What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-05-30 compared with 2024-12-04 · 112 added, 153 removed, 115 unchanged (70% of the section changed)

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

• risks related to changes in general macroeconomic conditions such as economic slowdowns, inflation, stagflation, high or rising interest rates, financial institution instability 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 our ability to design, develop and introduce new and enhanced products, in particular in the Artificial Intelligence (“AI”), Cloud and 5G 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, and risks related to the gain or loss of design wins with our key customers;

• risks related to changes in general macroeconomic conditions such as economic slowdowns, inflation, stagflation, high or rising interest rates, financial institution instability, and recessions;

• risks related to tariffs and trade restrictions with China, Russia and other foreign nations including 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, vertically integrate which may reduce the need for our products, or acquire fully developed solutions from third parties;

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

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

• 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;

• 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, 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 our ability to scale our business;

• cybersecurity risks;

• risks related to our debt obligations;

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

• 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, semiconductor and related industries and end markets;

• risks related to the specific conditions in the end markets we address, including seasonality and volatility in the technology sector and semiconductor industry;

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

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• risks related to our sustainability programs;

• cybersecurity risks;

• 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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We are a leading supplier of data infrastructure semiconductor solutions, spanning the data center core to network edge.

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.

We are a fabless supplier of high-performance semiconductor 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, enterprise networking, carrier infrastructure, consumer, and automotive/industrial end markets.

Net revenue in the third quarter of fiscal 2025 was $1.5 billion and was 7% higher than net revenue in the third quarter of fiscal 2024.

This was due to a 98% increase in sales from the data center end market compared to the three months ended October 28, 2023.

The increase was partially offset by decreases in sales from the carrier infrastructure end market by 73%, from the enterprise networking end market by 44%, from the consumer end market by 43% and from the automotive/industrial end market by 22%.

We have seen strong revenue growth from our data center end market, driven by robust demand for our electro-optics and custom compute products from AI applications.

In addition, following a period of inventory correction, we have started to see demand stabilize in our enterprise networking and carrier infrastructure end markets.

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

See “Note 8 – Commitments and Contingencies” in the Notes to Unaudited Condensed Consolidated Financial Statements for additional information.

We expect that the U.S.

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

Moreover, concerns that U.S.

companies may not be reliable suppliers as a result of these and other actions has caused, and may in the future cause, some of our customers in China to amass large inventories of our products well in advance of need or cause some of our customers to replace our products in favor of products from other suppliers.

Customers in China may also choose to develop indigenous solutions, as replacements for products that are subject to U.S.

export controls.

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

See also Part II, Item IA, “Risk Factors,” including, but not limited to, the risk detailed under the caption “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.”

Restructuring.

We continuously evaluate our existing operations to increase operational efficiency, decrease costs and increase profitability.

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 investment in new product development in other end markets including the cancellation of certain future product releases.

We recognized $715.1 million of restructuring related charges for the quarter ended November 2, 2024, mainly comprised of impairment and write-off of acquired intangible assets, purchased technology licenses, inventories, property and equipment, and other non-current assets, as well as recognition of future contractual obligations, accrued legal reserve, severance, other one-time termination benefits, and other costs.

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

Net revenue in the first quarter of fiscal 2026 was $1.9 billion and was 63% higher than net revenue in the first quarter of fiscal 2025.

This was due to increases in sales from the data center end market by 76%, from the carrier infrastructure end market by 93%, from the enterprise networking end market by 16%, and from the consumer end market of 50%.

The increase was partially offset by a decrease in sales from the automotive/industrial end market by 2%.

We have seen strong revenue growth from our data center end market, driven by robust demand for our interconnect and custom compute products from AI applications.

In addition, following a period of inventory correction, we have continued to see revenue recovery in our carrier infrastructure and enterprise networking end markets.

The Company continues to monitor the environment for potential long-term impact on supply and demand from tariffs.

