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Item 7. Management’s Discussion and Analysis

2024-08-29 compared with 2023-08-15 · 78 added, 124 removed, 198 unchanged (51% of the section changed)

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Along with meeting technical requirements, wafer processing equipment must deliver high productivity and be cost-effective.

Demand from cloud computing, 5G, the Internet of Things, and other markets is driving the need for increasingly powerful and cost - efficient semiconductors.

Demand from cloud computing, artificial intelligence, 5G, the Internet of Things, and other markets is driving the need for increasingly powerful and cost - efficient semiconductors.

At the same time, there are growing technical challenges with traditional two-dimensional scaling.

These trends are driving significant inflections in semiconductor manufacturing, such as the increasing importance of vertical scaling strategies like three-dimensional architecture as well as multiple patterning to enable shrinks.

We believe we are in a strong position with our leadership and expertise in deposition , etch, and clean to facilitate some of the most significant innovations in semiconductor device manufacturing.

We believe we are in a strong position with our leadership and expertise in deposition , etch, and clean markets to facilitate some of the most significant innovations in semiconductor device manufacturing.

Our Customer Support Business Group provides products and services to maximize installed equipment performance, predictability, and operational efficiency.

Several factors create opportunity for sustainable differentiation for us:

Several factors create opportunities for sustainable differentiation for us:

(i) our focus on research and development, with several on-going programs relating to sustaining engineering, product and process development, and concept and feasibility;

(ii) our ability to effectively leverage cycles of learning from our broad installed base;

(iii) our collaborative focus with semi-ecosystem partners;

(iii) our collaborative focus with semi-ecosystem partners, including our close-to-customer focus;

(iv) our ability to identify and invest in the breadth of our product portfolio to meet technology inflections;

and (v) our focus on delivering our multi-product solutions with a goal to enhance the value of Lam’s solutions to our customers.

During fiscal year 2023, customer demand weakened in the second half of the year due to wafer fabrication equipment spending reductions resulting primarily from incremental demand weakness in memory.

In addition, the U.S.

government’s restrictions on sales of equipment, parts, and service for specific technologies and customers in China further impacted equipment demand in the year.

While we did experience supply chain constraints in the first half of fiscal year 2023, there were improvements and we were able to fulfill shipments of nearly all our outstanding back order systems in the second half of the year.

As a result of the expected reduced business levels, we initiated a restructuring plan in the quarter-ended March 26, 2023 designed to better align the Company’s cost structure with our outlook.

We incurred a charge for the workforce actions associated with the restructuring plan of approximately $107 million in fiscal year 2023.

Over the course of calendar year 2023, we are projecting expenditures in the range of $250 million

During fiscal year 2024, wafer fabrication equipment spending was roughly flat on a year-on-year basis, with strength in the DRAM market, offset by declines in the non-volatile memory, Foundry, and Logic markets.

In the quarter ended March 26, 2023, we initiated a restructuring plan designed to better align the Company’s cost structure with industry investment levels.

We invested in a number of business process improvements and initiatives and incurred expenditures from these activities of approximately $315 million, inclusive of the restructuring activity during the second half of fiscal year 2023 and the 2024 fiscal year.

In the short term, the uncertain semiconductor demand environment, as well as other risks and uncertainties, may continue to negatively impact our revenue and operating margin.

Over the longer term, we believe that secular demand for semiconductors, combined with technology inflections in our industry, including 3D device scaling, multiple patterning, process flow, and advanced packaging chip integration, will

Lam Research Corporation 2024 10-K 29

associated with various business process improvements and initiatives, inclusive of the fiscal year 2023 restructuring activity.

Risks and uncertainties related to trade restrictions, supply chain challenges, and inflationary pressures may continue to negatively impact our revenue and gross margin.

Over the longer term, we believe that secular demand for semiconductors combined with technology inflections in our industry, including 3D device scaling, multiple patterning, process flow, and advanced packaging chip integration, will drive sustainable growth and lead to an increase in the served available market for our products and services in the deposition, etch, and clean businesses.

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drive sustainable growth and lead to an increase in the served available market for our products and services in the deposition, etch, and clean businesses.

The following table summarizes certain key financial information for the periods indicated below:

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FY23 FY23 vs.

