Ladies and gentlemen, and welcome to our conference call announcing Marvell's acquisition of GlobalFoundries' Avera Semiconductor Business. Today's program is being recorded. After the speakers' prepared remarks, there will be a question and answer session. I would now like to turn the call over to Mr. Ashit Saran, Vice President of Investor Relations for Marvell.
Please go ahead, sir.
Good afternoon, everyone, and thank you for joining us, particularly on such short notice. After the market closed today, Marvell announced its planned acquisition of GlobalFoundry's Avera Semiconductor business. To discuss this announcement, I'm joined on the call by Matt Murphy, Marvell's President and CEO Raghib Hussain, Marvell's Chief Strategy Officer and EVP of our Networking and Processes Group and Jean Hu, our CFO. A press release on this transaction is available on the Investor Relations section of our website at www.marvell.com. This conference call is being webcast live, and a recording will be available via telephone playback and also archived in the Investor Relations section of our website.
As a reminder, today's call will include forward looking statements regarding our future business performance, the intended benefits of the acquisition and the expected timing and completion of the proposed transaction as well as the financial impact to Marvell. These statements include risks and uncertainties that could cause our actual results to differ materially from the statements made on this call. Please refer to our press releases today and our recent filings with the SEC information on specific risk factors. Finally, comments made during today's call will primarily refer to non GAAP financial measures. Now to quickly summarize the transaction.
Under the terms of the definitive agreements, Marvell will play Google Foundry's $650,000,000 in cash at closing, plus an additional $90,000,000 in cash if certain business conditions are satisfied within the next 15 months. We intend to finance the acquisition by accessing the debt markets and plan to close by the end of fiscal 2020, subject to regulatory approval as well as customary closing conditions. We expect approximately $300,000,000 in revenue from the Avera business in the 1st full year post close. If certain business conditions are satisfied, triggering the $90,000,000 incremental deal consideration I just mentioned, we would expect at least an additional $40,000,000 in revenue from the Avera business over the same time frame. In either case, we plan for this transaction to be accretive to our non GAAP earnings per share in the 1st full year after close.
With that, I will now turn the call over to Matt for his comments.
Thanks, Ashish, and good afternoon, everyone, and thank you for joining us today. Our acquisition of GLOBALFOUNDRIES, AVERA Semicusiness represents a significant step in Marvell's strategy to become a global semiconductor solutions leader for the infrastructure market. With Avera, we are creating an infrastructure ASIC powerhouse with complete product design flexibility, leveraging advanced technology platforms and global scale for strategic wired and wireless OEMs. Stepping back as we outlined at our Investor Day last year, Marvell's current product portfolio encompasses standard products and semi custom solutions, which we refer to as our partner model, where Marvell provides the majority of IP and customers add their own unique capabilities or features. We also identified a third category, full custom ASICs, which is Avera's core business.
For decades, they have been a leading provider of highly complex custom designs for the world's leading infrastructure ODMs and their ASICs are at the heart of critical enterprise networking, carrier and data center applications today. Previously, as part of IBM Microelectronics, Avera's world class engineering organization successfully developed more than 2,000 complex designs over its 25 year history and built a significant business supported by approximately 800 very experienced technologists. Avera brings highly innovative design competencies in analog, mixed signal and SoC development and a rich IP portfolio underpinned by approximately 800 patents and applications. They have long been a leading provider of high speed SERDES for network infrastructure, have developed performance and density optimized embedded memory as well as advanced packaging capabilities across their product portfolio. Avera has built long term partnerships with market leading OEMs and wired and wireless infrastructure.
They provide the critical technology inside switches, routers, wireless base stations and other key infrastructure applications. More recently, they have begun to address new applications in next generation cloud data centers with multiple products in development today. Marvell is a leading supplier of standard and semi custom products into these same markets and we have continued to expand our own pipeline for custom solutions, leveraging Marvell's leading IP and technology platform. For example, in 5 gs base stations, we have seen an increase in customer engagements to develop new custom products to complement our wide range of basebands, processors, switches and PHYs. These new opportunities are driven by our customers' growing needs for power and cost efficient solutions to address their broad portfolio.