On April 7, 2025, we entered into a definitive agreement to sell our automotive ethernet business to Infineon Technologies AG (the “Buyer”) for $2.5 billion in cash.

The divestiture encompasses our automotive ethernet product portfolio and related assets.

In addition, we will license certain intellectual property to the Buyer in connection with the transferred business and provide certain temporary transition services following completion of the sale.

As of May 3, 2025, we classified assets held for sale of $588.2 million, which consisted of $29.0 million of inventories, $17.4 million of property and equipment, $524.7 million of goodwill, $14.0 million of acquired intangible assets, and other related assets.

The transaction is expected to close within calendar year 2025, subject to customary closing conditions and regulatory approvals.

Government Incentives and Grants.

We continue to benefit from lower income tax rates in certain jurisdictions through statutory elections or agreements with governmental agencies, which may include a commitment to maintain, or increase, headcount and business investment levels in those jurisdictions.

The tax benefits associated with these reduced income tax rates are recorded through our income tax provision for the periods in which such incentive tax rates are effective.

However, changes in international taxation, notably the enactment by numerous countries of minimum tax legislation modeled after the Organization for Economic Cooperation and Development’s Pillar Two tax framework, could significantly reduce the income tax benefit associated with these tax incentives.

In addition, certain jurisdictions in which we operate are pursuing alternative incentive programs, which operate within the Pillar Two tax framework.

On May 1, 2025, we received notification that our application for government incentives in a foreign jurisdiction in which we operate has been approved by the necessary government agencies.

For the duration of the incentive period from February 2, 2025, through February 1, 2030, qualifying expenditures and certain qualifying purchases will result in the generation of credits that will reduce qualifying cost of sales and operating expenses by the incentives earned, and the credits may be used to offset income taxes payable or be refunded in cash.

We believe there is reasonable assurance that we will meet the conditions of the incentive agreement and that the credits will ultimately be received and thus have recognized benefits associated with qualifying expenditures incurred in the current period.

Ultimate realization of the incentives is subject to satisfying certain minimum investment levels over the course of the incentive period and government agency reviews and audits of qualifying expenditures.

We cannot guarantee that we will achieve the agreed upon investment levels over the incentive period and any failure to meet these investment levels may result in a clawback of some or all of the incentives and a corresponding reversal of any benefit recognized.

Capital Return Program.

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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.

On March 7, 2024, we announced that our Board of Directors authorized a $3.0 billion addition to the balance of our existing stock repurchase program.

During the nine months ended November 2, 2024, we repurchased 7.3 million shares of our common stock for $525.0 million.

As of November 2, 2024, $2.8 billion remained available for future stock repurchases.

We returned $680.6 million to stockholders in the nine months ended November 2, 2024 through $525.0 million in repurchases of shares of our common stock and $155.6 million in cash dividends.

During the three months ended May 3, 2025, we repurchased 5.6 million shares of our common stock for $340.0 million.

As of May 3, 2025, $2.2 billion remained available for future stock repurchases.

We returned $391.8 million to stockholders in the three months ended May 3, 2025 through $340.0 million in repurchases of shares of our common stock and $51.8 million in cash dividends.

Cash and Short-Term Investments.

Our cash and cash equivalents were $868.1 million at November 2, 2024, which were $82.7 million lower than our balance at February 3, 2024 of $950.8 million.

Our cash and cash equivalents were $885.9 million at May 3, 2025, which were $62.4 million lower than our balance at February 1, 2025 of $948.3 million.

Sales and Customer Composition.

Our accounts receivable was concentrated with four customers at November 2, 2024, who represented a total of 67% of gross accounts receivable, compared with four customers at October 28, 2023, who represented a total of 72% of gross accounts receivable.

During the three and nine months ended November 2, 2024, there were two customers in addition to one distributor, whose revenue as a percentage of net revenue was 10% or greater of total net revenue.

During the three months ended October 28, 2023, there was one customer in addition to one distributor, whose revenue as a percentage of net revenue was 10% or greater of total net revenue.

