What changed in this filing

/stocks — the workspaceLOADING

Item 1. Business

2024-03-27 compared with 2023-03-30 · 85 added, 81 removed, 254 unchanged (40% 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, industrial 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”) and tier 1 suppliers 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 .

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.

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.

In 2023, most of the direct implications of COVID-19 had passed, and we were dealing with the follow-on impacts or indirect impacts from COVID-19 and the policies put in place to mitigate the disease.

We continued to manage inflation, supply chain impacts and shortages, and the post lock down economic transitions in China and elsewhere.

Other Major Impacts on 2023

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.

In 2022, the war in Ukraine started, while having little direct impact on us from Russia or Ukraine, did affect our supply chains, European economic uncertainty and energy concerns.

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.

The strengthening of the dollar in 2022 created headwinds for revenues, as typically over 90% of our business is international.

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

Certain labor markets were tight during the year causing recruiting challenges.

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

For 2023, many of the issues described have caused supply chain disruptions and lead-time unreliability, which we have managed carefully by maintaining and increasing key inventory levels.

We believe there is less risk exposure on these issues and we are now reducing inventory levels.

The economic challenges resulting from the war in Ukraine and inflation have likely caused Germany to enter into a recession in 2023.

We believe that this, and challenges related to the expected shift from Internal Combustion Engines (ICE) to Electric Vehicles (EV), have impacted short-term demand in Germany.

In the United States, we believe uncertainty related to automotive labor strikes softened demand and pushed out expected end-of-the-quarter orders.

We experienced stronger orders the second half of 2023 from our automotive electronics customers and the labor strikes have been resolved.

Industry Background

4 unchanged sentences

Traditionally, our programming market opportunity focused on the number of semiconductor devices to be programmed, but because of the rapid increase in the density of devices, and increasing demands for supply-chain security, the focus has shifted in many cases, from the number and type of devices, to the number and type of bits per device to be programmed or securely provisioned.

With expected growth in IoT applications, the business opportunity for this market differentiates on quality, security and automation.

With expected growth in IoT applications, the business opportunity for this market differs depending on quality, security and automation.

Some of our automated programming systems integrate data programming, automated handling functions and/or security deployment into a single product solution.

During 2022, we continued to simplify and integrate security deployment into some of our solutions adding the capability to our PSV5000 and as a field upgrade to installed systems.

Quality and security-conscious customers, particularly those in high-volume manufacturing and programming, drive this portion of our business.

11 unchanged sentences

Our automated systems have list selling prices ranging from $62,000 to $690,000 and our manual systems have list selling prices ranging from $12,000 to $48,000.

Our security deployment system, SentriX®, is offered for security provisioning on a pay per part use basis along with related fees.

Our security deployment system, SentriX®, is offered as a software license added to existing programming systems or on a pay per part use basis along with related fees.

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.

3 unchanged sentences

FlashCORE™, and our universal job setup tool, Tasklink™ for Windows®, are available in each family of our automated programming systems and in FlashPAK™, our manual programming system.

The SentriX security system adds security deployment capability to our data programming system.

The SentriX security system adds security capability to our data programming system.

SentriX allows customers of any size and demand-profile to securely add keys, certificates, and other security information to specialized regions of authentication integrated circuits ("ICs”), secure elements and secure microcontrollers.

13 unchanged sentences

Customer Benefits

PSV Handlers:

Off-line (Automated)

5 unchanged sentences

· Supports multiple media types

· Supports quality options – fiber laser marking, 3D coplanarity

· ConneX Factory Integration, Job Composer & other Software

· Supports quality options – fiber laser marking, 2D inspection, 3D coplanarity

· ConneX Service Software enables connected factory integration and automation

· Managed and secure programming

· High throughput for high density Flash programming

· High flexibility with respect to I/O options (tray, tape, tube), marking/labeling and vision for coplanarity inspection

· High throughput for high-density flash memory programming

· Flexible I/O options (tray, tape, tube), marking/labeling and vision for coplanarity inspection

· Scalable solutions for low to high-volume manufacturing

· Access to system data for connected factory machine learning and AI applications

SentriX Security Deployment System

· Unique ability to securely provision keys and certificates one device at a time

· Pay per use model reduces capital spending requirements as the market develops.

· Broad set of secure devices supported with wide range of silicon partners

· Software license model allows easy upgrades from deployed data programming systems

· Pay per use model

· Create secure IoT devices across a global network

· Maintain IP control over the lifecycle of their products

· Maintain IP control over their product’s lifecycle

· Secure supply chain and flexible key management architecture

LumenX Programmer

(Non-automated)

· Extensible architecture for fast program, verify and download speeds

· Supports UFS, microcontrollers, Serial FLASH, secure elements and other device types

· Supports UFS memory, microcontrollers, serial flash, secure elements and other device types

· Large file size support

· Secure job creation

· 8 sockets with tool-less changeover with single socket adapters

· Eight sockets with tool-less changeover with single-socket adapters

· Managed and secure programming

8 unchanged sentences

· Parallel programming

· Four sockets

· Universal device support

· Validate designs before moving down the firmware supply chain

7 unchanged sentences

Notable end customers

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, Elsil, Elmitech, NOA Leading

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

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

Pegatron, Flex, Jabil, Wistron, Sanmina SCI, Foxconn, Salcomp, Calcomp, Plexus

Arrow, Avnet, BTV, CPS, Semitron, NOA Leading

Business drivers

5 unchanged sentences

Programming equipment drivers

Growing Electronic Content, Global Support, Resilient Supply Chains, new product rollouts, growing file sizes, quality control and traceability, security

Growing Electronic Content, need for IP protection.

Growing electronic content, global support, resilient supply chains, new product rollouts, growing file sizes, quality control, traceability, and security

Growing electronic content and need for IP protection.

Process improvement and simplification as well as new product rollouts, memory and new technology, security

2 unchanged sentences

Buying criteria

Quality, reliability, configuration control, traceability, global support, IP protection, security

Quality, throughput, reliability, configuration control, traceability, global support, IP protection, security

Quality, reliability, configuration control, traceability, global support, IP protection, security

Lowest equipment procurement cost, global support

Flexibility, lowest life-cycle cost-per programmed-part, low changeover time;

Lowest equipment procurement cost, throughput, global support

Flexibility, lowest lifecycle cost per programmed part, low changeover time;

use of multiple vendors provides negotiating leverage, device support availability

4 unchanged sentences

Partner focus of our SentriX

Our solutions address the data programming of devices and security deployment needs of programmable semiconductor devices.

Semiconductor devices are a large, growing market, in terms of devices, bits programmed and need for security.

We believe that our sales are driven by many of the same forces that propel the semiconductor industry.

We sell to the same firms that buy the semiconductors.

When their business grows, they buy more semiconductors which, in turn, require additional programming equipment to maintain production speeds or program new device technologies.

Our solutions address the data programming and security deployment needs of programmable semiconductor devices.

Semiconductor devices are a large, growing market, in terms of units, bits programmed and need for security.

We believe that our sales are driven by many of the same forces that propel the semiconductor industry as well as the automotive electronics industry.

We sell to the manufacturers who are consumers of certain semiconductors.

When their business grows, they buy more semiconductors which, in turn, requires additional programming equipment to maintain production speeds or program new device technologies.

Our device programming solutions currently target two high volume, growing markets:

3 unchanged sentences

Proliferation of programmable microcontrollers to support the next-generation electronic car systems

Increasing use of high-density flash to provide memory for advanced applications that require programming

Increasing use of high-density flash to provide memory for advanced applications

Increasing complexity to support autonomous vehicles

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

Growing software size is a programming capacity driver

Growing software size

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

3 unchanged sentences

Emergence of new devices and applications (such as health and wellness wearable devices and applications)

All of the above growth drivers are long term and are likely to be adversely impacted, at least temporarily, due to the global pandemic of COVID-19 and other global political and economic factors in our markets.

Annual projections on spending, growth, mix, and profitability are likely to be revised substantially as new information is obtained.

Diversification of accounts receivable and net sales

2 unchanged sentences

Percentage of Net Sales

Number of customers (a distributor)

Number of customers

Approximate percentage of net sales

Percentage of each

The following represented greater than 10% of our consolidated accounts receivable for the applicable year:

33 unchanged sentences

based while the vast majority of our sales are international.

The competition in the programming systems market is highly fragmented with a small number of organizations selling directly competitive solutions and a large number of smaller organizations offering less expensive solutions.

In particular, low cost automated solutions have gained market share in recent years, where the competition is primarily based on price.

Typically, their equipment meets a “good enough” standard, but with reduced quality, traceability, upgradability, security and other software features such as factory integration software.

Many of these competitors compete on a regional basis, with local language and support.

The competition in the programming systems market is fragmented with several companies selling directly competitive solutions.

Our direct competition competes primarily based on price.

Typically, their equipment meets a “good enough” standard, but with reduced quality, traceability, upgradability, security and other software features.

Many of these competitors compete on a regional basis.

Although competition in the security deployment market is developing, we expect competition in the market to increase as security deployment becomes more important.

5 unchanged sentences

In addition, new security devices may be required to be programmed using device-specific programmers developed by the semiconductor manufacturer.

While we are not aware of any published industry market information covering the programming systems or security deployment market, according to our internal analysis of competitors’ revenues, we believe we continue to be the largest competitor in the programming systems equipment market and have been gaining market share in recent years, especially with our new products.

Manufacturing, Raw Materials and Backlog

23 unchanged sentences

We are continuing to develop technology for security deployment to program new categories of semiconductors, including Secure Elements, TPMs, Authentication Chips, and Secure Microcontrollers.

We plan to deliver new programming technology, automated handling systems and enhancements for security deployment in the manufacturing environment.

We plan to deliver new programming technology, automated handling systems, factory automation communications software, and enhancements for security deployment in the manufacturing environment.

We also continue to focus on increasing our capacity and responsiveness for new device support requests from customers and programmable integrated circuit manufacturers by revising and enhancing our internal processes and tools.

9 unchanged sentences

We attempt to protect our software, including Lumen®X software, FlashCORE software, TaskLink software, ConneX smart programming software and other software products, by retaining the title to and copyright of the software and documentation, by including appropriate contractual restrictions on use and disclosure in our licenses, and by requiring our employees to execute non-disclosure agreements.

Our software products are not typically sold separately from sales of programming systems.

However, when we sell software separately, we recognize revenue upon the transfer of control of the software, which is generally upon shipment, provided that only inconsequential performance obligations remain on our part and substantive acceptance conditions, if any, have been met.

Our software products are not typically sold or licensed separately from sales of programming systems.

However, when we license software separately, we recognize revenue upon the transfer of control of the software, which is generally upon shipment, provided that only inconsequential performance obligations remain on our part and substantive acceptance conditions, if any, have been met.

Because of the rapidly changing technology in the semiconductor, electronic equipment and software industries, portions of our products might infringe upon existing patents or copyrights, and we may be required to obtain licenses or discontinue the use of the infringing technology.

2 unchanged sentences

As of December 31, 2023, we were not subject to any pending actions regarding infringement claims.

Employees - Human Capital

As of December 31, 2023, we had a total of 100 employees, of which 46 were located outside the U.S.

5 unchanged sentences

(“FSCO”) labor agreement.

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

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

Because of the creation of specialized knowledge and skills in our business, there are extra short-term challenges to hiring and training replacements.

Our hiring and retention strategies and efforts include emphasis on the advantages of working in a technology oriented, smaller, international, public company, and the culture of our organization.

We utilize competitive pay practices, incentive compensation, equity awards, and benefits such as health care, life and disability insurance;

paid time off;

education and volunteer time.

The tight labor markets that we experienced in 2022 returned to more normal in 2023.

Environmental, Social and Governance (“ESG”)

3 unchanged sentences

We believe we are the only supplier in our industry with a published conflict mineral policy and public company governance.

We believe we are the only programming industry supplier with a diverse Board of Directors.

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

4 unchanged sentences

Through its continuous improvement practices and our operations’ focus on assembly and test with no fabrication, the company consumes relatively little energy, has minimal or no emissions or pollutants to air and wastewater, and complies with workplace labor, safety and business practices on three continents.

Additionally, the Company started to purchase only sustainable (green) electric power (in our China & U.S.

facilities in 2023;

German facility in prior years) and started to purchase offsets for its carbon emissions from natural gas use in the U.S.

For our vehicles, we have been replacing turned in cars with hybrid or electric vehicles.

None of these actions have had a material financial impact.

Recent developments to climate regulations and guidelines have increased customer demands for climate disclosures on their timelines as opposed to regulations applicability to the Company.

Data I/O is also committed to giving back to our local communities through volunteer and internship programs.

7 unchanged sentences

President and Chief Executive Officer

Vice President, Chief Operating and Financial Officer, Secretary and Treasurer

Vice President, Chief Financial Officer, Secretary and Treasurer

Rajeev Gulati

1 unchanged sentence

Michael Tidwell

Vice President of Marketing and Business Development

Vice President of Marketing and Corporate Business Development

Anthony Ambrose joined Data I/O on October 25, 2012, and is our President and Chief Executive Officer (“CEO”), and a member of the Board of Directors.

4 unchanged sentences

He is Chair of the EvergreenHealth Foundation Board of Trustees.

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.

He previously served as a board member of SideChannel, Inc.

SDCH) until February 2024 having been retained after their 2022 merger with Cipherloc Corporation (OTCQB:

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

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

He has completed the Stanford Graduate School of Business Director Symposium and earned the Carnegie Mellon University Certificate in Cybersecurity Oversight.

Hatlen joined Data I/O in September 1991 and in July 2017 became our Chief Operating Officer in addition to serving as our Vice President, Chief Financial Officer, Secretary and Treasurer since January 1998.

He was Chief Accounting Officer since February 1997 and served as Corporate Controller from December 1993 to December 1997.

Previously, he was Tax Manager and Senior Tax Accountant.

From September 1981 until joining Data I/O, Joel was employed by Ernst & Young LLP as a Certified Public Accountant, where his most recent position was Senior Manager.

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.

Ng joined Data I/O in July 2023 as Data I/O's Vice President of Finance and, effective August 16, 2023, became Data I/O's Vice President and Chief Financial Officer.

Gerry brings a wealth of experience in finance and treasury functions, business development, financial planning & forecasting, monthly reporting and business compliance.

He was previously CFO for Kymeta Corporation, a broadband satellite and cellular networks communication company, and prior to that, held CFO titles at FUJIFILM SonoSite, Inc.

and Fluke Networks.

Gerry holds a Masters of Business Administration from Northwestern University – Kellogg School of Management and a Bachelor of Arts Finance and Accounting from the University of Washington.

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

5 unchanged sentences

Rajeev holds a Master of Science in Electrical & Computer Engineering from the University of Texas, Austin and a BE in Electrical Engineering from Delhi College of Engineering, New Delhi.

Michael Tidwell joined Data I/O in May 2019 and is our Vice President of Marketing and Business Development.

Michael Tidwell joined Data I/O in May 2019 and is our Vice President of Marketing and Corporate Business Development.

Prior to Data I/O, he was Vice President of Marketing & Business Development at Tignis, an AI and machine learning startup.

3 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