What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-12-02 compared with 2022-08-26 · 133 added, 137 removed, 161 unchanged (63% of the section changed)

5 unchanged sentences

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

• risks related to changes in general economic conditions such as economic slowdowns, inflation, stagflation, rising interest rates, and recessions 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 and the U.S.

National Science and Technology Council’s designation of semiconductors as a critical and emerging technology;

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

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• 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 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;

National Science and Technology Council’s designation of semiconductors as a critical and emerging technology;

• 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 benefits or synergies, on a timely basis or at all, in connection with our past, current, or any future acquisitions, divestitures, significant investments or strategic transactions;

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• 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 dependence on a few customers for a significant portion of our revenue including risks related to severe financial hardship or bankruptcy or other attrition of one or more of our major customers, particularly as our major customers comprise an increasing percentage 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 maintain a competitive cost structure for our manufacturing, assembly, testing and packaging 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, regulatory investigations, and contractual disputes with customers 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 any current and future litigation, regulatory investigations, or contractual disputes with customers

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 or other end markets;

• risks related to seasonality or volatility related to sales into the infrastructure, semiconductor and related industries and end markets;

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

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

• risks related to severe financial hardship or bankruptcy or other attrition of one or more of our major customers, particularly as our major customers comprise an increasing percentage of our revenue;

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

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

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

Net revenue in the second quarter of fiscal 2023 was $1.5 billion and was 41% higher than net revenue of $1.1 billion in the second quarter of fiscal 2022.

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, enterprise networking, carrier infrastructure, consumer, and automotive/industrial end markets.

Net revenue in the third quarter of fiscal 2023 was $1.5 billion and was 27% higher than net revenue of $1.2 billion in the third quarter of fiscal 2022.

This was due to an increase in sales from a majority of our end markets.

Revenue increased from the data center end market by 48% , from the carrier infrastructure end market by 45%, from the enterprise networking end market by 53%, and from the automotive/industrial end market by 46% compared to the three months ended July 31, 2021 .

The sales from the consumer end market were relatively flat for the three months ended July 30, 2022 co mpared to the three months ended July 31, 2021 .

The overall increase in net revenue of 41% was primarily driven by an increase in demand for our products that led 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.

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

Revenue increased from the data center end market by 26%, from the enterprise networking end market by 52%, from the carrier infrastructure end market by 26%, and from the automotive/industrial end market by 26% compared to the three months ended October 30, 2021.

The sales from the consumer end market were relatively flat for the three months ended October 29, 2022 compared to the three months ended October 30, 2021.

Over the last several quarters, in response to an increase in demand from our customers for our products as they continued to invest in data infrastructure, our operations team has continued to ramp production with our global supply chain partners.

With the start of a broad inventory correction in the semiconductor industry, we expect supply constraints will start to moderate.

During the third quarter of fiscal 2023, in response to a changing demand environment, customers started requesting to push out shipments and reschedule orders to manage their inventory.

We saw the largest impact from our storage customers.

In addition, demand for our products has come down significantly from our OEM customers in China, as they deal with a changing macroeconomic situation.

To secure capacity over the long term, we have entered into and continue to enter into capacity reservation arrangements with certain foundries and partners for substrates.

See “Note 5 – 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 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 our offices around the world generally remained 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 adopted a hybrid work policy where most employees have the option to 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 2023.

government’s export restrictions on certain Chinese customers to continue to impact our revenue.

Moreover, concerns that U.S.

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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.

Under the program authorized by our Board of Directors, we may repurchase our 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 six months ended July 30, 2022, we repurchased 1.2 million shares of our common stock for $65.0 million, including 0.9 million shares of our common stock repurchased for $50.0 million pursuant to a 10b5-1 trading plan during the second quarter of fiscal 2023.

As of July 30, 2022, there was $499.5 million remaining available for future stock repurchases.

As of July 30, 2022, a total of 309.3 million shares have been repurchased to date under our current and previous share repurchase programs for an aggregate total of $4.3 billion in cash.

