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Item 1A. Risk Factors

2021-02-24 compared with 2020-03-02 · 264 added, 408 removed, 130 unchanged (84% of the section changed)

Our business, financial condition, operating results, and cash flows can be impacted by a number of factors, including, but not limited to, those set forth below, any of which could cause our results to be adversely impacted and could result in a decline in the value or loss of an investment in our common stock.

Other factors may also exist that we cannot anticipate or that we currently do not consider to be significant based on information that is currently available.

Other factors may also exist that we cannot anticipate or that we currently do not consider to be material based on information that is currently available.

These risks and uncertainties have the potential to materially affect our business, financial condition, results of operations, cash flows and future results.

Such risks and uncertainties may also impact the accuracy of forward-looking statements included in this Form 10-K and other reports we file with the SEC.

COVID-19 (“Coronavirus”) and the Impact on our Business

As we have grown our locations worldwide, our risk to regional and worldwide viruses and diseases has also grown.

For example, the continuing spread in early 2020 of the Coronavirus and related government actions may adversely affect our manufacturing locations in China and worldwide.

If the Coronavirus continues on its current path, we may see adverse impact on our ability (a) to manufacture, test, service and ship our products, (b) to get required materials and sub-assemblies to build and service our products and (c) to staff labor and management for manufacturing, research and development, supply chain, service and administrative operations.

Further, we may experience adverse impact with our global supply chain partners and transportation service providers.

Our customers may also delay orders should our products be included as a subsystem into their systems.

The Coronavirus could adversely impact our near-term and long-term revenues, earnings and cash flow and will require expenditures in the short-term to address the current situation in Asia.

This situation is developing rapidly, and other impacts may arise that we are not aware of currently.

We have created a rapid response team to mitigate risks we are aware of and as they arise.

Such risks and uncertainties may also impact the accuracy of forward-looking statements included in this Form 10-K and other reports we file with the Securities and Exchange Commission.

COVID-19, natural disasters, and related risks

COVID-19 could further materially adversely affect our business, workforce, supply chain, results of operations, financial condition and/or cash flows.

The continuing spread in 2020 of COVID-19 and related foreign and domestic government actions restricting travel, commerce and gathering has adversely affected our manufacturing locations.

COVID-19 has also resulted in economic recessions and high unemployment in many countries which could negatively impact future customer purchases of our products.

If COVID-19 continues to spread and restrictions remain in place or are reinstituted, we may continue to see adverse impact on our ability (a) to manufacture, test, service and ship our products, (b) to get required materials and sub-assemblies to build and service our products and (c) to staff labor and management for manufacturing, research and development, supply chain, service, and administrative operations.

Further, we may experience adverse impact with our global supply chain partners and transportation service providers which may result in increased costs and material shortages.

In addition, much of our workforce is now working remotely.

While we have been successful in transitioning to this remote environment, the long-term impact on productivity and innovation is not yet clear.

As a result, COVID-19 could adversely impact our near-term and long-term revenues, earnings and cash flow and could require further expenditures.

This situation continues to evolve, and other impacts may arise that we are not aware of currently.

We have an active rapid response team to mitigate risks we are aware of currently and as they arise.

Our results of operations could be affected by natural disasters and other events in the locations in which we or our customers or suppliers operate.

We have manufacturing and other operations in locations subject to natural occurrences such as severe weather and geological events including earthquakes or tsunamis that could disrupt operations.

In addition, our suppliers and customers also have operations in such locations.

A natural disaster, fire, explosion, or other event that results in a prolonged disruption to our operations, or the operations of our customers or suppliers, may materially adversely affect our business, results of operations, or financial condition.

Industry-related risks

The industries in which we compete are subject to volatile and unpredictable cycles.

As a supplier to the global semiconductor equipment, telecom & networking, data center computing and industrial & medical industries, we are subject to business cycles, the timing, length, and volatility of which can be difficult to predict.

As a supplier to the global semiconductor equipment, telecom, networking, data center computing, industrial, and medical industries, we are subject to business cycles, the timing, length, and volatility of which can be difficult to predict.

Certain of these industries historically have been 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, and access to affordable capital.

These changes have affected the timing and amounts of customers’ purchases and investments in technology, and continue to affect our orders, net sales, operating expenses, and net income.

In addition, we may not be able to respond adequately or quickly to the declines in demand by reducing our costs.

We may not be able to respond adequately or quickly to the declines in demand by reducing our costs.

We may be required to record significant reserves for excess and obsolete inventory as demand for our products changes.

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During periods of decreasing demand for our products, we must be able to appropriately align our cost structure with prevailing market conditions, effectively manage our supply chain, and motivate and retain key employees.

During periods of increasing demand, we must have enough manufacturing capacity and inventory to fulfill customer orders, effectively manage our supply chain, and attract, retain, and motivate a sufficient number of qualified individuals.

If we are not able to timely and appropriately adapt to changes in our business environment or to accurately assess where we are positioned within a business cycle, our business, financial condition, or results of operations may be materially and adversely affected.

For example, following record levels of demand in the first half of 2018, the Semiconductor Equipment market experienced a decline, and, as a result, Advanced Energy’s revenue from the Semiconductor Equipment market declined 24.5% during 2019, as compared to 2018.

Although the semiconductor equipment market improved during the fourth quarter of 2019, it is unclear at this time if the market will recover to previous levels.

In addition, the market may be characterized in the future with more “mini-ramps” rather than sustained growth periods as experienced during 2015-2017.

In addition, our Data Center Computing and Telecom Networking markets are characterized by large program investments, which can cause variations in quarterly or annual revenues.

Deterioration of economic conditions could negatively impact our business.

Our business may be adversely affected by changes in national or global economic conditions, including inflation, interest rates, availability of capital markets, consumer spending rates, energy availability and costs (including fuel surcharges) and the effects of government initiatives to manage economic conditions.

Any such changes could adversely affect the demand for our products both in domestic and export markets, or the cost and availability of our needed raw materials and packaging materials, thereby negatively affecting our financial results.

A disruption in credit and other financial markets and deterioration of national and global economic conditions, could, among other things:

● negatively impact global demand for our products, which could result in a reduction of sales, operating income and cash flows;

● make it more difficult or costly for us to obtain financing for our operations or investments or to refinance our debt in the future;

● cause our lenders to depart from prior credit industry practice and make more difficult or expensive the granting of any technical or other waivers under our debt agreements to the extent we may seek them in the future;

● decrease the value of our investments;

and impair the financial viability of our insurers.

Although the Semiconductor Equipment market improved during the fourth quarter of 2019 and throughout 2020, it is unclear how long this recovery will last.

In addition, the market may be characterized in the future with more "mini-ramps"

rather than sustained growth periods as experienced during 2015-2017 given market dynamics, inventory levels, and geopolitical changes.

In addition, our Data Center Computing and Telecom

and Networking markets are characterized by large program investments, which can cause variations in quarterly or annual revenues.

