Risks Related to Our Business
−Removed: Our joint venture with the Chongqing government may not succeed as expected.
−Removed: In March 2016, we entered into a joint venture contract (the “JV Agreement”) with two investment funds owned by the municipalities of Chongqing, China (the “Chongqing Funds”), pursuant to which we and the Chongqing Funds formed a joint venture (the “JV Company”) for the purpose of constructing a power semiconductor packaging/testing and wafer fabrication facility.
−Removed: The JV Company started its assembly and testing production in the September quarter of 2018 and continued its ramp up during the fiscal year 2019.
−Removed: We also completed installation of equipment and trial production at the 12-inch wafer fabrication facility in fiscal year 2019.
−Removed: In July 2019, we commenced limited mass production at the 12-inch wafer fabrication facility.
−Removed: The initial ramp up of the JV Company’s operations is costly and for the short term will negatively impact our results of operations.
−Removed: While we believe the JV Transaction will enhance our ability to accelerate growth and improve our profitability, there is no guarantee that it will succeed as we initially expected.
−Removed: We may encounter unanticipated difficulties and obstacles that may delay or prevent the commencement of the JV Company's operation, some of which are outside of our control.
−Removed: These difficulties may include unexpected costs and delays in transferring our assembly and testing operations to the new facility;
−Removed: inability to coordinate and integrate the labor forces;
−Removed: failure of the Chongqing Funds to meet their obligations under the JV Agreement, such as delays in capitalizing the JV Company based on our original timeline;
−Removed: and inability to provide customers with required services.
−Removed: Even after the JV Company commences operation, we may not fully realize the anticipated benefits of the project, such as cost savings, improvement in working capital, increased gross margin, revenue and profitability, enhanced market share for our products;
−Removed: and increased diversification of our products and customers.
−Removed: The establishment and operation of a new manufacturing facility such as the JV Company involve significant risks and challenges, including, but are not limited to, the following:
−Removed: Inability to gain or sustain sufficient new customers and market shares to offset the additional costs of building and operating a new facility;
−Removed: Lack of sufficient control over the operation and finances of the joint venture;
−Removed: Insufficient personnel with requisite expertise and experiences to operate a 12-inch fabrication facility;
−Removed: High cost and unexpected expenses relating to upgrading and improving the packaging and testing and fabrication facilities;
−Removed: Inability to fully integrate the joint venture with our existing fabrication facility in Oregon, and inability to fully utilize both fabrication facilities;
−Removed: Failure of Chongqing Funds to meet its obligations under the JV Agreement;
−Removed: Difficulties in protecting and enforcing our intellectual property rights;
−Removed: Difficulties in maintaining international communications and coordination between our locations in the U.S.
−Removed: Inability to take advantage of the expected tax savings;
−Removed: Changes or uncertainties in economic, legal, regulatory, social and political conditions in China, and lack of transparency and certainty in the Chinese regulatory process;
−Removed: Labor disputes and difficulties in recruiting new employees;
−Removed: Additional costs and complexity with compliance of local and state regulations of Chongqing;
−Removed: New or enhanced U.S.
−Removed: restrictions on the transfer of technology or know-how to the JV Company.
−Removed: In addition, we may be subject to the risk of under-utilization of the facilities at the JV Company.
−Removed: The operation of the JV Company’s facilities, including the assembly and testing facilities and the fab, requires significant fixed cost.
−Removed: In order to manage the capacity of the wafer fabrication facility efficiently, we must perform a forecast of long-term market demand and general economic conditions for our products.
−Removed: Because market conditions may vary significantly and unexpectedly, our forecast may change significantly at any time, and we may not be able to make timely adjustments to our fabrication capacity in response to these changes.
−Removed: If our forecast is incorrect or if we are not able to fully utilize the capacities of the facilities at the JV Company, we may not be able to absorb the cost of operation, which will adversely affect our results of operations.
−Removed: Any of the foregoing risks could materially reduce the expected return of our investment in the JV Transaction and adversely affects our business operations, financial performance and the trading price of our shares.
−Removed: Proposed new additional tariffs on imported goods from China could adversely affect our business operations.
−Removed: The President of the United States has recently stated that a 10% tariff on an additional $300 billion of a wide range of goods and materials imported from China will be imposed in two phases, September 1 and December 15, in addition to the 25% U.S.
−Removed: tariffs already imposed on $250 billion of Chinese goods and materials, with tariffs thus affecting nearly all goods imported from China.
−Removed: These goods, absent exemptions, would include products and applications, including consumer electronics, that incorporate our power discrete and power IC products.
−Removed: In response, China has imposed tariffs on certain American products, and may take additional actions if these additional U.S.
−Removed: tariffs are imposed.
−Removed: The continuing trade war could have significant adverse effects on world trade and the world economy.
−Removed: While it is too early to predict if the proposed additional U.S.
−Removed: tariffs will be imposed, or how the proposed additional tariffs will impact our business, we believe that the imposition of the proposed additional tariffs by the U.S.
−Removed: government on products incorporating our power semiconductors could deter our U.S.
−Removed: customers from purchasing our products originating from China.
−Removed: If so, this could reduce demand for our power semiconductor products or result in pricing adjustments that would lower our gross margin, which could have a material adverse effect on our business and results of operations.
+Added: Our business operation and financial performance may be adversely affected by the COVID-19 pandemic and related events.
+Added: We are subject to risks related to the global pandemic associated with the COVID-19 disease, which has spread globally from China to the U.S.
+Added: and other countries where we have operations.
+Added: Numerous governmental jurisdictions, including the States of California, Oregon and Texas and countries throughout the Asia Pacific region, have imposed “stay-at-home” orders, quarantines, travel bans and similar governmental orders and restrictions to control the spread of COVID-19.
+Added: Such orders or restrictions have resulted in business closures, work stoppages, slowdowns and delays in commercial activities, unprecedented and widespread unemployment, disruptions to ports and other shipping infrastructure, border closures, and other travel or health-related restrictions, thereby negatively impacting our customers, suppliers, distributors, employees, offices, and the entire semiconductor ecosystem.
