MaxLinear, Inc. (SIMO) Earnings Call Transcript & Summary

Greetings, and welcome to the MaxLinear Acquisition of Silicon Motion Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Nicholas Aberle, VP of Finance. Thank you, sir. You may begin.

Thank you, operator. Good morning, everyone, and thank you for joining us on today's conference call to discuss MaxLinear's announcement of a definitive agreement to acquire Silicon Motion. Today's call is being hosted by Dr. Kishore Seendripu, Chief Executive Officer; and Steve Litchfield, Chief Financial Officer and Chief Corporate Strategy Officer. After our prepared remarks, we will take questions. Our comments today include forward-looking statements within the meaning of applicable securities laws, including statements relating to the anticipated benefits of the acquisition, anticipated performance of the combined company, growth trends in the semiconductor industry and our target end markets, expectations that the acquisition will be accretive and the timing of the closing of the acquisition. These forward-looking statements involve substantial risks and uncertainties, including, but not limited to, the risk that the potential benefits sought in the acquisition might not be fully realized, the possibility that the acquisition might not be consummated or the consummation might be unduly delayed and the effect of a public announcement of the acquisition on sales and operating results. More information on these and other risks is outlined in the Risk Factors section of our recent SEC filings, including our Form 10-Q for the quarter ended March 31, 2022. Any forward-looking statements are made as of today, and MaxLinear has no obligation to update or revise any forward-looking statements. The press release announcing the definitive agreement and a presentation outlining the transaction are both available in the Investor Relations section of our website at maxlinear.com. Lastly, this call is also being webcast, and a replay will be available on our website for 2 weeks. And now let me turn the call over to Kishore Seendripu, Chief Executive Officer of MaxLinear.

Thank you, Nick, and good morning, everyone. We are very excited to announce that MaxLinear has reached a definitive agreement to acquire Silicon Motion in a cash and stock transaction that values the combined company at $8 billion in enterprise value. This strategic combination creates transformative scale, a highly expansive and diverse technology portfolio and doubles MaxLinear's total addressable market to $15 billion. Our comprehensive operational scale will not only expand our profitability but also benefit all of our stakeholders. First and foremost, of whom are our customers, employees, shareholders and suppliers. Before going any further, I want to take the opportunity to salute and congratulate Silicon Motion's employees and management for their passionate culture of engineering excellence and for pioneering world-class core technologies that have powered the rapid growth of and the transition to solid-state storage devices. I'm personally thrilled to welcome Silicon Motion into our family. I also want to assure Silicon Motion's extensive customer base that together, we are committed to the continued development of leading storage technology solutions for their needs. We are bullish on the semiconductor industry and the long-term growth prospects of our combined target end markets where we have leadership positions to date. On the technology front, both companies have driven significant innovation in our respective markets for the past decade, rapidly growing from fledgling start-ups to $1 billion-plus annual revenues individually. With the combined IP portfolio exceeding 4,000 patents, $400 million-plus in cumulative R&D scale over the last 12 months, and roughly 3,000 employees-plus, with 75% in core engineering, our capabilities and market reach will rival the best in the industry. Both MaxLinear and Silicon Motion have truly complementary technology offerings built on advanced geometry CMOS manufacturing process road map. Silicon Motion's comprehensive storage technology solutions, combined with our extensive portfolio of RF, analog, mixed-signal digital communications and network processor system-on-chip capabilities will enable us to capture end-to-end platform functionality across our unified customer base and target end markets. At the same time, access to advanced CMOS process technology nodes and production capacity has become extremely critical for the future of fabless companies. We both have to become strategically important and meaningful to the semiconductor manufacturing supply chain. So the merger of our businesses will address our critical imperative of strategic relevance to our common advanced semiconductor manufacturing supplier base. Together, we currently ship over 1 billion devices annually and growing. Our increased combined operation scale will benefit us and our customers as we push for increased capacity commitments from our manufacturing partners to support our long-term growth. As you know, more than 3 years ago, we embarked on our ongoing long-term strategic product investment road map to penetrate the large and rapidly growing high-value 5G wireless, cloud data center and the network edge infrastructure markets. Our infrastructure revenues are growing steadily, ending Q1 at an annualized run rate well above $100 million. Our infrastructure product portfolio now spans 5G wireless access and backhaul, 400 and 800 gigabit PAM4 DSP optical transceivers for hyperscale data centers and server power management solutions. Alongside, we have been investing in storage data reduction and security hardware accelerators or DPUs for enterprise storage. Silicon Motion's comprehensive SSD storage controller product portfolio readily addresses a rapidly growing $2 billion enterprise edge and data center storage market. For the past few years, Silicon Motion has also made substantial investments in mainstream and high-end enterprise and cloud storage solutions. By combining both our assets and leveraging MaxLinear's strong enterprise and cloud data center customer relationships, we can accelerate our revenues and penetration into these large secular high-value, long-term growth markets. Silicon Motion has established technology leadership in the storage controller market, the deep storage controller expertise, state-of-the-art firmware algorithms and an impressive customer base of leading NAND flash manufacturers lends immediate credibility to our ability to address enterprise data center, industrial, automotive and IoT storage controller applications. These diversified end users of storage controllers represent a $5 billion addressable market in 2021, which is rapidly growing to $8 billion in 2026. The key drivers of this growth are the increased adoption of solid-state drives, rising demand for cloud-based storage solutions, the proliferation of IoT and a steady transition away from captive controllers to merchant solutions. Silicon Motion's storage portfolio, combined with MaxLinear's own expansive communications technology platform spanning broadband access, connectivity, network infrastructure and industrial markets positions us extremely well to be a leader across multiple end markets with significant growth in revenue and customer platform content. In summary, we are very excited to welcome the Silicon Motion team to MaxLinear. Our combined organization will drive $2 billion-plus in revenues annually, immediately ranking us among the top 10 largest fabless semiconductor companies. We will have the enhanced scale to develop IP, drive manufacturing supply chain synergies, diversify our revenue across multiple markets and accelerate penetration into industrial and enterprise cloud markets. With that, let me turn the call over to Steve Litchfield, our Chief Financial Officer and Chief Corporate Strategy Officer, to discuss the specifics of the transaction and its financial implications. Steve?