During the nine months ended October 28, 2023, there were two customers, in addition to one distributor, whose revenue as a percentage of net revenue was 10% or greater of total net revenue.

Net revenue attributable to significant customers and distributors whose revenue as a percentage of net revenue was 10% or greater of total net revenue is presented in the following table:

Three Months Ended Nine Months Ended

2024 October 28,

2023 November 2,

2024 October 28,

Our accounts receivable was concentrated with five customers at May 3, 2025, who represented a total of 72% of gross accounts receivable, compared with two customers at May 4, 2024, who represented a total of 70% of gross accounts receivable.

Net revenue attributable to significant customers including both distributor and direct customers whose revenues represented 10% or more of total net revenue is presented in the following table:

Three Months Ended

Direct Customer:

Distributor A 36% 39%

*Less than 10% of net revenue.

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

We regularly monitor the creditworthiness of our distributor and direct customers, and believe these distributors’ sales to diverse end customers and geographies further serve to mitigate our exposure to credit risk.

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

Sales shipped to customers with operations in Asia represented approximately 74% and 75% of our net revenue in the three and nine months ended November 2, 2024, respectively, and approximately 66% and 68% of our net revenue in the three and nine months ended October 28, 2023, respectively.

Sales shipped to customers with operations in Asia represented approximately 74% of our net revenue in the three months ended May 3, 2025, and approximately 73% of our net revenue in the three months ended May 4, 2024.

Because many manufacturers and manufacturing subcontractors of our customers are located in Asia, we expect that most of our net revenue will continue to be represented by sales to our customers in that region.

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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.”

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

See “Note 8 – Commitments and Contingencies” in the Notes to Unaudited Condensed Consolidated Financial Statements for additional information.

Critical Accounting Policies and Estimates

There have been no material changes during the three months ended November 2, 2024 to our critical accounting policies and estimates from the information provided in the “Critical Accounting Policies and Estimates” section of Part II, Item 7, 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 February 3, 2024.

There have been no material changes during the three months ended May 3, 2025 to our critical accounting policies and estimates from the information provided in the “Critical Accounting Policies and Estimates” section of Part II, Item 7, “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 February 1, 2025.

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 Nine Months Ended

2024 October 28,

2023 November 2,

2024 October 28,

Three Months Ended

Net revenue 100.0 % 100.0 %

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Selling, general and administrative 9.8 17.2

Restructuring related charges 23.6 0.2 9.3 2.6

Restructuring related charges (gains), net (0.6) 0.4

Total operating expenses 36.0 58.6

Operating loss (46.4) (10.2) (24.2) (13.1)

Operating income (loss) 14.3 (13.1)

Interest and other loss, net (2.9) (3.9)

Loss before income taxes (49.5) (13.1) (27.7) (16.4)

Benefit from income taxes (4.9) (1.6) (0.2) (3.2)

Net loss (44.6) % (11.5) % (27.5) % (13.2) %

Three and nine months ended November 2, 2024 and October 28, 2023

Three Months Ended Nine Months Ended

2024 October 28,

Change November 2,

2024 October 28,

Income (loss) before income taxes 11.4 (17.0)

Provision for income taxes 2.0 1.6

Net income (loss) 9.4 % (18.6) %

Three months ended May 3, 2025 and May 4, 2024

Three Months Ended

(in millions, except percentage)

Net revenue $ 1,895.3 $ 1,160.9 63.3%

Our net revenue for the three months ended November 2, 2024 increased by $97.5 million, or 7%, compared to net revenue for the three months ended October 28, 2023.

Our net revenue for the three months ended May 3, 2025 increased by $734.4 million, or 63%, compared to net revenue for the three months ended May 4, 2024.

This was primarily due to a 76% increase in sales from the data center end market which benefited from strong AI demand.