We returned $167.0 million to stockholders in the six months ended July 30, 2022, including our repurchases of common stock and $102.0 million in cas h dividends.

During the nine months ended October 29, 2022, we repurchased 2.3 million shares of our common stock for $115.0 million, including 0.9 million shares of our common stock repurchased for $50.0 million pursuant to a 10b5-1 trading plan during the second quarter of fiscal 2023.

As of October 29, 2022, $449.5 million remained available for future stock repurchases.

As of October 29, 2022, a total of 310.4 million shares have been repurchased to date under our current and previous stock repurchase programs for an aggregate total of $4.4 billion in cash.

We returned $268.1 million to stockholders in the nine months ended October 29, 2022, including our repurchases of common stock and $153.1 million in cas h dividends.

Cash and Short-Term Investments.

Our cash and cash equivalents were $617.1 million at July 30, 2022, which was $3.6 million higher than our balance at our fiscal year ended January 29, 2022 of $613.5 million.

Our cash and cash equivalents were $723.4 million at October 29, 2022, which was $109.9 million higher than our balance at our fiscal year ended January 29, 2022 of $613.5 million.

Sales and Customer Composition.

Our accounts receivable was concentrated with four customers at July 30, 2022, who comprise a total of 56% of gross accounts receivable, compared with six customers at July 31, 2021, who represented 51% of gross accounts receivable, respectively.

Our accounts receivable was concentrated with four customers at October 29, 2022, who comprised a total of 56% of gross accounts receivable, compared with seven customers at October 30, 2021, who represented 51% of gross accounts receivable.

This presentation is at the customer consolidated level.

During the three and six months ended July 30, 2022 and July 31, 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.

During the three and nine months ended October 29, 2022 and October 30, 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 Six Months Ended

2022 July 31,

2021 July 30,

2022 July 31,

Three Months Ended Nine Months Ended

2022 October 30,

2021 October 29,

2022 October 30,

Distributor A 22 % 14 % 22 % 16 %

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

Sales shipped to customers with operations in Asia represented approximately 76% of our net revenue in the three and six months ended July 30, 2022, and approximately 80% of net revenue in the three and six months ended July 31, 2021.

Sales shipped to customers with operations in Asia represented approximately 75% and 76% of our net revenue in the three and nine months ended October 29, 2022, respectively, and approximately 79% of net revenue in the three and nine months ended October 30, 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.

For risks related to our global operations, see Part II, Item 1A, “Risk Factors,” including but not limited to the risk detailed under the caption “ We face additional risks due to the extent of our global operations since a majority of our products, and those of our customers, are manufactured and sold outside of the United States.

For risks related to our global operations, see Part II, Item 1A, “Risk Factors,” including but not limited to the risk detailed under the caption “ We face additional risks due to the extent of our global operations since a majority of our products, and those of many of our customers, are manufactured and sold outside of the United States.

The occurrence of any or a combination of the additional risks described below would significantly and negatively impact our business and results of operations.”

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Critical Accounting Policies and Estimates

There have been no material changes during the three months ended July 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.

There have been no material changes during the three months ended October 29, 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, 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

2022 July 31,

2021 July 30,

2022 July 31,

Three Months Ended Nine Months Ended

2022 October 30,

2021 October 29,

2022 October 30,

Net revenue 100.0 % 100.0 % 100.0 % 100.0 %

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Net income (loss) 1.0 % (5.2) % (3.2) % (13.7) %

Three and six months ended July 30, 2022 and July 31, 2021

Three Months Ended Six Months Ended

2022 July 31,

Change July 30,

2022 July 31,

Three and Nine Months Ended October 29, 2022 and October 30, 2021

Three Months Ended Nine Months Ended

2022 October 30,

Change October 29,

2022 October 30,

(in millions, except percentage)

Net revenue $ 1,537.3 $ 1,211.2 26.9% $ 4,501.1 $ 3,119.4 44.3%

Our net revenue for the three months ended July 30, 2022 increased by $441.0 million compared to net revenue for the three months ended July 31, 2021.