+Added: As a result of the COVID-19 pandemic and changing consumer behaviors due to “stay-at-home” restrictions, we have experienced shifting market trends, including an increasing demand in the markets for notebooks, PCs and gaming devices and decreasing demand for mobile phone and industrial related products.
+Added: While we have recently benefited from the increasing demand of PC related products, there is no guarantee that this trend will continue, and such increasing demand may discontinue as government authorities relax COVID-19 related restrictions.
+Added: Furthermore, as the COVID-19 pandemic continues and global economic downturn and high unemployment persist, consumer spending may slow down substantially, in which case we may experience a significant decline of customer orders for our products, including those designed for PC-related applications, and such decline will adversely affect our financial conditions and results of operations.
+Added: While we are implementing measures to enhance our marketing and sales opportunities, there is no guarantee that such measures will succeed and be sufficient to mitigate the rapidly shifting market demand.
+Added: Furthermore, we are experiencing and may continue to experience supply chain challenges in our manufacturing activities as a result of various “stay-at-home” orders.
+Added: Our JV Company has slowed ramp-up activities, which may cause delay and disruption to our timeline to reach full production for the 12” fabrication facility in Chongqing, China.
+Added: In addition to the impact on our financial performance and manufacturing process, we are subject to the following risks resulting from the COVID-19 pandemic and related events:
+Added: the economic recession and deteriorating financial market in the U.S.
+Added: and globally resulting from the COVID-19 pandemic may make it more difficult for us to obtain credit and secure debt financing on terms favorable to us, or at all, and we may not be able to comply with financial covenants in our existing credit agreements or service our existing debt if we do not generate sufficient cash flow from our operations;
+Added: we may encounter difficulties and disruptions in communication and coordination among our employees, partners, customers and others, which may reduce our productivity and interfere with our ability to serve our customers;
+Added: widespread COVID-19 disease could damage the health of our employees and management team, which may disrupt our business operations;
+Added: the value of our common shares may decline significantly as a result of factors outside of our control, such as stock market volatility, which will cause our shareholders to lose their investment.
+Added: The impact of the COVID-19 pandemic is highly uncertain and subject to change.
+Added: We cannot predict when this pandemic will end and when related governmental orders and restrictions will be eased or lifted.
+Added: Any extension or prolonged implementation of these restrictions will further adversely affect our business, customers and financial results.
+Added: Even after such orders and restrictions are eased or lifted, the severe economic harm inflicted upon the jurisdictions and areas in which we operate may last for an extended period of time and continue to adversely affect our business and financial performance, and there is no guarantee that we will be able to act quickly and effectively to return to our normal operations.
We may not be able to successfully develop our digital power business.
In September 2017, we entered into a license agreement with STMicro, which allows us to develop and market certain digital power multi-phase controller products and enter into a new market, primarily in the computer server segment.
−Removed: We are in the process of developing this new digital power business and expect to incur significant startup costs, including costs relating to the hiring and compensation of qualified engineers and technical staff;
+Added: We are in the process of developing this new digital power business and expect to incur significant startup
+Added: costs, including costs relating to the hiring and compensation of qualified engineers and technical staff;
development of marketing and sales infrastructure, particularly in the computer server market;
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difficulties in designing products acceptable to customers;
+Added: legal and regulatory restrictions;
inadequate sales and marketing capability.
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A significant amount of our revenue is derived from sales of products in the PC markets such as notebooks, motherboards and notebook battery packs.
−Removed: Our revenue from the PC markets accounted for approximately 45.9% , 41.6% and 39.1% of our total revenue for the years ended 2019 , 2018 and 2017 , respectively.
+Added: Our revenue from the PC markets accounted for approximately 41.1% , 45.9% and 41.6% of our total revenue for the years ended June 30, 2020 , 2019 and 2018 , respectively.
The increasing popularity of smaller, mobile computing devices such as tablets and smart phones with touch interfaces is rapidly changing the PC markets both in the United States and abroad.
In the past, we experienced a significant reduction in the demand for our products due to the declining PC markets, which had negatively impacted our revenue, profitability and gross margin.
−Removed: The decline of the PC markets also adversely affected our ability to adjust inventory levels in response to the lower shipments, which had negatively impacted our gross margins.
−Removed: There is no assurance that such decline will not occur again and if it does, we may not be able to implement measures successfully to mitigate or reduce the negative impact on our financial conditions and results of operations.
+Added: While we recently experienced resurgence of demand in the PC market as a result of the COVID-19 pandemic and related events, there is no assurance that such trend will continue or that the decline of PC market will not occur again, and if it does, we may not be able to implement measures successfully to mitigate or reduce the negative impact on our financial conditions and results of operations.
Our strategy of diversification into different market segments may not succeed according to our expectations and may expose us to new risks and place significant strains on our management, operational, financial and other resources.
−Removed: As part of the growth strategy to diversify our product portfolio and in response to the rapid decline of the PC markets, we have been developing new technologies and products designed to penetrate into other markets and applications, including
−Removed: merchant power supplies, flat panel TVs, smart phones, tablets, gaming consoles, lighting, datacom, telecommunications, home appliances and industrial motor controls.
+Added: As part of the growth strategy to diversify our product portfolio and in response to the rapid decline of the PC markets, we have been developing new technologies and products designed to penetrate into other markets and applications, including merchant power supplies, flat panel TVs, smart phones, tablets, gaming consoles, lighting, datacom, telecommunications, home appliances and industrial motor controls.
However, there is no guarantee that these diversification efforts will be successful.
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Therefore, comparing our operating results on a period-to-period basis may not be meaningful, and you should not rely on our past results as an indication of our future performance.
+Added: Geopolitical and economic conflicts between United States and China may adversely affect our business
+Added: Geopolitical conflicts and tensions between the United States and China have threatened and destabilized trading relationships and economic activities between the two countries.
+Added: Because we have significant operations in both countries, such conflicts and tensions may negatively impact our business.