Our net revenue for the nine months ended November 2, 2024 decreased by $131.3 million, or 3%, compared to net revenue for the nine months ended October 28, 2023.

This was primarily due to decreases in sales from the carrier infrastructure end market by 74%, from the enterprise networking end market by 53%, from the consumer end market by 52% and from the automotive/industrial end market by 23%, which have been navigating inventory corrections and soft industry demand.

The decreases were partially offset by a 93% increase in sales from the data center end market which benefited from strong AI demand.

The increase was also driven by increases in sales from the carrier infrastructure end market by 93%, from the enterprise networking end market by 16%, and from the consumer end market of 50%, which have been experiencing increases in demand.

The increase was partially offset by a decrease in sales from the automotive/industrial end market by 2%.

Cost of Goods Sold and Gross Profit

Three Months Ended Nine Months Ended

2024 October 28,

Change November 2,

2024 October 28,

Three Months Ended

(in millions, except percentage)

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% of net revenue 50.3 % 45.5 %

Cost of goods sold as a percentage of net revenue increased for the three and nine months ended November 2, 2024 compared to the three and nine months ended October 28, 2023, which was primarily due to impairment charges of $356.8 million for acquired intangible assets, inventories, property and equipment, and other non-current assets associated with restructuring actions during the quarter ended November 2, 2024.

The increase was partially offset by charges for product related claim matters in the three and nine months ended October 28, 2023, that were fully resolved in the fourth quarter of fiscal 2024.

As a result, gross margin for the three and nine months ended November 2, 2024 decreased by 15.9 and 2.8 percentage points, respectively, compared to the three and nine months ended October 28, 2023.

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

Cost of goods sold as a percentage of net revenue decreased for the three months ended May 3, 2025 compared to the three months ended May 4, 2024, which was primarily due to better cost absorption driven by higher revenues, partially offset by a shift in product mix.

As a result, gross margin for the three months ended May 3, 2025 increased by 4.8 percentage points compared to the three months ended May 4, 2024.

Research and Development

Three Months Ended Nine Months Ended

2024 October 28,

Change November 2,

2024 October 28,

Three Months Ended

(in millions, except percentage)

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% of net revenue 26.8 % 41.0 %

Research and development expense was relatively flat in the three and nine months ended November 2, 2024 compared to the three and nine months ended October 28, 2023.

Research and development expense increased by $31.6 million in the three months ended May 3, 2025 compared to the three months ended May 4, 2024.

The increase was primarily due to $18.7 million of higher employee compensation and related costs, as well as an increase in stock-based compensation expense.

The increase was also due to higher overall spending to support our R&D initiatives.

Selling, General and Administrative

Three Months Ended Nine Months Ended

2024 October 28,

Change November 2,

2024 October 28,

Three Months Ended

(in millions, except percentage)

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% of net revenue 9.8 % 17.2 %

Selling, general and administrative expense decreased by $7.7 million and $19.5 million, respectively, in the three and nine months ended November 2, 2024 compared to the three and nine months ended October 28, 2023.

The decreases were primarily due to charges for an intellectual property matter during the third quarter of fiscal 2024, as well as lower depreciation and amortization expense.

The decreases were partially offset by higher employee compensation related costs.

Restructuring Related Charges

Three Months Ended Nine Months Ended

2024 October 28,

Change November 2,

2024 October 28,

Selling, general and administrative expense decreased by $13.5 million in the three months ended May 3, 2025 compared to the three months ended May 4, 2024.

The decrease was primarily due to lower amortization expense for acquired intangible assets, as well as lower acquisition related costs.

The decrease was partially offset by higher employee compensation and related costs.

Restructuring Related Charges (Gains), Net

Three Months Ended

(in millions, except percentage)

Restructuring related charges $ 358.3 $ 3.4 10,438.2% $ 366.4 $ 105.3 248.0%

Restructuring related charges (gains), net

$ (12.3) $ 4.1 (400.0)%

% of net revenue (0.6) % 0.4 %

We recognized $358.3 million and $366.4 million of total restructuring related charges in the three and nine months ended November 2, 2024, respectively, as we continued to evaluate our existing operations to increase operational efficiency, decrease costs and increase profitability.

