What changed in this filing

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Item 1A. Risk Factors

2023-02-24 compared with 2022-02-25 · 42 added, 25 removed, 191 unchanged (26% of the section changed)

26 unchanged sentences

subsidiaries, accounted for 84.4% of total revenue in 2022.

Customers based in Asia dominates our international sales.

Customers based in Asia dominate our international sales.

Ion implanter system shipments to customers in Asia represented 76.0% of total system revenue in 2022.

We anticipate that international sales will continue to account for a significant portion of our revenue.

In particular, we expect that sales to Chinese customers (both global and domestic Chinese chip manufacturers) will continue to increase in coming years, creating both risk and opportunity.

Sales to Chinese customers represent a higher risk than some other international

locations because of trade tensions between the United States government and the Chinese government, and other challenges reflecting China’s stage of development, including public health concerns and rapid growth.

For example, in 2020, the United States Commerce Department placed one of our major Chinese customers on the U.S.

export controls Entity List.

As a result, we are currently required to obtain export controls licenses for all shipments from the U.S.

to this customer.

This situation temporarily delayed shipments and resulted in the risk that this customer (and potentially other Chinese customers) would change suppliers to non-US vendors, such as Advanced Ion Beam Technology, Inc., Nissin Ion Equipment Co., Ltd.

In particular, we expect

that sales to Chinese customers (both global and domestic Chinese chip manufacturers) will continue to represent a significant portion of our total sales, creating both risk and opportunity.

export controls on shipments to Chinese customers have been notably increasing since 2020.

Since the placement of SMIC on the U.S.

Entity List in 2020, we are required to obtain export control licenses to ship to mature process SMIC fabs, which to date, we have been able to obtain.

Another chipmaker, YMTC, was placed on the Entity List in 2022, without a similar policy allowing licensed shipments.

A new export controls regulatory framework was issued by the U.S.

in October 2022 that limits all semiconductor equipment shipments to Chinese customers who are producing or developing logic, DRAM and NAND chips meeting specific advanced parameters.

While these regulations have further excluded exports to certain Chinese customers, we currently are able to continue to ship to the majority of our Chinese customers.

In general, however, continuing revenue from Chinese customers is at higher risk than continuing revenue form customers in some other international locations because of trade tensions between the United States government and the Chinese government, and other challenges reflecting China’s stage of development, including public health concerns and rapid growth.

Increased U.S.

export controls and other political and trade tensions exacerbate the risk that Chinese customers will change suppliers to non-U.S.

vendors, such as Advanced Ion Beam Technology, Inc., Nissin Ion Equipment Co., Ltd.

and Sumitomo Heavy Industries Ion Technology Co., Ltd.

20 unchanged sentences

As a result, we could experience delays or shortages.

If we are unable to obtain adequate and timely deliveries of our required components or sub-assemblies, we may have to seek alternative sources of supply or manufacture these components internally.

If we are unable to obtain adequate and timely deliveries of our required components or sub-assemblies, we may have to seek alternative sources of supply or manufacture

these components internally.

This could delay our ability to manufacture or to ship our systems on a timely basis, causing us to lose sales, incur additional costs, delay new product introductions and suffer harm to our reputation.

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None of our customers have entered into a long- term agreement requiring it to purchase our products.

One of our largest customers, SMIC, is based in China, which is subject to U.S.

export controls risks, discussed above.

Although the composition of the group comprising our largest customers has varied from year to year, the loss of a significant customer or any reduction or delays in orders from any significant customer will adversely affect us.

1 unchanged sentence

Our international operations involve currency risk.

Substantially all of our sales are billed in U.S.

dollars, thereby reducing the impact of fluctuations in foreign exchange rates on our results.

Substantially all of our system sales are billed in U.S.

We also pay almost all non-U.S.

4 unchanged sentences

subsidiaries, are received and incurred in local currencies.

The translation of these operating results into U.S.

dollars in our Consolidated Statement of Operations can result in other income (expense).

The establishment of the Axcelis Asia Operations Center in South Korea has increased the volume of our transactions in non-U.S.

dollar currencies and increased the impact of foreign exchange gain / loss on the Company’s financial results.

The Company experiences translation adjustments when local currency accounts payable on non-U.S.

subsidiary books are re-measured for consolidated financial reporting.

Similarly, the translation of long-term asset and liability values to U.S.

dollars are recorded in stockholders’ equity as an element of accumulated other comprehensive income (loss).

Accordingly, fluctuations in exchange rates can impact reported revenues, expense, and profitability and asset values in our Consolidated Financial Statements.

The value of the asset or liability in U.S.

dollars will increase or decrease relative to the local currency based on changes in the exchange rate between the two currencies over the period.

As a result, any unplanned non-cash gains or losses are recorded in the Company’s consolidated financial statements.

