What changed in this filing

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Item 1. Business

2023-03-30 compared with 2022-03-29 · 49 added, 48 removed, 286 unchanged (25% of the section changed)

9 unchanged sentences

Our solutions, some of which include security deployment and process control capabilities, enable us to address the demanding requirements of the electronic device market, where applications security and IP protection are essential to our customer’s success.

Our largest customers are heavy users of programmable semiconductor devices and include original equipment manufacturers (“OEMs”) in automotive electronics, consumer electronics and IoT markets as well as their programming center partners and electronic manufacturing service (“EMS”) contract manufacturers.

Our largest customers are heavy users of programmable semiconductor devices and include original equipment manufacturers (“OEMs”) in automotive electronics, industrial electronics, consumer electronics and IoT markets as well as their programming center partners and electronic manufacturing service (“EMS”) contract manufacturers.

Data I/O was incorporated in the State of Washington in 1969 and its business was founded in 1972.

Our website address is www.dataio.com.

In 2021, we continued to react to and manage our business relative to the COVID-19 pandemic.

During 2022, we continued to react to and manage our business relative to the COVID-19 pandemic.

During 2020 and throughout 2021, COVID-19 impacted all aspects of our business, from customer demand, to supply chain integrity, employee safety, business processes, and financial management.

As a global company, we had to manage each of these while working within the guidelines of local and national policy in the U.S., China and Germany.

Our philosophy at the start of the outbreak was simple:

Keep our employees and their families safe;

Keep our facilities safe and operational while we serve our customers as an essential business;

Preserve cash.

We have managed the COVID-19 impact successfully to date, with no known employee transmissions in the workplace and significant preservation of our cash and working capital.

Our resilient supply chain model kept our facilities in Shanghai, China and Redmond, Washington open, and serving customers globally, despite sporadic government restrictions on our facilities and vendors.

We face continued international travel restrictions, shipping delays, and inability to meet with customers in person.

As business has recovered, we have been able to respond by having the working capital needed and the workforce in place.

We saw a resurgence of orders in the second quarter of 2021 as vaccinations were occurring and customers resumed business.

Following this, in the third quarter of 2021, we experienced a slowdown of demand as customers, we believe, were unable to secure an adequate semiconductor parts supply for planned capacity expansion.

In supply chains around the world with the re-openings and now, in a believed ripple effect, factories are experiencing the impact of chip shortages on their production plans.

This appears to be a shorter-term issue, but is expected to have some continuing impact into 2022.

However, the outlook by industry analysts for automotive electronics remains strong for a decade.

Waves of COVID-19 infection rates and variants have kept or re-imposed revised travel restrictions.

Customers largely have not permitted in-person sales and other visits.

Converting these interactions to remote and virtual means has meant implementing new processes and technology.

During 2022, as a result of vaccinations and the reduced impact of COVID-19, our business started to return to more normal in parts of the world.

As a global company, we had to manage these aspects of our business while working within the guidelines of local and national policy in the U.S., China and Germany.

During parts of the first and second quarters, our Shanghai facility and operations were shut down for two and a half months as required by China’s requirements pursuant to their COVID Zero policy.

This shutdown impacted our supply chains, shipping times, travel, trade shows, and forced remote work.

We were largely able to resume operations and begin recovery late in the second quarter and throughout the third quarter.

For most of 2022, waves of COVID-19 infection and variants have kept or re-imposed revised travel restrictions.

Customers continued to restrict in-person sales and other visits.

We have continued to do business by converting these interactions to remote and virtual means as we have implemented new processes and technology.

Our resilient supply chain model was able to support our customers by having alternate facilities that were open and responded to the critical impacts of the shutdown.

Later in the year China’s COVID Zero policy was effectively cancelled.

In December most of our employees in Shanghai China were out briefly with COVID and then we resumed normal operations.

Other Major Impacts on 2022

The war in Ukraine had many impacts on our business.

While we had little direct impact from Russia or Ukraine, the war’s effect on supply chains, shipping, European economic uncertainty and energy concerns disrupted our business.

Later in the year, the impacts seemed to diminish.

Inflation impacted everyone.

We believe we were able to adequately address inflation with pricing adjustments such that our margins were mostly maintained.

Certain labor markets were tight during the year, with assembly technicians and software development engineers being challenging to recruit.