Many of these are also designed to replace less efficient and more costly FPGA implementations. Avera has been benefiting from the same dynamic, delivering optimized custom digital front end solutions for wireless radio heads in 4 gs and have design wins in 5 gs as well. These solutions further expand Marvell's addressable market and illustrate the broader opportunity for custom solutions in 5 gs applications. Altogether, it's become clear that our opportunity in the 5 gs market is substantially larger than what we've previously outlined. These 5 gs examples are indicative of the broader opportunity across the infrastructure market.
Our customers need to cost effectively and quickly build highly differentiated solutions in an era of rapidly rising design costs and faster time to market windows. They increasingly want a partner who can enable varying degrees of customization, mixing and matching the best combination of IP all the way to a full custom ASIC to best address their unique architectural needs tailored to their system level requirements. Through our Avera acquisition, Marvell will now offer customers an unparalleled breadth of standard, semi custom and full AISC capabilities, all under one umbrella. As we fully integrate and align the Avera business, we expect to pursue additional strategic ASIC and semi custom engagements with Tier 1 customers in our core markets for networking, data center, cloud and automotive applications. We believe that this represents a multibillion dollar increase to Marvell's annual TAM opportunity.
The addition of Avera's talented team and extensive custom design expertise will accelerate our ability to capitalize on these opportunities and capture substantially more content across the broader landscape. We are also looking forward to furthering our successful partnership with GlobalFoundries. In closing, our acquisition of Avera adds world class custom chip design capabilities at a key market inflection point, will enable us to pursue additional 5 gs opportunities and at the highest level represents a major step in Marvell's transformation into a global leader infrastructure semiconductor solutions. Operator, let's open the line for questions.
Certainly.
Our first question comes from Vivek Arya with Bank of America. Your line is now open.
Thanks for taking my question. Mac, you mentioned new opportunities on the 5 gs radio side and at cloud data centers. Can you give us a sense for what have been Avera's kind of historical revenue and margins typically in these ASIC opportunities, the revenue side is fine, the margin side is a little bit below what your business model has been. So what has been kind of the historical revenues and margins and what kind of growth rates and synergies are possible 12 to 24 months after closing the deal?
Sure. Yes, hi, Vivek. Great question. So yes, as we just mentioned, the business is approximately $300,000,000 in revenue. We anticipate next year after we close.
The gross margins of the whole portfolio are around $50,000,000 The way we think about it is the pipeline of opportunities that we have as Marvell as well as Avera that we're going to deploy the resources towards are more in line with the company average. So think about this as the existing book of business comes over at a certain level of margin. And then obviously, as we add value and we address some of these higher end applications, we think that the new opportunities will be accretive to that gross margin. That's the way to think of the trajectory of this business.
Got it. And in terms of just the exposure, can you give us some sense of the specific exposure to China or perhaps Huawei just because it's in the news so much? And if you could also kind of give us what Marvell's organic exposure is to China and Huawei Just to
give us
a sense. Sure. Yes, happy to do that. And yes, this is certainly an interesting time to be announcing this. So let me give you some context.
So for Avera, the primary agreement that we've called out, the $650,000,000 agreement, the exposure is quite minimal. And I'll get this question later, so I'll cover it now. From a regulatory point of view, that agreement does not require China approval. And so therefore, the exposure to China revenue is quite small. On the Marvell side, the way to think about this is the Huawei business, you should think about as being sort of mid single digits percentage of our revenue.
As all of you know, we have an earnings call next week. And so what we'll do is we'll comprehend as much as we know at that time the impact of the ban into our guidance at that time. So just give us a weekend change and we'll do the guidance then. But to just give you the number upfront, it's about mid single digits.
Thank you. Thank you. And our next question comes from Harsh Kumar with Piper Jaffray. Your line is now open.
Yes. Hey, guys. First of all, congratulations. Matt, I went on the Avera website and it basically says revenues in the $500,000,000 range. I'm wondering if that's old information or are there parts of the business that you are probably or likely not bringing over?
Could you maybe explain that? And then my second question, I'll ask it and then get back in line. You recently said you're looking to acquire Aquantia, I think, and now Avera. So is there a change in the philosophy that is happening? Or these are just opportunistic kind of things that are falling your way and you feel like they're good add ons and they don't require China approval, so minimal headache?
Could you just maybe clarify that for us?
Sure. Great two questions. So on the first one, yes, the way to think about it is not all of this business is coming over. That's the first point. There's some of the business that will remain.