For example, during 2020 our growth in data center computing and telecom networking has been driven by share gains at specific customer accounts.

Towards the end of 2020, we began to experience a period of digestion by our major customers resulting in lower demand.

We expect this digestion to continue into the first half of 2021 and overall business levels may not continue to be realized at these levels each quarter.

We must achieve design wins to retain our existing customers and to obtain new customers, although design wins achieved do not necessarily result in substantial sales.

Driven by continuing technology migration and changing customers demand, the markets we serve are constantly changing in terms of advancement in applications, core technology and competitive pressures.

New products we design for capital equipment manufacturers typically have a lifespan of five to ten years.

Increasingly, we are required to accelerate our investment in research and development to meet time-to-market, performance and technology adoption cycle needs of our customers simply to compete for design wins.

Given such up-front investments we make to develop, evaluate, and qualify products in the design win process, our success and future growth depend on our products being designed into our customers new generations of equipment as they develop new technologies and applications.

We must work with these manufacturers early in their design cycles to modify, enhance and upgrade our products or design new products that meet the requirements of their new systems.

The design win process is highly competitive, and we may win or lose new design wins for our existing customers or new customers next generations of equipment.

If existing or new customers do not choose us during the design win process, our market share will be reduced, the potential revenues related to the lifespan of our customers’ products, which can be five to ten years, will not be realized, and our business, financial condition and results of operations would be materially and adversely impacted.

Business model, acquisitions, and capital structure related risks

Despite the continued evolution of our manufacturing footprint our product lines are manufactured at only a few sites and our sites are not generally interchangeable.

Our power products for the semiconductor industry are manufactured in Shenzhen, PRC and Penang, Malaysia.

Our high voltage products are manufactured in Ronkonkoma and Lockport, New York, Littlehampton, United Kingdom and Shenzhen, PRC.

Our thermal instrumentation products are manufactured in Vancouver, Washington, Littlehampton, United Kingdom and Frankfurt, Germany.

Our pyrometry solutions are manufactured in Ballerup, Denmark, Frankfurt, Germany, Magdeburg, Germany and Vancouver, Washington.

Our telecom, networking, data center computing, and medical products are manufactured in Zhongshan, PRC, Rosario, Philippines and Santa Rosa, Philippines.

Most facilities are under operating lease and interruptions in operations could be caused by early termination of existing leases by landlords or failure by landlords to renew existing leases upon expiration, including the possibility that suitable operating locations may not be available in proximity to existing facilities which could result in labor or supply chain risks.

Each facility manufactures different products, and therefore, is not interchangeable.

Natural, uncontrollable occurrences or other operational issues at any of our manufacturing facilities could significantly reduce or disrupt our productivity at such site and could prevent us from meeting our customers’ requirements in a timely manner, or at all.

Additionally, we have a plan to relocate our Shenzhen, PRC manufacturing facility by December 2021.

As a result, we are investing in a dual manufacturing facility in Penang, Malaysia capable of manufacturing our semiconductor and other products.

We believe this investment will help to mitigate our exposure to regional risks, improve our business continuity profile and lower costs over time.

We opened this facility in 2020;

however, it may take additional time to realize the facility’s full production capacity given the impact of COVID-19.

Our long-term success and results of operations depend on our ability to successfully integrate Artesyn’s business and operations and realize the anticipated benefits from the acquisition.

In September 2019, we acquired Artesyn Embedded Technologies, Inc.’s (“Artesyn”) Embedded Power business, and we are currently in the early stages of combining Artesyn’s Embedded Power business with our business.

The acquisition of Artesyn’s Embedded Power business has significantly increased our embedded power product offerings, increased our exposure to the industrial and medical, datacenter computing, and telecom networking end markets, and significantly increased the number of employees and facilities.

We believe there is minimal product overlap

between Artesyn’s Embedded Power business and our other acquisitions, including the acquisition of Excelsys Technologies in 2017.

To realize the anticipated benefits of the acquisition, we must successfully combine our businesses in an efficient and effective manner and realize our synergy and cost-savings targets.

Integrating Artesyn’s Embedded Power business and operations with ours will require significant management attention, efforts and expenditures, and we may not be able to achieve the integration in an effective, complete, timely or cost-efficient manner.

Potential risks related to our acquisition of Artesyn’s Embedded Power business include our ability to:

In September 2019, we acquired Artesyn, and we are continuing to combine Artesyn’s business with our business.

The acquisition of Artesyn has significantly increased our embedded power product offerings, increased our exposure to the Industrial and Medical, Data Center Computing, and Telecom and Networking markets, and significantly increased the number of employees and facilities.

To realize the anticipated benefits of the acquisition, we must continue to combine our businesses in an efficient and effective manner and realize our synergy and cost-savings targets.

Integrating Artesyn’s business and operations with ours requires significant management attention, effort, and expenditures, and we may not be able to achieve the longer-term integration goals in an effective, complete, timely or cost-efficient manner.

Potential risks related to the successful integration of Artesyn’s business include our ability to:

● maintain and improve Artesyn’s financial and operating results while integrating and optimizing our combined sales, marketing, manufacturing, and corporate administrative organizations;

● avoid lost revenue due to customer confusion, alienation or misinformation regarding the transaction, and retain and expand Artesyn’s customer base with aligning our sales efforts;

● avoid lost revenue resulting from the distraction or confusion of our personnel as a consequence of the acquisition and ongoing integration efforts;

● optimize our combined worldwide manufacturing footprint while utilizing Artesyn’s vertically integrated manufacturing model for a broader set of company products;

● realize expected synergies and cost savings across the organization while managing our existing businesses, contracts and relationships;

● successfully eliminate fixed costs previously absorbed by other businesses prior to the transaction;

● recognize and capitalize on anticipated product sales and technology enhancement opportunities presented by our combined businesses;

● expand our financial and management controls and reporting systems and procedures to integrate and manage Artesyn;

● integrate our information technology systems to mitigate cyber-security risks and enable the management and operation of the combined business.

● effectively manage risks related to Artesyn’s foreign operations, including foreign currency risk, geographic risks, and local employee related risks;

● integrate Artesyn into our global tax structure and manage the related impact on our current and future tax rates as a result of the acquisition;

● identify and retain key Artesyn personnel and transition their critical knowledge;

● adequately familiarize us with Artesyn’s products and technology and certain of its markets and customer base such that we can manage Artesyn’s business effectively;

● successfully integrate our respective corporate cultures such that we achieve the benefits of acting as a unified company;

● meet target deadlines in achieving regulatory compliance.

Other potential risks related to our acquisition of Artesyn’s Embedded Power business include:

● the assumption of unknown or contingent liabilities, or other unanticipated events or circumstances;

● t he potential to incur or record significant cash or non-cash charges or write down the carrying value of intangible assets and goodwill obtained in the Artesyn acquisition, which could adversely impact our cash flow or lower our earnings in the period or periods for which we incur such charges or write down such assets.