(in thousands, except per share data and percentages)

(in thousands, except per share data, percentages and basis points)

Revenue $ 14,905,386 $ 17,428,516 $ 17,227,039 $ (2,523,130) (14.5) % $ 201,477 1.2 %

Gross margin $ 7,052,791 $ 7,776,925 $ 7,871,807 $ (724,134) (9.3) % $ (94,882) (1.2) %

Gross margin as a percent of total revenue 44.6 % 45.7 % 46.5 % (1.1)% (0.8)%

Gross margin as a percent of total revenue 47.3 % 44.6 % 45.7 % + 270 bps - 110 bps

Total operating expenses $ 2,788,878 $ 2,602,065 $ 2,489,985 $ 186,813 7.2 % $ 112,080 4.5 %

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Net income per diluted share $ 29.00 $ 33.21 $ 32.75 $ (4.21) (12.7) % $ 0.46 1.4 %

Fiscal year 2023 revenu e was slightly higher than fiscal year 2022.

Fiscal year 2024 revenue decreased 14.5% compared to fiscal year 2023.

Systems and customer-support related revenues declined in fiscal year 2024 primarily from weakness in the non-volatile memory market, partially offset by strength in DRAM a s well as increased revenue generation from our China regional customers.

Gross margin as a percentage of revenue increased in fiscal year 2024 compared to fiscal year 2023 largely due to a more favorable customer mix, lower spending on material costs, and higher field resource utilization, partially offset by lower factory efficiencies.

The increase in operating expenses in fiscal year 2024 compared to fiscal year 2023 was driven by higher employee-related costs primarily as a result of increased research and development-related headcount, increased spending on transformational activities, higher deferred compensation plan-related costs, and increased spending on supplies.

Fiscal year 2023 revenue was slightly higher than fiscal year 2022.

Customer support-related revenue increased in fiscal year 2023 due to continued strength in specialty node investments, which was offset by a decline in our systems revenue as a result of semiconductor demand weakness, largely in the memory market.

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The increase in operating expenses in fiscal year 2023 compared to fiscal year 2022 was driven by higher deferred compensation plan-related costs, restructuring-related charges, employee-related costs as a result of increased headcount, depreciation and amortization, and supplies, partially offset by a decrease in amortization of intangible assets as the intangible assets associated with the acquisition of Novellus have fully amortized.

Fiscal year 2022 revenue increased over 17% compared to fiscal year 2021, reflecting continued strong customer demand for semiconductor equipment.

Gross margin as a percentage of revenue decreased due to inflationary cost pressures that led to higher spending on material costs, freight and logistics, and labor-related expenses, as well as unfavorable customer and product mix, partially offset by decreased variable compensation.

The increase in operating expenses in fiscal year 2022 compared to fiscal year 2021 was mainly driven by higher employee-related costs as a result of increased headcount, supplies expense, rent, repair and utilities expense, and outside services spending, partially offset by lower deferred compensation plan-related costs.

We aim to balance the requirements of our customers with the availability of resources, as well as performance to our operational and financial objectives.

As a result, from time to time, we exercise discretion and judgment as to the timing and prioritization of manufacturing and deliveries of products, which has impacted, including in the current fiscal year, and may in the future impact, the timing of revenue recognition with respect to such products.

Our cash and cash equivalents, investments, and restricted cash and investments balances totaled approximately $5.6 billion as of June 25, 2023, compared to $3.9 billion as of June 26, 2022.

Our cash and cash equivalents and restricted cash balances totaled approximately $5.9 billion as of June 30, 2024, compared to $5.6 billion as of June 25, 2023.

Cash flows provided from operating activities was $4.7 billion for fiscal year 2024 compared to $5.2 billion for fiscal year 2023.

Cash flows provided from operating activities in fiscal year 2024 was primarily used for $2.8 billion in treasury stock purchases, including net share settlement on employee stock-based compensation;

$908 million in dividends paid to our stockholders;

$1.0 billion in dividends paid to our stockholders;

and $397 million of capital expenditures.

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Revenue increased i n fiscal year 2023 compared to fiscal year 2022 mainly due to higher revenue from CSBG related to strength in mature node equipment.

Revenue increased in fiscal year 2022 compared to fiscal year 2021 primarily due to the increased investment by our customers in semiconductor capital equipment as well as from CSBG for spares, services, upgrades and mature node equipment.

While the overall Asia region continued to account for a majority of our revenues, the U.S.

and Europe regions increased in each of fiscal years 2023 and 2022 compared to the prior fiscal year as these regions prioritized domestic capacity investments for semiconductor manufacturing.