Think of that as sort of being maybe end of life or just programs that don't come over. The second is, as I mentioned in the primary agreement, there's revenue that also doesn't come over. Obviously, what we said was if there's this option agreement and there's additional revenue that comes with it. But yes, we've looked at the ins and outs and that's the bridge that not all the revenue comes over. So what we're left with, we think is pretty clean.
And then of course, with the team and the pipeline, we can grow it from there. On your second question, yes, we certainly are doing 2 of these relatively close to each other. A couple of thoughts on that. One is, in an ideal world, right, you could time these the way you wanted to time them. They are close together.
But the way we think about it is, as you said, first, from a regulatory standpoint, neither requires China, which simplifies things. The second is that on a relative basis, Aquanches a relatively small deal in terms of the revenue and just the complexity and the number of part numbers that come over. The other way to think of it is there are actually 2 different businesses within our company. So when you think about sort of the teams that need to spin up and integrate, the R and D folks are actually different business units in the company. And I think I feel very good about the capability that we've now put together in Marvell.
If you look at just the Cavium integration, just an update on that, we did the ERP cutover 2 months ago. So that's done. That was done actually ahead of our own schedule. So we built a very strong operational capability. So we feel pretty good about doing both of these and they both make sense and they happen to just be a fairly short period apart from each other.
Congrats guys. Thank you.
Yes. Thanks Harsh.
Thank you. And our next question comes from Gary Mobley with Wells Fargo. Your line is now open.
Hey, guys. Good afternoon. Thanks for taking my question. With the pending acquisition of Avera and Aquantia, can you go over the cash flow assumptions for the balance of the year and how that impacts what the debt to EBITDA ratio will be coming out of the close of both these acquisitions?
Sure. Let me Jean answer that question. Yes, go ahead Jean.
Hi, Gary. Thank you for the question. As you know, our business continues to generate a strong cash flow between signing and closing of both Aquantia and Avera transactions. We think at the closing time, we probably need to borrow if we need to borrow the whole consideration of this transaction, which if we consider the $740,000,000 whole consideration, our gross debt to EBITDA ratio at closing before any integration, everything, it's 2.5 times. And our net debt to EBITDA ratio is only going to be 2 times.
And after closing, we'll certainly focus on reducing the debt level with a strong cash flow we'll generate from the combined three businesses. So we expect to take down the debt quickly to below the 2 times of gross debt to EBITDA ratio.
Okay. That's helpful. Just as a quick follow-up, since this is a custom basic business, I presume there's a fair amount of customer concentration. Could you cover that topic and speak to the degree to the customer concentration?
Yeah, sure. Without going into all the details, what I'd say is, they've historically had a number of significant customers. That being said, they also have a number of new customers that they've engaged as well. So I would say, the way to think about it rather than the customers is, they have a pretty good blend of sort of wireless infrastructure business, AKA base stations, networking business, thanks, switches and routers and enterprise and then some emerging applications in the data center. So, but I'd say that of those, the primary one has probably been in the wireless market.
Okay. Thank you, everyone.
Yes. Thanks, Gary.
Thank you. And our next question comes from Ross Seymore with Deutsche Bank. Your line is now open.
Hi. This is G for Ross Seymore. Thanks for letting me ask a question.
Gee and
or Matt, you talked about can you talk about any cost synergies? You discussed that not all of the business from Avera is coming over to Marvell. So will all 800 employees come over as well? Or what is the headcount coming to Marvell?
Yes, the way I'll answer, Gene you can add to the way we think about this is just what's the spending going to be on this business when it comes over, right? So the spending is going to be about 100,000,000 dollars It's not a typical deal where you say, well, here's what they were before and then let's just start doing the math. Just think of it as $300,000,000 revenue, 50% margins, dollars 100,000,000 of OpEx. And so obviously, we get operating income accretion and then we're going to work out the entire integration plan on how we combine the Avera team with the Marvell team and put together what we think is going to be a best in class ASIC organization.
Okay. Thank you. And GlobalFoundries has discussed not supporting the leading edge nodes. So what will Marvell's manufacturing strategy be for this business going forward?
Sure. So we're actually very excited about this. And I think certainly we're excited, the Avera team is excited and I think the customer base is going to be thrilled. And the reason I say that is that the plan is for obviously there's commitments and there's projects in flight that Avera is working on. We're very excited about those.
