What changed in this filing

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Item 1A. Risk Factors

2023-08-25 compared with 2023-05-26 · 102 added, 101 removed, 673 unchanged (23% of the section changed)

16 unchanged sentences

• 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 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 our debt obligations;

• 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 our ability to design, develop and introduce new and enhanced products, in particular in the 5G and Cloud markets, as well as for Artificial Intelligence (AI) solutions, in a timely and effective manner, as well as our ability to anticipate and adapt to changes in technology;

• 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 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;

• risks related to our debt obligations;

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

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• 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;

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

• 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 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 receive a significant amount of our revenue from a limited number of customers.

For example, during fiscal 2023, we had one distributor, whose revenue as a percentage of our net revenue was 10% or greater of total net revenues.

For example, during fiscal year 2023, we had one distributor, whose revenue as a percentage of our net revenue was 10% or greater of total net revenues.

In addition, net revenue from our ten (10) largest customers, including this distributor, represented 63% of our net revenue for the fiscal year ended January 28, 2023.

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If we are unable to accurately predict customer demand, we may hold excess or obsolete inventory, which would reduce our gross margin.

Conversely, we may have insufficient inventory or be unable to obtain the supplies or contract manufacturing capacity to meet that demand, which would result in lost revenue opportunities and potential loss of market share as well as damaged customer relationships.

Conversely, we may have insufficient inventory or be unable to obtain the supplies or contract manufacturing capacity to meet demand, which would result in lost revenue opportunities and potential loss of market share as well as damaged customer relationships.

We typically sell products pursuant to purchase orders rather than long-term purchase commitments.

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Our failure to compete effectively would harm our results of operations.

The semiconductor industry, and specifically the storage, networking and infrastructure markets, is extremely competitive.

The semiconductor industry, and specifically the storage, networking and infrastructure markets, including markets for AI solutions, is extremely competitive.

We currently compete with a number of large domestic and international companies in the business of designing semiconductor solutions and related applications, some of which have greater financial, technical and management resources than us.

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in February 2022 and Pensando Systems in May 2022 and Qualcomm acquired Veonner in April 2022.

In addition, MaxLinear, Inc.

announced plans to acquire Silicon Motion in May 2022 and Broadcom announced plans to acquire VMware in May 2022.

In addition, Broadcom announced plans to acquire VMware in May 2022.

Consolidation among our competitors has led, and in the future could lead, to a changing competitive landscape, capabilities and market share, which could put us at a competitive disadvantage and harm our results of operations.

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Recent, current and potential future acquisitions, strategic investments, divestitures, mergers or joint ventures may subject us to significant risks, any of which could harm our business.

Our long-term strategy has included in the past, and may continue to include in the future, identifying and acquiring, investing in or merging with suitable companies, or divesting of certain business lines, assets or activities.

In particular, over time, we may acquire, make investments in, or merge with providers of product offerings that complement our business or may terminate or dispose of business lines, assets or activities if they are no longer in alignment with our operational strategy and priorities.

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A foundry, supplier or other manufacturing partner could become unavailable to us if it is acquired by a competitor or a large company that may change the scope of the offerings.

For example, Intel Corporation announced in February 2022 of its intent to acquire Tower Semiconductor.

Or a foundry may not be suitable for us if it does not invest in, or have the ability to manufacture, advanced technologies.

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These supply constraints have impacted, and are expected in the future to impact, the kitting process for our products.

These supply challenges have in the past, and may in the future, limit our ability to fully satisfy the increase in demand for some of our products.

These supply challenges have in the past, and may in the future, limit our ability to fully satisfy demand for some of our products.

While we attempt to create multiple sources for our products, most of our products are not manufactured at more than one foundry at any given time, and our products typically are designed to be manufactured in a specific process at only one of these foundries.

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During the first few quarters of fiscal year 2023, supply shortages in the semiconductor industry of multi-layer complex substrates, IC packaging capacity, and specific wafer process node constraints resulted in increased lead times, inability to meet demand, and increased costs .

Of these shortages, ABF substrates and specific wafer process nodes were the most constrained and most of these suppliers are located in Japan and Taiwan.

Because of the geographic concentration of these suppliers, we are exposed to the risk that their operations may be disrupted by regional events including droughts, earthquakes (particularly in Taiwan and elsewhere in the Pacific Rim close to fault lines), tsunamis or typhoons, severe storms, power outages, or by actual or threatened public health emergencies such as the COVID-19 pandemic, or by political, social or economic instability.