The deferred revenue balance was $1.8 billion as of June 25, 2023 compared to $2.2 billion as of June 26, 2022.

Advance deposit additions from newer customers increased in fiscal year 2023, compared to fiscal year 2022, offsetting the decline in deferred balances related to shipments we completed of tools that had critical parts outstanding.

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Revenue decreased in fiscal year 2024 compared to fiscal year 2023 mainly due to decreases in non-volatile memory, partially offset by increases in DRAM spending by our customers.

The China region had the largest geographic concentration with 42% of our revenues during this period.

Revenue increased in fiscal year 2023 compared to fiscal year 2022 primarily due higher revenue from CSBG related to strength in mature node equipment, w hile the overall Asia region continued to account for a majority of our revenues.

The deferred revenue balance decreased to $1.6 billion as of June 30, 2024 compared to $1.8 billion as of June 25, 2023.

primarily due to a decrease in advance deposits from newer customers.

The following table presents our revenue disaggregated between system and customer support-related revenue:

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FY23 FY23 vs.

(in thousands, except percentages)

(in thousands, except percentages and basis points)

Gross margin $ 7,052,791 $ 7,776,925 $ 7,871,807 $ (724,134) (9.3) % $ (94,882) (1.2) %

Percent of revenue 44.6 % 45.7 % 46.5 % (1.1)% (0.8)%

Percent of revenue 47.3 % 44.6 % 45.7 % + 270 bps - 110 bps

The increase in gross margin as a percentage of revenue for fiscal year 2024 compared to fiscal year 2023 was due to a more favorable customer mix, reduced spending on material costs, and higher field resource utilization, partially offset by lower factory efficiencies.

The decrease in gross margin as a percentage of revenue for fiscal year 2023 compared to fiscal year 2022 was due to inflationary cost pressures that led to higher spending on material costs, partially offset by favorable customer and product mix.

The decrease in gross margin as a percentage of revenue for fiscal year 2022 compared to fiscal year 2021 was due to inflationary cost pressures that led to higher spending on material costs, freight and logistics, and labor-related expenses, as well as unfavorable customer and product mix, partially offset by decreased variable compensation.

Research and Development

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FY23 FY23 vs.

(in thousands, except percentages)

(in thousands, except percentages and basis points)

Research & development $ 1,902,444 $ 1,727,162 $ 1,604,248 $ 175,282 10.1 % $ 122,914 7.7 %

Percent of revenue 9.9 % 9.3 % 10.2 % 0.6% (0.9)%

Percent of revenue 12.8 % 9.9 % 9.3 % + 290 bps + 60 bps

We continued to make significant R&D investments focused on leading-edge deposition, etch, clean, and other semiconductor manufacturing processes.

The increase i n R&D expense during fiscal year 2023 compared to fiscal year 2022 was primarily driven by

The increase in R&D expense during fiscal year 2024 compared to fiscal year 2023 was primarily driven by an increase of $58 million in employee-related costs primarily as a result of increased headcount, $33 million in spending for supplies, $18 million in deferred compensation plan-related costs, and $13 million in spending for transformational activities.

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an increase of $43 million in employee-related costs as a result of increased headcount, $26 million in deferred compensation plan-related costs, $22 million in spending for supplies, and $14 million of depreciation and amortization.

The increase in R&D expense during fiscal year 2022 compared to fiscal year 2021 was mainly driven by a n increase of $89 million in employee-related costs due in part to increased headcount and $43 million in spending for supplies, partially offset by a decrease of $44 million in deferred compensation plan-related costs.

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The increase in R&D expense during fiscal year 2023 compared to fiscal year 2022 was mainly driven by an increase of $43 million in employee-related costs as a result of increased headcount, $26 million in deferred compensation plan-related costs, $22 million in spending for supplies, and $14 million of depreciation and amortization.

Selling, General, and Administrative

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FY23 FY23 vs.

(in thousands, except percentages)

(in thousands, except percentages and basis points)

Selling, general, and administrative ("SG&A") $ 868,247 $ 832,753 $ 885,737 $ 35,494 4.3 % $ (52,984) (6.0) %

Percent of revenue 4.8 % 5.1 % 5.7 % (0.3)% (0.6)%

The de crease in SG&A expense during fiscal year 2023 compared to fiscal year 2022 was primarily driven by a decrease of $44 million in amortization of intangible assets, as the intangible assets associated with the acquisition of Novellus have fully amortized, as well as from $12 million in lower employee-related costs, partially offset by $17 million in higher deferred compensation plan-related costs.