Those are all primarily in GlobalFoundries. For the new engagements where we need to really access the leading edge. And by the way, Marvell, as you can imagine, is already heavily investing in this area anyway in terms of setting up our 7 nanometer platform and then eventually 5 nanometer platform. So the way to think about it is, you're going to take this very talented Avera design team, couple it with Marvell's technology platform at 7 and beyond. And it really gives the Avera design team and our customers access to the leading edge, which is our primary partner has been TSMC.
So if you think about TSMC process technology plus really Marvell's very rich IP portfolio plus the design team of Avera, we think it's a very compelling combination for customers that want to participate at the advanced nodes. And that's our strategy.
Great. Thank you.
Thank you. Our next question comes from Harlan Sur with JPMorgan. Your line is now open.
Good afternoon. Congratulations on the acquisition. I think the Silvera team has a great track record of advanced custom ASIC designs. Matt, in response to the prior question, if you look at most of the advanced ASICs currently being designed, they're on 7 nanometer and a few on 5. So I guess the question is, when you answered the prior question, does Avera already have 7 nanometer and 5 nanometer qualified ASIC design flows at any other foundries?
And if so, what specific foundries?
Sure, Harlan. So great question. So here's the way to think about So last, call it summer, right, or in the early fall, GlobalFoundries made the decision to strategic decision at their company level to stop investing in the bleeding edge. And made a strategy pivot and they've announced all kinds of very, I think, positive moves since then to really reinforce their strategy. Part of that was by not having the leading edge, obviously, their customers needed a solution.
So that's where Avera Semi was born. So this team has already for since probably more than 6 months, since last fall, let's call it, engaged with TSMC. So they've actually won designs already there. They have active programs with TSMC today. And they're well underway as are we as well.
I mean, we've got our first tape out coming in 7 nanometer. I'm talking about now this is all 7. Our first tape out in Marvell is coming July timeframe. So the 2 of us are, I think, well aligned and they already have a running start. So that's the first point.
And then the second is, you're right, the world is also moving to 5. We've also begun work in that area. And the way I think about it at a high level strategically is if we're able to leverage more designs, right, on each of these process technology platforms with the combination of the Marvell business plus the Avera business, it has all kinds of benefits, right? It has scale benefits. We can leverage the IP across many more tape outs.
It helps our cost structure. It's just there's all kinds of benefits. So that's another reason to do this, was quite frankly, we've got a big lift, right, to go do all the things we need to do at 7 and 5. Now we've got access to a whole multibillion dollar market, where I think there's going to be significant demand for our products. So that's the way to think about how Avera's team has made the pivot.
And I give them a lot of credit. They had designed in a GlobalFoundries IBM environment and they've really done a good job of accelerating the transition to advanced node and we look forward to working with them and hopefully with the Marvell team in place actually accelerating their progress.
Thanks for the insights there. And then on the press release, you discussed a number of radiohead ASICs that will be deployed into a leading wireless networking OEM. Are these mixed signal ASIC chips, in other words, digital, analog and RF blocks all in the same chip? And then when do these first ASICs start shipping? Thank you.
So the products that they're working on, they have all these mixed signals thing. It has an analog aspect and the detail, which is typically in the digital front end solutions and RFICs in this. So where Global Heavy actually has been engaged in those kind of design for several generations and some of that design that is in the current as well as the some of the early design wins, as Matt mentioned, in 7 nanometer is in that category.
Great. Thank you.
Thank you.
And our next question comes from Christopher Rolland with Susquehanna International Group. Your line is now open.
Hey, guys. Congrats. So if I heard the presentation correctly, maybe I'm reading too much into this, but is the idea that you guys have ASICs for the baseband unit and baseband processing and this has more of a remote radio head focus or is this also for the baseband processing?
Sure. Let me up level it and then I'll go one level down for a second. So again, just to take a big step back, right, there's 2 big benefits in this combination, right. The first is, as we've just discussed, all kinds of benefits in Marvell fully entering the ASIC market, right. And we discussed all the different reasons why that's good.