+Added: At various times during recent years, the United States and China have had disagreements over political and economic issues, including but not limited to, the recent imposition of tariffs by the U.S.
+Added: on goods imported from China and to the U.S.
+Added: government's efforts to restrict transfer and sharing of technologies, including semiconductor technologies, between the two countries.
+Added: In addition, the U.S.
+Added: government may enact new and more restrictive export control regulations that may reduce our ability to ship and
+Added: sell products to certain customers in China and Asia and increase our cost to implement additional measures to comply with such new regulations.
+Added: In addition, disagreements between the United States and China with respect to their political, military or economic policies toward Taiwan may contribute to further controversies.
+Added: These controversies and trade frictions could have a material adverse effect on our business by, among other things, making it more difficult for us to coordinate our operations between the United States and China causing a reduction in the demand for our products by customers in the United States or China and reducing our profitability due to increasing cost of compliance.
+Added: The continuing political and economic conflicts between U.S.
+Added: and China have resulted in and may continue to cause retaliatory policies from both countries, including a recent executive order issued by the U.S.
+Added: President eliminating the preferential trade status of Hong Kong in response to China’s action to impose new security measures and regulation on Hong Kong.
+Added: The order will make it more costly and difficult for U.S.
+Added: companies to export goods or conduct businesses in Hong Kong.
+Added: While we historically have not relied on the preferential trade status to operate in Hong Kong, there is no guarantee that additional policies, rules or regulations will not be implemented by either the U.S.
+Added: or China that will negatively impact our ability to maintain our sales and other functions and operations in Hong Kong.
+Added: We also cannot predict what new and additional retaliatory policies and regulations may be implemented by Chinese government in response to U.S.
+Added: actions, and such policies and regulations may adversely affect our business operations in China and other Asian countries, including our manufacturing and sales and marketing activities.
Our revenue may fluctuate significantly from period to period due to ordering patterns from our distributors and seasonality.
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In recent year, broad fluctuations in the semiconductor markets and the global economic conditions, in particular the decline of the PC market conditions, have had a more significant impact on our results of operations, than seasonality, and have made it difficult to assess the impact of seasonal factors on our business.
+Added: We also expect our normal seasonality cycle be impacted by the COVID-19 pandemic and related events, making it more difficult to predict and determine a more consistent seasonality trend.
+Added: See “Risk Factors- Our business operation and financial performance may be adversely affected by the COVID-19 pandemic and related events.”
If we are unable to introduce or develop new and enhanced products that meet or are compatible with our customer's product requirements in a timely manner, it may harm our business, financial position and operating results.
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In addition, we cannot be assured that these efforts would result in a design win, that our product would be incorporated into an end customer's initial product design, or that any such design win would lead to production orders and generate sufficient revenue.
−Removed: Furthermore, even after we have qualified our products with a customer and made sales, subsequent changes to our products, manufacturing processes or suppliers may require a new
−Removed: qualification process, which may result in delay and excess inventory.
+Added: Furthermore, even after we have qualified our products with a customer and made sales, subsequent changes to our products, manufacturing processes or suppliers may require a new qualification process, which may result in delay and excess inventory.
If we cannot achieve sufficient design wins in the future, or if we fail to generate production orders following design wins, our ability to grow our business and improve our financial results will be harmed.
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The failure of our OEM end customers to achieve or maintain commercial success for any reason could harm our business, results of operations, and financial condition and prospects.
+Added: We are subject to risks associated with operating a fabrication facility in China through our joint venture company, which may not succeed as expected.
+Added: In March 2016, we entered into a joint venture contract (the “JV Agreement”) with two investment funds owned by the municipalities of Chongqing, China (the “Chongqing Funds”), pursuant to which we and the Chongqing Funds formed a joint venture (the “JV Company”) for the purpose of constructing a power semiconductor packaging/testing and wafer fabrication facility.
+Added: The JV Company had been ramping up its production of assembly and testing during the fiscal year 2020.
+Added: The 12-inch wafer fabrication facility commenced its limited mass production in the quarter ended September 30, 2019 and continued its ramp in the year ended June 30, 2020.
+Added: While we believe the JV Transaction will enhance our ability to accelerate growth and improve our profitability, there is no guarantee that it will succeed as we initially expected.
+Added: We may encounter unanticipated difficulties and obstacles that may delay the JV Company's operation, some of which are outside of our control.
+Added: These difficulties may include unexpected costs and delays in transferring our assembly and testing productions to the new facility;
+Added: inability to coordinate and integrate the labor forces;
+Added: and inability to provide customers with required services.
+Added: Even after the JV Company commences operation, we may not fully realize the anticipated benefits of the project, such as cost savings, improvement in working capital, increased gross margin, revenue and profitability, enhanced market share for our products;
+Added: and increased diversification of our products and customers.
+Added: The establishment and operation of a new manufacturing facility such as the JV Company involve significant risks and challenges, including, but are not limited to, the following:
+Added: Inability to gain or sustain sufficient new customers and market shares to offset the additional costs of building and operating a new facility;
+Added: Lack of sufficient control over the operation and finances of the joint venture;
+Added: Insufficient personnel with requisite expertise and experiences to operate a 12-inch fabrication facility;
+Added: High cost and unexpected expenses relating to upgrading and improving the packaging and testing and fabrication facilities;
+Added: Inability to fully integrate the joint venture with our existing fabrication facility in Oregon, and inability to fully utilize both fabrication facilities;
+Added: Failure of Chongqing Funds to meet its obligations under the JV Agreement;
+Added: Difficulties in protecting and enforcing our intellectual property rights;
+Added: Difficulties in maintaining international communications and coordination between our locations in the U.S.
+Added: Inability to take advantage of the expected tax savings;
+Added: Changes or uncertainties in economic, legal, regulatory, social and political conditions in China, and lack of transparency and certainty in the Chinese regulatory process;
+Added: Labor disputes and difficulties in recruiting new employees;
+Added: Additional costs and complexity with compliance of local and state regulations of Chongqing;
+Added: New or enhanced U.S.
