asset to our portfolio enables us to offer a more complete reference design to our customers. As you can see on the slide, we offer a majority of the technology required for many of these IoT devices. The SoC is the most critical component, dictating the capabilities and performance of the device. Connectivity is the next critical decision, and we believe by providing both components, we can enable our customers a faster time to market at lower costs with even better overall performance.
With this acquisition, we're acquiring the rights to the absolute best-in-class connectivity solutions in the market, developed for the leading smartphone OEMs. These products feature the lowest power consumption and the highest level of integration in the market, all of which have been battle-tested by the world's most discriminating customers. These connectivity solutions include state-of-the-art Wi-Fi 6, Bluetooth 5 and Bluetooth 5.2 LE, and GPS L5. We will also be bringing over an outstanding team to continue to grow and support this business. Despite not being a focus for Broadcom, this business has traction in the IoT market today with meaningful revenue, a broad design win backlog with tier 1 OEMs, and significant upside. As you look at the IoT products in which Synaptics already has presence, you can see why adding this asset is critical.
Every market we serve also needs wireless connectivity. We now have the ability to offer more content to our customers and add touchpoints to our existing account base. In addition, the product line opens new applications such as industrial surveillance cameras and home appliances where we don't have a presence today, allowing us to further expand our addressable market. As we talked about recently at our investor day, our SAM today is $5 billion. The wireless IoT connectivity SAM today is estimated at $3 billion, growing at a 10% compound annual growth rate for the next three years. We estimate that this acquisition will increase our combined market opportunity to $8 billion, growing at a pro forma 9% compounded. This is a greenfield opportunity for us to significantly expand our footprint in what is already a large market today and accelerate our long-term growth.
I'm excited to bring this asset to Synaptics, and as many of you know, I was involved in this business for nearly 16 years while at Broadcom and was the general manager for nearly 10 of them, so I'm intimately familiar with this asset and its potential. We also have executives at Synaptics who have been involved in different aspects of this business, from operations to design to marketing to sales. We have an immediate understanding of the technology and the customer base. The wireless connectivity products we're getting as part of this transaction have been battle-tested and validated by the most uncompromising OEMs when it comes to performance, and they're second to none. While there are several competitors in wireless connectivity and IoT today, all lack either leading technical performance, a Tier 1 SoC solution, or a fundamental understanding of the customer base.
Synaptics is the only one that combine all three elements, giving us true competitive advantage and our customers the best possible experience. One of the things that makes this transaction truly unique is the fact that Broadcom will develop two future products for us. This will allow us more runway to develop our in-house design capability and build upon the IP that we'll be getting as part of this transaction. We will focus on customer capture in the near term, while we're able to offload the design activity. We'll be able to rely on the best wireless engineering team for new leading-edge products featuring the latest technology such as Wi-Fi 6E, ensuring that we continue the heritage of leadership connectivity for the next few years. This was a pitfall of other similar transactions and one we felt we solved in the most advantageous way.
In summary, the addition of wireless connectivity to our existing IoT assets will enable us to better serve our existing customers while opening an array of totally new markets and engagements. We are confident that this acquisition will deliver significant revenue growth for the company while helping improve gross margins and operating margins.
Good afternoon, everyone. We're excited to have signed the definitive agreement to acquire rights to Broadcom's wireless IoT connectivity assets and the underlying intellectual property. Let me provide you the details related to the acquisition and outline the financial rationale. We will be acquiring this business for a total consideration of $250 million in an all-cash transaction that is expected to close in our Q1 of fiscal 2021, subject to customary closing conditions. As part of the transaction, we have agreed to a three-year limited exclusivity, which Broadcom will preclude themselves from re-licensing the rights.
In addition, Synaptics has agreed not to sell into certain markets reserved for Broadcom. We expect to fund this acquisition with the available cash on hand and will not require additional financing. We do not believe regulatory approval will be required and anticipate closing of this transaction to occur within Synaptics' current quarter, Q1 of fiscal year 2021. This acquisition is a clear example of our long-term strategy taking shape as we redeploy our capital to accelerate growth and profitability. With the April 2020 divestiture of our low-end mobile LCD TTDI business, we are redeploying this capital to meaningfully move our portfolio upstream in the value chain. We are bringing in a business that significantly expands our long-term revenue growth potential, as well as adding immediate accretion to our non-GAAP earnings and non-GAAP operating margins.
