What changed in this filing

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Item 7. Management’s Discussion and Analysis

2021-08-30 compared with 2020-09-02 · 214 added, 244 removed, 374 unchanged (55% of the section changed)

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We are a designer, developer and global supplier of a broad portfolio of power semiconductors.

Our portfolio of power semiconductors includes approximately 2,300 products, and has grown significantly with the introduction of over 160 new products in the fiscal year ended June 30, 2020 , and over 200 new products in each of the fiscal year ended June 30, 2019 and 2018 , respectively.

Our portfolio of power semiconductors includes approximately 2,400 products, and has grown significantly with the introduction of over 160 new products in the fiscal year ended June 30, 2021 and 2020, respectively, and 200 new products in the fiscal year ended June 30, 2019, respectively.

Our teams of scientists and engineers have developed extensive intellectual properties and technical knowledge that encompass major aspects of power semiconductors, which we believe enables us to introduce and develop innovative products to address the increasingly complex power requirements of advanced electronics.

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We differentiate ourselves by integrating our expertise in technology, design and advanced manufacturing and packaging to optimize product performance and cost.

Our portfolio of products targets high-volume applications, including portable computers, graphic cards, flat panel TVs, home appliances, smart phones, battery packs, consumer and industrial motor controls and power supplies for TVs, computers, servers and telecommunications equipment.

Our portfolio of products targets high-volume applications, including personal computers, graphic cards, game consoles, flat panel TVs, home appliances, smart phones, battery packs, consumer and industrial motor controls and power supplies for TVs, computers, servers and telecommunications equipment.

Our business model leverages global resources, including research and development and manufacturing in the United States and Asia.

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We believe our in-house packaging and testing capability provides us with a competitive advantage in proprietary packaging technology, product quality, cost and sales cycle time.

We operate a power semiconductor packaging, testing and wafer fabrication facility in the Liangjiang New Area of Chongqing, China through our joint venture (the “JV Company”) with two investment funds owned by the Municipality of Chongqing (the “Chongqing Funds”), (the “JV Company”).

We currently own 51%, and the Chongqing Funds own 49%, of the equity interest in the JV Company.

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While the JV Company is our consolidated subsidiary for purpose of financial reporting, it operates as an independent and separate legal entity.

As a result, the JV Company’s assets and liabilities are generally segregated from our companies.

As a result, the JV Company’s assets and liabilities are segregated from our company's assets and liabilities.

For example, the JV Company incurs debt through its own financing and bank loan agreements, and our parent company and other subsidiaries are not parties to these agreements and do not provide any guarantee or security for the JV Company’s debt, nor do we have direct access to any cash proceeds borrowed from such loan agreements.

As part of our strategic plan, we built the JV Company to fulfill growing customer demand.

In fact, in the quarter ended June 30, 2020, the JV Company made a major contribution to capturing increasing demand for our products.

Even though the COVID-19 pandemic has slowed its production, we are continuing to make progress.

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.

Importantly, the JV Company achieved a positive EBITDAS in the fourth quarter of fiscal year 2020.

For the quarter ending September 30, 2020, we expect the JV Company to sequentially increase its production of its 12-inch wafer fabrication and assembly and test.

Our current goal is to achieve Phase 1 target run rate in the quarter ending September 30, 2021.

However, the impact of the global COVID-19 pandemic and related economic downturn, intensified geopolitical tensions, logistical difficulties and other factors beyond our control could delay our plan.

As part of our strategic plan, we formed the JV Company to fulfill growing customer demand.

During the fiscal year 2021, the additional capacity at the JV Company contributed significantly to meeting the increasing demand for our products.

The JV Company has reached its targeted production of assembly and testing, and is expected to ramp up its Phase I target run rate of the 12-inch wafer fabrication in the quarter ending September 30, 2021.

But our goal may be affected by various factors, including the impact of the global COVID-19 pandemic and related economic downturn, intensified geopolitical tensions between China and U.S., logistical difficulties, the JV Company’s ability to obtain financing and other risk factors beyond our control.

We will continue to monitor and evaluate market conditions closely during this period and react quickly to the changing environment as necessary to achieve an optimal production level at the JV Company.

We expect the joint venture to provide much needed capacity to support our future growth, enhance our market positions in China, and drive improvements in capital expenditures.

On September 5, 2017, we entered into a license agreement with STMicroelectronics International N.V.

(“STMicro”), pursuant to which STMicro granted us a world-wide, royalty-free and fully-paid license to use its technologies to develop, market and distribute certain digital multi-phase controller products, which have been previously offered by STMicro.

As of June 30, 2020 , we recorded $16.2 million as intangible assets.

We will begin to amortize such intangible asset during the

September 2020 quarter, which is when the technology meets qualification requirements and becomes ready for its intended use in production.

In addition, the JV Company is currently pursuing various financing options to fund its future expansion and repay its debt obligations, and there is no guarantee that the JV Company will be able obtain such financing with favorable terms, or at all.

We expect the joint venture to provide important capacity to support our future growth, enhance our market positions in China, and drive improvements in capital expenditures.

During the fiscal year ended June 30, 2021, we continued our diversification program by developing new silicon and packaging platforms to expand our serviceable available market, or SAM and offer higher performance products.

Our metal-oxide-semiconductor field-effect transistors, or MOSFET, portfolio expanded significantly across a full range of voltage applications.

Our metal-oxide-semiconductor field-effect transistors, or MOSFET, and power IC product portfolio expanded significantly.

Our high performance products and deepened customer relationships with our OEM and ODM customers have contributed to the achievement of our record high revenue of $656.9 million for the fiscal year 2021, a 41.3% growth compared to the last fiscal year.

Impact of COVID-19 Pandemic to our Business

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Such orders and 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 various “stay-at-home” restrictions, we have experienced shifting market trends, including an increasing demand in markets for notebooks, PCs and gaming devices and decreasing demand for mobile phone products.

Furthermore, as the COVID-19 pandemic continues and global economic downturn and high unemployment persist, consumer spending in general 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 is expected to adversely affect our financial conditions and results of operations.

In an effort to protect the health and safety of our employees and to comply with various government and regulatory guidelines, we took proactive actions from the early signs of the COVID-19 outbreak in China to adopt policies and protocols at our locations around the world, including social distancing guidelines, working from home, limiting the number of employees attending meetings, reducing the number of people in our sites at any one time, and suspending employee travel.

As the COVID-19 pandemic reached the U.S., and federal and state authorities imposed “stay-at-home” orders, we have taken similar proactive actions in California, Oregon and Texas where we have business activities in order to protect the health and safety of our employees, while maintaining our core operations.

We expect these measures will result in difficulties and logistical challenges in our business operations, and in some cases, reduce the productivity of our workforce and cause disruptions and delays in shipping products to our customers.

This may impact our ability to respond quickly and effectively to changing market demands as the COVID-19 pandemic continues to cause economic disruption and recession around the globe.

In addition, the COVID-19 pandemic and related events have slowed the pace of ramp-up activities at the JV Company, and our current goal is to achieve Phase 1 target run rate in the quarter ending September 30, 2021.

We cannot predict the long-term economic impact of the COVID-19 pandemic, but we will continue to actively monitor the situation and may take further actions altering our business operations that we determine are in the best interests of our employees, customers, partners, suppliers, and stakeholders, or as required by federal, state, or local authorities.

The ultimate effects that any such alterations or modifications may have on our business are not clear, including the effects on our customers, employees, and prospects, or on our financial results for the remainder of calendar year 2020.

As a result of the COVID-19 pandemic and changing consumer behaviors due to various government restrictions, including "stay-at-home" orders, we have experienced shifting market trends, including an increasing demand in markets for notebooks, PCs, gaming devices and other products.

While we have recently benefited from the increasing demand for PC related products, there is no guarantee that this trend will continue, and such increasing demand may discontinue or decline if government authorities relax or terminate COVID-19 related restrictions and consumer behaviors change in response to the reopening of certain economic activities.

In an effort to protect the health and safety of our employees and to comply with various government and regulatory guidelines, we took proactive actions to adopt policies and protocols at our locations around the world, including social distancing guidelines, working from home, limiting the number of employees attending meetings, reducing the number of people in our sites at any one time, and suspending employee travel, and these measures may result in difficulties and logistical challenges in our business operations.

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;

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

Although we are unable to predict the full impact and duration of the COVID-19 pandemic on our business, we are actively managing our business operations and financial expenditures in response to continued uncertainty.