Thank you, Kishore. To echo Kishore's comments, we're extremely excited to be announcing this transformative deal, which enhances our operational scale, diversifies our end market opportunity with new leadership position and accelerates our strategic infrastructure growth. In addition to this compelling strategic rationale, the business combination will be highly accretive to operating income, operating margin, earnings per share and free cash flow. Now for the specifics on the transaction structure and financials. Under the terms of the definitive agreement, the fully equity purchase of Silicon Motion will be for $114.34 per ADS, or $3.8 billion, which implies a 41% premium to yesterday's market value. The transaction consideration will consist of $93.54 in cash and 0.388 shares of MaxLinear's stock for each Silicon Motion ADS. Upon closing of the transaction, MaxLinear shareholders will own approximately 86% of the combined company, and Silicon Motion stockholders will own approximately 14% of the combined company. MaxLinear intends to fund the $3.1 billion of cash consideration with cash on hand from the combined companies and fully committed debt financing from Wells Fargo Bank. Looking at the combined pro forma EBITDA, including synergies for the period ending March 31, 2022, our gross leverage ratio will be approximately 4.5x, and we expect gross leverage will be below 4x at transaction close. We are firmly committed to rapid deleveraging post close, driven by growth in free cash flow to prepay debt and expansion of EBITDA. The transaction is not subject to any financing condition and is expected to close by the first half of calendar 2023, pending regulatory approvals in various jurisdictions and other customary closing conditions. Looking at the combined pro forma financials, we expect this transaction to be very accretive and will result in a highly profitable long-term operating model. Combined revenue for the trailing 12 months ended March 31, 2022, was $1.93 billion, with a non-GAAP gross margin of 58% and EBIT margin of 35%. We are targeting cost synergies of $100 million spread across COGS and OpEx to be realized over 18 months following the close of the transaction. This results in expectation that the combination will be highly accretive to operating income, operating margin, earnings per share and free cash flow. More specifically, we believe the transaction will be at least 25% accretive to non-GAAP earnings per share 18 months after close. In summary, we believe this transaction represents an outstanding outcome for our stakeholders, including employees, shareholders, customers and suppliers. This is a strategic combination of complementary entities that enhances scale materially, positions the company for continued long-term profitable growth and drives a meaningful accretion. With that, I'd like to open up the call for questions. Operator?