Because of the geographic concentration of some of these suppliers, we are exposed to the risk that their operations may be disrupted by regional events including droughts, earthquakes (particularly in Taiwan and elsewhere in the Pacific Rim close to fault lines), tsunamis or typhoons, severe storms, power outages, or by actual or threatened public health emergencies such as the COVID-19 pandemic, or by political, social or economic instability.

In addition, while the Russian invasion of Ukraine has not had a direct material impact on us due to our limited sales to Russia and Ukraine, we are unable to predict the indirect impact this conflict will have on us due to impacts on the supply chain, global and domestic economies, interest rates and stock markets.

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Software and firmware updates and/or other mitigation efforts may result in performance issues, system instability, data loss or corruption, unpredictable system behavior, or the theft of data by third parties, any of which could significantly harm our business and reputation.

See also, “We may be unable to protect our intellectual property, which would negatively affect our ability to compete.”

See also, “We may be unable to protect our intellectual property, which would negatively affect our ability to compete” and “Cyber security risks could adversely affect our business and disrupt our operations.”

We rely on third-party distributors and manufacturers’ representatives and the failure of these distributors and manufacturers’ representatives to perform as expected could reduce our future sales.

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Adverse changes in the political, regulatory and economic policies of governments in connection with trade with China and Chinese customers have reduced the demand for our products and damaged our business.

Regulatory activity, such as tariffs, export controls, economic sanctions and export controls and economic sanctions laws have in the past and may continue to materially limit our ability to make sales to customers in China, which has in the past and may continue to harm our results of operations, reputation and financial condition.

Regulatory activity, such as tariffs, export controls and sanctions, economic sanctions, and related laws have in the past and may continue to materially limit our ability to make sales to customers in China, which has in the past and may continue to harm our results of operations, reputation and financial condition.

Moreover, to the extent the governments of China, the United States or other countries seek to promote use of domestically produced products or to reduce the dependence upon or use of products from another (sometimes referred to as “decoupling”), they may adopt or apply regulations or policies that have the effect of reducing business opportunities for us.

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In May 2023, the Cyberspace Administration of China banned the sale of Micron's products to certain entities in China and stated that such products pose significant security risks to China's critical information infrastructure supply chain and national security.

Then in July 2023, China announced restrictions on the export of gallium and geranium, both of which are used in the manufacture of semiconductors, stating that such restrictions are intended to protect China’s national security.

While we don’t expect these recently announced restrictions to materially impact us, any export restrictions reducing our ability to manufacture our products can adversely impact our revenues, profits and results of operations.

Concerns that semiconductors are necessary for national security, manufacturing and critical infrastructure, as well as concerns of their potential use to restrict human rights, has led to increased U.S.

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In addition, many of our customers are located outside of the United States, primarily in Asia, which further exposes us to foreign risks.

Sales shipped to customers with operations in Asia represented approximately 69% and 75% of our net revenue in the three months ended April 29, 2023 and April 30, 2022, respectively.

Sales shipped to customers with operations in Asia represented approximately 68% and 76% of our net revenue in the three months ended July 29, 2023 and July 30, 2022, respectively.

We also have substantial operations outside of the United States.

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Accordingly, we are subject to risks associated with international operations, including:

• actual or threatened public health emergencies such as the COVID-19 pandemic on our operations, employees, customers and suppliers;

• political, social and economic instability, military hostilities including invasions, wars, terrorism, political unrest, boycotts, curtailment of trade and other business restrictions;

• volatile global economic conditions, including downturns or recessions in which some competitors may become more aggressive in their pricing practices, which would adversely impact our gross margin;

• compliance with domestic and foreign export and import regulations, including pending changes thereto, and difficulties in obtaining and complying with domestic and foreign export, import and other governmental approvals, permits and licenses;

• compliance with domestic and foreign export and import regulations, including any pending changes thereto, and difficulties in obtaining and complying with domestic and foreign export, import and other governmental approvals, permits and licenses;

• local laws and practices that favor local companies, including business practices that are prohibited by the U.S.

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• inadequate local infrastructure;

• actual or threatened public health emergencies such as the COVID-19 pandemic on our operations, employees, customers and suppliers;

• exposure to local banking, currency control and other financial-related risks.

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dollar relative to the local currency could reduce sales of our products.

WE ARE SUBJECT TO RISKS ASSOCIATED WITH GLOBAL PANDEMICS

We face risks related to global pandemics, which may significantly disrupt and adversely impact our manufacturing, research and development, operations, sales and financial results.

Our business was adversely impacted by the effects of the COVID-19 pandemic and may be similarly adversely impacted by future pandemics.

In addition to global and domestic macroeconomic effects, during fiscal years 2022 and 2023 the COVID-19 pandemic and related adverse public health measures caused disruption to our global operations and sales.