If we are unable to successfully or timely integrate the operations of Artesyn’s Embedded Power business into our business, we may be unable to realize the revenue growth, synergies, cost-savings and other anticipated benefits resulting from the acquisition and our business could be adversely affected.

Additionally, we have incurred and will continue to incur transaction-related costs, including legal, regulatory and other costs associated with implementing integration plans, including facilities and systems consolidation costs and employment-related costs.

Although we expect that the elimination of duplicative costs, as well as the realization of other efficiencies related to the integration of the businesses, should allow us to offset transaction and integration-related costs over time, this net benefit may not be achieved in the near term, or at all.

Further, we may not realize the expected benefits from the acquisition.

Embedded Power business and operations may not achieve the anticipated revenues and operating results.

If we are unable to successfully or timely integrate the operations of Artesyn’s business into our business over the long-term, we may be unable to realize the long-term revenue growth, synergies, cost-savings, and other anticipated benefits resulting from the acquisition and our business could be adversely affected.

Additionally, we have and may continue to incur transaction-related costs, including legal, regulatory, and other costs associated with implementing integration plans, including facilities and systems consolidation costs and employment-related costs.

Artesyn’s business and operations may not achieve the anticipated revenues and operating results.

Any of the foregoing risks could materially harm our business, financial condition, and results of operations.

Our debt obligations and the restrictive covenants in the agreements governing our debt could limit our ability to operate our business or pursue our business strategies, could adversely affect our business, financial condition, results of operations, and cash flows, and could significantly reduce stockholder benefits from a change of control event.

As of December 31, 2019, our total debt was $341.3 million, excluding unamortized debt issuance costs, of which $17.5 million was classified as current.

We are contractually obligated to make quarterly payments of $4.4 million, plus accrued interest, with any outstanding balance due in September 2024.

Our debt obligations could make us more vulnerable to general adverse economic and industry conditions and could limit our flexibility in planning for, or reacting to, changes in our business and the industries in which we operate, thereby placing us at a disadvantage to our competitors that have less indebtedness.

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The financial covenants place certain restrictions on our business that may affect our ability to execute our business strategy successfully or take other actions that we believe would be in the best interests of our Company.

These restrictions include limitations or restrictions, among other things, on our ability and the ability of our subsidiaries to:

These include limitations or restrictions, among other things, on our ability and the ability of our subsidiaries to:

● incur additional indebtedness;

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If there were an event of default under certain provisions of our debt arrangements that was not cured or waived, the holders of the defaulted debt may be able to cause all amounts outstanding with respect to the debt instrument, plus any required settlement costs, to be due and payable immediately.

Our assets and cash flow may not be sufficient to fully repay borrowings under our outstanding debt instruments if accelerated upon an event of default.

If we are unable to repay, refinance, or restructure our indebtedness as required, or amend the covenants contained in these agreements, the lenders can exercise all rights and remedies available under such outstanding debt instruments or applicable laws or equity.

Any of these events could have a material adverse effect on our business, financial condition, results of operations, and cash flows.

Significant developments stemming from recent U.S.

government actions and proposals concerning tariffs and other economic proposals could have a material adverse effect on us.

government actions are imposing greater restrictions and economic disincentives on international trade impacting imports and exports.

government has adopted changes, and intends to adopt further changes, to trade policy and in some cases, to renegotiate, or potentially terminate, certain existing bilateral or multi-lateral trade agreements.

It has initiated the imposition of additional tariffs on certain foreign goods, including steel and aluminum, semiconductor manufacturing equipment and spare parts thereof.

Additionally, the government may also propose export rule changes that lower the percentage of permissible U.S.

content for certain non-U.S.

manufactured goods being sold to companies on the U.S.

Entity List, further restrict the sale of foreign-made goods that are based on U.S.

technology, and regulate the use of any U.S.

origin content in certain manufacturing equipment used to produce goods for certain companies.

Examples of recent actions are tariffs on steel and aluminum product imports announced by the U.S.

Department of Commerce in March 2018, the scope of which increased on Feb.

8, 2020, and a 25% tariff on certain products that originate in China announced by the United States Trade Representative (“USTR”) in June 2018.

The USTR also announced in June and July 2018 two additional supplemental lists of products that are subject to tariffs if the goods imported into the United States originate in China, which would increase the cost of imported products.

These supplemental lists issued by the USTR added an additional 25% on certain semiconductor equipment and parts originating in China that are sold by us or used in our business in the United States.

In August 2018, the second list was made effective with a 25% tariff and in September 2018 the third list was made effective with a 10% tariff, increasing to 25% in May 2019.

A fourth list was proposed by USTR in May 2019 for all remaining items originating in China.

A portion of the fourth list (“4a”), was made effective September 1, 2019, with an additional tariff of 15%, reduced to 7.5% on February 14, 2020.

The remainder of the fourth list (“4b”) was scheduled to have an additional tariff of 15% go into effect on December 15, 2019, however on December 13, 2019, the tariffs for list 4b were suspended after the U.S.

announced it would enter into a trade agreement with China (the “Phase 1 Agreement”).

The Phase 1 Agreement is expected to have no impact on the tariffs imposed on Company products.

Any increase in the cost of importing such goods and parts could decrease our margins, reduce the competitiveness of our products, or inhibit our ability to sell products or purchase necessary parts, which could have a material adverse effect on our business results, results of operations, or financial condition.

Department of Commerce is currently considering proposed rules that decrease the amount of U.S.

origin content allowed for non-U.S.

manufactured products that are sold to companies on the U.S.

Entity List, expand the restrictions on the sale of foreign-made goods that are based on U.S.

technology or software, and regulate the use of U.S.

origin semiconductor manufacturing equipment that produces semiconductor devices for certain companies.

At this time, the potential rule changes are not anticipated to impact the Company’s sales of non-U.S.

however, the developments in this area are fast-moving and any unpredicted rule changes could adversely affect our business results, operations or financial condition.

Changes in U.S.

trade policy could result in one or more U.S.

trading partners adopting responsive trade policy making it more difficult or costly for us to export our products to those countries.

As indicated above, these measures could also result in increased costs for goods imported into the U.S.

This in turn could require us to increase prices to our customers which may reduce demand, or, if we are unable to increase prices, result in lowering our margin on goods and services sold.

To the extent that trade tariffs and other restrictions imposed by the U.S.

increase the price of semiconductor equipment and related parts imported into the U.S., the cost of our materials may be adversely affected and the demand from customers for products and services may be diminished, which could adversely affect our revenues and profitability.

We cannot predict future trade policy, the terms of any renegotiated trade agreements or additional imposed tariffs and their impact on our business.

The adoption and expansion of trade restrictions, the occurrence of a trade war, or other governmental action related to tariffs or trade agreements or policies has the potential to adversely impact demand for our products, our costs, our customers, our suppliers, and the U.S.

economy, which in turn could adversely impact our business, financial condition and results of operations.

Changes in U.S.

social, political, regulatory and economic conditions or in laws and policies governing foreign trade, manufacturing, development and investment in the territories and countries where we currently develop and sell products, and any negative sentiments towards the United States as a result of such changes, could adversely affect our business.