Restructuring charges for the three and nine months ended November 2, 2024 were mainly comprised of impairment and write-off of purchased technology licenses and property and equipment, as well as recognition of future contractual obligations, accrued legal reserve, severance, other one-time termination benefits, and other costs.

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

We recognized a net restructuring gain of $12.3 million in the three months ended May 3, 2025 as we continued to evaluate our existing operations to increase operational efficiency, decrease costs and increase profitability.

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

Interest and Other Loss, Net

Three Months Ended Nine Months Ended

2024 October 28,

Change November 2,

2024 October 28,

Three Months Ended

(in millions, except percentage)

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% of net revenue (2.9) % (3.9) %

Interest and other loss, net increased by $6.5 million in the three months ended November 2, 2024 compared to the three months ended October 28, 2023.

The increase was primarily due to exchange rate fluctuations, as well as lower net gains recognized from equity investments.

The increase was partially offset by a decrease in interest expense and an increase in interest income.

Interest and other loss, net was relatively flat in the nine months ended November 2, 2024 compared to the nine months ended October 28, 2023.

Benefit from income taxes

Three Months Ended Nine Months Ended

2024 October 28,

Change November 2,

2024 October 28,

Interest and other loss, net increased by $9.2 million in the three months ended May 3, 2025 compared to the three months ended May 4, 2024.

The increase was primarily due to higher net losses recognized from equity investments.

Provision for income taxes

Three Months Ended

(in millions, except percentage)

Benefit from income taxes $ (74.2) $ (23.2) 219.8% $ (9.3) $ (130.7) (92.9)%

Our income tax benefit for the three months ended November 2, 2024 was $74.2 million compared to a tax benefit of $23.2 million for the three months ended October 28, 2023.

These amounts differed from the U.S.

federal statutory tax rate of 21%, primarily due to a substantial portion of earnings or losses being taxed or benefited at rates lower than the U.S.

statutory rate, net of the impact of U.S.

taxation of foreign operations, benefits from tax credits, valuation allowance releases, and discrete tax benefits and expenses for excess deductions and deficiencies on stock-based compensation.

The tax benefits recorded are based on year-to-date pretax results, forecasted pretax results, forecasted annual tax expense and discrete adjustments for the respective periods.

Our income tax benefit for the nine months ended November 2, 2024, was $9.3 million compared to a tax benefit of $130.7 million for the nine months ended October 28, 2023.

Provision for income taxes $ 38.0 $ 17.8 113.5%

Our income tax expense for the three months ended May 3, 2025 was $38.0 million compared to a tax expense of $17.8 million for the three months ended May 4, 2024.

These amounts differed from the U.S.

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taxation of foreign operations, benefits from tax credits, valuation allowance releases, and discrete tax benefits and expenses for excess deductions and deficiencies on stock-based compensation.

The tax benefits recorded are based on year-to-date pretax results, forecasted pretax results, forecasted annual tax expense and discrete adjustments for the respective periods.

Through the third quarter of fiscal 2024, prior to the issuance of IRS guidance in December of 2023, certain R&D costs were treated as subject to capitalization which resulted in utilization of R&D tax credits and a corresponding release of valuation allowances associated with those credits.

As a result of the IRS guidance, as of the fourth quarter of fiscal 2024 we treated these R&D costs as currently deductible rather than subject to capitalization, which resulted in a reduction to our income tax payable and reinstatement of our deferred tax assets for R&D tax credits, and the corresponding full valuation allowance on such credits.

The recorded tax expense is based on year-to-date pretax results, forecasted pretax results, forecasted annual tax expense and discrete adjustments for the respective 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.