The increase in SG&A expense during fiscal year 2022 compared to fiscal year 2021 was primarily driven by an increase of $28 million in outside service costs, $28 million in spending for rent, repair and utilities, and $26 million in employee-related costs due in part to increased headcount, partially offset by a decrease of $29 million in deferred compensation plan-related costs .

Percent of revenue 5.8 % 4.8 % 5.1 % + 100 bps - 30 bps

The increase in SG&A expense during fiscal year 2024 compared to fiscal year 2023 was primarily driven by an increase of $30 million in transformational activity spend.

The decrease in SG&A expense during fiscal year 2023 compared to fiscal year 2022 was primarily driven by a decrease of $44 million in amortization of intangible assets, as the intangible assets associated with the acquisition of Novellus have fully amortized, as well as from $12 million in lower employee-related costs, partially offset by $17 million in higher deferred compensation plan-related costs.

Restructuring Charges, Net

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FY23 FY23 vs.

(in thousands, except percentages)

(in thousands, except percentages and basis points)

Restructuring charges, net $ 61,562 $ 120,316 $ — $ (58,754) (48.8) % $ 120,316 100.0 %

Percent of revenue 0.7 % — % — % 0.7% —%

In fiscal year 2023, we initiated a restructuring plan designed to better align our cost structure with our outlook for the economic environment and business opportunities.

Percent of revenue 0.4 % 0.7 % — % - 30 bps + 70 bps

In fiscal year 2023, we initiated a restructuring plan, that continued into fiscal year 2024, designed to better align our cost structure with our outlook for the economic environment and business opportunities.

Under the plan, we terminated approximately 1,760 employees, incurring expenses related to employee severance and separation costs.

Employee severance and separation costs primarily relate to severance, non-cash severance, including equity award compensation expense, pension and other termination benefits.

Additionally, we made a strategic decision to relocate certain manufacturing activities to pre-existing facilities and incurred costs to move inventory and equipment and exit selected supplier arrangements.

During fiscal year 2023 net restructuring costs of $78 million and $42 million were recorded in restructuring charges, net - cost of goods sold, and restructuring charges, net - operating expenses, respectively of our Consolidated Financial Statements.

Employee severance and separation costs are primarily related to severance, non-cash severance, including equity award compensation expense, pension and other termination benefits.

Additionally, we made a strategic decision to relocate certain manufacturing activities to pre-existing facilities.

The restructuring plan is substantially complete as of June 30, 2024.

Restructuring charges decreased during fiscal year 2024 compared to fiscal year 2023 primarily due to lower employee severance and separation costs.

Please refer to Note 21:

Restructuring charges, net of our Consolidated Financial Statements in Part II, Item 8 of this 2024 Form 10-K for additional information.

Lam Research Corporation 2023 10-K 31

Other Income (Expense), Net

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Gains (losses) on deferred compensation plan related assets, net 58,767 20,186 (38,053) $ 38,581 191.1 % $ 58,239 (153.0) %

Foreign exchange (losses) gains, net (7,078) (723) (6,962) $ (6,355) 879.0 % $ 6,239 (89.6) %

Foreign exchange losses, net (4,837) (7,078) (723) $ 2,241 (31.7) % $ (6,355) 879.0 %

Other, net (24,323) (31,280) 19,618 $ 6,957 (22.2) % $ (50,898) (259.4) %

$ 96,309 $ (65,650) $ (188,708) $ 161,959 (246.7) % $ 123,058 (65.2) %

Interest income increased in fiscal year 2023 compared to fiscal year 2022 primarily because of higher yields and higher cash balances.

Interest income decreased in fiscal year 2022 compared to fiscal year 2021 as a result of lower cash balances.

Interest expense in fiscal year 2023 was flat compared to fiscal year 2022.

Interest expense decreased in fiscal year 2022 compared to fiscal year 2021 primarily due to the payoff of $800 million of senior notes in June 2021.

Interest income increased in fiscal year 2024 compared to fiscal years 2023 and 2022 primarily because of higher yields and higher cash balances.

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Interest expense in fiscal year 2024 was flat compared to fiscal years 2023 and 2022.

