What changed in this filing

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Item 1A. Risk Factors

2022-10-24 compared with 2022-04-26 · 54 added, 31 removed, 397 unchanged (18% of the section changed)

26 unchanged sentences

• a decline in demand for our products or services;

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• an increase in reserves on accounts receivable due to our customers’ inability to pay us;

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Accordingly, competition may intensify, and we may be unable to continue to compete successfully in our markets, which could have a material adverse effect on our revenues, operating results, financial condition, and/or cash flows.

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Once a Semiconductor Manufacturer Commits to Purchase a Competitor’s Semiconductor Manufacturing Equipment, the Manufacturer Typically Continues to Purchase That Competitor’s Equipment, Making It More Difficult for Us to Sell Our Equipment to That Customer

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In certain instances, this could work to our disadvantage if a competitor’s tools or equipment become the standard equipment for such functions or processes.

Additional outcomes of such

consolidation may include our customers re-evaluating their future supplier relationships to consider our competitors’ products and/or gaining additional influence over the pricing of products and the control of intellectual property or data.

Additional outcomes of such consolidation may include our customers re-evaluating their future supplier relationships to consider our competitors’ products and/or gaining additional influence over the pricing of products and the control of intellectual property or data.

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Similarly, our customers may partner with, or follow the lead of, educational or research institutions that establish processes for accomplishing various tasks or manufacturing steps.

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• the size and timing of orders from customers;

• legal, tax, accounting, or regulatory changes (including but not limited to changes in import/export regulations and tariffs) or changes in the interpretation or enforcement of existing requirements;

• changes in our deferred revenue balance, including as a result of factors such as volume purchase agreements, multi-year service contracts, back orders, and down payments toward purchases;

10 unchanged sentences

• legal or technical challenges to our products and technologies;

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• transportation, communication, demand, information technology, or supply disruptions based on factors outside our control, such as strikes, acts of God, wars, terrorist activities, widespread outbreak of illness, natural or man-made disasters, or climate change;

• changes in our estimated effective tax rate;

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In addition, difficulties in obtaining parts, materials or services necessary to deliver or install products or perform services have adversely impacted, and may continue to adversely impact, our ability to recognize revenue, our gross margins on the revenue we recognize, and our other operating results.

Although we are endeavoring to pass along some of the impact of increased costs to our customers to counteract adverse impacts to our gross margins and other operating results, such measures could be unsuccessful, or could have the effect of reducing demand, which would adversely impact our revenue.

Although we attempt to select reputable providers and suppliers and we attempt to secure their performance on terms documented in written contracts, it is possible that one or more of these providers or suppliers could fail to perform as we expect, or fail to secure or protect intellectual property rights, and such failure could have an adverse impact on our business.

In some cases, the requirements of our business mandate that we obtain certain components and sub-assemblies included in our

products from a single supplier or a limited group of suppliers.

In some cases, the requirements of our business mandate that we obtain certain components and sub-assemblies included in our products from a single supplier or a limited group of suppliers.

Where practical, we endeavor to establish alternative sources to mitigate the risk that the failure of any single provider or supplier will adversely affect our business, but this is not feasible in all circumstances.

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For example, the COVID–19 pandemic has impacted and could further impact our manufacturing operations, supply chain, and customer support due to production, sourcing, logistics and other challenges resulting from quarantines, stay at home orders, facility closures, workforce challenges, and travel and logistics restrictions in connection with the pandemic.

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Our Business Relies on Technology, Data, Intellectual Property and Other Sensitive Information That is Susceptible to Cybersecurity and Other Threats or Incidents

28 unchanged sentences

sales, as reflected in Part I Item 2.

Results of Operations of this quarterly report on Form 10-Q, accounted for approximately 94%, 94%, and 92% of total revenue in the nine months ended March 27, 2022 and fiscal years 2021, and 2020, respectively.

Results of Operations of this quarterly report on Form 10-Q, accounted for approximately 94%, 92%, and 94% of total revenue in the three months ended September 25, 2022 and fiscal years 2022, and 2021, respectively.

We expect that international sales will continue to account for a substantial majority of our total revenue in future years.

