What changed in this filing

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Item 1A. Risk Factors

2024-12-04 compared with 2024-08-30 · 35 added, 49 removed, 784 unchanged (10% of the section changed)

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

• risks related to our dependence on a few customers for a significant portion of our revenue, particularly as our major customers comprise an increasing percentage of our revenue, as well as risks related to a significant portion of our sales being concentrated in the data center end market;

• 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;

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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 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, assembly, testing and packaging processes and our reliance on third parties to produce our products;

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• risks related to our ability to scale our business;

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Any litigation could result in substantial costs and a diversion of management’s attention and resources that are needed to successfully maintain and grow our business.

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CHANGES IN PRODUCT DEMAND CAN ADVERSELY AFFECT OUR FINANCIAL RESULTS

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Similarly, disruptions in financial and/or credit markets may impact our ability to manage normal commercial relationships with our manufacturing partners, customers, suppliers and creditors and might cause us to not be able to continue to access preferred sources of liquidity when we would like, and our borrowing costs could increase.

Thus, if general macroeconomic conditions, or conditions in the semiconductor industry, or conditions in our customer end markets continue to deteriorate or experience a sustained period of weakness or slower growth, our business and financial results could be materially and adversely affected.

Thus, if general macroeconomic conditions, or conditions in the semiconductor industry, or conditions in our customer end markets deteriorate or experience a sustained period of weakness or slower growth, our business and financial results could be materially and adversely affected.

In addition, we are also subject to risk from inflation and increasing market prices of certain components, supplies, and commodity raw materials, which are incorporated into our end products or used by our manufacturing partners or suppliers to manufacture our end products.

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Unfavorable or uncertain conditions in the 5G, Cloud and AI markets may cause fluctuations in our rate of revenue growth or financial results.

World-wide markets for our 5G, Cloud and AI products may not develop in the manner or in the time periods we anticipate.

If domestic and global economic conditions continue to worsen, overall spending on our 5G, Cloud and AI products, may be reduced, which would adversely impact demand for our products in these markets.

World-wide markets for our 5G, Cloud and AI products may not evolve in the manner or in the time periods we anticipate.

If domestic and global economic conditions worsen, overall spending on our 5G, Cloud and AI products, may be reduced, which would adversely impact demand for our products in these markets.

In addition, unfavorable developments with evolving laws and regulations worldwide related to these products and suppliers may limit global adoption, impede our strategy, and negatively impact our long-term expectations in this area.

Even if the 5G, Cloud and AI markets, develop in the manner or in the time periods we anticipate, if we do not have timely, competitively priced, market-accepted products available to meet our customers’ planned roll-out of 5G wireless communication systems, Cloud systems, or products for the AI markets, we may miss a significant opportunity and our business, financial condition, results of operations and cash flows could be materially and adversely affected.

In addition, as a result of the fact that the markets for 5G, Cloud, and AI, are still emerging, demand for these products may be unpredictable and may vary significantly from one period to another.

Even if the 5G, Cloud and AI markets, evolve in the manner or in the time periods we anticipate, if we do not have timely, competitively priced, market-accepted products available to meet our customers’ planned roll-out of 5G wireless communication systems, Cloud systems, or products for the AI markets, we may miss a significant opportunity and our business, financial condition, results of operations and cash flows could be materially and adversely affected.

In addition, as a result of the fact that the markets for 5G, Cloud, and AI, are still evolving, demand for these products may be unpredictable and may vary significantly from one period to another.

See also, “Our sales are concentrated in a few large customers.

If we lose or experience a significant reduction in sales to any of these key customers, if any of these key customers experience a significant decline in market share, or if any of these customers experience significant financial difficulties, our revenue may decrease substantially and our results of operations and financial condition may be harmed.” See also, “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” for additional risks related to export restrictions that may impact certain customers in the 5G, Cloud and AI markets.

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Our sales are concentrated in a few large customers.

