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Item 1A. Risk Factors

2021-08-30 compared with 2020-09-02 · 211 added, 142 removed, 563 unchanged (39% of the section changed)

Our operations and financial results are subject to various risks and uncertainties, including those described below, that could adversely affect our business, financial condition, results of operations, cash flows, and the trading price of our common stock.

Any of the following risks and uncertainties may be exacerbated by the impacts of the COVID-19 pandemic and related events.

Risk Factor Summary

• Risks Related to Our Business

Our business operation and financial performance may be adversely affected by the COVID-19 pandemic and related events.

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.

and other countries where we have operations.

• Our business operations and financial performance may be adversely affected by the COVID-19 pandemic and related events.

• The decline of personal computing (“PC”) markets may have a material adverse effect on our results of operations.

• Our strategy of diversification into different market segments may not succeed according to our expectations.

• Our operating results may fluctuate from period to period due to many factors, which may make it difficult to predict our future performance.

• Geopolitical and economic conflicts between United States and China may adversely affect our business

• We are subject to risks associated with operating a fabrication facility in China through our joint venture company

• Our revenue may fluctuate significantly from period to period due to ordering patterns from our distributors and seasonality.

• We may not be able to introduce or develop new and enhanced products that meet or are compatible with our customer's product requirements in a timely manner.

• We may not win sufficient designs, or our design wins may not generate sufficient revenue for us to maintain or expand our business.

• Our success depends upon the ability of our OEM end customers to successfully sell products incorporating our products.

• 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.

• We may not be able to successfully develop our digital power business.

• Defects and poor performance in our products could result in loss of customers, decreased revenue, unexpected expenses and loss of market share.

• If we do not forecast demand for our products accurately, we may experience product shortages, delays in product shipment, excess product inventory, or difficulties in planning expenses, which will adversely affect our business and financial condition.

• We face intense competition and may not be able to compete effectively which could reduce our revenue and market share.

• Our reliance on third-party semiconductor foundries to manufacture our products subjects us to risks.

• Our operation of two wholly-owned packaging and testing facilities are subject to risks that could adversely affect our business and financial results.

• Our reliance on distributors to sell a substantial portion of our products subjects us to a number of risks.

• We have made and may continue to make strategic acquisitions of other companies, assets or businesses and these acquisitions introduce significant risks and uncertainties.

• If we are unable to obtain raw materials in a timely manner or if the price of raw materials increases significantly, production time and product costs could increase, which may adversely affect our business.

• We may not be able to accurately estimate provisions at fiscal period end for price adjustment and stock rotation rights under our agreements with distributors, and our failure to do so may impact our operating results.

• We depend on the continuing services of our senior management team and other key personnel, and if we lose a member of our senior management or are unable to successfully retain, recruit and train key personnel, our ability to develop and market our products could be harmed.

• Failure to protect our patents and our other proprietary information could harm our business and competitive position.

• Intellectual property disputes could result in lengthy and costly arbitration, litigation or licensing expenses or prevent us from selling our products.

• The current government investigation and evolving export control regulations may adversely affect our financial performance and business operations.

• We may be adversely affected by any disruption in our information technology systems.

• Global or regional economic, political and social conditions could adversely affect our business and operating results.

• Our business operations could be significantly harmed by natural disasters or global epidemics.

• Our insurance may not cover all losses, including losses resulting from business disruption or product liability claims.

• Our international operations subject our company to risks not faced by companies without international operations.

• If we fail to maintain an effective system of internal control over financial reporting, we may not be able to accurately report our financial results or prevent fraud.

• We are subject to the risk of increased income taxes and changes in existing tax rules.

• Our debt agreements include financial covenants that may limit our ability to pursue business and financial opportunities and subject us to risk of default.

• The imposition of U.S.

corporate income tax on our Bermuda parent and non-U.S.

subsidiaries could adversely affect our results of operations.

• We may be classified as a passive foreign investment company (“PFIC”), which could result in adverse U.S.

federal income tax consequences for U.S.

• 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.

• We may be adversely affected by the cyclicality of the semiconductor industry.

• Risks Related to Doing Business in China

• China's economic, political and social conditions, as well as government policies, could affect our business and growth.

• Changes in China's laws, legal protections or government policies on foreign investment in China may harm our business.

• The continuing potential for new or additional tariffs on imported goods from China could adversely affect our business operations.

• Substantial uncertainties exist with respect to the interpretation and implementation of PRC Foreign Investment Law and how it may impact us.

• Limitations on our ability to transfer funds to our China subsidiaries could adversely affect our ability to expand our operations, make investments that could benefit our businesses and otherwise fund and conduct our business.

• China's currency exchange control and government restrictions on investment repatriation may impact our ability to transfer funds outside of China.