In addition, negative sentiments towards the United States among non-U.S.

customers and among non-U.S.

employees or prospective employees could adversely affect sales or hiring and retention, respectively.

Our operations in the People’s Republic of China are subject to significant political and economic uncertainties over which we have little or no control and we may be unable to alter our business practice in time to avoid reductions in revenues.

A significant portion of our operations outside the United States are located in the PRC, which exposes us to risks, such as exchange controls and currency restrictions, changes in local economic conditions, changes in customs regulations and tariffs, changes in tax policies, changes in PRC laws and regulations, possible expropriation or other

PRC government actions, and unsettled political conditions including potential changes in U.S.

policy regarding overseas manufacturing.

In addition, Artesyn added a significant additional footprint in both facilities and resources in the PRC.

These factors may have a material adverse effect on our operations, business, results of operations, and financial condition.

See "We are exposed to risks associated with worldwide financial markets and the global economy"

risk factor below.

The PRC’s economy differs from the economies of most developed countries in many respects, including with respect to the amount of government involvement, level of development, rate of growth, control of foreign exchange and allocation of resources.

While the economy of the PRC has experienced significant growth in the past 20 years, growth has been uneven across different regions and amongst various economic sectors of the PRC.

The PRC government has implemented various measures to encourage economic development and guide the allocation of resources.

Strikes by workers and picketing in front of the factory gates of certain companies in Shenzhen have caused unrest among some workers seeking higher wages, which could impact our manufacturing facility in Shenzhen.

While some of the government’s measures may benefit the overall economy of the PRC, they may have a negative effect on us.

For example, our financial condition and results of operations may be materially and adversely affected by government control over capital investments or changes in tax regulations that are applicable to us as well as work stoppages.

We are subject to risks inherent in international operations.

Sales to our customers outside the United States were approximately 59.2% and 48.4% of our total sales for the year ended December 31, 2019 and 2018, respectively.

The international acquisitions have increased our presence in international locations.

Our success producing goods internationally and competing in international markets is subject to our ability to manage various risks and difficulties, including, but not limited to:

● our ability to effectively manage our employees at remote locations who are operating in different business environments from the United States;

● our ability to develop and maintain relationships with suppliers and other local businesses;

● compliance with product safety requirements and standards that are different from those of the United States;

● variations and changes in laws applicable to our operations in different jurisdictions, including enforceability of intellectual property and contract rights;

● trade restrictions, political instability, disruptions in financial markets, and deterioration of economic conditions;

● customs regulations and the import and export of goods (including customs audits in various countries that occur from time to time);

● the ability to provide enough levels of technical support in different locations;

● our ability to obtain business licenses that may be needed in international locations to support expanded operations;

● timely collecting accounts receivable from foreign customers including significant balances in accounts receivable from foreign customers as of December 31, 2019;

● collection of accounts receivable from foreign customers can also be unexpectedly delayed beyond our payment terms if the project itself is delayed and/or government funded.

For example, tariffs and slower growth have impacted certain of our Chinese markets which have delayed projects.

If these projects are permanently delayed or cancelled it could have a negative impact on our financial results or projections;

● changes in tariffs, taxes, and foreign currency exchange rates;

● recent protests and rioting in Hong Kong have affected travel in the region and may result in governmental actions that could impact business in the region.

Our profitability and ability to implement our business strategies, maintain market share and compete successfully in international markets will be compromised if we are unable to manage these and other international risks successfully.

Our product lines are manufactured only at a few sites and our sites are not generally interchangeable.

Our power products for the semiconductor industry are manufactured in Shenzhen, PRC.

Our high voltage products are manufactured in Ronkonkoma and Lockport, New York, Littlehampton, United Kingdom and Shenzhen, PRC.

Our thermal instrumentation products are manufactured in Vancouver, Washington, Santa Clara, California, Littlehampton, United Kingdom and Frankfurt, Germany.

Our pyrometry solutions are manufactured in Ballerup, Denmark and Santa Clara, California.

Our Telecom & Networking and Data Center Computing products are manufactured in Zhongshan, PRC, Rosario, Philippines and Santa Rosa, Philippines.

Some of Artesyn’s Embedded Power business’ products will be contract manufactured by the carved-out former Artesyn consumer group at their Luoding, China facility until September 2020.

Each facility is under operating lease and interruptions in operations could be caused by early termination of existing leases by landlords or failure by landlords to renew existing leases upon expiration, including the possibility that suitable operating locations may not be available in proximity to existing facilities which could result in labor or supply chain risks.

Each facility manufactures different products, and therefore, is not interchangeable.

Natural, uncontrollable occurrences or other operational issues at any of our manufacturing facilities could significantly reduce our productivity at such site and could prevent us from meeting our customers’ requirements in a timely manner, or at all.

For example, recent concerns regarding the spread of the Coronavirus and related government actions may result in temporary shut-down of our facilities and impact availability of materials supply and manufacturing employees, particularly in our China operations.

Any potential losses from such occurrences could significantly affect our relationship with customers, operations and results of operations for a prolonged period.

As a result, we are investing in additional production options in Malaysia.

We believe this investment will help to mitigate our exposure to regional risks, improve our business continuity profile and lower costs over time.

Our restructuring and other cost reduction efforts have included transitioning manufacturing operations to our facility in Shenzhen from other manufacturing facilities, such as Fort Collins, Colorado and Littlehampton, United Kingdom, which renders us increasingly reliant upon our Shenzhen facility.

We have been notified that we will be required to relocate our Shenzhen, PRC manufacturing facility by December 2021.

A disruption in manufacturing at our Shenzhen facility, from whatever cause, could have a significantly adverse effect on our ability to fulfill customer orders, our ability to maintain customer relationships, our costs to manufacture our products and, as a result, our results of operations and financial condition.

To mitigate these risks, we are investing in a dual manufacturing facility in Penang, Malaysia that will be capable of manufacturing our semiconductor and other products.

We have begun pilot production for qualification and expect to open the facility in 2020.

Our evolving manufacturing footprint may increase our risk.

The nature of our manufacturing is evolving as we continue to grow by acquisition.

Historically, our principal manufacturing location has been in Shenzhen, PRC;

however, we have also added specialized manufacturing at our Littlehampton, United Kingdom, Ballerup, Denmark, Frankfurt, Germany, Ronkonkoma and Lockport, New York and Santa Clara, California facilities.

From time to time we may be required to or we may choose to relocate manufacturing or migrate manufacturing of specific products between facilities or to third party manufacturers as part of our cost consolidation efforts.

A disruption in supply because of these manufacturing relocations could have a significantly adverse effect on our ability to fulfill customer orders.

We have been notified that we will be required to relocate our Shenzhen, PRC manufacturing facility by December 2021.

If we do not successfully coordinate the timely manufacturing and distribution of our products during this time, we may have insufficient supply of products to meet customer demand, we could lose sales, we may experience a build-up in inventory, or we may incur additional costs.

