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Item 1. Business

2023-02-17 compared with 2022-02-18 · 157 added, 166 removed, 629 unchanged (34% of the section changed)

Cohu is a leading supplier of semiconductor test and inspection handlers, micro-electromechanical system (“MEMS”) test modules, test contactors, thermal sub-systems and semiconductor automated test equipment used by global semiconductor and electronics manufacturers and semiconductor test subcontractors.

Cohu is a global technology leader supplying test, automation, inspection and metrology products and services to the semiconductor industry.

Cohu’s differentiated and broad product portfolio is designed to optimize semiconductor manufacturing yield and productivity, accelerating customers’

time-to-market.

We offer a wide range of products and services, and revenue from our capital equipment products is driven by the capital expenditure budgets and spending patterns of our customers, who often delay or accelerate purchases in reaction to variations in their business.

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Our recurring revenues are driven by an increase in the number of semiconductor devices that are tested and by the continuous introduction of new products and technologies by our customers.

On June 24, 2021, we completed the sale of our PCB Test Equipment (“PCB Test”) business, which represented our PCB Test reportable segment.

As part of the transaction we also sold certain intellectual property held by our Semiconductor Test & Inspection segment that is utilized by the PCB Test business.

Our decision to sell this non-core business resulted from management’s determination that that they were no longer a fit within our organization.

We evaluated the guidance in Accounting Standards Codification (“ASC”) 205-20, Presentation of Financial Statements –

Discontinued Operations , and determined that the divestment of our PCB Test business does not represent a strategic shift as the divestiture will not have a major effect on Cohu’s operations and financial results and, as a result, it is not presented as discontinued operations in any periods presented.

MCT Worldwide, LLC (“MCT”), acquired by Cohu on January 30, 2023, is a United States (“U.S.”) based company with a principal manufacturing site in Penang, Malaysia.

MCT provides automated solutions for the semiconductor industry and designs, manufactures, markets, services and distributes strip test handlers, film frame handlers and laser mark handlers.

The acquisition of MCT was completed subsequent to Cohu’s fiscal year ended December 31, 2022 and certain disclosures include MCT to enable investors to evaluate the operating and financial effects to our business recognized in the subsequent accounting period.

Unless otherwise indicated, disclosures made throughout this Form 10-K exclude the effect of the acquisition of MCT.

On June 24, 2021, we completed the sale of our PCB Test Equipment (“PCB Test”) business, that represented the entirety of our PCB Test reportable segment.

As part of this divestiture, we also sold certain intellectual property held by our Semiconductor Test & Inspection segment that was used by the PCB Test business.

Unless otherwise noted, all amounts presented are from continuing operations.

We have determined that we have one reportable segment, Semiconductor Test and Inspection Equipment (“Semiconductor Test & Inspection”).

Prior to the sale of our PCB Test Group (“PTG”) on June 24, 2021, we reported in two segments, Semiconductor Test & Inspection and PCB Test Equipment.

Prior to the sale of our PCB Test Group (“PTG”) on June 24, 2021, we reported two segments, Semiconductor Test & Inspection and PCB Test Equipment.

Financial information on our reportable segments for each of the last three years is included in Note 10, “Segment and Geographic Information”

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Semiconductor Test & Inspection

(1) Our PCB Test segment was sold on June 24, 2021.

(“Cohu”, “we”, “our”, “us”

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We currently sell the following products:

Semiconductor Test.

Semiconductor Automated Test Equipment (“ATE”) is used both for wafer level and device package testing.

Our semiconductor ATE solutions consist primarily of two platforms focused on the system on a chip (“SoC”) device market.

The Diamond series platform, which includes the flagship Diamond x test system, offers high-density instrumentation for low-cost testing of microcontrollers, application specific standard products (“ASSP”), power management, display drivers, sensors and other mixed signal devices.

The PAx series of testers is focused primarily on the RF Front End IC and Module market.

Semiconductor Handlers.

Semiconductor test handlers are used in conjunction with semiconductor ATE to automate the testing of packaged semiconductor devices.

Our handlers support a variety of package sizes and device types, including those used in automotive, mobile, industrial, computing applications, among others.

We offer a broad range of test handlers, including pick-and-place, turret, gravity, strip, MEMS and thermal sub-systems, along with inspection handlers that perform automated optical inspection of semiconductor devices.

Interface Products.

Our interface products are comprised of test contactors, probe heads and probe pins.

Our semiconductor ATE solutions consist primarily of two platforms for the system on a chip (“SoC”) device market.

The Diamondx tester offers high-density instrumentation for testing microcontrollers, application specific standard products (“ASSP”), power management, display drivers, sensors and other mixed signal devices.

The PAx tester is focused primarily on the RF Front End IC and Module applications.

Semiconductor Handlers are used in conjunction with semiconductor ATE to automate the testing of packaged semiconductor devices.

Our handlers support a variety of package sizes and device types, including those used in automotive, mobility, industrial and computing applications, among others.

We offer a broad range of test handlers, including pick-and-place, turret, gravity, strip, film frame, laser mark, MEMS and thermal sub-systems.

Interface Products are comprised of test contactors, probe heads and probe pins.

Test contactors serve as the interface between the test handler and the semiconductor device under test such as digital semiconductor devices utilizing spring probe technology, power management and LED semiconductor devices utilizing cantilever technology, and RF semiconductor devices based on contacts designed to operate at high frequencies.

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Interface Products are included in our recurring revenues.

Data Analytics.

Our data analytics product, DI-Core, is a comprehensive software suite used to optimize Cohu equipment performance.

DI-Core provides real-time online performance monitoring and process control to improve utilization, manages preventative and predictive maintenance to improve overall equipment efficiency, links semiconductor tester, handler and test contactor data for intelligence and extended device tracking, and provides a knowledge database and unified reports for quickly identifying issues and retaining historical performance data.

Spares and Kits.

We provide consumable, non-consumable and spare items that are used to maintain, sustain or otherwise enable customers’

Inspection and Metrology are products that provide advanced vision capabilities.

We offer a wide range of solutions for inspection of singulated molded leaded and leadless devices, and post-singulated wafer level chip scale packages (“WLCSP”) and bare dies.

NV-Core is our unique vision technology, enabling advanced inspection and metrology, such as 3-dimensional topographic inspection, sidewall micro-crack detection, and infrared inspection for sub-surface defect detection.

Data Analytics (“DI-Core”) is a comprehensive software suite used to optimize Cohu equipment performance.

