MONOLITHIC POWER SYSTEMS, INC. 10-Q

Item 1. Financial Statements MONOLITHIC POWER SYSTEMS, INC.   CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except par value) (unaudited)       September 30,     December 31,       2023     2022   ASSETS                 Current assets:                 Cash and cash equivalents   $ 421,178     $ 288,607   Short-term investments     621,123       449,266   Accounts receivable, net     185,820       182,714   Inventories     397,288       447,290   Other current assets     109,967       42,742   Total current assets     1,735,376       1,410,619   Property and equipment, net     358,226       357,157   Goodwill     6,571       6,571   Deferred tax assets, net     23,676       35,252   Other long-term assets     204,240       249,286   Total assets   $ 2,328,089     $ 2,058,885                     LIABILITIES AND STOCKHOLDERS’ EQUITY                 Current liabilities:                 Accounts payable   $ 64,707     $ 61,461   Accrued compensation and related benefits     64,634       88,260   Other accrued liabilities     120,677       113,679   Total current liabilities     250,018       263,400   Income tax liabilities     55,806       53,509   Other long-term liabilities     77,401       73,374   Total liabilities     383,225       390,283   Commitments and contingencies                     Stockholders’ equity:                 Common stock and additional paid-in capital: $ 0.001 par value; shares authorized: 150,000 ; shares issued and outstanding: 47,911 and 47,107 , respectively     1,092,569       975,276   Retained earnings     899,398       716,403   Accumulated other comprehensive loss     ( 47,103 )     ( 23,077 ) Total stockholders’ equity     1,944,864       1,668,602   Total liabilities and stockholders’ equity   $ 2,328,089     $ 2,058,885     See accompanying notes to unaudited condensed consolidated financial statements.   4 Table of Contents      MONOLITHIC POWER SYSTEMS, INC.   CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per-share amounts) (unaudited)       Three Months Ended September 30,     Nine Months Ended September 30,       2023     2022     2023     2022   Revenue   $ 474,867     $ 495,418     $ 1,367,060     $ 1,334,136   Cost of revenue     211,326       204,516       597,064       553,393   Gross profit     263,541       290,902       769,996       780,743   Operating expenses:                                 Research and development     64,787       67,263       192,184       178,497   Selling, general and administrative     63,188       71,768       205,645       212,353   Total operating expenses     127,975       139,031       397,829       390,850   Operating income     135,566       151,871       372,167       389,893   Other income (expense), net     2,289       5       14,129       ( 5,720 ) Income before income taxes     137,855       151,876       386,296       384,173   Income tax expense     16,692       27,539       55,827       65,591   Net income   $ 121,163     $ 124,337     $ 330,469     $ 318,582                                     Net income per share:                                 Basic   $ 2.54     $ 2.66     $ 6.96     $ 6.83   Diluted   $ 2.48     $ 2.57     $ 6.78     $ 6.60   Weighted-average shares outstanding:                                 Basic     47,780       46,829       47,501       46,643   Diluted     48,792       48,349       48,734       48,295     See accompanying notes to unaudited condensed consolidated financial statements.   5 Table of Contents      MONOLITHIC POWER SYSTEMS, INC.   CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (in thousands) (unaudited)       Three Months Ended September 30,     Nine Months Ended September 30,       2023     2022     2023     2022   Net income   $ 121,163     $ 124,337     $ 330,469     $ 318,582   Other comprehensive loss, net of tax:                                 Foreign currency translation adjustments     ( 4,838 )     ( 26,081 )     ( 28,099 )     ( 49,844 ) Change in unrealized gains and losses on available-for-sale securities, net of tax of $( 156 ), $ 130 , $( 625 ) and $ 865 , respectively     1,132       ( 1,157 )     4,073       ( 7,960 ) Other comprehensive loss, net of tax:     ( 3,706 )     ( 27,238 )     ( 24,026 )     ( 57,804 ) Comprehensive income   $ 117,457     $ 97,099     $ 306,443     $ 260,778     See accompanying notes to unaudited condensed consolidated financial statements.   6 Table of Contents      MONOLITHIC POWER SYSTEMS, INC.   CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS ’ EQUITY (in thousands, except per-share amounts) (unaudited)                               Accumulated               Common Stock and             Other     Total       Additional Paid-in Capital     Retained     Comprehensive     Stockholders’   Three Months Ended September 30, 2023   Shares     Amount     Earnings     Loss     Equity   Balance as of July 1, 2023     47,611     $ 1,055,130     $ 827,356     $ ( 43,397 )   $ 1,839,089   Net income     -       -       121,163       -       121,163   Other comprehensive loss     -       -       -       ( 3,706 )     ( 3,706 ) Dividends and dividend equivalents declared ($ 1.00 per share)     -       -       ( 49,121 )     -       ( 49,121 ) Common stock issued under the employee equity incentive plan     291       4       -       -       4   Common stock issued under the employee stock purchase plan     9       3,831       -       -       3,831   Stock-based compensation expense     -       33,604       -       -       33,604   Balance as of September 30, 2023     47,911     $ 1,092,569     $ 899,398     $ ( 47,103 )   $ 1,944,864                                 Accumulated               Common Stock and             Other     Total       Additional Paid-in Capital     Retained     Comprehensive     Stockholders’   Three Months Ended September 30, 2022   Shares     Amount     Earnings     Loss     Equity   Balance as of July 1, 2022     46,787     $ 891,888     $ 545,920     $ ( 14,686 )   $ 1,423,122   Net income     -       -       124,337       -       124,337   Other comprehensive loss     -       -       -       ( 27,238 )     ( 27,238 ) Dividends and dividend equivalents declared ($ 0.75 per share)     -       -       ( 36,617 )     -       ( 36,617 ) Common stock issued under the employee equity incentive plan     147       1,014       -       -       1,014   Common stock issued under the employee stock purchase plan     7       3,091       -       -       3,091   Stock-based compensation expense     -       43,000       -       -       43,000   Balance as of September 30, 2022     46,941     $ 938,993     $ 633,640     $ ( 41,924 )   $ 1,530,709                                 Accumulated               Common Stock and             Other     Total       Additional Paid-in Capital     Retained     Comprehensive     Stockholders’   Nine Months Ended September 30, 2023   Shares     Amount     Earnings     Loss     Equity   Balance as of January 1, 2023     47,107     $ 975,276     $ 716,403     $ ( 23,077 )   $ 1,668,602   Net income     -       -       330,469       -       330,469   Other comprehensive loss     -       -       -       ( 24,026 )     ( 24,026 ) Dividends and dividend equivalents declared ($ 3.00 per share)     -       -       ( 147,474 )     -       ( 147,474 ) Common stock issued under the employee equity incentive plan     786       1,118       -       -       1,118   Common stock issued under the employee stock purchase plan     18       7,568       -       -       7,568   Stock-based compensation expense     -       108,607       -       -       108,607   Balance as of September 30, 2023     47,911     $ 1,092,569     $ 899,398     $ ( 47,103 )   $ 1,944,864                                 Accumulated               Common Stock and             Other     Total       Additional Paid-in Capital     Retained     Comprehensive     Stockholders’   Nine Months Ended September 30, 2022   Shares     Amount     Earnings     Income (Loss)     Equity   Balance as of January 1, 2022     46,256     $ 803,226     $ 424,879     $ 15,880     $ 1,243,985   Net income     -       -       318,582       -       318,582   Other comprehensive loss     -       -       -       ( 57,804 )     ( 57,804 ) Dividends and dividend equivalents declared ($ 2.25 per share)     -       -       ( 109,821 )     -       ( 109,821 ) Common stock issued under the employee equity incentive plan     671       4,345       -       -       4,345   Common stock issued under the employee stock purchase plan     14       5,877       -       -       5,877   Stock-based compensation expense     -       125,545       -       -       125,545   Balance as of September 30, 2022     46,941     $ 938,993     $ 633,640     $ ( 41,924 )   $ 1,530,709     See accompanying notes to unaudited condensed consolidated financial statements.   7 Table of Contents      MONOLITHIC POWER SYSTEMS, INC.   CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited)       Nine Months Ended September 30,       2023     2022   Cash flows from operating activities:                 Net income   $ 330,469     $ 318,582   Adjustments to reconcile net income to net cash provided by operating activities:                 Depreciation and amortization     29,940       28,349   Amortization of premium (discount) on available-for-sale securities     ( 1,591 )     3,682   (Gain) loss on deferred compensation plan investments     ( 3,411 )     8,607   Gain on sales of equity investment     ( 1,424 )     -   Deferred taxes, net     10,927       ( 1,217 ) Stock-based compensation expense     108,603       125,723   Other     ( 23 )     97   Changes in operating assets and liabilities:                 Accounts receivable     ( 3,103 )     ( 48,608 ) Inventories     49,989       ( 138,241 ) Other assets     ( 21,423 )     ( 172,050 ) Accounts payable     6,915       6,274   Accrued compensation and related benefits     ( 22,355 )     45,054   Income tax liabilities     ( 12,797 )     5,734   Other accrued liabilities     14,184       12,485   Net cash provided by operating activities     484,900       194,471   Cash flows from investing activities:                 Purchases of property and equipment     ( 43,772 )     ( 46,002 ) Purchases of investments     ( 492,638 )     ( 18,327 ) Maturities and sales of investments     328,181       104,991   Contributions to deferred compensation plan, net     ( 4,466 )     ( 2,993 ) Net cash provided by (used in) investing activities     ( 212,695 )     37,669   Cash flows from financing activities:                 Property and equipment purchased on extended payment terms     ( 2,732 )     ( 1,587 ) Proceeds from common stock issued under the employee equity incentive plan     1,118       4,345   Proceeds from common stock issued under the employee stock purchase plan     7,568       5,877   Dividends and dividend equivalents paid     ( 135,265 )     ( 101,564 ) Net cash used in financing activities     ( 129,311 )     ( 92,929 ) Effect of change in exchange rates     ( 10,323 )     ( 12,275 ) Net increase in cash, cash equivalents and restricted cash     132,571       126,936   Cash, cash equivalents and restricted cash, beginning of period     288,729       189,389   Cash, cash equivalents and restricted cash, end of period   $ 421,300     $ 316,325   Supplemental disclosures for cash flow information:                 Cash paid for income taxes, net   $ 73,678     $ 61,430   Non-cash investing and financing activities:                 Liability accrued for property and equipment purchases   $ 2,893     $ 4,710   Liability accrued for dividends and dividend equivalents   $ 52,509     $ 39,672     See accompanying notes to unaudited condensed consolidated financial statements.   8 Table of Contents    MONOLITHIC POWER SYSTEMS, INC.   NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)     1. BASIS OF PRESENTATION   The accompanying unaudited condensed consolidated financial statements have been prepared by Monolithic Power Systems, Inc. (the “Company” or “MPS”) in accordance with the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) have been condensed or omitted in accordance with these accounting principles, rules and regulations. The information in this report should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto included in the Annual Report on Form 10 -K for the year ended December 31, 2022 , filed with the SEC on February 24, 2023.   