What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-08-27 compared with 2021-06-09 · 194 added, 91 removed, 187 unchanged (60% of the section changed)

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• our ability to execute on changes in strategy and realize the expected benefits from restructuring activities;

• our ability to implement our plans, forecasts and other expectations with respect to our acquisitions and to fully realize the anticipated synergies and cost savings in the time frame anticipated;

• our ability to implement our plans, forecasts and other expectations with respect to our strategic investments, divestitures, mergers, or joint ventures (such as our proposed acquisition of Innovium, Inc.) and to fully realize the anticipated synergies and cost savings in the time frame anticipated;

• our ability to limit costs related to defective products;

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• our dependence on a small number of customers;

• our ability to accurately categorize our products by end markets;

• severe financial hardship or bankruptcy of one or more of our major customers;

• the effects of any potential future acquisitions, strategic investments, divestitures, mergers or joint ventures;

• risks associated with acquisition and consolidation activity in the semiconductor industry;

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We are a fabless semiconductor supplier of high-performance standard and semi-custom products with core strengths in developing and scaling complex System-on-a-Chip architectures, integrating analog, mixed-signal and digital signal processing functionality.

Leveraging leading intellectual property and deep system-level expertise as well as highly innovative security firmware, our solutions are empowering the data economy and enabling the datacenter, carrier, enterprise networking, consumer and automotive industrial end markets.

In the first quarter of fiscal 2022, our net revenue increased year over year by 20% from $693.6 million net revenue in the first quarter of fiscal 2021 compared with $832.3 million in the first quarter of fiscal 2022.

The increase was primarily due to increased sales of our networking products by 26% and increased sales of our storage products by 17%, partially offset by decreased sales of our other products by 24%.

Leveraging leading intellectual property and deep system-level expertise, as well as highly innovative security firmware, our solutions are empowering the data economy and enabling the data center, carrier infrastructure, enterprise networking, consumer, and automotive/industrial end markets.

Historically, we have reported revenue from three product groups:

networking, storage, and other.

Beginning with the second quarter of fiscal 2022, we are changing our reporting to present revenue from five end markets.

Our product solutions serve five large end markets where our technology is essential:

(i) data center, (ii) carrier infrastructure, (iii) enterprise networking, (iv) consumer, and (v) automotive/industrial.

These markets and their corresponding customer products and applications are noted in the table below:

Customer products and applications

• Cloud and on-premise Artificial intelligence (AI) systems

• Cloud and on-premise ethernet switching

• Cloud and on-premise network-attached storage (NAS)

• Cloud and on-premise servers

• Cloud and on-premise storage area networks

• Cloud and on-premise storage systems

• Data center interconnect (DCI)

Carrier infrastructure

• Digital Subscriber Line Access Multiplexers (DSLAMs)

• Ethernet switches

• Optical transport systems

• Wireless radio access network (RAN) systems

Enterprise networking

• Campus and small medium enterprise routers

• Campus and small medium enterprise ethernet switches

• Campus and small medium enterprise wireless access points (WAPs)

• N e twork appliances (firewalls, and load balancers)

• Workstations

• Broadband gateways and routers

• Gaming consoles

• Home data storage

• Home wireless access points (WAPs)

• Personal Computers (PCs)

• Set-top boxes

Automotive/Industrial

• Advanced driver-assistance systems (ADAS)

• Autonomous vehicles (AV)

• In-vehicle networking

• Industrial ethernet switches

• United States military and government solutions

• Video surveillance

This market-focused view provides more information and transparency about the key growth drivers of our business.

We believe this presentation provides a better understanding of our business.

Accordingly, starting with the third quarter of fiscal 2022, we expect to no longer report revenue by product group.

We categorize revenue from our five end markets by using a number of data points, including the type of customer purchasing the product, the function of our product being sold, and our knowledge of the end customer product or application into which our product will be incorporated.

The categorization of products by end market is inherently subjective and can vary over time, both as a result of continued improvements in our ability to understand the final usage of our products, as well as changes in how our customers utilize our products.

In the second quarter of fiscal 2022, our net revenue increased year over year by 48% from $727.3 million net revenue in the second quarter of fiscal 2021 compared with $1.1 billion in the second quarter of fiscal 2022.

This was due to an increase in sales from all our end markets.

Revenue increased from the data center end market by 62%, from the carrier infrastructure end market by 38%, from the enterprise networking end market by 41%, from the consumer end market by 23% , and the automotive/industrial end market by 125% compared to the three months ended August 1, 2020.

On April 20, 2021, we completed the acquisition of Inphi Corporation (“Inphi”).