Our net revenue for the three months ended October 29, 2022 increased by $326.1 million compared to net revenue for the three months ended October 30, 2021.

This was due to an increase in sales from a majority of our end markets.

Revenue increased from the data center end market by 48%, from the carrier infrastructure end market by 45%, from the enterprise networking end market by 53%, and from the automotive/industrial end market by 46% co mpared to the three months ended July 31, 2021 .

The sales from the consumer end market were relatively flat for the three months ended July 30, 2022 co mpared to the three months ended July 31, 2021.

Our net revenue for the six months ended July 30, 2022 increased by $1.1 billion compared to net revenue for the six months ended July 31, 2021.

The sales from the consumer end market were relatively flat for the three months ended October 29, 2022 compared to the three months ended October 30, 2021.

Our net revenue for the nine months ended October 29, 2022 increased by $1.4 billion compared to net revenue for the nine months ended October 30, 2021.

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

Revenue increased from the data center end market by 81%, from the carrier infrastructure end market by 47%, from the enterprise networking end market by 58%, from the consumer end market by 3%, and from the automotive/industrial end market by 67% co mpared to the six months ended July 31, 2021 .

The overall increases in net revenue of 41% for the three months was primarily driven by an increase in demand for our products that led to higher unit shipment.

The overall increase in net revenue of 55% for the six months 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.

Revenue increased from the data center end market by 58%, from the enterprise networking end market by 56%, from the carrier infrastructure end market by 40%, from the consumer end market by 1%, and from the automotive/industrial end market by 51% compared to the nine months ended October 30, 2021.

The ove rall increases in net revenue of 27% and 44% for the three and nine months ended October 29, 2022, respectively, were primarily driven by relatively higher sales of products with higher average selling prices associated with higher content and more features.

In addition, the overall increase in net revenue for the nine months ended October 29, 2022 was also driven by an increase in demand for our products and the year-over-year impact of acquisitions made in fiscal 2022, with both factors contributing to higher unit shipments.

Cost of Goods Sold and Gross Profit

Three Months Ended Six Months Ended

2022 July 31,

Change July 30,

2022 July 31,

Three Months Ended Nine Months Ended

2022 October 30,

Change October 29,

2022 October 30,

(in millions, except percentage)

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% of net revenue 50.6 % 48.5 % 51.4 % 44.2 %

Cost of goods sold as a percentage of net revenue decreased for the three and six months ended July 30, 2022 compared to the three and six months ended July 31, 2021, which is primarily due to lower amortization of inventory fair value adjustment.

As a result, gross margin for the three and six months ended July 30, 2022 increased 17.2 and 10.5 percentage points compared to the three and six months ended July 31, 2021.

Cost of goods sold as a percentage of net revenue decreased for the three and nine months ended October 29, 2022 compared to the three and nine months ended October 30, 2021, which is primarily due to lower amortization of inventory fair value adjustment and acquired intangible assets as a percentage of net revenue.

As a result, gross margin for the three and nine months ended October 29, 2022 increased 2.1 and 7.2 percentage points compared to the three and nine months ended October 30, 2021.

Research and Development

Three Months Ended Six Months Ended

2022 July 31,

Change July 30,

2022 July 31,

Three Months Ended Nine Months Ended

2022 October 30,

Change October 29,

2022 October 30,

(in millions, except percentage)

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% of net revenue 29.1 % 30.7 % 29.8 % 32.9 %

Research and development expense increased by $82.0 million in the three months ended July 30, 2022 compared to the three months ended July 31, 2021.

Research and development expense increased by $76.2 million in the three months ended October 29, 2022 compared to the three months ended October 30, 2021.

The increase was primarily due to $48.9 million of higher employee personnel-related costs as a result of headcount increases including new employees from our recent acquisitions.

Research and development expense increased by $240.0 million in the six months ended July 30, 2022 compared to the six months ended July 31, 2021.

The increase was primarily due to additional costs from our acquisitions of Inphi and Innovium in fiscal 2022, including $202.0 million of higher employee personnel-related costs recognized in the current period.