Our third-party manufacturing partners, suppliers, distributors, sub-contractors and customers were disrupted by worker absenteeism, quarantines and restrictions on their employees’ ability to work;

office and factory closures;

disruptions to ports and other shipping infrastructure;

border closures;

and other travel or health-related restrictions.

Although the pandemic related restrictions above have eased in most places, resurgences of COVID-19 in various regions and appearances of new variants of the virus, has resulted, and may continue to result, in their full or partial reinstitution.

In addition, although many countries have vaccinated large segments of their population, during fiscal year 2023, the COVID-19 pandemic continued to disrupt business activities, trade, and supply chains in many countries.

WE ARE SUBJECT TO RISKS RELATED TO OUR DEBT OBLIGATIONS

Our indebtedness could adversely affect our financial condition and our ability to raise additional capital to fund our operations and limit our ability to react to changes in the economy or our industry.

We paid the cash portion of the consideration for the Inphi acquisition and other fees and expenses required to be paid in connection with the transaction from cash on hand and borrowings.

On the closing date of the Inphi acquisition, the entire principal amount was funded and incurred in respect of the $1.75 billion senior unsecured term loan facility, comprised of a $875.0 million 3-year term loan tranche (the “3-Year Tranche Loan”) and a $875.0 million 5-year term loan tranche (the “5-Year Tranche Loan,” and collectively with the 3-Year Tranche Loan, the “2024 and 2026 Term Loans”).

The 2024 and 2026 Term Loans are evidenced by a credit agreement, dated December 7, 2020 (the “2024 and 2026 Term Loan Agreement”).

On April 14, 2023, we entered into the First Amendment to the 2024 and 2026 Term Loan Agreement which amends the existing agreement to, among other things, adopt SOFR interest rates and conform the maximum leverage ratio financial covenant with our revolving credit agreement.

As of July 29, 2023, we had a balance of $1.5 billion on the 2024 and 2026 Term Loans.

In addition to the 2024 and 2026 Term Loan Agreement, on December 7, 2020, we entered into a revolving credit agreement which was amended and restated on April 14, 2023 (as amended and restated the “2023 Revolving Credit Facility” and together with the 2024 and 2026 Term Loan Agreement, the “Credit Agreements”), which 2023 Revolving Credit Facility now provides up to $1.0 billion in the form of revolving loans.

During the first quarter of fiscal 2024, we drew down $200.0 million on the 2023 Revolving Credit facility that remained outstanding as at July 29, 2023.

On April 12, 2021, we completed a private offering of (i) $500.0 million aggregate principal amount of 2026 Senior Notes, (ii) $750.0 million aggregate principal amount of 2028 Senior Notes and (iii) $750.0 million aggregate principal amount of 2031 Senior Notes (collectively, the “Senior Notes”).

In addition, on May 4, 2021, we completed a private exchange offer where we exchanged most of the notes issued by Marvell Technology Group Ltd.

(collectively, the “MTG Senior Notes”) for $433.9 million aggregate principal amount of 2023 Senior Notes and $479.5 million aggregate principal amount of 2028 Senior Notes issued by us (the “MTI Senior Notes”) (together with the Senior Notes, the “Notes”).

As of July 29, 2023, we had $2.0 billion aggregate principal amount of the Senior Notes outstanding and $479.4 million in aggregate principal amount of the MTI Senior Notes outstanding and $20.5 million aggregate principal amount of the MTG Senior Notes outstanding.

As of June 2023, the 2023 Senior Notes referenced above were no longer outstanding.

On October 8, 2021 and December 16, 2021, we completed registered exchange offers for each series of Notes.

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

Our indebtedness could have important consequences to us including:

• increasing our vulnerability to adverse general economic and industry conditions;

• requiring us to dedicate a substantial portion of our cash flow from operations to payments on our indebtedness, thereby reducing the availability of our cash flow to fund working capital, capital expenditures, research and development efforts, execution of our business strategy, acquisitions and other general corporate purposes;

• limiting our flexibility in planning for, or reacting to, changes in the economy and the semiconductor industry;

• placing us at a competitive disadvantage compared to our competitors with less indebtedness;

• exposing us to interest rate risk to the extent of our variable rate indebtedness, particularly in the current environment of rising interest rates;

• making it more difficult to borrow additional funds in the future to fund growth, acquisitions, working capital, capital expenditures and other purposes.