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To the extent one or more of our large customers experience financial challenges, bankruptcy or insolvency, this could have a material adverse effect on our sales and our ability to collect on receivables, which could harm our financial condition and results of operations.

See also, “ Management’s Discussion and Analysis of Financial Condition and Results of Operations - Sales and Customer Composition ” for information for the current quarterly reporting period.

See also, “ Management’s Discussion and Analysis of Financial Condition and Results of Operations - Sales and Customer Composition ” for information on our customers for the current quarterly reporting period.

If we are unable to increase the number of large customers in key markets, then our operating results in the foreseeable future would be expected to continue to depend on sales to a relatively small number of customers, as well as the ability of these customers to sell products that incorporate our products.

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Given their dependence on semiconductor products to operate their data centers and to ensure continuity of supply and reduce direct costs, some large customers may begin developing their own semiconductor solutions with the use of generally available intellectual property licensed from third parties which could result in a loss of business for Marvell.

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In addition, our sales have recently been, and in the future may continue to be, concentrated in our data center end market.

Sales into this end market have fluctuated significantly from period to period and year to year and will likely continue to fluctuate in the future.

Customers in this end market may decide in the future not to purchase our products at all, purchase fewer products than they did in the past, or alter their purchasing patterns in some other way.

A significant reduction in sales to this end market would greatly reduce our revenues and harm our financial condition and results of operations.

Please see “Note 3 – Revenue” of our Notes to Unaudited Condensed Consolidated Financial Statements set forth in Part I, Item 1 of this Quarterly Report on Form 10-Q for a more detailed description of sales into our data center end market.

We are subject to order and shipment uncertainties.

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Moreover, significant supply chain disruption may negatively impact the timing of our product shipments and revenue shipment linearity which may impact and extend our cash conversion cycle.

In addition, the market share of our customers could be adversely impacted on a long-term basis due to any continued supply chain disruption, which could negatively affect our results of operations.

In addition, the market share of our customers could be adversely impacted on a long-term basis due to any protracted supply chain disruption, which could negatively affect our results of operations.

See also, “We rely on our manufacturing partners for the manufacture, assembly, testing and packaging of our products, and the failure of any of these third-party vendors to deliver products or otherwise perform as requested or to be able to fulfill our orders could damage our relationships with our customers, decrease our sales and limit our ability to grow our business” for additional information on the impacts of supply chain cross-dependencies on our business.

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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.

Our efforts to introduce new products into markets with entrenched competitors will expose us to additional competitive pressures.

In addition, efforts to introduce new products into markets with entrenched competitors will expose us to additional competitive pressures.

For example, we are facing, and expect we will continue to face, significant competition in the infrastructure, networking and SSD storage markets.

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For example, customers now expect us to provide turnkey solutions and commit to future roadmaps that have technical risks.

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Some of our competitors may be better situated to meet changing customer needs and secure design wins.

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Moreover, the semiconductor industry has experienced increased consolidation over the past several years.

For example, NVIDIA Corporation acquired Mellanox Technologies in April 2020, Infineon acquired Cypress Semiconductors in April 2020, Renesas Electronics Corporation acquired Dialog Semiconductor in August 2021, Analog Devices acquired Maxim Integrated Products in 2021, AMD acquired Xilinx, Inc.

For example, Renesas Electronics Corporation acquired Dialog Semiconductor in August 2021, Analog Devices acquired Maxim Integrated Products in 2021, AMD acquired Xilinx, Inc.

in February 2022 and Pensando Systems in May 2022, Qualcomm acquired Veonner in April 2022, and Broadcom acquired VMware in November 2023.

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Any increase in the price of components used in our products will adversely affect our margin.

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We may enter into new markets, including markets with different business models, as a result of our acquisitions or for other reasons that may reduce our gross margin and operating margin.

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If we need to utilize alternate manufacturing facilities, either in Taiwan or elsewhere, we could experience significant expenses and delays in product shipments, which could harm our results of operations.