In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments (consisting only of normal recurring adjustments) necessary to present fairly the Company’s financial position, results of operations and cash flows for the interim periods presented. The financial statements contained in this Quarterly Report on Form 10 -Q are not necessarily indicative of the results that may be expected for the year ending December 31,  2023 or for any other future periods.   Use of Estimates   The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and reported amounts of revenue and expenses during the reporting period. Significant estimates and assumptions used in these condensed consolidated financial statements primarily include those related to revenue recognition, inventory valuation, valuation of share-based awards, contingencies and income tax valuation allowances. Actual results could differ from these estimates and assumptions, and any such differences may be material to the Company’s condensed consolidated financial statements.      2. REVENUE RECOGNITION   Revenue from Product Sales   The Company generates revenue primarily from product sales, which include assembled and tested integrated circuits (“ICs”), as well as dies in wafer form. These product sales accounted for 99 % of the Company’s total revenue for both the three and nine months ended September 30, 2023 , and 98 % of the Company’s total revenue for both the three and nine months ended September 30, 2022 . The remaining revenue primarily includes royalty revenue from licensing arrangements and revenue from wafer testing services performed for third parties, which have not been significant for the periods presented. See Note 7 for the disaggregation of the Company’s revenue by geographic region and by product family.   The Company sells its products primarily through third -party distributors, value-added resellers, original equipment manufacturers (“OEMs”), original design manufacturers (“ODMs”) and electronic manufacturing service (“EMS”) providers. For the three months ended September 30, 2023 and 2022 , 77 % and  83 % of the Company’s product sales were made through distribution arrangements, respectively. For the nine months ended September 30, 2023 and 2022 , 79 % and 83 % of the Company’s product sales were made through distribution arrangements, respectively. These distribution arrangements contain enforceable rights and obligations specific to those distributors and not the end customers. Purchase orders, which are generally governed by sales agreements or the Company’s standard terms of sale, set the final terms for unit price, quantity, shipping and payment agreed between the Company and the customer. The Company considers purchase orders to be the contracts with customers. The unit price as stated on the purchase orders is considered the observable, stand-alone selling price for the arrangements.   The Company recognizes revenue when it satisfies a performance obligation by transferring control of the promised goods or services to its customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. The Company excludes taxes assessed by government authorities, such as sales taxes, from revenue.   Product sales consist of a single performance obligation that the Company satisfies at a point in time. The Company recognizes product revenue from distributors and direct end customers when the following events have occurred: (a) the Company has transferred physical possession of the products, (b) the Company has a present right to payment, (c) the customer has legal title to the products, and (d) the customer bears significant risks and rewards of ownership of the products. In accordance with the shipping terms specified in the contracts, these criteria are generally met when the products are shipped from the Company’s facilities (such as the “Ex Works” shipping term) or delivered to the customers’ locations (such as the “Delivered Duty Paid” shipping term).   Under certain consignment agreements, revenue is not recognized when the products are shipped and delivered to be held at customers’ designated locations because the Company continues to control the products and retain ownership, and the customers do not have an unconditional obligation to pay. The Company recognizes revenue when the customers consume the products from the consigned inventory locations, at which time control transfers to the customers and the Company invoices them for payment.   9 Table of Contents   Variable Consideration   The Company accounts for price adjustments and stock rotation rights as variable consideration that reduces the transaction price and recognizes that reduction in the same period the associated revenue is recognized. Four U.S.-based distributors have price adjustment rights when they sell the Company’s products to their end customers at a price that is lower than the distribution price invoiced by the Company. When the Company receives claims from the distributors that products have been sold to the end customers at the lower prices, the Company issues the distributors credit memos for the price adjustments. The Company estimates the price adjustments using the expected value method based on an analysis of historical claims, at both the distributor and product level, as well as an assessment of any known trends of product sales mix. Other U.S. distributors and non-U.S. distributors do not have price adjustment rights. The Company records a credit against accounts receivable for the estimated price adjustments, with a corresponding reduction to revenue.   Certain distributors have limited stock rotation rights that permit the return of a small percentage of the previous six months’ purchases in accordance with the contract terms. The Company estimates the stock rotation returns using the expected value method based on an analysis of historical returns, and the current level of inventory in the distribution channel. The Company records a liability for the stock rotation reserve, with a corresponding reduction to revenue. In addition, the Company recognizes an asset for product returns which represents the right to recover products from the customers related to stock rotations, with a corresponding reduction to cost of revenue.   Contract Balances   Accounts Receivable:   The Company records a receivable when it has an unconditional right to receive consideration after the performance obligations are satisfied. As of  September 30, 2023 and December 31, 2022 , accounts receivable totaled $ 185.8  million and $ 182.7  million, respectively. The Company’s accounts receivable are short-term, with standard payment terms generally ranging from 30 to 90 days. The Company does not require its customers to provide collateral to support accounts receivable. The Company assesses the collectability by reviewing accounts receivable on a customer-by-customer basis. To manage credit risk, management performs ongoing credit evaluations of the customers’ financial condition, monitors payment performance, and assesses current economic conditions, as well as reasonable and supportable forecasts of future economic conditions, that may affect collectability of the outstanding receivables. For certain high-risk customers, the Company requires standby letters of credit or advance payments prior to shipments of goods. The Company did not recognize any write-offs of accounts receivable or record any allowance for credit losses for the periods presented.   Contract Liabilities:   For certain customers located in Asia, the Company requires cash payments two weeks before the products are scheduled to be shipped to the customers. The Company records these payments received in advance of performance as customer prepayments within current accrued liabilities. As of September 30, 2023 and December 31, 2022 , customer prepayments totaled $ 1.5  million and $ 3.6 million, respectively. The decrease in the customer prepayment balance for the  nine months ended September 30, 2023 resulted from a decrease in unfulfilled customer orders for which the Company had received payments. For the nine months ended September 30, 2023 , the Company recognized substantially all of the revenue that was included in the customer prepayment balance as of December 31, 2022 .   Practical Expedients   The Company has elected the practical expedient to expense sales commissions as incurred because the amortization period would have been one year or less.   The Company’s standard payment terms generally require customers to pay 30 to 90 days after the Company satisfies the performance obligations. For those customers who are required to pay in advance, the Company satisfies the performance obligations generally within a quarter. For these reasons, the Company has elected not to determine whether contracts with customers contain significant financing components.   10 Table of Contents   The Company’s unsatisfied performance obligations primarily include products held in consignment arrangements and customer purchase orders for products that the Company has not yet shipped. Because the Company expects to fulfill these performance obligations within one year, the Company has elected not to disclose the amount of these remaining performance obligations.      3. STOCK-BASED COMPENSATION   2014 Equity Incentive Plan   In April 2013, the Board of Directors adopted the 2014 Equity Incentive Plan (the “2014 Plan”), which the Company’s stockholders approved in June 2013. In October 2014, the Board of Directors approved certain amendments to the 2014 Plan. The amended 2014 Plan became effective on November 13, 2014, and provided for the issuance of up to 5.5 million shares. In April 2020, the Board of Directors further amended and restated the amended 2014 Plan (the “Amended and Restated 2014 Plan”), which the Company’s stockholders approved in June 2020. The Amended and Restated 2014 Plan became effective on June 11, 2020, and provides for the issuance of up to 10.5 million shares. The Amended and Restated 2014 Plan will expire on June 11, 2030. As of September 30, 2023 , 4.2  million shares remained available for future issuance under the Amended and Restated 2014 Plan.   Stock-Based Compensation Expense   The Company recognized stock-based compensation expenses as follows (in thousands):       Three Months Ended September 30,     Nine Months Ended September 30,       2023     2022     2023     2022   Cost of revenue   $ 1,020     $ 1,186     $ 3,317     $ 3,691   Research and development (“R&D”)     8,479       9,287       26,406       26,875   Selling, general and administrative (“SG&A”)     24,103       32,524       78,880       95,157   Total stock-based compensation expense   $ 33,602     $ 42,997     $ 108,603     $ 125,723   Tax benefit related to stock-based compensation (1)   $ 667     $ 654     $ 1,753     $ 1,879     ( 1 ) Amount reflects the tax benefit related to stock-based compensation recorded for equity awards that are expected to generate tax deductions when they vest in future periods. Equity awards granted to the Company’s executive officers are subject to the tax deduction limitations set by Section 162 (m) of the Internal Revenue Code.   Restricted Stock Units ( “ RSUs ” )   The Company’s RSUs include time-based RSUs, RSUs with performance conditions (“PSUs”), RSUs with market conditions (“MSUs”), and RSUs with both market and performance conditions (“MPSUs”). Vesting of awards with performance conditions or market conditions is subject to the achievement of pre-determined performance/market goals and the approval of such achievement by the Compensation Committee of the Board of Directors (the “Compensation Committee”). All awards include service conditions which require continued employment with the Company. A summary of RSU activity is presented in the table below (in thousands, except per-share amounts):       Time-Based RSUs     PSUs and MPSUs     MSUs     Total               Weighted-               Weighted-             Weighted-             Weighted-               Average               Average             Average             Average               Grant Date               Grant Date             Grant Date             Grant Date       Number of     Fair Value     Number of       Fair Value     Number of     Fair Value     Number of     Fair Value       Shares     Per Share     Shares       Per Share     Shares     Per Share     Shares     Per Share   Outstanding at January 1, 2023     106     $ 327.13       748       $ 275.70       1,805     $ 126.57       2,659     $ 176.50   Granted     45     $ 479.76       226   (1)   $ 449.34       31     $ 330.95       302     $ 445.50   Vested     ( 42 )   $ 288.51       ( 504 )     $ 257.41       ( 240 )   $ 23.57       ( 786 )   $ 187.56   Forfeited     ( 5 )   $ 376.82       ( 4 )     $ 312.12       ( 14 )   $ 104.16       ( 23 )   $ 192.23   Outstanding at September 30, 2023     104     $ 406.52       466       $ 380.12       1,582     $ 146.51       2,152     $ 209.67     ( 1 ) Amount reflects the number of awards that may ultimately be earned based on management’s probability assessment of the achievement of performance conditions at each reporting period.   