Other Factors affecting our performance

In addition to the COVID-19 pandemic and related events as described above, our performance is affected by several key factors, including the following:

Costs of JV Company and digital power business:

We have incurred an increase in operating expenses due to the additional costs associated with pre-production and production ramp-up activities of the JV Company, as well as the initial startup work to develop and establish our new digital power business, both of which have had a significant impact on our financial performance.

Even though the COVID-19 pandemic has slowed its production, we are making persistent progress.

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.

For the quarter ending September 30, 2020, we expect the JV Company to sequentially increase

its production of its 12-inch wafer fabrication and assembly and test.

The pre-production costs include costs relating to the installation of equipment;

performance of the qualification process;

increased demand for electrical power and other utilities;

increased headcount as a result of hiring of additional personnel, staff and operators;

and establishment of administrative and management functions and systems.

Certain of such pre-production costs could be capitalized under U.S.

GAAP accounting.

However, the majority of such pre-production costs and all of the production ramp-up costs cannot be capitalized, and such costs have and may continue to have a negative impact on our profitability.

We did not incur pre-production costs after July 2019 as the JV Company has commenced limited mass production.

In addition, we are developing our digital power business based on the STMicro license agreement, which will allow us to design and distribute a full suite of advanced low-voltage power IC products.

We have incurred and expect to continue to incur additional costs, including costs relating to compensation of qualified engineers and technical staff and other research and development and management activities, as we continue to build this new business.

In the short term, we will not be able to generate sufficient amount of revenue from either of these two business initiatives to offset the increased costs, which will likely negatively impact our results of operations.

The global, regional economic and PC market conditions:

Because our products primarily serve consumer electronic applications, any significant change in global and regional economic conditions could materially affect our revenue and results of operations.

For example, because a significant amount of our revenue is derived from sales of products in the personal computing ("PC") markets, such as notebooks, motherboards and notebook battery packs, a substantial decline or downturn in the PC market could have a material adverse effect on our revenue and results of operations.

The PC markets have experienced a modest global decline in recent years due to continued growth of demand in tablets and smart phones, worldwide economic conditions and the industry inventory correction which had and may continue to have a material impact on the demand for our products.

However, we recently have experienced a significant increase of demand in PC market due to the impact of the COVID-19 pandemic and resulting shift in market trend and consumer behaviors.

We cannot predict whether and how long this trend will continue due to the uncertainty and unpredictability of COVID-19 pandemic.

A decline of the PC market may have a negative impact on our revenue, factory utilization, gross margin, our ability to resell excess inventory, and other performance measures.

We have executed and continue to execute strategies to diversify our product portfolio, penetrate other market segments, including the consumer, communications and industrial markets, and improve gross margins and profit by implementing cost control measures.

While making efforts to reduce our reliance on the computing market, we continue to support our computing business and capitalize on the opportunities in this market with a more focused and competitive PC product strategy to gain market share.

Manufacturing costs:

Our gross margin is affected by a number of factors including our manufacturing costs, utilization of our manufacturing facilities, the production mixtures of our sales, pricing of wafers from third party foundries and pricing of semiconductor raw materials.

Our gross margin is affected by a number of factors including our manufacturing costs, utilization of our manufacturing facilities, the product mixes of our sales, pricing of wafers from third party foundries and pricing of semiconductor raw materials.

Capacity utilization affects our gross margin because we have certain fixed costs associated with our packaging and testing facilities at our Oregon fab and our Chongqing fabrication facility operated by the JV Company.

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If we are unable to utilize our manufacturing facilities at a desired level, our gross margin may be adversely affected.

In addition, from time to time, we may experience wafer capacity constraints, particularly at third party foundries, that may prevent us from fully meeting the demand of our customers.

While we can mitigate such constraints by increasing and re-allocating capacity at our own fab, we may not be able to do so quickly or at sufficient level, which could adversely affect our financial conditions and results of operations.

In addition, from time to time, we may experience wafer capacity constraints, particularly at third party foundries, that may prevent us from meeting fully the demand

of our customers.

For example, the recent global shortage of semiconductor manufacturing capacity has provided us with both challenges and opportunities in the market, and highlighted the importance of maintaining sufficient and independent in-house manufacturing capabilities to meet increasing customer demands.

While we can mitigate these constraints by increasing and re-allocating capacity at our own fab, we may not be able to do so quickly or at sufficient level, which could adversely affect our financial conditions and results of operations.

In addition, 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.

Erosion and fluctuation of average selling price :

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These strategies may cause the average selling price of our products to fluctuate significantly from time to time, thereby affecting our financial performance and profitability.

The global, regional economic and PC market conditions :

Because our products primarily serve consumer electronic applications, a deterioration of the global and regional economic conditions could materially affect our revenue and results of operations.

For example, because a significant amount of our revenue is derived from sales of products in the personal computing ("PC") markets, such as notebooks, motherboards and notebook battery packs, a significant decline or downturn in the PC market can have a material adverse effect on our revenue and results of operations.

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.

While recently we have experienced an increase of demand in PC market due to the impact of the COVID-19 pandemic, we cannot predict whether and how long this trend will continue.

A decline of the PC market may have negative impact on our revenue, factory utilization, gross margin, our ability to resell excess inventory, and other performance measures.

Product introductions and customers' product requirements:

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As we accelerate the development of new technology platforms, we expect to increase the pace at which we introduce new products and seek and acquire design wins.

Our failure to introduce new products on a timely basis that meet customers' specifications and performance requirements, particularly those products with major OEM customers, and our inability to continue to expand our serviceable markets, could adversely affect our financial performance, including loss of market share.

If we were to fail to introduce new products on a timely basis that meet customers' specifications and performance requirements, particularly those products with major OEM customers, and continue to expand our serviceable markets, then we would lose market share and our financial performance would be adversely affected.

We believe that the JV Transaction will increase and diversify our customer base, particularly in China, in the long term.

However, the ramp-activities and production schedule of our JV Company have been impacted by the COVID-19 pandemic and related events, as discussed above.

Even if we are able to ramp up the operation of the JV Company timely, we

may not be successful in acquiring a sufficient number of new customers to offset additional costs due to various factors, including but are not limited to, competition from other semiconductor companies in the region, our lack of history and prior relationships with customers as a new entrant, difficulties in executing our joint venture strategies, lack of control over our operations and the general economic conditions in Chongqing and China.

Even if we are able to ramp up the operation of the JV Company timely, we may not be successful in acquiring or maintaining a sufficient number of new customers to offset additional costs due to various factors, including but are not limited to, competition from other semiconductor companies in the region, our lack of history and prior relationships with customers as a new entrant, difficulties in executing our joint venture strategies and the general economic conditions in Chongqing and China.

Distributor ordering patterns, customer demand and seasonality :

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If these major customers experience significant decline in the demand of their products, encounter difficulties or defects in their products, or otherwise fail to execute their sales and marketing strategies successfully, it may adversely affect our revenue and results of operations.

Regulatory Development:

Department of Justice commenced an investigation into the Company’s compliance with export control regulations relating to certain business transactions with Huawei and its affiliates (“Huawei”), which were added to the “Entity List” by the Department of Commerce (“DOC”) in May 2019.

In connection with this investigation, DOC requested the Company to suspend shipments of its products to Huawei, and the Company complied with such request, and the Company has not shipped any product to Huawei after December 31, 2019.

The Company is currently working with DOC to resolve this issue and seeks permission to reinstate shipment to Huawei.

As of the date of this report, DOC has not provided the Company with any definitive timeline or schedule for responding to the Company's request.

We expect the financial performance will be negatively impacted by the Huawei shipment interruption until such time when DOC permits us to continue shipment to Huawei.

There is no guarantee that DOC will agree to permit us to resume shipment to Huawei on a timely basis, or at all, and we may not be able to acquire new or additional customers or demand to offset such loss of shipment.

Our failure to do so will negatively impact our revenue and profitability.

Furthermore, the Company is expected to incur significant costs and expenses, including legal fees, in connection with the government investigation, which may reduce our profitability and margin.

See “Risk Factor-The current government investigation and evolving export control regulations may adversely affect our financial performance and business operations”.

Regulatory Matters:

As previously disclosed, the U.S.

Department of Justice (“DOJ”) commenced an investigation into our compliance with export control regulations relating to business transactions with Huawei and its affiliates (“Huawei”), which were added to the “Entity List” by the Department of Commerce (“DOC”) in May 2019.

We continue to cooperate fully with federal authorities in the investigation.

The Company has continued to respond to inquiries and requests from DOJ for documents and information relating to the investigation, and the matter is currently pending at DOJ.