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No Guarantee of Capacity or Supply

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These penalties may be expensive and could harm our financial results.

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During the first few quarters of fiscal 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 .

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Moreover, even if we are able to achieve higher levels of design integration, such integration may have a short-term adverse impact on our results of operations, as we may reduce our revenue by integrating the functionality of multiple chips into a single chip.

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We rely on our customers to design our products into their systems, and the nature of the design process requires us to incur expenses prior to customer commitments to use our products or recognizing revenues associated with those expenses which may adversely affect our financial results.

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Additionally, failure of our customers to agree to pay for NRE costs or 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, can harm our financial results.

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If we are unable to develop and introduce new and enhanced products that achieve market acceptance in a timely and cost-effective manner, our results of operations and competitive position will be harmed.

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Recalls of our customers’ products in certain end-markets, such as with our automotive and base station customers, may cause us to incur significant costs.

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In addition, despite our testing procedures, we cannot ensure that errors will not be found in new products or releases after commencement of commercial shipments in the future.

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While we don’t expect these 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.

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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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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.”

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Changes to U.S.

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and other countries where we conduct our business.

For example, on May 14, 2024, the Biden administration announced new tariffs on certain goods to encourage China to eliminate what the administration believes to be unfair trade practices regarding technology transfer, intellectual property, and innovation.

For example, on May 14, 2024, the Biden administration announced new tariffs on certain goods to encourage China to eliminate unfair trade practices regarding technology transfer, intellectual property, and innovation.

The administration is directing increases in tariffs on a significant amount of imports from China across certain strategic sectors including semiconductors.

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In addition, many of our customers have operations 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 77% and 68% of our net revenue in the three months ended August 3, 2024 and July 29, 2023, respectively.

Sales shipped to customers with operations in Asia represented approximately 74% and 66% of our net revenue in the three months ended November 2, 2024 and October 28, 2023, respectively.

We also have substantial operations outside of the United States.

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Foreign Corrupt Practices Act and other anti-corruption laws and regulations;

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• difficulties in staffing, managing or closing foreign operations;

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Any failure of, or delay in, these efforts could negatively impact performance and financial results.

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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.

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In addition, such transactions are increasingly being subjected to regulatory review and other burdens, which could delay the closing of any transaction and greatly increase the costs related to such transaction.

For example, the U.S.

Federal Trade Commission recently announced new HSR rules that are expected to greatly expand disclosure requirements and require significantly more time to prepare filings.

If we fail to complete a transaction, we may nonetheless have incurred significant expenses in connection with such transaction.

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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.

As of August 3, 2024, we had a total of $4.2 billion debt outstanding, which consisted of $3.5 billion of senior notes outstanding and $656.2 million outstanding under our 2026 Term Loan.

As of November 2, 2024, we had a total of $4.1 billion debt outstanding, which consisted of $3.5 billion of senior notes outstanding and $623.4 million outstanding under our 2026 Term Loan.

We also had $1.0 billion of availability under our 2023 Revolving Credit Facility.

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Our indebtedness could have important consequences to us including:

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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.

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

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Because of increasing focus by government taxing authorities on multinational companies, the tax laws of certain countries in which we do business could change on a prospective or retroactive basis, and any such changes could increase our liabilities for taxes, interest and penalties, and could materially adversely impact our financial results, including our earnings and cash flows.

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In prior years, we entered into incentive agreements in certain foreign jurisdictions that provide for reduced tax rates in such jurisdictions if certain criteria are met.

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We are exposed to potential impairment charges on certain assets.

We had approximately $11.6 billion of goodwill and $3.5 billion of acquired intangible assets on our unaudited condensed consolidated balance sheet as of August 3, 2024.

We had approximately $11.6 billion of goodwill and $3.0 billion of acquired intangible assets on our unaudited condensed consolidated balance sheet as of November 2, 2024.