• The M&A Rules and certain other PRC regulations establish complex procedures for some acquisitions of Chinese companies by foreign investors, which could make it more difficult for us to pursue growth through acquisitions in China.

• Our results of operations may be negatively impacted by fluctuations in foreign currency exchange rates between U.S.

dollar and Chinese Yuan, or RMB.

• PRC labor laws may adversely affect our results of operations.

• Relations between Taiwan and China could negatively affect our business, financial condition and operating results and, therefore, the market value of our common shares.

• Risks Related to Our Corporate Structure and Our Common Shares

• Our share price may be volatile and you may be unable to sell your shares at or above the purchase price, if at all.

• 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.

• Anti-takeover provisions in our bye-laws could make an acquisition of us more difficult and may prevent attempts by our shareholders to replace or remove our current management.

• We are a Bermuda company and the rights of shareholders under Bermuda law may be different from U.S.

Risks Related to Our Business

Our business operations and financial performance may be adversely affected by the COVID-19 pandemic and related events.

We are subject to risks related to the global COVID-19 pandemic, which has significantly impacted all aspects of economic activities around the world and in our industry.

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.

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.

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.

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.

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.

As a result of the COVID-19 pandemic and changing consumer behavior due to various restrictions imposed by government authorities, 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.

While we have recently benefited from the increased demand of PC related products, there is no guarantee that this trend will continue, and such demand might discontinue as government authorities relax COVID-19 related restrictions.

In addition, the recent global shortage of semiconductor manufacturing capacity has provided us with additional sales opportunities, and we were able to leverage our in-house facilities to meet customer demand and generate additional revenue.

However, we cannot guarantee that such trend will continue and that we will be able to take advantage of the increasing demand, nor can we guarantee that we can secure adequate capacity to support the growing demand.

Furthermore, as the COVID-19 pandemic continues and the 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 would adversely affect our financial conditions and results of operations.

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.

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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:

the economic recession and deteriorating financial market in the U.S.

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;

• economic conditions in the U.S.

and globally resulting from the COVID-19 pandemic may make it more difficult for us, and the JV Company 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;

• 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;

• widespread COVID-19 disease could damage the health of our employees and management team, which may disrupt our business operations;

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.

The impact of the COVID-19 pandemic is highly uncertain and subject to change.

We cannot predict when this pandemic will end and when related governmental orders and restrictions will be eased or lifted.

Any extension or prolonged implementation of these restrictions will further adversely affect our business, customers and financial results.

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.

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;

development of marketing and sales infrastructure, particularly in the computer server market;

and other research and development and management activities.

We do not expect this new business to generate sufficient revenue to offset our costs in the short term, and there is no guarantee that our attempt to develop a profitable digital business will ultimately succeed.

The success of our new digital power business depends on a number of factors, including the following:

competition from other companies with greater resources and experiences and more established reputations in the digital power market;

the availability of and our ability to recruit and attract qualified personnel;

our lack of experience and reputation in the digital power market;

difficulties in designing products acceptable to customers;

legal and regulatory restrictions;

inadequate sales and marketing capability.

Any one of these factors may negatively impact our ability to create a successful digital power business, which would adversely affect our financial condition and results of operations.

• the value of our common shares may decline significantly as a result of factors outside of our control, such as stock market volatility, which could cause our shareholders to lose their investment.

Since the start of the second quarter of 2021, there have been increasing availability and administration of vaccines against COVID-19, as well as an easing of restrictions on social, business, travel, and government activities and functions, and a gradual resumption of economic activities and consumer spending in our industries.

On the other hand, infection rates continue to fluctuate in various regions and new strains of the virus remain a risk.

In addition, there are ongoing global impacts resulting from the pandemic, including disruption of the product supply chains, shortages of semiconductor components, and delays in shipments, product development, and product launches.

The full extent of the future impact of the COVID-19 pandemic on our operational and financial performance is uncertain and will depend on many factors outside the Company’s control, including, without limitation, the timing, extent, trajectory and duration of the pandemic;

the availability, distribution and effectiveness of vaccines;

the spread of new variants of COVID-19;

the continued and renewed imposition of protective public safety measures, the implementation by government authorities to restrict economic activities;

and the impact of the pandemic on the global economy and demand for consumer products.

The decline of personal computing (“PC”) markets may have a material adverse effect on our results of operations.

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• the announcement of significant acquisitions, disposition or partnership arrangements;

changes and delays in our JV Transaction;

the ramp-up progress and operation of the JV Company;

• the ramp-up progress and operation of the JV Company, and announcement of significant transactions involving the JV Company;

• changes in the utilization of our in-house manufacturing capacity;

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In addition, the U.S.

government may enact new and more restrictive export control regulations that may reduce our ability to ship and

sell products to certain customers in China and Asia and increase our cost to implement additional measures to comply with such new regulations.

government may enact new and more restrictive export control regulations that may reduce our ability to ship and sell products to certain customers in China and Asia and increase our cost to implement additional measures to comply with such new regulations.