Interest rate hikes by central banks is a concern especially for cyclical industries with resulting worries about capital spending and planning for recessionary impacts.

Currency changes caused significant headwinds to our translated consolidated revenues.

This resulted from the strengthening of the US Dollar versus most foreign currencies, especially the Euro and Yuan in which our subsidiaries do business.

Later in the fourth quarter and continuing into early 2023, the US Dollar weakened somewhat, providing some tailwinds to revenue growth.

The impact of semiconductor chip shortages that began mid 2021 continued well into 2022 and are not completely resolved going into 2023.

Many of the issues described here in the overview have caused supply chain disruptions and lead time unreliability, which we have managed though carefully maintaining and increasing key inventory levels.

Finally, the continued outlook by industry analysts for automotive electronics remains strong based on the long-term forecast for a decade, which remains our primary market focus.

Industry Background

13 unchanged sentences

automated programming systems and manual programming systems.

We provide two categories of automated programming systems:

off-line and in-line.

Our PSV family of automated programming systems delivers a broad range of programming capacity and capability to the marketplace.

Our recently announced PSV2800 Automated Programming System focuses on dedicated high-volume manufacturing in a lower cost platform.

Our PSV2800 Automated Programming System focuses on dedicated high-volume manufacturing in a lower cost platform.

Our PSV7000 Automated Programming System continues to be well adopted in the marketplace, in particular for automotive electronics customers and as a base for security deployment upgrades.

Our PSV5000 automated programming system combines mid-range capacity and flexibility with competitive pricing.

Our PSV5000 Automated Programming System combines mid-range capacity and flexibility with competitive pricing and also supports security deployment.

Our PSV3000 Automated Programming System is a lower cost platform for basic programming needs.

Our PSV family of handlers has won multiple industry awards for technical excellence and innovation.

Our PSV family of handlers has won multiple industry awards for technical excellence and innovation and has a large global installed base.

Our automated systems have list selling prices ranging from $95,000 to $635,000 and our manual systems have list selling prices ranging from $10,000 to $36,000.

1 unchanged sentence

Data I/O programming technology is integrated with the PSV family to create highly-flexible systems that deliver outstanding performance with low total cost of ownership.

The LumenX programming engine is designed to support large eMMC and UFS programming of large NAND FLASH.

The Lumen®X programming engine is our highest performance programming engine, designed to support eMMC and UFS programming of large NAND FLASH, as well as microcontrollers, serial FLASH and other devices.

Increasing memory densities and the need for faster data interfaces are resulting in an expected transition to the use of UFS devices.

5 unchanged sentences

Device support is a critical aspect of our business and consists of writing software algorithms for devices and developing socket adapters to hold and connect to the device for programming.

Our products have both an upfront solution sale and recurring revenue elements.

Our products have both an upfront solution sale and recurring revenue element.

Adapters are a consumable item and software and maintenance are typically recurring under subscription contracts.

27 unchanged sentences

· Maintain IP control over the lifecycle of their products

RoadRunner & RoadRunner3 Series Handlers:

· Just-in-time in-line programming

· Direct integration with placement machine supporting SIPLACE, Fuji NXT, Panasonic, Universal/Genesis and Assembleon/K&S

· Factory Integration Software

· Supports FlashCORE III programmers

· Dramatic reduction in inventory carrying and rework costs

· “ Zero” footprint

· Rapid return on investment (“ROI”) typically realized in a matter of months

· Integration with factory systems

LumenX Programmer

23 unchanged sentences

Notable end customers

Borg Warner, Bosch, Alps Alpine, Visteon, Kostal, JVCKenwood, Harman, Denso Ten, Continental, Panasonic, Magna, Marelli, Tesla

Borg Warner, Bosch, Alps Alpine, Visteon, Kostal, JVCKenwood, Harman, Denso Ten, Continental, Aptiv Panasonic, Magna, Marelli, Tesla

LG, TCL, Siemens, Danfoss, Philips, Schneider, Endress+Hauser, Insta, Microsoft, Sony, Amazon, UTEC

Pegatron, Flex, Jabil, Wistron, Sanmina SCI, Foxconn, Leesys, Calcomp

Arrow, Avnet, BTV, CPS, EPS, Elsil, Elmitech, Noa Leading

Arrow, Avnet, BTV, CPS, Elsil, Elmitech, NOA Leading

Business drivers

34 unchanged sentences

Increasing need for security solutions for a secure supply chain and lifecycle firmware integrity