11 Table of Contents   The intrinsic value related to vested RSUs was $ 148.9 million and $ 62.3 million for the three months ended September 30, 2023 and 2022 , respectively. The intrinsic value related to vested RSUs was $ 388.6 million and $ 277.9 million for the nine months ended September 30, 2023 and 2022 , respectively. As of September 30, 2023 , the total intrinsic value of all outstanding RSUs was $ 987.4 million, based on the closing stock price of $ 462.00 . As of September 30, 2023 , unamortized compensation expense related to all outstanding RSUs was $ 236.5 million with a weighted-average remaining recognition period of approximately two  years.   Cash proceeds from vested PSUs with a purchase price requirement totaled $ 1.1 million and $ 4.3 million for the nine months ended September 30, 2023 and 2022 , respectively.   Time-Based RSUs:   For the nine months ended September 30, 2023 , the Compensation Committee granted 45,000 RSUs with service conditions to non-executive employees and non-employee directors. The RSUs generally vest over four years for employees and one year for directors, subject to continued service with the Company.   2023 PSUs:   In February 2023, the Compensation Committee granted 69,000 PSUs to the executive officers, which represent a target number of shares that can be earned based on the degree of achievement of two sets of performance goals ( “2023 Executive PSUs”). For the first goal, the executive officers can earn up to 300 % of the target number of the 2023 Executive PSUs based on the achievement of the Company’s average three -year ( 2023 through 2025 ) revenue growth rate in excess of the analog industry’s average three -year revenue growth rate as published by the Semiconductor Industry Association (the “SIA”). For the second goal, the executive officers can earn up to an additional 200 % of the target number of the 2023 Executive PSUs if the Company secures additional manufacturing capacity outside of Mainland China during a three -year performance period. For both goals, a percentage of the 2023 Executive PSUs will fully vest on December 31, 2025, depending on the degree to which the pre-determined goals are met during the performance periods. Assuming the achievement of the highest level of the performance goals, the total stock-based compensation cost for the 2023 Executive PSUs is $ 156.2 million.   In February 2023, the Compensation Committee granted 13,000 PSUs to certain non-executive employees, which represent a target number of shares that can be earned based on the degree of achievement of the Company’s 2024 revenue goals for certain regions or product line divisions, or based on the degree of achievement of the Company’s average two -year ( 2023 and 2024 ) revenue growth rate compared against the analog industry’s average two -year revenue growth rate as published by the SIA ( “2023 Non-Executive PSUs”). The maximum number of shares that an employee can earn is either 200 % or 300 % of the target number of the 2023 Non-Executive PSUs, depending on the job classification of the employee. 50 % of the 2023 Non-Executive PSUs will vest in the first quarter of 2025 depending on the degree to which the pre-determined goals are met during the performance period. The remaining 2023 Non-Executive PSUs will vest over the following two years on a quarterly basis. Assuming the achievement of the highest level of performance goals, the total stock-based compensation cost for the 2023 Non-Executive PSUs is $ 13.9 million.   The 2023 Executive PSUs and the 2023 Non-Executive PSUs contain a purchase price feature, which requires the employees to pay the Company $ 30 per share upon vesting of the shares. The $30 purchase price requirement is deemed satisfied and waived if the Company's stock price on the last trading day of the performance period is $30 higher than the grant date stock price of $ 467.62 . The Company determined the grant date fair value of the 2023 Executive PSUs and the 2023 Non-Executive PSUs using a Monte Carlo simulation model with the following assumptions: stock price of $ 467.62 , simulation term of four years, expected volatility of 51.0 %, risk-free interest rate of 3.9 %, and expected dividend yield of 0.9 %. There is no illiquidity discount because the awards do not contain any post-vesting sales restrictions.   12 Table of Contents   2004 Employee Stock Purchase Plan (as amended and restated, the “ 2004 ESPP ” )   On August 16, 2023, the 2004 ESPP was amended and restated to, among other changes, provide for the issuance of up to 4.4 million shares of the Company’s common stock. The 2004 ESPP will expire on  August 16, 2038.   For the  three  months ended  September 30, 2023  and  2022,   9,000 and 7,000  shares were issued under the 2004 ESPP, respectively. For the nine months ended September 30, 2023 and 2022, 18,000 and 14,000 shares were issued under the 2004 ESPP, respectively. As of September 30, 2023, 4.4  million shares were available for future issuance under the 2004 ESPP.   The intrinsic value of the shares issued was $ 0.7  million and $ 0.9  million for the  three  months ended  September 30, 2023  and  2022,  respectively. The intrinsic value of the shares issued was $ 1.4  million and $ 1.6  million for the  nine  months ended  September 30, 2023  and  2022,  respectively. As of September 30, 2023, the unamortized expense was $ 1.2  million, which will be recognized through the first quarter of 2024. The Black-Scholes model was used to value the employee stock purchase rights with the following weighted-average assumptions:       Three Months Ended September 30,     Nine Months Ended September 30,       2023     2022     2023     2022   Expected term (in years)     0.5       0.5       0.5       0.5   Expected volatility     50.8 %     63.2 %     53.3 %     50.6 % Risk-free interest rate     5.5 %     3.1 %     5.3 %     1.9 % Dividend yield     0.8 %     0.6 %     0.8 %     0.6 %   Cash proceeds from the shares issued under the  2004 ESPP were $ 7.6 million and $ 5.9 million for the nine months ended September 30, 2023 and 2022, respectively.      4. BALANCE SHEET COMPONENTS   Inventories   Inventories consist of the following (in thousands):       September 30,     December 31,       2023     2022   Raw materials   $ 126,840     $ 126,760   Work in process     94,417       134,071   Finished goods     176,031       186,459   Total   $ 397,288     $ 447,290     Other Current Assets   Other current assets consist of the following (in thousands):       September 30,     December 31,       2023     2022   Prepaid wafer purchase   $ 50,000     $ -   RSU tax withholding proceeds receivable     14,777       14,480   Prepaid expenses     29,202       11,045   Accrued interest receivable     3,693       8,752   Other     12,295       8,465   Total   $ 109,967     $ 42,742     Prepaid wafer purchase of $ 50.0 million relates to a deposit made to a supplier under a long-term wafer supply agreement. See Note 8 for further details.   13 Table of Contents   Other Long-Term Assets   Other long-term assets consist of the following (in thousands):       September 30,     December 31,       2023     2022   Prepaid wafer purchase   $ 120,000     $ 170,000   Deferred compensation plan assets     70,899       63,022   Other     13,341       16,264   Total   $ 204,240     $ 249,286     Prepaid wafer purchase relates to a deposit made to a supplier under a long-term wafer supply agreement. See Note 8 for further details.   Other Accrued Liabilities   Other accrued liabilities consist of the following (in thousands):       September 30,     December 31,       2023     2022   Dividends and dividend equivalents   $ 58,909     $ 42,170   Warranty     17,043       24,082   Stock rotation and sales returns     28,343       14,931   Income tax payable     467       15,595   Other     15,915       16,901   Total   $ 120,677     $ 113,679     As of September 30, 2023 , stock rotation and sales returns included a $ 25.0  million stock rotation reserve, compared with a $ 14.3  million reserve as of December 31, 2022 . The change in the reserve is affected by the timing of customer returns and the level of inventory in the distribution channel.   Other Long-Term Liabilities   Other long-term liabilities consist of the following (in thousands):       September 30,     December 31,       2023     2022   Deferred compensation plan liabilities   $ 69,327     $ 64,863   Dividend equivalents     2,316       6,847   Other     5,758       1,664   Total   $ 77,401     $ 73,374     14 Table of Contents      5. LEASES   Lessee   The Company has operating leases primarily for administrative, sales and marketing offices, manufacturing operations and research and development facilities, employee housing units and certain equipment. These leases have remaining lease terms from less than one year to seven years. Some of these leases include options to renew the lease term for up to five years or on a month-to-month basis. The Company does not have finance lease arrangements.   The following table summarizes the balances of operating lease right-of-use (“ROU”) assets and liabilities (in thousands):         September 30,     December 31,     Financial Statement Line Item   2023     2022   Operating lease ROU assets Other long-term assets   $ 8,571     $ 4,288                       Operating lease liabilities Other accrued liabilities   $ 2,225     $ 2,133     Other long-term liabilities   $ 5,758     $ 1,664     The following tables summarize certain information related to the leases (in thousands, except percentages and years):       Three Months Ended September 30,     Nine Months Ended September 30,       2023     2022     2023     2022   Lease costs:                                 Operating lease costs   $ 852     $ 656     $ 2,327     $ 2,061   Other     480       454       1,572       1,259   Total lease costs   $ 1,332     $ 1,110     $ 3,899     $ 3,320         Three Months Ended September 30,     Nine Months Ended September 30,       2023     2022     2023     2022   Cash paid for amounts included in the measurement of lease liabilities:                                 Operating cash flows for operating leases   $ 629     $ 649     $ 2,267     $ 2,115   ROU assets obtained in exchange for new operating lease liabilities   $ 2,086     $ 13     $ 6,921     $ 1,071         September 30,     December 31,       2023     2022   Weighted-average remaining lease term (in years)     4.8       2.1   Weighted-average discount rate     4.2 %     2.1 %   As of September 30, 2023 , the maturities of the lease liabilities were as follows (in thousands):   2023 (remaining three months)   $ 598   2024     2,397   2025     1,762   2026     1,193   2027     1,201   Thereafter     1,603   Total remaining lease payments     8,754   Less: imputed interest     ( 771 ) Total lease liabilities   $ 7,983     As of September 30, 2023 , the Company had no operating leases that had not yet commenced.   15 Table of Contents   Lessor   The Company owns certain office buildings and leases a portion of these properties to third parties under arrangements that are classified as operating leases. These leases have remaining lease terms ranging from less than one year to three years. Some of these leases include options to renew the lease term for up to five years.   