Research and development expense increased by $316.2 million in the nine months ended October 29, 2022 compared to the nine months ended October 30, 2021.

The increase was primarily due to $250.8 million of higher employee personnel-related costs as a result of headcount increases including new employees from our recent acquisitions.

Selling, General and Administrative

Three Months Ended Six Months Ended

2022 July 31,

Change July 30,

2022 July 31,

Three Months Ended Nine Months Ended

2022 October 30,

Change October 29,

2022 October 30,

(in millions, except percentage)

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% of net revenue 13.5 % 20.1 % 14.2 % 22.6 %

Selling, general and administrative expense decreased by $47.5 million in the three months ended July 30, 2022 compared to the three months ended July 31, 2021.

The decrease was primarily due to $30.3 million of lower integration costs associated with our acquisition of Inphi in fiscal 2022 and $21.5 million of lower intangibles amortization expense related to intangibles that were fully amortized during the first quarter of fiscal 2023.

Selling, general and administrative expense decreased by $35.6 million in the three months ended October 29, 2022 compared to the three months ended October 30, 2021.

The decrease was primarily due to $21.7 million of lower intangibles amortization expense related to intangibles that were fully amortized during the first quarter of fiscal 2023 and $20.4 million of lower integration costs associated with our acquisition of Inphi and Innovium in fiscal 2022.

The decrease was partially offset by $6.7 million of higher employee personnel-related costs as a result of headcount increases including new employees from our recent acquisitions.

Selling, general and administrative expense decreased by $28.3 million in the six months ended July 30, 2022 compared to the six months ended July 31, 2021.

The decrease was reflective of $65.5 million of lower transaction and integration costs associated with our acquisition of Inphi and $32.1 million of lower stock based compensation expense mainly related to accelerated vesting of Inphi equity awards incurred in the prior year when the deal was closing.

The decrease was partially offset by $41.7 million of higher intangibles amortization expense and $17.6 million of higher employee personnel-related costs associated with our acquisitions of Inphi and Innovium in fiscal 2022, as well as acquisitions in the current period.

Selling, general and administrative expense decreased by $63.9 million in the nine months ended October 29, 2022 compared to the nine months ended October 30, 2021.

The decrease was primarily due to $85.9 million of lower transaction and integration costs associated with our acquisition of Inphi and Innovium and $28.4 million of lower stock based compensation expense mainly related to accelerated vesting of Inphi and Innovium equity awards incurred due to the deal closing in the prior year.

The decrease was partially offset by $20.5 million of higher employee personnel-related costs and $20.0 million of higher intangibles amortization expense associated with our acquisitions of Inphi and Innovium in fiscal 2022, as well as acquisitions in the current period.

Legal Settlement

Three Months Ended Six Months Ended

2022 July 31,

Change July 30,

2022 July 31,

Three Months Ended Nine Months Ended

2022 October 30,

Change October 29,

2022 October 30,

(in millions, except percentage)

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*Not meaningful

We recorded a charge of $85.0 million and $100.0 million in the three and six months ended July 30, 2022 related to a settlement in principle of a contractual dispute.

We recorded a charge of $100.0 million in the nine months ended October 29, 2022 related to the settlement of a contractual dispute.

Refer to “Note 5 – Commitments and Contingencies” for further information.

Restructuring Related Charges

Three Months Ended Six Months Ended

2022 July 31,

Change July 30,

2022 July 31,

Three Months Ended Nine Months Ended

2022 October 30,

Change October 29,

2022 October 30,

(in millions, except percentage)

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% of net revenue 1.0 % 0.5 % 0.4 % 1.0 %

We recognized $1.2 million and $2.5 million of total restructuring related charges in the three and six months ended July 30, 2022 as we continue to evaluate our existing operations to increase operational efficiency, decrease costs, and increase profitability.