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Their product portfolio includes laser drivers, trans-impedance amplifiers, PAM (Pulse Amplitude Modulation) and Coherent DSPs (Digital Signal Processors), differentiated silicon photonics, as well as an optical PHY portfolio for interconnect inside and between the data center, as well as interconnect for the carrier market.

We and Inphi both have growing positions in carrier and datacenter, and Inphi’s high-speed electro-optics platform is highly complementary to our storage, networking, compute, and security portfolio.

Inphi’s electro-optics portfolio combined with our copper Ethernet PHY franchise is expected to create an industry-leading high-speed data interconnect platform.

The operating results for the first quarter of fiscal 2022 include the operating results of Inphi for the period from the date of acquisition to the Company’s first quarter ended May 1, 2021.

In conjunction with the acquisition transaction, Marvell and Inphi became wholly owned subsidiaries of the new parent company, Marvell Technology, Inc.

The combined company has growing positions in carrier and data center, and Inphi’s high-speed electro-optics platform is highly complementary to our storage, networking, compute, and security portfolio.

Inphi’s electro-optics portfolio combined with our copper Ethernet PHY franchise is expected to create a leading high-speed data interconnect platform.

The operating results for the year to date second quarter of fiscal 2022 include the operating results of Inphi for the period from the date of acquisition through the Company’s second quarter ended July 31, 2021.

In conjunction with the acquisition transaction, Marvell Technology Group Ltd.

and Inphi became wholly owned subsidiaries of the new parent company, Marvell Technology, Inc.

(“MTI”) on April 20, 2021.

The parent company is domiciled in and subject to taxation in the United States.

Subsequent to quarter end, on August 3, 2021, we announced our intent to acquire Innovium, Inc.

(“Innovium”), a leading provider of networking solutions for cloud and edge data centers, in an all-stock transaction.

The estimated acquisition price of $1.1 billion consists of approximately 19.05 million shares of our common shares and is based on our 10-day volume weighted average price as of July 30, 2021.

The acquisition price includes Innovium cash and exercise proceeds expected at closing of approximately $145 million, resulting in an estimated net cost to us of $955 million.

The transaction is expected to close by the end of calendar year 2021, subject to the satisfaction of customary closing conditions, including approval by Innovium’s stockholders and applicable regulatory approval.

In response to growth in demand from customers for our products, our operations team is continuing to ramp production with our global supply chain partners.

However, we are experiencing a number of industry-wide supply constraints affecting the type of high complexity products we provide for data infrastructure.

These supply challenges are currently limiting our ability to fully satisfy the increase in demand for some of our networking products.

These supply challenges are currently limiting our ability to fully satisfy the increase in demand for some of our products.

To secure additional capacity, we entered into capacity reservation arrangements with certain manufacturing or supply partners.

See “Note 10 - Commitments and Contingencies” in the Notes to the Unaudited Condensed Consolidated Financial Statements for additional information.

We continue to monitor the impact of COVID-19 on our business.

While many of our offices around the world remain open to enable critical on-site business functions in accordance with local government guidelines, the majority of our employees continue to work from home.

We expect COVID-19 to continue to impact our business and for a further discussion of the uncertainties and business risks associated with the COVID-19 pandemic, see Part II, Item 1A, “Risk Factors,” including but not limited to the risk detailed under the caption “ We face risks related to COVID-19 pandemic which could significantly disrupt our manufacturing, research and development, operations, sales and financial results .”

We expect COVID-19 to continue to impact our business and for a further discussion of the uncertainties and business risks associated with the COVID-19 pandemic, see Part II, Item 1A, “Risk Factors,” including but not limited to the risk detailed under the caption “ We face risks related to the COVID-19 pandemic which currently has, and may continue in the future to, significantly disrupt our manufacturing, research and development, operations, sales and financial results .”

We expect that the U.S.

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The share repurchase program was temporarily suspended in late March 2020 to preserve cash during the COVID-19 pandemic and the program remains suspended as we focus on reducing our debt and de-levering our balance sheet.

As a result, we did not repurchase any shares during the three months ended May 1, 2021.

As a result, we did not repurchase any shares during the six months ended July 31, 2021.

We will continue to evaluate business conditions to decide when we can restart the share repurchase program .

As of May 1, 2021, there was $564.5 million remaining available for future share repurchases of the authorization.

As of May 1, 2021, a total of 308.1 million shares have been repurchased to date under our share repurchase programs for a total $4.3 billion in cash.

We returned $40.6 million to stockholders in the three months ended May 1, 2021 in cash dividends.

As of July 31, 2021, there was $564.5 million remaining available for future share repurchases of the authorization.

