What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-12-03 compared with 2021-08-27 · 135 added, 175 removed, 206 unchanged (60% of the section changed)

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• the impact of the COVID-19 pandemic or other future pandemics, on the global economy and on our customers, suppliers, employees and business;

• our ability to successfully integrate and to realize anticipated synergies, on a timely basis or at all, in connection with the Inphi merger;

• our ability to successfully integrate and to realize anticipated synergies, on a timely basis or at all, in connection with the Inphi merger and the acquisition of Innovium;

• our ability to define, design and develop products for the Cloud, infrastructure and 5G markets and to market and sell these products to our customers;

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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 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 implement our plans, forecasts and other expectations with respect to our strategic investments, divestitures, mergers, or joint ventures 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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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.

In the third quarter of fiscal 2022, our net revenue increased year over year by 61% from $750.1 million net revenue in the third quarter of fiscal 2021 compared with $1.2 billion in the third 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”).

Revenue increased from the data center end market by 109%, from the carrier infrastructure end market by 28%, from the enterprise networking end market by 56%, from the consumer end market by 20%, and the automotive/industrial end market by 114% compared to the three months ended Oc tober 31,2020.

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

Inphi is a global leader in high-speed data movement enabled by optical interconnects.

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.

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.

The unaudited condensed consolidated financial statements include the operating results of Inphi for the period from the date of acquisition through our third quarter ended October 30, 2021.

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

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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.

On October 5, 2021, we completed our acquisition of 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.

The unaudited condensed consolidated financial statements include the operating results of Innovium for the period from the date of acquisition through our third quarter ended October 30, 2021.

See “Note 3 - Business Combinations”, “Note 4 - Goodwill and Acquired Intangible Assets, Net” for more information.

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.

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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.

To secure additional capacity, we entered into capacity reservation arrangements with certain foundries and test & assembly partners.

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

Securing capacity for growth remains a high priority for our operations team, even as this supply expansion comes with an increase in input costs.

As we have done throughout the supply constraints, we are working with our customers to adjust prices to offset the impact of these cost increases, which lets us jointly benefit from sustained growth.

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

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The extent to which we repurchase our shares and the timing of such repurchases will depend upon market conditions and other corporate considerations, as determined by our management team.

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 six months ended July 31, 2021.

The share repurchase program was temporarily suspended in late March 2020 to preserve cash during the COVID-19 pandemic.

We are focusing on reducing our debt and de-levering our balance sheet.

As a result, we did not repurchase any shares during the nine months ended October 30, 2021.

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

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.

As of October 30, 2021, there was $564.5 million remaining available for future share repurchases of the authorization.

As of October 30, 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 $140.3 million to stockholders in the nine months ended October 30, 2021 in cas h dividends.

Cash and Cash Equivalents.

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.

Our cash and cash equivalents were $523.5 million at October 30, 2021, which was $225.0 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 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.

During the three and nine months ended October 30, 2021 and October 31, 2020, 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 Six Months Ended

2021 August 1,

2020 July 31,

2021 August 1,

Wintech 15 % 13 % 17 % 12 %

Three Months Ended Nine Months Ended

2021 October 31,

2020 October 30,

2021 October 31,

Distributor A 14 % 12 % 16 % 12 %

We continuously monitor the creditworthiness of our distributors and believe their sales to diverse end customers and geographies further serve to mitigate our exposure to credit risk.

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 and six months ended July 31, 2021, and approximately 79% of net revenue in the three and six months ended August 1, 2020, respectively.

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

Sales shipped to customers with operations in Asia represented approximately 79% of our net revenue in the three and nine months ended October 30, 2021, and approximately 81% and 80% of net revenue in the three and nine months ended October 31, 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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The occurrence of any or a combination of the additional risks described below would significantly and negatively impact our business and results of operations.”

Historically, a relatively large portion of our sales have been made on the basis of purchase orders rather than long-term agreements.

Customers can generally cancel or defer purchase orders on short notice without incurring a significant penalty.

In addition, the development process for our products is long, which may cause us to experience a delay between the time we incur expenses and the time revenue is generated from these expenditures.

The development process for our products is long, which may cause us to experience a delay between the time we incur expenses and the time revenue is generated from these expenditures.

We anticipate that the rate of new orders may vary significantly from quarter to quarter.

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Critical Accounting Policies and Estimates

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.