We recognized $15.6 million and $18.1 million of total restructuring related charges in the three and nine months ended October 29, 2022, respectively, as we continued 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 Six Months Ended

2022 July 31,

Change July 30,

2022 July 31,

Three Months Ended Nine Months Ended

2022 October 30,

Change October 29,

2022 October 30,

(in millions, except percentage)

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% of net revenue 0.1 % — % 0.1 % — %

Interest income increased by $0.6 million and $0.9 million in the three and six m onths ended July 30, 2022 compared to the three and six months ended July 31, 2021 due to higher interest rates on our invested cash.

Interest income increased by $1.3 million and $2.2 million in the three and nine m onths ended October 29, 2022, respectively, compared to the three and nine months ended October 30, 2021 due to higher interest rates on our invested cash.

Interest Expense

Three Months Ended Six Months Ended

2022 July 31,

Change July 30,

2022 July 31,

Three Months Ended Nine Months Ended

2022 October 30,

Change October 29,

2022 October 30,

(in millions, except percentage)

1 unchanged sentence

% of net revenue (2.9) % (2.9) % (2.7) % (3.3) %

Interest expense increased by $6.0 million and $7.2 million in the three and six months ended July 30, 2022 compared to the three and six months ended July 31, 2021.

Interest expense increased by $9.8 million and $17.0 million in the three and nine months ended October 29, 2022, respectively, compared to the three and nine months ended October 30, 2021.

The increase was primarily due to higher interest expense and amortization of debt issuance costs associated with the 2024 and 2026 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 Six Months Ended

2022 July 31,

Change July 30,

2022 July 31,

Three Months Ended Nine Months Ended

2022 October 30,

Change October 29,

2022 October 30,

(in millions, except percentage)

1 unchanged sentence

% of net revenue 0.2 % 0.1 % 0.3 % — %

Other income, net, increased by $5.4 million and $9.4 million in the three months and six months ended July 30, 2022 compared to the three and six months ended July 31, 2021.

The increase was primarily due to gain from equity investments.

Other income, net, increased by $2.2 million and $11.6 million in the three months and nine months ended October 29, 2022, respectively, compared to the three and nine months ended October 30, 2021.

The increase was primarily due to gain from equity investments and exchange rate fluctuations.

Provision (benefit) for Income Taxes

Three Months Ended Six Months Ended

2022 July 31,

Change July 30,

2022 July 31,

Three Months Ended Nine Months Ended

2022 October 30,

Change October 29,

2022 October 30,

(in millions, except percentage)

Provision (benefit) for income taxes $ 52.0 $ (5.0) (1,140.0)% $ 256.4 $ (58.4) (539.0)%

Our income tax benefit for the three months ended July 30, 2022 was $0.5 million compared to a tax benefit of $25.6 million for the three months ended July 31, 2021.

Our income tax benefit $0.5 million for the three months ended July 30, 2022 differed from the 21% federal income tax rate, primarily because of discrete income tax benefits for stock-based compensation.

Our income tax benefit for the three months ended July 31, 2021 differed from the U.S.

federal tax rate of 21% primarily because of the recognition of a $10.0 million tax benefit for tax basis on the transfer of certain intellectual property from the Inphi acquisition to a subsidiary in Singapore as well as discrete tax benefits related to stock-based compensation.

Our income tax expense for the six months ended July 30, 2022, was $204.4 million compared to a tax benefit of $53.4 million for the six months ended July 31, 2021.

Our income tax expense of $204.4 million for the six months ended July 30, 2022, differs from the federal statutory tax rate of 21% primarily due to the $213.6 million tax impact of the remeasurement of deferred taxes in Singapore, offset by the recognition of discrete tax benefits related to stock-based compensation.

Our income tax benefit of $53.4 million for the quarter ended July 31, 2021, differed from the 21% federal statutory tax rate primarily because of the recognition of a $10.0 million tax benefit attributable to Singapore tax basis in intellectual property, tax benefits related to stock-based compensation, and benefits from expirations of the statutes of limitations related to certain previously unrecognized tax benefits that were recorded in prior periods.

Our income tax expense for the three months ended October 29, 2022 was $52.0 million compared to a tax benefit of $5.0 million for the three months ended October 30, 2021.