As of Synaptics' Q3 fiscal 2020 quarter end, and including the cash received from our recent divestiture, we have a cash balance exceeding $700 million available to us, including the $100 million drawn on our revolver. After accounting for this transaction, we will have more than $460 million of cash remaining on the balance sheet. We believe we'll be in a stronger financial position, as the addition of connectivity will boost our profitability and cash flow, providing us with future capital to execute on our long-term strategy of diversifying our business with acquisitions that are additive to our overall portfolio. Today, this business is generating about $65 million in annual revenue.
We believe we can quickly and significantly grow this revenue base and believe this business will be accretive to our non-GAAP gross margins and operating margins, with non-GAAP gross margins of 50% or better and operating margins well above 20%.
This business will add approximately $15 million a year in operating expenses and will be immediately accretive to our non-GAAP EPS. We'll be bringing over a team of approximately 60 people that will enable us to capitalize on the strong momentum of this business and help drive additional synergies within our existing IoT products. This asset will become part of our existing IoT business, and as we have highlighted in our recent Investor Day, we anticipate IoT will become the largest part of our portfolio longer term, and this acquisition will help us to accelerate our leadership in this market. The addition of wireless IoT connectivity will increase IoT to account for about 33% of our revenue on a pro forma basis, putting us well underway in growing IoT to be 40% or more of our business in the future.
The addition of these new products and customers will further accelerate our customer and product mix diversification initiatives. As Michael pointed out, we believe the growth opportunity for here will be significant. Not only is this market for IoT connectivity growing rapidly, we believe there'll be significant synergies that we can uniquely capture with the addition of this asset. Broadcom already has a well-established footprint with both tier 1 OEMs as well as leading channel partners, targeting a diverse set of end markets in consumer, commercial, industrial, and automotive applications. There are significant cross-selling opportunities we see today in the IoT market. Our ability to bring more complete solutions to market will enable us to become a more meaningful semiconductor supplier to our customers. Beyond just revenue growth and synergies, this acquisition is accretive to our long-term financial targets that we have laid out in our Investor Day.
We will be able to accelerate our ability to achieve those targets through this acquisition. In summary, this acquisition fits very well into our long-term strategy. It accelerates our ability to diversify our business and drive IoT to become a more meaningful share of our business going forward. This will also bring significant SAM expansion for Synaptics and equip us with best-in-class connectivity solutions to serve this market. The addition of this best-in-class product set, in addition to our existing portfolio, will bolster our technology leadership. Longer term, leveraging Broadcom's engineering co-development of the additional roadmap products without the need for any significant operating expense spend will ensure that we can maintain this leadership for several years to come. Lastly, it is immediately accretive to our non-GAAP margins and earnings, and we believe it will accelerate our ability to reach the financial targets that we have laid out.
With that, I'll now turn the call over to the operator for Q&A. Operator?
Thank you. If you'd like to ask a question, please signal by pressing star one on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, that is star one on your telephone keypad if you'd like to ask a question. I'll pause for just a moment. All right, we'll now take our first question from Christopher Rolland at Susquehanna. Please go ahead, sir.
Hey, guys. Thanks for the question. We used to follow Cypress, of course, they bought what I thought was this portfolio back in the day. I guess my first question is, how are they selling this asset again, I guess? Secondly, I think you talked about an exclusivity of three years. Are you worried that Broadcom will sell the asset once again? Thank you.
Hey, Chris, let me take both parts. I think first, relative to Cypress, what happened was, in that agreement, there was sort of a gray area of market carve-outs, where Broadcom could operate in certain areas and Cypress was able to operate in others. There was sort of a middle ground. In that middle ground, because I was operating the business at the time, we were able to grow this rather substantial piece of business. It was a support team that is coming over as part of the transaction that was really intimately involved in that, winning the designs and carrying that business forward. It's that business that ended up coming over to us that was kind of created in this gray area, if you will.