3 unchanged sentences

• developing customers and/or suppliers, who may have limited access to capital resources;

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• global or national economic and political conditions;

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For example, the COVID-19 pandemic has impacted and could further impact our manufacturing operations, supply chain, and customer support due to production, sourcing, logistics and other challenges resulting from quarantines, stay at home orders, facility closures, workforce challenges, and travel and logistics restrictions in connection with the pandemic.

There is inherent risk, based on the complex relationships among China, Japan, Korea, Taiwan, and the United States, that political, diplomatic and national security influences might lead to trade disputes, impacts and/or disruptions, in particular those affecting the semiconductor industry.

This would adversely affect our business with China, Japan, Korea, and/or Taiwan and perhaps the entire Asia Pacific region or global economy.

There is inherent risk, based on the complex relationships among China, Japan, Korea, Taiwan, and the United States, that political, diplomatic and national security influences can lead to trade disputes, impacts and/or disruptions, in particular those affecting the semiconductor industry.

This can adversely affect our business with China, Japan, Korea, and/or Taiwan and perhaps the entire Asia Pacific region or global economy.

A significant trade dispute, impact and/or disruption in any area where we do business could have a materially adverse impact on our future revenue and profits.

Tariffs, export controls, additional taxes, trade barriers, sanctions, or the termination or modification of trade agreements, trade zones, and other duty mitigation initiatives, may increase our manufacturing costs, decrease margins, reduce the competitiveness of our products, or inhibit our ability to sell products or purchase necessary equipment and supplies, which could have a material adverse effect on our business, results of operations, or financial conditions.

Tariffs, export controls, additional taxes, trade barriers, sanctions, the termination or modification of trade agreements, trade zones, and other duty mitigation initiatives, and any reciprocal retaliatory actions, can increase our manufacturing costs, decrease margins, reduce the competitiveness of our products, disrupt our supply chain operations, or inhibit our ability to sell products or provide services, which has had and in the future could have a material adverse effect on our business, results of operations, or financial conditions.

Certain of our international sales depend on our ability to obtain export licenses from the U.S.

or foreign governments, and our inability to obtain such licenses, or an expansion of the number or kinds of sales for which export licenses are required, could potentially limit the market for our products and adversely impact our revenues.

As is discussed below under the heading “Our Sales to Customers in China, a Region of Growing Significance to Us, Could be Materially and Adversely Affected by Export License Requirements and Other Regulatory Changes, or Other Governmental Actions in the Course of the Trade Relationship Between the U.S.

or foreign governments, and our inability to obtain such licenses, or an expansion of the number or kinds of sales for which export licenses are required, has limited and could in the future further limit the market for our products and has had and could in the future have an adverse impact on our revenues.

As is discussed below under the heading “Our Sales to Customers in China, a Significant Region for Us, Have Been Impacted, and are Likely to Be Materially and Adversely Affected by Export License Requirements and Other Regulatory Changes, or Other Governmental Actions in the Course of the Trade Relationship Between the U.S.

and China,” the U.S.

government has recently expanded export license requirements that impact trade with China.

government has recently imposed new controls, including expanded export license requirements, that significantly impact trade with China.

In addition, the U.S.

government is in the process of assessing which “emerging and foundational” technologies may be subject to new or additional export controls under the 2018 Export Control Reform Act, and it is possible that such controls, if and when imposed, could adversely impact our ability to sell our products outside the U.S.

Furthermore, there are risks that foreign governments may, among other things, insist on the use of local suppliers;

government has an ongoing process of assessing technologies that may be subject to new or additional export controls, and it is possible that such additional controls, if and when imposed, could further adversely impact our ability to sell our products outside the U.S.

The implementation by the U.S.

government of broad export controls restricting access to our technology (such as recent controls limiting exports to China) may cause customers with international operations to reconsider their use of and reliance on our products, which could adversely impact our future revenue and profits.

Furthermore, there are risks that foreign governments may, among other things, take retaliatory actions;

insist on the use of local suppliers;

compel companies to partner with local companies to design and supply equipment on a local basis, requiring the transfer of intellectual property rights and/or local manufacturing;

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Therefore, we are subject to potential unfavorable foreign currency exchange rate fluctuations to the extent that we transact business (including intercompany transactions) in these currencies.