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.

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.

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.

The continuing political and economic conflicts between U.S.

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or China that will negatively impact our ability to maintain our sales and other functions and operations in Hong Kong.

We also cannot predict what new and additional retaliatory policies and regulations may be implemented by Chinese government in response to U.S.

We also cannot predict what new and additional retaliatory policies and regulations may be implemented by the Chinese government in response to U.S.

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.

We are subject to risks associated with operating a fabrication facility in China through our joint venture company

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.

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.

We may encounter unanticipated difficulties and obstacles that may delay the JV Company's operation, expansion, and financing, some of which are outside of our control.

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;

and increased diversification of our products and customers.

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:

• Inability to gain or sustain sufficient new customers and market shares to offset the additional costs of building and operating a new facility;

• Lack of sufficient control over the operation and finances of the joint venture;

• Insufficient personnel with requisite expertise and experiences to operate a 12-inch fabrication facility;

• High cost and unexpected expenses relating to upgrading and improving the packaging and testing and fabrication facilities;

• Inability to maximize the advantages of operating two wafer fabrication facilities;

• Failure of Chongqing Funds to meet their obligations under the JV Agreement;

• Difficulties in protecting and enforcing our intellectual property rights;

• Difficulties in maintaining international communications and coordination between our locations in the U.S.

• Inability to take advantage of the expected tax savings;

• Changes or uncertainties in economic, legal, regulatory, social and political conditions in China;

• Labor disputes and difficulties in recruiting new employees;

• Additional costs and complexity with compliance of local and state regulations of Chongqing;

• New or tighter U.S.

restrictions on the transfer of technology or know-how to the JV Company, and political and economic tension between U.S.

and China that may result in additional limitation on our ability to operate the JV Company.

In addition, we may be subject to the risk of under-utilization of the facilities at the JV Company.

The operation of the JV Company’s facilities, including the assembly and testing facilities and the fab, requires significant fixed cost.

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.

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.

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.

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.

Some of the indebtedness is secured by substantially all of the assets of the JV Company.

As of June 30, 2021, the total amount of debt outstanding at the JV Company was $141.1 million.

The JV Company is required to make interest payments to service such debt.

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.

In addition, the JV Company requires additional funding to continue executing its business strategies and to refinance its existing indebtedness, and it is currently pursuing various financing options.

There is no guarantee that the JV Company will be able to obtain financing on favorable terms, or at all, and any failure by the JV Company to obtain financing may negatively impact our operations.

Furthermore, if the JV Company enters into and completes an equity financing, our equity interest will be diluted, which may result in the loss of our control over the JV Company’s operations, which in turn may adversely affect our ability to access manufacturing capacity and other operational benefits that the JV Company provides to us.

Any of the foregoing risks could materially reduce the expected return of our investment in the JV Transaction and adversely affect our business operations, our financial performance and the trading price of our shares.

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.

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.

Our normal seasonality cycle has also been impacted by the COVID-19 pandemic and related events, making it more difficult to predict and determine a more consistent seasonality trend.

See “Risk Factors- Our business operation and financial performance may be adversely affected by the COVID-19 pandemic and related events.”

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In the past, we have encountered product compatibility issues with a major OEM that has negatively impacted our financial results, and although we have resolved fully such issues with the OEM, there is no guarantee that the same compatibility issues will not occur in the future with other OEMs.

If we are unable to develop or acquire new products that meet or are compatible with our customer's specification and other product requirements in a timely manner, we may lose revenue or market shares with our customers, which could have a material adverse effect on our business, financial position and operating results.

If we are unable to develop or acquire new products that meet or are compatible with our customer's specification and other product requirements in a timely manner, we may lose revenue or market share with our customers, which could have a material adverse effect on our business, financial position and operating results.

We may not win sufficient designs, or our design wins may not generate sufficient revenue for us to maintain or expand our business.

We invest significant resources to compete with other power semiconductor companies to obtain winning competitive bids for our products in selection processes, known as “design wins.” Our effort to obtain design wins may detract us from or delay the completion of other important development projects, impair our relationships with existing end customers and negatively impact sales of products under development.

We invest significant resources to compete with other power semiconductor companies to win competitive bids for our products in selection processes, known as “design wins.” Our effort to obtain design wins may detract from or delay the completion of other important development projects, impair our relationships with existing end customers and negatively impact sales of products under development.

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.

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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.