Growth drivers for IoT:

including industrial, consumer electronics and wireless

Growing software size is a programming capacity driver

Growth drivers for IoT, including industrial, consumer electronics and wireless

Securely controlling groups of connected devices through a secure supply chain and lifecycle firmware integrity management

8 unchanged sentences

Percentage of Net Sales

Number of customers

Number of customers (a distributor)

Approximate percentage of net sales

79 unchanged sentences

We continue to apply for and add new patents to our patent portfolio as we develop strategic new technologies.

We have approximately 20 U.S.

We believe patent protection enforcement may be increasingly important in our security provisioning business and we have approximately 20 U.S.

and international awarded patents related to the SentriX platform and security provisioning architecture, processes, and methods.

5 unchanged sentences

We believe that any exposure we may have regarding possible infringement claims is a reasonable business risk similar to that assumed by other companies in the electronic equipment and software industries.

However, any claim of infringement, with or without merit, could be costly and a diversion of management’s attention, and an adverse determination could adversely affect our reputation, preclude us from offering certain products, and subject us to substantial liability.

As of December 31, 2021, there were no pending actions regarding infringement claims.

However, any claim of infringement, with or without merit, could be costly and a diversion of management’s attention, and an adverse determination could adversely affect our reputation, potentially preclude us from offering certain products, and subject us to substantial liability.

As of December 31, 2022, we were not subject to any pending actions regarding infringement claims.

As of December 31, 2022, we had a total of 95 employees, of which 45 were located outside the U.S.

6 unchanged sentences

When hiring and retaining talent, we create specialized knowledge that is difficult to replace short term.

During COVID-19, we specifically avoided COVID-19 related layoffs and other short-term measures to retain specialized skills and advance our research and development efforts while some other competitors were forced to reduce their research and development efforts.

We experienced tight labor markets during 2022 which resulted in challenges in recruiting assembly technicians and software development engineers.

Environmental, Social and Governance (“ESG”)

5 unchanged sentences

Our facilities are subject to numerous laws and regulations concerning the discharge of materials or otherwise relating to the environment.

In addition to this commitment, the company has a track record of meeting its ESG regulatory obligations, being a solid corporate citizen, delivering superior value to its customers and partners, and demonstrating enduring corporate stewardship while consistently returning capital to shareholders through share buybacks.

As the largest and only publicly traded company in its sector, Data I/O has led its industry in disclosing significant operational and financial information.

The Company’s Board currently includes Data I/O’s CEO and five Independent Directors.

In addition to this commitment, the company has a track record of meeting its ESG regulatory obligations, being a solid corporate citizen, delivering superior value to its customers and partners, and demonstrating corporate stewardship including returning capital to shareholders through past share buybacks.

As the largest and only publicly traded company in its sector, according to our internal analysis, Data I/O has led its industry in disclosing significant operational and financial information.

The Company's Board currently includes Data I/O's CEO and four Independent Directors.

It is diverse in gender, education, professional experience and differences in viewpoints and skills.

4 unchanged sentences

Compliance with environmental laws has not had, nor is it currently expected to have, a material effect on our capital expenditures, financial position, results of operations or competitive position.

Potential regulations regarding climate change measurements and disclosures could require significant effort and costs.

Executive Officers of the Registrant

13 unchanged sentences

He is Chair of the EvergreenHealth Foundation Board of Trustees.

In 2019 he also became a board member of Cipherloc Corporation (OTCQB:

He is also a board member of SideChannel, Inc.

SDCH) retained after their 2022 merger with Cipherloc Corporation (OTCQB:

CLOK) where he joined the board in 2019 and has also been lead independent director since 2019).

Ambrose has a Bachelor’s of Science in Engineering from Princeton University.

5 unchanged sentences

Joel is a Certified Public Accountant and holds a Masters in Taxation from Golden Gate University and a Bachelor’s in Business Administration in Accounting from Pacific Lutheran University.

Joel plans to retire during the second half of 2023 and a search for his replacement is underway.

Rajeev Gulati joined Data I/O in July 2013 and is our Chief Technology Officer and Vice President of Engineering.

11 unchanged sentences

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