What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-05-27 compared with 2021-12-03 · 142 added, 244 removed, 97 unchanged (80% of the section changed)

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Factors that could cause actual results to differ materially from those predicted include, but are not limited to:

• 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 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;

• extension of lead time due to supply chain disruption, component shortages that impact the production of our products and constrained availability from other electronic suppliers impacting our customers’ ability to ship their products, which in turn may adversely impact our sales to those customers;

• the impact of international conflict, trade relations between the U.S.

and other countries, and continued economic volatility in either domestic or foreign markets;

• the impact and costs associated with changes in international financial and regulatory conditions such as the addition of new trade restrictions, tariffs or embargos;

• our ability and the ability of our customers to successfully compete in the markets in which we serve;

• our ability and our customers’ ability to develop new and enhanced products and the adoption of those products in the market;

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

• risks related to our ability to scale our business;

• risks related to the extension of lead time due to supply chain disruptions, component shortages that impact the costs and production of our products and our kitting process, and constrained availability from other electronic suppliers impacting our customers' ability to ship their products, which in turn may adversely impact our sales to those customers;

• risks related to changes in general economic conditions, such as economic slowdowns and recessions, inflation and stagflation, or political conditions, such as the tariffs and trade restrictions with China, Russia and other foreign nations, and specific conditions in the end markets we address, including the continuing volatility in the technology sector and semiconductor industry;

• risks related to the ability of our customers, particularly in jurisdictions such as China that may be subject to trade restrictions (including the need to obtain export licenses) to develop their own solutions or acquire fully developed solutions from third-parties;

• risks related to cancellations, rescheduling or deferrals of significant customer orders or shipments, as well as the ability of our customers to manage inventory;

• risks related to our ability to successfully integrate and to realize anticipated synergies, on a timely basis or at all, in connection with our acquisitions, divestitures, significant investments or strategic transactions;

• risks related to our debt obligations;

• our ability to scale our operations in response to changes in demand for existing or new products and services;

• our reliance on our manufacturing partners for the manufacture, assembly and testing of our products;

• the risks associated with manufacturing and selling a majority of our products and our customers’ products outside of the United States;

• the effects of transitioning to smaller geometry process technologies;

• the impact of any change in our application of the United States federal income tax laws and the loss of any beneficial tax treatment that we currently enjoy;

• 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 and to fully realize the anticipated synergies and cost savings in the time frame anticipated;

• our ability to limit costs related to defective products;

• our ability to recruit and retain experienced executive management as well as highly-skilled personnel;

• our ability to mitigate risks related to our information technology systems;

• our ability to protect our intellectual property, particularly outside of the U.S.;

• our ability to estimate customer demand and future sales accurately;

• our reliance on third-party distributors and manufacturers’ representatives to sell our products;

• our maintenance of an effective system of internal controls;

• the impact of the highly cyclical and intensely competitive nature of the markets for our products;

• 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;

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

• decreases in our gross margin and results of operations in the future due to a number of factors;

• the impact of natural disasters and other catastrophic events;

• the outcome of pending or future litigation and legal proceedings.

• risks related to the effects of any future acquisitions, divestitures or significant investments;

• risks related to the highly competitive nature of the end markets we serve, particularly within the semiconductor and infrastructure industries;

• risks related to our dependence on a few customers for a significant portion of our revenue;

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

• risks related to our ability to maintain a competitive cost structure for our manufacturing and assembly and test processes and our reliance on third parties to produce our products;

• risks related to our ability to attract, retain and motivate a highly skilled workforce, especially engineering, managerial, sales and marketing personnel;

• risks related to any current and future litigation and regulatory investigations that could result in substantial costs and a diversion of management’s attention and resources that are needed to successfully maintain and grow our business;

• risks related to gain or loss of a design win or key customer;

• risks related to seasonality or volatility related to sales into the infrastructure market;

• risks related to failures to qualify our products or our suppliers’ manufacturing lines;

