What changed in this filing

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Item 1. Business

2021-02-24 compared with 2020-03-02 · 99 added, 83 removed, 121 unchanged (60% of the section changed)

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We design, manufacture, sell and support precision power products that transform, refine, and modify the raw electrical power from the utility and convert it into various types of highly-controllable, usable power that is predictable, repeatable, and customizable.

Our power solutions enable innovation in complex semiconductor and thin film plasma processes such as dry etch, strip, chemical and physical deposition, high and low voltage applications such as process control, computing, networking, telecommunication, analytical instrumentation, medical equipment, industrial technology and temperature-critical thermal applications such as material and chemical processing.

Our power solutions enable innovation in complex semiconductor and thin film plasma processes such as dry etch, strip, chemical and physical deposition, high and low voltage applications such as process control, data center computing, networking, telecommunication, analytical instrumentation, medical equipment, industrial technology and temperature-critical thermal applications such as material and chemical processing.

We also supply related instrumentation products for advanced temperature measurement and control, electrostatic instrumentation products for test and measurement applications, and gas sensing and monitoring solutions for multiple industrial markets.

Our network of global service support centers provides local repair and field service to our customers in key regions as well as upgrade and refurbishment services, and sales of used equipment to businesses that use our products.

Our products are primarily sold into the semiconductor equipment, industrial and medical, data center computing, and telecom networking markets.

Our recently-launched PowerInsight software product uses data analytics and advanced algorithms to provide our customers with actionable information, such as predictive failure, preventive maintenance and process performance.

Advanced Energy operates in a single segment structure for power electronics conversion products, and we operate in four vertical markets or applications to enable tracking of market trends.

Our products are primarily sold into the Semiconductor Equipment, Industrial and Medical, Data Center Computing, and Telecom and Networking markets.

Advanced Energy is organized on a global, functional basis and operates in a single segment structure for electrical power conversion and control products.

We sell our products into four markets or applications and provide revenue data by market to enable tracking of market trends.

Following the acquisition of Artesyn Embedded Technologies, Inc.’s embedded power business ("Artesyn") in September 2019, we have also provided information on an organic and inorganic basis, which in 2020 was limited to the Artesyn acquisition, to improve comparability during the periods.

During 2020, we saw the continued spread of COVID-19 which grew into a global pandemic.

Our first priority was to provide a healthy and safe working environment for our employees which led to intermittent shutdowns of our manufacturing facilities to implement new health and safety protocols and make additional investments to comply with government guidelines.

There were periods when some of our manufacturing facilities were not operating or were operating at reduced capacity due to government mandates to restrict travel, require social distancing and implement health and safety procedures.

Many of our engineers and non-manufacturing personnel transitioned largely to a work from home environment.

Additionally, the availability of materials, parts and subcomponents needed for production was also impacted during 2020.

We expect the challenges associated with this environment to continue into 2021.

Although COVID-19 has impacted our revenues and manufacturing efficiency over the course of 2020, COVID-19 has not materially impacted our liquidity, our ability to access capital, our ability to comply with our debt covenants or the fair value of our assets.

Additionally, we believe the accommodations we have made to our work environment, including employees utilizing work-from-home arrangements where necessary, will not impact our ability to maintain effective internal controls over financial reporting.

While COVID-19 has not had a material adverse effect on our business during 2020, it is unknown if COVID-19 will have a material adverse impact on our future operations, our financial results (including, but not limited to, gross profit, and cash generation) or liquidity.

Please see the information under the caption "Risk Factors"

in Item 1A of this Annual Report on Form 10-K for additional discussion on the potential impacts of COVID-19 to the future operations of our business.

We incorporated in Colorado in 1981 and reincorporated in Delaware in 1995.

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Recent Acquisitions

In September 2019, we completed the acquisition of Artesyn Embedded Technologies, Inc.’s (“Artesyn”) Embedded Power business.

Artesyn’s Embedded Power business is one of the world’s largest providers of highly engineered, application-specific AC-DC and DC-DC power supplies for demanding applications.

This acquisition diversifies our product portfolio and gave us access to attractive growth markets, including hyperscale data centers, telecom infrastructure in next generation 5G networks, embedded industrial power applications and medical diagnostic and treatment applications.

In September 2018, we acquired LumaSense Technologies Holdings, Inc.

("LumaSense").