DI-Core provides real-time online performance monitoring and process control to improve utilization, manage predictive maintenance, and link semiconductor tester, handler and test contactor data.

DI-Core is included in our recurring revenue.

Spares and Kits are consumable, non-consumable and spare items that are used to maintain, sustain or otherwise enable customers’

equipment to meet its performance, availability and production requirements.

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Spares and Kits are included in our recurring revenues.

Our worldwide service organization performs installations and necessary maintenance of systems sold.

We provide various parts and labor warranties on test and handling systems and instruments designed and manufactured by us and warranties on certain components that have been purchased from other manufacturers and incorporated into our test and handling systems.

Services are provided by our worldwide service organization and include installations and necessary maintenance of systems sold.

We provide various parts and labor warranties on test and handling systems and instruments designed and manufactured by us.

We also provide training on the maintenance and operation of our systems as well as application, data management software and consulting services on our products.

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PCB test systems

(1) Recurring revenues include interface products, spares, kits (not as part of system sales) and services

Our customers include semiconductor integrated device manufacturers, fabless design houses, PCB manufacturers, and test subcontractors throughout the world.

Recurring revenues include interface products, spares, kits (not as part of system sales), DI-Core and services

Our customers include semiconductor integrated device manufacturers, fabless design houses, and test subcontractors throughout the world.

Repeat sales to existing customers represent a significant portion of our sales.

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On June 24, 2021, we completed the divestment of our PCB Test business.

No customer of our PCB Test segment exceeded 10% of consolidated net sales for the years ended December 25, 2021, December 26, 2020 or December 28, 2019.

No customer of our PCB Test segment exceeded 10% of consolidated net sales for the years ended December 25, 2021 or December 26, 2020.

Additional financial information on revenues from external customers by geographic area for each of the last three years is included in Note 10, “Segment and Geographic Information”

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In geographic areas where we believe there is sufficient sales potential, we generally employ our own personnel.

Our United States (U.S.) sales offices are located in Poway and Milpitas, California, St.

Paul, Minnesota, Lincoln, Rhode Island and Norwood, Massachusetts.

sales offices are located in Poway and Milpitas, California, St.

Paul, Minnesota, Lincoln, Rhode Island, Norwood, Massachusetts and, subsequent to our recent acquisition of MCT on January 30, 2023, Minneapolis, Minnesota.

Our European sales offices are located in Kolbermoor, Germany;

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While we believe that we are the leading worldwide supplier of semiconductor test handling equipment, we face substantial competition in Japan and Taiwan which represent a significant percentage of the worldwide market.

Test subcontractors in Asia also purchase mostly from local Asian competitors.

In the semiconductor test market, we face competition from two dominant suppliers headquartered in the U.S.

Test subcontractors in Asia also show preference to purchase from local Asian competitors.

In the semiconductor ATE market, we face competition from two dominant suppliers headquartered in the U.S.

and Japan, both of which are substantially larger than Cohu’s test business.

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No assurance can be given that we will continue to compete successfully throughout the world.

Our backlog of unfilled orders for products, by segment at December 25, 2021 and December 26, 2020 was as follows:

(in millions)

Semiconductor Test & Inspection

Total consolidated backlog

Our backlog of unfilled orders for products, was $279.8 million at December 31, 2022 and $292.9 million at December 25, 2021.

Backlog is generally expected to ship within the next twelve months.

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Manufacturing and Raw Materials

Our principal manufacturing operations are currently located in Malacca, Malaysia (handler operations and kits);

Our principal manufacturing operations are currently located in Malacca, Malaysia and subsequent to our acquisition of MCT on January 30, 2023, Penang, Malaysia (handler operations and kits);

Laguna, Philippines (kits and test contactors);

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We outsource the manufacturing of many of our semiconductor automated test equipment products to Jabil Circuit, Inc.’s facility in Penang, Malaysia.

Our contract manufacturing partner is responsible for significant material procurement, assembly and testing.

Our sole source contract manufacturing partner is responsible for significant material procurement, assembly and test.

We continue to manage product design through pilot production for the subcontracted products, and we are directly involved in qualifying suppliers and key components used in all our products.

Our contract manufacturer is responsible for funding the capital expenses incurred in connection with the manufacture of our products, except with regard to end-of-line testing equipment and other specific manufacturing equipment utilized in assembling our products or sub-components which are financed and owned by Cohu.

Contracting with a global provider such as Jabil, gives us added flexibility to manufacture certain products closer to target markets in Asia, potentially increasing responsiveness to customers while reducing costs and delivery times.

Many of the components and subassemblies we utilize are standard products, although some items are made to our specifications.

Certain components are obtained or are available from a limited number of suppliers or may be sole sourced.

Certain components are obtained or are available from a limited number of suppliers or may be sole supplier sourced.

We seek to reduce our dependence on sole and limited source suppliers, however in some cases the complete or partial loss of certain of these sources could have a material adverse effect on our operations while we attempt to locate and qualify replacement suppliers.

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We work closely with our customers to make improvements to our existing products and in the development of new products.

We expect to continue to invest heavily in research and development and must manage product transitions successfully as introductions of new products could adversely impact sales.

We expect to continue to make significant investments in research and development and must manage product transitions successfully as introductions of new products could adversely impact sales.

Historically, the semiconductor industry has been seasonal with recurring periods of oversupply and excess capacity, which often have had a significant effect on the semiconductor industry’s demand for capital equipment, including equipment of the type we manufacture and market.

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President and Chief Executive Officer

Vice President, Finance and Chief Financial Officer

Senior Vice President, Finance and Chief Financial Officer

Christopher G.

Senior Vice President, Global Customer Group

Senior Vice President, and Chief Customer Officer

Vice President, Corporate Development, General Counsel and Secretary

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In November 2007, Mr.

Jones was named Vice President, Finance and Chief Financial Officer of Cohu.

Jones was named Vice President, Finance and Chief Financial Officer of Cohu, and was subsequently promoted on February 3, 2022 to Senior Vice President, Finance and Chief Financial Officer.

Prior to joining Delta Design, Mr.

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Jones was an Audit Manager for Coopers & Lybrand (now PricewaterhouseCoopers).

Bohrson was appointed Senior Vice President, Global Customer Group on February 8, 2021.

Bohrson was promoted to Senior Vice President and Chief Customer Officer on February 2, 2023, and prior to that he served as Senior Vice President, Global Customer Group since February 8, 2021.

Previously, Mr.

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Kampfer joined Cohu in May 2017 as Vice President Corporate Development, General Counsel and Secretary.