For the three months ended September 30, 2023 and 2022 , income related to lease payments was $ 0.4  million and $ 0.6 million, respectively. For the nine months ended September 30, 2023 and 2022 , income related to lease payments was $ 1.2 million and $ 1.7  million, respectively. As of September 30, 2023 , future income related to lease payments was as follows (in thousands):   2023 (remaining three months)   $ 316   2024     750   2025     226   2026     40   Total   $ 1,332        6. NET INCOME PER SHARE   Basic net income per share is computed by dividing net income by the weighted-average number of shares of common stock outstanding for the period. Diluted net income per share reflects the potential dilution that would occur if outstanding securities or other contracts to issue common stock were exercised or converted into shares of common stock, and calculated using the treasury stock method. Contingently issuable shares, including equity awards with performance conditions or market conditions, are considered outstanding shares of common stock and included in the basic net income per share as of the date that all necessary conditions to earn the awards have been satisfied. Prior to the end of the contingency period, the number of contingently issuable shares included in the diluted net income per share is based on the number of shares, if any, that would be issuable under the terms of the arrangement at the end of the reporting period.   The Company’s RSUs contain forfeitable rights to receive cash dividend equivalents, which are accumulated and paid to the employees when the underlying RSUs vest. Dividend equivalents accumulated on the underlying RSUs are forfeited if the employees do not fulfill the requisite service requirement and, as a result, the awards do not vest. Accordingly, these awards are not treated as participating securities in the net income per share calculation.   The following table sets forth the computation of basic and diluted net income per share (in thousands, except per-share amounts):       Three Months Ended September 30,     Nine Months Ended September 30,       2023     2022     2023     2022   Numerator:                                 Net income   $ 121,163     $ 124,337     $ 330,469     $ 318,582                                     Denominator:                                 Weighted-average outstanding shares - basic     47,780       46,829       47,501       46,643   Effect of dilutive securities     1,012       1,520       1,233       1,652   Weighted-average outstanding shares - diluted     48,792       48,349       48,734       48,295                                     Net income per share:                                 Basic   $ 2.54     $ 2.66     $ 6.96     $ 6.83   Diluted   $ 2.48     $ 2.57     $ 6.78     $ 6.60     Anti-dilutive common stock equivalents were not material in any of the periods presented.   16 Table of Contents      7. SEGMENT, SIGNIFICANT CUSTOMERS AND GEOGRAPHIC INFORMATION   The Company operates in one reportable segment that includes the design, development, marketing and sale of high-performance, semiconductor-based power electronic solutions for the storage and computing, enterprise data, automotive, industrial, communications and consumer markets. The Company’s chief operating decision maker is its Chief Executive Officer, who reviews financial information presented on a consolidated basis for purposes of allocating resources and evaluating financial performance. The Company derives a majority of its revenue from sales to customers located outside North America, with geographic revenue based on the customers’ ship-to locations.   The Company sells its products primarily through third -party distributors and value-added resellers, and directly to OEMs, ODMs and EMS providers. The following table summarizes those customers with sales equal to 10% or more of the Company’s total revenue:       Three Months Ended September 30,     Nine Months Ended September 30,   Customer   2023     2022     2023     2022   Distributor A     27 %     25 %     23 %     24 % Distributor B     21 %     18 %     21 %     18 % Distributor C     11 %     10 %     10 %     11 %   The Company’s agreements with these third -party customers were made in the ordinary course of business and may be terminated with or without cause by these customers with advance notice. Although the Company may experience a short-term disruption in the distribution of its products and a short-term decline in revenue if its agreement with any of the distributors were terminated, the Company believes that such termination would not have a material adverse effect on its financial statements because it would be able to engage alternative distributors, resellers and other distribution channels to deliver its products to end customers within a short period following any termination of the agreement with a distributor.   The following table summarizes those customers with accounts receivable equal to 10% or more of the Company’s total accounts receivable:       September 30,     December 31,   Customer   2023     2022   Distributor A     37 %     29 % Distributor B     17 %     23 %   The following is a summary of revenue by geographic region (in thousands):       Three Months Ended September 30,     Nine Months Ended September 30,   Country or Region   2023     2022     2023     2022   China   $ 234,924     $ 265,053     $ 676,148     $ 720,911   Taiwan     103,537       58,920       222,582       185,025   South Korea     41,698       52,613       128,047       136,031   Europe     29,827       44,885       109,278       101,279   United States     23,565       24,965       82,153       62,384   Japan     18,605       22,399       77,708       63,690   Southeast Asia     22,538       26,458       70,678       64,460   Other     173       125       466       356   Total   $ 474,867     $ 495,418     $ 1,367,060     $ 1,334,136     17 Table of Contents   The following is a summary of revenue by product family (in thousands):       Three Months Ended September 30,     Nine Months Ended September 30,   Product Family   2023     2022     2023     2022   Direct Current (“DC”) to DC   $ 447,394     $ 462,982     $ 1,290,750     $ 1,264,081   Lighting Control     27,473       32,436       76,310       70,055   Total   $ 474,867     $ 495,418     $ 1,367,060     $ 1,334,136     The following is a summary of long-lived assets by geographic region (in thousands):       September 30,     December 31,   Country   2023     2022   China   $ 182,646     $ 200,508   United States     118,957       113,996   Taiwan     32,956       20,074   Other     23,667       22,579   Total   $ 358,226     $ 357,157        8. COMMITMENTS AND CONTINGENCIES   Product Warranties   The Company generally provides either a one - or two -year warranty against defects in materials and workmanship and will repair the products, provide replacements at no charge to customers or issue a refund. As they are considered assurance-type warranties, the Company does not account for them as separate performance obligations. Warranty reserve requirements are mainly based on a specific assessment when a customer asserts a claim for warranty or a product defect.   The changes in warranty reserves are as follows (in thousands):       Three Months Ended September 30,     Nine Months Ended September 30,       2023     2022     2023     2022   Balance at beginning of period   $ 17,654     $ 25,209     $ 24,082     $ 20,989   Warranties issued     1,858       1,141       2,800       1,616   Repairs, replacement and refund     ( 367 )     ( 306 )     ( 2,619 )     ( 1,825 ) Changes in liability for pre-existing warranties     ( 2,102 )     ( 3,400 )     ( 7,220 )     1,864   Balance at end of period   $ 17,043     $ 22,644     $ 17,043     $ 22,644     Changes in liability for pre-existing warranties result from changes in estimates for warranties issued in prior periods.   Purchase Commitments   The Company has outstanding purchase obligations with its suppliers and other parties that require the future purchases of goods or services. The purchase obligations primarily consist of wafer and other inventory purchases, assembly and other manufacturing services, construction of manufacturing and research and development facilities, purchases of production and other equipment, and license arrangements.   In May 2022, the Company entered into a long-term supply agreement in order to secure manufacturing production capacity for silicon wafers over a four -year period. As of September 30, 2023 , the Company had made prepayments under this agreement of $ 170.0 million, of which $ 50.0 million was classified as short-term.   18 Table of Contents   Total estimated future unconditional purchase commitments to all suppliers and other parties as of September 30, 2023 were as follows (in thousands):   2023 (remaining three months)   $ 48,638   2024     317,194   2025     290,663   Total   $ 656,495     Litigation   The Company is a party to actions and proceedings in the ordinary course of business, including challenges to the enforceability or validity of its intellectual property, claims that the Company’s products infringe on the intellectual property rights of others, and employment matters. The Company may also be subject to litigation initiated by its stockholders. These proceedings often involve complex questions of fact and law and may require the expenditure of significant funds and the diversion of other resources to prosecute and defend. The Company defends itself vigorously against any such claims. As of September 30, 2023 , there were no material pending legal proceedings to which the Company was a party.      9. CASH, CASH EQUIVALENTS, INVESTMENTS AND RESTRICTED CASH   The following is a summary of the Company’s cash, cash equivalents and debt investments (in thousands):       September 30,     December 31,       2023     2022   Cash   $ 377,324     $ 273,145   Money market funds     43,854       15,462   Certificates of deposit     123,368       130,467   Corporate debt securities     130,614       292,586   Commercial paper     4,976       17,928   U.S. treasuries and government agency bonds     362,165       8,285   Auction-rate securities backed by student-loan notes     600       1,711   Total   $ 1,042,901     $ 739,584         September 30,     December 31,       2023     2022   Reported as:                 Cash and cash equivalents   $ 421,178     $ 288,607   Short-term investments     621,123       449,266   Investment within other long-term assets     600       1,711   Total   $ 1,042,901     $ 739,584     The following table summarizes the contractual maturities of the short-term and long-term available-for-sale investments as of September 30, 2023 (in thousands):       Amortized Cost     Fair Value   Due in less than 1 year   $ 405,120     $ 403,201   Due in 1 - 5 years     219,510       217,922   Due in greater than 5 years     600       600   Total   $ 625,230     $ 621,723     Gross realized gains and losses recognized on the sales of available-for-sale investments were not material for the periods presented.   