[Operator Instructions] Our first question comes from Quinn Bolton with Needham & Company.

Congratulations on the announcement. First question, just kind of housekeeping for the regulatory approval. Can you list which geographies you'll need approval. I assume China is included and thoughts on SAMR approval?

Yes, Quinn. Good to talk to you. Yes. So there are various jurisdictions. You are correct. SAMR is probably the long pole in the tent. But we do remain very confident that we'll get this closed. As you're familiar, there's not a tremendous amount of overlap from an antitrust perspective. So we're confident that we'll finish this in the first half of next year.

Great, Steve. And then the second question is you've talked about $100 million of synergies. Wondering if you could give us some sense how does that split between OpEx and COGS, and to the extent a lot of it comes out of OpEx. It looks like both companies are pretty lean on the SG&A side. So I'm wondering, will there be any material savings from the R&D lines?

Yes. So we do see that split out about 70-30, so the OpEx will be about $70 million of that $130 million will come from COGS. So naturally, I mean, what we're excited about, and Kishore shared in his prepared remarks, I mean, the scale that comes from the transaction is very impressive. We're very excited about the amount of wafers, the amount of kind of back-end capacity that we start to consume. So that clearly, I think, helps us. You'll start to see volumes that are 4x bigger than what we're doing today. So that's really exciting for us. On the OpEx side, yes, I mean, there'll be some synergies. Naturally, we've got 2 large companies that will have some overlap in most all of your functions. So we'll be able to benefit from that as well. I don't feel like we're being overly aggressive versus other comparable transactions and other ones that we've done in the past.

Great. And the last quick one for Kishore. Obviously, Silicon Motion has today a fair amount of consumer exposure in both cell phones, and I think the client side of SSDs. How do you feel about sort of that -- picking up that consumer exposure, especially with some of the recent data points around smartphones and consumer PCs that have softened a bit?

Thank you, Quinn, for the question. Obviously, that is a leadership strength where they are in storage controllers. And from our own experience, right, to be a leader in consumer markets takes a certain level of genetic fortitude and execution excellence that is core to what the company's values are. Having said that, they've been investing for the last few years on their own enterprise cloud storage data market. They have been diversifying the revenues to include these higher long-term secular growth trend markets. We cannot forget that the single biggest spend inside the infrastructure market is really storage, whether it's hyperscale data centers or enterprise. And in order to really, really scale up and really take a common portfolio of assets that combines our own investments in the optical data center space, the edge wireless infrastructure and the fiber network beats, fiber PON or cable. These are a very, very complementary assets. And together, we'll be more relevant and continue to expand our BOM contained on the platforms in the broadband side as well. So I really feel that this acquisition is really a coming of age for MaxLinear and Silicon Motion together. You have to keep in mind that in the last couple of decades after Broadcom and Marvell, there's not been a $1 billion mixed signal semiconductor company. And today, if you look at the landscape, it will be MaxLinear who is the youngest one, along with Silicon Motion, who will be the first $1 billion company. So I think the more important you have to look at is the transformative scale. We all know there have been persistent supply chain constraints to really for growth, and this is really, really a strategic imperative for all fabless companies to really scale up to be strategically relevant in the advanced technologies in the fabless model. So consumer markets have their own cyclical trends. The infrastructure markets have their own long-term secular growth cycle trends, and broadband operator markets have similar -- have different trends. What it all adds up together is the very, very nice, diversified, robust growth road map for the company and the trajectory for it? So's this is a transformational deal for the company. And I'm really super excited for all our employees who have brought us this far with enormous sacrifices, and what a wonderful job everybody has done getting us here. I hope that helps answer that question.