• risks related to our ability to develop and introduce new and enhanced products, in particular in the 5G and Cloud markets, in a timely and effective manner, as well as our ability to anticipate and adapt to changes in technology;

• risks related to failures to protect our intellectual property, particularly outside the United States;

• risks related to the potential impact of a significant natural disasters, or the effects of climate change (such as drought, flooding, wildfires, increased storm severity and sea level rise), particularly in certain regions in which we operate or own buildings, such as Santa Clara, California, and where our third party suppliers operate, such as Taiwan and elsewhere in the Pacific Rim;

• risks related to our Environmental, Social and Governance (ESG) programs;

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

• risks related to failures of our customers to agree to pay for NRE (non-recurring engineering) costs or failure to pay enough to cover the costs we incur in connection with NREs.

Additional factors which could cause actual results to differ materially include those set forth in the following discussion, as well as the risks discussed in Part II, Item 1A, “Risk Factors,” and other sections of this Quarterly Report on Form 10-Q.

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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.

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.

Net revenue in the first quarter of fiscal 2023 was $1,446.9 million and was 74% higher than net revenue of $832.3 million in the first 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 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.

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.

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.

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 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.

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

Revenue increased from the data center end market by 131% , from the carrier infrastructure end market by 50%, from the enterprise networking end market by 64%, from the consumer end market by 7%, and the automotive/industrial end market by 94% compared to the three months ended May 1, 2021 .

The overall increase in net revenue of 74% was primarily driven by an increase in demand for our products and the year-over-year impact of acquisitions in fiscal 2022, with both factors contributing to higher unit shipments.

In addition, our average selling prices increased year-over-year driven by relatively higher sales of products which had higher content and more features.

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

However, we are continuing to experience 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 products.

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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.

As we have done throughout this period of 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.

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 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 .”

While our offices around the world generally remain open to enable critical on-site business functions in accordance with local government guidelines, in response to the COVID-19 pandemic we modified our workplace practices globally, which resulted in many of our employees working remotely for extended periods of time.

As a result, many of our employees have expressed a preference to continue to work from home two to three days a week post-pandemic.

In response, we adopted a hybrid work policy where most employees split their time between home and the office.

We expect COVID-19 to continue to impact our business, 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 and adversely impact our manufacturing, research and development, operations, sales and financial results .”

We expect that the U.S.

government’s export restrictions on certain Chinese customers will continue to impact our revenue in fiscal year 2022.

government’s export restrictions on certain Chinese customers will continue to impact our revenue in fiscal 2023.

Moreover, concerns that U.S.

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export controls.

In addition, there may be indirect impacts to our business that we cannot easily quantify such as the fact that some of our other customers’ products which use our solutions may also be impacted by export restrictions.

In addition, there may be indirect impacts to our business that we can not easily quantify such as the fact that some of our other customers’ products which use our solutions may also be impacted by export restrictions.

Capital Return Program.

We remain committed to delivering stockholder value through our share repurchase and dividend programs.

On October 16, 2018, we announced that our Board of Directors authorized a $700 million addition to the balance of our existing share repurchase program.

Under the program authorized by our Board of Directors, we may repurchase shares in the open-market or through privately negotiated transactions.

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.

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 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 $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.

We remain committed to delivering stockholder value through our stock repurchase and dividend programs.

Under the program authorized by our Board of Directors, we may repurchase shares of stock in the open-market or through privately negotiated transactions.

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

We resumed our stock repurchase program in the first quarter of fiscal 2023, which had been temporarily suspended in fiscal 2021 to preserve cash during the COVID-19 pandemic.

During the three months ended April 30, 2022, we repurchased 0.3 million shares of our common stock for $15.0 million.

As of April 30, 2022, there was $549.5 million remaining available for future stock repurchases.

As of April 30, 2022, a total of 308.4 million shares have been repurchased to date under our share repurchase programs for a total $4.3 billion in cash.

We returned $65.9 million to stockholders in the three months ended April 30, 2022, including our repurchases of common stock and $50.9 million in cas h dividends.

