What changed in this filing

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Item 1A. Risk Factors

2022-09-20 compared with 2021-08-30 · 150 added, 142 removed, 632 unchanged (32% of the section changed)

8 unchanged sentences

• 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.

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• 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.

• The DOJ 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.

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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 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.

Furthermore, we are experiencing and may continue to experience supply chain challenges in our manufacturing activities as a result of various “stay-at-home” orders.

Our JV Company has slowed ramp-up activities, which may cause delay and disruption to our timeline to reach full production for the 12” fabrication facility in Chongqing, China.

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:

• 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 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;

Our business operations have been impacted by the global COVID-19 pandemic and the resulting economic downturn.

Numerous governmental jurisdictions, including the States of California, Oregon and Texas in the U.S.

and countries throughout the Asia Pacific region have imposed various restrictions on commercial activities, resulting in business closures, work stoppages, labor shortage, disruptions to ports, vaccine mandates and other shipping infrastructure, border closures, 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 government restrictions and the growing trend to provide remote-working options by employers, we have experienced shifting market trends, including an increasing demand in markets for notebooks, PCs, gaming devices and other products.

While we have 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.

Since the start of the second quarter of calendar year 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.

However, infection rates continued to fluctuate in various regions and new strains of the virus remain a risk, including a surge of COVID-19 cases and hospitalization due to the spread of Omicron variants in late 2021 and early 2022.

During the first half of calendar year of 2022, COVID-19 cases and hospitalization rate continued to decline and governments in various jurisdictions, including the U.S.

and Europe, have lifted various restrictions and limitations on economic activities.

At the same time, however, new variants of COVID-19, including the BA.5 variant, continued to emerge and contributed to recent rise of infection rates in various jurisdictions in which we operate, including China and U.S.

Furthermore, we may be subject to the ongoing global impacts resulting from the pandemic, including disruption of the product supply chains, shortages of semiconductor components and raw materials, and delays in shipments, product development, and product launches and rising inflation rates, any of which may adversely affect our operations.

In addition, actions by United States federal, state and local governments, as well as by foreign governments, to address the COVID-19 pandemic, including travel bans, stay-at-home orders and school, business and entertainment venue closures, also had a significant adverse effect on the markets in which we conduct our businesses.

COVID-19 poses the risk that our workforce, suppliers, and other partners may be prevented from conducting normal business activities for an extended period of time, including due to shutdowns or stay-at-home orders that may be requested or mandated by governmental authorities.

In April 2022, the city of Shanghai, China entered into a strict lockdown due to surging COVID-19 cases and the local government’s imposition of the “Zero Covid” policy.

Our packaging and assembly facilities in Shanghai were shut down and production was halted since early April.

Transportation suspension in and out of Shanghai also interrupted the shipping of raw materials and finished parts to and from our Songjiang factory.

We received permission to reopen our facilities partially in early May.

We gradually ramped up production at these facilities in May 2022 and returned to normal operation in June 2022.

The suspension of our Shanghai facilities, and factors limiting the resumption of production, reduced our ability to complete orders from our customers in a timely manner, which adversely affected our revenue and results of operation for the three months ended June 30, 2022.

There is no guarantee that additional restrictions and lockdown will not be reimposed by the government, which is outside of our control, and any extension of the lockdown will continue to have a negative impact on our results of operations and financial conditions.

We also expect to incur additional incremental costs to comply with various public health and safety requirements imposed by the Shanghai government, which may continue for an extended period of time even after city-wide lockdown is lifted.

Furthermore, while we intend to secure alternative sources of packaging capacity from third-party providers to mitigate the impact of the shutdown, there is no guarantee that such source will be available or on terms that are reasonable to us.

Even if alternative sources are available, it will be difficult to complete the transition to such sources efficiently and timely, and we currently do not expect that we will be able to secure sufficient third-party packaging sources to substitute or replace fully our in-house capacity.

The suspension of our Shanghai facilities, and factors limiting the resumption of production reduced our ability to complete orders from our customers in a timely manner or at all, which adversely affected our revenue and results of operation for the fiscal year ended June 30, 2022.

We can not guarantee that the Shanghai government will not impose similar restrictions and lockdown in the future, and any such restrictions and lockdown will adversely affect our operations and financial performance.

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 beyond our 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 continued and renewed imposition of protective public safety measures such as lockdowns and quarantines;

the continuing global disruption in supply chains in our industries and the impact of the pandemic on the global economy, inflation and demand for consumer products.