However, DOJ and DOC have not provided us any clear or definitive response regarding the timeline of the investigation and potential resolutions or outcome.

In the meantime, we continue incur significant costs and expenses, including legal and professional fees, in connection with the government investigation, which may reduce our profitability and operating margin.

Principal line items of statements of operations

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Cost of goods sold

Our cost of goods sold primarily consists of costs associated with semiconductor wafers, packaging and testing, personnel, including share-based compensation expense, overhead attributable to manufacturing, operations and procurement, and costs associated with yield improvements, capacity utilization, warranty and inventory reserves.

As the volume of sales increases, we expect cost of goods sold to increase.

We implemented a process to improve our factory capacity utilization rates by transferring more wafer production to our Oregon fab and reducing our reliance on outside foundries.

We continued to ramp up the 12-inch fab at the JV Company to meet the increasing demand on our products.

While our utilization rates cannot be immune to the market conditions, our goal is to make them less vulnerable to market fluctuations.

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We expect our selling, general and administrative expenses to fluctuate in the near future as we continue to exercise cost control measures.

Impairment of privately-held investment

During fiscal year 2017, we purchased shares of common stock in a privately-held company at a total cost of $0.6 million.

We accounted for the investment on a cost basis.

During the fiscal year ended June 30, 2020, we recorded impairment charges of $0.6 million in connection with this investment as we concluded the impairment to be other-than-temporary.

Income tax expense

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If the recognition threshold is met, the applicable accounting guidance permits us to recognize a tax benefit measured at the largest amount of tax benefit that is more likely than not to be realized upon settlement with a taxing authority.

If the actual tax outcome of such exposures is different from the amounts that were initially recorded, the differences will impact the income tax and deferred tax provisions in the period in which such determination is made.

If the actual tax outcome of such exposures is different from the amounts that were initially recorded, the differences will impact the income tax and deferred tax

provisions in the period in which such determination is made.

Changes in the location of taxable income (loss) could result in significant changes in our income tax expense.

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Our effective tax rate is highly dependent upon the geographic distribution of our worldwide profits or losses, the tax laws and regulations in each geographical region where we have operations, the availability of tax credits and carry-forwards and the effectiveness of our tax planning strategies.

During the quarter ended September 30, 2016, we contributed certain packaging equipment as required by the JV Agreement by transferring the legal title of such equipment to the JV Company.

As a result of the transfer, we reduced our deferred tax assets by $6.6 million and recorded a $6.6 million as a prepaid tax asset, which was to be amortized to tax expense over the useful life of the assets.

As of June 30, 2017, the prepaid tax asset was amortized down to $5.5 million, of which $1.1 million and $4.4 million were included in prepaid and other current assets and in other long-term assets on our balance sheet, respectively.

On July 1, 2017, we adopted ASU 2016-16, Intra-Entity Transfers of Assets other than Inventory, which resulted in a de-recognition of a prepaid tax asset of $5.5 million related to the prior period intra-entity asset transfer with the JV Company, with an offsetting reduction to retained earnings.

Because the JV Company has a full valuation allowance, there was no change to our net deferred tax assets.

Tax Cuts and Jobs Act, Enacted December 22, 2017

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tax laws, including, but not limited to, (1) a reduction in the corporate tax rate from 35% to 21%, (2) a shift from a worldwide tax system to a territorial system, (3) eliminating the corporate alternative minimum tax (AMT) and changing how existing AMT credits can be realized, (4) bonus depreciation that will allow for full expensing of qualified property, (5) creating a new limitation on deductible interest expense and (6) changing rules related to uses and limitations of net operating loss carryforwards created in tax years beginning after December 31, 2017.

The SEC staff issued Staff Accounting Bulletin No.

118 ("SAB 118"), which provides guidance on accounting for the tax effects of the Tax Act.

SAB 118 provides a measurement period that should not extend beyond one year from the Tax Act enactment date for companies to complete the accounting under Accounting Standards Codification Topic 740 ("ASC 740").

In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the Tax Act for which the accounting under ASC 740 is complete.

To the extent that a company’s accounting for certain income tax effects of the Tax Act is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements.

If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax law that were in effect immediately before the enactment of the Tax Act.

In connection with our initial analysis of the impact of the Tax Act, we reported a discrete tax benefit of $2.7 million for the second quarter of fiscal year 2018 related to the re-measurement of certain deferred tax assets and liabilities.

The $2.7 million tax benefit related to the tax rate re-measurement estimated in the second quarter of fiscal year 2018 was reduced downward by $0.2 million in the fourth quarter of fiscal year 2018, to $2.5 million.

In addition, we used a 28% U.S.

federal tax rate to measure our U.S.

federal income tax expense for fiscal year 2018, down from the 34% U.S.

federal income tax rate used in first quarter of fiscal year 2018.

The Company is not currently subject to the Base Erosion and Anti-Abuse ( BEAT) tax, which is a tax imposed on certain entities who make payments to their non U.S.

affiliates, where such payments reduce the U.S.

The BEAT tax is imposed at a rate of 10% on Adjusted Taxable Income, excluding certain payments to foreign related entities.

It is an incremental tax over and above the corporate income tax and is recorded as a period cost.

It is possible that this tax could be applicable in future periods, which would cause an increase to the effective tax rate and cash taxes.

Coronavirus Aid, Relief and Economic Security Act” (“CARES Act”), Enacted March 27, 2020

On March 27, 2020, the United States enacted the Coronavirus Aid, Relief and Economic Security Act (“the CARES Act”), which made the changes to existing U.S.

On March 27, 2020, the United States enacted the CARES Act, which made the changes to existing U.S.

tax laws, including, but not limited to, (1) allowing U.S.

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Accordingly, we reported a discrete tax benefit of $1.1 million in the third quarter of fiscal year 2020 related to the re-measurement of the net operating losses that could be realized via the new net operating loss carryback provisions.

Consolidated Appropriations Act, 2021” (“CAA 2021”), Enacted December 27, 2020

On December 27, 2020, the United States enacted the Consolidated Appropriations Act, 2021, which made changes to existing U.S.

There was no material impact of the tax law changes included in the Consolidated Appropriations Act, 2021 to the Company.

“The American Rescue Plan Act of, 2021”, Enacted March 11, 2021

On March 11, 2021, the United States enacted the American Rescue Plan Act of 2021, which made changes to existing U.S.

There was no material impact of the tax law changes included in the American Rescue Plan Act of 2021 to the Company.

Operating results

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Year Ended June 30,

(in thousands)

(% of revenue)

2021 2020 2019 2021 2020 2019

(in thousands) (% of revenue)

Revenue $ 656,902 $ 464,909 $ 450,920 100.0 % 100.0 % 100.0 %

Cost of goods sold (1) 452,359 362,178 335,542 68.9 % 77.9 % 74.4 %

Gross profit 204,543 102,731 115,378 31.1 % 22.1 % 25.6 %

Operating expenses:

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Selling, general and administrative (1) 77,514 64,816 75,967 11.8 % 13.9 % 16.8 %

Impairment of privately-held investment — 600 — — % 0.1 % — %

Total operating expenses 140,467 116,668 122,398 21.4 % 25.0 % 27.1 %

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Year Ended June 30,

(in thousands)

(% of revenue)

2021 2020 2019 2021 2020 2019

(in thousands) (% of revenue)

Cost of goods sold $ 1,756 $ 1,530 $ 1,963 0.3 % 0.3 % 0.4 %

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Selling, general and administrative 8,216 6,029 8,761 1.3 % 1.3 % 1.9 %

$ 15,324 $ 10,454 $ 13,177 2.4 % 2.2 % 2.8 %

The following is a summary of revenue by product type:

Year Ended June 30,

(in thousands)

(in percentage)

(in thousands)

(in percentage)

Year Ended June 30, Change

2021 2020 2019 2021 2020

(in thousands) (in thousands) (in percentage) (in thousands) (in percentage)

Power discrete $ 482,718 $ 391,941 $ 371,837 $ 90,777 23.2 % $ 20,104 5.4 %

Power IC 161,726 66,360 70,215 95,366 143.7 % (3,855) (5.5) %

Packaging and testing services 12,458 6,608 8,868 5,850 88.5 % (2,260) (25.5) %

$ 656,902 $ 464,909 $ 450,920 $ 191,993 41.3 % $ 13,989 3.1 %

Fiscal 2021 vs 2020

Total revenue was $656.9 million for fiscal year 2021, an increase of $192.0 million, or 41.3%, as compared to $464.9 million for fiscal year 2020.