Kampfer previously served from June 2015 to May 2017 as Executive Vice President and Chief Financial Officer of Multi-Fineline Electronix, Inc.

Prior to Cohu, Mr.

Kampfer served from June 2015 to May 2017 as Executive Vice President and Chief Financial Officer of Multi-Fineline Electronix, Inc.

Prior to that, Mr.

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Kampfer served in various legal and business development executive roles with Proxima Corporation, and also held various positions in manufacturing engineering and legal at IBM.

Lawee joined Cohu in May 2019 as Vice President and General Manager of Cohu’s Semiconductor Test Group and subsequently promoted to Senior Vice President and General Manager on February 9, 2021.

Lawee joined Cohu in May 2019 as Vice President and General Manager of Cohu’s Semiconductor Test Group and was subsequently promoted to Senior Vice President and General Manager on February 9, 2021.

Lawee has more than twenty-five years of experience in multiple management positions at both semiconductor and test instrumentation companies.

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Our business activities are worldwide and are subject to various federal, state, local, and foreign laws and our products and services are governed by a number of rules and regulations.

Costs and accruals incurred to comply with these governmental regulations are presently not material to our capital expenditures, results of operations and competitive position.

Although there is no assurance that existing or future government laws applicable to our operations, services or products will not have a material adverse effect on our capital expenditures, results of operations and competitive position, we do not currently anticipate material expenditures for government regulations.

Costs incurred to comply with these governmental regulations are presently not material to our capital expenditures, results of operations and competitive position.

Although there is no assurance that existing or future government laws applicable to our operations, services or products will not have a material adverse effect on our capital expenditures, results of operations or our competitive position, we do not currently anticipate material expenditures for government regulations.

Environmental

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Human Capital Management

Cohu is a global supplier of semiconductor test and inspection handlers, MEMS test modules, test contactors, thermal sub-systems and semiconductor automated test equipment used by global semiconductor and electronics manufacturers and semiconductor test subcontractors.

Cohu is a global technology leader supplying test, automation, inspection and metrology products and services to the semiconductor industry.

We believe that the daily commitment and dedication of our workforce in meeting our customers’

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We are committed to respecting and protecting the human rights of all our employees.

As of December 25, 2021, we had approximately 3,240 employees, including approximately 165 temporary employees, in 24 countries.

Including headcount additions arising from our acquisition of MCT, as of January 30, 2023, we had approximately 3,218 employees, including approximately 104 temporary employees, in 24 countries.

Approximately 19% of our employees are located in the Americas, 13% are located in EMEA (Europe, the Middle East and Africa) and 68% are located in Asia Pacific.

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Many of our administrative and operational functions during this time have required modification as well, including segments of our workforce working remotely.

As COVID-19 has evolved to a more endemic state, we have continued monitoring and complying with governmental guidelines for safe operations and have returned, but not fully, to the levels of travel and in person interactions that occurred prior to the pandemic.

In addition, while our manufacturing sites have continued at pre-pandemic occupancy and function, a portion of our employees that moved to remote work are continuing in fully remote or hybrid work status.

Compensation and Benefits

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Parental leave is provided to all new parents for birth, adoption or foster placement.

Paid Time Off Programs covering time away from work due to employee and family illness, holidays, vacation, civic duties, etc.

Paid Time Off Programs covering time away from work due to employee and family illness, holidays, vacation, civic duties, and others.

Outside of the U.S., we have provided other innovative benefits to help address market-specific needs, such as supplemental medical coverage or reimbursements, paid time off programs, wellness and development events and programs, transportation subsidies, etc.

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Our web site address is www.cohu.com.

We make available free of charge, on or through our web site, our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports, as soon as reasonably practicable after such material is electronically filed with the Securities and Exchange Commission.

Our Code of Business Conduct and Ethics and other documents related to our corporate governance are also posted on our web site at https://cohu.gcs-web.com/corporate-governance/documents-charters .

When required by the rules of the Nasdaq Stock Market, LLC (“Nasdaq”), or the Securities and Exchange Commission (“SEC”), we will disclose any future amendment to, or waiver of, any provision of the code of conduct for our chief executive officer and principal financial officer or any member or members of our board of directors on our website within four business days following the date of such amendment or waiver.

When required by the rules of the Nasdaq Stock Market, LLC (“Nasdaq”), or the SEC, we will disclose any future amendment to, or waiver of, any provision of the code of conduct for our chief executive officer and principal financial officer or any member or members of our board of directors on our website within four business days following the date of such amendment or waiver.

Information contained on our web site is not deemed part of this report.

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risk factors ”

Many of the following risks and uncertainties are, and will be, exacerbated by the COVID-19 pandemic and any adverse impacts on the global business and economic environment as a result.

If any of the identified risks actually occur, our business, financial condition and results of operations could be materially adversely affected, the trading price of our common stock could decline, and you may lose all or part of your investment in our common stock.

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Risks Relating to the COVID-19 Pandemic

The ongoing global COVID-19 pandemic has adversely affected, and is continuing to adversely affect, our business, financial condition and results of operations.

The COVID-19 pandemic has impacted, and is expected to continue to negatively impact, the operations of our key suppliers, customers and other business partners.

While the ongoing global COVID-19 pandemic has stabilized within many global regions, it may cyclically continue to adversely affect our business, financial condition and results of operations.

Risks Relating to Our Business Operations and Industry

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Any failure to effectively manage multiple manufacturing sites and to secure raw materials meeting our quality, cost and other requirements, or failures by our suppliers to perform, could harm our sales, service levels and reputation.

A failure to perform or unexpected downtime experienced by our sole contract manufacturer for certain semiconductor automated test equipment could adversely impact our operations.

Failure of critical suppliers to deliver sufficient quantities of parts in a timely and cost-effective manner could adversely impact our operations.

We may not be able to increase prices to fully offset inflationary pressures on costs, such as raw and packaging materials, components and subassemblies, labor and distribution costs, which may impact our financial condition or results of operations.

A failure to perform or unexpected downtime experienced by our sole source contract manufacturer for certain semiconductor automated test equipment could adversely impact our operations.

Ongoing inflationary pressures on costs, including those for raw and packaging materials, components and subassemblies, labor and distribution costs, along with rising interest rates, increase the threat of recession and may impact our financial condition or results of operations.

The semiconductor industry we serve is seasonal, volatile and unpredictable, and increased cyclicality could have an adverse impact on our sales and gross margin.

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Semiconductor equipment is subject to rapid technological change, product introductions and transitions which may result in inventory write-offs, and our new product development involves numerous risks and uncertainties.