Our income tax expense $52.0 million for the three months ended October 29, 2022 differed from the 21% federal income tax rate, primarily due to a discrete income tax expense related to the Israel clawback tax on prior earnings.

Our income tax benefit for the three months ended October 30, 2021 differed from the U.S.

federal tax rate of 21% primarily because of discrete income tax benefits for stock-based compensation, tax rate differentials on foreign income (losses), and recognition of tax benefits related to the settlement of audits in certain jurisdictions.

Our income tax expense for the nine months ended October 29, 2022, was $256.4 million compared to a tax benefit of $58.4 million for the nine months ended October 30, 2021.

Our income tax expense of $256.4 million for the nine months ended October 29, 2022, differed from the federal statutory tax rate of 21% primarily due to the $213.6 million tax impact of the remeasurement of deferred taxes in Singapore and $22.4 million tax impact of the Israel clawback taxes on prior earnings, offset by the recognition of discrete tax benefits related to stock-based compensation.

Our income tax benefit of $58.4 million for the nine months ended October 30, 2021, differed from the 21% federal statutory tax rate primarily because of the recognition of a $10.0 million tax benefit attributable to Singapore tax basis in intellectual property, tax benefits related to stock-based compensation, and benefits from expirations of the statutes of limitations related to certain previously unrecognized tax benefits that were recorded in prior periods.

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.

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

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

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

Liquidity and Capital Resources

Our principal source of liquidity as of July 30, 2022 consisted of approximately $617.1 million of cash and cash equivalents, of which approximately $431.3 million was held by subsidiaries outside of the United States.

Our principal source of liquidity as of October 29, 2022 consisted of approximately $723.4 million of cash and cash equivalents, of which approximately $500.8 million was held by subsidiaries outside of the United States.

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

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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 six months ended July 30, 2022, we repaid $21.8 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”).

During the quarter ended July 30, 2022, we drew down $200.0 million on the 2020 Revolving Credit Facility of which $130.0 million was repaid in the same quarter and $70.0 million of aggregate principal amount of borrowings remained outstanding at July 30, 2022.

For the nine months ended October 29, 2022, we repaid $43.7 million of the principal outstanding on the 5-year term loan.

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

During the third quarter of fiscal 2023, we repaid $70.0 million of the aggregate principal amount of borrowings that remained outstanding, and as at October 29, 2022, there was no amount outstanding under the 2020 Revolving Credit Facility.

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”).

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See “Note 4 – Debt” in the Notes to the Unaudited Condensed Consolidated Financial Statements for additional information.

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

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, any declared dividends, repurchases of our common stock and commitments (including those discussed in “Note 5 – Commitments and Contingencies” in the Notes to the Unaudited Condensed Consolidated Financial Statements) for at least the next twelve months.

Our capital requirements will depend on many factors, including our rate of sales growth, market acceptance of our products, costs of securing access to adequate manufacturing capacity, the timing and extent of research and development projects and increases in operating expenses, all of which are subject to uncertainty.

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Cash Flows from Operating Activities

Net cash flow provided by operating activities for the six months ended July 30, 2022 was $526.3 million.

Net cash flow provided by operating activities for the nine months ended October 29, 2022 was $937.3 million.

We had a net loss of $148.1 million adjusted for the following non-cash items:

amortization of acquired intangible assets of $544.3 million, stock-based compensation expense of $275.6 million, deferred income tax expense of $178.4 million, depreciation and amortization of $152.6 million, amortization of inventory fair value adjustment associated with the Innovium acquisition of $15.6 million, and $24.2 million net loss from other non-cash items.

Cash outflow from working capital of $503.0 million for the six months ended July 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 accrued liabilities and other non-current liabilities and accounts payable.

amortization of acquired intangible assets of $814.2 million, stock-based compensation expense of $421.7 million, depreciation and amortization of $227.0 million, deferred income tax expense of $53.6 million, amortization of inventory fair value adjustment associated with the Innovium acquisition of $26.0 million, and $58.5 million net loss from other non-cash items.