+Added: restrictions on the transfer of technology or know-how to the JV Company, and political and economic tension between U.S.
+Added: and China that may result in additional limitation on our ability to operate the JV Company.
+Added: In addition, we may be subject to the risk of under-utilization of the facilities at the JV Company.
+Added: The operation of the JV Company’s facilities, including the assembly and testing facilities and the fab, requires significant fixed cost.
+Added: In order to manage the capacity of the wafer fabrication facility efficiently, we must perform a forecast of long-term market demand and general economic conditions for our products.
+Added: Because market conditions may vary significantly and unexpectedly, our forecasts may change significantly at any time, and we may not be able to make timely adjustments to our fabrication capacity in response to these changes.
+Added: If our forecast is incorrect or if we are not able to fully utilize the capacities of the facilities at the JV Company, our results of operations will be adversely affected.
+Added: In order to fund its capital expenditures and cost of operations, the JV Company has incurred a significant amount of indebtedness from third-party lenders under several loan and lease financing agreements.
+Added: Some of the indebtedness is secured by substantially all of the assets of the JV Company.
+Added: As of June 30, 2020, the total amount of debt outstanding at the JV Company was $140.7 million.
+Added: The JV Company is required to make interest payments to service such debt.
+Added: If the JV Company is not able to generate sufficient cash flow to make interest or principal payments when due, the JV Company may be in default under these loan agreements, which would have an adverse effect on our business operations and financial conditions.
+Added: Any of the foregoing risks could materially reduce the expected return of our investment in the JV Transaction and adversely affects our business operations, our financial performance and the trading price of our shares.
The operation of our Oregon fab subjects us to additional risks and the need for additional capital expenditures which may negatively impact our results of operations.
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In addition, semiconductor manufacturing has historically required an upgrading of process technology from time to time to remain competitive, as new and enhanced semiconductor processes are developed which permit smaller, more efficient and more powerful semiconductor devices.
−Removed: Accordingly, we may have to incur substantial capital expenditures and install significant production capacity at our in-house fabrication facility to support new technologies and increased production volume, which may cause delay in our ability to deliver new products or negatively impact our results of operations.
+Added: Accordingly, we may have to incur substantial capital expenditures and install significant production capacity at our in-house fabrication facility to support new technologies and increased
+Added: production volume, which may cause delay in our ability to deliver new products or negatively impact our results of operations.
Defects and poor performance in our products could result in loss of customers, decreased revenue, unexpected expenses and loss of market share, and we may face warranty and product liability claims arising from defective products.
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In the past, we have experienced defects in our products and these products were returned to us and subsequently scrapped or sold at a discount.
−Removed: Any actual or perceived errors, defects or
−Removed: poor performance in our products could result in the replacement or recall of our products, shipment delays, rejection of our products, damage to our reputation, lost revenue, diversion of our engineering personnel from our product development efforts in order to address or remedy any defects and increases in customer service and support costs, all of which could have a material adverse effect on our business and operations.
+Added: Any actual or perceived errors, defects or poor performance in our products could result in the replacement or recall of our products, shipment delays, rejection of our products, damage to our reputation, lost revenue, diversion of our engineering personnel from our product development efforts in order to address or remedy any defects and increases in customer service and support costs, all of which could have a material adverse effect on our business and operations.
Furthermore, as our products are typically sold at prices much lower than the cost of the equipment or other devices incorporating our products, any defective, inefficient or poorly performing products, or improper use by customers of power components, may give rise to warranty and product liability claims against us that exceed any revenue or profit we receive from the affected products.
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Our major competitors for our power discretes include Infineon Technologies AG, MagnaChip Semiconductor Corporation, ON Semiconductor Corp., STMicroelectronics N.V., Toshiba Corporation, Diodes Incorporated and Vishay Intertechnology, Inc.
−Removed: Our major competitors for our power ICs include Global Mixed-mode Technology Inc., Monolithic Power Systems, Inc., Richtek Technology Corp., Semtech Corporation and Texas Instruments Inc.
+Added: Our major competitors for our power ICs include Global Mixed-mode Technology Inc., Monolithic Power Systems, Inc., ON Semiconductor Corp., Richtek Technology Corp., Semtech Corporation, Texas Instruments Inc.
+Added: and Vishay Intertechnology, Inc.
We expect to face competition in the future from our competitors, other manufacturers, designers of semiconductors and start-up semiconductor design companies.
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more product lines, enabling them to bundle their products to offer a broader product portfolio or to integrate power management functionality into other products that we do not sell;
+Added: greater ability and more resources to influence and participate in the regulatory and legislative process for more favorable laws and regulations;
captive manufacturing facilities, providing them with guaranteed access to manufacturing facilities in times of global semiconductor shortages.
In addition, the semiconductor industry has experienced increased consolidation over the past several years that may adversely affect our competitive position.
−Removed: For example, On Semiconductor Corporation acquired Fairchild Semiconductor International Inc.
−Removed: in September 2016;
−Removed: Avago Technologies Limited (now Broadcom Limited (“Broadcom”)) acquired Broadcom Corporation in February 2016 and LSI Corporation in May 2014;
−Removed: Intel acquired Altera Corporation in December 2015;
−Removed: and NXP Semiconductors acquired Freescale Semiconductor, Ltd.
−Removed: in December 2015.
Consolidation among our competitors could lead to a less favorable competitive landscape, capabilities and market share, which could harm our business and results of operations.
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From time to time, third party suppliers may extend lead-times, limit supplies or increase prices due to capacity constraints or other factors, and we may experience a shortage of capacity on an industry-wide basis that may last for an extended period of time.
−Removed: There are no assurances of that we will be able to maintain sufficient capacity to meet the full demand from our customers, and failure to do so will adversely affect our results of operations.
+Added: There are no assurances that we will be able to maintain sufficient capacity to meet the full demand from our customers, and failure to do so will adversely affect our results of operations.
If we cannot maintain sufficient capacity or control pricing with our existing third-party foundries, we may need to increase our own manufacturing capacity, and there is no assurance that we can ramp up the production of the Oregon fab timely to meet the increased demand.