We are subject to risks associated with operating a fabrication facility in China through our joint venture company, which may not succeed as expected.

The JV Company had been ramping up its production of assembly and testing during the fiscal year 2020.

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.

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.

We may encounter unanticipated difficulties and obstacles that may delay the JV Company's operation, some of which are outside of our control.

These difficulties may include unexpected costs and delays in transferring our assembly and testing productions to the new facility;

inability to coordinate and integrate the labor forces;

and inability to provide customers with required services.

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;

and increased diversification of our products and customers.

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:

Inability to gain or sustain sufficient new customers and market shares to offset the additional costs of building and operating a new facility;

Lack of sufficient control over the operation and finances of the joint venture;

Insufficient personnel with requisite expertise and experiences to operate a 12-inch fabrication facility;

High cost and unexpected expenses relating to upgrading and improving the packaging and testing and fabrication facilities;

Inability to fully integrate the joint venture with our existing fabrication facility in Oregon, and inability to fully utilize both fabrication facilities;

Failure of Chongqing Funds to meet its obligations under the JV Agreement;

Difficulties in protecting and enforcing our intellectual property rights;

Difficulties in maintaining international communications and coordination between our locations in the U.S.

Inability to take advantage of the expected tax savings;

Changes or uncertainties in economic, legal, regulatory, social and political conditions in China, and lack of transparency and certainty in the Chinese regulatory process;

Labor disputes and difficulties in recruiting new employees;

Additional costs and complexity with compliance of local and state regulations of Chongqing;

New or enhanced U.S.

restrictions on the transfer of technology or know-how to the JV Company, and political and economic tension between U.S.

and China that may result in additional limitation on our ability to operate the JV Company.

In addition, we may be subject to the risk of under-utilization of the facilities at the JV Company.

The operation of the JV Company’s facilities, including the assembly and testing facilities and the fab, requires significant fixed cost.

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.

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.

Some of the indebtedness is secured by substantially all of the assets of the JV Company.

As of June 30, 2020, the total amount of debt outstanding at the JV Company was $140.7 million.

The JV Company is required to make interest payments to service such debt.

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.

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.

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.

For example, we recently commenced a plan to enhance the manufacturing capability and capacity of our

Oregon fab by investing in new equipment and expanding our factory facilities, which we expect will have a positive impact on our future new product development and revenue, particularly during the period of global shortage of capacity.

While we expect such investment will enable us to accommodate increasing customer demand and generate additional revenue, there is no guarantee that we will be able to do so, and our investment may not produce the return that we expected, which may adversely affect our business and results of operations.

We may not be able to successfully develop our digital power business.

We are in the process of developing this new digital power business and expect to incur significant costs to develop this business, 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;

and other research and development and management activities.

The success of our digital power business depends on a number of factors, including the following:

• competition from other companies with greater resources and experiences and more established reputations in the digital power market;

• the availability of and our ability to recruit and attract qualified personnel;

• our lack of experience and reputation in the digital power market;

• difficulties in designing products acceptable to customers;

• legal and regulatory restrictions;

• inadequate sales and marketing capability.

Any one of these factors may negatively impact our ability to create a successful digital power business, which would adversely affect our financial condition and 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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It can also be potentially dangerous as defective power components, or improper use of our products by customers, may lead to power overloads, which could result in explosion or fire.

As our products become more complex, we face higher risk of undetected defects, because our testing protocols may not be able to fully test the products under all possible operating conditions.

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.

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.

Historically, we have received claims from our customers for charges such as their labor and other costs replacing defective parts, their lost profit, and/or penalty.

We could incur significant costs and liabilities if we are sued and if damages are awarded against us.

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Because we sell most of our products to distributors, who in turn sell to our end customers, we have limited visibility as to end customer demand.

Furthermore, we do not have long-term purchase commitments from our distributors or end customers, and our sales are generally made by purchase orders that may be cancelled, changed or deferred without notice to us or penalty.

Furthermore, we do not have long-term purchase commitments from our

distributors or end customers, and our sales are generally made by purchase orders that may be cancelled, changed or deferred without notice to us or penalty.

As a result, it is difficult to forecast future customer demand to plan our operations.

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These adjustments to our productions may affect the utilization of our own wafer fabrication and packaging facilities.

If we cannot sell certain portion of the excess inventory, it will affect our provisions for inventory write-downs.

If we cannot sell certain portions of the excess inventory, it will affect our provisions for inventory write-downs.

Our inventory write-down provisions are subject to adjustment based on events that may not be known at the time the provisions are made, and such adjustments could be material and impact our financial results negatively.

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If we are unable to compete effectively for any of the foregoing or other reasons, our business, results of operations, and financial condition and prospects will be harmed.