The increase was primarily due to an increase of $90.8 million in sales of power discrete products and an increase of $95.4 million in sales of power IC products.

The increase in power discrete and power IC product sales was primarily due to a 23.0% increase in unit shipments and a 14.5% increase in average selling price due to a shift in product mix as compared to last fiscal year.

The increase in revenue of packaging and testing services for the fiscal year 2021 as compared to last fiscal year was primarily due to increased demand .

During fiscal year 2021, we accelerated the development of new technology platforms which allowed us to introduce 41 medium and high voltage MOSFET products, targeting primarily the power supply and communication marketing, and 11 module products primarily for the consumer markets, as well as 22 low voltage MOSFET products primarily for the computing and communication markets.

In addition, we introduced 84 Power IC new products for computing applications, power supply, communication and consumer markets.

Fiscal 2020 vs 2019

Total revenue was $464.9 million for fiscal year 2020, an increase of $14.0 million, or 3.1%, as compared to $450.9 million for fiscal year 2019.

The increase was primarily due to an increase of $20.1 million in sales of power discrete products, partially offset by a decrease of $3.9 million in sales of power IC products.

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The decrease in revenue of packaging and testing services for fiscal year 2020 as compared to last fiscal year was primarily due to the fluctuation of demand on these services externally.

During fiscal year 2020, we accelerated the development of new technology platforms which allowed us to introduce 48 medium and high voltage MOSFET products, targeting primarily the power supply, as well as 42 low voltage MOSFET products primarily for the computing and communication markets.

In addition, we introduced 56 Power IC new products for computing applications, communication and consumer markets.

Fiscal 2019 vs 2018

Total revenue was $450.9 million for fiscal year 2019, an increase of $29.4 million, or 7.0%, as compared to $421.6 million for fiscal year 2018.

The increase was primarily due to an increase of $29.7 million and $3.1 million in sales of power discrete products and in sales of power IC products, respectively.

The increase in power discrete and power IC was primarily due to a 18.8% increase in average selling price as compared to last fiscal year due to a shift in product mix, partially offset by a 8.8% decrease in unit shipments.

The decrease in revenue of packaging and testing services for fiscal year 2019 as compared to last fiscal year was primarily due to decreased demand.

Cost of goods sold and gross profit

Year Ended June 30,

(in thousands)

(in percentage)

(in thousands)

(in percentage)

Year Ended June 30, Change

2021 2020 2019 2021 2020

(in thousands) (in thousands) (in percentage) (in thousands) (in percentage)

Cost of goods sold $ 452,359 $ 362,178 $ 335,542 $ 90,181 24.9 % $ 26,636 7.9 %

Percentage of revenue 68.9 % 77.9 % 74.4 %

Gross profit $ 204,543 $ 102,731 $ 115,378 $ 101,812 99.1 % $ (12,647) (11.0) %

Percentage of revenue 31.1 % 22.1 % 25.6 %

1 unchanged sentence

Cost of goods sold was $452.4 million for fiscal year 2021, an increase of $90.2 million, or 24.9%, as compared to $362.2 million for fiscal year 2020.

The increase was primarily due to limited mass production in our JV Company and the 3.1% increase of revenue.

Gross margin decreased by 3.5 percentage points to 22.1% for fiscal year 2020 , as compared to 25.6% for fiscal year 2019 .

The decrease in gross margin was primarily the result of low capacity utilization due to the limited mass production in our Chongqing joint venture during the fiscal year 2020.

We expect our gross margin to continue to fluctuate in the future as a result of variations in our product mix, ramp up costs related to our Chongqing joint venture, factory utilization, semiconductor wafer and raw material pricing, manufacturing labor cost and general economic and PC market conditions.

The increase was primarily due to 41.3% increase in revenue.

Gross margin increased by 9.0 percentage points to 31.1% for the fiscal year 2021, as compared to 22.1% for the fiscal year 2020.

Our JV Company continued its ramp during the fiscal year 2021, which resulted in an increase in the capacity utilization and contributed to the increase in gross margin.

We expect our gross margin to continue to fluctuate in the future as a result of variations in our product mix, ramp up costs related to the JV Company, factory utilization, semiconductor wafer and raw material pricing, manufacturing labor cost and general economic and PC market conditions.

Fiscal 2020 vs 2019

Cost of goods sold was $362.2 million for fiscal year 2020, an increase of $26.6 million, or 7.9%, as compared to $335.5 million for fiscal year 2019.

The increase was primarily due to the 7.0% increase of revenue and the production ramp up costs related to our Chongqing joint venture.

The increase was primarily due to limited mass production in our JV Company and the 3.1% increase of revenue.

Gross margin decreased by 3.5 percentage points to 22.1% for fiscal year 2020, as compared to 25.6% for fiscal year 2019.

The decrease in gross margin was primarily due to production ramp up costs related to our Chongqing joint venture.

The decrease in gross margin was primarily the result of low capacity utilization due to the limited mass production in our Chongqing joint venture during the fiscal year 2020.

Research and development expenses

Year Ended June 30,

(in thousands)

(in percentage)

(in thousands)

(in percentage)

Year Ended June 30, Change

2021 2020 2019 2021 2020

(in thousands) (in thousands) (in percentage) (in thousands) (in percentage)

Research and development $ 62,953 $ 51,252 $ 46,431 $ 11,701 22.8 % $ 4,821 10.4 %

1 unchanged sentence

Research and development expenses were $63.0 million for fiscal year 2021, an increase of $11.7 million, or 22.8%, as compared to $51.3 million for fiscal year 2020.

The increase was primarily attributable to a $1.4 million increase in employee compensation and benefit expense mainly due to annual merit increase, partially offset by lower bonus accrual, a $2.1 million increase in professional fees, a $0.9 million increase in depreciation expenses, and a $0.4 million increase in share-based compensation expense due to more grants in stock awards.

The increase was primarily attributable to a $4.0 million increase in employee compensation and benefit expense mainly due to higher bonus accrual, a $4.2 million increase in product prototyping engineering expense as a result of increased engineering activities, a $2.5 million increase in share-based compensation expense due to higher stock awards price, and a $0.5 million increase in facility expenses as a result of higher office rental expenses and higher utility costs.

We continue to evaluate and invest resources in developing new technologies and products utilizing our own fabrication and packaging facilities.

2 unchanged sentences

Research and development expenses were $51.3 million for fiscal year 2020, an increase of $4.8 million, or 10.4%, as compared to $46.4 million for fiscal year 2019.

The increase was primarily attributable to a $4.3 million increase in employee compensation and benefit expenses mainly due to increased headcount to ramp up our digital power business, a $2.0 million increase in product prototyping engineering expenses as a result of increased engineering activities, a $0.6 million increase in share-based compensation expense as a result of an increase of stock awards granted, a $0.8 million increase in professional services expense as a result of higher consulting activities, $0.8 million increase in equipment supplies as a result of higher patent expenses and higher computer software expense, $0.2 million increase in facility expenses as a result of higher office rental expenses, and a $0.4 million increase in depreciation expenses.

Selling, general and administrative expenses

Year Ended June 30,

(in thousands)

(in percentage)

(in thousands)

(in percentage)

Year Ended June 30, Change

2021 2020 2019 2021 2020

(in thousands) (in thousands) (in percentage) (in thousands) (in percentage)

Selling, general and administrative $ 77,514 $ 64,816 $ 75,967 $ 12,698 19.6 % $ (11,151) (14.7) %

Fiscal 2021 vs 2020

Selling, general and administrative expenses were $77.5 million for fiscal year 2021, an increase of $12.7 million, or 19.6%, as compared to $64.8 million for fiscal year 2020.

The increase was primarily attributable to a $13.2 million increase in employee compensation and benefits expenses, mainly due to increased headcount, higher bonus expenses and increased employee insurance expenses, as well as $2.2 million increase in share-based compensation expense due to higher stock rewards price.

The increase was partially offset by a $1.9 million decrease in legal expense related to the government investigation, and a $0.9 million decrease in business travel expenses as a result of the COVID-19 pandemic.

Fiscal 2020 vs 2019

Selling, general and administrative expenses were $64.8 million for fiscal year 2020, a decrease of $11.2 million, or 14.7%, as compared to $76.0 million for fiscal year 2019.

1 unchanged sentence

The net decrease was partially offset by a $1.0 million increase in depreciation expenses and a $5.4 million increase in legal expenses primarily due to the government investigation.

Fiscal 2019 vs 2018

Selling, general and administrative expenses were $76.0 million for fiscal year 2019, an increase of $9.8 million, or 14.8%, as compared to $66.2 million for fiscal year 2018.