Our next question comes from Tore Svanberg with Stifel.

Congratulations on this announcement. Kishore, maybe to expand a little bit on what you just mentioned as far as enterprise and cloud. It does seem like there's more of a platform approach now from some of the companies there. Obviously, as a company, you've been investing heavily there, and storage obviously becomes more and more of an important piece. So just hoping you could add a little bit more color there as far as your engagement so far with both enterprise and hyperscalers. Is this something that perhaps some of your customers really invited you to pursue?

Tore, absolutely. I did mention for the first time for the last 3 years, we have been investing in hardware accelerator and compression and security, what today people fashionably call DPUs for the enterprise storage market. A few years ago, we had a press release that talked about our presence in the Dell Enterprise, our PowerMax platform, for example. So there's been a lot of traction and invitation in enterprise for us. And in general, so making the supply base to provide more hardware-based solutions for really, really fast data access and both store -- compression, decompression, and control is a huge part of that solution. So yes, you're absolutely right. And that's what it's gotten excited about -- us to move forward. And we met Wallace and his team on many occasions, and it was a meeting of minds on what is the next phase of growth for both companies.

Great. And I know this has perhaps been more of a longer-term question as it relates to this transaction. But could you talk a little bit about the PCIe Gen 6 technology. Obviously, PAM4 has an important role there. But obviously, when you add storage too, you could perhaps deliver more of a complete solution. So just wondering if you could talk a little bit about if that also was an important part of this transaction.

Absolutely. You hit the nail on the head, so to speak, right? We are a mixed signal company, right, with all the expertise for high-speed interfaces. And I mean, storage now is no different than any communications platform in terms of the speed requirements, data integrity, the -- and that is, most people do not appreciate the fact that the amount of digital processing and error correction, and encoding and decoding that's there in the storage controller market and even in storage devices. So it really all comes together. We have PCIe Gen 5 technologies already within both our companies. And obviously, that will be the next phase of investments. And if you really combine all of those investments, surrounded by our investments in power management and server power solutions, we have a very nicely developing infrastructure portfolio. As long as we continue to grow in our core markets in broadband access, wireless infrastructure and the traction today we have in optical data center PAM4 DSPs and the large growth we are seeing with our Ethernet connectivity and interface portfolio in industrial multimarkets, I think we have an exciting combination of also channel sales expansion with our large sales force that is not -- that will be a synergy working with Silicon Motion.

Great. Just one last one for Steve, perhaps. You talked about this also being a scale deal, especially given the current supply situation. Can you maybe elaborate a little bit on that? I mean, are you going to be adding any foundry partners? I assume you already use some of the same foundries. So yes, if you could maybe expand on how -- what kind of advantage this gives you, that would be helpful.

Yes. Sure, Tore. Yes. So I kind of mentioned a little bit earlier -- so first of all, as many of you know, we have a pretty diversified supplier base. So we do use several foundry partners today, and that will continue going forward. But now with Silicon Motion, they've got 2 main foundry partners, and that will give us significant more wafers that we can go and leverage, and our importance will grow on that front. I also think that we'll get a lot of back-end synergies as well with the additional capacity that we'll bring.

Our next question comes from Gary Mobley with Wells Fargo.

Congratulations on the transaction. Given the geographic differences between the 2 companies, the end market differences between the 2 companies, I would imagine that management and key personnel retention is paramount here. So maybe if you can speak to some of the retention terms that you're negotiating into this transaction. And I guess, more specifically, Wallace, by traditional terms is maybe at retirement age, what is his intention in terms of continuing with the combined company?