The other piece of it is that it enables us pretty significant additional design capacity to go after, quite frankly, a growing backlog of opportunities we have across a number of OEMs for base station 5 gs silicon. What we've seen is the demand we have and the opportunities, they actually span the existing business we have, right, in the control and transport processing as well as the baseband. As Raghib mentioned, with Avera, they have expertise and a position in the digital front end, which is up in the radio head. And that's why we think this expands our SAM and we actually see opportunities now as Marvell and now with Avera in the radio head and in the baseband unit across multiple digital technologies that are and mixed signal technologies that are critical to for the next generation of base stations. So yes, I think from a positioning point of view, certainly it expands us into a new segment that we haven't historically been in.
Great. And then as I think about customers okay, yes. Thanks, Matt. And then as I think about customers, the engagement here is perhaps a little bit different than your leading customers, if I understand that correctly? And maybe talk about that.
And then also the data center opportunity, what are these products? Are they 100 gig switches? I'm just unfamiliar. Thank you.
Sure. Yeah, I think on the base station one, what I'll say is, I think we are pleased that this gives us some higher exposure, right, to some additional customers that we didn't have as much exposure to. So I think that's one of the benefits we see with this. Obviously, we've got a lot to offer to the market. And so to the extent we can be more broadly positioned, I think that's a good thing.
On the data center side, I think we're not at liberty to talk about the details of what's the individual applications. Those are fairly sensitive to those particular customers. But there is multiple projects in flight. And certainly as Marvell, I mean, we've gotten numerous requests, okay, over the last couple of years here and even recently to, hey, can you guys participate and help us in some of these things, which as you know, there's a whole bunch of very customized data center cloud silicon that needs to get built. So we think that we can go back in now having this capability and probably be more aggressive there.
Thank you, Matt. Congrats, guys.
Yes. Thanks, Chris.
Thank you. Our next question comes from Ambrish Srivastava with BMO. Your line is now open.
Hi. Thank you very much. Matt, I'm not sure I heard you answer this question Vivek had asked it earlier. What has been the and if I missed it, I apologize. What has been the revenue trajectory for this business over the last 3 to 5 years?
And then I had a follow-up, please.
Yes. Well, what I'd say is that it in the last I mean, right now, the business is doing quite well. So the last couple of years, it's actually been it's been growing. It had a there was a period of decline if you go back years years ago and that transition from IBM to Global and they had to kind of reinvent themselves and find additional customers and leverage sort of the global foundries footprint. But today, that business is certainly from 2017 to 2018 and 2018 to 2019 is on a growth trajectory over the last couple of years.
And certainly, we're hopeful that when we close and in calendar 2020, we'll have a baseline of business that will grow on its own. And then obviously, we would add these incremental opportunities on top of it.
Okay. That's helpful. And then on the accretion and the gross margin front, this is what I was struggling with. ASIC businesses inherently are lower margin businesses. So the accretion is going to come immediately off the path.
Is it going to come from the OpEx side? And then why should gross margins go up to Marvell margins? It's not like these guys are taking lower margin businesses. So what's the path to get the 50% to 60% and not sure I quite understood that part. Thank you.
So if you look at the current as Matt said earlier, the current business itself is in the 50 range. Now as we are utilizing the team going forward, we are actually using the team in several projects and not puristic only, but also on that CSS P side, which where we have demands right now. And then as we add more IPs, our own IPs in the overall solution, this is how the overall margin of the business increases.
Yes. I think maybe I wasn't yes, it was a great clarification. I think, again, we're not going to get beyond this conversation into super micro detail on exactly where these are. But think of it as the team that is coming over will continue to participate in pure ASIC that has a certain margin profile. As you mentioned, it's never going to be as high as if we were adding value, but the team itself is going to be working on both.
And so the economic value derived from the team's engineering, the investment we make will blend up to a higher margin. I think that's the way you should think about it. It will be a combination of both.
Okay, that makes sense. Thank you.
Thank you. Our next question comes from Ryn Bolton with Needham. Your line is now open. Hey,
Matt. You talked about a substantial library coming over. Will you guys have to port that over to TSMC or would you just look to develop new IP blocks for the 5 and 7 nanometer node? And then a second follow-up question, you mentioned some of the high speed Surities capabilities, next generation switches for the data center look to be moving to 112 gig per lane and wondering if you guys acquire that capability with this acquisition? Thanks.
Sure. I'll take the first part. I'll have Raghav do the second on Surtees. But think of it this way, we're already preparing our own we have our own 7 nanometer readiness plan, right. So they'll Avera will be immediately able to benefit from that.