The seasonal nature of the semiconductor equipment industry places enormous demands on our employees, operations and infrastructure.

A limited number of customers account for a substantial percentage of our net sales.

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Risks Associated with Operating a Global Business

We are exposed to the risks of operating in certain foreign locations from where Cohu manufactures certain products, and supports our sales and services to the global semiconductor industry.

Increasingly restrictive trade and export regulations may materially harm and limit Cohu’s business and ability to sell its products.

Risks Relating to our Indebtedness, Financing and Future Access to Capital

The remaining indebtedness in connection with our financing of the Xcerra acquisition may have an adverse impact on Cohu’s liquidity, limit Cohu’s flexibility in responding to other business opportunities and increase Cohu’s vulnerability to adverse economic and industry conditions;

the Tax Cuts and Jobs Act severely limits the deductibility of interest expense.

Geopolitical instability in locations critical to Cohu and its customers’ business, manufacturing, and engineering operations may adversely impact our operations and sales.

Increasingly restrictive trade and export regulations may materially harm and limit Cohu’s business and restrict our ability to sell its products, specifically within China.

Risks Relating to Acquisitions and Other Strategic Transactions

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We have experienced significant volatility in our stock price.

Risks Relating to Regulatory Matters

There may be changes in, and uncertainty with respect to, legislation, regulation and governmental policy in the United States.

Risks Relating to Cybersecurity, Intellectual Property and Litigation

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Risks Relating to the COVID-19 Pandemic

The ongoing global COVID-19 pandemic has adversely affected, and is continuing to adversely affect, our business, financial condition and results of operations.

As the COVID-19 virus has spread rapidly and globally, from March 2020 and continuing to the present, with subsequent variants emerging, authorities have implemented numerous measures to try to contain the virus, such as travel bans and restrictions, quarantines, shelter in place orders, vaccine mandates, and shutdowns, including at various times in all of the jurisdictions where we operate.

These measures have adversely impacted, and are continuing to adversely impact, our workforce and operations, the operations of our customers, and those of our respective vendors and suppliers.

We have significant operations in the U.S., Germany, Switzerland, Malaysia, Japan and the Philippines, and each of these countries has been significantly affected, and remain affected, by the COVID-19 outbreak.

While the ongoing global COVID-19 pandemic has stabilized within many global regions, it may cyclically continue to adversely affect our business, financial condition and results of operations.

The ongoing global COVID-19 pandemic and its related macroeconomic effects have adversely affected, and may continue to adversely affect, our business, financial condition and results of operations in a cyclical manner.

As the COVID-19 virus has evolved from March 2020 to the present, with subsequent variants emerging, authorities have implemented numerous measures to try to contain the virus, such as travel bans and restrictions, quarantines, shelter in place orders, vaccine mandates, and shutdowns, including at various times in all of the jurisdictions where we operate.

These measures have adversely impacted, and may continue to adversely impact, our workforce and operations, the operations of our customers, and those of our respective vendors and suppliers.

We have significant operations in the U.S., Germany, Switzerland, Malaysia, Japan and the Philippines, and each of these countries has been significantly affected by the COVID-19 outbreak.

During the COVID-19 pandemic, it has been common for restrictions to be implemented, relaxed and then implemented again with little or no notice, which adversely impacts our ability to accurately predict our future revenue and budget future expenses and is disruptive to our operations.

Although we believe that Cohu qualifies as an “essential business”

in the jurisdictions in which we operate, our business has been, and is continuing to be, adversely impacted by evolving and extended public health requirements around the world;

in the jurisdictions in which we operate, our business has been, and may in the future be, adversely impacted by evolving and extended public health requirements around the world;

government-mandated facility shutdowns;

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and potential additional impairment of goodwill or other intangible assets or inventory write-downs due to lower product demand may become necessary.

Any of the foregoing COVID-19 driven impacts may have a material adverse effect on our financial condition and results of operations, and may also have the effect of increasing the likelihood and/or magnitude of other risks described in these risk factors.

With each successive COVID-19 surge, we believe the risks of material adverse business disruption increase.

Any of the foregoing COVID-19 driven impacts, if they reoccur, may have a material adverse effect on our financial condition and results of operations, and may also have the effect of increasing the likelihood and/or magnitude of other risks described in these risk factors.

With any successive COVID-19 surge, we believe the risks of material adverse business disruption increase.

We continuously monitor and react to the pandemic but cannot predict its future course or impacts.

The COVID-19 pandemic has impacted, and is expected to continue to negatively impact, the operations of our key suppliers, customers, and other business partners.

The extent to which the COVID-19 pandemic may impact the operations of our critical suppliers, business partners and customers could result in disruptions to our global supply chains.

We may obtain certain components and materials used in our products from a limited group of suppliers, and in some cases alternative sources for certain components are not readily available.

We have had certain suppliers temporarily suspend operations during the COVID-19 pandemic and have been able to work around such disruptions;

however, we may not be successful in addressing future disruptions.

The COVID-19 pandemic may heighten the risks posed by our dependence upon sole or limited source suppliers to the extent that the pandemic could disrupt the operations of one or more of these suppliers, potentially impacting our suppliers’

ability to maintain manufacturing operations at existing levels, and resulting in our inability to adequately obtain key components or materials, causing delayed deliveries or unsatisfactory component quality for our customers as we look to engage and qualify alternative suppliers (see risk factor entitled “

Failure of critical suppliers to deliver sufficient quantities of parts in a timely and cost-effective manner could adversely impact our operations ”).

Risks Relating to Our Business Operations and Industry

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We are currently significantly investing in new product development programs relating to test contactors, test handlers and automated test equipment.

For example, in fiscal 2021, we incurred $92.0 million in research and development expenses.

In fiscal 2022, we incurred $92.6 million in research and development expenses.

We expect to continue to make investments and we may, at any time, based on product need or marketplace demand, decide to significantly increase our product development expenditures in these or other products.

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Our overseas sites are more susceptible to impacts from natural disasters, health epidemics and geopolitical instability (see risk factors entitled “

The ongoing global COVID-19 pandemic has adversely affected, and is continuing to adversely affect, our business, financial condition and results of operations ”

While the ongoing global COVID-19 pandemic has stabilized within many global regions, it may cyclically continue to adversely affect our business, financial condition and results of operations ”

The occurrence of natural disasters, health epidemics, corruption and geopolitical instability caused by terrorist attacks and other threats may adversely impact our operations and sales ”).