So Gary, obviously, you asked your questions regarding retention is something I cannot respond, and these are really confidential matters for the future. Obviously, there's a lot of commitment and meeting of minds. There are a lot of -- there were other competitors naturally for this acquisition. Clearly, there was -- there's a level of meeting of minds and a conviction on both sides that we can really make this happen. And so there's a natural passion, which is common to smaller companies that really drives this transaction together. Obviously, we have had conversations with the senior management team at Silicon Motion. And we're very excited that they're really excited about moving forward together and making a difference. With regard to the continuation of leadership, we will have that, and we've also discussed with Wallace when the transaction closes to be in a more, what I call, participatory advisory position for MaxLinear. And that will evolve as we move forward. Wallace is a wonderful person to work with and so is his management team, and we are really excited to move forward. And here, I want to give a shout out to Wallace for really being a warrior to build a $1 billion company over the last 2 decades.

And Gary, I might add just a little bit on the geography. I mean, I think this is a key area for us that we'd like to continue to grow. We have a big footprint in Asia today, and that will grow that. Our applications support already exists there, and this will provide us with an opportunity to really expand that.

Got it. And then, Steve, with respect to debt terms, what -- approximately what sort of interest rate are you are you looking at for this? I presume, what, $2.7 million in debt financing?

Yes. So we do have debt financing committed. Clearly, we'll go to market, in the term loan market. So we're looking at those markets right now. But I think in the 2.5 to 3.5 -- SOFR plus 2.5% to 3.5% is probably the range we're thinking about.

Our next question comes from Ross Seymore with Deutsche Bank.

Congrats on the big deal. Kishore, I want to talk a little bit about the combined growth rates of the companies. On one hand, the good news is this massively expands your TAM, diversifies the business in a bunch of good ways. On the other hand, it's a little harder for me to see the synergies, the revenue synergies that exist. That's probably just because I'm missing something. So could you just talk about how fast do you think the combined company can grow and where some revenue synergies may exist?

So thank you, Ross. You know that Silicon Motion has grown very, very aggressively over the last 2 years, right? I mean, their -- it's almost like they zoomed through from something in the $500 million, $600 million of revenue to $1 billion-plus revenue run rate today. And that's primarily driven by the penetration of NAND flash memories across the board, solid-state memories, and that penetration will continue to grow. In the slide deck, we have attached with the press release we show the penetration rates of solid state, how much is driving growth in the storage market. And being one of the top merchant who supplies the storage controller market, we believe there is a strong growth forward. And actually, we have also grown very, very strongly. Our connectivity portfolio is growing extremely strongly. We're entering the fiber PON market, and we have talked about growth rates in the mid-teens stand-alone. So -- well, I don't want to get ahead of where the world is sort of thing, but I don't see why -- because there is no sort of dampening of growth rates of either entity, as a part of the combination, we'll continue to grow in the mid-teens is our expectation. At the same time, I believe that the sales opportunities for the storage controller market outside of the client and is really, really undertapped today in the Silicon Motion case. And with our expanded channel presence and sales presence, with a large sales force that covers the industrial multimarket, which is currently about something in the $200 million to $300 million of revenues, we could easily bolt on our sales force to sell the storage controllers much more than they are doing today. And what that does is it really adds a leg of end growth market for Silicon Motion outside of the client in compute and the infrastructure market, which is the industrial markets. So we are very excited that the growth rate will continue in the near to long term, as I've told you. And I feel, if anything, it reinforces the penetration and growth rates even more for the storage market.

And I guess as my follow-up, one for Steve. You gave the color on the -- or the synergies at $100 million and the 70-30, so I get that. But if I just look at the financial structure on the income statement of the 2 companies, you guys have relatively similar impressive operating margins kind of in the 30% plus or minus range. So that seems logical. The gross margin, however, on the Silicon Motion side is significantly below yours. I know you talked about having the $30 million that roughly speaking, that you would be able to have synergies on the COGS side of the equation. But is there room longer term to get that gross margin up closer to where you guys are in a more strategic sense?