There have been no material changes during the three months ended October 30, 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 Six Months Ended

2021 August 1,

2020 July 31,

2021 August 1,

Three Months Ended Nine Months Ended

2021 October 31,

2020 October 30,

2021 October 31,

Net revenue 100.0 % 100.0 % 100.0 % 100.0 %

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Net loss (5.2) % (3.1) % (13.7) % (13.3) %

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,

Three and nine months ended October 30, 2021 and October 31, 2020

Three Months Ended Nine Months Ended

2021 October 31,

Change October 30,

2021 October 31,

(in thousands, except percentage)

Net revenue $ 1,211,245 $ 750,143 61.5% $ 3,119,405 $ 2,171,081 43.7%

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.

Our net revenue for the three months ended October 30, 2021 increased by $461.1 million compared to net revenue for the three months ended October 31, 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.

Revenue increased from the data center end market by 109%, from the carrier infrastructure end market by 28%, from the enterprise networking end market by 56%, from the consumer end market by 20%, and from the automotive/industrial end market by 114% co mpared to the three months ended October 31, 2020.

The increase in revenue from the data center end market was primarily due to the acquisition of Inphi and increase in demand for multiple product lines such as our embedded processors, flash controllers, networking 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 station related customers 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.

The increase in revenue from the automotive/industrial end market was primarily due to the increase in demand for our automotive ethernet connectivity products which continue to be designed into additional automotive models.

Our net revenue for the nine months ended October 30, 2021 increased by $948.3 million compared to net revenue for the nine months ended October 31, 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.

Revenue increased from the data center end market by 57%, from the carrier infrastructure end market by 34%, from the enterprise networking end market by 36%, from the consumer end market by 26% , and from the automotive/industrial end market by 103% compared to the nine months ended October 31, 2020.

The incre ase in revenue from the data center end market was primarily due to the acquisition of Inphi and increase in demand for multiple product lines such as our embedded processors, flash controllers, networking and nearline HDD controllers and preamplifiers.

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

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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.

In the three months ended October 30, 2021, unit shipments were 49% higher and average selling prices increased 13% compared to the three months ended October 31, 2020, for an overall increase in net revenue of 61%.

In the nine months ended October 30, 2021, unit shipments were 29% higher and average selling prices increased 15% compared to the nine months ended October 31, 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 Six Months Ended

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Change July 31,

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Change October 30,

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(in thousands, except percentage)

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% of net revenue 48.5 % 50.8 % 44.2 % 49.2 %

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.

Cost of goods sold as a percentage of net revenue increased for the three and nine months ended October 30, 2021 compared to the three and nine months ended October 31, 2020, which is primarily due to increased costs associated with the Inphi and Innovium acquisitions including amortization of inventory fair value adjustment and amortization of acquired intangible assets.

As a result, gross margin for the three and nine months ended October 30, 2021 decreased 2.3% and 5% percentage points compared to the three and nine months ended October 31, 2020.

Research and Development

Three Months Ended Six Months Ended

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Change July 31,

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Change October 30,

2021 October 31,

(in thousands, except percentage)

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% of net revenue 30.7 % 34.1 % 32.9 % 37.4 %

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.

Research and development expense increased by $116.3 million in the three months ended October 30, 2021 compared to the three months ended October 31, 2020.

The increase was primarily due to additional costs from our acquisition of Inphi and Innovium, including $82.1 million of higher employee personnel-related costs, $13.5 million of higher computer-aided design software related costs, and $8.9 million of higher depreciation and amortization costs.

Research and development expense increased by $212.7 million in the nine months ended October 30, 2021 compared to the nine months ended October 31, 2020.

The increase was primarily due to additional costs from our acquisition of Inphi and Innovium, including $146.0 million of higher employee personnel-related costs, $26.4 million of higher computer-aided design software related costs, $22.9 million of higher engineering design and supplies costs, and $11.1 million of higher depreciation and amortization costs.

Selling, general and administrative

Three Months Ended Six Months Ended

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Three Months Ended Nine Months Ended

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Change October 30,

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(in thousands, except percentage)

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% of net revenue 20.1 % 15.4 % 22.6 % 16.1 %

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.

Selling, general and administrative expense increased by $127.9 million in the three months ended October 30, 2021 compared to the three months ended October 31, 2020.

The increase was primarily due to additional costs from our acquisition of Inphi and Innovium, including $83.2 million of higher intangibles amortization expense, $25.7 million of higher employee personnel-related costs and $18.7 million of higher integration costs.