19 Table of Contents   The following tables summarize the unrealized gain and loss positions related to the available-for-sale investments (in thousands):       September 30, 2023       Amortized Cost     Unrealized Gains     Unrealized Losses     Fair Value   Money market funds   $ 43,854     $ -     $ -     $ 43,854   Certificates of deposit     123,368       -       -       123,368   Corporate debt securities     133,442       3       (2,831)       130,614   Commercial paper     4,976       -       -       4,976   U.S. treasuries and government agency bonds     362,844       17       (696)       362,165   Auction-rate securities backed by student-loan notes     600       -       -       600   Total   $ 669,084     $ 20     $ (3,527)     $ 665,577         December 31, 2022       Amortized Cost     Unrealized Gains     Unrealized Losses     Fair Value   Money market funds   $ 15,462     $ -     $ -     $ 15,462   Certificates of deposit     130,467       -       -       130,467   Corporate debt securities     300,529       18       ( 7,961 )     292,586   Commercial paper     17,928       -       -       17,928   U.S. treasuries and government agency bonds     8,487       -       ( 202 )     8,285   Auction-rate securities backed by student-loan notes     1,770       -       ( 59 )     1,711   Total   $ 474,643     $ 18     $ ( 8,222 )   $ 466,439     The following tables present information about the available-for-sale investments that had been in a continuous unrealized loss position for less than 12 months and for greater than 12 months (in thousands):       September 30, 2023       Less than 12 Months     Greater than 12 Months     Total       Fair Value     Unrealized Losses     Fair Value     Unrealized Losses     Fair Value     Unrealized Losses   Corporate debt securities   $ 29,476     $ ( 79 )   $ 97,133     $ ( 2,752 )   $ 126,609     $ ( 2,831 ) U.S. treasuries and government agency bonds     237,004       ( 693 )     1,497       ( 3 )     238,501       ( 696 ) Auction-rate securities backed by student-loan notes     -       -       600       -       600       -   Total   $ 266,480     $ ( 772 )   $ 99,230     $ ( 2,755 )   $ 365,710     $ ( 3,527 )       December 31, 2022       Less than 12 Months     Greater than 12 Months     Total       Fair Value     Unrealized Losses     Fair Value     Unrealized Losses     Fair Value     Unrealized Losses   Corporate debt securities   $ 72,943     $ ( 973 )   $ 202,074     $ ( 6,988 )   $ 275,017     $ ( 7,961 ) U.S. treasuries and government agency bonds     987       ( 2 )     7,298       ( 200 )     8,285       ( 202 ) Auction-rate securities backed by student-loan notes     -       -       1,711       ( 59 )     1,711       ( 59 ) Total   $ 73,930     $ ( 975 )   $ 211,083     $ ( 7,247 )   $ 285,013     $ ( 8,222 )   An impairment exists when the fair value of an investment is less than its amortized cost basis. As of September 30, 2023 and December 31, 2022 , the Company did not consider the impairment of its investments to be a result of credit losses. The Company typically invests in highly rated securities, with the primary objective of minimizing the potential risk of principal loss. The Company’s investment policy generally requires securities to be investment grade and limits the amount of credit exposure to any one issuer. When evaluating a debt security for impairment, management reviews factors such as the Company’s intent to sell, or whether it will more likely than not be required to sell, the security before recovery of its amortized cost basis, the extent to which the fair value of the security is less than its cost, the financial condition of the issuer and the credit quality of the investment.   20 Table of Contents   Non-Marketable Equity Investment   In November 2020 , the Company made an equity investment in a privately held Swiss company (the “Investee”) that was accounted for under the measurement alternative. In April 2022, the Company made an additional investment in the form of a convertible loan. One member of the Company’s Board of Directors is an executive officer of a company that has a commercial relationship with the Investee. In addition, the Company’s Chief Executive Officer had a personal investment in the Investee and was on the Investee’s board of directors. In May 2023, the Company sold all its investments in the Investee for $ 7.4  million and recorded a gain of $ 1.4  million, which was included as a component of other income (expense), net, in the Condensed Consolidated Statements of Operations.   Restricted Cash   The following table provides a reconciliation of cash, cash equivalents and restricted cash reported on the Condensed Consolidated Balance Sheets to the amounts reported on the Condensed Consolidated Statements of Cash Flows (in thousands):       September 30,     December 31,       2023     2022   Cash and cash equivalents   $ 421,178     $ 288,607   Restricted cash included in other long-term assets     122       122   Total cash, cash equivalents and restricted cash reported on the Condensed Consolidated Statements of Cash Flows   $ 421,300     $ 288,729     As of September 30, 2023 and December 31, 2022 , restricted cash included a security deposit that is set aside in a bank account and cannot be withdrawn by the Company under the terms of a lease agreement. The restriction will end upon the expiration of the lease.   21 Table of Contents      10. FAIR VALUE MEASUREMENTS   The following tables summarize the fair value of the Company’s financial assets measured on a recurring basis (in thousands):       September 30, 2023       Total     Level 1     Level 2     Level 3   Money market funds   $ 43,854     $ 43,854     $ -     $ -   Certificates of deposit     123,368       -       123,368       -   Corporate debt securities     130,614       -       130,614       -   Commercial paper     4,976       -       4,976       -   U.S. treasuries and government agency bonds     362,165       -       362,165       -   Auction-rate securities backed by student-loan notes     600       -       -       600   Mutual funds and money market funds under deferred compensation plan     49,825       49,825       -       -   Total   $ 715,402     $ 93,679     $ 621,123     $ 600         December 31, 2022       Total     Level 1     Level 2     Level 3   Money market funds   $ 15,462     $ 15,462     $ -     $ -   Certificates of deposit     130,467       -       130,467       -   Corporate debt securities     292,586       -       292,586       -   Commercial paper     17,928       -       17,928       -   U.S. treasuries and government agency bonds     8,285       -       8,285       -   Auction-rate securities backed by student-loan notes     1,711       -       -       1,711   Mutual funds and money market funds under deferred compensation plan     43,933       43,933       -       -   Total   $ 510,372     $ 59,395     $ 449,266     $ 1,711     ● Level 1 —includes instruments with quoted prices in active markets for identical assets. ● Level 2 —includes instruments for which the valuations are based upon quoted market prices in active markets involving similar assets or inputs other than quoted prices that are observable for the assets. The market inputs used to value these instruments generally consist of market yields, recently executed transactions, broker/dealer quotes or alternative pricing sources with reasonable levels of price transparency. Pricing sources may include industry standard data providers, security master files from large financial institutions, and other third -party sources used to determine a daily market value. ● Level 3 —includes instruments for which the valuations are based on inputs that are unobservable and significant to the overall fair value measurement.   Redemptions and changes in the fair value of the auction-rate securities classified as Level 3 assets were not material for the periods presented.   22 Table of Contents      11. DEFERRED COMPENSATION PLAN   The following table summarizes the deferred compensation plan balances on the Condensed Consolidated Balance Sheets (in thousands):       September 30,     December 31,       2023     2022   Deferred compensation plan asset components:                 Cash surrender value of corporate-owned life insurance policies   $ 21,074     $ 19,089   Fair value of mutual funds and money market funds     49,825       43,933   Total   $ 70,899     $ 63,022                     Deferred compensation plan assets reported in:                 Other long-term assets   $ 70,899     $ 63,022                     Deferred compensation plan liabilities reported in:                 Accrued compensation and related benefits (short-term)   $ 4,191     $ 118   Other long-term liabilities     69,327       64,863   Total   $ 73,518     $ 64,981        12. OTHER INCOME (EXPENSE), NET   The components of other income (expense), net, are as follows (in thousands):       Three Months Ended September 30,     Nine Months Ended September 30,       2023     2022     2023     2022   Interest income   $ 6,071     $ 3,584     $ 16,844     $ 10,378   Amortization of discount (premium) on available-for-sale securities     1,647       ( 1,102 )     1,591       ( 3,682 ) Gain (loss) on deferred compensation plan investments     ( 1,611 )     ( 1,330 )     3,411       ( 8,607 ) Charitable contributions     ( 3,850 )     ( 1,700 )     ( 9,650 )     ( 4,700 ) Gain on sales of equity investments     -       -       1,424       -   Other     32       553       509       891   Total   $ 2,289     $ 5     $ 14,129     $ ( 5,720 )   23 Table of Contents      13. INCOME TAXES   The income tax provision or benefit for interim periods is generally determined using an estimate of the Company’s annual effective tax rate and adjusted for discrete items, if any, in the relevant period. Each quarter the estimate of the annual effective tax rate is updated, and if the Company’s estimated tax rate changes, a cumulative adjustment is made.   The income tax expense for the three months ended September 30, 2023 was $ 16.7 million, or 12.1 % of pre-tax income. The income tax expense for the nine months ended September 30, 2023 was $ 55.8 million, or 14.5 % of pre-tax income. The effective tax rates were lower than the federal statutory rate of 21 % primarily due to foreign income from the Company’s subsidiaries in Bermuda and China being taxed at lower statutory tax rates, and excess tax benefits from stock-based compensation. The decrease in the effective tax rates relative to the federal statutory rate was partially offset by the inclusion of the global intangible low-taxed income (“GILTI”) tax and the addition of a valuation allowance against China deferred tax assets arising from the indefinite extension of the R&D super deduction policy in China.   The income tax expense for the three months ended  September 30, 2022 was $ 27.5 million, or  18.1 % of pre-tax income. The income tax expense for the  nine months ended September 30, 2022 was $ 65.6 million, or  17.1 % of pre-tax income. The effective tax rates were lower than the federal statutory rate of 21 % primarily due to foreign income from the Company’s subsidiaries in Bermuda and China being taxed at lower statutory tax rates, and excess tax benefits from stock-based compensation. The decrease in the effective tax rates relative to the federal statutory rate was partially offset by the inclusion of the GILTI tax.   On August 9, 2022, the U.S. government enacted the U.S. CHIPS and Science Act of 2022 (the “CHIPS Act”) to provide certain financial and tax incentives to the semiconductor industry, primarily for manufacturing activities within the United States. On August 16, 2022, the Inflation Reduction Act of 2022 (the “IRA”) was enacted and signed into law. The IRA, among other things, introduced a new 15% corporate minimum tax, based on adjusted financial statement income of certain large corporations, and imposes a 1% surcharge on stock repurchases. This excise tax was effective January 1, 2023. The Company does not believe the CHIPS Act or the IRA had a material impact on the Company’s income tax provisions, results of operations or financial condition for the three and nine months ended September 30, 2023 .      14. ACCUMULATED OTHER COMPREHENSIVE LOSS   The following table summarizes the changes in accumulated other comprehensive loss (in thousands):       Unrealized Gains                       (Losses) on     Foreign Currency               Available-for-Sale     Translation               Securities     Adjustments     Total   Balance as of January 1, 2023   $ ( 7,727 )   $ ( 15,350 )   $ ( 23,077 ) Other comprehensive income before reclassifications     2,524       2,919       5,443   Tax effect     ( 311 )     -       ( 311 ) Net current period other comprehensive income     2,213       2,919       5,132   Balance as of March 31, 2023     ( 5,514 )     ( 12,431 )     ( 17,945 ) Other comprehensive loss before reclassifications     886       ( 26,180 )     ( 25,294 ) Tax effect     ( 158 )     -       ( 158 ) Net current period other comprehensive loss     728       ( 26,180 )     ( 25,452 ) Balance as of June 30, 2023     ( 4,786 )     ( 38,611 )     ( 43,397 ) Other comprehensive loss before reclassifications     1,288       ( 4,838 )     ( 3,550 ) Tax effect     ( 156 )     -       ( 156 ) Net current period other comprehensive loss     1,132       ( 4,838 )     ( 3,706 ) Balance as of September 30, 2023   $ ( 3,654 )   $ ( 43,449 )   $ ( 47,103 )   24 Table of Contents      15. DIVIDENDS AND DIVIDEND EQUIVALENTS   Cash Dividend Program   The Company has a dividend program approved by the Board of Directors, pursuant to which the Company intends to pay quarterly cash dividends on its common stock. Based on the Company’s historical practice, stockholders of record as of the last business day of the quarter are entitled to receive the quarterly cash dividends when and if declared by the Board of Directors, which are payable to the stockholders in the following month. The Board of Directors declared the following cash dividends (in thousands, except per-share amounts):       Three Months Ended September 30,     Nine Months Ended September 30,       2023     2022     2023     2022   Dividend declared per share   $ 1.00     $ 0.75     $ 3.00     $ 2.25   Total amount   $ 47,832     $ 35,145     $ 142,692     $ 105,082     As of September 30, 2023 and December 31, 2022 , accrued dividends totaled $ 47.8  million and $ 35.3 million, respectively.   