The gains or losses on deferred compensation plan related assets, net were driven by fluctuations in the fair market value of the underlying funds for all periods presented.

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FY23 FY23 vs.

(in thousands, except percentages)

(in thousands, except percentages and basis points)

Income tax expense $ 532,450 $ 598,279 $ 587,828 $ (65,829) (11.0) % $ 10,451 1.8 %

Effective tax rate 11.7 % 11.3 % 10.6 % 0.4% 0.7%

Effective tax rate 12.2 % 11.7 % 11.3 % + 50 bps + 40 bps

The increase in the effective tax rate in fiscal year 2024 as compared to fiscal year 2023 and the increase in the effective tax rate in fiscal year 2023 compared to fiscal year 2022 was primarily due to the change in level and proportion of income in higher and lower tax jurisdictions.

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On August 16, 2022, 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.

The impact on income taxes due to changes in legislation is required under the authoritative guidance of Accounting Standard Codification (“ASC”) 740, Income Taxes, to be recognized in the period in which the law is enacted.

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

The IRA includes a new 15% corporate alternative minimum tax.

We have evaluated the impacts of the IRA, including guidance issued by the Treasury Department, and do not expect it to have a material impact on our effective tax rate.

Deferred Income Taxes

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Any change in recognition or measurement would result in the recognition of a tax benefit or an additional charge to the tax provision.

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Critical Accounting Policies and Estimates

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Our critical accounting estimates include:

• the recognition and valuation of revenue from arrangements with multiple performance obligations which impacts revenue;

• the recognition and valuation of revenue;

• the valuation of inventory, which impacts gross margin;

• the valuation of warranty reserves, which impacts gross margin;

• the recognition and measurement of current and deferred income taxes, including the measurement of uncertain tax positions, which impact our provision for income tax expenses.

• the valuation and recoverability of long-lived assets, which impacts gross margin and operating expenses when we record asset impairments or accelerate their depreciation or amortization.

We believe that the following critical accounting policies reflect the more significant judgments and estimates used in the preparation of our consolidated financial statements regarding the critical accounting estimates indicated above.

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Revenue Recognition:

We recognize revenue when promised goods or services are transferred to customers in an amount that reflects the consideration to which we expect to be entitled in exchange for those goods or services by following a five-step process, (1) identify the contract with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when or as we satisfy a performance obligation, as further described below.

Identify the contract with a customer .

We generally consider documentation of terms with an approved purchase order as a customer contract, provided that collection is considered probable, which is assessed based on the creditworthiness of the customer as determined by credit checks, payment histories, and/or other circumstances.

Identify the performance obligations in the contract .

Performance obligations include sales of systems, spare parts, and services.

In addition, our customer contracts contain provisions for installation and training services which have been deemed immaterial in the context of the contract.

Determine the transaction price .

The transaction price for our contracts with customers consists of both fixed and variable consideration provided it is probable that a significant reversal of revenue will not occur when the uncertainty related to variable consideration is resolved.

The transaction price for our contracts with customers is allocated among the identified performance obligations and consists of both fixed and variable consideration provided it is probable that a significant reversal of revenue will not occur when the uncertainty related to variable consideration is resolved.

Fixed consideration includes amounts to be contractually billed to the customer while variable consideration includes estimates for discounts and credits for future usage which are based on contractual terms outlined in volume purchase agreements and other factors known at the time.

We generally invoice customers at shipment and for professional services either as

Lam Research Corporation 2023 10-K 33

provided or upon meeting certain milestones.

Customer invoices are generally due within 30 to 90 days after issuance.

Our contracts with customers typically do not include significant financing components as the period between the transfer of performance obligations and timing of payment are generally within one year.

Allocate the transaction price to the performance obligations in the contract .

For contracts that contain multiple performance obligations, we allocate the transaction price to the performance obligations in the contract on a relative standalone selling price basis.

Standalone selling prices are based on multiple factors including, but not limited to historical discounting trends for products and services and pricing practices in different geographies.

Recognize revenue when or as we satisfy a performance obligation .

We generally invoice customers at shipment and for professional services either as provided or upon meeting certain milestones.

Revenue for systems and spares are recognized at a point in time, which is generally upon shipment or delivery.

Revenue from services is recognized over time as services are completed or ratably over the contractual period of generally one year or less.

Revenue is recognized in an amount that reflects the consideration to which we expect to be entitled in exchange for those goods or services.