We depend partly on third-party semiconductor foundries to manufacture our products and implement our fabrication processes, and any failure to maintain sufficient foundry capacity and control the cost of production could significantly delay our ability to ship our products, damage our relationships with customers, reduce our sales and increase expenses.

Our reliance on third-party semiconductor foundries to manufacture our products subject us to risks.

The allocation of our wafer production between in-house facility and third-party foundries may fluctuate from time to time.

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Although we use several independent foundries, our primary third-party foundry is HHGrace, which manufactured 11.5%, 12.7% and 14.1% of the wafers used in our products for the fiscal years ended June 30, 2021, 2020 and 2019, respectively.

We place our purchase orders with foundries based on sales forecasts for our products.

If any third-party foundry does not provide competitive pricing or is not able to meet our required capacity for any reason, we may not be able to obtain the required capacity to manufacture our products timely or efficiently.

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If not, we may need to seek alternative foundries, which may not be available on commercially reasonable terms, or at all.

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.

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.

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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We have two wholly-owned packaging and testing facilities located in Shanghai, China that handle most of our packaging and testing requirements.

The operation of high-volume packaging and testing facilities and implementation of our advanced packaging technology are complex and demand a high degree of precision and may require modification to improve yields and product performance.

The operation of high-volume packaging and testing facilities and implementation of our advanced packaging technology are complex and demand a high degree of precision and may require modification

to improve yields and product performance.

We have committed substantial resources to ensure that our packaging and testing facilities operate efficiently and successfully, including the acquisition of equipment and raw materials, and training and management of a large number of technical personnel and employees.

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If any significant distributor becomes unable or unwilling to promote and sell our products, or if we are not able to renew our contracts with the distributors on acceptable terms, we may not be able to find a replacement distributor on reasonable terms or at all and our business could be harmed.

We have made and may continue to make strategic acquisitions of other companies, assets or businesses and these acquisitions introduce significant risks and uncertainties, including risks related to integrating the acquired assets or businesses, incurring additional debt, assuming contingent liabilities or diluting our existing shareholders.

We have made and may continue to make strategic acquisitions of other companies, assets or businesses and these acquisitions introduce significant risks and uncertainties.

In order to position ourselves to take advantage of growth opportunities, we have made, and may continue to make, strategic acquisitions, mergers and alliances that involve significant risks and uncertainties.

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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.

From time to time, suppliers may extend

lead times, limit supplies or increase prices due to capacity constraints or other factors.

From time to time, suppliers may extend 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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Errors or defects may arise from raw materials supplied by third parties that are beyond our detection or control, which could lead to additional customer returns or product warranty claims that may adversely affect our business and results of operations.

Our operations may be delayed or interrupted and our business may be adversely affected as a result of our efforts to comply with environmental regulations applicable to our in-house wafer manufacturing, packaging and testing facility.

Our in-house manufacturing operations, including wafer manufacturing, packaging and testing, are subject to a variety of environmental regulations relating to the use, handling, discharge and disposal of toxic or otherwise hazardous materials.

Business - Environmental matters.” Compliance with environmental regulations could require us to acquire expensive pollution control equipment or to incur other substantial expenses or investigate and remediate contamination at our current facilities.

Any failure, or any claim that we have failed, to comply with these regulations could cause delays in our production and capacity expansion and affect our public image, either of which could harm our business.

In addition, any failure to comply with these regulations could subject us to substantial fines or other liabilities, result in the suspension of our operating permit, or require us to terminate or adversely modify our in-house manufacturing operations.

We may not be able to accurately estimate provisions at fiscal period end for price adjustment and stock rotation rights under our agreements with distributors, and our failure to do so may impact our operating results.

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Our success depends upon the continuing services of members of our senior management team and various engineering and other technical personnel.

In particular, our engineers and other sales and technical personnel are critical to our future technological and product innovations.

In particular, our engineers and other sales and technical personnel are

critical to our future technological and product innovations.

Our industry is characterized by high demand and intense competition for talent and the pool of qualified candidates is limited.

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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.

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.

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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As is typical in the semiconductor industry, we or our customers may receive claims of infringement from time to time or otherwise become aware of potentially relevant patents or other intellectual property rights held by other parties that may cover some of our technology, products and services or those of our end customers.

The semiconductor industry is characterized by vigorous protection and pursuit of intellectual property rights which has resulted in protracted and expensive arbitration and litigation for many companies.

The semiconductor

industry is characterized by vigorous protection and pursuit of intellectual property rights which has resulted in protracted and expensive arbitration and litigation for many companies.

Patent litigation has increased in recent years due to increased assertions made by intellectual property licensing entities or non-practicing entities and increasing competition and overlap of product functionality in our markets.

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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.

Finally, while we are fully cooperating with the government in the investigation, we are not able to predict its timing and outcome.