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Failure to effectively manage our manufacturing and our relationships with our suppliers could have a material adverse effect on our business and results of operations.

A failure to perform or unexpected downtime experienced by our sole contract manufacturer for certain semiconductor test systems could adversely impact our operations.

We depend upon Jabil Manufacturing Co, (“Jabil”) to manufacture most of our semiconductor test systems from its facility located in Malaysia.

In the event that Jabil was unable to meet Cohu’s current delivery schedule for semiconductor test systems, or if Jabil experienced unexpected downtime, we may not be able to sell, or have significant delays, in fulfilling our customer orders.

A failure to perform or unexpected downtime experienced by our sole source contract manufacturer for certain semiconductor test systems could adversely impact our operations.

We depend upon Jabil Manufacturing Co.

(“Jabil”) to manufacture most of our semiconductor test systems from its facility located in Malaysia.

In the event that Jabil is unable to meet Cohu’s current delivery schedule for semiconductor test systems, or if Jabil experienced unexpected downtime, we may not be able to sell, or have significant delays, in fulfilling our customer orders.

If we experienced significant delays or disruptions with Jabil, it would take us significant time to ramp up a new manufacturer for our semiconductor test products, either in-house or with another contract manufacturer.

There can be no assurance that alternative capacity could be obtained on favorable terms, if at all.

Failure of critical suppliers to deliver sufficient quantities of parts in a timely and cost-effective manner could adversely impact our operations.

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On occasion, we have experienced problems in obtaining adequate and reliable quantities of various parts and components from certain key or sole source suppliers.

For example, at the beginning of 2022, we are experiencing supply constraints and delays in accessing certain specialty semiconductors necessary for the production of test instruments for our semiconductor ATE products.

If we cannot quickly resolve these constraints, our revenue and overall gross margin will be adversely impacted beginning in first quarter 2022.

For example, at the beginning of 2022, we experienced supply constraints and delays in accessing certain specialty semiconductors necessary for the production of test instruments for our semiconductor ATE products, and these supply constraints adversely impacted our overall gross margin in 2022.

Although the supply constraints have subsided entering 2023, they may reoccur at any time due to factors beyond our control.

More broadly, our results of operations may be materially and adversely impacted if we do not receive sufficient parts to meet our requirements in a timely and cost-effective manner.

As a global manufacturer, we rely on raw materials, packaging materials, direct labor, energy, a large network of suppliers, distribution resources and transportation providers.

In 2021 and the early part of 2022, the costs of raw materials, packaging materials, labor, energy, components and subassemblies, transportation and other inputs necessary for the production and distribution of our products have increased.

Since the onset of the COVID-19 pandemic, we have seen a dramatic increase in freight and shipping costs.

The foregoing price fluctuations are driven by factors beyond our control.

Although we are unable to predict the longer-term impacts, we expect the pressures of input cost inflation to continue into 2022.

Attempts to offset these cost pressures, such as through product price increases, or attempting to reduce operating costs elsewhere, may not be successful.

Higher product prices may result in reductions in sales volume.

Customers may be less willing to pay a price differential for our products and may purchase lower-priced competitive offerings or may delay some purchases altogether.

To the extent that price increases are not otherwise offset, and/or if they result in decreases in sales volume, our business, financial condition or operating results may be adversely affected.

In 2022, these costs, including those for transportation and other inputs necessary for the production and distribution of our products, increased.

The COVID-19 pandemic caused significant increases in freight and shipping costs, and global inflationary pressures have pushed those costs even higher.

In addition, we continue to see price increases and shortages on certain specialty semiconductors necessary for the production of test instruments for our semiconductor ATE products, and these events have adversely impacted our gross margins on such products.

Further, we also continue to incur higher employee wage costs and generally higher costs for outside services.

These events are driven by factors beyond our control, and although we are unable to predict the longer-term impacts, we expect these cost pressures to continue in 2023.

Our efforts to offset these cost pressures, such as through product price increases, or attempting to reduce operating costs elsewhere, may not be successful.

Higher product prices may result in reductions in sales volume as customers may be less willing to pay a price differential for our products and may purchase lower-priced competitive offerings or may delay some purchases altogether.

To the extent that this may result in decreases in sales volume, our financial condition or operating results may be adversely affected.

Further, an extended period of higher prices may lead to continued regulatory efforts to tame price inflation, resulting in an increased risk of recession.

Our financial condition or operating results may also be affected by increasing interest rates, which the Federal Reserve raised multiple times in 2022, with expectations for additional increases in 2023.

The raising of interest rates intended to cool down price inflation may also contribute to the risk of recession, which may result in customer projections of slowed growth and an overall impact on customer’s and Cohu’s corporate earnings.

We saw slowing customer demand in 2022 and that trend has continued into 2023.

Cohu is incurring increased interest expenses on our remaining indebtedness.

In addition, our indebtedness may make us more vulnerable to changes in general economic conditions, with future inflationary pressures and efforts to reign in such an impact coupled with continued interest rate increases, thereby making it more costly for us to satisfy our obligations.

The semiconductor industry we serve is seasonal, volatile and unpredictable, and increased cyclicality could have an adverse impact on our sales and gross margin.

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We saw weakness in market conditions in 2019, followed by COVID-19 driven uncertainties in 2020, then a significant market recovery beginning in third quarter 2020.

After record sales in 2021, demand weakened in 2022.

Abrupt, unexpected and severe demand changes have occurred in the past and are expected to reoccur in the future within our industry.

Since the onset of the COVID-19 pandemic, in particular, we have seen demand fluctuations in our test handler group (“THG”) and semiconductor test group (“STG”) businesses.

Our recent sales, in particular during the second and third quarters of 2021, became more weighted toward THG and less toward STG products, which had a material negative impact on our gross margins.

Although the company continues to take actions to reduce expenses and improve overall operational efficiency, such actions may not be sufficient to fully offset any gross margin impacts.

We cannot predict when and to what extent sales among our businesses may normalize or change in the future, or when and to what extent gross margins may improve in the future.

Our recent sales have become more weighted toward THG and less toward STG products, which have had a material negative impact on our gross margins.

The company took action to reduce expenses and improve overall operational efficiency, and such actions largely offset the mix-related gross margin impacts.

Given the nature of our industry, we generally cannot accurately predict mix swings from quarter-to-quarter and such changes may have sudden adverse impacts on our gross margin.

The semiconductor equipment industry is intensely competitive.

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Intense competition has adversely impacted our product average selling prices and gross margins on certain products.