The declaration of any future cash dividends is at the discretion of the Board of Directors and will depend on, among other things, the Company’s financial condition, results of operations, capital requirements, business conditions, and other factors that the Board of Directors may deem relevant, as well as a determination that cash dividends are in the best interests of the Company’s stockholders.   The Company anticipates that cash used for future dividend payments will come from its domestic cash, cash generated from ongoing U.S. operations, and cash repatriated from its Bermuda subsidiary. The Company also anticipates that earnings from other foreign subsidiaries will continue to be indefinitely reinvested.   Cash Dividend Equivalent Rights   The Company’s RSUs contain rights to receive cash dividend equivalents, which entitle employees who hold RSUs to the same dividend value per share as holders of common stock. The dividend equivalents are accumulated and paid to the employees when the underlying RSUs vest. Dividend equivalents accumulated on the underlying RSUs are forfeited if the employees do not fulfill the requisite service requirement and, as a result, the awards do not vest. As of September 30, 2023 and December 31, 2022 , accrued dividend equivalents totaled $ 13.4  million and $ 13.8  million, respectively.     16. SUBSEQUENT EVENT   Stock Repurchase Program   In October 2023,  the Board of Directors approved a new stock repurchase program authorizing the Company to repurchase up to $ 640.0 million in the aggregate of its common stock through October 29, 2026.  The repurchases will be funded from available working capital and cash repatriation from its Bermuda subsidiary.   25 Table of Contents     Item 2. Management ’ s Discussion and Analysis of Financial Condition and Results of Operations   This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, that have been made pursuant to and in reliance on the provisions of the Private Securities Litigation Reform Act of 1995. These statements include, among others, statements concerning:     • the above-average industry growth of product and market areas that we have targeted;     • our plan to increase our revenue through the introduction of new products within our existing product families as well as in new product categories and families;     • our belief that we may incur significant legal expenses that vary with the level of activity in each of our current or future legal proceedings;     • the effect that liquidity of our investments has on our capital resources;     • the continuing application of our products in the storage and computing, enterprise data, automotive, industrial, communications and consumer markets;     • estimates of our future liquidity requirements;     • the cyclical nature of the semiconductor industry;     • the effects of macroeconomic factors, including the 2023 banking crisis, the global economic downturn, the Russia-Ukraine conflict and the Israel-Gaza conflict on the semiconductor industry and our business;     • protection of our proprietary technology;     • business outlook for the remainder of 2023 and beyond;     • the factors that we believe will impact our business, operations and financial condition, as well as our ability to achieve revenue growth;     • the percentage of our total revenue from various end markets;     • our ability to identify, acquire and integrate companies, businesses and products, and achieve the anticipated benefits from such acquisitions and integrations;     • the impact of various tax laws and regulations on our income tax provision, financial position and cash flows;     • our plan to repatriate cash from our subsidiary in Bermuda;     • our intention and ability to execute our stock repurchase program and pay cash dividends and dividend equivalents; and     • the factors that differentiate us from our competitors.   26 Table of Contents   In some cases, words such as “would,” “could,” “may,” “should,” “predict,” “potential,” “targets,” “continue,” “anticipate,” “expect,” “intend,” “plan,” “believe,” “seek,” “estimate,” “project,” “forecast,” “will,” the negative of these terms or other variations of such terms and similar expressions relating to the future identify forward-looking statements. All forward-looking statements are based on our current outlook, expectations, estimates, projections, beliefs and plans or objectives about our business, our industry and the global economy, including our expectations regarding the potential impacts of macroeconomic factors, such as the ongoing banking crisis, the global economic downturn, the Russia-Ukraine conflict and the Israel-Gaza conflict on the semiconductor industry and our business. These statements are not guarantees of future performance and are subject to significant risks and uncertainties. Actual events or results could differ materially and adversely from those expressed in any such forward-looking statements. Risks and uncertainties that could cause actual results to differ materially include those set forth throughout this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K including, in particular, in the sections entitled “Risk Factors.” Except as required by law, we disclaim any duty, and undertake no obligation, to update any forward-looking statements, whether as a result of new information relating to existing conditions, future events or otherwise or to release publicly the results of any future revisions we may make to forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. Readers are cautioned not to place undue reliance on such statements, which speak only as of the date of this Quarterly Report on Form 10-Q and entail significant risks. Readers should carefully review future reports and documents that we file from time to time with the SEC, such as our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and any Current Reports on Form 8-K.   Overview   We are a fabless company with a global footprint that provides high-performance, semiconductor-based power electronic solutions. Incorporated in 1997, our three core strengths include deep system-level knowledge, strong semiconductor expertise, and innovative proprietary technologies in the areas of semiconductor processes, system integration, and packaging. These combined advantages enable us to deliver reliable, compact, and monolithic solutions found in storage and computing, enterprise data, automotive, industrial, communications and consumer applications. Our mission is to reduce energy and material consumption to improve all aspects of quality of life. We believe that we differentiate ourselves by offering solutions that are more highly integrated, smaller in size, more energy-efficient, more accurate with respect to performance specifications and, consequently, more cost-effective than many competing solutions. We plan to continue to introduce new products within our existing product families, as well as in new innovative product categories.   We operate in the cyclical semiconductor industry. While we are not immune from industry downturns, we have targeted product and market areas that we believe have the ability to offer above average industry performance over the long term. Historically, our revenue has generally been higher in the second half of the year than in the first half although various factors, such as market conditions and the timing of key product introductions, could impact this trend.   We work with third parties to manufacture and assemble our ICs. This has enabled us to limit our capital expenditures and fixed costs, while focusing our engineering and design resources on our core strengths.   Following the introduction of a product, our sales cycle generally takes a number of quarters after we receive an initial customer order for a new product to ramp up. Typical supply chain lead times for orders are generally 16 to 26 weeks. These factors, combined with the fact that our customers can cancel or reschedule orders without significant penalty to the customer, make the forecasting of our orders and revenue difficult.   We derive most of our revenue from sales through distribution arrangements and direct sales to customers in Asia, where our products are incorporated into end-user products. Our revenue from direct and indirect sales to customers in Asia was 89% and 86% of our total revenue for the three months ended September 30, 2023 and 2022, respectively, and 86% and 88% of our total revenue for the nine months ended September 30, 2023 and 2022, respectively.   We derive a majority of our revenue from the sales of our DC to DC converter products which serve the storage and computing, enterprise data, automotive, industrial, communications and consumer markets. We believe our ability to achieve revenue growth will depend, in part, on our ability to develop new products, enter new market segments, gain market share, manage litigation risk, diversify our customer base and continue to secure manufacturing capacity.   Macroeconomic Conditions and Regulations   The semiconductor industry has been facing, and continues to face, a number of macro-economic challenges including reduced consumer spending, fluctuations in demand for semiconductors, rising inflation, increased interest rates, and fluctuations in currency rates. We remain cautious in light of continued challenging macroeconomic conditions and will continue to monitor the potential impact on our operations. The extent and duration of the direct and indirect impact of macroeconomic events on our business, results of operations and overall financial position remain uncertain and depend on future developments.   We closely monitor changes to export control laws, trade regulations and other trade requirements. To date, no restrictions have had a material impact on our revenue and operations. We will continue to monitor any changes to export control laws, trade regulations and other trade requirements and are committed to complying with all applicable trade laws, regulations and other requirements.   27 Table of Contents   Cybersecurity Risk Management   We are committed to protecting our information technology (“IT”) assets, including computers, systems, corporate networks and sensitive data, from unauthorized access or attack. We have established an internal global IT policy handbook as well as IT security management control procedures designed to:   • Create information security awareness and define responsibilities among our employees and business partners; •  Implement controls to identify IT risks and monitor the use of our systems and information resources; •  Establish key policies and processes to adequately and timely respond to security threats; •  Maintain disaster recovery and business continuity plans; and •  Ensure compliance with applicable laws and regulations regarding the management of information security.   We require all new employees to attend an IT security training orientation. In addition, on a regular basis, our IT team updates training materials related to our policies and procedures and shares news and articles related to cybersecurity awareness, both of which are stored on our intranet and available to all employees. For example, we continue to provide guidelines and training to employees related to the proper usage of generative artificial intelligence (“AI”) applications for work purposes.    Our IT Steering Committee, which consists of our senior management and IT team, meets on a regular basis to review initiatives and projects to improve IT security, as well as resources and budgets for our cybersecurity compliance and education efforts. In 2021, we completed the ISO 27001 certification, a globally recognized information security standard. We also currently maintain an insurance policy that provides certain coverage for losses we incur due to data breaches and other cybersecurity incidents.   