So there's no like porting that needs to come over. We're just for 7 and for new designs. Obviously, we'll benefit from their learnings, right, as they come in, but think of it as we're already doing that today. So that's a leverage point. On Surtees, maybe, Ragh, if you want to comment about that.
So yes. So to clarify, there is no such porting is needed. Avera, independently, as they have restarted working for last 3 quarters, working with DSMC on the 7 nanometer. Certain IPs, they are already developing on 7 nanometer. Independent of that, Marvell itself is developing 7 nanometer, our own IPs and including the 56 gig and 112 gig series.
Our first 7 nanometer tape out is in 2 months. So we have already been investing in those areas. So we have those IPs as well as whereas our plan is to when we combine these combining these IPs overall IP portfolio and that will be our offering for the standard products as well as for MACE. Yes.
And I would just add to completed, I think that was for 7. I mean, just if you go back one node, even at 12, that's going to be our 56 and 112 is already underway and it will be ready much earlier. And then from a Nuvera point of view, you may know this, but that team has a very strong reputation in their SerDes capability. And in 14 nanometer today, they have 56 gig SerDes that's in production as well. So rich set of IP and very talented SerDes teams and this is a scarce resource in the industry and I think we're fortunate to be able to have 2 very talented teams come together.
And just to be very clear, again, we have 100 gig, 12, we're going to have it in 7 and beyond.
Hey, Matt. Can I ask one quick follow-up? Does Avera also have a multi gigabit analog to digital and digital to digital to analog converter capability that might come into play in those remote radio head ASICs?
Yeah, I mean, I think what I'd leave it at without kind of drilling quite yet into all the individual pieces we get, but I think they between Pingavera team and the Marvell team, I just leave it at, we both have very strong mixed signal capability and certainly there are very strong converter people in both companies. I think I would leave it at that at this point. We can share that later in terms of when we get deeper into our roadmap discussions and how all this IP comes together and ultimately our vision to really have a meaningful role in the entire signal chain once it comes off the antenna into the digital domain. I think that's going to be in a there's an exciting future there, but let's share it at the right time.
Okay. Thank you. Thank you. Our next question comes from John Pitzer with Credit Suisse. Your line is now open.
Yes. Good afternoon, guys. Matt, congratulations on the announcement. A lot of uncertainty around the Avera asset over the last year just given what GlobalFoundries has been going through. I'm just kind of curious as you were doing the due diligence around the revenue ramps, to what extent is this sort of still Verra needing to hit technical milestones?
Or to what extent was this just uncertainty about long term roadmap viability and scale that's becoming part of Marvell kind of gets rid of, I. E, how quickly did you think some of these revenue opportunities may materialize?
Sure. Well, I think it's 2 pieces. I think one is, we on the materialization, we certainly have a number of projects today that we could close it and get them started. We would do it as soon as we could. So I think that part we feel pretty good about certainly our pipeline and backlog.
I think on the revenue coming over, I think we've really I think the team and myself, I think we've done a very thorough job to understand the moving pieces and de risk some of that. So what I would say is in the revenue that we're planning on for calendar 2020, It's really with think of it as existing blue chip proven customer base that we understand the dynamics of in terms of if it's ramping or declining and why it is. I think we've gone through that in a pretty detailed manner. So that's not contingent on a lot of new ramps or things happening or smaller customers ramping to be huge customers. It's really think of it as a continuation from a trajectory point of view of where that business has been going.
And then Matt, as a follow-up, is the real opportunity here just displacing what's being done on FPGAs today? Or are there also I guess, who are the other competitors here that we should be thinking about?
So if you look at the overall real opportunities in terms of our put in 3 categories, the data center, the wireless infrastructure as well as the high end networking market, networking OEMs market. As you all aware, the data center folks have a lot of chips that they make their own. So it's a big opportunity over there to expand in that business area. Similarly, there are opportunities to get into the high end networking ASIC solution and then the wireless infrastructure itself. Some of them, of course, in the wireless infrastructure side are in FPGAs and traditionally, they do convert into ASICs, so some of them will overlap of that.
But then there are others, which has been the ASIC itself, itself, so that will also be. So on the wireless infrastructure side, it is more on the one which is overlap over to convert from the FPGAs to ASICs.