If we are unable to reduce the cost of our existing products and successfully introduce new lower cost products, then we expect that these competitive conditions would negatively impact our gross margin and operating results in the foreseeable future.

If we are unable to price our existing products competitively and successfully introduce new competitively priced products, then we expect that these competitive conditions would negatively impact our gross margin and operating results in the foreseeable future.

We have increased investments in our test contactor business and targeted significant growth opportunities.

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If we are unable to continue to reduce the cost of our test contactor products, while also meeting customer support requirements and deadlines, then we expect that these competitive conditions would negatively impact our test contactor operating results and impede us from achieving our test contactor sales goals.

In addition, with the Xcerra acquisition, Cohu entered the automated test equipment (“ATE”) market.

Our ability to increase ATE sales will depend, in part, on our ability to win new customers.

With respect to Cohu’s automated test equipment (“ATE”) business, our ability to increase ATE sales depends, in part, on our ability to win new customers.

Semiconductor and electronics manufacturers typically select a particular vendor’s product for testing new generations of a device and make substantial investments to develop related test program applications and interfaces.

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Our customers’

selection processes typically are lengthy and can require us to incur significant sales, service and engineering resources, and to provide the customer evaluation systems for several months at no charge, in pursuit of a single customer opportunity.

selection processes typically are lengthy and can require us to incur significant sales, service and engineering expenses, and to provide the customer evaluation systems for several months at no charge, in pursuit of a single customer opportunity.

We may not win the competitive selection process and may never generate any revenue despite incurring such expenditures.

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Kolbermoor, Germany;

La Chaux-de-Fonds, Switzerland and Osaka, Japan areas, where the majority of our engineering personnel are located, is high and we have had difficulty in recruiting prospective employees from other locations.

La Chaux-de-Fonds, Switzerland and Osaka, Japan areas, where the majority of our engineering personnel are located, is high, and increasing further due to inflationary effects, and we have had difficulty in recruiting prospective employees from other locations.

There may be only a limited number of persons with the requisite skills and relevant industry experience to serve in these positions and it may become increasingly difficult for us to hire personnel over time.

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complex labor laws and privacy regulations;

difficulties in adequately supervising employees widely distributed around the world (including due to implementing remote work arrangements in response to the COVID-19 pandemic);

difficulties in adequately supervising employees widely distributed around the world (including due to implementing remote work arrangements resulting from the COVID-19 pandemic and still continuing for certain functions);

difficulties in enforcing contractual and intellectual property rights;

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health epidemics, such as the COVID-19 pandemic;

local and global political and economic conditions, including ongoing uncertainty surrounding the COVID-19 pandemic and its implications;

local and global political and economic conditions, including ongoing uncertainty surrounding the evolution of the COVID-19 pandemic and its implications;

natural disasters and other climate risks and geopolitical instability;

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We also purchase a significant portion of components and subassemblies from suppliers outside the United States.

Additionally, a significant portion of our facilities are located outside the United States, including China, Germany, France, Italy, Japan, Malaysia, Philippines, Singapore, Switzerland and Taiwan.

Additionally, a significant portion of our facilities are located outside the United States, including Germany, Japan, Malaysia, Philippines, Singapore, South Korea, Switzerland and Taiwan.

Given our extensive global operations, we are subject to immediate impacts from any changing tariff or export regulations (see risk factor entitled “

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In the event of such disaster, our business would materially suffer.

Our business could also be adversely affected by the effects of a widespread outbreak of contagious diseases, and has been and is continuing to be adversely affected by the COVID-19 global pandemic (see risk factor entitled “

The ongoing global COVID-19 pandemic has adversely affected, and is continuing to adversely affect, our business, financial condition and results of operations ”).

Our business could also be adversely affected by the effects of a widespread outbreak of contagious diseases, and has been adversely affected by the COVID-19 global pandemic (see risk factor entitled “

While the ongoing global COVID-19 pandemic has stabilized within many global regions, it may cyclically continue to adversely affect, our business, financial condition and results of operations ”).

Our business could be materially and adversely affected by climate change and related matters.

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Increasingly restrictive trade and export regulations may materially harm and limit Cohu ’

s business and ability to sell its products.

s business and restrict our ability to sell products, specifically within China.

There have been significant changes in U.S.

export regulations relating to China since 2019.

Such changes included restrictions on exports to certain China-domiciled entities including Huawei and broader definitions and restrictions on “military end users”

Such changes initially included restrictions on exports to certain China-domiciled entities including Huawei and broader definitions and restrictions on “military end users”

and “uses.”

Despite an ongoing material adverse impact on direct and indirect Huawei sales, we have not seen any overall material impact to our business from the foregoing restrictions.

However, we believe that these collective export restrictions and the ongoing unpredictability of U.S.-China trade relations have encouraged China-based companies to actively seek to obtain a greater supply of similar or substitute products from our foreign competitors that are not subject to these restrictions, thereby decreasing our long-term competitiveness as a supplier to China-based companies.

Recent history indicates that the U.S.

government may impose other new export restrictions, or tariffs, and have done so within the past year as the U.S.

Department of Commerce Bureau of Industry and Security has included additional China-based entities to its restricted entities list.

Such ongoing restrictions with little or no prior notice will impact our ability (or our customers’

ability) to sell and ship products to China-based companies and any such additional restrictions may have an adverse effect on our business, results of operations, or financial condition.

In 2022, export controls were issued relating to the Chinese semiconductor manufacturing, advanced computing, and supercomputer industries, where these additional controls may impact our ability, and/or that of our customers, to sell and ship products to semiconductor fabrication facilities located in China.

These export controls include restrictions on certain semiconductor integrated circuits, commodities containing such integrated circuits, and semiconductor manufacturing equipment.

Furthermore, the export controls restrict the ability of U.S.

persons to support the development or production of integrated circuits at certain semiconductor fabrication facilities in China.

These collective export restrictions and the ongoing unpredictability of U.S.-China trade relations have encouraged China-based companies to actively seek to obtain a greater supply of similar or substitute products from our foreign competitors that are not subject to these restrictions, thereby decreasing our long-term competitiveness as a supplier to China-based companies.

These ongoing actions indicate that the U.S.

government may impose other new export restrictions.

If implemented with no prior notice, even controls that ultimately have minimal long-term impact to Cohu, may create short-term limitations on Cohu’s business as it evaluates the full impact of such new and any subsequent controls.

The prospect of future export controls that are implemented in a similar manner may continue to have an ongoing impact on Cohu’s business, results of operations, or financial conditions.