In addition, we are investing in a second factory in Malaysia to help mitigate business continuity, geopolitical and other risks.

If we do not successfully implement this factory it could result in increased expenses and disruption of supply to our customers during the transition period.

In addition, the acquisition of Artesyn’s Embedded Power business added significant vertically integrated manufacturing sites in China and the Philippines.

These sites represent large fixed costs which are difficult to flex as economic and other conditions change.

If we do not successfully integrate these operations and operate them in an efficient manner, we could experience greater losses in times of revenue reduction.

With the acquisition of Artesyn, our strategy is to optimize and reduce our manufacturing footprint over the next several years primarily in China and the Philippines.

Our strategy will require the expenditure on facilities, employee severance and other related operations.

If we are not successful in this strategy, we may impact our manufacturing capability and not reduce long-term costs as we had planned.

Raw material, part, component, and subassembly shortages, exacerbated by our dependence on sole and limited source suppliers, could affect our ability to manufacture products and systems and could delay our shipments.

Our business depends on our ability to manufacture products that meet the rapidly changing demands of our customers.

Our ability to timely manufacture our products depends in part on the timely delivery of raw materials, parts, components, and subassemblies from suppliers.

We rely on sole and limited source suppliers for some of our raw materials, parts, components, and subassemblies that are critical to the manufacturing of our products.

This reliance involves several risks, including the following:

● the inability to obtain an adequate supply of required parts, components, or subassemblies;

● supply shortages, if a sole or limited source provider ceases operation;

● the need to fund the operating losses of a sole or limited source provider;

● reduced control over pricing and timing of delivery of raw materials and parts, components, or subassemblies;

● the need to qualify alternative suppliers;

● suppliers that may provide parts, components or subassemblies that are defective, contain counterfeit goods or are otherwise misrepresented to us in terms of form, fit or function;

● the inability of our suppliers to develop technologically advanced products to support our growth and development of new products;

● the impact of geopolitical issues or tariffs that could affect the cost and availability of required parts, components, or subassemblies;

● the impact of regional or global health issues and related actions could affect the availability of required parts, components, or subassemblies.

From time to time, our sole or limited source suppliers have given us notice that they are ending supply of critical parts, components, and subassemblies that are required for us to deliver product.

If we cannot qualify alternative suppliers before ending supply of critical parts from the sole or limited source suppliers, we may be required to make a last-time-buy(s) and take possession of material amounts of inventory in advance of customer demand.

In some instances, the last-time-buy materials required to be purchased may be for several years which in turn exposes us to additional excess and obsolescence risk.

If we cannot qualify alternative suppliers before the last-time-buy materials are utilized in our products or legacy inverter warranty operations, we may be unable to deliver further product or legacy inverter warranty service to our customers.

Qualifying alternative suppliers could be time consuming and lead to delays in, or prevention of delivery of products to our customers, as well as increased costs.

If we are unable to qualify additional suppliers and manage relationships with our existing and future suppliers successfully, if our suppliers experience financial difficulties including bankruptcy, or if our suppliers cannot meet our performance or quality specifications or timing requirements, we may experience shortages, delays, or increased costs of raw materials, parts, components, or subassemblies.

This in turn could limit or prevent our ability to manufacture and ship our products, which could materially and adversely affect our relationships with our current and prospective customers and our business, financial condition, and results of operations.

Our assets and cash flow may not be sufficient to fully repay

borrowings under our outstanding debt instruments if accelerated upon an event of default.

Our orders of raw materials, parts, components, and subassemblies are based on demand forecasts.

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As the quarter and the year progress, such demand can change rapidly or we may realize that our customers’ expectations were overly optimistic or pessimistic, especially when industry or general economic conditions change.

Orders with our

suppliers cannot always be amended in response.

In addition, in order to assure availability of certain components or to obtain priority pricing, we have entered into contracts with some of our suppliers that require us to purchase a specified amount of components and subassemblies each quarter, even if we are not able to use such components or subassemblies.

Moreover, we have obligations to some of our customers to hold a minimum amount of finished goods in inventory, in order to fulfill just in time orders, regardless of whether the customers expect to place such orders.

Orders with our suppliers cannot always be amended in response.

In addition, to assure availability of certain components or to obtain priority pricing, we have entered into contracts with some of our suppliers that require us to purchase a specified number of components and subassemblies each quarter, even if we are not able to use such components or subassemblies.

Moreover, we have obligations to some of our customers to hold a minimum amount of finished goods in inventory, to fulfill just in time orders, regardless of whether the customers expect to place such orders.

We currently have firm purchase commitments and agreements with various suppliers to ensure the availability of components.

If demand for our products does not continue at current levels, we might not be able to use all of the components that we are required to purchase under these commitments and agreements, and our reserves for excess and obsolete inventory may increase, which could have a material adverse effect on our results of operations.

If demand for our products does not continue at current levels, we might not be able to use all the components that we are required to purchase under these commitments and agreements, and our reserves for excess and obsolete inventory may increase, which could have a material adverse effect on our results of operations.

If demand for our products exceeds our customers’ and our forecasts, we may not be able to timely obtain enough raw materials, parts, components, or subassemblies, on favorable terms or at all, to fulfill the excess demand.

Increased governmental action on income tax regulations could negatively impact our business.

International governments have heightened their review and scrutiny of multinational businesses like ours which could increase our compliance costs and future tax liability to those governments.

As governments continue to look for ways to increase their revenue streams, they could increase audits of companies to accelerate the recovery of monies perceived as owed to them under current or past regulations.

Such an increase in audit activity could have a negative impact on companies which operate internationally, as we do.

Activities necessary to integrate acquisitions may result in costs in excess of current expectations or be less successful than anticipated.

For example, entering 2021 there is global shortage of certain electronics and semiconductor parts given higher global demand and the impact of COVID-19 on the global supply chain.

If we are not able to obtain parts in a reasonable timeframe our business may be adversely impacted.

Activities necessary to integrate acquisitions may result in costs more than current expectations or be less successful than anticipated.

We have completed acquisitions in the past and we may acquire other businesses in the future.

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The integration of acquisitions may require significant attention from our management, and the diversion of management’s attention and resources could have a material adverse effect on our ability to manage our business.

Furthermore, we may not realize the degree or timing of benefits we anticipated when we first entered into the acquisition transaction.

Furthermore, we may not realize the degree or timing of benefits we anticipated when we first entered the acquisition transaction.

If actual integration costs are higher than amounts originally anticipated, if we are unable to integrate the assets and personnel acquired in an acquisition as anticipated, or if we are unable to fully benefit from anticipated synergies, our business, financial condition, results of operations, and cash flows could be materially adversely affected.

Additionally, our efforts to optimize our manufacturing footprint through consolidation and relocation resulting from acquisitions may result in a disruption in our ability to supply our customers which could adversely affect our operations.

We have historically made acquisitions and divestitures.