Subsequent to quarter end through May 20, 2022, we repurchased an additional 0.9 million shares of our common stock for $50.0 million pursuant to a 10b5-1 trading plan.

Cash and Short-Term Investments.

Our cash and cash equivalents were $465.0 million at April 30, 2022, which was $148.5 million lower than our balance at our fiscal year ended January 29, 2022 of $613.5 million.

Sales and Customer Composition.

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 Nine Months Ended

2021 October 31,

2020 October 30,

2021 October 31,

Our accounts receivable was concentrated with four customers at April 30, 2022, who comprise a total of 52% of gross accounts receivable, compared with five customers at May 1, 2021, who represented 54% of gross accounts receivable, respectively.

This presentation is at the customer consolidated level.

During the three months ended April 30, 2022 and May 1, 2021, there was no net revenue attributable to a single customer, other than one distributor, whose revenue as a percentage of net revenue was 10% or greater of total net revenue.

Net revenue attributable to a distributor 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

Distributor A 19 % 19 %

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 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.

We continuously monitor the creditworthiness of our customers and distributors and believe these distributors’ 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 75% of our net revenue in the three months ended April 30, 2022, and approximately 80% of net revenue in the three months ended May 1, 2021.

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 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.

There have been no material changes during the three months ended April 30, 2022 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 29, 2022.

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 Nine Months Ended

2021 October 31,

2020 October 30,

2021 October 31,

Three Months Ended

Net revenue 100.0 % 100.0 %

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Total operating expenses 47.1 60.1

Operating loss (2.8) (1.3) (12.3) (11.7)

Operating income (loss) 4.8 (9.9)

Interest income — —

Interest expense (2.5) (4.2)

Other income (loss), net 0.1 — — 0.2

Loss before income taxes (5.6) (3.3) (15.6) (13.6)

Provision for income taxes (0.4) (0.2) (1.9) (0.3)

Other income, net 0.4 0.1

Income (loss) before income taxes 2.7 (14.0)

Provision (benefit) for income taxes 14.2 (3.3)

Net loss (11.5) % (10.7) %

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)

Three months ended April 30, 2022 and May 1, 2021

Three Months Ended

(in millions, except percentage)

Net revenue $ 1,446.9 $ 832.3 73.8%

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 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 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 .

Our net revenue for the three months ended April 30, 2022 increased by $614.6 million compared to net revenue for the three months ended May 1, 2021.

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

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.

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 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.

Revenue increased from the data center end market by 131% from the carrier infrastructure end market by 50%, from the enterprise networking end market by 64%, from the consumer end market by 7%, and from the automotive/industrial end market by 94% co mpared to the three months ended May 1, 2021 .

In addition, our average selling prices increased year-over-year driven by relatively higher sales of products which had higher content and more features.

Cost of Goods Sold and Gross Profit

Three Months Ended Nine Months Ended

2021 October 31,

Change October 30,

2021 October 31,

(in thousands, except percentage)

Three Months Ended

(in millions, except percentage)

Cost of goods sold $ 696.0 $ 414.1 68.1%

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% of net revenue 51.9 % 50.2 %

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.

Cost of goods sold as a percentage of net revenue decreased for the three months ended April 30, 2022 compared to the three months ended May 1, 2021, which is primarily due to operational efficiencies with increased sales and lower amortization of inventory fair value adjustment.

As a result, gross margin for the three months ended April 30, 2022 increased 1.7% percentage points compared to the three months ended May 1, 2021.

Research and Development

Three Months Ended Nine Months Ended

2021 October 31,

Change October 30,

2021 October 31,

(in thousands, except percentage)

Three Months Ended

(in millions, except percentage)

Research and development $ 444.1 $ 286.1 55.2%

% of net revenue 30.7 % 34.4 %

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.

Research and development expense increased by $158.0 million in the three months ended April 30, 2022 compared to the three months ended May 1, 2021.