Selling, general and administrative expense increased by $353.7 million in the nine months ended October 30, 2021 compared to the nine months ended October 31, 2020.

The increase was primarily due to additional costs from our acquisition of Inphi and Innovium, including $174.8 million of higher intangibles amortization expense, $108.8 million of higher employee personnel-related costs and $85.0 million of higher integration costs.

Restructuring Related Charges

Three Months Ended Six Months Ended

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Change July 31,

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Three Months Ended Nine Months Ended

2021 October 31,

Change October 30,

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(in thousands, except percentage)

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% of net revenue 0.5 % 2.6 % 1.0 % 7.4 %

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.

We recognized $5.9 million and $31.0 million of total restructuring related charges in the three and nine months ended October 30, 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 Six Months Ended

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Three Months Ended Nine Months Ended

2021 October 31,

Change October 30,

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(in thousands, except percentage)

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% of net revenue — % 0.1 % — % 0.1 %

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 income decreased by $0.4 million and $1.7 million in the three and nine months ended October 30, 2021 compared to the three and nine months ended October 31, 2020 due to lower interest rates on our invested cash.

Interest Expense

Three Months Ended Six Months Ended

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Change July 31,

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Three Months Ended Nine Months Ended

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Change October 30,

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(in thousands, except percentage)

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% of net revenue (2.9) % (2.1) % (3.3) % (2.2) %

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

Interest expense increased by $19.4 million in the three months ended October 30, 2021 compared to the three months ended October 31, 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.

Interest expense increased by $55.8 million in the nine months ended October 30, 2021 compared to the nine months ended October 31, 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

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Change July 31,

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Three Months Ended Nine Months Ended

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Change October 30,

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(in thousands, except percentage)

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% of net revenue 0.1 % — % — % 0.2 %

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.

Other income (loss), net, changed by $0.7 million in the three months ended October 30, 2021 compared to the three months ended October 31, 2020.

The change was primarily due to foreign currency rate fluctuations.

Other income (loss), net, changed by $3.0 million in the nine months ended October 30, 2021 compared to the nine months ended October 31, 2020.

The change 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

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Change July 31,

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Three Months Ended Nine Months Ended

2021 October 31,

Change October 30,

2021 October 31,

(in thousands, except percentage)

Benefit for income taxes $ (5,044) $ (1,641) 207.4% $ (58,367) $ (5,494) 962.4%

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 income tax benefit for the three months ended October 30, 2021 was $5.0 million compared to a tax benefit of $1.6 million for the three months ended October 31, 2020.

Our income tax benefit for the three months ended October 30, 2021 differs from the tax benefit recorded in the same period in the prior year primarily due to the tax impact of 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 settlement of audits in certain jurisdictions.

These items were the primary drivers of the income tax benefits for the three months ended October 30, 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 nine months ended October 30, 2021 was $58.4 million compared to a tax benefit of $5.5 million for the nine months ended October 31, 2020.

Our income tax benefit for the nine months ended October 30, 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 settlement of audits and the expirations of the statutes of limitations for the assessment of taxes in certain jurisdictions were the primary drivers of the income tax benefits for the nine months ended October 30, 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.

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Liquidity and Capital Resources

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.

Our principal source of liquidity as of October 30, 2021 consisted of approximately $523.5 million of cash and cash equivalents, of which approximately $437.0 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.

As of October 30, 2021, the Inphi convertible notes have been settled.

In December 2020, to fund the Inphi acquisition, we executed a debt agreement to obtain a $875 million 3-year term loan and a $875 million 5-year term loan.

During the quarter ended October 30, 2021, the Company repaid $140 million and $10.9 million of the principal outstanding of the 3-year term loan and 5-year term loan, respectively.

We also executed a debt agreement to obtain a $750 million revolving credit facility (“2020 Revolving Credit Facility”).

In April 2021, we completed an offering and issued (i) $500 million of senior notes with a 5 year term due in 2026, (ii) $750 million of senior notes with a 7 year term due in 2028, and (iii) $750 million of senior notes with a 10 year term due in 2031.

On October 8, 2021, the senior notes issued in April 2021 were exchanged for new notes.

The terms of the new notes issued in the exchange are substantially identical to the notes issued in April 2021, except that the new notes are registered under the Securities Act of 1933 and the transfer restrictions and registration rights applicable to the Senior Notes issued in April 2021 do not apply to the new notes.