The increase was primarily due to a $6.4 million increase in employee compensation and benefits expense as a result of the costs for the 12-inch fab facility in the JV Company and increased headcount, partially offset by lower bonus expenses, a $2.0 million increase in facility expenses as a result of an increase of equipment rental costs and higher utility costs, a $0.8 million increase in share-based compensation expense due to increased grant of equity awards, and a $0.7 million increase in depreciation expenses during the current fiscal year.

Impairment of privately-held investment

Year Ended June 30,

(in thousands)

(in percentage)

(in thousands)

(in percentage)

Year Ended June 30, Change

2021 2020 2019 2021 2020

(in thousands) (in thousands) (in percentage) (in thousands) (in percentage)

Impairment of privately-held investment $ — $ 600 $ — $ (600) 100.0 % $ 600 100.0 %

During the fiscal year 2020, we recorded an other-than-temporary impairment charge for our investment of $0.6 million in a privately-held start-up company.

As of June 30, 2020, we have a remaining $0.1 million of privately-held investment.

As of June 30, 2021 and 2020, we have a remaining $0.1 million of privately-held investment.

Interest expense and other income (loss), net

Year Ended June 30,

(in thousands)

(in percentage)

(in thousands)

(in percentage)

Year Ended June 30, Change

2021 2020 2019 2021 2020

(in thousands) (in thousands) (in percentage) (in thousands) (in percentage)

Interest expense and other income (loss), net $ (3,852) $ (3,972) $ (6,362) $ 120 (3.0) % $ 2,390 (37.6) %

Interest expense was primarily related to bank borrowings.

The decrease in interest expenses during the fiscal year 2020 as compared to the last fiscal year was primarily due to $6.1 million of interest refund from the Chinese government in the JV Company, partially offset by higher interest expense as a result of an increase in bank borrowings.

The increase in interest expenses during the fiscal year 2019 as compared to the fiscal year 2018 was primarily due to an increase in bank borrowings.

Interest expense increased by $3.6 million in fiscal year 2021 as compared to the last fiscal year was primarily due to an increase in bank borrowings as well as less interest refund from the Chinese government in the JV Company.

Interest expense decreased by $4.0 million in fiscal year 2020 as compa red to the fiscal year 2019 w as primarily due to $6.1 million of interest refund from the Chinese government in the JV Company, partially offset by higher interest expense as a result of an increase in bank borrowings.

Interest income and others were primarily related to interest earned from cash and cash equivalents, as well as foreign exchange gains (losses).

The increase in interest income and others, net during the fiscal year 2020 as compared to the last fiscal year was primarily due to higher foreign currency exchange losses as a result of the depreciation of USD against RMB.

The decrease in interest income and others, net during the fiscal year 2019 as compared to the fiscal year 2018 was primarily due to lower foreign currency exchange losses as a result of the appreciation of USD against RMB.

Interest income and others, net increased by $3.7 million in fiscal year 2021 as compared to the last fiscal year was primarily due to higher foreign currency exchange gains as a result of the appreciation of RMB against USD.

Interest income and others, net decreased by $1.6 million in fiscal year 2020 as compared to the fiscal year 2019 was primarily due to higher foreign currency exchange losses as a result of the depreciation of USD against RMB.

Income tax expense

Year Ended June 30,

(in thousands)

(in percentage)

(in thousands)

(in percentage)

Year Ended June 30, Change

2021 2020 2019 2021 2020

(in thousands) (in thousands) (in percentage) (in thousands) (in percentage)

Income tax expense $ 3,935 $ 348 $ 1,256 $ 3,587 1,030.7 % $ (908) (72.3) %

1 unchanged sentence

Income tax expense for fiscal years 2021 and 2020 was $3.9 million and $0.3 million, respectively.

Income tax expense decreased by $0.9 million , or 72.3% in fiscal year 2020 as compared to fiscal year 2019 primarily due to a $1.1 million tax benefit in fiscal year 2020 from re-measuring the tax benefit of our U.S.

net operating losses that could be carried back to the fiscal 2015, 2016 and 2017 years following the enactment of the U.S.

CARES Act in March 2020, partially offset by decreased research credits generated in fiscal year 2020 vs.

fiscal year 2019 and changes in the mix of earnings in various geographic jurisdictions between the respective periods in fiscal year 2020 compared to fiscal year 2019.

Excluding the discrete income tax items, the effective tax rate for the current fiscal year was (9.6%), compared to (14.6%) for the last fiscal year.

The changes in the effective tax rate and tax expense between the fiscal years resulted primarily from changes in the mix of earnings in various geographic jurisdictions between the current fiscal year and prior fiscal year and decreased research credits generated in fiscal year 2020.

Income tax expense increased by $3.6 million, or 1,030.7% in fiscal year 2021 as compared to fiscal year 2020, primarily due to an approximate $80 million increase in pretax book income in fiscal 2021 (in which we reported a pretax book income of $60.2 million) vs.

fiscal 2020 (in which we reported pretax book loss of $17.9 million).

Excluding discrete income tax items, the effective tax rate for the current fiscal year was 7.1%, compared to (9.6%) for the prior fiscal year.

Fiscal 2020 vs 2019

Income tax expense for fiscal years 2020 and 2019 was $0.3 million and $1.3 million, respectively.

Income tax expense increased by $0.5 million, or 77.4% in fiscal year 2019 as compared to fiscal year 2018 primarily due to a $2.5 million tax benefit in fiscal year 2018 from re-measuring our U.S.

deferred tax liabilities following the enactment of the 2017 U.S.

Tax Cuts and Jobs Act in December 2017, partially offset by increased research credits generated in fiscal year 2019 and changes in the mix of earnings in various geographic jurisdictions between the respective periods and a lower U.S.

tax rate in fiscal year 2019 compared to fiscal year 2018.

Income tax expense decreased by $0.9 million, or 72.3% in fiscal year 2020 as compared to fiscal year 2019 primarily due to a $1.1 million tax

benefit in fiscal year 2020 from re-measuring the tax benefit of our U.S.

net operating losses that could be carried back to the fiscal 2015, 2016 and 2017 years following the enactment of the CARES Act in March 2020, partially offset by decreased research credits generated in fiscal year 2020 vs.

fiscal year 2019 and changes in the mix of earnings in various geographic jurisdictions between the respective periods in fiscal year 2020 compared to fiscal year 2019.

Excluding the discrete income tax items, the effective tax rate for the current fiscal year was (9.6%), compared to (14.6%) for the last fiscal year.

The changes in the effective tax rate and tax expense between the fiscal years resulted primarily from changes in the mix of earnings in various geographic jurisdictions between the current fiscal year and prior fiscal year, increased research credits generated in fiscal year 2019 and the reduction in the U.S.

corporate tax rate between fiscal 2019 and fiscal 2018 following the enactment of the 2017 U.S.

Tax Cut and Jobs Act.

Liquidity and Capital Resources

Our principal need for liquidity and capital resources is to maintain sufficient working capital to support our operations and to invest adequate capital expenditures to fuel the growth of our business.

Our principal need for liquidity and capital resources is to maintain sufficient working capital to support our operations and to invest adequate capital expenditures to grow our business.

To date, we finance our operations and capital expenditures primarily through funds generated from operations and borrowings under our term loans, financing lease and other debt agreements.

On August 18, 2021, Jireh entered into a term loan agreement with a financial institution (the "Bank") in an amount up to $45.0 million for the purpose of expanding and upgrading our fabrication facility located in Oregon.

The obligation under the loan agreement is secured by substantially all assets of Jireh and guaranteed by the Company.

The agreement has a 5.5 year term and matures on February 16, 2027.

Jireh will make consecutive quarterly payments of principal and interest.

The loan accrues interest based on adjusted LIBOR plus the applicable margin based on the outstanding balance of the loan.

This agreement contains customary restrictive covenants and includes certain financial covenants that require the Company to maintain.

In October 2019, the Company's subsidiary in China entered into a line of credit facility with Bank of Communications Limited in China.

This line of credit matures on February 14, 2021 and is based on the China Base Rate multiplied by 1.05, or 4.99% on October 31, 2019.

This line of credit was scheduled to mature on February 14, 2021 and is based on the China Base Rate multiplied by 1.05, or 4.99% on October 31, 2019.

The purpose of the credit facility is to provide short-term borrowings.

1 unchanged sentence

Dollar on October 31, 2019.

In October 2020, this line of credit was renewed with the same terms and a maturity date of April 21, 2022.