Cash outflow from working capital of $515.6 million for the nine months ended October 29, 2022 was primarily driven by increases in accounts receivable, inventory, and prepaid expenses and other assets and a decrease in accounts payable, partially offset by increases in accrued liabilities and other non-current liabilities and accrued employee compensation.

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

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

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

The increase in accrued liabilities and other non-current liabilities was mainly due to an accrual related to a settlement in principle of a contractual dispute and an increase in ship and debit claim reserve due to price increase and stock replenishment.

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

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

The decrease in accounts payable was primarily due to the timing of payments.

The increase in accrued liabilities and other non-current liabilities was primarily due to an accrual related to a settlement of a contractual dispute and an increase in the ship and debit claim reserve due to price increases and stock replenishment.

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

Net cash flow provided by operating activities for the nine months ended October 30, 2021 was $473.1 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, stock-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 $118.0 million, deferred income tax benefit of $51.6 million, and $66.1 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, stock-based compensation expense of $325.9 million, amortization of inventory fair value adjustment associated with the Inphi and Innovium acquisitions of $191.1 million, depreciation and amortization of $189.6 million, deferred income tax benefit of $67.6 million, and $84.4 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 an increase in accounts payable.

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

The increase in inventory was to better support unfulfilled backlog, future customer demand and new product ramps.

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

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

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

The higher accounts payable was due to an increase in purchases and the timing of payments.

Cash Flows from Investing Activities

For the six months ended July 30, 2022, net cash used in investing activities of $212.3 million was primarily driven by purchases of property and equipment of $109.5 million, net cash paid for business acquisitions of $98.6 million, and purchases of technology licenses of $4.2 million.

For the six months ended July 31, 2021, net cash used in investing activities of $3.7 billion was primarily driven by the net cash paid to acquire Inphi of $3.6 billion, purchases of property and equipment of $53.6 million and purchases of technology licenses of $6.6 million.

For the nine months ended October 29, 2022, net cash used in investing activities of $264.2 million was primarily driven by purchases of property and equipment of $152.2 million, net cash paid for business acquisitions of $103.0 million, and purchases of technology licenses of $9.1 million.

For the nine months ended October 30, 2021, net cash used in investing activities of $3.7 billion was primarily driven by the net cash paid to acquire Inphi of $3.6 billion, purchases of property and equipment of $130.4 million and purchases of technology licenses of $9.3 million, partially offset by cash acquired from Innovium of $60.4 million.

Cash Flows from Financing Activities

For the six months ended July 30, 2022, net cash used in financing activities of $310.4 million was primarily attributable to $171.7 million tax withholding payments on behalf of employees for net share settlements, $151.9 million repayment of debt, $102.0 million for payment of our quarterly dividends, $71.2 million payments for technology license obligations, and $65.0 million of repurchases of common stock, partially offset by $200.0 million drawdown from 2020 Revolving Credit Facility and $51.4 million proceeds from employee stock plans.

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 for technology license obligations.

For the nine months ended October 29, 2022, net cash used in financing activities of $563.2 million was primarily attributable to $243.8 million for repayment of debt, $201.2 million for tax withholding payments on behalf of employees for net share settlements, $153.1 million for the payment of our quarterly dividends, $115.0 million for repurchases of common stock and $103.6 million for payments for technology license obligations, partially offset by a $200.0 million drawdown from our 2020 Revolving Credit Facility and $52.5 million in proceeds from our 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 the issuance of debt of $3.8 billion, proceeds from capped calls of $160.3 million, partially offset by $425.9 million for repayment of debt, $181.2 million for the repurchase and settlement of convertible notes, $169.1 million for tax withholding payments on behalf of employees for net share settlements, $140.3 million for the payment of our quarterly dividends and $97.9 million for payments for technology license obligations.

Capital Resources and Material Cash Requirements

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We also discuss updates of our significant commitments in “Note 5 – Commitments and Contingencies” in the Notes to the Unaudited Condensed Consolidated Financial Statements.

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

Other than as described above, there were no material changes to our capital resources and material cash requirements during the nine months ended October 29, 2022.

Indemnification Obligations

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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