LumaSense designs, manufactures and sells a line of photonic-based measurement and monitoring solutions that are synergistic with the Company’s precision power control technologies in both semiconductor and industrial markets allowing customers’ the ability to better control critical parameters of thermal and material processes.

The acquisition of LumaSense complements our leading pyrometry solutions with additional fiber optic thermometry for an extended range of semiconductor applications, provides integrated industrial temperature control and metrology applications for both thin films coating and thermal processing, and adds complementary industrial pyrometry and gas sensing technologies to our portfolio of solutions to the semiconductor and industrial markets.

In May 2018, we acquired the electrostatic technology and product line from Monroe Electronics, Inc.

located in Lyndonville, New York.

The electrostatic detection and measurement instrumentation products serve specific areas of testing and monitoring of ionization systems across a variety of applications.

In addition, the non-contact electrostatic

voltmeters and field meters complement those of Trek.

Production of these electrostatic products has been integrated into Trek’s manufacturing facility in nearby Lockport, New York.

In February 2018, we acquired Trek Holding Co., Ltd ("Trek"), a privately held company with operations in Tokyo, Japan and Lockport, New York.

Trek has a 95% ownership interest in its U.S.

subsidiary which is also its primary operation.

Trek designs, manufactures and sells high-voltage amplifiers, power supplies and generators, high-performance electrostatic measurement instruments and electrostatic discharge (ESD) sensors and monitors to the global marketplace.

Trek’s standard and custom-OEM products are used in production and research in aerospace, automotive, electronics, electrostatics, medical, military, nanotechnology, photovoltaic/solar, plasma, semiconductor and test and measurement applications.

Trek’s comprehensive portfolio of power supply products strengthens and accelerates Advanced Energy’s growth in high voltage applications.

In December 2020, we completed the acquisition of Versatile Power, Inc.

This acquisition added radio frequency ("RF") and programmable power supplies for medical and industrial applications to our product portfolio and further expands our presence in the medical market by adding proven technologies, deep customer relationships, expertise in medical design, and a medical-certified manufacturing center.

In September 2019, we completed the acquisition of Artesyn.

Artesyn’s embedded power business was one of the world’s largest providers of highly engineered, application-specific AC-DC and DC-DC power supplies for demanding applications.

This acquisition diversified our product portfolio and gave us access to attractive growth markets, including data centers (including hyperscale), telecom infrastructure in next generation 5G networks, embedded industrial power applications and medical diagnostic and treatment applications.

For additional information, see Note 2.

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Our precision power products and solutions are designed to enable new process technologies, improve productivity, lower the cost of ownership, and provide critical power capabilities for our customers.

These products must meet demanding requirements in efficiency, flexibility, performance and reliability.

These products are designed to meet our customers’ demanding requirements in efficiency, flexibility, performance, and reliability.

We also provide repair and maintenance services for our products.

We principally serve global original equipment manufacturers ("OEM") and end customers in a wide range of semiconductor and industrial technology applications with a broad range of advanced and embedded power products.

Our advanced power products are solutions that are designed to deliver precise power, control and measurements of processes used in a diverse set of applications in semiconductor device manufacturing, thin film deposition of advanced materials, thermal power control, instrumentation and gas detection and monitoring.

Our embedded power products are solutions designed to provide stable and efficient power in mission critical applications across a variety of industrial technology applications such as telecommunication and networking equipment, servers and storage systems, medical equipment, robotics, motion control and test and measurement equipment.

Our process power solutions include direct current ("DC"), pulsed DC, low frequency alternating current (“AC”), high voltage, and radio frequency ("RF") power supplies, RF matching networks, remote plasma sources for reactive gas applications and RF instrumentation.

Our advanced power products are solutions that are designed to deliver precise power, control and measurement of processes used in a diverse set of applications in semiconductor device manufacturing, thin film deposition of advanced materials, thermal power control, instrumentation and gas detection and monitoring.

Our embedded power products are solutions designed to provide stable and efficient power in mission critical applications across a variety of industrial technology applications such as telecommunication and networking equipment, data center servers and storage systems, medical equipment, robotics, motion control and test and measurement equipment.

Our process power solutions include direct current ("DC"), pulsed DC, low frequency alternating current ("AC"), high voltage, and RF power supplies, RF matching networks, remote plasma sources for reactive gas applications and RF instrumentation.

These solutions are used in a wide range of thin film processes across multiple semiconductor applications and for deposition of advanced materials in adjacent industries such as flat panel display, solar cell manufacturing, thin film coating, and hard coatings.