Finally, while we

are fully cooperating with the government in the investigation, we are not able to predict its timing and outcome.

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.

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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.

In addition, in the past few years, widespread ransomware attacks in the U.S.

and elsewhere have affected many companies.

We also experienced such ransomware attacks on our information technology system during the past year.

While the attacks did not have a material adverse effect on our business operation, they caused temporary disruptions and interfered with our operations.

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.

Such attacks could increase our cost of operations and adversely affect our business operations and results of operations.

In addition, recent widespread ransomware attacks and cybersecurity breaches in the U.S.

and elsewhere have affected many companies, including the cybersecurity incident involving SolarWinds Orion in December 2020.

In the past, we also experienced ransomware attacks on our information technology system.

While these attacks did not have a material adverse effect on our business operation, they caused temporary disruptions and interfered with our operations.

While we have implemented additional measures to enhance our security protocol to protect our system and intend to do so in response to any threats, there is no guarantee that future attacks would be thwarted or prevented.

Furthermore, despite our efforts to investigate, improve and remediate the capability and performance of our information technology system, we may not be able to discover all weaknesses, breaches and vulnerabilities, and failure to do so may expose us to higher risk of data loss 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.

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It is possible that these or other changes in the U.S.

tax laws, foreign tax laws, or proposed actions by international bodies such as the Organization of Economic Cooperation and Development (OECD) could significantly increase our U.S.

or foreign income tax liability in the future.

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.

tax laws, foreign tax laws, or proposed actions by international bodies such as the Organization of Economic Cooperation and Development (OECD) could

significantly increase our U.S.

or foreign income tax liability in the future, including as described further below in this risk factor.

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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If any tax authorities were successful in challenging our transfer pricing policies or other tax judgments, our income tax expense may be adversely affected and we could also be subject to interest and penalty charges which may harm our business, financial condition and operating results.

Further, the U.S.

Congress, the EU, the OECD, and other government agencies in jurisdictions where we and our affiliates do business have had an extended focus on issues related to the taxation of multinational corporations.

One example is the OECD’s initiative in the area of “base erosion and profit shifting,” or “BEPS”.

Many countries have implemented or begun to implement legislation and other guidance to align their international tax rules with the OECD’s BEPS recommendations.

In addition, the OECD has been working on an extension of the BEPS project, being referred to as “BEPS 2.0”, which focuses on two “pillars” of reform.

Pillar 1 is focused on global profit allocation and changing where large multinational corporations pay taxes, and pillar 2 includes a global minimum tax rate.

The OECD published detailed blueprints of its proposals for pillar 1 and pillar 2 on October 14, 2020.

In June 2021, Finance Ministers from the Group of Seven (G7) nations reached an accord on the principles of pillar 2, backing the creation of a global minimum corporate tax rate of at least 15%.

Following the G7 announcement, the OECD/G20 Inclusive Framework announced on July 1, 2021 broad agreement on the two pillars, and released a proposal, which has been endorsed by over 130 jurisdictions, for a global minimum tax rate of at least 15% for large multinational corporations on a jurisdiction-by-jurisdiction basis.

The OECD/G20 Inclusive Framework will work towards an agreement and the release of an implementation plan, which will contemplate bringing pillar 2 into law in 2022 with an effective date in 2023.

As a result of the focus on the taxation of multinational corporations, the tax laws in the countries in which we and our affiliates do business could change on a prospective or retroactive basis, and any such changes could adversely affect us.

Our debt agreements include financial covenants that may limit our ability to pursue business and financial opportunities and subject us to risk of default.

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.

We have entered into various 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.

As we continue to grow our business and expand our operations, we expect to incur additional indebtedness, including loan agreement or equipment leases, in order to fund such capital expenditures.

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.

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subsidiaries were characterized as being so engaged, we would be subject to U.S.

tax at regular corporate rates on our income that is effectively connected with U.S.

tax at the regular corporate rates on our income that is effectively connected with U.S.

trade or business, plus an additional 30% “branch profits” tax on the dividend equivalent amount, which is generally effectively connected income with certain adjustments, deemed withdrawn from the United States.

Any such tax could materially and adversely affect our results of operations.

We may be classified as a passive foreign investment company, which could result in adverse U.S.

We may be classified as a passive foreign investment company (“PFIC”), which could result in adverse U.S.

federal income tax consequences for U.S.

Based on the current and anticipated valuation of our assets and the composition of our income and assets, we do not expect to be considered a passive foreign investment company, or PFIC, for U.S.

Based on the current and anticipated valuation of our assets and the composition of our income and assets, we do not expect to be considered a PFIC, for U.S.

federal income tax purposes for the foreseeable future.

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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.

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.