If not, we may need to seek alternative foundries, which may not be available on commercially reasonable terms, or at all.
−Removed: In addition, the process for qualifying a new foundry is time consuming, difficult and may not be successful, particularly if we cannot integrate our proprietary process technology with the process used by the new foundry.
+Added: In addition, the process
+Added: for qualifying a new foundry is time consuming, difficult and may not be successful, particularly if we cannot integrate our proprietary process technology with the process used by the new foundry.
Using a foundry with which we have no established relationship could expose us to potentially unfavorable pricing, unsatisfactory quality or insufficient capacity allocation.
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Our fabrication and packaging processes depend on raw materials such as silicon wafers, gold, copper, molding compound, petroleum and plastic materials and various chemicals and gases.
−Removed: From time to time, suppliers may extend lead times, limit supplies or increase prices due to capacity constraints or other factors.
+Added: From time to time, suppliers may extend
+Added: lead times, limit supplies or increase prices due to capacity constraints or other factors.
If the prices of these raw materials rise significantly, we may be unable to pass on the increased cost to our customers.
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Many of these employees could leave our company with little or no prior notice and would be free to work for a competitor.
−Removed: If one or more of our senior executives or other key personnel are unable or unwilling to continue in their present positions, we may not be able to replace them easily or at all and other senior management may be required to divert attention from other aspects of our business.
+Added: If one or more of our senior executives or other key personnel are unable or unwilling to continue in their present positions, we may not be able to replace them easily or at all and other senior management may be required to divert attention from
+Added: other aspects of our business.
In addition, we do not have “key person” life insurance policies covering any member of our management team or other key personnel.
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Any intellectual property claim or litigation could harm our business, results of operations, financial condition and prospects.
+Added: The current government investigation and evolving export control regulations may adversely affect our financial performance and business operations.
+Added: Department of Justice commenced an investigation into the Company’s compliance with export control regulations relating to its business transactions with Huawei and its affiliates (“Huawei”), which were added to the “Entity List” by the Department of Commerce (“DOC”) in May 2019.
+Added: In connection with this investigation, DOC requested the Company to suspend shipments of its products to Huawei, and the Company complied with such request.
+Added: The Company has not shipped any product to Huawei since December 31, 2019.
+Added: The Company is currently working with DOC to resolve this issue and requested DOC to grant permission to reinstate shipments to Huawei.
+Added: To date DOC has not provided us with any timeline or schedule under which DOC will respond to our request.
+Added: There is no guarantee that DOC will agree to permit us to resume shipment to Huawei on a timely basis, or at all.
+Added: The DOC’s decision may be influenced by factors beyond our control, such as shifting political dynamics and the macro-economic relationship between the U.S.
+Added: and China and changes in export control regulations.
+Added: Our inability to continue such shipment may negatively impact our revenue and financial performance, particularly if we are not able to acquire new customers to offset the loss of shipments to Huawei.
+Added: The ongoing government investigations into our export control compliance also subject us to a number of financial and business risks.
+Added: We expect to incur significant costs and expenses, including legal fees, in connection with our effort to respond to the government investigation, as well as additional legal fees for defending securities class actions resulting from public disclosure of the government investigation.
+Added: Such additional costs will adversely affect our profitability.
+Added: While the Company has purchased a D&O insurance policy which may reimburse a portion of such fees and expenses, there is no guarantee that such policy will be sufficient to reduce our costs or that reimbursement can be obtained on a timely basis or at all.
+Added: Furthermore, the management has diverted its resources and time in response to the investigation, and might not be able to fully engage with the core operation and objectives of our business activities.
+Added: Finally, while we are fully cooperating with the government in the investigation, we are not able to predict its timing and outcome.
+Added: In the event that the government decides to bring enforcement action against us, it will result in a material adverse effect on our business operations, our financial conditions and our reputation.
+Added: We also expect that the U.S.
+Added: export control regulations to evolve and change in response to the political and economic tension between the U.S.
+Added: and China, including potential new export control regulations that may impose additional restrictions on our ability to continue to do business with certain customers in China and Asia.
+Added: If such changes occur, we may be required to reduce shipments to certain Asian customers, adjust our business practices and incur additional costs to implement new export control compliance procedures, policies and programs, each of which will adversely affect our financial conditions and results of operations.
+Added: We may be adversely affected by any disruption in our information technology systems.
+Added: Our operations are dependent upon our information technology systems, which encompass all of our major business functions across offices internationally.
+Added: We rely upon such information technology systems to manage and replenish inventory, complete and track customer orders, coordinate sales activities across all of our products and services, maintain vital data and information, perform financial and accounting tasks and manage and perform various administrative and human resources functions.
+Added: A substantial disruption in our information technology systems for any extended time period (arising from, for example, system capacity limits from unexpected increases in our volume of business, outages or delays in our service) could result in delays in receiving inventory and supplies or filling customer orders and adversely affect our customer service and relationships.
+Added: Our systems might be damaged or interrupted by natural or man−made events or by computer viruses, physical or electronic break−ins, cyber-attacks and similar disruptions affecting the global Internet.
+Added: In addition, in the past few years, widespread ransomware attacks in the U.S.
+Added: and elsewhere have affected many companies.
+Added: We also experienced such ransomware attacks on our information technology system during the past year.
+Added: While the attacks did not have a material adverse effect on our business operation, they caused temporary disruptions and interfered with our operations.
+Added: While we intend to implement additional measures to enhance our security protocol to protect our system, there is no guarantee that future attacks would be thwarted or prevented.
+Added: Such attacks could increase our cost of operations and adversely affect our business operations and results of operations.
Global or regional economic, political and social conditions could adversely affect our business and operating results.
−Removed: External factors such as potential terrorist attacks, acts of war, financial crises, such as the global or regional economic recession, or geopolitical and social turmoil in those parts of the world that serve as markets for our products could have
−Removed: significant adverse effect on our business and operating results in ways that cannot presently be predicted.