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These products are used in processes such as rapid thermal processing, chemical vapor deposition and crystal growing, which require non-contact temperature measurement.

They are also used in many industrial production applications for chemical processing, metal and glass manufacturing, and numerous other general industrial power applications.

Our gas detection and monitoring products are based on proven infrared technologies to detect and analyze gases in a wide range of industrial applications, including automotive, energy, environmental controls, aerospace, medical and research.

Our products offer cost-effective online monitoring, allowing our customers to automate manual monitoring or sampling processes that will achieve process efficiency, waste reduction, and lower costs of maintenance.

They are also used in many industrial production applications for chemical processing, metal and glass manufacturing, and numerous other industrial power applications.

Our gas detection and monitoring products utilize proven infrared technologies to detect and analyze gases in a wide range of industrial applications, including automotive, energy, environmental controls, aerospace, medical and research.

Our products offer cost-effective online monitoring, allowing our customers to automate manual monitoring or sampling processes that will improve process efficiency, reduce waste, and lower maintenance costs.

Our embedded power products are designed to maximize energy conversion efficiency, minimize physical sizes, and to meet a variety of standards, such as IEC 60601-1 for medical equipment or IEC 60950-1 for information technology equipment.

Our low-voltage AC-DC and DC-DC power supplies are used in a wide variety of end markets such as data center computing, telecom, networking, medical equipment, and broad industrial electronics.

products feature industry-leading efficiency and density, to maximize performance, lower energy costs, and minimize the form factor.

Our low-voltage AC-DC and DC-DC power supplies are used in a wide variety of end markets such as data

center computing, telecom, networking, medical equipment, and broad industrial electronics.

These products feature industry-leading efficiency and density, to maximize performance, lower energy costs, and minimize the form factor.

These products target applications where energy usage is high, such as data centers, but also applications that require a highly reliable and rugged design for use in demanding climate conditions, such as a wireless cellular tower.

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Our DC-DC solutions and custom-built power conversion products offer high and low voltage topology, providing wide input and output operating ranges while retaining excellent stability and efficiencies ranging from benchtop and rackmount systems to micro-size printed circuit board mount modules.

The high voltage DC-DC products target applications including semiconductor wafer processing and metrology, electrostatic clamping of substrates, scientific instrumentation, mass spectrometry, and analytical x-ray systems for industrial and analytical applications.

The high voltage DC-DC products target applications including semiconductor wafer processing and metrology, electrostatic clamping of substrates, scientific instrumentation, mass spectrometry, and x-ray systems for industrial and analytical applications.

The low voltage DC-DC board mounted solutions are designed for a wide range of industrial applications such as healthcare, telecommunications, test and measurement, instrumentation, industrial equipment and distributed power in server and storage systems.

Our big data analytics solution transforms the data acquired from our power delivery systems into useable insights, through a combination of enhanced data sets and advanced analytics.

PowerInsight, our big data analytics solution transforms the data acquired from our power delivery systems into useable insights, through a combination of enhanced data sets and advanced analytics.

These capabilities allow our customers to maximize performance, reduce costs and improve yield in their manufacturing processes.

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Our global support services group offers in-warranty and out-of-warranty repair services in the regions in which we operate, providing us with revenue opportunities from repair, upgrades and retrofit offerings to our installed base.

Our customers continue to pursue low cost of ownership of their capital equipment and are increasingly sensitive to the significant costs of system downtime.

Our customers wish to lower the cost of ownership of their capital equipment and are increasingly sensitive to the significant costs of system downtime.

They expect suppliers to offer comprehensive local repair service and customer support.

In addition to product repairs our customers look for upgrade and retrofit offerings to extend the useable life of their capital equipment for additional technology generations.

To meet these market requirements, we maintain a worldwide support organization comprising both direct and indirect activities through partnership with local distributors primarily in the United States ("U.S."), the People’s Republic of China ("PRC"), Japan, South Korea, Taiwan, Israel, Germany, and United Kingdom.

To meet these market requirements, we maintain a worldwide support organization in ten countries, including the United States ("U.S."), the People’s Republic of China ("PRC"), Japan, Korea, Taiwan, Germany, Ireland, Singapore, Israel, and Great Britain.

Support services include warranty and non-warranty repair services, upgrades, and refurbishments on the products we sell.

As of December 31, 2015, we discontinued the production, engineering, and sales of our solar inverter product line representing a strategic shift in our business.