It is also possible that significant negative evidence may become available that causes us to conclude that a valuation allowance is needed on certain of our deferred tax assets, which would adversely affect our income tax provision in the period of such change in judgment.

We are subject to legislation based on the Organization for Economic Cooperation and Development’s 15% global minimum tax regime which applies to the majority of countries in which we operate.

The enacted legislation did not have a significant effect on our provision for income taxes during the three months ended May 3, 2025.

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

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Liquidity and Capital Resources

Our principal source of liquidity as of November 2, 2024 consisted of approximately $868.1 million of cash and cash equivalents, of which approximately $675.8 million was held by subsidiaries outside of the United States, a portion of which are deemed to be indefinitely reinvested.

Our principal source of liquidity as of May 3, 2025 consisted of approximately $885.9 million of cash and cash equivalents, of which approximately $649.7 million was held by subsidiaries outside of the United States, a portion of which are deemed to be indefinitely reinvested.

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.

As of November 2, 2024, we had total borrowings outstanding of $4.1 billion, consisting of $3.5 billion of senior notes outstanding and $623.4 million outstanding under our 5-Year Tranche Loan (“2026 Term Loan”).

During the three and nine months ended November 2, 2024, we repaid $32.8 million and $76.6 million of the principal outstanding of the 2026 Term Loan.

We have a revolving credit facility with a borrowing capacity of up to $1.0 billion and a 5-year term (“2023 Revolving Credit Facility”).

As of November 2, 2024, the 2023 Revolving Credit Facility is undrawn and will be available for draw down through April 14, 2028.

As of May 3, 2025, we had total borrowings outstanding of $4.3 billion, of which $1.3 billion is due within twelve months, consisting of $3.5 billion of senior notes outstanding, $557.8 million outstanding under our 5-Year Tranche Loan (“2026 Term Loan”), and $200.0 million under our revolving credit facility.

We intend to repay the current amounts due with operating cash flows or opportunistically refinance such debt.

For the three months ended May 3, 2025, we rep aid $32.8 million of the principal outstanding of the 2026 Term Loan.

We have a revolving credit facility with a borrowing capacity of $1.0 billion and a 5-year term (“2023 Revolving Credit Facility”).

During the first quarter of fiscal 2026, we drew down $200.0 million on the 2023 Revolving Credit Facility that remains outstanding as of May 3, 2025, and which we intend to repay during fiscal 2026.

As of May 3, 2025, $800.0 million of the $1.0 billion total borrowing capacity under the 2023 Revolving Credit Facility was undrawn and is available for draw down through April 14, 2028.

For a description of our contractual obligations including debt and purchase commitments, see “Note 6 – Debt,” and “Note 8 – Commitments and Contingencies” in the Notes to Unaudited Condensed Consolidated Financial Statements.

In addition, see “Note 9 – Income Tax” regarding tax related contingencies and uncertain tax positions in the Notes to Unaudited Condensed Consolidated Financial Statements.

We generally expect to satisfy these commitments with cash on hand and cash provided by operating activities.

We may elect to factor trade accounts receivable from time to time as part of our overall liquidity and working capital management strategy.

During the three and nine months ended November 2, 2024, we generated cash from operations from the sale of certain trade accounts receivable on a non-recourse basis to a third-party financial institution pursuant to a factoring arrangement.

During the three months ended May 3, 2025, we generated cash from operations from the sale of certain trade accounts receivable on a non-recourse basis to a third-party financial institution pursuant to a factoring arrangement.

See “Note 12 – Supplemental Financial Information” in the Notes to 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 2023 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 8 – Commitments and Contingencies” in the Notes to Unaudited Condensed Consolidated Financial Statements) for at least the next twelve months.

We believe that our existing cash and cash equivalents, together with cash generated from operations, and funds from our 2023 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 8 – Commitments and Contingencies” in the Notes to 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.

To the extent that our existing cash and cash equivalents, together with cash generated by operations, and funds available under our 2023 Revolving Credit Facility are insufficient to fund our future activities, we may need to raise additional funds through public or private debt or equity financing.