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.

If we were treated as a PFIC for any taxable year during which a U.S.

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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.

Changes in industry standards, technology, customer requirements and government regulation could limit our ability to sell our products.

The semiconductor industry is characterized by changing demand for new and advanced functions, long design and sales cycles, rapid product obsolescence and price erosion, intense competition, evolving industry standards and wide fluctuations in product supply and demand.

Changes in industry standards, or the development of new industry standards, or, when applicable, government approval or disapproval of industry standards may make our products obsolete or negate the cost advantages we believe we have in our products.

We may be required to invest significant effort and to incur significant expense to redesign our products in order to address relevant standards, technological developments, customer requirements or regulations but may not have the financial resources to respond to these changes effectively or in a timely manner.

Any inability to meet these standards, regulations and requirements could harm our business, results of operations, financial condition and prospects.

Risks Related to Doing Business in China

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Furthermore, the China government has broad discretion in dealing with violations of laws and regulations, including levying fines, revoking business and other licenses and requiring actions necessary for compliance.

In particular, licenses and permits issued or granted to us by relevant governmental bodies may be revoked at a later time by higher regulatory bodies.

In particular, licenses and permits

issued or granted to us by relevant governmental bodies may be revoked at a later time by higher regulatory bodies.

If we are forced to adjust our corporate structure or business as a result of changes in government policy on foreign investment or changes in the interpretation and application of existing or new laws, our business, financial condition, results of operations and prospects may be harmed.

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The continuing potential for new or additional tariffs on imported goods from China could adversely affect our business operations.

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.

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%.

The United States entered into what is described as the “Phase 1” trade agreement with China on January 15, 2020.

Pursuant to that agreement, which took effect on February 14, 2021, the U.S.

cut by half the tariff rate it imposed on $120 billion in Chinese exports to the US, including electronics and apparel, from 15% to 7.5%.

The Phase I agreement also delayed implementation of U.S.

tariffs of 25% on $250 billion of Chinese goods.

In addition, the agreement suspended indefinitely certain other tariffs that were scheduled to go into effect on December 15, 2020, on nearly $160 billion worth of Chinese goods, including cellphones, laptop computers, toys and clothing.

These goods, absent exemptions, may include products and applications, including consumer electronics, that incorporate our power discrete and power IC products.

In response, China has imposed tariffs on certain American products, some of which are being reduced as part of the Phase 1 agreement.

In response to the U.S.

decision to levy extraordinary tariffs, China has imposed tariffs on certain American products, some of which are being reduced as part of the Phase 1 agreement.

China may take additional actions if additional U.S.

tariffs are reduced or imposed.

On May 8, 2020, the two countries reaffirmed their Phrase I trade agreement notwithstanding the COVID-19 pandemic.

In view of potential discussions between the Chinese and U.S.

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.

On May 8, 2020, the two countries reaffirmed their Phase I trade agreement notwithstanding the COVID-19 pandemic.

Potential discussions between the Chinese and U.S.

governments on a second phase agreement have not yet been planned.

The ultimate level of tariffs, the ultimate scope of them, and whether or how any proposed additional tariffs will impact our business is uncertain.

We believe that the imposition of additional tariffs by the U.S.

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For example, treatment of foreign investors on a national level will be no less favorable than the treatment received by domestic investors unless such investments fall within a “negative list”.

On June 30, 2019, the National Development and Reform Commission and the Ministry of Commerce of the PRC published the Special Administrative Measures for Market Access of Foreign Investment (Negative List), which identifies specific sectors where foreign investors will be subject to special administrative measures.

On June 30, 2019, the National Development and Reform Commission (the “NDRC”) and the Ministry of Commerce of the PRC (the “MOC”) published the Special Administrative Measures for Market Access of Foreign Investment (Negative List), which identifies specific sectors where foreign investors will be subject to special administrative measures.

Since the Foreign Investment Law was newly enacted, uncertainties still exist in relation to its interpretation and implementation.

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In addition, under the newly enacted Foreign Investment Law, foreign investors or the foreign invested enterprise should report investment information on the principle of necessity.

Any company found to be non-complaint with such investment information reporting obligation might be potentially subject to fines or administration liabilities.

Any company found to be non-complaint with such investment information reporting obligation might be potentially subject to fines or administrative liabilities.

Limitations on our ability to transfer funds to our China subsidiaries could adversely affect our ability to expand our operations, make investments that could benefit our businesses and otherwise fund and conduct our business.

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Therefore, it may be difficult to change capital expenditure plans once the relevant funds have been remitted from us to our China subsidiaries.

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.

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.

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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The M&A Rules and certain other PRC regulations establish complex procedures for some acquisitions of Chinese companies by foreign investors, which could make it more difficult for us to pursue growth through acquisitions in China.