Now what we have is, I would say, substantively similar to Cypress in that we have these manufacturing rights and things of that nature. The big difference is we get these roadmap products. I think where Cypress struggled is the ability to sort of prosecute business at the same time as designing new products. At least for probably the first five or six years, we're going to have the ability to sort of grow a design team organically, but have all of Broadcom kind of take on the responsibility for designing our future products. These will be purpose-built, sort of co-designed, co-specified products tailored for the IoT market. That really is a big difference and differentiator in terms of the deals. Yes, in some respects, they've largely resold the asset.
I don't think they could do that again because the support team that was left behind is coming over to us.
They really don't have the assets and the ability to recreate a business for a third time, if you will. That capability has been almost entirely hollowed out as a result of this transaction.
Thank you. I guess a follow-up there is, do you have immunity for any recourse from Infineon around this contract? More separately, the two roadmap products that you talked about, I think one of them might have been Wi-Fi 6E, and I was unsure on the other one as well, but any other details there would be great. Thanks.
Yeah. Let me take the second part of it first. We talked about Wi-Fi 6E being central to the future products, and you can imagine that both products will likely feature that technology. I don't want to go into more details on that, Chris, because these are obviously future products, and we don't want to tip off our competition any more than we have to. With respect to your first question, obviously we've read and discussed all the contracts with Broadcom. We feel this is totally within Broadcom's bounds to sell and totally within our bounds to acquire. I don't think that there should be any legal problems with Infineon at all.
Great. Thanks, Michael, and congrats on the deal.
Well, thanks, Chris. Good questions.
All right, we'll now take our next question from Charlie Anderson at Colliers Securities. Please go ahead.
Yeah. Thanks for taking my question. Congrats on the deal. I wanted to start sort of picking up on sort of a few of the last points. We saw what Cypress did with it. They were able to grow very nicely the first few years. We've seen Silicon Labs buy a similar asset, NXP. There's been sort of this established playbook in the industry of net connectivity asset and marrying it to a microcontroller company, if you will. I wonder if you could kind of compare or contrast some of those approaches and playbook to what you may do with this asset in terms of where you see some of the synergies approach.
Yeah, Charlie, I think, first of all, we've talked quite a bit about our edge SoC product line. We've highlighted that on previous calls, and we've been absent a connectivity asset to bolt onto that edge SoC product. One of the drivers for us was to get that to really complement our offering for consumer players with a wireless asset that we can bolt onto our edge SoC. In the analyst day, we talked a little bit about the surveillance camera market and taking advantage of some of the neural network that's built into our edge AI for an application like surveillance. Again, you need wireless connectivity for something like that. If we want to start making forays into future markets, our view was we were going to need this as kind of an add to our total solution.
We're unbelievably excited about how it complements our products. Jason, I think, was flipping through the slides. Almost everything we do, whether it's automotive, whether it's some of the touch and display products that we have going into wearables and elsewhere, those products could benefit from connectivity. We think we have a more complete portfolio to go and sell into the customer opportunities that already exist. You had a second part of the question? Sorry, Charlie, go ahead.
No, that's all right. I think you addressed it. I was going to ask also, the $65 million, I wonder if you could sort of describe what are some of the key end markets or end type products where you have exposure today, and maybe how much overlap there is with some of your existing sockets within the IoT business. Thanks.
Yeah. The biggest segment, Charlie, is consumer. There we have quite a bit of overlap. One of our largest customers that we've talked about in our IoT area plays in consumer. There's a footprint there for this business, for the wireless connectivity business of that customer. That's a clear one. Then after consumer, it starts getting into industrial. There's a lot of industrial products that they've managed to carve a footprint into. Surveillance cameras is probably the third largest market. Again, we don't play there today with our edge SoC solution. It's something we aspire to. The Broadcom wireless connectivity already has a footprint there. Consumer, industrial, and surveillance are probably the top three markets for the asset.
Okay, thanks so much.
Once again, if you'd like to ask a question, please press star one on your telephone keypad. We'll now take our next question from Rajvindra Gill at Needham and Company. Please go ahead.