Although the Credit Agreements contain restrictions on our ability to incur additional indebtedness and the indentures governing the Notes (together, the “Notes Indentures”) contain restrictions on creating liens and entering into certain sale-leaseback transactions, these restrictions are subject to a number of qualifications and exceptions, and the additional indebtedness, liens or sale-leaseback transactions incurred in compliance with these restrictions could be substantial.

The Credit Agreements, the Notes Indentures and the indenture governing the MTI Senior Notes contain customary events of default upon the occurrence of which, after any applicable grace period, the lenders would have the ability to immediately declare the loans due and payable in whole or in part.

In such event, we may not have sufficient available cash to repay such debt at the time it becomes due, or be able to refinance such debt on acceptable terms or at all.

Any of the foregoing could materially and adversely affect our financial condition and results of operations.

Adverse changes to our debt ratings could negatively affect our ability to raise additional capital.

We receive debt ratings from the major credit rating agencies in the United States.

Factors that may impact our credit ratings include debt levels, planned asset purchases or sales and near-term and long-term production growth opportunities.

Liquidity, asset quality, cost structure, reserve mix and commodity pricing levels could also be considered by the rating agencies.

The applicable margins with respect to the loans incurred under the Credit Agreements will vary based on the applicable public ratings assigned to the indebtedness by Moody's Investors Service, Inc., Standard & Poor's Financial Services LLC, Fitch’s and any successor to each such rating agency business.

A ratings downgrade could adversely impact our ability to access debt markets in the future and increase the cost of current or future debt and may adversely affect our share price.

The Credit Agreements and the Notes Indentures impose restrictions on our business.

The Credit Agreements and the Notes Indentures each contains a number of covenants imposing restrictions on our business.

These restrictions may affect our ability to operate our business and may limit our ability to take advantage of potential business opportunities as they arise.

The restrictions, among other things, restrict our ability and our subsidiaries’ ability to create or incur certain liens, incur or guarantee additional indebtedness, merge or consolidate with other companies, pay dividends, transfer or sell assets and make restricted payments.

These restrictions are subject to a number of limitations and exceptions set forth in the Credit Agreements and the Notes Indentures.

Our ability to meet the leverage ratio set forth in the Credit Agreements may be affected by events beyond our control.

The foregoing restrictions could limit our ability to plan for, or react to, changes in market conditions or our capital needs.

We do not know whether we will be granted waivers under, or amendments to, our Credit Agreements or to the Notes Indentures if for any reason we are unable to meet these requirements, or whether we will be able to refinance our indebtedness on terms acceptable to us, or at all.

We may be unable to generate the cash flow to service our debt obligations.

We may not be able to generate sufficient cash flow to enable us to service our indebtedness, including the Notes, or to make anticipated capital expenditures.

Our ability to pay our expenses and satisfy our debt obligations, refinance our debt obligations and fund planned capital expenditures will depend on our future performance, which will be affected by general economic, financial, competitive, legislative, regulatory and other factors beyond our control.

If we are unable to generate sufficient cash flow from operations or to borrow sufficient funds in the future to service our debt, we may be required to sell assets, reduce capital expenditures, refinance all or a portion of our existing debt (including the Notes) or obtain additional financing.

We cannot assure you that we will be able to refinance our debt, sell assets or borrow more money on terms acceptable to us, if at all.

If we cannot make scheduled payments on our debt, we will be in default and holders of our debt could declare all outstanding principal and interest to be due and payable, and we could be forced into bankruptcy or liquidation.

In addition, a material default on our indebtedness could suspend our eligibility to register securities using certain registration statement forms under SEC guidelines that permit incorporation by reference of substantial information regarding us, potentially hindering our ability to raise capital through the issuance of our securities and increasing our costs of registration.

We may, under certain circumstances, be required to repurchase the Notes at the option of the holder.

We will be required to repurchase the Notes at the option of each holder upon the occurrence of a change of control repurchase event as defined in the Notes Indentures.

However, we may not have sufficient funds to repurchase the Notes in cash at the time of any change of control repurchase event.

Our failure to repurchase the Notes upon a change of control repurchase event would be an event of default under the Notes Indentures and could cause a cross-default or acceleration under the Credit Agreements and certain future agreements governing our other indebtedness.

The repayment obligations under the Notes may have the effect of discouraging, delaying or preventing a takeover of our company.

If we were required to repurchase the Notes prior to their scheduled maturity, it could have a significant negative impact on our cash and liquidity and could impact our ability to invest financial resources in other strategic initiatives.

CHANGES IN OUR EFFECTIVE TAX RATE MAY REDUCE OUR NET INCOME

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corporations after December 31, 2022.

W hile we are not currently expecting a material impact on our business by the new taxes under the IRA, if we become subject to these taxes in the future it could materially affect our financial results, including our earnings and cash flow.