Yes, Ross. Absolutely. So I mean, we're pretty excited about this. And if you'll recall, about 1.5 years ago -- well, right at 2 years ago that we were announcing our previous carve-out acquisition of Intel. And those combined numbers were actually pretty similar. The combined numbers out of the gate were about 57% gross margins. And as you look at the numbers today, the combination, with the synergies, gets you at about 58%. So I think it's a really good starting point for us. We've got a great track record of making these improvements. Yes, the synergies will come. We've had a lot of success. I don't think it changes our long-term model of getting back up to the mid-60s. In the short term, you'll see us with our heads down focused on getting above the 60% number, first and foremost. With regard to the operating leverage in the model, I mean, clearly, I think both of us have made tremendous improvements over the last couple of years. Getting leverage, I think that continues. I think we've got a -- you've seen that with our business. Our business has definitely grown. Profitability is improved. And I think -- and frankly, you've seen that with the Silicon Motion business as well. So we're looking to take that to the next level.

Our next question comes from Suji Desilva with ROTH Capital.

Congratulations on the transaction. It's been a while since a storage acquisition like LSI/PMC-Sierra, but I'm curious who do you guys see as the competitive landscape for the combined company and the comps? Guys like Intel and NVIDIA have been focusing on DPUs and FPGAs and Intel even divested storage. I know it's not quite the same. But I'm just curious, the trend you're seeing zigging versus zagging, and who you see as kind of the competitors as you do this?

Yes. Well, look, I mean, I think you hit the nail on the head. I mean, those competitors that we see today are similar competitors that you've seen us compete against in the past. I mean, it is still Broadcom, it is Marvell. I mean, these are the bigger players, MediaTeks and others competitor here that we see a lot in our broadband market. We've got tremendous success against all of these guys. So building out the portfolio. Talk a lot about -- I mean, within the data center, right, Kishore kind of spent a little bit of time about the focus for both of our companies as far as expanding our footprint there. And it's a great fit from a technology standpoint now that we've got processor capability, networking capability. And now with storage capability, really builds out that portfolio, and pretty exciting. I think we feel very confident that we can continue to go head-to-head against these guys and grow our business.

And I really want to point this out, right? I mean, if you look at the large fabless semiconductor companies every -- nobody who's big is not exposed to consumer client business. The large markets, the beauty it affords is the scale the operational scale and the technology synergies that really translate in infrastructure markets as well. I mean, our portfolio is not dissimilar to what a Marvell portfolio was about 7 years ago. I would dare say that our portfolio is even more beautiful than theirs today in terms of the category and the excellence of the products we have in place. So we do believe a story like that is a comparable story to how we can be a similarly excelling company and creating great value for our shareholders. So I think there's a parallel story out there that -- whether it's a Broadcom or a Marvell where these are transformative technology acquisitions.

Great. That's helpful color. And then my follow-up on the Silicon Motion Shannon business that has China hyperscaler penetration. Can you remind me if MaxLinear has presence at the China hyperscalers with its portfolio, that, that could start to build a synergistic portfolio?

So obviously, with their large communications infrastructure portfolio, we have, I would say, good strong presence across the globe, and China is a very important market for us as well. And so we, in the optical data, China tends to be a little behind where the U.S. markets are on the hyperscale side. So the base in which you penetrate the data center markets in the optical PAM4 DSP markets, or it's a little bit behind in terms of where the U.S. is. So we do have design win traction and motion in China. But where we only have established presence is actually in server power sales in the Chinese server market, and that -- those products do go into the hyperscalers in China. So yes, the short answer is yes, we do have a presence in the China hyperscale market.

If I could sneak a quick one in for Steve. What was the peak leverage when you bought the Intel asset? I just want to understand, comparing it to the 4.5% you talked about?

It was about 3x, a little less than 3x.

Our next question comes from Ananda Baruah with Loop Capital.

Congrats on this. Two, if I could. When do you think the combined companies, Kishore, begin to get what you would call attractive traction in the enterprise and cloud markets? And then I have a quick follow-up.