Even after the pandemic has subsided and economic activities gradually increase, we may continue to experience material and adverse impacts to our business, operating results, and financial condition as a result of the pandemic’s lasting global economic impact, including any recession that may occur in the future in our industries, as well as possible continuing inflationary impacts resulting from these factors.

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

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.

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.

Due to the fixed costs associated with operating our own packaging and testing facilities, if we are unable to utilize our in-house facilities at a desirable level of production, our gross margin and results of operations may be adversely affected.

For example, a significant decline in our market share or sales orders may negatively impact our factory utilization and reduce our ability to achieve profitability.

In April 2022, the operations of our packaging and testing facilities in Shanghai, China were suspended due to a strict lockdown of the city imposed by the local government in response to surging COVID cases.

The facilities were required to be shut down and production was halted since early April.

Transportation suspension in and out of Shanghai also interrupted the shipping of raw materials and finished parts to and from our facilities.

We received permission to reopen our facilities partially in early May.

We gradually ramped up production at these facilities in May and returned to normal operation in June 2022.

Furthermore, while we intend to secure alternative sources of packaging capacity from third-party providers, there is no guarantee that such sources are available, and even if available, it will be difficult to complete the transition efficiently and timely, and such alternative source of capacity is not expected to be sufficient to substitute or replace fully our in-house capacity.

The suspension of our Shanghai facilities had a negative impact on our production and adversely affected our revenue and results of operation for the fiscal year ended June 30, 2022.

In addition, the operation of our packaging and testing facilities is subject to a number of risks, including the following:

• unavailability of equipment, whether new or previously owned, at acceptable terms and prices;

• facility equipment failure, power outages or other disruptions;

• shortage of raw materials, including packaging substrates, copper, gold and molding compound;

• failure to maintain quality assurance and remedy defects and impurities;

• changes in the packaging requirements of customers;

• our limited experience in operating a high-volume packaging and testing facility;

• operation stoppage due to the city-wide COVID-19 lockdown.

Any of the foregoing risks could adversely affect our capacity to package and test our products, which could delay shipment of our products, result in higher expenses, reduce revenue, damage our relationships with customers and otherwise adversely affect our business, results of operations, financial condition and prospects.

Our business operations and financial conditions may be adversely affected by any disruption in our information technology systems, including any cyberattacks and breaches.

Our operations are dependent upon our information technology systems, which encompass all of our major business functions across offices internationally.

We rely upon such information technology systems to manage and replenish inventory, complete and track customer orders, coordinate sales activities across all of our products and services, maintain vital data and information, perform financial and accounting tasks and manage and perform various administrative and human resources functions.

A substantial disruption in our information technology systems for any extended time period (arising from, for example, system capacity limits from unexpected increases in our volume of business, outages or delays in our service) could result in delays in receiving inventory and supplies or filling customer orders and adversely affect our customer service and relationships.

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, 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.

In April, 2022, we became aware of a cybersecurity incident involving unauthorized access to one of the Company's email account, resulting in unauthorized payments.

We recorded a loss of $1.5 million due to the incident for the three months ended March 31, 2022.

Immediately following the discovery, we commenced an investigation, contained the incident and implemented additional protective measures and internal control policies and procedures.

We also alerted law enforcement authorities and banking institutions in an effort to recover the lost amount.

This incident appears to be isolated and its financial impact identified was not material.

The Company believes that it has not incurred other damages and losses based on the conclusion of the full investigation.

There is no guarantee that we will be able to recover the lost amount.

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

Any cybersecurity breach and financial loss may also have a negative impact on our internal control over financial reporting.

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.

We also expect to incur additional costs and expenses to upgrade our information technology system and establish additional protective measures to prevent future breaches.

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.

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

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Our strategy of diversification into different market segments may not succeed according to our expectations and may expose us to new risks and place significant strains on our management, operational, financial and other resources.

As part of the growth strategy to diversify our product portfolio and in response to the rapid decline of the PC markets, we have been developing new technologies and products designed to penetrate into other markets and applications, including merchant power supplies, flat panel TVs, smart phones, tablets, gaming consoles, lighting, datacom, telecommunications, home appliances and industrial motor controls.

As part of the growth strategy to diversify our product portfolio and in response to the decline of the PC markets, we have been developing new technologies and products designed to penetrate into other markets and applications, including merchant power supplies, flat panel TVs, smart phones, tablets, gaming consoles, lighting, datacom, telecommunications, home appliances and industrial motor controls.

However, there is no guarantee that these diversification efforts will be successful.