However, we may not find suitable acquisition candidates in the future and we may not be able to successfully integrate and manage acquired businesses.

In either an acquisition or a divestiture, we may be required to make fundamental changes in our ERP, business processes and tools which could disrupt our core business and harm our financial condition.

In the past, we have made strategic acquisitions of other corporations and entities, as well as asset purchases, and we continue to evaluate potential strategic acquisitions of complementary companies, products, and technologies.

We have also divested businesses.

In the future, we could:

● issue stock that would dilute our current stockholders’ percentage ownership;

● pay cash that would decrease our working capital;

● incur debt;

● assume liabilities;

● incur expenses related to impairment of goodwill and amortization.

Acquisitions and divestitures also involve numerous risks, including:

● problems combining or separating the acquired/divested operations, systems, technologies, or products;

● an inability to realize expected sales forecasts, operating efficiencies or product integration benefits;

● difficulties in coordinating and integrating geographically separated personnel, organizations, systems, and facilities;

● difficulties integrating business cultures;

● unanticipated costs or liabilities;

● diversion of management’s attention from our core business;

● adverse effects on existing business relationships with suppliers and customers;

● potential loss of key employees, particularly those of purchased organizations;

● incurring unforeseen obligations or liabilities in connection with either acquisitions or divestitures;

● the failure to complete acquisitions even after signing definitive agreements which, among other things, would result in the expensing of potentially significant professional fees and other charges in the period in which the acquisition or negotiations are terminated.

We may not be able to successfully identify appropriate acquisition candidates, to integrate any businesses, products, technologies, or personnel that we might acquire in the future or achieve the anticipated benefits of such transactions, which may harm our business.

We may be unable to realize expected benefits from our cost reduction and restructuring efforts

In order to operate more efficiently and control costs, we announce from time to time restructuring plans, which include workforce reductions, global facility optimizations or consolidations and other cost reduction initiatives.

These plans are intended to generate operating expense savings through reductions in direct and indirect expenses as well as improved efficiencies.

These types of cost reduction and restructuring activities are complex.

If we do not successfully manage our current restructuring activities, or any future restructuring activities, expected efficiencies and benefits might be delayed or not realized, and our operations and business could be disrupted.

Changes in tax laws, tax rates, or mix of earnings in tax jurisdictions in which we do business, could impact our future tax liabilities and related corporate profitability

We are subject to income taxes in the U.S.

(federal and state) and numerous foreign jurisdictions.

Tax laws, regulations, and administrative practices in various jurisdictions may be subject to significant change due to economic, political, and other conditions, and significant judgment is required in evaluating and estimating our provision and accruals for these taxes.

There are many transactions that occur during the ordinary course of business for which the ultimate tax determination is uncertain.

Our effective tax rates could be adversely affected by earnings being lower than anticipated in jurisdictions where we have lower statutory rates and earnings higher than anticipated in jurisdictions where we have higher statutory rates, losses incurred in jurisdictions for which we are not able to realize the related tax benefit, changes in foreign currency exchange rates, entry into new businesses and geographies and changes to our existing businesses, acquisitions (including integrations) and investments, changes in our deferred tax assets and liabilities and their valuation, and changes in the relevant tax, accounting, and other laws, regulations, administrative practices, principles, and interpretations, including fundamental changes to the tax laws applicable to corporate multinationals.

The U.S., many countries in the European Union, and several other countries are actively considering changes in this regard.

The acquisition of Artesyn may change our mix of earnings in various tax jurisdictions and may impact our overall current or future tax rate.

Changes in our provision for income taxes or adverse outcomes resulting from examination of our income tax returns could adversely affect our results

Our provision for income taxes is subject to volatility and could be adversely affected by earnings being lower than anticipated in countries that have lower tax rates and higher than anticipated in countries that have higher tax rates;

by changes in the valuation of our deferred tax assets and liabilities;

by changes, regulations, and interpretations of foreign-derived intangible income (FDII), global intangible low-tax income (GILTI) and base erosion and anti-abuse tax laws (BEAT);

by expiration of or lapses in tax incentives;

by transfer pricing adjustments, including the effect of acquisitions on our legal structure;

by tax effects of nondeductible compensation;

by tax costs related to intercompany realignments;

by changes in accounting principles;

or by changes in tax laws and regulations, treaties, or interpretations thereof, including changes to the taxation of earnings of our foreign subsidiaries, the deductibility of expenses

attributable to foreign income, and the foreign tax credit rules.

Significant judgment is required to determine the recognition and measurement attribute prescribed in the accounting guidance for uncertainty in income taxes.

The Organization for Economic Co-operation and Development (OECD), an international association comprised of 36 countries, including the United States, has made changes to numerous long-standing tax principles.

There can be no assurance that these changes, once adopted by countries, will not have an adverse impact on our provision for income taxes.

Further, as a result of certain of our ongoing employment and capital investment actions and commitments, our income in certain countries is subject to reduced tax rates.

Our failure to meet these commitments could adversely impact our provision for income taxes.

In addition, we are subject of regular examination of our income tax returns by tax authorities.

We regularly assess the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of our provision for income taxes.

There can be no assurance that the outcomes from these continuous examinations will not have an adverse effect on our operating results and financial condition.

We are exposed to risks associated with worldwide financial markets and the global economy.

Our business depends on the expansion of manufacturing capacity in our end markets and the installation base for the products we sell.

In the past, severe tightening of credit markets, turmoil in the financial markets, and a weakening global economy have contributed to slowdowns in the industries in which we operate.

Some of our key markets depend largely on consumer spending.

Economic uncertainty, such as that recently experienced in the PRC, exacerbates negative trends in consumer spending and may cause our customers to push out, cancel, or refrain from placing orders.

Difficulties in obtaining capital and uncertain market conditions may also lead to a reduction of our sales and greater instances of nonpayment.

These conditions may similarly affect our key suppliers, which could affect their ability to deliver parts and result in delays for our products.

Further, these conditions and uncertainty about future economic conditions could make it challenging for us to forecast our operating results and evaluate the risks that may affect our business, financial condition, and results of operations.

As discussed in "Our orders of raw materials, parts, components, and subassemblies are based on demand forecasts,"

a significant percentage of our expenses are relatively fixed and based, in part, on expectations of future net sales.

If a sudden decrease in demand for our products from one or more customers were to occur, the inability to adjust spending quickly enough to compensate for any shortfall would magnify the adverse impact of a shortfall in net sales on our results of operations.

Conversely, if market conditions were to unexpectedly improve and demand for our products were to increase suddenly, we might not be able to respond quickly enough, which could have a negative impact on our results of operations and customer relations.

Our results of operations could be affected by natural disasters and other events in the locations in which we or our customers or suppliers operate.

We have manufacturing and other operations in locations subject to natural occurrences such as severe weather and geological events including earthquakes or tsunamis that could disrupt operations.

In addition, our suppliers and customers also have operations in such locations.