The increase was primarily due to additional costs from our acquisitions of Inphi and Innovium in fiscal 2022, including $125.0 million of higher employee personnel-related costs and $32.9 million of higher product development and qualification costs recognized in the current period.

Selling, general and administrative

Three Months Ended Nine Months Ended

2021 October 31,

Change October 30,

2021 October 31,

(in thousands, except percentage)

Three Months Ended

(in millions, except percentage)

Selling, general and administrative $ 235.7 $ 201.5 17.0%

% of net revenue 16.3 % 24.2 %

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.

Selling, general and administrative expense increased by $34.2 million in the three months ended April 30, 2022 compared to the three months ended May 1, 2021.

The increase was primarily due to additional costs from our acquisitions of Inphi and Innovium in fiscal 2022, including $63.1 million of higher intangibles amortization expense, partially offset by $35.3 million of lower integration costs in the current period.

Restructuring Related Charges

Three Months Ended Nine Months Ended

2021 October 31,

Change October 30,

2021 October 31,

(in thousands, except percentage)

Three Months Ended

(in millions, except percentage)

Restructuring related charges $ 1.3 $ 12.9 (89.9)%

% of net revenue 0.1 % 1.5 %

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.

We recognized $1.3 million of total restructuring related charges in the three months ended April 30, 2022 as we continue to evaluate our existing operations to increase operational efficiency, decrease costs, and increase profitability.

See “Note 9 –Restructuring” in the Notes to the Unaudited Condensed Consolidated Financial Statements for further information.

Interest Income

Three Months Ended Nine Months Ended

2021 October 31,

Change October 30,

2021 October 31,

(in thousands, except percentage)

Three Months Ended

(in millions, except percentage)

Interest income $ 0.5 $ 0.2 150.0%

% of net revenue — % — %

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 income increased by $0.3 million in the three m onths ended April 30, 2022 compared to the three months ended May 1, 2021 due to higher interest rates on our invested cash.

Interest Expense

Three Months Ended Nine Months Ended

2021 October 31,

Change October 30,

2021 October 31,

(in thousands, except percentage)

Three Months Ended

(in millions, except percentage)

Interest expense $ (36.3) $ (35.1) 3.4%

% of net revenue (2.5) % (4.2) %

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 $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 Nine Months Ended

2021 October 31,

Change October 30,

2021 October 31,

(in thousands, except percentage)

Other income (loss), net $ 999 $ 299 234.1% $ 568 $ 3,613 (84.3)%

Interest expense increased by $1.2 million in the three months ended April 30, 2022 compared to the three months ended May 1, 2021.

The increase was primarily due to higher interest expense and amortization of debt issuance costs associated with the 2020 Term Loans and 2026, 2028 and 2031 Senior Notes, partially offset by prior period costs associated with the bridge loan termination.

Other Income, Net

Three Months Ended

(in millions, except percentage)

Other income, net $ 5.2 $ 1.2 333.3%

% of net revenue 0.4 % 0.1 %

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 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 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.

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.

Other income, net, increased by $4.0 million in the three months ended April 30, 2022 compared to the three months ended May 1, 2021.

The increase was primarily due to a gain from an equity investment in a privately-held company.

Provision (benefit) for Income Taxes

Three Months Ended

(in millions, except percentage)

Provision (benefit) for income taxes $ 204.9 $ (27.8) (837.1)%

Our income tax expense for the three months ended April 30, 2022 was $204.9 million compared to a tax benefit of $27.8 million for the three months ended May 1, 2021.

Our income tax expense for the three months ended April 30, 2022 differed from the 21% federal income tax rate, primarily because of the remeasurement of our deferred taxes in Singapore upon the five year extension of our DEI status until June 30, 2029 at the new incentive tax rates that are expected to apply during these future periods for existing deferred tax items, resulting in a net reduction to our Singapore deferred tax assets of $213.6 million and a corresponding income tax expense.