+Added: External factors such as potential terrorist attacks, acts of war, financial crises, such as the global or regional economic recession, or geopolitical and social turmoil in those parts of the world that serve as markets for our products could have significant adverse effect on our business and operating results in ways that cannot presently be predicted.
Any future economic downturn or recession in the global economy in general and, in particular, on the economies in China, Taiwan and other countries where we market and sell our products, will have an adverse effect on our results of operations.
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Our business could be adversely affected by natural disasters such as epidemics, outbreaks or other health crisis.
−Removed: An outbreak of avian flu or H1N1 flu in the human population, or another similar health crisis, could adversely affect the economies and financial markets of many countries, particularly in Asia.
+Added: An outbreak of avian flu or H1N1 flu in the human population, or another similar health crisis, such as the recent COVID-19 pandemic, could adversely affect the economies and financial markets of many countries, particularly in Asia.
Moreover, any related disruptions to transportation or the free movement of persons could hamper our operations and force us to close our offices temporarily.
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Any occurrence of uncovered loss could harm our business, results of operations, financial condition and prospects.
−Removed: We may be adversely affected by any disruption in our information technology systems.
−Removed: Our operations are dependent upon our information technology systems, which encompass all of our major business functions across offices internationally.
−Removed: We rely upon such information technology systems to manage and replenish inventory, complete and track customer orders, coordinate sales activities across all of our products and services, maintain vital data and information, perform financial and accounting tasks and manage and perform various administrative and human resources functions.
−Removed: A substantial disruption in our information technology systems for any extended time period (arising from, for example, system capacity limits from unexpected increases in our volume of business, outages or delays in our service) could result in delays in receiving inventory and supplies or filling customer orders and adversely affect our customer service and relationships.
−Removed: Our systems might be damaged or interrupted by natural or man−made events or by computer viruses, physical or electronic break−ins, cyber attacks and similar disruptions affecting the global Internet.
−Removed: There can be no assurance that such delays, problems, or costs will not have a material adverse effect on our cash flows, results of operations and financial condition.
Our international operations subject our company to risks not faced by companies without international operations.
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or foreign income tax liability in the future.
−Removed: In December 2017, the European Union (“EU”) identified certain jurisdictions (including Bermuda and Cayman Islands) which it considered had a tax system that facilitated offshore structuring by attracting profits without commensurate economic activity.
+Added: In December 2017, the European Union (“EU”) identified certain jurisdictions (including Bermuda and Cayman Islands) which it considered had a tax system that facilitated offshore structuring by attracting profits without
+Added: commensurate economic activity.
In order to avoid EU “blacklisting”, both Bermuda and Cayman Islands introduced new legislation in December 2018, which came into force on January 1, 2019.
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banking, insurance, fund management, financing, leasing, headquarters, shipping, distribution and service center, intellectual property or holding company) to maintain a substantial economic presence in Bermuda and Cayman Islands in order to comply with the economic substance requirements.
−Removed: There is no experience yet as to how the Bermuda and Cayman Islands authorities will interpret and enforce these new rules and, accordingly, we are not able to predict their impact on our operations and net income.
−Removed: In addition, to the extent that we are required to maintain more of a presence in Bermuda or the Cayman Islands, such requirements will increase our costs either directly in those locations or indirectly as a result of increased costs related to moving our operations to other jurisdictions.
+Added: Effective from December 31, 2019, we have structured our activities to comply with the new law.
+Added: However, there is no experience yet as to how the Bermuda and Cayman Islands authorities will interpret and enforce these new rules.
+Added: The legislation remains subject to further clarification and, accordingly, there is no guarantee that we will be deemed to be compliant.
+Added: Furthermore, this legislation may require us to make additional changes to the activities we carry on in Bermuda or Cayman Islands, which could increase our costs either directly in those locations or indirectly as a result of increased costs related to moving our operations to other jurisdictions.
+Added: As a result, we are not able to determine the impact on our operations and net income as of the current period.
In addition, our subsidiaries provide products and services to, and may from time to time undertake certain significant transactions with, us and other subsidiaries in different jurisdictions.
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We have entered into debt agreements with certain financial institutions, which generally require us to maintain certain financial covenants that has the effect of limiting our ability to take certain actions, including actions to incur debt, pay dividends, repurchase stock, make certain investments and capital expenditures.
−Removed: These restrictions may limit our ability to pursue business and financial opportunities that are available or beneficial to us in response to changing and competitive
−Removed: economic environment, which may have an adverse effect on our financial conditions.
+Added: These restrictions may limit our ability to pursue business and financial opportunities that are available or beneficial to us in response to changing and competitive economic environment, which may have an adverse effect on our financial conditions.
In addition, a breach of any of these financial covenants, if not waived by the lenders, could trigger an event of default under the debt agreements, which may result in the acceleration of our indebtedness or the loss of our collateral used to secure such indebtedness.
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PFIC status depends on the composition of our assets and income and the value of our assets, including, among others, a pro rata portion of the income and assets of each subsidiary in which we own, directly or indirectly, at least 25% by value of the subsidiary's equity interests, from time to time.
−Removed: Because we currently hold and expect to continue to hold a substantial amount of cash or cash equivalents, and because the calculation of the value of our assets may be based in part on the value of our common shares, which may fluctuate considerably given that market prices of technology companies historically often have been volatile, we may be a PFIC for any taxable year.
+Added: Because we currently hold and expect to continue to hold a substantial amount of cash or cash equivalents, and because the calculation of the value of
+Added: our assets may be based in part on the value of our common shares, which may fluctuate considerably given that market prices of technology companies historically often have been volatile, we may be a PFIC for any taxable year.
If we were treated as a PFIC for any taxable year during which a U.S.
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federal income tax consequences could apply for such U.S.
−Removed: Risks Related to Our Industry
The average selling prices of products in our markets have historically decreased rapidly and will likely do so in the future, which could harm our revenue and gross margins.
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These downturns have been characterized by diminished product demand, production overcapacity, high inventory levels and accelerated erosion of average selling prices.