To the extent that our existing cash and cash equivalents, together with cash generated from operations, and funds available under our 2023 Revolving Credit Facility are insufficient to fund our future activities, we may need to raise additional funds through public or private debt or equity financing.

We may also acquire additional businesses, purchase assets or enter into other strategic arrangements in the future, which could also require us to seek debt or equity financing.

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Cash Flows from Operating Activities

Net cash provided by operating activities for the nine months ended November 2, 2024 was $1.2 billion.

We had a net loss of $1.1 billion adjusted for the following non-cash items:

amortization of acquired intangible assets of $805.5 million, restructuring related impairment charges of $524.1 million, stock-based compensation expense of $449.8 million, depreciation and amortization of $225.5 million, deferred income tax benefit of $106.2 million, and $42.1 million of net loss from other non-cash items.

Cash inflow from working capital of $311.6 million for the nine months ended November 2, 2024 was primarily driven by decreases in prepaid expenses and other assets, and accounts receivable, and increase in accounts payable, partially offset by a decrease in accrued liabilities and other non-current liabilities.

The decrease in prepaid expenses and other assets was primarily driven by a decrease in prepaid ship and debits due to lower inventory balances at distributors as a result of increased sell through, and a decrease in prepaid corporate income tax, partially offset by payments on supply capacity reservation agreements, net of refunds.

The decrease in accounts receivable was primarily due to higher factored receivables and higher distribution sales reserves.

The increase in accounts payable was primarily due to payment timing management.

The decrease in accrued liabilities and other non-current liabilities was primarily driven by lower ship and debit claims accrual due to lower inventory balances at distributors as a result of increased sell through, payments of accruals, partially offset by increases in restructuring accruals.

Net cash provided by operating activities for the nine months ended October 28, 2023 was $823.9 million.

Net cash provided by operating activities for the three months ended May 3, 2025 was $332.9 million.

We had a net income of $177.9 million adjusted for the following non-cash items:

amortization of acquired intangible assets of $245.7 million, stock-based compensation expense of $142.1 million, depreciation and amortization of $84.2 million, restructuring related gains of $14.0 million, deferred income tax benefit of $4.3 million, and $44.1 million of net loss from other non-cash items.

Cash outflow from working capital of $342.8 million for the three months ended May 3, 2025 was primarily driven by a decrease in accrued employee compensation, and increases in accounts receivable and inventories.

The decrease in accrued employee compensation was due to bonus payout of our annual employee bonus plan.

The increase in accounts receivable was primarily due to higher sales and lower distribution sales reserves, partially offset by higher factored receivables.

Inventories grew sequentially in support of expected revenue growth.

Net cash provided by operating activities for the three months ended May 4, 2024 was $324.5 million.

We had a net loss of $215.6 million adjusted for the following non-cash items:

amortization of acquired intangible assets of $811.6 million, stock-based compensation expense of $454.5 million, deferred income tax benefit of $283.7 million, depreciation and amortization of $226.0 million, restructuring related impairment charges of $32.2 million, and $39.9 million of net loss from other non-cash items.

Cash inflow from working capital of $84.1 million for the nine months ended October 28, 2023 was primarily driven by decreases in inventory and prepaid expenses and other assets and increases in accrued liabilities and other non-current liabilities, partially offset by the decrease in accounts payable and the increase in accounts receivable.

The decrease in inventory was as a result of managing down our inventory balance.

The decrease in prepaid expenses and other assets was primarily driven by a decrease in prepaid ship and debits due to decreased inventory at distributors.

The increase in accrued liabilities and other non-current liabilities was primarily driven by increases in settlement accruals and income tax payable.

amortization of acquired intangible assets of $264.9 million, stock-based compensation expense of $136.5 million, depreciation and amortization of $72.6 million, deferred income tax benefit of $22.2 million, and $21.8 million of net loss from other non-cash items.