The Audit Committee of our Board of Directors, which consists of three independent members, is responsible for the oversight of our cybersecurity risk program. At least quarterly, the Audit Committee reviews reports and updates from our Chief Financial Officer and IT senior management about major risk exposures, their potential impact on our business operations, and management’s strategies to assess, monitor and mitigate those risks. The Audit Committee also provides updates of their oversight and findings to the Board of Directors.   We believe we have adequate resources and sufficient policies, procedures and oversight in place to identify and manage our IT security risks to our business operations. To date, we do not believe we have experienced any material information security breaches and have not incurred significant operating expenses related to information security breaches.   Critical Accounting Policies and Estimates   In preparing our condensed consolidated financial statements in accordance with GAAP, we are required to make estimates, assumptions and judgments that affect the amounts reported in our financial statements and the accompanying disclosures. Estimates and judgments used in the preparation of our condensed consolidated financial statements are, by their nature, uncertain and unpredictable, and depend upon, among other things, many factors outside of our control, including demand for our products, economic conditions and other current and future events, such as macroeconomic factors, including the impact of the banking crisis earlier this year and the global economic downturn. Actual results could differ from these estimates and assumptions, and any such differences may be material to our condensed consolidated financial statements.   As of the date of issuance of these condensed consolidated financial statements, we are not aware of any specific event or circumstance that would require our management to update the significant estimates and assumptions used in the preparation of the condensed consolidated financial statements included in this Report, as compared to those disclosed in the Annual Report on Form 10-K for the year ended December 31, 2022. As new events continue to evolve and additional information becomes available, any changes to these estimates and assumptions will be recognized in the condensed consolidated financial statements as soon as they become known.   28 Table of Contents   Results of Operations   The table below sets forth the data on the Condensed Consolidated Statements of Operations as a percentage of revenue:       Three Months Ended September 30,     Nine Months Ended September 30,       2023     2022     2023     2022       (in thousands, except percentages)   Revenue   $ 474,867       100.0 %   $ 495,418       100.0 %   $ 1,367,060       100.0 %   $ 1,334,136       100.0 % Cost of revenue     211,326       44.5       204,516       41.3       597,064       43.7       553,393       41.5   Gross profit     263,541       55.5       290,902       58.7       769,996       56.3       780,743       58.5   Operating expenses:                                                                 Research and development     64,787       13.6       67,263       13.6       192,184       14.1       178,497       13.4   Selling, general and administrative     63,188       13.3       71,768       14.4       205,645       15.0       212,353       15.9   Total operating expenses     127,975       26.9       139,031       28.0       397,829       29.1       390,850       29.3   Operating income     135,566       28.6       151,871       30.7       372,167       27.2       389,893       29.2   Other income (expense), net     2,289       0.5       5       -       14,129       1.1       (5,720 )     (0.4 ) Income before income taxes     137,855       29.1       151,876       30.7       386,296       28.3       384,173       28.8   Income tax expense     16,692       3.6       27,539       5.6       55,827       4.1       65,591       4.9   Net income   $ 121,163       25.5 %   $ 124,337       25.1 %   $ 330,469       24.2 %   $ 318,582       23.9 %   Revenue   The following table summarizes our revenue by end market:       Three Months Ended September 30,     Nine Months Ended September 30,   End Market   2023     % of Revenue     2022     % of Revenue     2023     % of Revenue     2022     % of Revenue       (in thousands, except percentages)   Storage and Computing   $ 129,462       27.3 %   $ 112,880       22.8 %   $ 373,827       27.3 %   $ 331,754       24.9 % Enterprise Data     98,938       20.8       75,274       15.2       194,083       14.2       182,982       13.7   Automotive     95,171       20.0       87,073       17.5       304,907       22.3       202,638       15.2   Industrial     42,141       8.9       58,713       11.9       139,339       10.2       163,116       12.2   Communications     46,786       9.9       72,296       14.6       163,985       12.0       187,169       14.0   Consumer     62,369       13.1       89,182       18.0       190,919       14.0       266,477       20.0   Total   $ 474,867       100.0 %   $ 495,418       100.0 %   $ 1,367,060       100.0 %   $ 1,334,136       100.0 %   Revenue for the three months ended September 30, 2023 was $474.9 million, a decrease of $20.5 million, or 4.1%, from $495.4 million for the three months ended September 30, 2022. The decrease in revenue was primarily due to lower shipment volume, which was partially offset by higher average selling prices resulting primarily from product mix.   For the three months ended September 30, 2023, revenue from the storage and computing market increased $16.6 million, or 14.7%, from the same period in 2022. This increase was primarily due to higher sales in commercial notebooks, partially offset by lower sales of storage applications. Revenue from the enterprise data market increased $23.7 million, or 31.4%, from the same period in 2022. This increase was primarily due to higher demand for generative AI applications, partially offset by lower sales of cloud-based CPU server applications. Revenue from the automotive market increased $8.1 million, or 9.3%, from the same period in 2022. This increase was primarily due to higher sales of our highly integrated solutions for advanced driver assistance systems. Revenue from the industrial market decreased $16.6 million, or 28.2%, from the same period in 2022. This decrease was mainly driven by lower sales of power sources, security and industrial equipment applications. Revenue from the communications market decreased $25.5 million, or 35.3%, from the same period in 2022. This decrease was primarily driven by lower demand for infrastructure related products. Revenue from the consumer market decreased $26.8 million, or 30.1%, from the same period in 2022. This decrease was broad-based and primarily driven by lower sales of products for home appliances.   Revenue for the nine months ended September 30, 2023 was $1,367.1 million, an increase of $33.0 million, or 2.5%, from $1,334.1 million for the nine months ended September 30, 2022. The increase in revenue was primarily due to increases in the average selling prices resulting primarily from product mix, which was partially offset by lower shipment volume.   For the nine months ended September 30, 2023, revenue from the storage and computing market increased $42.1 million, or 12.7%, from the same period in 2022. This increase was primarily due to higher sales in commercial notebooks and graphic card applications. Revenue from the enterprise data market increased $11.1 million, or 6.1%, from the same period in 2022. This increase was primarily due to higher demand for generative AI applications, partially offset by lower sales of our cloud-based CPU server applications. Revenue from the automotive market increased $102.3 million, or 50.5%, from the same period in 2022. This increase was broad-based and included higher sales of our highly integrated solutions for advanced driver assistance systems, body electronics and digital cockpits. Revenue from the industrial market decreased $23.8 million, or 14.6%, from the same period in 2022. This decrease was mainly driven by lower sales of power sources, security and industrial equipment applications, partially offset by higher sales in industrial meter applications. Revenue from the communications market decreased $23.2 million, or 12.4%, from the same period in 2022. This decrease primarily reflected lower revenue related to infrastructure related products. Revenue from the consumer market decreased $75.6 million, or 28.4%, from the same period in 2022. This decrease was broad-based and primarily driven by lower sales of products for home appliances, gaming, mobile devices and smart TVs.   29 Table of Contents   Cost of Revenue and Gross Margin   Cost of revenue primarily consists of costs incurred to manufacture, assemble and test our products, as well as warranty costs, inventory-related and other overhead costs, and stock-based compensation expenses.       Three Months Ended September 30,     Nine Months Ended September 30,       2023     2022     2023     2022       (in thousands, except percentages)   Cost of revenue   $ 211,326     $ 204,516     $ 597,064     $ 553,393   As a percentage of revenue     44.5 %     41.3 %     43.7 %     41.5 % Gross profit   $ 263,541     $ 290,902     $ 769,996     $ 780,743   Gross margin     55.5 %     58.7 %     56.3 %     58.5 %   Cost of revenue was $211.3 million, or 44.5% of revenue, for the three months ended September 30, 2023, and $204.5 million, or 41.3% of revenue, for the three months ended September 30, 2022. The $6.8 million increase in cost of revenue was primarily driven by product mix partially offset by lower shipment volume and lower inventory write-downs.   Gross margin was 55.5% for the three months ended September 30, 2023, compared with 58.7% for the three months ended September 30, 2022. The decrease in gross margin was mainly driven by product mix, partially offset by lower inventory write-downs as a percentage of revenue.   Cost of revenue was $597.1 million, or 43.7% of revenue, for the nine months ended September 30, 2023, and $553.4 million, or 41.5% of revenue, for the nine months ended September 30, 2022. The $43.7 million increase in cost of revenue was primarily driven by product mix and higher manufacturing overhead costs, partially offset by lower shipment volume and lower inventory write-downs and warranty expenses.   Gross margin was 56.3% for the nine months ended September 30, 2023, compared with 58.5% for the nine months ended September 30, 2022. The decrease in gross margin was mainly driven by product mix and higher manufacturing overhead costs, partially offset by lower inventory write-downs and warranty expenses as a percentage of revenue.   Research and Development    R&D expenses primarily consist of cash compensation and benefits, stock-based compensation and deferred compensation for design and product engineers, expenses related to new product development and supplies, and facility costs.       Three Months Ended September 30,     Nine Months Ended September 30,       2023     2022     2023     2022       (in thousands, except percentages)   R&D expenses   $ 64,787     $ 67,263     $ 192,184     $ 178,497   As a percentage of revenue     13.6 %     13.6 %     14.1 %     13.4 %   R&D expenses were $64.8 million, or 13.6% of revenue, for the three months ended September 30, 2023, and $67.3 million, or 13.6% of revenue, for the three months ended September 30, 2022. The $2.5 million decrease in R&D expenses was primarily due to a $6.5 million decrease in cash compensation expenses. This decrease was partially offset by a $4.0 million increase in new product development expenses.   R&D expenses were $192.2 million, or 14.1% of revenue, for the nine months ended September 30, 2023, and $178.5 million, or 13.4% of revenue, for the nine months ended September 30, 2022. The $13.7 million increase in R&D expenses was primarily due to a $17.8 million increase in new product development expenses, and a $4.7 million increase in expenses related to the changes in the value of deferred compensation plan liabilities, partially offset by a $9.5 million decrease in cash compensation expenses.   