As a new entrant to some of these markets, we may face intense competition from existing and more established providers and encounter other unexpected difficulties, any of which may hinder or delay our efforts to achieve success.

In addition, our new products may have long design and sales cycles, therefore if our diversification efforts fail to keep pace with the declining PC markets, we may not be able to alleviate its negative impact on our results of operations.

In addition, our new products may have long design and sales cycles.

Therefore, if our diversification efforts fail to keep pace with the declining PC markets, we may not be able to alleviate its negative impact on our results of operations.

Our diversification into different market segments may place a significant strain on our management, operational, financial and other resources.

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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.

and China have resulted in and may continue to cause retaliatory policies from both countries, including a recent executive order issued by the U.S.

and China have resulted in and may continue to cause retaliatory policies from both countries, including a 2020 executive order issued by the then U.S.

President eliminating the preferential trade status of Hong Kong in response to China’s action to impose new security measures and regulation on Hong Kong.

The order will make it more costly and difficult for U.S.

The order has made it more costly and difficult for U.S.

companies to export goods or conduct businesses in Hong Kong.

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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.

Our lack of control over the JV Company may adversely affect our operations.

We formed the JV Company in 2016 which consists of a power semiconductor packaging, testing and 12-inch wafer fabrication facility in Chongqing.

The JV Company is our subcontractor, and we rely and expect to continue to rely substantially on the JV Company to provide us with foundry capacity to develop and manufacture our products and to enhance our market position in China.

Since the formation of the JV Company, we have retained control over the business operation of the JV Company through our majority equity ownership and board representation.

In December 2021, we relinquished control over the JV Company through a series of transactions, including the sale of a portion of our equity interests in the JV Company and issuance of additional equity interests by the JV Company to raise capital.

As a result of these transactions, we currently own approximately 42.2% of outstanding equity interest in the JV Company and have the right to designate three (3) out of seven (7) directors, instead of four (4) directors prior to such transaction.

The reduction of our equity ownership of the JV Company is part of a plan to enable the JV Company to raise capital more easily and to facilitate a future public listing on the Science and Technology Innovation Board, or STAR Market, of

the Shanghai Stock Exchange (the “China IPO”).

Such reduction also caused the deconsolidation of the JV Company’s financial statements from our Consolidated Financial Statements.

Because we no longer have a controlling interest in the JV Company, the JV Company is operating and will continue to operate more independently, and our influence on all aspects of the JV Company’s business operations will be diminished.

Accordingly, we might not be able to prevent the JV Company from taking actions adverse to our interests.

For example, while we remain a major customer of the JV Company, the JV Company may decide to enter into business relationships with other customers and allocate foundry capacities to such customers, which may prevent us from securing a desirable or sufficient level of manufacturing capacity for our products.

Even if the JV Company agrees to continue allocating sufficient manufacturing capacity to us, we may not be able to negotiate or obtain favorable pricing or service terms, which may increase our expenses and adversely affect our results of operations.

Our lack of control over the JV Company may also make it more difficult for us to execute our broader business strategies in China, including our R&D, sales and marketing, product innovation efforts and protection of intellectual property rights, because the JV Company may decide not to cooperate with us in these matters.

In addition, while we expect to achieve a financial return for our investment in the JV Company as a result of the China IPO, the China IPO process is complex, time-consuming and subject to a number of risks and there is no guarantee that the China IPO will be completed in a timely manner, or at all, and the JV Company’s failure to close the China IPO will negatively affect our investment in the JV Company.

In order to fund its capital expenditures and cost of operation, the JV Company has incurred a significant amount of indebtedness from third-party lenders under several loan and lease financing agreements, some of which are secured by substantially all of the assets of the JV Company.

If the JV Company is not able to generate sufficient cash flow to make payments under these loans, the JV Company may be in default, which will adversely affect its ability to continue operations and provide foundry services to us.

In addition, the JV Company requires additional funding to continue its operations and to refinance its existing indebtedness.

There is no guarantee that the JV Company will be able to obtain financing on favorable terms, or at all, and any such failure may negatively impact our ability to access its wafer manufacturing capacity.

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.

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If we are unable to introduce or develop new and enhanced products that meet or are compatible with our customer’s product requirements in a timely manner, it may harm our business, financial position and operating results.

Our success depends upon our ability to develop and introduce new and enhanced products that meet or are compatible with our customer's specifications, performance standards and other product requirements in a timely manner.

Our success depends upon our ability to develop and introduce new and enhanced products that meet or are compatible with our customer’s specifications, performance standards and other product requirements in a timely

The development of new and enhanced products involves highly complex processes, and at times we have experienced delays in the introduction of new products.