Yeah, thank you, and congrats on the acquisition. I joined a little bit late, so apologize if this question was asked already. In terms of the kind of the competitive landscape, from a previous question, IoT, the market has been addressed by microcontroller companies, NXP/Microchip, et cetera, who've been acquiring connectivity assets over time on one side of the equation. On the other side, the IoT market has been addressed by a lot of the RF suppliers, Skyworks and Qorvo and Qualcomm, et cetera. It appears that you're buying some good wireless IoT connectivity to try to bolt on to your voice and video capability, but you don't necessarily have any microcontroller capability or distribution channel. I'm just curious how you kind of see the competitive landscape and how you're able to kind of carve out kind of a niche in that dynamic.
Rajvindra, it goes back to Charlie's question. I think that, the end markets that we see our ability to maneuver and play in are, again, it's sort of consumer, where we already have a pretty meaningful presence with our edge SoC. It's industrial, and then it's surveillance cameras, which is largely a greenfield. If you look at the consistency of the revenue that we have today, it's largely those areas. What can't be said enough that we talked about in the call is this really is the best wireless products in the world, right? All of the products that we get, certainly in the backward look, will have shipped to the largest phone OEMs in the world. They've gone through all the rigor of testing, software qualification, interoperability testing, and all of that.
We receive, unlike, let's say, Silicon Labs, we receive a battle-hardened set of products. We think that we've got significant performance advantage just head-to-head because of what we have. Broadcom isn't really interested. It's not part of their core strategy to go after IoT. We get the benefit of these incredibly high-performance products that, in a head-to-head competition, can stand up against NXP, can stand up against Infineon, can certainly stand up against Silicon Labs. We think outside of our core markets, where we have this edge SoC, we can start attacking new markets.
It was really simply a lack of focus from Broadcom more than anything else that allowed some of these other guys to play, because had Broadcom focused on these markets with the assets that they have, with the leading performance, power, integration, everything else, I think they would have ran the table. It wasn't interesting to them. Their strategy is obviously to focus on big markets and big end customers, and we're going to take that same technology and heritage and start going after these IoT markets. I think you'll find we're going to hold up very well.
In terms of the revenue synergies, for that $65 million of revenue, I presume that's a trailing 12 months. When we're looking about kind of growing that $65 million, how do we think about the additional dollar content at existing customers? That's a potential revenue synergy for markets that you necessarily did not have voice or video in which Broadcom has the wireless part. Are you seeing opportunities to sell your voice and video into those markets? How are we thinking about the revenue synergies?
I would say, it's interesting. In our platforms today, where we're shipping these edge SoC devices, Rajvindra, to customers, we're shipping third-party wireless. Second part of it is Broadcom is shipping on other platforms into the same customer base that we are penetrating today. You can see opportunity for them potentially to pull through our SoC into opportunities where they're currently shipping. The third piece of it is really a connectivity-only opportunity where it's not attached to an edge SoC, but it's attached to some other small processor or something like that.
Again, that's the area where we think we're really going to focus and make hay because it wasn't a focus of Broadcom's, and we think in areas like gaming, again, industrial, home appliances, even automotive, we think that we can ship standalone connectivity very effectively to these top customers that are looking for low power, looking for integration, looking for high performance.
Just last question for Dean, you might have mentioned this, so forgive me if you have to repeat it, but the gross margin accretion, I think on the Analyst Day, you talked about that you could achieve 50% gross margin organically, if I remember that correctly. Is this acquisition beyond the 50% gross margin? I'm wondering how that will affect the overall gross margin trajectory.
Yeah. Just maybe a quick walk-through of the financials, just for a brief summary. Current annualized revenue is about $65 million a year. The gross margins today are about 50%, so sort of at our target. We think, going forward, when these new products come out and the roadmap items, we might be able to push that higher. The operating expenses are about $15 million a year, and the operating margin, again, on a non-GAAP basis, significantly above the 20% target. If you look at sort of the long-term financial model that we put out in our last Analyst Day, this meets or exceeds all of those boxes.
Great. Helpful. Thank you.
There appears to be no further questions as of right now. I'll turn it back to the speakers for any additional or closing comments. Please go ahead.
Look, I'd like to thank everybody for joining us today. I know it was a sudden call, but we're certainly excited about this acquisition, and I think we've got the right team and people in place to prosecute it, to unlock value for us. We think we've got a real winner on our hands with this transaction. We look forward to speaking to you again when we release our fourth quarter results. Thank you.
This concludes today's call. Thank you for your participation. You may now disconnect.