Obviously, we talked about ongoing -- our own ongoing investments in the storage compression and security accelerator market. So actually, we are already shipping right now. And the timing didn't kind of work out, but we will be doing some announcements in that regard as we move forward into the next 12 months. Obviously, Silicon Motion is already shipping into the market. So we are the one who will come forward with our own story in the next 12 months with some regular updates on where we are on the storage side at an independent level. So you had to keep in mind that this transaction, until it gets approved, our expectation in the first half of next year, we have no ability to comment and impinge upon the business conduct of Silicon Motion. So we can only speak for our own business.

Understood. Understood. And what I'm just trying to get a sense of is kind of when the combined companies' capabilities might be something you would consider to be a critical mass in those markets based on what you have visibility to right now. Do you think that's something that could happen in the first 12 to 24 months?

Absolutely in the 24 months, for sure. Within 12 months, we will not be able to comment on what happens in the next 12 months until our acquisition closes. However, we will have updates on progress on our own, and whether our investments are resulting yield. And I've told, we're already shipping -- we are already shipping some in the storage market for the enterprise cloud storage space.

That's really helpful. And my quick follow-up is, I guess, like, where do you see the first, call it, we can go 24 months -- first 24 months as being the most key technology synergistic areas between the 2 companies. There is a number of things, Kishore, that you spoke to in your prepared remarks. What would you consider to be sort of the most key technology, and maybe even market leverage areas between the 2 companies, the first 24 months.

I'll have to quote Tore's question, right? You've seen all these super high-speed interconnects that are common between communication platforms. And also when all these -- as the world goes more and more Ethernet speeds, right, that is driven by the network edge and the cloud data center markets. So there's a convergence of all these high-speed interconnect mixed-signal technologies that connect the various elements of a full, what you will call a network fabric or those sorts of things. So I think there are tremendous synergies out there. And memory no longer is just data that is being accessed and sent back. It's got very sophisticated DSP technologies that are being implemented to make sure that the cheap memory flash controller storage, as the density increases, the defect rates are dramatically high, so there's an enormous amount of technology that goes into algorithms and DSP algorithms, information theory, that basically improves the yield of NAND flash memories dramatically. One of the things that Silicon Motion has done incredibly well, I would say, is that they have made their controller so robust and generic that they can adapt to any leading NAND flash memory manufacturer's memories and really, give consistent performance and yield in terms of the product. So I think those are the 2 obvious rider-based synergies. There's a third piece that's incredibly important, right? And I really want to emphasize this. If you really look at the fabless landscape today and the supplier base, the most important technology relevant companies are actually are foundries. The amount of investment that -- let us not get carried away that -- by how wonderful and beautiful the fabless company business model is. The 2 technology pioneers are also the fabless technology developers. So like I said in my prepared remarks, access to these advanced technologies and the cost of those developments requires pretty sophisticated device technology modeling, internal ability to manage yields with the new FinFET technologies, that's a core technology capability as well, which MaxLinear has always had incredible core competencies in that space. So I believe that, that would be readily applicable to improve yields and COGS for the combined companies. So lots of great synergy areas that for a technophile like me is all exciting, and as a big shareholder, I'm even more excited.

Our next question comes from David Williams with Benchmark.

Congrats on the deal. I guess, first, if I -- maybe first, on the deleveraging side, can you just kind of speak to your cash flow expectations and kind of how you expect that cadence of the reduced there? How do you think about that?

Yes, absolutely, David. I mean, look, as I kind of mentioned a little bit earlier in the prepared remarks, I mean, we do see a lot of progress to really drive operating margins here, and we'll throw up tremendous amount of cash flow. So we'll be able to deleverage very quickly. So we expect to be below 3x within 18 months post close. So very aggressive deleveraging. You've seen us do this before. We've kind of taken leverage up and paid it down quickly with a whole lot of focus, and that's absolutely what you should expect here.

Okay. Fantastic. And then maybe, Kishore, on the portfolio side, just kind of thinking about your total portfolio here. Are there areas that you think you can optimize in terms of maybe areas that don't make as much sense today with the combined companies?