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However, extended warranties historically sold and reflected as deferred revenue on our Consolidated Balance Sheets, represent future revenue and service costs to be incurred by our global services group and are reflected as continuing operations for historical periods and future periods.

In May of 2019, we divested the US central inverter repair and support business to Bold Renewables.

In May 2019, we divested the U.S.

central inverter repair and support business to Bold Renewables.

Disposed and Discontinued Operations in Part II, Item 8 "Financial Statements and Supplementary Data."

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The majority of our markets are not generally subject to significant seasonality;

however, these markets are cyclical due to sudden changes in customers’ manufacturing capacity requirements and spending, which depend in part on capacity utilization, demand for customers’ products, inventory levels relative to demand, government incentives and subsidies, and access to affordable capital.

Other factors, such as global economic and market conditions and technological advances in the applications we serve can also have an impact on our financial results, both positively and negatively.

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Customers in the semiconductor capital equipment market incorporate our products into equipment that make integrated circuits.

Our process power conversion products and systems provide the energy to enable thin film plasma-based processes, such as dry etch, strip, chemical and physical deposition.

Our process power conversion products and systems provide the energy to enable thin film plasma-

based processes, such as dry etch, strip, chemical and physical deposition.

Precise control over the energy delivered to plasma-based processes enables the production of integrated circuits with reduced feature sizes and increased speed and performance.

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Our remote plasma sources deliver ionized gases for reactive chemical processes used in cleaning, surface treatment, and gas abatement.

Our low voltage power products deliver stable, clean, and reliable power and are used in semiconductor Automatic Test Equipment (ATE), wafer processing equipment, back-end assembly equipment, and auxiliary equipment such as wafer handling equipment.

Our strategy in the semiconductor market is to expand our content of power related products and grow share.

INDUSTRIAL & MEDICAL MARKETS

Customers in the Industrial & Medical markets incorporate our advanced power, embedded power and measurement products into a wide variety of equipment used in applications such as advanced material fabrication, medical devices, analytical instrumentation, test and measurement equipment, robotics, motor drives and connected light-emitting diodes.

OEM customers design equipment utilizing our process power technologies in a variety of industrial applications including glass coating, glass manufacturing, flat panel displays, photovoltaics solar cell manufacturing, and similar thin film manufacturing, including data storage, and decorative, hard and optical coatings.

These applications employ similar technologies to those used in the semiconductor market to deposit films on non-semiconductor substrates.

Our low voltage power products deliver stable, clean, and reliable power and are used in semiconductor Automatic Test Equipment ("ATE"), wafer processing equipment, back-end assembly equipment, and auxiliary equipment such as wafer handling.

Our strategy in the Semiconductor Equipment market is to expand our content of power related products and grow share.

INDUSTRIAL AND MEDICAL MARKET

Customers in the Industrial and Medical market incorporate our advanced power, embedded power, and measurement products into a wide variety of equipment used in applications such as advanced material fabrication, medical devices, analytical instrumentation, test and measurement equipment, robotics, motor drives and connected light-emitting diodes.

OEM customers design equipment utilizing our process power technologies in a variety of industrial thin film applications including glass coating, glass manufacturing, flat panel displays, photovoltaics solar cell manufacturing, data storage, and decorative, hard and optical coatings.

These applications employ similar technologies to those used in the Semiconductor Equipment market to deposit films on non-semiconductor substrates.

Our strategy around these applications is to leverage our thin film deposition technologies into an expanded set of new materials and applications in adjacent markets.

We serve Industrial & Medical markets with mission-critical power components that deliver high reliability, precise, low noise or differentiated power to the equipment they serve.

Examples of products sold into Industrial & Medical markets include high voltage products for analytical instrumentation, and medical equipment, low voltage power supplies used in applications for medical devices, test and measurement, medical lasers, scientific instrumentation and industrial equipment, and power control modules and thermal instrumentation products for material fabrication, processing and treatment.

We serve the Industrial and Medical market with mission-critical power components that deliver high reliability, precise, low noise or differentiated power to the equipment they serve.

Examples of products sold into the Industrial and Medical market include high voltage products for analytical instrumentation, and medical equipment, low voltage power supplies used in applications for medical devices, test and measurement, medical lasers, scientific instrumentation and industrial equipment, and power control modules and thermal instrumentation products for material fabrication, processing, and treatment.