The Regulations on Mergers and Acquisitions of Domestic Companies by Foreign Investors, or the M&A Rules, adopted by six PRC regulatory agencies in August 2006 and amended in 2009, and some other regulations and rules concerning mergers and acquisitions established additional procedures and requirements that could make merger and acquisition activities by foreign investors more time consuming and complex, including requirements in some instances that the MOC be notified in advance of any change-of-control transaction in which a foreign investor takes control of a PRC domestic enterprise.

The Regulations on Mergers and Acquisitions of Domestic Companies by Foreign Investors, or the M&A Rules, adopted by six PRC regulatory agencies in August 2006 and amended in 2009, and some other regulations and rules concerning mergers and acquisitions established additional procedures and requirements that could make merger and acquisition activities by foreign investors more time consuming and complex, including requirements in some instances that the Ministry of Commerce ("MOC") be notified in advance of any change-of-control transaction in which a foreign investor takes control of a PRC domestic enterprise.

Moreover, the Anti-Monopoly Law requires that the MOC shall be notified in advance of any concentration of undertaking if certain thresholds are triggered.

In addition, the security review rules issued by the MOC that became effective in September 2011 specify that mergers and acquisitions by foreign investors that raise “national defense and security” concerns and mergers and acquisitions through which foreign investors may acquire de facto control over domestic enterprises that raise “national security” concerns are subject to strict review by the MOC, and the rules prohibit any activities attempting to bypass a security review, including by structuring the transaction through a proxy or contractual control arrangement.

On July 1, 2015, the National Security Law of China took effect, which provided that China would establish rules and mechanisms to conduct national security review of foreign investments in China that may impact national security.

China’s Foreign Investment Law, which became effective in January 2020, reiterates that China will establish a security review system for foreign investments.

On December 19, 2020, the NDRC and the MOC jointly issued the Measures for the Security Review of Foreign Investments (the “New FISR Measures”), which was made according to the National Security Law and the Foreign

Investment Law of China and became effective on January 18, 2021.

The New FISR Measures further expand the scope of national security review on foreign investment compared to the existing rules, while leaving substantial room for interpretation and speculation.

In the future, we may grow our business by acquiring complementary businesses.

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dollar and RMB.

We also do not utilize any financial instruments to hedge or reduce potential losses due to the fluctuation of foreign currency exchange

We also do not utilize any financial instruments to hedge or reduce potential losses due to the fluctuation of foreign currency exchange rates.

In general, any appreciation of U.S.

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The Labor Contract Law imposes greater liabilities on employers and significantly affects the cost of an employer’s decision to reduce its workforce.

Further, it requires that certain terminations be based upon seniority and not merit.

Further, it requires that certain termination decisions be based upon seniority and not merit.

In the event our subsidiaries decide to significantly change or decrease their workforce in China, the Labor Contract Law could adversely affect their ability to effect such changes in a manner that is most advantageous to our business or in a timely and cost-effective manner, thus materially and adversely affecting our financial condition and results of operations.

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Limited trading volumes and liquidity of our common shares on the NASDAQ Global Select Market may limit the ability of shareholders to purchase or sell our common shares in the amounts and at the times they wish.

In addition, the financial markets in the United States and other countries have experienced significant price and volume fluctuations, and market prices of technology companies have been and continue to be extremely volatile.

In addition, the

financial markets in the United States and other countries have experienced significant price and volume fluctuations, and market prices of technology companies have been and continue to be extremely volatile.

The trading price of our common shares on The NASDAQ Global Select Market ranged from a low of $10.19 to high of $40.37 from July 1, 2020 to June 30, 2021.

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As a result, shareholders may be limited in their ability to obtain a premium for their shares.

Insiders have substantial control over us, which could adversely affect the market price of our shares.

Our Chief Executive Officer, certain members of our management and directors, beneficially owned, in the aggregate, approximately 22.0% of our outstanding common shares as of June 30, 2020 .

As a result, these shareholders will be able to exert significant control over all matters requiring shareholder approval, including the election of directors and approval of significant corporate transactions, such as a merger, consolidation, takeover or other business combination involving us.

This concentration of ownership may also discourage, delay or prevent a change in control of our company, which could deprive our shareholders of an opportunity to receive a premium for their shares as part of a sale of our company and may reduce the trading price of our shares.

Furthermore, the interests of these insiders could conflict with the interests of our other shareholders and, accordingly, any of them may take actions that favor their own interests and which may not be in the best interests of our other shareholders.

These actions may be taken even if they are opposed by our other shareholders.

We are a Bermuda company and the rights of shareholders under Bermuda law may be different from U.S.

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

What changed 10-K

Item 1A. Risk Factors