As of June 30, 2021, there was no outstanding balance under the loan.

3 unchanged sentences

Dollar on November 16, 2018.

In October 2019, this line of credit was renewed with the same terms and a maturity date of September 30, 2020.

In December 2020, this line of credit was renewed with the same terms and a maturity date of December 31, 2021.

As of June 30, 2021, there was no outstanding balance under the line of credit.

1 unchanged sentence

This factoring agreement allows the Borrower to borrow up to 70% of the net amount of its eligible accounts receivable of the Borrower with a maximum amount of $30.0 million.

The interest rate is based on one month London Interbank Offer Rate ("LIBOR") plus 1.75% per annum.

The interest rate is based on one month London Interbank Offered Rate ("LIBOR") plus 1.75% per annum.

The Company is the guarantor for this agreement.

5 unchanged sentences

As of June 30, 2021, there was no outstanding balance and the Company had unused credit of approximately $30.0 million.

On August 11, 2021, the Borrower signed an agreement with HSBC to decrease the borrowing maximum amount to $8.0 million with certain financial covenants required.

Other terms remain the same.

On May 1, 2018, Jireh Semiconductor Incorporated (“Jireh”), a wholly-owned subsidiary of the Company, entered into a loan agreement with a financial institution (the "Bank") that provided a term loan in an amount of $17.8 million.

3 unchanged sentences

The outstanding principal shall accrue interest at a fixed rate of 5.04% per annum on the basis of a 360-day year.

The loan agreement contains customary restrictive covenants and includes certain financial covenants that require the Company to maintain, on a consolidated basis, specified financial ratios.

The loan agreement contains customary restrictive covenants and includes certain financial covenants that require the

Company to maintain, on a consolidated basis, specified financial ratios.

The Company was in compliance with these covenants as of June 30, 2021.

3 unchanged sentences

The credit agreement has a five-year term and matures on August 15, 2022.

In January 2018 and July 2018, Jireh drew down on the loan

in the amount of $13.2 million and $16.7 million, respectively.

In January 2018 and July 2018, Jireh drew down on the loan in the amount of $13.2 million and $16.7 million, respectively.

Beginning in October 2018, Jireh is required to pay to the Bank on each payment date, the outstanding principal amount of the loan in monthly installments.

The loan accrues interest based on an adjusted LIBOR as defined in the credit agreement, plus specified applicable margin in the range of 1.75% to 2.25%, based on the outstanding balance of the loan.

The loan accrues interest based on an adjusted London Interbank Offered Rate ("LIBOR") as defined in the credit agreement, plus specified applicable margin in the range of 1.75% to 2.25%, based on the outstanding balance of the loan.

The credit agreement contains customary restrictive covenants and includes certain financial covenants that require the Company to maintain, on a consolidated basis, specified financial ratios and fixed charge coverage ratio.

4 unchanged sentences

Shares repurchased under this program are accounted for as treasury shares and the total cost of shares repurchased is recorded as a reduction of shareholders' equity.

During fiscal year 2020, we did not repurchase any shares pursuant to the repurchase program.

During fiscal years 2019 and 2018, we repurchased an aggregate of 111,509 shares and 950,046 shares, respectively, from the open market for a total cost of approximately $1.5 million and $15.1 million, excluding fees and related expenses, at an average price of $13.43 and $15.86 per share, respectively.

As of June 30, 2020, we had repurchased an aggregate of 6,784,648 shares for a total cost of $67.3 million, at an average price of $9.92 per share, excluding fees and related expenses, since inception of the program.

During fiscal year 2021 and 2020, we did not repurchase any shares pursuant to the repurchase program.

During fiscal years 2019, we repurchased an aggregate of 111,509 shares, from the open market for a total cost of approximately $1.5 million, excluding fees and related expenses, at an average price of $13.43 per share.

As of June 30, 2021, the Company had repurchased an aggregate of 6,784,648 shares for a total cost of $67.3 million, at an average price of $9.92 per share, excluding fees and related expenses, since inception of the program.

No repurchased shares have been retired.

1 unchanged sentence

As of June 30, 2021, $13.4 million remain available under the share repurchase program.

On September 5, 2017, we entered into a license agreement with STMicroelectronics International N.V.

As of June 30, 2020, we recorded $16.2 million of intangible assets related to STMicro.

We will begin to amortize such license fees during the September 2020 quarter, which is when the technology meets qualification requirements and becomes ready for its intended use in production.

The Chinese government imposes certain currency exchange controls on cash transfers out of China.

12 unchanged sentences

We believe that our current cash and cash equivalents and cash flows from operations will be sufficient to meet our anticipated cash needs, including working capital and capital expenditures, for at least the next twelve months.

In the long-term, we may require additional capital due to changing business conditions or other future developments, including any

investments or acquisitions we may decide to pursue.

In addition, we recently commenced an investment plan to expand the manufacturing capacity and upgrade the operational capabilities of our

We intend to fund the costs by a combination of cash reserve, bank loans and equipment leases.

In the long-term, we may require additional capital due to changing business conditions or other future developments, including any investments or acquisitions we may decide to pursue.

If our cash is insufficient to meet our needs, we may seek to raise capital through equity or debt financing.

3 unchanged sentences

JV Company Financing Transactions

From time to time the JV Company entered into financing and loan agreements with banks and other third parties to fund capital expenditures and other operational expenses in connection with the constructions and ramp-up of the manufacturing facility in Chongqing.

From time to time the JV Company has entered into financing and loan agreements with banks and other third parties to fund capital expenditures and other operational expenses in connection with the constructions and ramp-up of the manufacturing facility in Chongqing.

The JV Company incurs debt through its own financing agreements, and our parent company and other subsidiaries are not parties to these agreements and do not provide any guarantee or security for JV Company’s debt, nor do we have direct access to any cash proceeds borrowed from such loan agreements.

The JV Company is currently pursuing additional financing transactions to fund its operations and ramp-up activities, and to refinance its existing debt.

There is no guarantee that the JV Company will be able to secure financing on favorable terms, or at all.

In addition, any equity financing by the JV Company may dilute our equity ownership in the JV Company, which may adversely affect our ability to maintain control over the JV Company.

On May 9, 2018 (the “Effective Date”), the JV Company entered into a lease finance agreement and a security agreement (the “Agreements”) with YinHai Leasing Company and China Import/Export Bank (the “Lenders”).

8 unchanged sentences

The Agreements also contain customary events of default, including but are not limited to, failure to make payments and breach of material terms under the Agreements.

The Agreements include certain customary closing conditions, including the payment of deposit by the JV Company.

On June 28, 2020, the parties entered into a modification to this agreement, pursuant to which the interest rate was changed to be the five-year loan prime rate in China plus 0.8125%, or 5.4625%.

On June 28, 2020, the parties entered into a modification to this agreement as a result of a change in the bank reference rate, pursuant to which the interest rate was changed to be the five-year loan prime rate in China plus 0.8125%, or 5.4625%.

Other terms of this agreement remain the same.

As of June 30, 2020, the outstanding balance of the Lease Financing of 298.0 million RMB (equivalent of $42.1 million based on the currency exchange rate as of June 30, 2020) was recorded under both short-term and long-term finance lease liabilities.

As of June 30, 2021, the outstanding balance of the Lease Financing of 190.0 million RMB (equivalent of $29.4 million based on the currency exchange rate as of June 30, 2021) was recorded under short-term and long-term finance lease liabilities.

On November 29 and December 4, 2018, the JV Company entered into two, one-year loan agreements with China Merchant Bank and Chongqing LiangJiang New District China Merchants Group Limited Company in China to provide loans for RMB 80 million and RMB 20 million, respectively, or $14.5 million in total based on the currency exchange rate between RMB and U.S.

2 unchanged sentences

Interest payments are due monthly and quarterly with the entire principal due not later than January 21, 2021.

During the three months ended June 30, 2020, the JV Company repaid the loan in full.

As of June 30, 2020, there was no outstanding balance under the loan.

On September 23, 2019, the JV Company entered into a short-term revolving loan agreement with China Everbright bank in China.

The JV Company can borrow up to RMB 50.0 million, or $7.1 million based on the currency exchange rate between RMB and U.S.

Dollar on September 23, 2019, at varying interest rates, in RMB or USD.

Interest payments with the entire principal are due no later than 90 days from each borrowing date.

In January and February 2020, the JV Company borrowed $1.6 million and $5.5 million, respectively, under this loan.

During the three months ended June 30, 2020, the JV Company repaid the loan in full.