As of July 31, 2021, a total of 308.1 million shares have been repurchased to date under our share repurchase programs for a total $4.3 billion in cash.

We returned $89.9 million to stockholders in the six months ended July 31, 2021 in cash dividends.

Cash and Cash Equivalents.

Our cash and cash equivalents were $522.5 million at May 1, 2021, which was $226.0 million lower than our balance at our fiscal year ended January 30, 2021 of $748.5 million.

Our cash and cash equivalents were $559.6 million at July 31, 2021, which was $188.9 million lower than our balance at our fiscal year ended January 30, 2021 of $748.5 million.

Sales and Customer Composition.

Historically, a relatively small number of customers have accounted for a significant portion of our net revenue.

During the first quarter of fiscal 2022, there was no net revenue attributable to a customer, other than one distributor, whose revenues as a percentage of net revenue was 10% or greater of total net revenues.

During the second quarter of fiscal 2022, there was no net revenue attributable to a customer, other than one distributor, whose revenues as a percentage of net revenue was 10% or greater of total net revenues.

Net revenue attributable to significant distributors whose revenue as a percentage of net revenue was 10% or greater of total net revenue is presented in the following table:

Three Months Ended

Three Months Ended Six Months Ended

2021 August 1,

2020 July 31,

2021 August 1,

Wintech 15 % 13 % 17 % 12 %

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Most of our sales are made to customers located outside of the United States, primarily in Asia, and majority of our products are manufactured outside the United States.

Sales shipped to customers with operations in Asia represented approximately 80% of our net revenue in the three months ended May 1, 2021, and approximately 79% of net revenue in the three months ended May 2, 2020, respectively.

Sales shipped to customers with operations in Asia represented approximately 80% of our net revenue in the three and six months ended July 31, 2021, and approximately 79% of net revenue in the three and six months ended August 1, 2020, respectively.

Because many manufacturers and manufacturing subcontractors of our customers are located in Asia, we expect that most of our net revenue will continue to be represented by sales to our customers in that region.

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Critical Accounting Policies and Estimates

There have been no material changes during the three months ended May 1, 2021 to our critical accounting policies and estimates from the information provided in the “Critical Accounting Policies and Estimates” section of our Management's Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the fiscal year ended January 30, 2021.

There have been no material changes during the three months ended July 31, 2021 to our critical accounting policies and estimates from the information provided in the “Critical Accounting Policies and Estimates” section of our Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the fiscal year ended January 30, 2021.

In the current macroeconomic environment affected by COVID-19, our estimates could require increased judgment and carry a higher degree of variability and volatility.

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The following table sets forth information derived from our Unaudited Condensed Consolidated Statements of Operations expressed as a percentage of net revenue:

Three Months Ended

Three Months Ended Six Months Ended

2021 August 1,

2020 July 31,

2021 August 1,

Net revenue 100.0 % 100.0 % 100.0 % 100.0 %

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Net loss (25.6) % (21.7) % (19.0) % (19.1) %

Three months ended May 1, 2021 and May 2, 2020

Three Months Ended

Three and six months ended July 31, 2021 and August 1, 2020

Three Months Ended Six Months Ended

2021 August 1,

Change July 31,

2021 August 1,

(in thousands, except percentage)

Net revenue $ 1,075,881 $ 727,297 47.9% $ 1,908,160 $ 1,420,938 34.3%

Our net revenue for the three months ended May 1, 2021 increased by $138.6 million compared to net revenue for the three months ended May 2, 2020.

This was primarily due to increased sales of our networking products by 26%, and increased sales of our storage products by 17%, partially offset by decreased sales of other products by 24% compared to the three months ended May 2, 2020.

The increased sales of our networking products were primarily due to an increase in demand for our ethernet, embedded processor and automotive networking products across all end markets.

In addition, Inphi contributed $21.8 million of net revenue during the three months ended May 1, 2021.

The increased sales of our storage products were primarily due to an increase in demand for our SSD controllers.

The decrease in sales of our other products is because we have stopped investing in these products and we expect that sales for these products will continue to decline over time.

In the three months ended May 1, 2021, unit shipments were 8% higher and average selling prices increased 12% compared to the three months ended May 2, 2020, for an overall increase in net revenue of 20%.

This was primarily driven by our recent portfolio changes, including the acquisition of Avera ASIC business, which increased our average selling prices.

Our net revenue for the three months ended July 31, 2021 increased by $348.6 million compared to net revenue for the three months ended August 1, 2020.

This was due to an increase in sales from all our end markets.

Revenue increased from the data center end market by 62%, from the carrier infrastructure end market by 38%, from the enterprise networking end market by 41%, from the consumer end market by 23%, and from the automotive/industrial end market by 125% compared to the three months ended August 1, 2020.