−Removed: Any future downturns, in particular the PC markets or in any other markets in which we sell our products, may reduce our
−Removed: revenue and result in us having excess inventory.
+Added: Any future downturns, in particular the PC markets or in any other markets in which we sell our products, may reduce our revenue and result in us having excess inventory.
By contrast, any upturn in the semiconductor industry could result in increased competition for access to limited third-party foundry and packaging and testing capacity, which could prevent us from benefiting from such an upturn or reduce our profit margins.
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These changes in government policy may be implemented through various means, including changes in laws and regulations, implementation of anti-inflationary measures, change of basic interest rate, changes in the tax rate or taxation system and the imposition of additional restrictions on currency conversion and imports.
−Removed: Furthermore, given China's largely export-driven economy, any changes in the economies of the China's principal trading partners and other export-oriented nations may adversely affect our business, results of operations, financial condition and prospects.
+Added: Furthermore, given China's largely export-driven economy, any changes in the economies of China's principal trading partners and other export-oriented nations may adversely affect our business, results of operations, financial condition and prospects.
Our ability to successfully expand our business operations in China depends on a number of factors, including macroeconomic and other market conditions, and credit availability from lending institutions.
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In addition, changes in political and social conditions of China may adversely affect our ability to conduct our business in the region.
−Removed: For example, geopolitical disputes and increased tensions between China and its neighboring countries in which we conduct business could make it more difficult for us coordinate and manage our international operations in such countries.
+Added: For example, geopolitical disputes and increased tensions between China and its neighboring countries in which we conduct business could make it more difficult for us to coordinate and manage our international operations in such countries.
Changes in China's laws, legal protections or government policies on foreign investment in China may harm our business.
−Removed: Our business and corporate transactions, including our operations through the JV Company, are subject to laws and regulations applicable to foreign investment in China as well as laws and regulations applicable to foreign-invested
+Added: Our business and corporate transactions, including our operations through the JV Company, are subject to laws and regulations applicable to foreign investment in China as well as laws and regulations applicable to foreign-invested enterprises.
These laws and regulations frequently change, and their interpretation and enforcement involves uncertainties that could limit the legal protections available to us.
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If any of our past operations are deemed to be non-compliant with Chinese law, we may be subject to penalties and our business and operations may be adversely affected.
−Removed: For instance, under the catalogue for the Guidance of Foreign Investment Industries, some industries are categorized as sectors which are encouraged, restricted or prohibited for foreign investment.
−Removed: As the catalogue for the Guidance of Foreign Investment Industries is updated every few years, there can be no assurance that the China government will not change its policies in a manner that would render part or all of our business to fall within the restricted or prohibited categories.
+Added: For instance, under Special Administrative Measures (Negative List) for Foreign Investment Access, some industries are categorized as sectors which are restricted or prohibited for foreign investment.
+Added: As the Negative List is updated every year, there can be no assurance that the China government will not change its policies in a manner that would render part or all of our business to fall within the restricted or prohibited categories.
If we cannot obtain approval from relevant authorities to engage in businesses which become prohibited or restricted for foreign investors, we may be forced to sell or restructure a business which has become restricted or prohibited for foreign investment.
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Moreover, uncertainties in the Chinese legal system may impede our ability to enforce contracts with our business partners, customers and suppliers, or otherwise pursue claims in litigation to recover damages or loss of property, which could adversely affect our business and operations.
−Removed: Substantial uncertainties exist with respect to the enactment timetable, interpretation and implementation of draft PRC Foreign Investment Law and how it may impact the viability of our current corporate structure, corporate governance and business operations.
−Removed: On March 15, 2019, the National People’s Congress of the PRC promulgated the Foreign Investment Law, which will take effect on January 1, 2020, and replace the existing laws regulating foreign investment in China, namely, the Sino-foreign Equity Joint Venture Enterprise Law, the Sino-foreign Cooperative Joint Venture Enterprise Law and the Wholly Foreign-invested Enterprise Law, together with their implementation rules and ancillary regulations.
+Added: The continuing potential for new or additional tariffs on imported goods from China could adversely affect our business operations.
+Added: The United States entered into what is described as “Phase 1” trade agreement with China on January 15, 2020, which reduces some existing tariffs that had been imposed and defers proposed increases of the tariff rate on an additional $250 billion of Chinese goods from 25% to 30% that had been planned for October 15, 2019, and proposed 15% tariffs on an additional $160 billion of a wide range of goods and materials imported from China to be effective December 15, 2019.
+Added: Under the Phase 1 agreement, existing 25% tariffs previously imposed on $250 billion of Chinese goods will remain in place, while a 15% tariff on another $120 billion of Chinese goods has been reduced to 7.5%.
+Added: These goods, absent exemptions, may include products and applications, including consumer electronics, that incorporate our power discrete and power IC products.
+Added: In response, China has imposed tariffs on certain American products, some of which are being reduced as part of the Phase 1 agreement.
+Added: China may take additional actions if additional U.S.
+Added: tariffs are reduced or imposed.
+Added: On May 8, 2020, the two countries reaffirmed their Phrase I trade agreement notwithstanding the COVID-19 pandemic.
+Added: In view of potential discussions between the Chinese and U.S.
+Added: governments on a second phase agreement, for which discussions only among trade negotiators are currently scheduled, the ultimate level of tariffs, the ultimate scope of them, and whether or how the proposed additional tariffs will impact our business is uncertain.
+Added: We believe that the imposition of additional tariffs by the U.S.
+Added: government on products incorporating our power semiconductors could deter our customers from purchasing our products originating from China.
+Added: If so, this would reduce demand for our power semiconductor products or result in pricing adjustments that would lower our gross margin, which could have a material adverse effect on our business and results of operations.
+Added: Substantial uncertainties exist with respect to the interpretation and implementation of PRC Foreign Investment Law and how it may impact the viability of our current corporate structure, corporate governance and business operations.