A natural disaster, fire, explosion, public health issue (for example, an outbreak of a pandemic disease such as Coronavirus, avian influenza, measles or Ebola) or other event that results in a prolonged disruption to our operations, or the operations of our customers or suppliers, may materially adversely affect our business, results of operations, or financial condition.

We transitioned a significant amount of our supply base to Asian suppliers.

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A delay or refusal by our customers to accept such products, as well as an inability of our suppliers to meet our purchasing requirements, might require us to purchase higher-priced components from our existing suppliers or might cause us to lose sales to these customers, either of which could lead to decreased revenue and gross margins and have an adverse effect on our results of operations.

We must continually design and introduce new products into the markets we serve to respond to competition and rapid technological changes.

We operate in a highly competitive environment where innovation is critical, our future success depends on many factors, including the effective commercialization and customer acceptance of our products and services.

The development, introduction and support of a broadening set of products is critical to our continued success.

Our results of operations could be adversely affected if we do not continue to develop new products (including software and firmware capabilities), improve and develop new applications for existing products, and differentiate our products from those of competitors resulting in their adoption by customers.

We must achieve design wins to retain our existing customers and to obtain new customers, although design wins achieved do not necessarily result in substantial sales.

Driven by continuing technology migration and changing customers demand the markets we serve are constantly changing in terms of advancement in applications, core technology and competitive pressures.

New products we design for capital equipment manufacturers typically have a lifespan of five to ten years.

Our success and future growth depend on our products being designed into our customers new generations of equipment as they develop new technologies and applications.

We must work with these manufacturers early in their design cycles to modify, enhance and upgrade our products or design new products that meet the requirements of their new systems.

The design win process is highly competitive, and we may win or lose new design wins for our existing customers or new customers next generations of equipment.

In case existing or new customers do not choose our products as a result of the development, evaluation and qualification efforts related to the design win process, our market share will be reduced, the potential revenues related to the lifespan of our customers’ products, which can be five to ten years, will not be realized, and our business, financial condition and results of operations would be materially and adversely impacted.

We generally have no long-term contracts with our customers requiring them to purchase any specified quantities from us.

Our sales are primarily made on a purchase order basis, and we generally have no long-term purchase commitments from our customers, which is typical in the industries we serve.

As a result, we are limited in our ability to predict the level of future sales or commitments from our current customers, which may diminish our ability to allocate labor, materials, and equipment in the manufacturing process effectively.

As a result, we are limited in our ability to predict the level of future sales or commitments from our current customers, which may diminish our ability to allocate

labor, materials, and equipment in the manufacturing process effectively.

In addition, we may purchase inventory in anticipation of sales that do not materialize, resulting in excess and obsolete inventory write-offs.

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Our business strategy for many of our product lines has been focused on product performance and technology innovation to provide enhanced efficiencies and productivity.

As a result of recent economic conditions and changes in various markets that we serve, our customers have experienced significant cost pressures.

We have observed increased price sensitivity on the part of our customers.

If competition against any of our product lines should come to focus solely on price rather than on product performance and technology innovation, we will need to adjust our business strategy and product offerings accordingly, and if we are unable to do so, our business, financial condition, and results of operations could be materially and adversely affected.

Our competitive position could be weakened if we are unable to convince end users to specify that our products be used in the equipment sold by our customers.

The end users in our markets may direct equipment manufacturers to use a specified supplier’s product in their equipment at a particular facility.

This occurs with frequency because our products are critical in manufacturing process control for thin-film applications.

Our success, therefore, depends in part on our ability to have end users specify that our products be used at their facilities.

In addition, we may encounter difficulties in changing established relationships of competitors that already have a large installed base of products within such facilities.

The markets we operate in are highly competitive.

We face substantial competition, primarily from established companies, some of which have greater financial, marketing, and technical resources than we do.

We expect our competitors will continue to develop new products in direct competition with ours, improve the design and performance of their products, and introduce new products with enhanced performance characteristics including software and firmware capabilities.

In order to remain competitive, we must improve and expand our products and product offerings.

In addition, we may need to maintain a high level of investment in research and development and expand our sales and marketing efforts, particularly outside of the United States.

We might not be able to make the technological advances and investments necessary to remain competitive.

If we were unable to improve and expand our products and product offerings, our business, financial condition, and results of operations could be materially and adversely affected.

Our customers continually exert pressure on us to reduce our prices and extend payment terms and we may be required to enter into long term reduced pricing agreements with our largest customers to remain competitive.

In addition, we compete in markets in which customers may include dual or multi-sourcing of power.

We believe some of our Asian competitors benefit from local governmental funding incentives and purchasing preferences from end-user customers in their respective countries.

If competition against any of our product lines should come to focus solely on price rather than on product performance and technology innovation, we will need to adjust our business strategy, product offerings and product costs accordingly, and if we are unable to do so, our business, financial condition, and results of operations could be materially and adversely affected.

A significant portion of our sales and accounts receivable are concentrated among a few customers.

Our ten largest customers accounted for 57.3%, 62.5% and 70.4% of our sales for the year ended December 31, 2019, 2018 and 2017, respectively.

During the year ended December 31, 2019, sales to Applied Materials, Inc.

and Lam Research were $164.7 million and $88.3 million, respectively.

During the year ended December 31, 2018 sales to Applied Materials, Inc., and Lam Research were $258.0 million and $109.0 million, respectively.

During the year ended December 31, 2017, sales to Applied Materials, Inc., and Lam Research were $224.8 million and $155.3 million, respectively.

A new customer, Nidec Motor Corporation, acquired in connection with the acquisition of Artesyn’s Embedded Power business, had a $38.1 million accounts receivable balance as of December 31, 2019.

Applied Material, Inc.

had a $36.8 million and $34.3 million accounts receivable balance as of December 31, 2019 and December 31, 2018, respectively.

In addition, the Company has several large customers in China dependent on the Chinese government for project funding.

A significant decline in sales from these or other large customers, or the Company’s inability to collect on these sales, could materially and adversely impact our business, results of operations and financial condition.

We maintain significant amounts of cash in international locations.

Given the global nature of our business, we have both domestic and international concentrations of cash and investments.

The value of our cash, cash equivalents, and marketable securities can be negatively affected by liquidity, credit deterioration, financial results, economic risk, political risk, sovereign risk or other factors.

The Company intends to utilize its foreign cash to expand our international operations through internal growth and strategic acquisitions.

If our intent changes or if these funds are needed for our U.S.

operations, or we are negatively impacted by any of the factors above, our financial condition and results of operations could be materially adversely affected.

Globalization of sales increases risk of compliance with policy.

We operate in an increasingly complex sales environment around the world which places greater importance on our global control environment and imposes additional oversight risk.

Such increased complexity could adversely affect our operating results by increasing compliance costs in the near-term and by increasing the risk of control failures in the event of non-compliance.

Market pressures and increased low-cost competition may reduce or eliminate our profitability.

Our customers continually exert pressure on us to reduce our prices and extend payment terms.