The increase in revenue from the data center end market was primarily due to the acquisition of Inphi and increase in demand for our embedded processors and nearline HDD controllers and preamplifiers.

The increase in revenue from the carrier infrastructure end market was primarily due to the acquisition of Inphi and increase in demand from 5G base stations for our embedded processors and ethernet products.

The increase in revenue from the enterprise networking end market was primarily due to the increase in demand for our ethernet products.

The increase in revenue from the consumer end market was primarily due to the increase in demand for our custom SSD controllers.

The increase in revenue from the automotive/industrial end market was primarily due to the increase in demand for our automotive ethernet connectivity products.

Our net revenue for the six months ended July 31, 2021 increased by $487.2 million compared to net revenue for the six months ended August 1, 2020.

This was due to an increase in sales from all our end markets.

Revenue increased from the data center end market by 34%, from the carrier infrastructure end market by 38%, from the enterprise networking end market by 26%, from the consumer end market by 30% , and from the automotive/industrial end market by 96% compared to the six months ended August 1, 2020.

The increase in revenue from the enterprise networking end market was primarily due to the increase in demand for our ethernet products.

The increase in revenue from the consumer end market was primarily due to the increase in demand for our custom SSD controllers.

The increase in revenue from the automotive/industrial end market was primarily due to the increase in demand for our automotive ethernet connectivity products.

In the three months ended July 31, 2021, unit shipments were 30% higher and average selling prices increased 18% compared to the three months ended August 1, 2020, for an overall increase in net revenue of 48%.

In the six months ended July 31, 2021 unit shipment were 18% higher and average selling prices increased 16% compared to the six months ended August 1, 2020.

This was primarily driven by our recent portfolio changes, including the acquisition of Inphi.

Cost of Goods Sold and Gross Profit

Three Months Ended

Three Months Ended Six Months Ended

2021 August 1,

Change July 31,

2021 August 1,

(in thousands, except percentage)

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% of net revenue 34.6 % 49.4 % 41.4 % 48.3 %

Cost of goods sold as a percentage of net revenue decreased for the three months ended May 1, 2021 compared to the three months ended May 2, 2020, which is primarily due to improved product mix.

As a result, gross margin for the three months ended May 1, 2021 increased 3.1 percentage points compared to the three months ended May 2, 2020.

Cost of goods sold as a percentage of net revenue increased for the three and six months ended July 31, 2021 compared to the three and six months ended August 1, 2020, which is primarily due to increased costs associated with the Inphi acquisition including amortization of inventory fair value adjustment and amortization of acquired intangible assets, as well as the increased product sales.

As a result, gross margin for the three and six months ended July 31, 2021 decreased 14.8% and 6.9% percentage points compared to the three and six months ended August 1, 2020.

Research and Development

Three Months Ended

Three Months Ended Six Months Ended

2021 August 1,

Change July 31,

2021 August 1,

(in thousands, except percentage)

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% of net revenue 34.1 % 38.1 % 34.2 % 39.2 %

Research and development expense increased by $6.5 million in the three months ended May 1, 2021 compared to the three months ended May 2, 2020.

The increase was primarily due to lower non-recurring engineering credits of $6.4 million recognized in the current period compared to the three months ended May 2, 2020.

Research and development expense increased by $89.9 million in the three months ended July 31, 2021 compared to the three months ended August 1, 2020.

The increase was primarily due to additional costs from our acquisition of Inphi, including $62.5 million of higher employee personnel-related costs, $13.5 million of higher engineering design and supplies costs, and $12.5 million of higher preproduction costs.

Research and development expense increased by $96.4 million in the six months ended July 31, 2021 compared to the six months ended August 1, 2020.

The increase was primarily due to additional costs from our acquisition of Inphi, including $63.4 million of higher employee personnel-related costs, $12.9 million of higher computer-aided design software related costs, $11.8 million of higher engineering design and supplies costs, and $6.6 million of higher information technology costs.

Selling, general and administrative

Three Months Ended

Three Months Ended Six Months Ended

2021 August 1,

Change July 31,

2021 August 1,

(in thousands, except percentage)

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% of net revenue 24.1 % 15.5 % 24.1 % 16.5 %

Selling, general and administrative expense increased by $79.4 million in the three months ended May 1, 2021 compared to the three months ended May 2, 2020.

The increase was primarily due to Inphi transaction expenses of $45.8 million incurred in Q1 fiscal 2022, as well as $43.8 million stock based compensation expense related to accelerated vesting of Inphi equity awards at merger close.