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The magnitude of our overseas business also affects where our cash is generated.

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We derive a substantial percentage of our revenues from a limited number of products.

Our products are priced up to the tens of millions per system.

Our products are priced up to the tens of millions of dollars per system.

As a result, the inability to recognize revenue on even a few systems can cause a significantly adverse impact on our revenues for a given quarter, and, in the longer term, the continued market acceptance of these products is critical to our future success.

10 unchanged sentences

This may impact our ability to maintain or expand our business with certain customers.

Such product concentration may also subject us to additional

risks associated with technology changes.

Such product concentration may also subject us to additional risks associated with technology changes.

Our business is affected by our customers’ use of our products in certain steps in their wafer fabrication processes.

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Our ability to compete successfully depends in large part on our ability to attract, retain, and motivate key employees with the appropriate skills, experiences and competencies.

This is an ongoing challenge due to intense competition for top talent, fluctuations in industry or business economic conditions, as well as increasing geographic expansion, and these factors in combination may result in cycles of hiring activity and workforce reductions.

This is an ongoing challenge due to intense competition for top talent, fluctuations in industry or business economic conditions, as well as increasing geographic expansion, and these factors in

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combination may result in cycles of hiring activity and workforce reductions.

Our success in hiring depends on a variety of factors, including the attractiveness of our compensation and benefit programs, global economic or political and industry conditions, our organizational structure, global competition for talent and the availability of qualified employees, the availability of career development opportunities, the ability to obtain necessary authorizations for workers to provide services outside their home countries, and our ability to offer a challenging and rewarding work environment.

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LEGAL, REGULATORY AND TAX RISKS

Our Sales to Customers in China, a Region of Growing Significance to Us, Could be Materially and Adversely Affected by Export License Requirements and Other Regulatory Changes, or Other Governmental Actions in the Course of the Trade Relationship Between the U.S.

Our Sales to Customers in China, a Significant Region for Us, Have Been Impacted, and are Likely to Be Materially and Adversely Affected by Export License Requirements and Other Regulatory Changes, or Other Governmental Actions in the Course of the Trade Relationship Between the U.S.

China represents a large and fast-developing market for the semiconductor equipment industry and therefore is important to our business.

Revenue in China, which includes global customers and domestic Chinese customers with manufacturing facilities in China, represented approximately 32%, 35%, and 31% of our total revenue for the nine months ended March 27, 2022 and fiscal years 2021 and 2020, respectively.

Revenue in China, which includes global customers and domestic Chinese customers with manufacturing facilities in China, represented approximately 30%, 31%, and 35% of our total revenue for the three months ended September 25, 2022 and fiscal years 2022 and 2021, respectively.

and China have historically had a complex relationship that has included actions that have impacted trade between the two countries.

1 unchanged sentence

government, which have limited the market for our products, adversely impacted our revenues, and increased our exposure to foreign competition, and could potentially do so to an even greater extent in the future.

For example, over the course of calendar year 2020, the U.S.

Department of Commerce enacted a new rule that expanded export license requirements for U.S.

companies to sell certain items to companies and other end-users in China that are designated as military end-users or have operations that could support military end uses, added additional Chinese companies to its restricted entity list (including Semiconductor Manufacturing International Corporation, or SMIC, and related entities), and expanded an existing rule (referred to as the foreign direct product rule) in a manner that could cause foreign-made wafers, chipsets, and certain related items produced with many of our products to be subject to U.S.

Most recently, the U.S.

government has enacted new rules aimed at restricting China’s ability to manufacture advanced semiconductors, which include restrictions on exports, reexports or transfers to, or shipping, transmitting, transferring, or facilitating such movement to, or performing services at, customer facilities in China engaged in certain technology end-uses, without appropriate authorizations obtained from U.S.

In addition, the U.S.