30 Table of Contents   Selling, General and Administrative    SG&A expenses primarily include cash compensation and benefits, stock-based compensation and deferred compensation for sales, marketing and administrative personnel, sales commissions, travel expenses, facilities costs, third party service fees and litigation expenses.       Three Months Ended September 30,     Nine Months Ended September 30,       2023     2022     2023     2022       (in thousands, except percentages)   SG&A expenses   $ 63,188     $ 71,768     $ 205,645     $ 212,353   As a percentage of revenue     13.3 %     14.4 %     15.0 %     15.9 %   SG&A expenses were $63.2 million, or 13.3% of revenue, for the three months ended September 30, 2023, and $71.8 million, or 14.4% of revenue, for the three months ended September 30, 2022. The $8.6 million decrease in SG&A expenses was driven by an $8.4 million decrease in stock-based compensation expenses, and a $3.3 million decrease in net litigation expenses, partially offset by a $1.5 million increase in travel and professional service expenses and a $1.4 million increase in cash compensation expenses.   SG&A expenses were $205.6 million, or 15.0% of revenue, for the nine months ended September 30, 2023, and $212.4 million, or 15.9% of revenue, for the nine months ended September 30, 2022. The $6.8 million decrease in SG&A expenses was driven by a $16.3 million decrease in stock-based compensation expenses, and a $4.4 million decrease in cash compensation expenses, partially offset by an $8.0 million increase in expense related to changes in the value of the deferred compensation plan liabilities, and a $7.0 million increase consisting mostly of travel related expenses, professional services and software licensing fees.   Other Income (Expense), Net   Other income, net, was $2.3 million for the three months ended September 30, 2023, compared with $5 thousand for the three months ended September 30, 2022. The increase in other income was primarily due to an increase of $5.2 million in net interest income, partially offset by an increase of $2.2 million in charitable contributions.   Other income, net, was $14.1 million for the nine months ended September 30, 2023, compared with other expense, net, of $5.7 million for the nine months ended September 30, 2022. The increase in other income was primarily due to an increase of $12.0 million in income related to changes in the value of the deferred compensation plan investments and an increase of $11.7 million in net interest income, partially offset by an increase of $5.0 million in charitable contributions.   Income Tax Expense   The income tax provision for interim periods is generally determined using an estimate of our annual effective tax rate and adjusted for discrete items, if any, in the relevant period. Each quarter the estimate of the annual effective tax rate is updated, and if our estimated tax rate changes, a cumulative adjustment is made.   The income tax expense for the three months ended September 30, 2023 was $16.7 million, or 12.1% of pre-tax income. The income tax expense for the nine months ended September 30, 2023 was $55.8 million, or 14.5% of pre-tax income. The effective tax rates were lower than the federal statutory rate of 21% primarily due to foreign income from our subsidiaries in Bermuda and China being taxed at lower statutory tax rates, and excess tax benefits from stock-based compensation. The decrease in the effective tax rates relative to the federal statutory rate was partially offset by the inclusion of the GILTI tax and the addition of a valuation allowance against China deferred tax assets arising from the indefinite extension of the R&D super deduction policy in China.   The income tax expense for the three months ended September 30, 2022 was $27.5 million, or 18.1% of pre-tax income. The income tax expense for the nine months ended September 30, 2022 was $65.6 million, or 17.1% of pre-tax income. The effective tax rates were lower than the federal statutory rate of 21% primarily due to foreign income from our subsidiaries in Bermuda and China being taxed at lower statutory tax rates, and excess tax benefits from stock-based compensation. The decrease in the effective tax rates relative to the federal statutory rate was partially offset by the inclusion of the GILTI tax.   In August 2022, the CHIPS Act and the IRA were enacted and signed into law, neither of which had a material impact on our income tax provisions, results of operations or financial condition for the three and nine months ended September 30, 2023. See Note 13 for further details.   31 Table of Contents   Liquidity and Capital Resources       September 30,     December 31,       2023     2022       (in thousands, except percentages)   Cash and cash equivalents   $ 421,178     $ 288,607   Short-term investments     621,123       449,266   Total cash, cash equivalents and short-term investments   $ 1,042,301     $ 737,873   Percentage of total assets     44.8 %     35.8 %                   Total current assets   $ 1,735,376     $ 1,410,619   Total current liabilities     (250,018 )     (263,400 ) Working capital   $ 1,485,358     $ 1,147,219     As of September 30, 2023, we had cash and cash equivalents of $421.2 million and short-term investments of $621.1 million, compared with cash and cash equivalents of $288.6 million and short-term investments of $449.3 million as of December 31, 2022. As of September 30, 2023, $365.8 million of cash and cash equivalents and $544.4 million of short-term investments were held by our international subsidiaries. We have repatriated and may continue to repatriate cash from our Bermuda subsidiary with minimal tax impact to fund our expenditures in future periods. We anticipate that earnings from other foreign subsidiaries will continue to be indefinitely reinvested.   Summary of Cash Flows   The following table summarizes our cash flow activities:       Nine Months Ended September 30,       2023     2022       (in thousands)   Net cash provided by operating activities   $ 484,900     $ 194,471   Net cash provided by (used in) investing activities     (212,695 )     37,669   Net cash used in financing activities     (129,311 )     (92,929 ) Effect of change in exchange rates     (10,323 )     (12,275 ) Net increase in cash, cash equivalents and restricted cash   $ 132,571     $ 126,936     For the nine months ended September 30, 2023, the $290.4 million increase in cash provided by operating activities compared to the prior period was primarily due to decreased prepaid wafer expenses, decreased inventory purchases, increased accounts receivable collections and other changes in working capital.   For the nine months ended September 30, 2023, the $250.4 million increase in cash used in investing activities compared to the prior period was primarily due to an increase of $474.3 million in purchases of investments, partially offset by an increase of $223.2 million in sales of investments.   For the nine months ended September 30, 2023, the $36.4 million increase in cash used in financing activities compared to the prior period was primarily due to an increase of $33.7 million in dividend and dividend equivalent payments.   In the future, in order to strengthen our financial position, respond to adverse developments, changes in our circumstance or unforeseen events or conditions, or fund our growth, we may need to raise additional funds by any one or a combination of the following: issuing equity securities, issuing debt or convertible debt securities, incurring indebtedness secured by our assets, or selling certain product lines and/or portions of our business. There can be no guarantee that we will be able to raise additional funds on terms acceptable to us, or at all.   From time to time, we have engaged in discussions with third parties concerning capital investments and potential acquisitions of product lines, technologies, businesses and companies, and we continue to consider potential investments and acquisition candidates. Any such transactions could involve the issuance of a significant number of new equity securities, assumptions of debt, and/or payment of cash consideration. We may also be required to raise additional funds to complete any such investments or acquisitions, through either the issuance of equity and/or debt securities or incurring indebtedness secured by our assets. If we raise additional funds or acquire businesses or technologies through the issuance of equity securities or convertible debt securities, our existing stockholders may experience significant dilution.   32 Table of Contents   Cash Requirements   Although consequences of economic uncertainty and macroeconomic conditions and other factors could adversely affect our liquidity and capital resources in the future, and our cash requirements may fluctuate based on the timing and extent of many factors such as those discussed above, we believe that our balances of cash, cash equivalents and short-term investments of $1,042.3 million as of September 30, 2023, along with cash generated by ongoing operations, will be sufficient to satisfy our liquidity requirements for the next 12 months and beyond.   Our material cash requirements include the following contractual and other obligations:   Purchase Obligations   Purchase obligations represent commitments to our suppliers and other parties requiring the purchases of goods or services. Our purchase obligations primarily consist of wafer and other inventory purchases, assembly and other manufacturing services, construction of manufacturing and research and development facilities, purchases of production and other equipment, and license arrangements.   In May 2022, we entered into a long-term supply agreement in order to secure manufacturing production capacity for silicon wafers over a four-year period. As of September 30, 2023, the Company had made prepayments under this agreement of $170.0 million, of which $50.0 million was classified as short-term.   As of September 30, 2023, total estimated future unconditional purchase commitments to all suppliers and other parties were $656.5 million, of which $343.2 million was classified as short-term.   Transition Tax Liability   The transition tax liability represents the one-time, mandatory deemed repatriation tax imposed on previously deferred foreign earnings under the U.S. Tax Cuts and Jobs Act enacted in December 2017 (the “2017 Tax Act”). As permitted by the 2017 Tax Act, we have elected to pay the tax liability in installments on an interest-free basis through 2025. As of September 30, 2023, the remaining liability totaled $11.1 million, of which $4.9 million was classified as short-term.   Operating Leases   Operating lease obligations represent the undiscounted remaining lease payments primarily for our leased facilities and equipment. As of September 30, 2023, these obligations totaled $8.0 million, of which $2.2 million was classified as short-term.   Dividends   We currently have a dividend program approved by our Board of Directors, pursuant to which we intend to pay quarterly cash dividends on our common stock. Based on our historical practice, stockholders of record as of the last business day of the quarter are entitled to receive the quarterly cash dividends when and if declared by the Board of Directors, which are payable to the stockholders in the following month. As of September 30, 2023, accrued dividends totaled $47.8 million. The declaration of any future cash dividends is at the discretion of our Board of Directors and will depend on, among other things, our financial condition, results of operations, capital requirements, business conditions and other factors that our Board of Directors may deem relevant, as well as a determination that cash dividends are in the best interests of our stockholders.   Other Long-Term Obligations   Other long-term obligations primarily include payments for deferred compensation plan liabilities and accrued dividend equivalents. As of September 30, 2023, these obligations totaled $71.6 million.   Stock Repurchase Program   In October 2023, our Board of Directors approved a new stock repurchase program authorizing us to repurchase up to $640.0 million in the aggregate of our common stock through October 29, 2026. The repurchases will be funded from available working capital and cash repatriation from our Bermuda subsidiary.   33 Table of Contents