Selling, general and administrative expense increased by $146.4 million in the three months ended July 31, 2021 compared to the three months ended August 1, 2020.

The increase was primarily due to additional costs from our acquisition of Inphi, including $83.1 million of higher intangibles amortization expense, $33.9 million of higher employee personnel-related costs and $30.7 million of higher integration costs.

Selling, general and administrative expense increased by $225.8 million in the six months ended July 31, 2021 compared to the six months ended August 1, 2020.

The increase was primarily due to additional costs from our acquisition of Inphi, including $91.5 million of higher intangibles amortization expense, $82.1 million of higher employee personnel-related costs and $66.3 million of higher integration costs.

Restructuring Related Charges

Three Months Ended

Three Months Ended Six Months Ended

2021 August 1,

Change July 31,

2021 August 1,

(in thousands, except percentage)

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% of net revenue 1.1 % 16.6 % 1.3 % 10.0 %

We recognized $12.9 million of total restructuring related charges in the three months ended May 1, 2021 as we continue to evaluate our existing operations to increase operational efficiency, decrease costs and increase profitability.

We recognized $12.3 million and $25.2 million of total restructuring related charges in the three and six months ended July 31, 2021 as we continue to evaluate our existing operations to increase operational efficiency, decrease costs, and increase profitability.

See “Note 7 - Restructuring” in the Notes to the Unaudited Condensed Consolidated Financial Statements for further information.

Interest Income

Three Months Ended

Three Months Ended Six Months Ended

2021 August 1,

Change July 31,

2021 August 1,

(in thousands, except percentage)

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% of net revenue — % 0.1 % — % 0.1 %

Interest income decreased by $0.8 million in the three months ended May 1, 2021 compared to the three months ended May 2, 2020 due to lower interest rates on our invested cash.

Interest income decreased by $0.4 million and $1.3 million in the three and six months ended July 31, 2021 compared to the three and six months ended August 1, 2020 due to lower interest rates on our invested cash.

Interest Expense

Three Months Ended

Three Months Ended Six Months Ended

2021 August 1,

Change July 31,

2021 August 1,

(in thousands, except percentage)

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% of net revenue (3.1) % (2.1) % (3.6) % (2.3) %

Interest expense increased by $18.3 million in the three months ended May 1, 2021 compared to the three months ended May 2, 2020.

The increase was primarily due to the write-off of issuance costs related to the bridge loan when the loan was terminated in Q1 fiscal 2022, as well as interest expense on the 2020 term loans in addition to the new 2026, 2028 and 2031 senior unsecured notes issued in Q1 fiscal 2022.

Other Income, Net

Three Months Ended

Interest expense increased by $18.2 million in the three months ended July 31, 2021 compared to the three months ended August 1, 2020.

The increase was primarily due to the interest expense on the 2020 term loans in addition to the new 2026, 2028, and 2031 senior unsecured notes issued in the first quarter of fiscal 2022.

Interest expense increased by $36.5 million in the six months ended July 31, 2021 compared to the six months ended August 1, 2020.

The increase was primarily due to the interest expense on the 2020 term loans in addition to the new 2026, 2028, and 2031 senior unsecured notes issued in the first quarter of fiscal 2022, as well as the write-off of issuance costs related to the bridge loan when the loan was terminated in the first quarter of fiscal 2022.

Other Income (loss), Net

Three Months Ended Six Months Ended

2021 August 1,

Change July 31,

2021 August 1,

(in thousands, except percentage)

Other income, net $ 1,223 $ 3,754 (67.4)%

Other income (loss), net $ (1,654) $ (440) 275.9% $ (431) $ 3,314 (113.0)%

% of net revenue (0.2) % (0.1) % — % 0.2 %

Other income (loss), net, changed by $2.5 million in the three months ended May 1, 2021 compared to the three months ended May 2, 2020.

The higher income in the three months ended May 2, 2020 was primarily due to income related to the divestiture of the Wi-Fi connectivity business in fiscal 2020.

Provision (benefit) for Income Taxes

Three Months Ended

Other income (loss), net, changed by $1.2 million in the three months ended July 31, 2021 compared to the three months ended August 1, 2020.

The higher loss was primarily due to the impairment recognized on a certain equity investment.

Other income (loss), net, changed by $3.7 million in the six months ended July 31, 2021 compared to the six months ended August 1, 2020.

The higher loss in the six months ended August 1, 2020 was primarily due to the impairment recognized on a certain equity investment during the second quarter of fiscal 2022, as well as foreign currency rate fluctuations.