Accordingly, fluctuations in exchange rates can

impact reported revenues, expense, and profitability and asset values in our Consolidated Financial Statements.

During the year ended December 31, 2022, approximately 9.1% of our revenue was derived in local currencies from foreign operations with this inherent risk.

4 unchanged sentences

In particular, we must attract and retain highly skilled design and process engineers.

Competition for such personnel is intense, particularly in the Boston metropolitan area, as well as in other locations around the world.

If we are unable to retain our

existing key personnel, or attract and retain additional qualified personnel, we may from time to time experience insufficient levels of staffing to fully develop, manufacture and market our products and perform services for our customers.

Competition for such personnel is intense, both in the Boston metropolitan area and in other locations around the world.

If we are unable to retain our existing key personnel, or attract and retain additional qualified personnel, we may from time to time experience insufficient levels of staffing to fully develop, manufacture and market our products and perform services for our customers.

As a result, our growth could be limited or we could fail to meet our delivery commitments or experience deterioration in service levels or decreased customer satisfaction, all of which could adversely affect our financial results.

1 unchanged sentence

We derive our new systems revenue from the sale of a small number of expensive products to a relatively small number of customers.

The selling prices on our ion implant and other legacy processing systems range from approximately $2.0 million to $8.0 million.

The selling prices on our ion implant systems range from approximately $2.4 million to $10.0 million.

We also sell used equipment in our aftermarket business.

2 unchanged sentences

Our financial results also fluctuate based on gross profit realized on sales.

A variety of factors may cause gross profit as a percentage of revenue to vary, including the mix and average selling prices of products sold, costs to manufacture and customize systems, warranty costs and impact of changes to inventory reserves.

New product introductions may also affect our gross margin.

24 unchanged sentences

As reported in the 2022 Verizon Data Breach Investigation Report, cyber-attacks in the manufacturing industries are largely financially motivated, although business espionage is the objective in a strong majority of the incidents.

Axcelis has been and expects to continue to be subject to cybersecurity threats and incidents, including employee error or misuse;

Axcelis has been and expects to continue to be subject to cybersecurity threats and incidents, including through employee error or misuse;

individual attempts to gain unauthorized access to information systems;

and sophisticated and targeted measures known as advanced persistent threats, none of which have had a material impact on the Company to date.

Axcelis devotes significant resources to network security, data encryption, employee training and other measures to protect our systems and data from unauthorized access or misuse.

Axcelis implements a “Layered Security Strategy” that aligns with National Institute of Standards and Technology Cybersecurity Framework.

To do so, we devote significant resources to network security, data encryption, employee training and other measures to protect our systems and data from unauthorized access or misuse.

This includes continuously monitoring and reacting to the cybersecurity environment, by implementing best-in-class solutions from a number of vendors.

On an on-going basis, we engage a cybersecurity consultant to validate and advise on the Company’s cyber landscape and to drive employee vigilance through employee cyber training and messaging.

We continually replace less secure legacy systems to improve internal and external cyber defenses and maintain a cyber incident response plan including reporting and recovery processes.

As discussed in our proxy statement, the full Board of Directors receive quarterly reports on cybersecurity risks and annual reports on management initiatives to promote cybersecurity.

However, depending on their nature and scope, cybersecurity incidents could result in business disruption;

7 unchanged sentences

These adverse outcomes could negatively impact our revenues, expenses, profitability and asset values.

Axcelis is subject to risks associated with environmental, health and safety regulations.

Axcelis is subject to risks associated with compliance with environmental, health and safety regulations.

Axcelis is subject to environmental, health and safety regulations in connection with its global business operations, including but not limited to:

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Such pandemics may drive changes in the demand for certain of our customers’ products, resulting in their delay or cancelation of purchases from us.

The extent to which pandemics may impact our results will depend on future developments, which are highly uncertain and cannot be predicted, including the severity of COVID-19 and the duration of the current pandemic.

The extent to which pandemics may impact our results will depend on future developments, which are highly uncertain and cannot be predicted.

Our proprietary technology may be vulnerable to efforts by competitors to challenge or design around, potentially reducing our market share.

20 unchanged sentences

Our primary manufacturing facility is located in Massachusetts, with a smaller facility located in South Korea.

Our operations could be subject to disruption for a variety of reasons, including, but not limited to severe weather events, natural disasters, work stoppages, operational facility constraints and terrorism.

Our operations could be subject to disruption for a variety of reasons, including, but not limited to severe weather events, other effects of climate change, natural disasters, work stoppages, operational facility constraints and terrorism.

Such disruption could cause delays in shipments of products to our customers and could result in cancellation of orders or loss of customers, which could seriously harm our business.

21 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1A. Risk Factors