Our gas monitoring products serve multiple applications in the energy market, air quality monitoring and automobile emission monitoring and testing.

Our strategy in the Industrial & Medical markets is to grow and expand our addressable market both organically through our global distribution channels and through acquisitions of products and technologies that are complimentary and adjacent to our core power conversion applications.

DATA CENTER COMPUTING MARKETS

As a result of the acquisition of Artesyn in September 2019, we entered the Data Center Computing market with industry-leading products and low-voltage power conversion technologies.

We sell to many data center server and storage manufacturers, original design manufacturers of server and storage systems and cloud service providers or hyperscalers, who are designing and deploying their own data center server and storage equipment.

Our strategy in the Industrial and Medical market is to expand our addressable market both organically through our global distribution channels and through acquisitions of products and technologies that are complimentary and adjacent to our core power conversion applications.

DATA CENTER COMPUTING MARKET

Following the acquisition of Artesyn in September 2019, Advanced Energy entered the Data Center Computing market with industry-leading products and low-voltage power conversion technologies.

We sell to many data center and hyperscale server and storage manufacturers, as well as cloud service providers and their partners.

Driven by the growing adoption of cloud computing, market demand for server and storage equipment has shifted from enterprise on-premise computing to data centers.

Our power systems, power shelves, AC-DC and DC-DC power conversion products feature industry-leading performance and are used in a variety of computing applications such as server rack power, back-up power and CPRS server power supply, including a wide range of standard and custom power solutions used in data center racks, server, and storage systems.

We offer our customers industry-leading technology with a strong reputation and deep customer relationships.

Our strategy in data center computing is to penetrate the growing hyperscale market and leverage our leading capabilities in power density and efficiency to grow share in the broader data center market.

TELECOM & NETWORKING MARKETS

The acquisition of Artesyn in September 2019 brought us a portfolio of products and technologies that are used across the Telecommunications & Networking markets.

With a growing presence at both cloud service providers and industry-leading data center server and storage vendors, we believe we are well positioned to continue to capitalize on the ongoing shift towards cloud computing.

Starting in late 2019 and through the end of 2020, demand for our embedded power products in the Data Center Computing market increased significantly driven by share gain and ramp at hyperscale customers.

In addition, we believe COVID-19 is having a positive impact on hyperscale demand given the increased need for cloud and network applications.

Demand for hyperscale products declined sequentially during the third and fourth quarter of 2020 based on customer digestion following large investments in the first half of the year but was offset by higher demand from enterprise computing customers, which had been cyclically down in the first half of 2020.

We expect this digestion period to continue into the first half of 2021.

TELECOM AND NETWORKING MARKET

The acquisition of Artesyn in September 2019 provided Advanced Energy with a portfolio of products and technologies that are used across the Telecom and Networking market.

Our customers include many leading vendors and original design manufacturers of wireless and wireline infrastructure equipment, telecommunication equipment and computer networking.

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Our wide range of AC-DC power supplies/rectifiers and DC-DC conversion modules are used by leading developers of telecom systems across fixed, mobile, and converged network applications.

Our products are designed into many wireless infrastructure applications such as remote radio head, RF power amplifier in base stations and multi-access edge computing equipment.

Our products are designed into many wireless infrastructure applications such as remote radio heads, RF power amplifiers in base stations and multi-access edge computing equipment.

In networking, our products are designed into many core and edge networking systems, including gateways, application servers, switches, routers, and wireless networking.

Our strategy in Telecom & Networking is to target growing applications related to 5G investments, create new designs in next generation computer networking equipment, and leverage our customer relationships and differentiated capability in rugged design to grow market share.

The wireless telecom market continues to evolve with more advanced mobile standards.

5G wireless technology promises to drive substantial growth opportunities for the telecom industry as it enables new advanced applications such as autonomous vehicles and virtual/augmented reality.

Telecom service providers have started to invest in 5G, and this trend is expected to drive demand for our products in the Telecom and Networking market over time.

In datacom, demand is driven by networking investments by telecom service providers and enterprise upgrading of their network, as well as cloud data center networking investments for increased bandwidth.

Demand in late 2019 and the first half of 2020 was lower as geopolitical issues and consolidation of wireless telecom providers drove slower global investment in cellular and network infrastructure;

however, we saw modest market growth off these reduced levels in the third and fourth quarter of 2020.

Our products are sold worldwide to OEMs, integrators, distributors and directly to end users.