Political instability resulting from the military incursion into Ukraine by Russia continues to cause significant disruption to foreign and domestic economies, leading to broad and significant economic sanctions against Russia with an ongoing impact to material and commodity prices while raising sustained global uncertainty.

The tensions related to Russia’s actions have resulted in the United States and many European countries imposing significant economic sanctions on Russia and specific individuals targeted as having connections to the Russian government.

The totality of these actions has continued to impact international trade relationships, and resulted in sustained increases in the cost of materials, where higher oil and other commodity prices have resulted in further increased shipping and transportation costs.

Furthermore, energy shortages, particularly with respect to natural gas, should they occur in Europe, would disrupt our test handler operations and research and development activities at our Kolbermoor, Germany and La Chaux-de-Fonds facilities.

Any increases in the cost, or shortages, of materials or energy may continue to create supply issues for critical materials that could constrain manufacturing levels for Cohu’s customers, leading to a decrease in demand for Cohu’s products.

The global impact of the military action and subsequent imposing of sanctions continues to evolve and cannot be sufficiently measured or predicted with certainty.

The inherent uncertainty surrounding this war may negatively impact the share prices of publicly traded companies.

Government entities and both public and private companies within the United States may be exposed to attempted or actual cybersecurity attacks launched in retaliation, resulting in disruptions to domestic markets and a prolonged state of global market volatility.

Furthermore, there remains ongoing uncertainty with respect to China’s willingness to support ongoing or expanded sanctions, which could distance China from its existing trade partners, potentially creating a significant impact to the semiconductor chip and equipment industries that conduct operations within China, Taiwan and the region.

There is a likelihood that these sanctions, and related geopolitical tensions, will not be resolved in the short-term but will have a lengthy disruption to all global companies.

Risks Relating to our Indebtedness, Financing and Future Access to Capital

The remaining indebtedness in connection with our financing of the Xcerra acquisition may have an adverse impact on Cohu ’

s liquidity, limit Cohu ’

s flexibility in responding to other business opportunities and increase Cohu ’

s vulnerability to adverse economic and industry conditions;

the Tax Cuts and Jobs Act severely limits the deductibility of interest expense.

In connection with the Xcerra acquisition in 2018, Cohu entered into a term loan facility, with an aggregate principal amount of $350.0 million (the “Debt Financing”

or “Credit Agreement”).

The remaining indebtedness of approximately $103 million may reduce Cohu’s liquidity and cause Cohu to place more reliance on cash generated from operations to pay principal and interest on Cohu’s debt, thereby reducing the availability of Cohu’s cash flow for working capital and capital expenditure needs or to pursue other potential strategic plans.

The Federal Reserve has signaled its intention to raise interest rates in 2022, and with a variable interest rate on its remaining indebtedness, Cohu would incur an increase in interest expenses.

In addition, our indebtedness may make us more vulnerable to changes in general economic conditions and/or a downturn in our business, thereby making it more difficult for us to satisfy our obligations.

In 2021, Cohu continued to take steps to reduce outstanding principal under its Debt Financing;

however, Cohu gives no assurance as to if, when or how much any subsequent voluntary principal reductions may be.

If we fail to make required debt payments, or if we fail to comply with financial or other covenants in our Credit Agreement, we would be in default under the agreement.

Furthermore, the Tax Cuts and Jobs Act (“Tax Act”) limits the deductibility of interest expense in a given year to 30% of adjusted taxable income, as defined;

the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act temporarily increased this limitation to 50% for 2019 and 2020.

This resulted in the inability of Cohu to utilize a substantial portion of its interest expense deductions in 2018 and 2019.

We were able to fully deduct the interest expense in 2020 plus the disallowed amounts carried over from 2018 and 2019, however, the Tax Acts may continue to impact our ability to utilize future deductions.

Our Credit Agreement contains various representations and negative covenants that limit, subject to certain exceptions and baskets, our ability and/or our subsidiaries ’

ability to, among other things:

ability to, take certain actions.

Cohu’s existing indebtedness of approximately $79 million, primarily the result of Cohu previously entering into a term loan facility (the “Credit Agreement”), limits our ability to:

incur or assume liens or additional debt or provide guarantees in respect of obligations of other persons;

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s financial condition and results of operations.

Cohu accounted for the acquisition of Xcerra using the purchase method of accounting.

A portion of the purchase price for this business was allocated to identifiable tangible and intangible assets and assumed liabilities based on estimated fair values at the date of consummation of the merger.

32% of Cohu’s total assets is comprised of goodwill and other intangibles, of which approximately $219.8 million is allocated to goodwill.

In accordance with ASC 350, Intangibles - Goodwill and Other , goodwill and certain other intangible assets with indefinite useful lives are not amortized but are reviewed at least annually for impairment, or more frequently if there are indications of impairment.

Goodwill and other intangibles comprise 29% of Cohu’s total assets, of which approximately $213.5 million of our total assets are allocated to goodwill.

In accordance with Accounting Standards Codification (“ASC”) Topic 350, Intangibles - Goodwill and Other , goodwill and certain other intangible assets with indefinite useful lives are not amortized but are reviewed at least annually for impairment, or more frequently if there are indications of impairment.

Significant declines in the price of Cohu’s common stock could increase the risk of an impairment.

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Cohu evaluates the remaining useful lives of other intangible assets each quarter to determine whether events and circumstances warrant a revision to the remaining period of amortization.

If we are unable to realize the anticipated benefits of the Xcerra acquisition, when Cohu performs future impairment tests, it is possible that the carrying value of goodwill or other intangible assets could exceed their implied fair value and therefore would require adjustment.

When Cohu performs future impairment tests, it is possible that the carrying value of goodwill or other intangible assets could exceed their implied fair value and therefore would require adjustment.

Such adjustment would result in a charge to operating income in that period.

For example, in 2020 and 2021, Cohu recorded impairment charges of approximately $11.2 million and $0.1 million, respectively, to adjust in-process research and development (“IPR&D”) assets obtained in the acquisition of Xcerra to their current fair value.

There can be no assurance that there will not be further adjustments for impairment in future periods.

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Our operating results may fluctuate from quarter to quarter due to a variety of factors including, but not limited to:

seasonal, volatile and unpredictable nature of the semiconductor equipment industry;

timing and amount of orders from customers and shipments to customers;

customer decisions to cancel orders or push out deliveries;

inability to recognize revenue due to accounting requirements;

inventory write-downs;

unexpected expenses or cost overruns in the introduction and support of products;

inability to deliver solutions as expected by our customers;

intangible and deferred tax asset write-downs;

general economic and market conditions, including the global COVID-19 pandemic.