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achievement of manufacturing yields;

timely response to changes in customers' product requirements;

timely response to changes in customer’s product requirements;

quality and cost-effective production;

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Similarly, during periods of unexpected increase in customer demand, we may not be able to ramp up production quickly to meet these demands, which may lead to the loss of significant revenue opportunities.

The manufacturing processes of a fabrication facility are complex and subject to interruptions.

The manufacturing processes of a fabrication facility are complex and subject to

interruptions.

We may experience production difficulties, including lower manufacturing yields or products that do not meet our or our customers’ specifications, and problems in ramping production and installing new equipment.

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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.

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.

The equipment installation contractors have experienced a shortage of skilled labor and certain materials.

As a result, the expansion is expected to be now completed in the fiscal quarter ending March 31, 2023, although further delays are possible.

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.

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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.

receive from the affected products.

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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Any of the foregoing risks could delay shipment of our products, result in higher expenses and reduced revenue, damage our relationships with customers and otherwise adversely affect our business and operating results.

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

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.

For example, a significant decline in our market share or sales orders may negatively impact our factory utilization and reduce our ability to achieve profitability.

In addition, the operation of our packaging and testing facilities is subject to a number of risks, including the following:

• unavailability of equipment, whether new or previously owned, at acceptable terms and prices;

• facility equipment failure, power outages or other disruptions;

• shortage of raw materials, including packaging substrates, copper, gold and molding compound;

• failure to maintain quality assurance and remedy defects and impurities;

• changes in the packaging requirements of customers;

• our limited experience in operating a high-volume packaging and testing facility.

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

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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.

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

Successful acquisitions and alliances in the semiconductor industry are difficult to accomplish because they require, among other things, efficient integration and aligning of product offerings and manufacturing operations and coordination of sales and marketing and research and development efforts.

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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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As of June 30, 2022, we owned 888 issued U.S.

patents expiring between 2022 and 2040 and had 58 pending patent applications with the United States Patent and Trademark Office.

In addition, we own additional patents and have filed patent applications in several jurisdictions outside of the U.S, including China, Taiwan, Japan and Korea.

patents expiring between 2022 and

2041 and had 62 pending patent applications with the United States Patent and Trademark Office.

In addition, we own patents and have filed patent applications in several jurisdictions outside of the U.S, including China, Taiwan, Japan and Korea.

Our patents and patent applications may not provide meaningful protection from our competitors, and there is no guarantee that patents will be issued from our patent applications.

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• others independently developing similar proprietary information and techniques, gaining authorized or unauthorized access to our intellectual property rights, disclosing such technology or designing around our patents;

• the possibility that any patent or registered trademark owned by us may not be enforceable or may be invalidated, circumvented or otherwise challenged in one or more countries and the rights granted there under may not provide competitive advantages to us;

• the possibility that any patent or registered trademark owned by us may not be enforceable or may be invalidated, circumvented or otherwise challenged in one or more countries may limit our competitive advantages;

• uncertainty as to whether patents will be issued from any of our pending or future patent applications with the scope of the claims sought by us, if at all;

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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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• indemnify our distributors, end customers, licensees and others from the costs of and damages of infringement claims by our distributors, end customers, licensees and others, which could result in substantial expenses for us and damage our business relationships with them.

Any intellectual property claim or litigation could harm our business, results of operations, financial condition and prospects.

Any intellectual property claim or litigation against us harm our business, results of operations, financial condition and prospects.

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

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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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If such changes occur, we may be required to reduce shipments to certain Asian customers, adjust our business practices and incur additional costs to implement new export control compliance procedures, policies and programs, each of which will adversely affect our financial conditions and results of operations.

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

Our operations are dependent upon our information technology systems, which encompass all of our major business functions across offices internationally.

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.

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

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Moreover, even if our management concludes that our internal control over financial reporting is effective, our independent registered public accounting firm may decline to issue an opinion as to the effectiveness of our internal control over financial reporting, or may issue a report that is qualified or adverse.

During the course of the initial evaluation of internal control over financial reporting, we or our independent registered public accounting firm may identify control deficiencies that we may not be able to remediate prior to the date of our first assessment of internal control over financial reporting.

Our failure to achieve and maintain effective internal control over financial reporting could result in the loss of investor confidence in the reliability of our financial statements or prevent fraud, which in turn could harm our business and negatively impact the trading price of our shares.

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The calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax laws and regulations in various taxing jurisdictions.