Our ten largest customers accounted for approximately 57.3% of our sales in 2019, 62.5% of our sales in 2018, and 70.4% of our sales in 2017.

The following table summarizes the percentage of our total sales derived from our ten largest customers:

Years Ended December 31,

Ten largest customers

The following table summarizes sales to and percentage of total sales from Applied Materials, Inc.

and Lam Research Corp., our two largest customers (in thousands):

Years Ended December 31,

Applied Materials, Inc.

We expect that the sale of products to our largest customers will continue to account for a significant percentage of our sales for the foreseeable future.

Applied Materials Inc., our largest customer, accounted for 20.9% of our sales in 2019, 35.9% of our sales in 2018, and 33.5% of our sales in 2017.

Lam Research Corp.

accounted for 11.2% of our sales in 2019, 15.2% of our sales in 2018, and 23.1% of our sales in 2017.

No other customer accounted for greater than 10% of our sales in 2019, 2018, or 2017.

The loss of Applied Materials, Inc.

or Lam Research Corp.

as a customer could have a material adverse effect on our results of operations.

Our backlog was approximately $258.9 million at December 31, 2019, a 246.6% increase from $74.7 million at December 31, 2018.

Backlog increased primarily due to the Artesyn acquisition, which added new backlog in the Data Center Computing and Telecom & Networking markets and incremental backlog in Industrial & Medical, as well as strengthening demand for semiconductor equipment late in the fiscal year.

The loss of a large customer could have a material adverse effect on our results of operations.

Our backlog was approximately $290.7 million on December 31, 2020, a 12.3% increase from $258.9 million on December 31, 2019.

For more information related to our expectations for the markets we serve, see Business Environment and Trends in Item 7 "Management’s Discussion and Analysis of Financial Condition and Results of Operations."

Backlog orders are firm orders scheduled to be filled and shipped in the next 12 months.

Backlog orders are not necessarily an indicator of future sales levels because of variations in lead times and customer production demand pull systems, which are not reflected in orders or backlog.

Backlog orders are not necessarily an indicator of future sales levels because of variations in lead times and the significance of customer production demand pull systems to our business, which are not reflected in orders or backlog.

Customers may delay delivery of products or cancel orders prior to shipment, subject to possible cancellation penalties.

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We sell our products through direct and indirect sales channels in North America, Europe, and Asia.

Our sales operations are primarily located in the United States, the PRC, the United Kingdom, Germany, Israel, Japan, South Korea, India, Singapore, Philippines, Hong Kong, Ireland and Taiwan.

Our sales operations are primarily located in the U.S., the PRC, the United Kingdom, Germany, Israel, Japan, South Korea, India, Singapore, Philippines, Hong Kong, Ireland, and Taiwan.

In addition to a direct sales force, we have independent sales representatives, channel partners and distributors that support our selling efforts.

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We believe that customer service and technical support are important competitive factors and are essential to building and maintaining close, long-term relationships with our customers.

The following table presents our sales by geographic region for the years ended December 31, 2019, 2018, and 2017.

The following table presents our sales by geographic region.

Sales are attributed to individual countries based on customer location (in thousands).

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Manufacturing

The manufacturing of our products is primarily performed in major sites in the PRC and the Philippines.

We have begun pilot production and expect to open an additional major manufacturing site in Penang, Malaysia in 2020.

In addition, we perform limited specialty manufacturing for some of our products in the United States of America, United Kingdom, Germany and Denmark.

Manufacturing in these locations, primarily the PRC, exposes us to risks, such as exchange controls and currency restrictions, changes in local economic conditions, changes in laws and regulations, government actions, political conditions, and other regional risks including natural disasters and health risks, and an inability to meet customer demands if one of our facilities becomes impaired.

The manufacturing of our products is primarily performed in major sites in the PRC and the Philippines and in 2020 we began to increase production at an additional major manufacturing site in Penang, Malaysia.

In addition, we perform limited specialty manufacturing for some of our products in the U.S., United Kingdom, Germany, and Denmark.

Manufacturing in these locations, primarily in the PRC, exposes us to risks, such as exchange controls and currency restrictions, changes in local economic conditions, changes in laws and regulations, government actions, political conditions, and other regional risks including natural disasters and health risks, and an inability to meet customer demands if one of our facilities becomes impaired.

See Item 1A, "Risk Factors"

for a discussion of certain risks related to our manufacturing operations.