Inventory Valuation:

Our policy is to assess the valuation of all inventories including manufacturing raw materials, work-in-process, finished goods, and spare parts in each reporting period.

Obsolete inventory or inventory in excess of management’s estimated usage requirement is written down to its estimated net realizable value if less than cost.

Estimates of market value include but are not limited to management’s forecasts related to our future manufacturing schedules, customer demand, technological and/or market obsolescence, general semiconductor market conditions, and possible alternative uses.

If future customer demand or market conditions are less favorable than our projections, additional inventory write-downs may be required and would be reflected in cost of goods sold in the period in which the revision is made.

We record a provision for estimated warranty expenses to cost of sales for each system when we recognize revenue.

We periodically monitor the performance and cost of warranty activities, if actual costs incurred are different than our estimates, we may recognize adjustments to provisions in the period in which those differences arise or are identified.

We do not maintain general or unspecified reserves;

all warranty reserves are related to specific systems.

Inventories are stated at the lower of cost or net realizable value using standard costs that approximate actual cost on a first-in, first-out basis.

Inventory in excess of management’s estimated usage requirement and obsolete inventory is written down to its estimated net realizable value if less than cost.

Estimates of net realizable value include but are not limited to customer demand, management’s forecasts related to our future manufacturing schedules, technological and/or market obsolescence, general semiconductor market conditions, and possible alternative uses.

Income Taxes:

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We record a valuation allowance to reduce our deferred tax assets to the amount that is more likely than not to be realized.

Realization of our net deferred tax assets is dependent on future taxable income.

We believe it is more likely than not that such assets will be realized;

however, ultimate realization could be negatively impacted by market conditions and other variables not known or anticipated at this time.

In the event that we determine that we will not be able to realize all or part of our net deferred tax assets, an adjustment will be charged to earnings in the period such determination is made.

Likewise, if we later determine that it is more likely than not that the deferred tax assets will be realized, then the previously provided valuation allowance will be reversed.

The assessment of valuation allowances against our deferred tax assets includes estimation and judgement with respect to future operating results and market conditions.

We recognize the benefit from a tax position only if it is more likely than not that the position will be sustained upon audit based solely on the technical merits of the tax position.

Our policy is to include interest and penalties related to uncertain tax positions as a component of income tax expense.

Long-lived Assets :

We review goodwill at least annually for impairment during the fourth quarter of each fiscal year and if certain events or indicators of impairment occur between annual impairment tests.

The process of evaluating the potential impairment of goodwill requires significant judgment.

When reviewing goodwill for impairment, we first perform a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value.

In performing a qualitative assessment, we consider business conditions and other factors including, but not limited to (i) adverse industry or economic trends, (ii) restructuring actions and lower projections that may impact future operating results, (iii) sustained decline in share price, and (iv) overall financial performance and other events affecting the reporting units.

If we conclude that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, then a quantitative impairment test is performed by estimating the fair value of the reporting unit and comparing it to its carrying value, including goodwill allocated to that reporting unit.

We determine the fair value of our reporting units by using an income approach.

Under the income approach, we determine fair value based on estimated future cash flows of each reporting unit, discounted by an estimated weighted-average cost of capital, which reflects the overall level of inherent risk of a reporting unit and the rate of return an outside investor would expect to earn.

In estimating the fair value of a reporting unit, we make estimates and judgments about the future cash flows of our reporting units, including estimated growth rates and assumptions about the economic environment.

Although our cash flow forecasts are based on assumptions that are consistent with the plans and estimates we are using to manage the underlying businesses, there is significant judgment involved in determining the cash flows attributable to a reporting unit.

In addition, we make certain judgments about allocating shared assets to the estimated balance sheets of our reporting units.

Changes in judgment on these assumptions and estimates could result in a goodwill impairment charge.

If after completing the quantitative assessment the carrying value of a reporting unit exceeds its fair value, we would record an impairment charge equal to the excess of the carrying value of the reporting unit over its fair value, up to the amount of the goodwill assigned to the reporting unit.

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For other long-lived assets, we review them whenever events or changes in circumstances indicate the carrying value of an asset or asset group may not be recoverable.

If such indicators are present, we determine whether the sum of the estimated undiscounted cash flows attributable to the assets is less than their carrying value.

If the sum is less, we recognize an impairment loss based on the excess of the carrying amount of the assets over their respective fair values.