Benefit for Income Taxes

Three Months Ended Six Months Ended

2021 August 1,

Change July 31,

2021 August 1,

(in thousands, except percentage)

Provision (benefit) for income taxes $ (27,765) $ 5,019 (653.2)%

Our income tax benefit for the three months ended May 1, 2021 was $27.8 million compared to a tax expense of $5.0 million for the three months ended May 2, 2020.

Our income tax benefit for the three months ended May 1, 2021 differs from the tax expense recorded in the same period in the prior year primarily due to the tax impact of amortization of fair value adjustments related to the merger with Inphi combined with the tax effect of stock based compensation deductions versus the prior period.

The effective tax rate for the three months ended May 1, 2021 and May 2, 2020 differs from the U.S.

statutory Federal rate of 21% primarily due to the rate differential on foreign earnings.

Our provision for income taxes may be affected by changes in the geographic mix of earnings with different applicable tax rates, changes in the realizability of deferred tax assets and liabilities, discrete items, accruals related to contingent tax liabilities and period-to-period changes in such accruals, the results of income tax audits, the expiration of statutes of limitations, the implementation of tax planning strategies, tax rulings, court decisions, settlements with tax authorities and changes in tax laws and regulations.

Benefit for income taxes $ (25,558) $ (8,872) 188.1% $ (53,323) $ (3,853) 1,283.9%

Our income tax benefit for the three months ended July 31, 2021 was $25.6 million compared to a tax benefit of $8.9 million for the three months ended August 1, 2020.

Our income tax benefit for the three months ended July 31, 2021 differs from the tax benefit recorded in the same period in the prior year primarily due to the tax impact of an intra-entity transfer of certain intellectual property to a subsidiary in Singapore, which resulted in a tax benefit of $10.0 million in the current period.

This amount, combined with discrete tax benefits from stock based compensation deductions versus prior periods, tax rate differentials on foreign income/(losses), as well as the recognition of tax benefits related to the expirations on the statutes of limitations for the assessment of taxes in certain jurisdictions were the primary drivers of the income tax benefits for the three months ended July 31, 2021 and the differences between the federal statutory tax rates of 21% and our effective income tax rates for these periods.

Our income tax benefit for the six months ended July 31, 2021 was $53.3 million compared to a tax benefit of $3.9 million for the six months ended August 1, 2020.

Our income tax benefit for the six months ended July 31, 2021 differs from the same period in the prior year primarily due to the tax impact of an intra-entity transfer of certain intellectual property to a subsidiary in Singapore, which resulted in a tax benefit of $10.0 million during the period.

This amount, combined with discrete tax benefits from stock based compensation deductions versus prior periods, tax rate differentials on foreign income/(losses), as well as the recognition of tax benefits related to the expirations on the statutes of limitations for the assessment of taxes in certain jurisdictions were the primary drivers of the income tax benefits for the six months ended July 31, 2021 and the differences between the federal statutory tax rates of 21% and our effective income tax rates for these periods.

Our provision for income taxes may be affected by changes in the geographic mix of earnings with different applicable tax rates, changes in the realizability of deferred tax assets and liabilities, discrete items, intra-entity transfers of intellectual property, accruals related to contingent tax liabilities and period-to-period changes in such accruals, the results of income tax audits, the expiration of statutes of limitations, the implementation of tax planning strategies, tax rulings, court decisions, settlements with tax authorities and changes in tax laws and regulations.

It is also possible that significant negative evidence may become available that causes us to conclude that a valuation allowance is needed on certain of our deferred tax assets, which would adversely affect our income tax provision in the period of such change in judgment.

We also continuously evaluate realignment of our legal structure in response to guidelines and requirements in various international tax jurisdictions where we conduct business.

We also continuously evaluate potential changes to our legal structure in response to guidelines and requirements in various international tax jurisdictions where we conduct business.

Additionally, please see the information in “Item 1A:

Risk Factors” under the caption “Ch anges in existing taxation benefits, rules or practices may adversely affect our financial results .”

Risk Factors” under the caption “ Changes in existing taxation benefits, rules or practices may adversely affect our financial results .”

Liquidity and Capital Resources

Our principal source of liquidity as of May 1, 2021 consisted of approximately $522.5 million of cash and cash equivalents, of which approximately $350.3 million was held by subsidiaries outside of the United States.

Our principal source of liquidity as of July 31, 2021 consisted of approximately $559.6 million of cash and cash equivalents, of which approximately $431.8 million was held by subsidiaries outside of the United States.

We manage our worldwide cash requirements by, among other things, reviewing available funds held by our foreign subsidiaries and the cost effectiveness by which those funds can be accessed in the United States.

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See “Note 5 - Debt” in the Notes to the Unaudited Condensed Consolidated Financial Statements for additional information.