As of June 30, 2020, there was no outstanding balance under the loan.

As of June 30, 2021, these two loans were expired and there was no outstanding balance under the loans.

On March 12, 2019, the JV Company entered into a loan agreement with The Export-Import Bank of China in the aggregate principal amount of RMB 200 million (approximately $29.8 million based on currency exchange rate between RMB and U.S.

7 unchanged sentences

This loan is secured by the buildings and certain equipment owned by the JV Company.

As a condition of

the loan arrangements, 14 million RMB (approximately $2.0 million) of cash is held as restricted cash by the JV Company as a compensating balance at the JV Company's bank until the principal is paid.

On June 24, 2020, a modification of this loan was signed, pursuant to which the interest rate was changed to be based on the five-year loan prime rate in China plus 0.74%, or 5.39%.

As a condition of the loan arrangements, 14 million RMB (approximately $2.0 million) of cash is held as restricted cash by the JV Company as a compensating balance at the JV Company's bank until the principal is paid.

On June 24, 2020, a modification of this loan was signed as a result of a change in the bank reference rate, pursuant to which the interest rate was changed to be based on the five-year loan prime rate in China plus 0.74%, or 5.39%.

Other terms of this loan remain the same.

During the three months ended December 31, 2019, the JV Company paid 6.0 million RMB under this agreement.

As of June 30, 2020, the outstanding balance of the loan was 194 million RMB (equivalent of $27.4 million based on the currency exchange rate as of June 30, 2020).

On March 21, 2019, the JV Company entered into a one-year loan agreement with China Everbright Bank in China to provide a loan for RMB 20 million, or $3.0 million based on currency exchange rate between RMB and U.S.

Dollar on March 31, 2019 at fixed interest rate of 5.44% per annum.

Interest payments were due monthly with the entire principal due on March 21, 2020.

As of June 30, 2020, there was no outstanding balance under the loan.

As of June 30, 2021, the

outstanding balance of the loan was 184 million RMB (equivalent of $28.5 million based on the currency exchange rate as of June 30, 2021).

In December 2019, the JV Company entered into a loan agreement with China Development Bank in the amount of $24.0 million.

4 unchanged sentences

As of June 30, 2021, the outstanding balance of the loan was $19.2 million.

On April 15, 2020, the JV Company entered into a one-year loan agreement with China Everbright Bank in China to provide a loan of a maximum of Chinese Renminbi (RMB) 100 million (approximately $14.3 million based on the currency exchange rate between RMB and U.S.

On April 15, 2020, the JV Company entered into a one-year loan agreement with China Everbright Bank in China to borrow a maximum of RMB 100 million (approximately $14.3 million based on the currency exchange rate between RMB and U.S.

Dollar on April 15, 2020), in the amount in RMB or USD.

Interest payments are due on the 20th of each month, and the entire principal is due on April 16, 2021.

The loan consists of RMB 20 million for working capital borrowing in Chinese yuan and RMB 80 million for borrowing in US dollars that is collateralized by eligible accounts receivable.

During the three months ended June 30, 2020, the JV Company borrowed RMB 20 million, or $2.8 million based on the currency exchange rate between RMB and U.S.

Dollar, at a fixed interest rate of 5.1375% per annum under the working capital loan .

The JV Company also borrowed $7.1 million and $1.9 million at a fixed interest rate of 2.7% and 2.8% per annum, respectively, during the same period under the accounts receivable collateralized loan .

As of June 30, 2020, the total outstanding balance under the loan was $11.8 million.

Interest payments were due on the 20th of each month, and the entire principal was due on April 16, 2021.

The loan consisted of RMB 20 million for working capital borrowing in Chinese yuan and RMB 80 million for borrowing in US dollars that was collateralized by eligible accounts receivable.

As of June 30, 2021, this loan was expired and there was no outstanding balance under the loan.

On April 26, 2020, the JV Company entered into a loan agreement with China Development Bank, Agricultural Bank of China, China Merchants Bank and Chongqing Rural Commercial Bank (collectively, "the Banks") in the aggregate principal amount of RMB 250 million (approximately $35.7 million based on the currency exchange rate between RMB and U.S.

6 unchanged sentences

As of June 30, 2021, the outstanding balance of the loan was $34.1 million.

On November 13, 2020, the JV Company entered into a one-year loan agreement with China Merchant Bank in China.

The JV Company can borrow up to Chinese Renminbi ("RMB") 50.0 million, or $7.6 million, based on the currency exchange rate between RMB and U.S.

Dollar on November 13, 2020.

The loan's interest rates are based on the China one-year loan prime rate ("LPR") plus 1.4% per annum.

Interest payments are due quarterly with the entire principal due not later than November 19, 2021.

During the three months ended December 31, 2020, the JV Company borrowed RMB 50.0 million at a n interest rate of 5.25% per annum.

As of June 30, 2021, the outstanding balance of this loan was $ 7.7 million.

On June 29, 2021, the JV Company entered into a one-year loan agreement with China Citic Bank in China to borrow a maximum of $7.7 million.

Interest payments are due on the 20th of each quarter starting September 20, 2021, and the entire principal is due on June 29, 2022.

As of June 30, 2021, the outstanding balance of this loan was $7.7 million at an interest rate of 3.49% per annum.

On April 19, 2021, the JV Company entered into a loan agreement with China Everbright Bank in China to borrow a maximum of Chinese Renminbi ("RMB") 100 million.

The borrowing can be in RMB or U.S.

Dollar ("USD").

The loan consists of RMB 50 million for working capital borrowings in Chinese yuan and RMB 50 million for borrowing in USD.

The loan is collateralized by eligible accounts receivable.

On April 19, 2021, the JV Company borrowed RMB 50.0 million, or $7.7 million based on the currency exchange rate between RMB and USD on April 19, 2021, at an interest rate of 5.1% annum.

The interest payments are due quarterly with the entire principal due no later than May 19, 2022.

On June 16, 2021 and June 24, 2021, the JV Company also borrowed $4.2 million and $3.5 million at interest rate of 2.7% per annum, with principal due on August 18, 2021 and September 9, 2021, respectively.

As of June 30, 2021, the total outstanding balance of these loans was $15.4 million.

Cash, cash equivalents and restricted cash

4 unchanged sentences

Year Ended June 30,

2021 2020 2019

(in thousands)

1 unchanged sentence

Net cash used in investing activities (72,539) (60,849) (112,435)

Net cash provided by financing activities

Net cash provided by (used in) financing activities (18,991) 37,651 75,099

Effect of exchange rate changes on cash, cash equivalents and restricted cash 4,895 (708) (1,514)

1 unchanged sentence

Cash flows from operating activities

Net cash provided by operating activities of $128.7 million for fiscal year 2021 resulted primarily from net income of $56.3 million, non-cash charges of $70.0 million and net change in assets and liabilities providing net cash of $2.5 million.

The non-cash charges of $70.0 million included depreciation and amortization expenses of $52.7 million, share-based compensation expense of $15.3 million, loss on disposal of property and equipment of $0.4 million, and net deferred income taxes of $1.6 million.

The net change in assets and liabilities providing net cash of $2.5 million was primarily due to $48.5 million increase in accrued and other liabilities and $1.7 million increase in income taxes payable, partially offset by $22.5 million increase in accounts receivable due to timing of billings and collection of payments, $18.8 million increase in inventories, $5.8 million increase in other current and long-term assets primarily due to decrease in advance payments to suppliers, and $0.5 million decrease in accounts payable primarily due to timing of payments.

Net cash provided by operating activities of $62.3 million for fiscal year 2020 resulted primarily from net loss of $18.3 million, non-cash charges of $56.1 million and net change in assets and liabilities providing net cash of $24.4 million.

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The net change in assets and liabilities providing net cash of $1.3 million was primarily due to $9.6 million increase in accrued and other liabilities, $9.2 million decrease in accounts receivable due to timing of billings and collection of payments, $6.4 million increase in accounts payable primarily due to timing of payments, partially offset by $21.5 million increase in inventories, $1.9 million increase in other current and long-term assets primarily due to increase in advance payments to suppliers, and $0.6 million decrease in income taxes payable.

Net cash provided by operating activities of $3.5 million for fiscal year 2018 resulted primarily from net income of $4.9 million, non-cash charges of $38.6 million and net change in assets and liabilities providing net cash of $40.1 million.

The non-cash charges of $38.6 million included depreciation and amortization expenses of $29.4 million, share-based compensation expense of $11.4 million, and net deferred income taxes of $2.2 million.