Given the nature of our customer base and the highly competitive markets in which we compete, we may be required to reduce our prices or extend payment terms to remain competitive.

We have recently seen pricing pressure from our largest customers due in part to low-cost competition and market consolidation.

As a result of the competitive markets we serve, from time to time we may enter into long term pricing agreements with our largest customers that results in reduced product pricing.

Such reduced product pricing may result in product margin declines unless we are successful in reducing our product costs ahead of such price reductions.

In addition, our newly acquired business competes in markets that are more price competitive which may include dual or multi sourcing.

We believe some of our Asian competitors benefit from local governmental funding incentives and purchasing preferences from end-user customers in their

respective countries.

Moreover, in order to be successful in the current competitive environment, we are required to accelerate our investment in research & development to meet time-to-market, performance and technology adoption cycle needs of our customers simply in order to compete for design wins, and if successful, receive potential purchase orders.

Given such up-front investments we must make and the competitive nature of our markets, we may not be able to reduce our expenses in an amount enough to offset potential margin declines or loss of business and may not be able to meet customer product time-line expectations.

The potential decrease in cash flow could materially and adversely impact our financial condition.

The following table summarizes the percentage of 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 have an accounts receivable balance from Applied Materials, Inc.

of $33.4 million and $36.8 million as of December 31, 2020 and 2019, respectively.

A significant decline in sales from this or other large customers, or the Company’s inability to collect on these sales, could materially and adversely impact our business, results of operations and financial condition.

The loss of any of our key personnel could significantly harm our results of operations and competitive position.

Our success depends to a significant degree upon the continuing contributions of our key management, technical, marketing, and sales employees.

We may not be successful in retaining our key employees or attracting or retaining additional skilled personnel as required.

Failure to retain or attract key personnel could significantly harm our results of operations and competitive position.

Our success in hiring and retaining employees depends on a variety of factors, including the attractiveness of our compensation and benefit programs, global economic or political and industry conditions, our organizational structure, our reputation, culture and working environment, competition for talent and the availability of qualified employees, the availability of career development opportunities, and our ability to offer a challenging and rewarding work environment.

We must develop our personnel to provide succession plans capable of maintaining continuity during the inevitable unpredictability of personnel retention.

While we have plans for key management succession and long-term compensation plans designed to retain our senior employees, if our succession plans do not operate effectively, our business could be adversely affected.

The market price of our common stock has fluctuated and may continue to fluctuate for reasons over which we have no control.

The stock market has from time to time experienced, and is likely to continue to experience, extreme price and volume fluctuations.

Prices of securities of technology companies have been especially volatile and have often fluctuated for reasons that are unrelated to their operating performance.

In the past, companies that have experienced volatility in the market price of their stock have been the subject of securities class action litigation.

If we were the subject of securities class action litigation, it could result in substantial costs and a diversion of management’s attention and resources.

Our operating results are subject to fluctuations, and if we fail to meet the expectations of securities analysts or investors, our share price may decrease significantly.

Our annual and quarterly results may vary significantly depending on various factors, many of which are beyond our control.

Because our operating expenses are based on anticipated revenue levels, our sales cycle for development work is relatively long, and a high percentage of our expenses are fixed for the short term, a small variation in the timing of recognition of revenue can cause significant variations in operating results from period to period.

If our earnings do not meet the expectations of securities analysts or investors, the price of our stock could decline.

Commercial and financial related risks

We are highly dependent on our intellectual property.

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We attempt to protect our intellectual property rights through patents and non-disclosure agreements;

however, we might not be able to protect our technology, and competitors might be able to develop similar technology independently.

however, we might not be able to protect our technology, and customers or competitors might be able to develop similar technology independently.

In addition, the laws of some foreign countries might not afford our intellectual property the same protections as do the laws of the United States.

Our intellectual property is not protected by patents in several countries in which we do business, and we have limited patent protection in other countries, including the PRC.

The cost of applying for patents in foreign countries and translating the applications into foreign languages requires us to select carefully the inventions for which we apply for patent protection and the countries in which we seek such protection.

Generally, our efforts to obtain international patents have been concentrated in the European Union and certain industrialized countries in Asia, including Korea, Japan, and Taiwan.

Our intellectual property is not protected by patents in several countries in which we do business, and we have limited patent protection in other countries, including the PRC Generally, our efforts to obtain international patents have been concentrated in the European Union and certain industrialized countries in Asia, including Korea, Japan, and Taiwan.

If we are unable to protect our intellectual property successfully, our business, financial condition, and results of operations could be materially and adversely affected.

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Consequently, manufacturing our products in the PRC may subject us to an increased risk that unauthorized parties may attempt to copy our products or otherwise obtain or use our intellectual property.

We may not be able to protect our intellectual property rights effectively.

Additionally, we may not have adequate legal recourse if we encounter infringements of our intellectual property in the PRC.

Our operations in the People’s Republic of China (PRC) and the Asia Pacific region are subject to significant political and economic uncertainties over which we have little or no control and we may be unable to alter our business practice in time to avoid reductions in revenues.

policy regarding overseas manufacturing.

At various times during recent years, the U.S.

and PRC have had significant disagreements over geopolitical, trade and economic issues.

Controversies may arise in the future between these two countries.

Any escalating political controversies between the U.S.

and PRC, whether or not directly related to our business, could have a material adverse effect on our operations, business, results of operations, and financial condition.

See "We are exposed to risks associated with worldwide financial markets and the global economy"

risk factor below.

Additionally, there is inherent risk, based on the complex relationships among PRC, Hong Kong, Taiwan, and the United States, that political, diplomatic, and national security influences might lead to trade, technology, or capital disputes,

and/or disruptions, in particular those affecting the semiconductor industry.

This would adversely affect our business with PRC, Hong Kong, and/or Taiwan and perhaps the entire Asia Pacific region or global economy.

Actions by the Chinese government extending its territorial claims, such as the recent passage of the national security law in Hong Kong and the planned establishment of an Air Defense Identification Zone over the South China Sea, raises the fear of conflict that could result in international reprisal.

Actions by the U.S.

government on trade policy against the PRC and companies like Huawei Technologies Co., Ltd.

have also escalated tensions.

Lastly, the recent U.S.

and PRC consulate closures and the continuing Hong Kong political unrest is creating more uncertainty.

Should the PRC take any actions against Taiwan, we could see additional risks to diplomatic and trade relations in the region.

Given our expanded presence in the PRC and Hong Kong, the company’s business results, operations and financial condition could be adversely affected by these developments and other changes to political, diplomatic, and social conditions.

Moreover, PRC’s policies towards, and treatment of, U.S.

companies operating in PRC and Hong Kong could change quickly resulting in an adverse impact on the Company.

We are subject to risks inherent in international operations.

Given the global nature of our business, we have both domestic and international concentrations of cash and investments.

Sales to our customers outside the United States were approximately 68.7% and 59.2% of our total sales for the year ended December 31, 2020 and 2019, respectively.

Our acquisitions have increased our presence in international locations.