●    seasonal, volatile and unpredictable nature of the semiconductor equipment industry;

●    timing and amount of orders from customers and shipments to customers;

●    customer decisions to cancel orders or push out deliveries;

●    inability to recognize revenue due to accounting requirements;

●    inventory write-downs;

●    unexpected expenses or cost overruns in the introduction and support of products;

●    inability to deliver solutions as expected by our customers;

●    geopolitical changes impacting our business, including with respect to China and Taiwan;

●    intangible and deferred tax asset write-downs;

●    general economic and market conditions, including impacts from sanctions against Russia and the military conflict in Ukraine, increased inflationary pressures, interest rate changes, and any resurgence of the COVID-19 pandemic.

Due to these factors or other unanticipated events, quarter-to-quarter comparisons of our operating results may not be reliable indicators of our future performance.

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We have in the past issued common stock as acquisition consideration and for general corporate purposes.

For example, most recently, in March 2021, we issued 5,692,500 additional shares of our common stock in an underwritten follow-on public offering, an increase of 13.4% of outstanding shares of common stock.

For example, in March 2021, we issued 5,692,500 additional shares of our common stock in an underwritten follow-on public offering, an increase of 13.4% of outstanding shares of common stock.

We may determine to utilize common stock as acquisition consideration, issue convertible debt, or pursue another follow-on equity offering to raise capital for debt reduction or for other general corporate purposes, at any time in the future.

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Effective November 2, 2021, a $70 million share repurchase program was authorized by our Board of Directors.

On October 25, 2022, our Board of Directors authorized an additional $70 million under the share repurchase program.

The stock repurchase program was authorized to potentially offset dilution from equity issuances under Cohu’s equity incentive plans and because the Board believes that, for reasons unrelated to the company’s performance, the trading price of Cohu’s common stock from time to time may not be reflective of the true value of the company.

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The company gives no assurances as to when, how much and for what duration stock repurchases may be made.

However, stock repurchases may adversely affect the company if the economy turns downward, due to the existing COVID-19 pandemic or for other reasons, as it could leave the company limited in its ability to obtain cash necessary for ongoing operations or potential acquisition targets.

However, stock repurchases may adversely affect the company if the economy turns downward, as it could leave the company limited in its ability to obtain cash necessary for ongoing operations or potential acquisition targets.

In addition, any repurchase of stock may have no positive impact on our stock price.

Further, as stock may be repurchased, given the volatility of our stock price, we may repurchase stock at prices which, in hindsight, are materially higher than the subsequent price of our stock.

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Our tax liabilities are affected by, among other things, the amounts our affiliated entities charge each other for intercompany transactions.

Our German subsidiaries income tax returns for 2015 to 2017, and our Philippines subsidiary income tax return for 2017 are currently under routine examination by tax authorities in their respective countries.

During 2021, we were notified by the taxing authority in Malaysia of its intent to perform an audit for 2014 to 2019 for one of our Malaysian subsidiaries.

Our German, Singaporean, Philippines, and Malaysian subsidiaries have income tax returns currently under routine examination by tax authorities for different periods between 2015 and 2020.

We may be subject to ongoing tax examinations in various jurisdictions.

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Tax examinations may also impact the timing and/or amount of our refund claims.

In addition, our effective tax rate in the future could be adversely affected by changes in the mix of earnings in countries with differing statutory tax rates, changes in the valuation of our deferred tax assets and liabilities, changes in tax laws and the discovery of new information in the course of our tax return preparation process.

In particular, the carrying value of our deferred tax assets and the utilization of our net operating loss and credit carryforwards are dependent on our ability to generate future taxable income in the U.S.

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Furthermore, these carryforwards may be subject to annual limitations as a result of changes in Cohu’s ownership.

As a result of the acquisition of Xcerra, a greater than 50% cumulative ownership change in Xcerra triggered a significant limitation in the utilization of their net operating loss and research credit carryforwards.

Cohu’s ability to use the acquired Xcerra U.S.

net operating loss and credit carryforwards is subject to annual limitations as defined in sections 382 and 383 of the Internal Revenue Code.

Beginning in 2022, the Tax Cuts and Jobs Act, or the Tax Act, eliminated the option to deduct research and development expenditures currently and requires taxpayers to capitalize and amortize them over five or fifteen years pursuant to Internal Revenue Code Section 174.

This has increased our effective tax rate and our cash tax payable in 2022.

If the requirement to capitalize Section 174 expenditures is not modified, it may also impact our effective tax rate and our cash tax liability in future years.

During December 2022, the Organization for Economic Cooperation and Development (“OECD”) announced that it has reached agreement among its 136-member countries that certain multinational enterprises will be subject to a global minimum tax rate of 15%, also known as Pillar Two.

South Korea became the first country to enact such global minimum tax rules, which will be effective for fiscal years beginning on or after January 1, 2024.

These specific actions did not impact our consolidated financial statements in 2022, however, many more countries are expected to issue laws and regulations to conform with this guidance soon.

We will continue to monitor the pertinent law changes and regulations to determine the impact they would have on our operating and financial results.

Compliance with regulations may impact sales to foreign customers and impose costs.

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schemes and we are continuing our efforts to train employees on such risks but may still incur damages from such schemes in the future.

We believe that extensive employee telework practices, implemented in response to the COVID-19 pandemic, have increased our cybersecurity risks.

We believe that the implementation of extensive employee telework practices has increased our cybersecurity risks.

The theft, unauthorized use or publication of our intellectual property and/or confidential business information could harm our competitive position, reduce the value of our investment in research and development and other strategic initiatives or otherwise adversely affect our business.

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confidential information, we may incur liability as a result.

Any future attacks, similar to the “SolarWinds”

hack that occurred in 2020, which may disrupt our IT systems, or those of our suppliers, could impact our sales, financial results and stock price.

Any future attacks which may disrupt our IT systems, or those of our suppliers, could impact our sales, financial results and stock price.

In response to these risks, we expect to continue to devote additional resources to the security of our information technology systems.

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Other parties may claim that we are infringing upon their intellectual property rights, and we could suffer litigation or licensing costs, and be prohibited from selling our products.

We may receive notice from third parties regarding patent or copyright claims of potential infringement by our company.

We may receive notice from our competitors and third parties regarding patent or copyright claims of potential infringement by our company.

Any such claims, with or without merit, could be time-consuming to defend, result in costly litigation, divert management’s attention and resources, and cause us to incur significant expenses.

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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 1. Business