Thank you. And our next question comes from Craig Ellis with B. Riley FBR. Your line is now open.
Thanks for taking the question and congratulations on the transaction. Matt, I wanted to start with you, but I wanted to start higher level. So if we take a step back and look at this transaction of Ariseni and if we look at Aquantia, can you just talk about how satisfied you are with the networking segments, technology and product roadmap completeness once you get those 2 deals into the portfolio? And what other needs would you have, if any?
Yes, sure. Thanks, Craig. Yes, so to start at the high level, Clearly, as we outlined with Aquantia, we're strategically very excited about the automotive opportunity. And I think certainly the multi gig area was very complementary to what we were doing. And so that certainly from a yes, how satisfied are we, I think that definitely fits the bill because we have a lot of conviction that, that transition to Ethernet networking and automotive is going to happen.
And the fact that Aquantia and us fit so well together there, I think, is huge. And that definitely the need. And I think it's going to be a home run for our customers as well. The exciting thing about Avera is it really fills what I call a need that's been there for some time, but we've just not to really staff up and build an entire end to end ASIC operation organically, it would take forever and be very challenging. And the fact that we had the opportunity at this time to go acquire it and get to work with the team, I think just worked out really well.
But when we're if you just think about the arc of where we've been, right, and coming up on my 3 year mark here, right, from where we were sort of 3 years ago to today, we just continue to really march forward with our continue to really march forward with our transformation in this company to make it a viable, healthy, extremely competitive supplier to the infrastructure market. And I think if you're going to be big in the infrastructure market, you really need to also be able to offer this customized solution, especially based on some of the trends that I think we're all seeing. I mean, I think we all read the news and see that various hyperscalers around the world are all investing in their own teams to develop custom silicon, where all of those companies need a partner like Innovaira to actually go make those designs manifest themselves into reality, lay them out, yield them, ship them in volume that they need to partner. And so I think, again, the combination of having that expertise, which Avera brings, because they really know how to do that well, combined with, as I mentioned, our Marvell technology platform and just our total focus on this market, I think it's going to resonate really well.
And we feel like we're going to be in a very good position when we are able to close these transactions, bring the teams in, integrate them and present a very holistic, compelling value prop to our customers.
Thanks for that, Matt. And then the follow ups for Gene. Gene, as we think about the 2 deals together, can you address how confident you are getting the business back up to the target margin model? And as we look at the amount of investment that's coming into networking, do we think any differently about the intensity with which the company will be investing its R and D in the storage side of the business? Thank you.
Yes. As we
discussed, both deals are accretive to our non GAAP operating income and also non GAAP EPS after closing. So actually by doing 2 deals, we continue to increase our scale, especially in the networking, the core area we're investing as a company. I think going forward with the integration of the 2 deals, you're going to see, of course, our top line revenue to be continuing to expand. And on the gross margin side, this transaction, as Matt mentioned earlier, is about 50% gross margin at the very beginning, but over time it's going to migrate up with the mix change with the new designs that we're going to have. The most important thing is the operating leverage.
We have the infrastructure to really integrate the 2 deals and to enhance our capability and also generate more free cash flow and the more operating income. So it only helps us to achieve our target model going forward.
Thank you. Thank you. And our last question comes from Ruben Roy with MKM Partners. Your line is now open.
Thanks. Matt, if I could follow-up on Craig's question, the last part of it. I was wondering, there's a lot going on with infrastructure right now. And just wondering how you're thinking about some of the core Marvell businesses. Has anything changed with the way you're thinking about investing in some of the core areas like storage or connectivity?
Thanks.
Got it. No, it's a good question. I mean, again, we continue to be very bullish on our networking segment. As you've all seen, storage is going through what it's going through. Our thesis in storage very much remains the same in terms of our focus.
So, but at the same time, look, we're disciplined operators here and we look at our investments constantly. But from a strategic point of view, we are still very comfortable with our storage strategy. We like it, but at the same time, that business has been down for all the reasons we've discussed. So I wouldn't signal any change there at this time.
Okay, thanks. And then just a quick final follow-up. Has Marvell or Cavium worked previously with Avera in any aspect or been involved in reference designs or similar customer design wins or anything like
Not to my knowledge, no.
Thank you. And that does conclude our Q and A portion for today and that does also conclude our conference. Thank you for your participation. You may all disconnect. Everyone have a great day.