Any of these jurisdictions may assert that we have unpaid taxes.

Any of these jurisdictions may assert that we have

unpaid taxes.

Our effective tax rate was 7.9%, 6.5% and (1.9)% for the fiscal years ended June 30, 2022, 2021 and 2020, respectively.

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international tax laws.

In August 2022 the U.S.

enacted the Chip and Science Act of 2022 (the Chips Act).

The Chips Act provides incentives to semiconductor chip manufacturers in the United States, including providing a 25% manufacturing investment credits for investments in semiconductor manufacturing property placed in service after December 31, 2022, for which construction begins before January 1, 2027.

Property investments qualify for the 25% credit if, among other requirements, the property is integral to the operation of an advanced manufacturing facility, defined as having a primary purpose of manufacturing semiconductors or semiconductor manufacturing equipment.

Currently, we are evaluating the impact of the Chips Act to us.

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.

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.

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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.

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.

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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 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.

We have entered into various debt agreements with certain financial institutions, which generally require us to maintain certain financial covenants that have the effect of limiting our ability to take certain actions, including actions to incur debt, 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.

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A decline in average selling prices would harm our gross margins for a particular product.

If not offset by sales of other products with higher gross margins, our overall gross margins may be adversely affected.

If not offset by sales of other

products with higher gross margins, our overall gross margins may be adversely affected.

Our business, results of operations, financial condition and prospects will suffer if we are unable to offset any reductions in our average selling prices by increasing our sales volumes, reducing our costs and developing new or enhanced products on a timely basis, with higher selling prices or gross margins.

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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.

Moreover, uncertainties in the Chinese legal system may impede our ability to enforce contracts with our business partners, customers and suppliers, or otherwise pursue claims in litigation to recover damages or loss of property, which could adversely affect our business and operations.

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 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 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 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 continuing trade tensions between the U.S.

and China may result in increased tariffs on imported goods from China that could adversely affect our business operations.

Since 2018, U.S.

and China trade tensions led to higher and increasing tariffs imposed by both countries on the import of goods from the other country.

government used various authorities to implement tariffs on a variety of Chinese goods and materials, which, absent exemptions, 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, and warned of additional actions if the U.S.

imposes new or increased tariffs.

The continuing trade tensions could have significant adverse effects on world trade and the world economy.

While the two countries have negotiated and entered into agreements to gradually reduce certain tariffs, it’s unclear whether those agreements will significantly reduce the tariffs affecting our business operations.

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

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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.

The Negative List has been updated twice in

June 2020 for year 2021 and December 2021 for year 2022.

The current effective Negative List took effect on January 1, 2022.

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

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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.

The transfer of funds from us to our China subsidiaries, either as a shareholder loan or as an increase in registered capital, is subject to registration with or approval by the China's governmental authorities, including the State Administration of Foreign Exchange, or SAFE, or the relevant examination and approval authority.

The transfer of funds from us to our China subsidiaries, either as a shareholder loan or as an increase in registered capital, is subject to registration with or approval by the China's governmental authorities, including the State Administration of Foreign Exchange, or SAFE's, or the relevant examination and approval authority.

Our subsidiaries may also experience difficulties in converting our capital contributions made in foreign currencies into RMB due to changes in the China's foreign exchange control policies.

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examples of “capital account” transactions include repatriations of investment by or loans to foreign owners, or direct equity investments in a foreign entity by a China domiciled entity.

“Capital account” transactions require prior approval from, or registration with China's State Administration of Foreign Exchange (SAFE) or its provincial branch to convert a remittance into a foreign currency, such as U.S.

“Capital account” transactions require prior approval from, or registration with China's State Administration of Foreign Exchange (SAFE) or its provincial branch or its authorized banks to convert a remittance into a foreign currency, such as U.S.

dollars, and transmit the foreign currency outside of China.

As a result of these and other restrictions under PRC laws and regulations, our China subsidiaries are restricted in their abil ity to transfer a portion of their net assets to the parent.

such restricted portion amounted to approximate ly $209.9 million, or 50.4% of our total consolidated net assets attribute to the Company as of June 30, 2021.

Such restricted portion amounted to approximat ely $92.4 million, or 10.8% of our total consolidated net assets attributed to the Company as of June 30, 2022.

We have no assurance that the relevant Chinese governmental authorities in the future will not limit further or eliminate the ability of our China subsidiaries to purchase foreign currencies and transfer such funds to us to meet our liquidity or other business needs.

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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.

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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 $24.40 to high of $65.72 from July 1, 2021 to June 30, 2022.

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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