+Added: On March 15, 2019, the National People’s Congress of the PRC promulgated the Foreign Investment Law, which took effect on January 1, 2020, and replaced the existing laws regulating foreign investment in China, namely, the Sino-foreign Equity Joint Venture Enterprise Law, the Sino-foreign Cooperative Joint Venture Enterprise Law and the Wholly Foreign-invested Enterprise Law, together with their implementation rules and ancillary regulations.
The Foreign Investment Law embodies a PRC regulatory trend to rationalize its foreign investment regulatory regime in line with prevailing international practice and the legislative efforts to unify the corporate legal requirements for both foreign and domestic investments.
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Our subsidiaries may also experience difficulties in converting our capital contributions made in foreign currencies into RMB due to changes in the China's foreign exchange control policies.
−Removed: Therefore, it may be difficult to change capital expenditure plans once the relevant funds have been
−Removed: remitted from us to our China subsidiaries.
−Removed: These limitations and the difficulties our China subsidiaries may experience on the free flow of funds between us and our China subsidiaries could restrict our ability to act in response to changing market situations in a timely manner.
+Added: Therefore, it may be difficult to change capital expenditure plans once the relevant funds have been remitted from us to our China subsidiaries.
+Added: These limitations and the difficulties
+Added: our China subsidiaries may experience on the free flow of funds between us and our China subsidiaries could restrict our ability to act in response to changing market situations in a timely manner.
China's currency exchange control and government restrictions on investment repatriation may impact our ability to transfer funds outside of China.
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However, pursuant to applicable regulations, foreign‑invested enterprises in China may pay dividends only out of their accumulated profits, if any, determined in accordance with Chinese accounting standards and regulations.
−Removed: In calculating accumulated profits, foreign investment enterprises in China are required to allocate at least 10% of their accumulated profits each year, if any, to fund certain reserve funds, including mandated employee benefits funds, unless these reserves have reached 50% of the registered capital of the enterprises.
+Added: In calculating accumulated profits, foreign investment enterprises in China are required to allocate at least 10% of their accumulated profits each year, if any, to fund certain reserve funds unless these reserves have reached 50% of the registered capital of the enterprises.
Other transactions that involve conversion of Renminbi into foreign currency are classified as “capital account” transactions;
examples of “capital account” transactions include repatriations of investment by or loans to foreign owners, or direct equity investments in a foreign entity by a China domiciled entity.
−Removed: “Capital account” transactions require prior approval from China's State Administration of Foreign Exchange (SAFE) or its provincial branch to convert a remittance into a foreign currency, such as U.S.
+Added: “Capital account” transactions require prior approval from, or registration with China's State Administration of Foreign Exchange (SAFE) or its provincial branch to convert a remittance into a foreign currency, such as U.S.
dollars, and transmit the foreign currency outside of China.
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dollars is our main functional currency and our revenue and a significant portion of our operating expenses are denominated in U.S.
−Removed: dollars, we are required to maintain local currencies, primarily the RMB, in our cash balances in connection with the funding of our oversea operations.
+Added: dollars, we are required to maintain local currencies, primarily the RMB, in our cash balances in connection with the funding of our overseas operations.
As a result, our costs and operating expenses may be exposed to adverse movements in foreign currency exchange rates between the U.S.
dollar and RMB.
−Removed: We also do not utilize any financial instruments to hedge or reduce potential losses due to the fluctuation of foreign currency exchange rates.
+Added: We also do not utilize any financial instruments to hedge or reduce potential losses due to the fluctuation of foreign currency exchange
In general, any appreciation of U.S.
dollars against a weaker RMB could reduce the value of our cash and cash equivalent balance, which could increase our operating expenses and negatively affect our cash flow, income and profitability.
−Removed: The value of RMB
−Removed: against the U.S.
+Added: The value of RMB against the U.S.
dollars may fluctuate and is affected by many factors outside of our control, including changes in political and economic conditions, implementation of new monetary policies by the Chinese government and changes in banking regulations, and there is no guarantee that we will be able to mitigate or recoup any losses due to a significant fluctuation in the U.S.
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PRC labor laws may adversely affect our results of operations.
−Removed: On June 29, 2007, the PRC government promulgated the Labor Contract Law of the PRC, effective on January 1, 2008, to govern the establishment of employment relationships between employers and employees, and the conclusion, performance, termination of and the amendment to employment contracts.
+Added: The PRC government promulgated the Labor Contract Law of the PRC, effective on January 1, 2008, as amended, to govern the establishment of employment relationships between employers and employees, and the conclusion, performance, termination of and the amendment to employment contracts.
The Labor Contract Law imposes greater liabilities on employers and significantly affects the cost of an employer’s decision to reduce its workforce.
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This mandated paid-vacation regulation, coupled with the trend of increasing compensation, may result in increase in our employee-related costs and expenses and decrease in our profit margins.
−Removed: Controversies affecting China's trade with the United States could harm our business.
−Removed: Controversies between the United States and China may arise that threaten the trading relationship between the two countries.
−Removed: At various times during recent years, the United States and China have had disagreements over political and economic issues, including the recent imposition of tariffs by U.S.
−Removed: against goods imported from China.
−Removed: See risk factor on page 14 entitled “Possible new tariffs on imported goods from China could adversely affect our business operations” above.
−Removed: In addition, disagreements between the United States and China with respect to their political, military or economic policies toward Taiwan may contribute to further controversies.
−Removed: These controversies and trade frictions could have a material adverse effect on our business by, among other things, making it more difficult for us to coordinate our operations between the United States and China or causing a reduction in the demand for our products by customers in the United States or China.
Relations between Taiwan and China could negatively affect our business, financial condition and operating results and, therefore, the market value of our common shares.
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changes in the estimation of the future size and growth rate of our markets;
+Added: announcement of significant legal proceedings, litigation or government investigation;
additions or departures of key personnel;
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This type of litigation could result in substantial costs and divert our management's attention and resources which could negatively impact our business and financial conditions.
+Added: Legal Proceeding.
If securities or industry analysts do not publish research or reports about our business, or if they adversely change their recommendations regarding our common shares or if our operating results do not meet their expectations, the trading price of our common shares could decline.
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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.