The net change in assets and liabilities providing net cash of $40.1 million was primarily due to $5.3 million increase in accounts receivable due to timing of billings and collection of payments, $13.9 million increase in inventories, $34.6 million increase in other current and long-term assets primarily due to increase in advance payments to suppliers, partially offset by $4.9 million increase in accounts payable primarily due to timing of payments, $8.5 million increase in accrued and other liabilities, and $0.5 million increase in income taxes payable.

Cash flows from investing activities

Net cash used in investing activities of $72.5 million for the fiscal year 2021 was primarily attributable to $72.7 million purchases of property and equipment, including $50.0 million purchases in JV Company, which was partially offset by $0.1 million government grant related to equipment in the JV Company.

Net cash used in investing activities of $60.8 million for the fiscal year 2020 was primarily attributable to $62.4 million purchases of property and equipment, including $20.0 million purchases in JV Company, which was partially offset by $1.3 million government grant related to equipment in the JV Company and $0.3 million of proceeds from sale of property and equipment.

Net cash used in investing activities of $112.4 million for the fiscal year 2019 was primarily attributable to $112.1 million purchases of property and equipment, including $76.0 million purchases in JV Company, and $0.4 million purchases of intangible assets.

Net cash used in investing activities of $194.1 million for the fiscal year 2018 was primarily attributable to $177.7 million purchases of property and equipment, including $128.4 million purchases in JV Company, and $16.4 million purchases of intangible assets to develop our digital power business.

Cash flows from financing activities

Net cash used in financing activities of $19.0 million for the fiscal year 2021 was primarily attributable to $6.9 million in common shares acquired to settle withholding tax related to vesting of restricted stock units, $16.5 million in payments of capital lease obligations, and $66.6 million in repayments of borrowings, partially offset by $65.9 million of proceeds from borrowings and $5.1 million of proceeds from exercises of share options and issuance of shares under the ESPP.

Net cash provided by financing activities of $37.7 million for the fiscal year 2020 was primarily attributable to $96.2 million of proceeds from borrowings, and $3.4 million of proceeds from exercises of share options and issuance of shares under the ESPP, partially offset by $1.5 million in common shares acquired to settle withholding tax related to vesting of restricted stock units, $11.0 million in payments of capital lease obligations, and $49.4 million in repayments of borrowings.

Net cash provided by financing activities of $75.1 million for the fiscal year 2019 was primarily attributable to $24.0 million proceeds from investment by Chongqing Funds, $77.9 million of proceeds from borrowings, and $3.0 million of proceeds from exercises of share options and issuance of shares under the ESPP, partially offset by $2.0 million in common shares acquired to settle withholding tax related to vesting of restricted stock units, $1.5 million for repurchase of our common shares under the repurchase program, $4.4 million in payments of capital lease obligations, and $21.9 million in repayments of borrowings.

Net cash provided by financing activities of $207.0 million for the fiscal year 2018 was primarily attributable to $129.0 million proceeds from investment by Chongqing Funds, $31.0 million of proceeds from borrowings under our term loans in Jireh, $60.4 million of proceeds from financing lease in the JV Company, and $5.0 million of proceeds from exercises of share options and issuance of shares under the ESPP, partially offset by $2.4 million in common shares acquired to settle withholding tax related to vesting of restricted stock units, $15.1 million for repurchases of our common shares under the repurchase program, $0.8 million in payments of capital lease obligations, and $0.1 million in repayments of borrowings.

Contractual Obligations

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Payments Due by Period

Less than More than

Total 1 year 1-3 years 3-5years 5 years

(in thousands)

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To the extent there are material differences between these estimates and actual results, our consolidated financial statements will be affected.

On an ongoing basis, we evaluate the estimates, judgments and assumptions including those related to stock rotation returns, price adjustments, allowance for doubtful accounts, inventory reserves, warranty accrual, income taxes, leases, share-based compensation, recoverability of and useful lives for property, plant and equipment and intangible assets, as well as economic implications of the COVID-19 pandemic.

On an ongoing basis, we evaluate the estimates, judgments and assumptions including those related to stock rotation returns, price adjustments, allowance for doubtful accounts, valuation of inventories, warranty accrual, income taxes, leases, share-based compensation, recoverability of and useful lives for property, plant and equipment and intangible assets, as well as economic implications of the COVID-19 pandemic.

Revenue recognition

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and (5) recognition of revenue when, or as, a performance obligation is satisfied.

We recognize revenue when product is shipped to the customer, net of estimated stock rotation returns and price adjustments to certain distributors.

We recognize revenue at a point in time when product is shipped to the customer, net of estimated stock rotation returns and price adjustments to certain distributors.

We present revenue net of sales taxes and any similar assessments.

Our standard payment terms range from 30 to 90 days.

We sell our products primarily to distributors, who in turn sell our products globally to various end customers.

Our revenue is net of the effect of the estimated stock rotation returns and price adjustments that we expect to provide to certain distributors.

Our revenue is net of the effect of the variable consideration relating to estimated stock rotation returns and price adjustments that we expect to provide to certain distributors.

Stock rotation returns are governed by contract and are limited to a specified percentage of the monetary value of the products purchased by distributors during a specified period.

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Allowance for price adjustments is recorded against accounts receivable and provision for stock rotation is recorded in accrued liabilities on the consolidated balance sheets.

Packaging and testing services revenue is recognized upon shipment of serviced products to the customer.

Inventory reserves

Our performance obligations relate to contracts with a duration of less than one year.

We elected to apply the practical expedient provided in ASC 606, “Revenue from Contracts with Customers”.

Therefore, we are not required to disclose the aggregate amount of transaction price allocated to performance obligations that are unsatisfied or partially unsatisfied at the end of the reporting period.

We recognize the incremental direct costs of obtaining a contract, which consist of sales commissions, when control over the products they relate to transfers to the customer.

Applying the practical expedient, we recognize commissions as expense when incurred, as the amortization period of the commission asset we would have otherwise recognized is less than one year.

Packaging and testing services revenue is recognized at a point in time upon shipment of serviced products to the customer.

Valuation of inventories

We carry inventories at the lower of cost (determined on a first-in, first-out basis) or net realizable value.

Cost primarily consists of semiconductor wafers and raw materials, labor, depreciation expenses and other manufacturing expenses and overhead, and packaging and testing fees paid to third parties if subcontractors are used.

Inventory reserves are made based on our periodic review of inventory quantities on hand as compared with our sales forecasts, historical usage, aging of inventories, production yield levels and current product selling prices.

Valuation of inventories are based on our periodic review of inventory quantities on hand as compared with our sales forecasts, historical usage, aging of inventories, production yield levels and current product selling prices.

If actual market conditions are less favorable than those forecasted by us, additional future inventory write-downs may be required that could adversely affect our operating results.

Inventory reserves once established are not reversed until the related inventory has been sold or scrapped.

Adjustments to inventory, once established are not reversed until the related inventory has been sold or scrapped.

If actual market conditions are more favorable than expected and the products that have previously been written down are sold, our gross margin would be favorably impacted.

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Our warranty obligation is affected by product failure rates, labor and material costs for replacing defective parts, related freight costs for failed parts and other quality assurance costs.

We monitor our product returns for warranty claims and maintain warranty reserve based on our historical experiences and anticipated warranty claims known at the time of estimation.

We monitor our product returns for warranty claims and maintain warranty reserve based on our historical experiences and

anticipated warranty claims known at the time of estimation.

If actual warranty costs differ significantly from our estimates, revisions to the estimated warranty accrual would be required and any such adjustments could be material.

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These estimates and judgments occur in the calculation of tax credits, benefits and deductions, and in the calculation of certain tax assets and liabilities which arise from differences in the timing of recognition of revenue and expense for tax and financial statement purposes, as well as interest and penalties related to uncertain tax positions.

There are many transactions and calculations for which the ultimate tax determination is

uncertain during the ordinary course of business.

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

We establish accruals for certain tax contingencies based on estimates of whether additional taxes may be due.

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For restricted stock awards subject to market conditions, the fair value of each restricted stock award is estimated at the date of grant using the Monte-Carlo pricing model.

Share-based compensation expense is significant to the consolidated financial statements and is calculated using our best estimates, which involve inherent uncertainties and the application of management's judgment.

Share-based compensation expense is significant to the consolidated financial

statements and is calculated using our best estimates, which involve inherent uncertainties and the application of management's judgment.

The Black-Scholes option valuation model requires the input of subjective assumptions, including the expected term and stock price volatility.

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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 7. Management’s Discussion and Analysis