In addition, our tax rate for the three months ended April 30, 2022 was affected by the recognition of benefits for tax credits, discrete tax benefits from stock-based compensation deductions and the tax rate differential on foreign income.

The income tax benefit for the three months ended May 1, 2021 differed from the federal statutory tax rate of 21% primarily because of tax rate differentials on foreign income, tax benefits for stock based compensation and the recognition of tax benefits on the expiration of the statutes of limitations for the assessment of certain foreign taxes.

Our provision for incomes taxes may be affected by changes in the geographic mix of earnings with different applicable tax rates, acquisitions, changes in the realizability of deferred tax assets, 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.

The ultimate realization of deferred tax assets depends upon the generation of future taxable income during the periods in which those assets become deductible or creditable.

We evaluate the recoverability of these assets, weighing all positive and negative evidence, and provide or maintain a valuation allowance for these assets if it is more likely than not that some, or all, of the deferred tax assets will not be realized.

If negative evidence exists, sufficient positive evidence is necessary to support a conclusion that a valuation allowance is not needed.

We consider all available evidence such as our earnings history including the existence of cumulative income or losses, reversals of taxable temporary differences, projected future taxable income, and tax planning strategies.

In future periods, it is possible that significant positive or negative evidence could arise that results in a change in our judgment with respect to the need for a valuation allowance, which could result in a tax benefit, or adversely affect our income tax provision, in the period of such change in judgment.

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.

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Liquidity and Capital Resources

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.

Our principal source of liquidity as of April 30, 2022 consisted of approximately $465.0 million of cash and cash equivalents, of which approximately $415.6 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.

See “Note 10 – Income Taxes” in the Notes to the Unaudited Condensed Consolidated Financial Statements for further information.

In April 2021, we assumed $15.7 million in principal of Inphi’s 0.75% convertible senior notes due 2021 and $506 million in principal of Inphi’s 0.75% convertible senior notes due 2025 from Inphi.

We also acquired capped call assets in relation to the convertible debt.

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.

In December 2020, to fund the Inphi acquisition, we executed a debt agreement to obtain a 3-year term loan of $875.0 million and a 5-year term loan of $875.0 million.

For the quarter ended April 30, 2022, the Company repaid $10.9 million of the principal outstanding of the 5-year term loan.

In December 2020, we also executed a debt agreement to obtain a $750.0 million revolving credit facility (“2020 Revolving Credit Facility”).

Subsequent to quarter end, on May 3, 2022, the Company drew down $150.0 million on the 2020 Revolving Credit Facility.

The Company intends to repay the drawn amount during the second quarter of fiscal 2023.

In April 2021, we completed an offering and issued (i) 5-year $500.0 million senior notes due in 2026, (ii) 7-year $750.0 million senior notes due in 2028, and (iii) 10-year $750.0 million senior notes due in 2031 (collectively, the “Senior Notes”).

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.

domiciliation, we exchanged certain of our existing senior notes due in 2023 (“MTG 2023 Notes”) and 2028 (“MTG 2028 Notes”) that were previously issued by the former Bermuda-based parent with like notes that are now issued by the new parent domiciled in Delaware.

See “Note 4 – 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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If we elect to raise additional funds, we may not be able to obtain such funds on a timely basis or on acceptable terms, if at all.

In addition, the equity or debt securities that we issue may have rights, preferences or privileges senior to our common shares.

Future payment of a regular quarterly cash dividend on our common shares and our planned repurchases of common stock will be subject to, among other things, the best interests of us and our stockholders, our results of operations, cash balances and future cash requirements, financial condition, developments in ongoing litigation, statutory requirements under Delaware law, market conditions and other factors that our Board of Directors may deem relevant.

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.

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 .

In addition, the equity or debt securities that we issue may have rights, preferences or privileges senior to our common stock.

Future payment of a regular quarterly cash dividend on our common stock and our planned repurchases of common stock will be subject to, among other things, the best interests of the Company and our stockholders, our results of operations, cash balances and future cash requirements, financial condition, developments in ongoing litigation, statutory requirements under Delaware law, U.S.

securities laws and regulations, market conditions and other factors that our Board of Directors may deem relevant.