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.

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For example, a restructuring plan was initiated during the third quarter of fiscal 2025 to increase research and development investment in the data center end market and reduce the investment in new product development in other end markets including the cancellation of certain future product releases.

As a result, we were required to assess the recoverability of related long-lived assets.

On completion of the assessment, the Company determined the carrying values of certain long-lived assets were not recoverable.

We utilized a discounted cash flow method of valuation to determine the fair value of the associated assets and liabilities compared to their carrying values, which resulted in recognition of asset impairment charges for acquired intangible assets, purchased technology licenses, and property and equipment.

We recognized $715.1 million of restructuring related charges for the quarter ended November 2, 2024.

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

We have determined that our business operates as a single operating segment and has a single reporting unit for the purpose of goodwill impairment testing.

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See also, “We have been named as a party to several legal proceedings and may be named in additional ones in the future, including litigation involving our patents and other intellectual property, which could subject us to liability, require us to indemnify our customers, require us to obtain or renew licenses, require us to stop selling our products or force us to redesign our products.”

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We have been issued a significant number of U.S.

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Environmental legislation, such as the EU Directive on Restriction of Hazardous Substances (“RoHS”), the EU Waste Electrical and Electronic Equipment Directive (“WEEE Directive”) and China’s regulation on Management Methods for Controlling Pollution Caused by Electronic Information Products, may increase our cost of doing business internationally and impact our revenues from the EU, China and other countries with similar environmental legislation as we endeavor to comply with and implement these requirements.

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Increasingly regulators (including the U.S.

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While these policies and related legislation are generally targeted to investment advisory firms and mutual funds, if these investors viewed our sustainability 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.

In addition, social activists have recently been successful in pressuring certain public companies to eliminate or cut back on their diversity, equity and inclusion initiatives and their sustainability initiatives.

To the extent we are subject to such activism, it may require us to incur costs or may otherwise adversely impact our business.

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

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Please see “Note 8 – Commitments and Contingencies” of our Notes to Unaudited Condensed Consolidated Financial Statements set forth in Part I, Item 1 of this Quarterly Report on Form 10-Q for a more detailed description of any material litigation matters in which we may be currently engaged.

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In particular, litigation involving patents and other intellectual property is widespread in the high-technology industry and is particularly prevalent in the semiconductor industry, where a number of companies and other entities aggressively bring numerous infringement claims to assert their patent portfolios.

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We routinely collect and store sensitive data in our information systems, including intellectual property and other proprietary information about our business and that of our customers, suppliers and manufacturing and other business partners.

These information technology systems are subject to damage or interruption from a number of potential sources, including, but not limited to, natural disasters, destructive or inadequate code, malware, power failures, cyber-attacks, nation state advanced persistent threats, internal malfeasance or other events.

These information technology systems are subject to damage or interruption from several potential sources, including, but not limited to, natural disasters, destructive or inadequate code, malware, power failures, cyber-attacks, nation state advanced persistent threats, internal malfeasance or other events.

Cyber-attacks may include phishing or other forms of social engineering attacks, exploits of code or system configurations, malicious code, such as viruses and worms, ransomware attacks, denial-of-service attacks and other actions granting unauthorized access to our technology infrastructure or information systems or those of our customers, suppliers and manufacturing and other business partners.

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however, we cannot guarantee that those risk mitigation measures will be effective.

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We have not experienced a material information security breach in the last three years, and as a result, we have not incurred any net expenses from such a breach.

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While we have historically been successful in defending against the cyber-attacks and breaches mentioned above, given the frequency of cyber-attacks and resulting breaches reported by other businesses and governments, it is likely we will experience one or more material breaches of some extent in the future.

We have incurred and may in the future incur significant costs in order to implement, maintain and/or update security systems we believe are necessary to protect our information systems, or we may miscalculate the level of investment necessary to protect our systems adequately.