Obviously, whenever such a combination happens, we -- there is -- when you're a stand-alone company, right, at your size, you're always looking for growth vectors. And the relevance of a certain space is very different when you a combined companies. Obviously, there's going to be a portfolio rationalization on both our side, and we'll pursue meaningful opportunities that are really meaningful for our shareholders and for our growth ambitions. So I do believe there will be a portfolio hybridization, rationalization and enhancement at the same time to grow both the companies. And the key point is the enhancement part, right? We will really, really, what I call, cross-reinforce each of this product portfolio, both on the SG&A side and at the same time, on the R&D development side on the markets.

Our next question comes from Christopher Rolland with Susquehanna.

I want to echo my congrats on the deal as well. I guess, first of all, I want to know kind of what were the origins of the tie-up here. Did they approach you? Did you approach them? And was the deal well shopped?

Chris, you asked a dating question. How do we answer that? It's mutual attraction. So obviously, we can't get in the details, but this has been a long-term coming. We have been engaged for more than 2 years. And so this dialogue has been going on for a long time through various channels. Our management had a relationship at the high level and at the other layers inside. You have to know that we have a significant presence in Taiwan stand-alone as a company as well. And so it's really, really gratifying. Wallace, and really his, what I call, heart and soulmate, and fellow Board member, Nelson Duann, they have been wonderful through this process, and I'm really excited to work -- continue to work with Nelson as a part of my team in the future as this merger moves forward.

Great. And other questions that I'm sure the event-driven guys want to know. Is there a break fee associated with the deal as well?

There is a break fee. I mean, you can refer to some of the deal terms in the filing that we put out this morning.

Our next question comes from Mehdi Hosseini with SIG.

I cover Silicon Motion. So my question has to do with how did you come up with the valuation that is applied here, given Wallace has over the past 9 months talked about $1.5 billion of backlog and improving margin profile?

That's an excellent question. Obviously, you have to believe in the future of the combined companies together, right? It is the art of the possible, right, to secure the future. And in these inflationary times, both of us do extraordinary -- like Warren Buffett said, right, we have to do extraordinary things and excel at it. That's the true path to success. And I think that's what both of us are focused on, and that's how we got here. And our Board of Directors have been incredibly supportive. Talking about backlogs, right? Absolutely, Wallace is right. He said it, he's probably -- he's more than right. And we have also talked about our backlog being pretty substantially robust that supports the growth rate, that will support the deleveraging that Steve talked about. And what -- and this is a greater time when you have such a strong, robust lead time backlog in a semiconductor industry, where you can do a transformative deal like this, right? You have sort of a visibility and confidence that the backlogs of each of our companies provide to move forward. So I would say all of those things came together wonderfully to make this happen.

But is there a group of comparable companies that helped you with the valuation, given the backlog and expand your margin profile?

I really can't address that. But maybe, Steve, do you have any thoughts on that?

Well, it's the same competitors that I mentioned earlier. It is a Broadcom. It is a Marvell. I mean, those are the type of companies that we compete against day in and day out, and we aspire to. I mean, the Inphi multiple that we see, that's what we aspire to every day. And so that's what we believe, if you look at the P&L and you look at the profitability of our corporation, if you look at double-digit growth rate. I mean, one of the things that we haven't talked much about today is just the excitement around our existing business. I know today's call has really been focused around the Silicon Motion business and the growth prospects. I know you covered Silicon Motion. So you recognize that, you know where that growth profile is going, given some of the new markets that they're exploring. We also have a lot of confidence in our own respective market, and now we're looking to merge those, particularly in the enterprise and data center markets.

At this time, I would like to turn the call back to management for closing comments.

Thank you, operator, and I really want to thank you all for joining us today and the exciting MaxLinear journey. And we look forward to speaking with you or seeing in person at 1 of the 4 conferences we are attending this quarter. Thank you very much. And once again, I also want to thank the Silicon Motion management and really want to welcome the entire team into MaxLinear. Thank you very much.

Thank you. This does conclude today's teleconference and webcast. Please proceed -- disconnect at this time. Thank you.