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 stock at all or in any particular amounts.

Cash Flows from Operating Activities

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

Net cash flow provided by operating activities for the three months ended April 30, 2022 was $194.8 million.

We had a net loss of $165.7 million adjusted for the following non-cash items:

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.

amortization of acquired intangible assets of $272.5 million, deferred income tax expense of $165.0 million, stock-based compensation expense of $131.1 million, depreciation and amortization of $75.7 million, amortization of inventory fair value adjustment associated with the Innovium acquisition of $9.3 million, and $6.7 million net loss from other non-cash items.

Cash outflow from working capital of $299.8 million for the three months ended April 30, 2022 was primarily driven by increases in accounts receivable, inventory, and prepaid expenses and other assets and decrease in accrued employee compensation, partially offset by increases in accounts payable and accrued liabilities and other non-current liabilities.

The increase in accounts receivable was driven primarily by higher revenue and uniform collections.

The increase in inventory is to support future customer demand.

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.

The decrease in accrued employee compensation is due to bonus payout.

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

The increase in accrued liabilities and other non-current liabilities is mainly due to an increase in ship and debit claim reserve due to price increase and stock replenishment.

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

We had a net loss of $88.2 million adjusted for the following non-cash items:

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.

amortization of acquired intangible assets of $128.6 million, stock-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 $31.4 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 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.

Cash Flows from Investing Activities

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.

For the three months ended April 30, 2022, net cash used in investing activities of $82.4 million was primarily driven by net cash paid for business acquisitions of $44.0 million, purchases of property and equipment of $36.9 million, and purchases of technology licenses of $1.6 million.

For the three months ended May 1, 2021, net cash used in investing activities of $3.6 billion was primarily driven by the 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.

Cash Flows from Financing Activities

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.

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

Remainder of 2022 2023 2024 2025 2026 Thereafter Total

Contractual obligations:

Principal payments on debt $ 10,938 $ 65,625 $ 1,322,452 $ 109,375 $ 131,250 $ 2,959,290 $ 4,598,930

Interest obligations on debt 29,208 116,177 103,966 84,527 80,608 216,797 631,283

Facilities operating leases (1)

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

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

Capital purchase obligations 41,272 — — — — — 41,272

Technology license obligations (3)

41,562 128,292 96,842 74,178 32,533 227,992 601,399

Other contractual commitments 17,981 7,228 1,769 503 350 4,665 32,496

Total contractual obligations $ 214,855 $ 1,425,840 $ 2,062,927 $ 836,955 $ 766,174 $ 4,013,574 $ 9,320,325

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

(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 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.

dollar as compared to foreign currencies within the next 12 months.

Excluding these factors, uncertain tax positions may decrease by as much as $1.9 million from the lapse of statutes of limitation in various jurisdictions during the next 12 months.

Government tax authorities from several non-U.S.

jurisdictions are also examining our tax returns.

We believe that we have adequately provided for any reasonably foreseeable outcomes related to these tax audits and that any settlement will not have a material effect on our results at this time.

For the three months ended April 30, 2022, net cash used in financing activities of $260.9 million was primarily attributable to $137.6 million tax withholding payments on behalf of employees for net share settlements, $50.9 million for payment of our quarterly dividends, $49.0 million payments on technology license obligations, $15.0 million of repurchases of common stock and $10.9 million repayment of debt, partially offset by $2.5 million proceeds from employee stock plans.

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 for technology license obligations and $40.6 million for payment of our quarterly dividends.

Capital Resources and Material Cash Requirements

A summary of our capital resources and material cash requirements is presented in Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, in our Annual Report on Form 10-K for the fiscal year ended January 29, 2022.

Other than as described above, there were no material changes to our capital resources and material cash requirements during the three months ended April 30, 2022.

Indemnification Obligations

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Item 2. Management’s Discussion and Analysis