In June 2018, we executed debt agreements to obtain a $900 million term loan and $1.0 billion of senior unsecured notes in order to fund the Cavium acquisition.

In addition, we executed a debt agreement in June 2018 to obtain a $500 million revolving credit facility (“2018 Revolving Credit Facility”).

In December 2020, the 2018 Revolving Credit Facility under the 2018 Credit Agreement was terminated and replaced by the 2020 Revolving Credit Facility.

The senior unsecured notes were exchanged as described in the above paragraph.

The 2018 Term Loan borrowings was repaid in full in the first quarter ended May 1, 2021.

See “Note 5 - Debt” in the Notes to the Unaudited Condensed Consolidated Financial Statements for additional information.

We believe that our existing cash, cash equivalents, together with cash generated from operations, and funds from our 2020 Revolving Credit Facility will be sufficient to cover our working capital needs, capital expenditures, investment requirements and any declared dividends, repurchase of our common stock and commitments for at least the next twelve months.

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Cash Flows from Operating Activities

Net cash flow used in operating activities for the three months ended May 1, 2021 was $13.7 million.

Net cash flow provided by operating activities for the six months ended July 31, 2021 was $208.4 million.

We had a net loss of $364.7 million adjusted for the following non-cash items:

amortization of acquired intangible assets of $128.6 million, share-based compensation expense of $92.7 million, depreciation and amortization of $51.8 million, deferred income tax benefit of $22.6 million, amortization of inventory fair value adjustment associated with the Inphi acquisition of $13.7 million and $31.3 million net loss from other non-cash items.

Cash outflow from working capital of $221.1 million for the three months ended May 1, 2021 was primarily driven by a decrease in accrued employee compensation, decrease in accounts payable, a decrease in accrued liabilities and other non-current liabilities as well as an increase in accounts receivable.

The decrease in accrued employee compensation is due to our annual bonus payment in the current period.

The decrease in accounts payable and accrued liabilities and other non-current liabilities is primarily due to payment of banker success fees.

The increase in accounts receivable is due to revenue linearity and lower sales reserves.

Net cash flow provided by operating activities for the three months ended May 2, 2020 was $175.6 million.

amortization of acquired intangible assets of $405.3 million, share-based compensation expense of $206.8 million, amortization of inventory fair value adjustment associated with the Inphi acquisition of $169.6 million, depreciation and amortization of $118.1 million, deferred income tax benefit of $51.6 million, and $61.9 million net loss from other non-cash items.

Cash outflow from working capital of $341.2 million for the six months ended July 31, 2021 was primarily driven by an increase in accounts receivable and inventory and a decrease in accrued employee compensation.

The increase in accounts receivable is primarily due to increased sales, as well as the timing of shipments due to ongoing supply chain challenges.

The increase in inventory is due to increased procurement to support our future growth.

The decrease in accrued employee compensation is due to our annual bonus payment.

Net cash flow provided by operating activities for the six months ended August 1, 2020 was $401.5 million.

We had a net loss of $270.9 million adjusted for the following non-cash items:

amortization of acquired intangible assets of $224.5 million, share-based compensation expense of $122.3 million, depreciation and amortization of $102.1 million, amortization of inventory fair value adjustment associated with the Aquantia and Avera acquisition of $17.3 million, deferred income tax expense of $0.4 million, and $14.9 million net loss from other non-cash items.

Cash outflow from working capital of $34.5 million for the three months ended May 2, 2020 was primarily driven by a decrease in inventory and accounts receivable, partially offset by a decrease in accrued employee compensation.

Cash inflow from working capital of $74.2 million for the six months ended August 1, 2020 was primarily driven by a decrease in inventories an increase in accounts payable as well as an increase in accrued liabilities and other non-current liabilities, partially offset by a decrease in accrued employee compensation.

The decrease in inventory is due to improved supply chain management.

The decrease in accounts receivable is due to stable collections.

The decrease in accrued employee compensation is due to our annual bonus payment in the current period.

The increase in accounts payable was mainly due to timing of payment.

The increase in accrued liabilities is due to an increase in ship and debit reserve and non-recurring engineering credits accrual.

The decrease in accrued employee compensation is due to our annual bonus payment.

Cash Flows from Investing Activities

For the three months ended May 1, 2021, net cash used in investing activities of $3.6 billion was primarily driven by net cash paid to acquire Inphi of $3.6 billion, purchases of property and equipment of $21.4 million, and purchases of technology licenses of $3.4 million.

For the three months ended May 2, 2020, net cash used in investing activities of $38.4 million was primarily driven by purchases of property and equipment of $35.3 million and purchases of technology licenses of $3.7 million.