Department of Commerce has enacted new rules that have expanded export license requirements for U.S.

companies to sell certain items to companies and other end-users in China that are designated as military end-users or have operations that could support military end uses;

has added additional Chinese companies to its restricted entity list and unverified list under suspicion of military-civil fusion, support of Russia, or other factors associated with a broadening scope of national security concerns (including Semiconductor Manufacturing International Corporation, or SMIC, and related entities, and Yangtze Memory Technologies Co., Ltd., or YMTC, and related entities);

and has expanded an existing rule (referred to as the foreign direct product rule) in a manner that could cause foreign-made wafers, chipsets, and certain related items produced with many of our products to be subject to U.S.

licensing requirements if Huawei Technologies Co.

Ltd (“Huawei”) or its affiliates are parties to a transaction involving the items.

These rules have required and may require us to apply for and obtain additional export licenses to supply certain of our products to specified customers in China, such as SMIC (where those products would not otherwise require an export license to China), and there is no assurance that we will be issued licenses that we apply for on a timely basis or at all.

These rules have required and may require us to apply for and obtain additional export licenses to supply certain of our products to customers in China, such as SMIC, YMTC and ChangXin Memory Technologies, Inc., and there is no assurance that we will be issued licenses that we apply for on a timely basis or at all.

In addition, our customers (including but not limited to Chinese customers) may require U.S.

1 unchanged sentence

Huawei and its affiliates) that are subject to the expanded foreign direct product rule, which may adversely impact the demand for our products.

Department of Commerce could in the future add additional Chinese companies to its restricted entity list or take other actions that could expand licensing requirements or otherwise impact the market for our products and our revenue.

The implementation, interpretation and impact on our business of these rules and other regulatory actions taken by the U.S.

Department of Commerce could in the future add additional Chinese companies to its restricted entity list or unverified list or take other actions that could expand licensing requirements or otherwise impact the market for our products and our revenue.

The implementation,

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interpretation and impact on our business of these rules and other regulatory actions taken by the U.S.

government is uncertain and evolving, and these rules, other regulatory actions or changes, and other actions taken by the governments of either the U.S.

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We also face risks of claims arising from commercial and other relationships.

In addition, our bylaws and other indemnity obligations provide that we will indemnify officers and members of our Board of Directors

against losses that they may incur in legal proceedings resulting from their service to us.

In addition, our bylaws and other indemnity obligations provide that we will indemnify officers and members of our Board of Directors against losses that they may incur in legal proceedings resulting from their service to us.

From time to time, in the normal course of business, we indemnify third parties with whom we enter into contractual relationships, including customers and suppliers, with respect to certain matters.

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In particular, the carrying value of deferred tax assets, which are predominantly in the United States, is dependent on our ability to generate future taxable income in the United States.

On August 16, 2022, the Inflation Reduction Act (the “IRA”) was signed into law.

In general, the provisions of the IRA will be effective beginning with our fiscal year 2024, with certain exceptions.

The IRA includes a new 15% corporate minimum tax as well as a 1% excise tax on corporate stock repurchases applicable to repurchases after December 31, 2022.

We have evaluated the potential impacts of the IRA and do not expect it to have a material impact on our effective tax rate.

However we expect future guidance from the Treasury Department and will further analyze when the guidance is issued.

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Recommendations made by the Organization for Economic Co-operation and Development’s Base Erosion and Profit Shifting project have the potential to lead to changes in the tax laws in numerous countries.

In addition, President Joseph Biden has made several corporate income tax proposals, including a significant increase to the U.S.

corporate income tax rate and changes in the taxation of non-U.S.

In addition, President Joseph Biden has made several corporate income tax proposals, including changes in the taxation of non-U.S.

If enacted, such changes could have a material impact on our effective tax rate.

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In the past, following volatile periods in the price of their stock, many companies became the object of securities class action litigation.

If we are sued in a securities class action, we could incur substantial costs, and it could divert management’s attention and resources and have an unfavorable impact on our financial performance and the price for our Common Stock.

If we are sued in a securities class action, we could incur substantial costs, and it could divert

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management’s attention and resources and have an unfavorable impact on our financial performance and the price for our Common Stock.

We May Incur Impairments to Goodwill or Long-lived Assets

33 unchanged sentences

• merge or consolidate with any person.

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Our ability to comply with these covenants is dependent on our future performance, which will be subject to many factors, some of which are beyond our control, including prevailing economic conditions.

12 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-Q

Item 1A. Risk Factors