In addition, in May 2021, in conjunction with the U.S.

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

Subsequent to quarter end, on November 22, 2021, the Company drew down $90.0 million on the 2020 Revolving Credit Facility.

The Company intends to repay the drawn amount by the end of the fourth quarter of fiscal year 2022.

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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Our dividend payments and repurchases of common stock may change from time to time, and we cannot provide assurance that we will continue to declare dividends or repurchase shares at all or in any particular amounts.

Our 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.

Our share repurchase program was temporarily suspended in late March 2020 to preserve cash during the COVID-19 pandemic.

We are focusing on reducing our debt and de-levering our balance sheet.

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

Cash Flows from Operating Activities

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

Net cash flow provided by operating activities for the nine months ended October 30, 2021 was $473.0 million.

We had a net loss of $427.2 million adjusted for the following non-cash items:

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.

amortization of acquired intangible assets of $684.6 million, share-based compensation expense of $325.9 million, amortization of inventory fair value adjustment associated with the Inphi and Innovium acquisitions of $191.0 million, depreciation and amortization of $189.7 million, deferred income tax benefit of $67.6 million, and $60.1 million net loss from other non-cash items.

Cash outflow from working capital of $507.7 million for the nine months ended October 30, 2021 was primarily driven by increases in accounts receivable, inventory, and prepaid expenses and other assets, partially offset by increase in accounts payable.

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.

The increase in prepaid expenses and other assets is primarily due to prepayments on supply capacity reservation agreements.

The higher accounts payable is due to increase in purchases and timing of payments.

Net cash flow provided by operating activities for the nine months ended October 31, 2020 was $659.0 million.

We had a net loss of $293.8 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 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.

amortization of acquired intangible assets of $333.9 million, share-based compensation expense of $182.1 million, depreciation and amortization of $149.9 million, restructuring related non-cash charges of $123.6 million, amortization of inventory fair value adjustment associated with the Aquantia and Avera acquisition of $17.3 million and $19.4 million net loss from other non-cash items.

Cash inflow from working capital of $123.0 million for the nine months ended October 31, 2020 was primarily driven by an increase in accrued employee compensation, an increase in accounts payable, an increase in accrued liabilities and other non-current liabilities, as well as a decrease in inventories.

The increase in accrued employee compensation is due to increase in our bonus accrual and increase in employee contributions to the employee stock purchase plan.

The increase in accounts payable is mainly due to timing of payments.

The increase in accrued liabilities and other non-current liabilities was due to an increase in ship and debit reserve.

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

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 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.

For the nine months ended October 30, 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 $130.5 million, and purchases of technology licenses of $9.4 million, partially offset by cash acquired from Innovium of $60.4 million.

For the nine months ended October 31, 2020, net cash used in investing activities of $96.5 million was primarily driven by purchases of property and equipment of $88.2 million and purchases of technology licenses of $8.5 million.

Cash Flows from Financing Activities

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.

For the nine months ended October 30, 2021, net cash provided by financing activities of $3.0 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 $425.9 million repayment of debt, $181.2 million of repurchases and settlement of convertible notes, $169.0 million tax withholding payments on behalf of employees for net share settlements, $140.3 million for payment of our quarterly dividends and $97.9 million payments on technology license obligations.

For the nine months ended October 31, 2020, net cash used in financing activities of $378.1 million was primarily attributable to $120.1 million for payment of our quarterly dividends, $100.0 million repayment of debt, $82.6 million tax withholding payments on behalf of employees for net share settlements, $76.8 million payments for technology license obligations and $25.2 million for repurchases of our common stock and $22.3 million payment of debt financing cost.

These outflows were partially offset by $50.5 million proceeds from employee stock plans.

Contractual Obligations and Commitments

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):

The following table summarizes our contractual obligation as of October 30, 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

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11,995 40,428 38,923 26,504 22,864 64,858 205,572

Purchase commitments to foundries (2)

Purchase commitments to foundries and test & assembly partners (2)

61,899 1,068,090 498,975 541,868 498,569 539,972 3,209,373

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(1) Amounts exclude contractual sublease proceeds of $38.6 million to be received through fiscal 2031.

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

(2) Amounts include outstanding purchase orders with foundries and contractual obligations from supply 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 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.

In addition to the above commitments and contingencies, as of October 30, 2021, we have $32.9 million of unrecognized tax benefits as liabilities.

We also have a liability for potential interest and penalties of $3.7 million as of October 30, 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