Cash inflow from working capital of $65.8 million for the three months ended May 4, 2024 was primarily driven by decreases in accounts receivable, prepaid expenses and other assets, and inventory, partially offset by decreases in accrued liabilities and other non-current liabilities, accrued employee compensation, and accounts payable.

The decrease in accounts receivable was primarily due to decreased sales.

The decrease in prepaid expenses and other assets was primarily driven by a decrease in prepaid ship and debits due to lower inventory balances at distributors, a decrease in prepaid corporate income tax, partially offset by payments on supply capacity reservation agreements, net of refunds.

The decrease in inventory was primarily a result of managing the supply chain in a slower demand environment.

The decrease in accrued liabilities and other non-current liabilities was primarily driven by lower ship and debit claims accrual due to lower inventory balances at distributors, interest payments net of accruals, and a decrease in stock rotation accruals.

The decrease in accrued employee compensation was due to bonus payout of our annual employee bonus plan.

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

The increase in accounts receivable was primarily due to increased sales partially offset by collections, which included factored receivables.

Cash Flows from Investing Activities

For the nine months ended November 2, 2024, net cash used in investing activities of $230.4 million was primarily driven by purchases of property and equipment of $214.7 million.

For the nine months ended October 28, 2023, net cash used in investing activities of $274.3 million was primarily driven by purchases of property and equipment of $265.3 million.

For the three months ended May 3, 2025, net cash used in investing activities of $94.1 million was primarily driven by purchases of property and equipment of $118.8 million, partially offset by proceeds from sales of property and equipment of $25.9 million.

For the three months ended May 4, 2024, net cash used in investing activities of $101.9 million was primarily driven by purchases of property and equipment of $91.5 million.

Cash Flows from Financing Activities

For the nine months ended November 2, 2024, net cash used in financing activities of $1.0 billion was primarily attributable to $525.0 million repurchases of common stock, $190.3 million for tax withholding payments on behalf of employees for net share settlements, $155.6 million for payment of our quarterly dividends, $124.4 million payments on technology license obligations, and $76.6 million repayment of debt principal, partially offset by $52.4 million in proceeds from the issuance of common stock under our employee stock plans.

For the nine months ended October 28, 2023, net cash used in financing activities of $735.0 million was primarily attributable to $1.6 billion repayment of debt, $168.7 million for tax withholding payments on behalf of employees for net share settlements, $154.9 million for payment of our quarterly dividends, $110.2 million payments on technology license obligations, and $50.0 million repurchases of common stock, partially offset by $1.3 billion net proceeds from the issuance of the 2029 and 2033 bonds and from the 2023 Revolving Credit Facility, and $61.1 million in proceeds from our employee stock plans.

Capital Resources and Material Cash Requirements

A summary of our capital resources and material cash requirements is presented in Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the fiscal year ended February 3, 2024.

We also discuss updates of our significant commitments in “Note 8 – Commitments and Contingencies” in the Notes to 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 nine months ended November 2, 2024.

For the three months ended May 3, 2025, net cash used in financing activities of $301.2 million was primarily attributable to $340.0 million repurchases of common stock, $51.8 million for payment of our quarterly dividends, $50.2 million for tax withholding payments on behalf of employees for net share settlements, $32.8 million repayment of debt principal, and $26.8 million payments on technology license obligations, partially offset by $200.0 million proceeds from borrowings.

For the three months ended May 4, 2024, net cash used in financing activities of $325.7 million was primarily attributable to $150.0 million repurchases of common stock, $74.1 million for tax withholding payments on behalf of employees for net share settlements, $51.8 million for payment of our quarterly dividends, $30.2 million payments on technology license obligations, and $21.9 million repayment of debt principal, partially offset by $2.3 million in proceeds from the issuance of common stock under our employee stock plans.

Indemnification Obligations

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What changed 10-Q

Item 2. Management’s Discussion and Analysis