Fair value is determined by discounted future cash flows, appraisals or other methods.

We recognize an impairment charge to the extent the present value of anticipated net cash flows attributable to the asset is less than the asset’s carrying value.

The fair value of the asset then becomes the asset’s new carrying value, which we depreciate over the remaining estimated useful life of the asset.

Assets to be disposed of are reported at the lower of the carrying amount or fair value.

In addition, for fully amortized intangible assets, we de-recognize the gross cost and accumulated amortization in the period we determine the intangible asset no longer enhances future cash flows.

Recent Accounting Pronouncements

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Liquidity and Capital Resources

Total gross cash, cash equivalents, investments, and restricted cash and investments balances were $5.6 billion at the end of fiscal year 2023 compared to $3.9 billion at the end of fiscal year 2022.

Total gross cash, cash equivalents, and restricted cash balances were $5.9 billion at the end of fiscal year 2024 compared to $5.6 billion at the end of fiscal year 2023.

This increase was primarily due to cash provided by operating activities, partially offset by Common Stock repurchases in connection with our stock repurchase program, dividends paid, and capital expenditures.

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Cash Flow from Operating Activities

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Significant changes in operating asset and liability accounts, net of foreign exchange impact, included the following sources of cash:

decreases in accounts receivable of $1.5 billion, deferred profit of $163 million, and prepaid expenses and other assets of $136 million;

partially offset by the following uses of cash:

increase in inventories of $962 million, and decreases in accounts payable of $522 million, and accrued expenses and other liabilities of $109 million.

decreases in inventory of $529 million, and accounts receivable of $303 million, and increases in accounts payable of $126 million.

These sources of cash are offset by the following uses of cash:

decreases in accrued expenses and other liabilities of $305 million, a decrease in deferred gross profit of $277 million, and an increase in prepaid expenses and other current assets of $16 million.

Cash Flow from Investing Activities

Net cash used for investing activities during fiscal year 2023 was $535 million, primarily consisting of $502 million in capital expenditures and $120 million net cash disbursed for business acquisitions, partially offset by proceeds from sales and maturities of available-for-sale securities of $98 million.

Net cash used for investing activities during fiscal year 2024 was $371 million, primarily consisting of $397 million in capital expenditures, partially offset by proceeds from maturities and sales of available-for-sale securities of $38 million.

Cash Flow from Financing Activities

Net cash used for financing activities during fiscal year 2023 was $2.8 billion, primarily consisting of $2.0 billion in Common Stock repurchases, including net share settlement on employee stock-based compensation;

and $908 million of dividends paid;

Net cash used for financing activities during fiscal year 2024 was $3,996 million, primarily consisting of $2,843 million in Common Stock repurchases, including net share settlement on employee stock-based compensation;

$1,019 million of dividends paid;

and $256 million of repayment of debt, largely associated with the purchase of certain properties under finance leases;

partially offset by $136 million of stock issuance and treasury stock reissuances associated with our employee stock-based compensation plans.

Given that the semiconductor industry is highly competitive and has historically experienced rapid changes in demand, we believe that maintaining sufficient liquidity reserves is important to support sustaining levels of investment in R&D and capital infrastructure.

Anticipated cash flows from operations based on our current business outlook, combined with our current levels of cash, cash equivalents, and short-term investments as of June 25, 2023, are expected to be sufficient to support our anticipated levels of operations, investments, debt service requirements, capital expenditures, capital redistributions, and dividends through at least the next twelve months.

Anticipated cash flows from operations based on our current business outlook, combined with our current levels of cash and cash equivalents as of June 30, 2024, are expected to be sufficient to support our anticipated levels of operations, investments, debt service requirements, capital expenditures, capital redistributions, and dividends through at least the next twelve months.

However, factors outside of our control, including uncertainty in the global economy and the semiconductor industry, as well as disruptions in credit markets, have in the past, are currently, and could in the future, impact customer demand for our products, as well as our ability to manage normal commercial relationships with our customers, suppliers, and creditors.

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In the longer term, liquidity will depend to a great extent on our future revenues and our ability to appropriately manage our costs based on demand for our products and services.

7 unchanged sentences

Our off-balance sheet arrangements and our transition tax liability are presented as purchase obligations, refer to Note 17 of our Consolidated Financial Statements in Part II, Item 8 of this 2024 Form 10-K for further discussion.

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Table of Content

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 7. Management’s Discussion and Analysis