We have incurred and may in the future incur significant costs to implement, maintain and/or update security systems we believe are necessary to protect our information systems, or we may miscalculate the level of investment necessary to protect our systems adequately.

Since the techniques used to obtain unauthorized access or to sabotage systems change frequently and are often not recognized until launched against a target, we may be unable to anticipate these techniques or to implement adequate preventive measures.

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Data breaches, losses or other unauthorized access to, or releases of, confidential information have in the past occurred with these third parties and material data breaches, losses or other unauthorized access to, or releases of, our confidential information may in the future occur in connection with third party breaches that could materially adversely affect our reputation, financial condition and operating results and could result in liability or penalties under data privacy laws.

In addition, we may be subject to losses of access to all or part our systems as a result of our use of third-party services or software, which losses may not always be the result of malicious activity, and we cannot guarantee that any such future outages will not materially impact the Company.

In addition, we may be subject to losses of access to all or part our systems because of our use of third-party services or software, which losses may not always be the result of malicious activity, and we cannot guarantee that any such future outages will not materially impact the Company.

To the extent that any system failure, accident or security breach results in material disruptions or interruptions to our operations, or those of our customers, suppliers and manufacturing and other business partners, or the theft, loss or disclosure of, or damage to our data or confidential information, including our intellectual property, our reputation, business, results of operations and/or financial condition could be materially adversely affected.

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This external assessment provides us and our Audit Committee with a comprehensive evaluation of our security posture.

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Our information security team plays a pivotal role in managing our cybersecurity risk.

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In addition, pursuant to our internal procedures, in the event of a significant cybersecurity incident, members of senior management will report such threats and incidents in a timely manner directly to the Audit Committee and, when appropriate, to the full Board of Directors.

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GENERAL RISK FACTORS

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In addition, as a result of our past and any future acquisitions and related integration activities, our current and prospective employees may experience uncertainty about their futures that may impair our ability to retain, recruit or motivate key management, engineering, technical and other personnel.

We have adopted a hybrid work policy for our employees, where employees have the option to split their time between home and the office.

We have adopted a hybrid work policy for our employees, where many employees have the option to split their time between home and the office.

However, certain types of activities such as new product innovation, critical business decision making, brainstorming sessions, providing sensitive employee feedback, and onboarding new employees may be less effective in a hybrid work environment.

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In addition, as a result of our hybrid work environment, we expect to face challenges in retention of personnel who prefer to only work from home.

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There can be no assurance that we will continue to declare cash dividends or effect stock repurchases in any particular amount or at all, and statutory requirements may require us to defer payment of declared dividends or suspend stock repurchases.

In May 2012, we declared our first quarterly cash dividend and in October 2018, we announced that our Board of Directors had authorized a $700.0 million addition to our previously existing $1.0 billion stock repurchase program.

An aggregate of $1.7 billion worth of shares of our common stock have been repurchased under that program as of August 3, 2024.

In the first quarter of fiscal 2025, our Board of Directors increased the repurchase program mentioned above and authorized an additional $3.0 billion to that repurchase program.

In the first quarter of fiscal 2025, our Board of Directors increased our stock repurchase program to add an additional $3.0 billion to that program.

Future payment of a regular quarterly cash dividend on our common stock and future stock repurchases are subject to, among other things:

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A reduction in, a delay of, or elimination of our dividend payments or stock repurchases could have a negative effect on our stock price.

As of August 3, 2024, there was $3.0 billion remaining available for future stock repurchases under the prior authorization.

As of November 2, 2024, there was $2.8 billion remaining available for future stock repurchases under the prior authorization.

Our indemnification obligations and limitations of our director and officer liability insurance may have a material adverse effect on our financial condition, results of operations and cash flows.

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

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Adverse developments affecting the financial services industry, including events or risks involving liquidity, defaults or non-performance by financial institutions, could have a material adverse effect on our business, financial condition or results of operations.

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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 1A. Risk Factors