While we are not currently expecting a material impact on our business by the new taxes under the IRA, if we become subject to these taxes in the future it could materially affect our financial results, including our earnings and cash flow.

The Organization for Economic Cooperation and Development (the “OECD”) has been working on a Base Erosion and Profit Shifting Project, and since 2015 has been issuing guidelines and proposals with respect to various aspects of the existing framework under which our tax obligations are determined in the countries in which we do business.

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In addition, under the Israeli Encouragement law of “approved or benefited enterprise,” our subsidiary in Israel, Marvell Israel (M.I.S.L) Ltd., is entitled to reduced tax rates and exemption of certain income from taxation through fiscal 2027.

Receipt of past and future benefits under tax agreements and incentives may depend on several factors, including but not limited to, our ability to fulfill commitments regarding employment of personnel, investment, or performance of specified activities in the applicable jurisdictions as well as changes in foreign law s.

Changes in our business plans, including divestitures, could result in termination of an agreement or loss of tax benefits thereunder.

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We are exposed to potential impairment charges on certain assets.

We had approximately $11.6 billion of goodwill and $4.8 billion of acquired intangible assets on our unaudited condensed consolidated balance sheet as of April 29, 2023.

We had approximately $11.6 billion of goodwill and $4.6 billion of acquired intangible assets on our unaudited condensed consolidated balance sheet as of July 29, 2023.

Under generally accepted accounting principles in the United States, we are required to review our intangible assets including goodwill for impairment whenever events or changes in circumstances indicate that the carrying value of these assets may not be recoverable.

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For example, if the operations of any businesses that we have acquired declines significantly, we could incur significant intangible asset impairment charges.

For example, during the first quarter of fiscal 2024, we made changes to our business to streamline our organization and optimize resources, which resulted in recognition of $59.9 million of restructuring related charges.

For example, during the first six months of fiscal 2024, we made changes to our business to streamline our organization and optimize resources, which resulted in recognition of $101.9 million of restructuring related charges.

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

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states having enacted or proposed “anti-ESG” policies or legislation.

While these policies and legislation are generally targeted to investment advisory firms and mutual funds, if these investors viewed our ESG practices including our climate-related goals and commitments, as being in contradiction of such “anti-ESG” policies, such investors may not invest in the Company and it could negatively affect the price of our common stock.

While these policies and related legislation are generally targeted to investment advisory firms and mutual funds, if these investors viewed our ESG practices including our climate-related goals and commitments, as being in contradiction of such “anti-ESG” policies, such investors may not invest in the Company and it could negatively affect the price of our common stock.

A portion of the business we acquired in fiscal 2021 requires facility security clearances under the National Industrial Security Program.

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New technology trends, such as AI, require us to keep pace with evolving regulations and industry standards.

In the United States, there are various current and proposed regulatory frameworks relating to the use of AI in products and services.

In the United States, the European Union, and China there are various current and proposed regulatory frameworks relating to the use of AI in products and services.

We expect that the legal and regulatory environment relating to emerging technologies such as AI will continue to develop and could increase the cost of doing business, and create compliance risks and potential liability, all which may have a material adverse effect on our financial condition and results of operations.

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Litigation may be time consuming, expensive, and disruptive to normal business operations, and the outcome of litigation is difficult to predict.

Litigation, regardless of the outcome, may result in significant expenditures, diversion of our management’s time and attention from the operation of our business and damage to our reputation or relationship with third parties, which could materially and adversely affect our business, financial condition, results of operations, cash flows and stock price.

WE ARE SUBJECT TO RISKS RELATED TO OUR DEBT OBLIGATIONS

We paid the cash portion of the consideration for the Inphi acquisition and other fees and expenses required to be paid in connection with the transaction from cash on hand and borrowings.

The 2024 and 2026 Term Loans are evidenced by a credit agreement, dated December 7, 2020 (the “2024 and 2026 Term Loan Agreement”).

As of April 29, 2023, we had a balance of $1.5 billion on the 2024 and 2026 Term Loans.

During the first quarter of fiscal 2024, we drew down $200.0 million on the 2023 Revolving Credit facility that remained outstanding as at April 29, 2023.

In addition, on May 4, 2021, we completed a private exchange offer where we exchanged most of the notes issued by Marvell Technology Group Ltd.

As of April 29, 2023, we had $2.0 billion aggregate principal amount of the Senior Notes outstanding and $913.2 million in aggregate principal amount of the MTI Senior Notes outstanding and $86.7 million aggregate principal amount of the MTG Senior Notes outstanding.