For the six months ended July 31, 2021, net cash used in investing activities of $3.7 billion was primarily driven by net cash paid to acquire Inphi of $3.6 billion, purchases of property and equipment of $53.7 million, and purchases of technology licenses of $6.6 million.

For the six months ended August 1, 2020, net cash used in investing activities of $58.9 million was primarily driven by purchases of property and equipment of $52.9 million and purchases of technology licenses of $6.8 million.

Cash Flows from Financing Activities

For the three months ended May 1, 2021, net cash provided by financing activities of $3.4 billion was primarily attributable to proceeds from issuance of debt of $3.7 billion, proceeds from capped calls of $111.2 million partially offset by $200.0 million repayment of debt principal, $73.2 million tax withholding payments on behalf of employees for net share settlements, $71.1 million of repurchase and settlement of convertible notes, $44.1 million payments on technology license obligations and $40.6 million for payment of our quarterly dividends.

For the three months ended May 2, 2020, net cash used in financing activities of $117.3 million was primarily attributable to $39.8 million for payment of our quarterly dividends, $31.5 million tax withholding payments on behalf of employees for net share settlements, $25.2 million for repurchases of our common stock, and $23.8 million payments for technology license obligations.

For the six months ended July 31, 2021, net cash provided by financing activities of $3.3 billion was primarily attributable to proceeds from issuance of debt of $3.8 billion, proceeds from capped calls of $160.3 million partially offset by $275.0 million repayment of debt principal, $180.9 million of repurchase and settlement of convertible notes, $116.2 million tax withholding payments on behalf of employees for net share settlements, $89.9 million for payment of our quarterly dividends and $67.3 million payments on technology license obligations.

For the six months ended August 1, 2020, net cash used in financing activities of $158.6 million was primarily attributable to $79.9 million for payment of our quarterly dividends, $56.7 million tax withholding payments on behalf of employees for net share settlements, $42.5 million payments for technology license obligations and $25.2 million for repurchases of our common stock.

These outflows were partially offset by proceeds of $48.2 million from employee stock plans.

Contractual Obligations and Commitments

Under our manufacturing relationships with our foundry partners, cancellation of outstanding purchase orders is allowed but requires repayment of all expenses incurred through the date of cancellation.

At May 1, 2021, the Company had approximately $819.5 million in outstanding purchase orders with foundries.

The following table summarizes our contractual obligations as of May 1, 2021 and the effect that such obligations are expected to have on our liquidity and cash flow in future periods (in thousands):

Payment Obligations by Fiscal Year

Reminder of 2022 2023 2024 2025 2026 Thereafter Total

Under the Company’s manufacturing relationships with its foundry partners, cancellation of outstanding purchase orders is allowed but requires payment of all costs and expenses incurred through the date of cancellation.

At July 31, 2021, the Company had approximately $775.6 million in outstanding purchase orders with foundries.

The following table summarizes our contractual obligation as of July 31, 2021 and the effect that such obligations are expected to have on our liquidity and cash flow in future periods (in thousands):

Contractual Obligations by Fiscal Year

Remainder of 2022 2023 2024 2025 2026 Thereafter Total

Contractual obligations:

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Purchase commitments to foundries (2)

775,625 216,333 212,033 185,157 156,232 — 1,545,380

Capital purchase obligations 74,611 — — — — — 74,611

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Other contractual commitments — 7,292 564 503 350 4,709 13,418

Total contractual cash obligations $ 1,074,733 $ 244,188 $ 1,565,177 $ 110,288 $ 1,170,046 $ 2,780,910 $ 6,945,342

Total contractual obligations $ 1,014,763 $ 531,402 $ 1,881,961 $ 447,215 $ 388,913 $ 3,240,158 $ 7,504,412

(1) Amounts exclude contractual sublease proceeds of $39.4 million to be received through fiscal 2031.

(2) Amounts include contractual obligations from capacity reservation agreements, see “Note 10 - Commitments and Contingencies” for details.

(3) Amounts represent anticipated future cash payments, including anticipated interest payments not recorded in the consolidated balance sheet.

In addition to the above commitments and contingencies, as of May 1, 2021, we have $25.1 million of unrecognized tax benefits as liabilities.

We also have a liability for potential interest and penalties of $3.8 million as of May 1, 2021.

In addition to the above commitments and contingencies, as of July 31, 2021, we have $29.6 million of unrecognized tax benefits as liabilities.

We also have a liability for potential interest and penalties of $3.6 million as of July 31, 2021.

It is reasonably possible that the amount of unrecognized tax benefits could increase or decrease significantly due to changes in tax law in various jurisdictions, new tax audits and changes in the U.S.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis