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Item 1A. Risk Factors

2020-12-17 compared with 2019-12-18 · 103 added, 70 removed, 303 unchanged (36% of the section changed)

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Risks Related to Our Business

Failure to introduce successful new solutions and services in a timely manner to address increased competition, rapid technological changes, and changing industry standards could result in our solutions and services becoming obsolete.

We generally sell our solutions in industries that are characterized by increased competition through frequent new solution and service introductions, rapid technological changes and changing industry standards.

In addition, many of the markets in which we operate are seasonal and cyclical.

Without the timely introduction of new solutions, services and enhancements, our solutions and services will become technologically obsolete over time, in which case our revenue and operating results would suffer.

Our ability to offer new solutions and services and to deploy them in a timely manner depend on several factors, including but not limited to our ability to:

properly identify customer needs;

innovate and develop new technologies, services and applications;

successfully commercialize new technologies in a timely manner;

manufacture and deliver our solutions in sufficient volumes and on time;

differentiate our offerings from our competitors' offerings;

price our solutions competitively;

anticipate our competitors' development of new solutions, services or technological innovations;

control product quality in our manufacturing process.

Our future operating results may fluctuate significantly if our investments in innovative technologies are not as profitable as we anticipate.

On a regular basis, we review the existing technologies available in the market and identify strategic new technologies to develop and invest in.

We are currently devoting significant resources to the 5G technology and other new technologies in the automotive, battery, Internet of Things, and mobile industries.

We are investing in R&D, developing relationships with customers and suppliers, and re-directing our corporate and operational resources to grow within these innovative technologies.

Our income could be harmed if we fail to gain sufficient market share, if demand for our solutions is lower than we expect, or if our income related to the innovative technologies is lower than we anticipate.

For example, when the 5G standards are published, we may not be able to produce a satisfactory return on investment if our strategic vision and the resources that we are spending on developing our presence in the 5G technology industry turn out to be misaligned with such standards.

We provide solutions for the design, development, and manufacturing stages of our customers’ workflow.

Our customers who currently use our solutions in one stage of their workflow may not use our solutions in other aspects of their manufacturing process.

Global health crises, such as the COVID-19 pandemic, could have a material impact on our global operations and the operations of our supply chain, customers and vendors, which could adversely impact our business results and financial condition.

In March 2020, the World Health Organization declared COVID-19 a global pandemic.

In response to the rapid global spread of the virus, national, state, and local governments issued orders and recommendations to attempt to reduce the further spread of the disease.

Such orders included movement control and shelter-in-place orders, travel restrictions, limitations on public gatherings, school closures, social distancing requirements and the closure of all but critical and essential services and infrastructure.

In response to these measures and to protect the health and safety of our employees, we temporarily closed our facilities globally and asked all employees who can work from home to do so for the foreseeable future, made substantial changes to employee travel policies, and canceled training and marketing events or moved them to a virtual format.

As a supplier to some critical and essential businesses, we have restarted on-site operations using only employees who are not able to work effectively from home and where doing so is in compliance with local regulations and our COVID-19 safety procedures.

Our customers, suppliers and vendors are all subject to these restrictions and orders and are similarly impacted.

Fluctuation in infection rates in the regions in which we operate has resulted in periodic changes in restrictions that vary from region to region and require vigilant attention and rapid response to new or reinstated restrictions.

The uncertain duration and severity of the pandemic, as well as periodic spikes in infection rates, local outbreaks of the virus or potential outbreaks on our sites or supplier, customer or vendor sites, in spite of safety measures, could cause further shutdowns of our operations or those of our suppliers, customers or vendors.

Any outbreaks causing renewed implementation or extension of existing government orders could also impact the availability of our employees or other workers.

As more is understood about the virus and how it is spread, new health orders and safety protocols could further impact our on site operations.

Adverse impact to our suppliers could adversely impact our ability to procure components and materials, causing an inability to manufacture products or solutions.

Customers could reduce spending, causing reduced demand for products and solutions, delayed or canceled orders, and inability to pay for products and solutions.

Lack of employee availability due to shutdowns caused by government orders, illness, or quarantine requirements could further impact our ability to manufacture, ship or deliver products and solutions to customers.

Continued implementation of measures to reduce the spread of the virus may impact our ability to collaborate globally with customers, suppliers, and internal colleagues.

Continued uncertainty and market volatility could result in a national or global recession, which could create additional market and global financial instability.

These factors could materially and negatively impact our business results, operations, revenue, growth and overall financial condition.

Uncertainty in general economic conditions may adversely affect our operating results and financial condition.

Our business is sensitive to negative changes in general economic conditions, both inside and outside the United States.

Global and regional economic uncertainty or depression may impact our business, resulting in:

Global and regional economic uncertainty, recession, or depression may impact our business, resulting in:

reduced demand for our solutions, delays in the shipment of orders or increases in order cancellations;

increased risk of excess and obsolete inventories;

increased risk of excess and obsolete inventory;

increased price pressure for our solutions and services;

greater risk of impairment to the value, and a detriment to the liquidity, of our future investment portfolio.

In addition, global and regional macroeconomic developments, such as increased unemployment, decreased income, reduced access to credit, volatility in capital markets, decreased liquidity, uncertain or destabilizing national election results in the U.S., Europe, and Asia, and negative changes or volatility in general economic conditions in the U.S., Europe, and Asia could negatively affect our ability to conduct business in those territories.

Financial difficulties experienced by our suppliers and customers, including distributors, due to economic volatility or negative changes could result in product delays and inventory issues.

In addition, global and regional macroeconomic developments, such as increased unemployment, decreased income, uncertainty related to future economic activity, reduced access to credit, volatility in capital markets, decreased liquidity, uncertain or destabilizing national election results in the U.S., Europe, and Asia, and negative changes or volatility in general economic conditions in the U.S., Europe, and Asia could negatively affect our ability to conduct business in those territories.

Financial difficulties experienced by our suppliers and customers, including distributors, due to economic volatility or negative changes could result in product delays, delays in payment or inability to pay us, and inventory issues.

Economic risks related to accounts receivable could result in delays in collection and greater bad debt expense.

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Visibility into our markets is limited.

Our quarterly sales and operating results are highly dependent on the volume and timing of technology-related spending and orders received during the fiscal quarter, which are difficult to forecast and may be cancelled by our customers.

by our customers.

In addition, our revenues and earnings forecasts for future fiscal quarters are often based on the expected seasonality or cyclicality of our markets.

However, the markets we serve do not always experience the seasonality or cyclicality that we expect.

However, due to the uncertainties and negative economic environment created by the current global pandemic, the markets we serve may experience increased volatility and may not experience the seasonality or cyclicality that we expect.

Any decline in our customers' markets would likely result in a reduction in demand for our solutions and services.

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Since a significant portion of our operating expenses is relatively fixed in nature due to sales, R&D and manufacturing costs, if we were unable to respond quickly enough, these pricing pressures could further reduce our operating margins.

Failure to adjust our purchases due to changing market conditions or failure to estimate our customers' demand could adversely affect our income.

Our income could be harmed if we are unable to adjust our purchases to market fluctuations, including those caused by the seasonal or cyclical nature of the markets in which we operate.

The sale of our solutions and services are dependent, to a large degree, on customers whose industries are subject to seasonal or cyclical trends in the demand for their products.

For example, the consumer electronics market is particularly volatile, making demand difficult to anticipate.

During a market upturn, we may not be able to purchase sufficient supplies or components to meet increasing product demand, which could materially affect our results.

In the past, we have seen a shortage of parts for some of our products.

In addition, some of the parts that require custom design are not readily available from alternate suppliers due to their unique design or the length of time necessary for design work.

Should a supplier cease manufacturing such a component, we would be forced to re-engineer our solution.

In addition to discontinuing parts, suppliers may also extend lead times, limit supplies or increase prices due to capacity constraints or other factors.

In order to secure components for the production of products, we may continue to enter into non-cancellable purchase commitments with vendors, or at times make advance payments to suppliers, which could impact our ability to adjust our inventory to declining market demands.

Prior commitments of this type have resulted in an excess of parts when demand for electronic products has decreased.

If demand for our solutions is less than we expect, we may experience additional excess and obsolete inventories and be forced to incur additional charges.

Economic and political policies favoring national interests could adversely affect our results of operations.

Nationalistic economic policies and political trends in the United States, the United Kingdom, the European Union, Singapore, Malaysia and China among other countries, such as opposition to globalization and free trade, sanctions or trade restrictions, withdrawal from or re-negotiation of global trade agreements, tax policies that favor domestic industries and interests, the anticipated exit of the United Kingdom from the European Union (known as Brexit), the distancing or potential exit of other countries from the European Union, and other similar actions may result in increased transaction costs, reduced ability to hire employees, reduced access to supplies and materials, reduced demand or access to customers in international markets, and inability to conduct our operations as they have been conducted historically.

Nationalistic economic policies and political trends in the United States, the United Kingdom, the European Union, Singapore, Malaysia and China among other countries, such as opposition to globalization and free trade, sanctions or trade restrictions, withdrawal from or re-negotiation of global trade agreements, tax policies that favor domestic industries and interests, the exit of the United Kingdom from the European Union (known as Brexit), the distancing or potential exit of other countries from the European Union, and other similar actions may result in increased transaction costs, reduced ability to hire employees, reduced access to supplies and materials, reduced demand or access to customers in international markets, and inability to conduct our operations as they have been conducted historically.

Each of these factors may adversely affect our business.

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Their ability to supply materials to us, buy products or services from us, or otherwise work with us is affected by their ability to do business in China.

If the U.S.’s relationship with China deteriorates or results in trade disputes, trade protection measures, retaliatory actions, tariffs and increased barriers, policies that favor domestic industries, or increased import or export licensing requirements or restrictions, then our deployment of resources in jurisdictions affected by such measures could be misaligned and our operations may be adversely affected due to such changes in the economic and political ecosystem in which our suppliers, vendors, customers, partners, and other entities with whom we do business operate.

The deterioration of the U.S.’s relationship with China could result in additional trade disputes, trade protection measures, retaliatory actions, tariffs and increased barriers, policies that favor domestic industries, or increased import or export licensing requirements or restrictions, then our deployment of resources in jurisdictions affected by such measures could be misaligned and our operations may be adversely affected due to such changes in the economic and political ecosystem in which our suppliers, vendors, customers, partners, and other entities with whom we do business operate.

A decreased demand for our customers’ products or trade restrictions could adversely affect our results of operations.

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In the event that a customer or supplier of ours becomes subject to such sanctions, we will suspend our business with such customer or supplier.

Because of the increasingly tense political and economic relationship between the United States and China, such sanctions could be imposed with little notice, which could leave us without an adequate alternative solution to compensate for our inability to continue to do business with such customer or supplier.

Because of the increasingly tense political and economic relationship between the United States and China, new sanctions could be imposed with little notice, which could leave us without an adequate alternative solution to compensate for our inability to continue to do business with such customer or supplier.

Some of our suppliers and customers in the supply chain are working on unique solutions and products in the market, and it may be difficult if not impossible to replace them, especially with short notice.

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However, there can be no assurances that our international sales will continue at existing levels or grow in accordance with our effort to increase foreign market penetration.

In addition, many of our employees, contract manufacturers, suppliers, job functions and manufacturing facilities are located outside the United States.

In addition, many of our employees, contract manufacturers, suppliers, job functions and manufacturing

facilities are located outside the United States.

Accordingly, our future results could be harmed by a variety of factors, including but not limited to:

negative impact of a country’s response to the global COVID-19 pandemic or an imposed reduction in economic activity and other economic and political measures taken to contain the spread of COVID-19;

changes in a specific country's or region's political, economic or other conditions, including but not limited to changes that favor national interests and economic volatility;

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Further, even if we are able to successfully manage the risks of international operations, our business may be adversely affected if our business partners are not able to successfully manage similar risks.