Manufacturing requires raw materials, including a wide variety of mechanical and electrical components, to be manufactured to our specifications.

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Although we make reasonable efforts to assure that parts are available from multiple qualified suppliers, some key parts may be obtained from a sole supplier or a limited group of suppliers.

During 2020, COVID-19 impacted the availability of materials, parts, and subcomponents needed for production, and we expect the related supply chain challenges will continue into 2021.

We seek to reduce costs and to lower the risks of production and service interruptions, as well as shortages of key parts by:

● selecting and qualifying alternate suppliers for key parts using rigorous technical and commercial evaluation of suppliers’ products and business processes including testing their components’ performance, quality, and reliability on our power conversion product at our customers’ and their customers’ processes.

The qualification process for our process power products, particularly as it pertains to semiconductor customers, follows semiconductor industry standard practices, such as “copy exact”;

The qualification process for our process power products, particularly as it pertains to semiconductor customers, follows semiconductor industry standard practices, such as "copy exact";

● monitoring the financial condition and overall performance of key suppliers;

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We seek patent protection for inventions governing new products or technologies as part of our ongoing research and development.

We currently hold 273 United States patents and 341 foreign issued patents, and have 119 patent applications pending in the United States, Europe and Asia.

We currently hold 285 U.S.

issued patents and 340 foreign issued patents, and we have 337 patent applications pending in the U.S., Europe, and Asia.

Most patents are active for 20 years, and our patents expire on various dates through 2039.

A substantial majority of our patents are related to our process power products and solutions business.

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We encounter substantial competition from foreign and domestic companies for each of our product lines.

Our list of competitors has increased over the past year due to the acquisition of Artesyn’s Embedded Power business, which competes in different markets and against different competitors.

Our list of competitors has increased over the past year due to the acquisition of Artesyn, which competes in different markets and against different competitors.

Some of our competitors have greater financial and other resources than we do.

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are primary competitors to our power conversion products for semiconductor and thin film processing.

Competitors to our low voltage AC-DC and DC-DC embedded power conversion offerings include, but are not limited to ABB Ltd., Acbel Polytech Inc., Cosel Co., Ltd., Delta Electronics, Inc., Flex Ltd., Lite-On Technology Corp., Murata Manufacturing, MEAN WELL Enterprises, TDK-Lambda Americas Inc.

and XP Power Ltd.

In high voltage DC-DC, our competitors include, but are not limited to Crane Co., Matsusada Precision, Inc., and Spellman High Voltage Electronics Corp.

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offer products that compete with our thermal measurement and instrumentation products.

Honeywell International, Inc., Morgan Schaffer Ltd., Qualitrol Corp.

and Williamson Corp.

Honeywell International, Inc., Morgan Schaffer Ltd., Qualitrol Corp., and Williamson Corp.

offer products that compete with our gas detection and monitoring products.

In addition, a focus on local content is causing new competitors to emerge around the world, with strong support from local governments, industry leaders, and investors.

Our ability to continue to compete successfully in these markets depends on our ability to make timely introduction of new products and enhancements to existing products, to localize these development and production activities in key world regions close to our customers, and to produce high quality products.

Our ability to compete successfully in these markets depends on our ability to make timely introduction of new products and enhancements to existing products, to localize these development and production activities in key world regions close to our customers, and to produce high quality products.

We expect our competitors will continue to improve the design and performance of their products and introduce new products with competitive performance characteristics.

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Research and development expenses were $144.0 million in 2020, $101.5 million in 2019, and $76.0 million in 2018, representing 10.2% of our sales in 2020, 12.9% of our sales in 2019, and 10.6% of our sales in 2018.

As of December 31, 2019, we had a total of 10,917 employees.

As of December 31, 2020, we had approximately 10,000 employees.

Our employees are not represented by unions, except for statutory organization rights applicable to our employees in the PRC and Germany.

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We consider our relations with our employees to be good.

We recognize that our employees are our most important asset, and we know that each person’s diverse background and unique skill set are fundamental to our success.

See Item 7 "Management’s Discussion and Analysis of Financial Condition and Results of Operations"

for a discussion of human capital resources.

Environmental Matters

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Our website address is www.advancedenergy.com .

We make available, free of charge on our website, our Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to these reports as soon as reasonably practicable after filing such reports with, or furnishing them to, the Securities and Exchange Commission (“SEC”).

Such reports are also available at www.sec.gov .

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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 1. Business