What changed in this filing

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Item 1. Business

2023-02-28 compared with 2022-03-01 · 42 added, 44 removed, 127 unchanged (40% of the section changed)

Netlist provides high-performance solid state drives and modular memory solutions to enterprise customers in diverse industries.

Our NVMe SSDs in various capacities and form factors and the line of custom and specialty memory products bring industry-leading performance to server and storage appliance customers and cloud service providers.

We license our portfolio of intellectual property including patents, in server memory, hybrid memory and storage class memory, to companies that implement our technology.

Impact of COVID-19 on our Business

The extent of the continuing impact of the COVID-19 pandemic on our operational and financial performance is uncertain and will depend on many factors outside our control, including the timing, extent, trajectory and duration of the pandemic, the emergence of new variants, the development, availability, distribution and effectiveness of vaccines and treatments, the imposition of protective public safety measures, and the impact of the pandemic on the global economy.

We continue to monitor the situation and may take further actions altering our business operations that we determine are in the best interests of our employees, customers, suppliers, and stakeholders, or as required by federal, state, or local authorities.

As COVID-19 and its impacts are unprecedented and ever evolving, future events and effects related to the pandemic cannot be determined with precision and actual results could significantly differ from estimates or forecasts.

The global high-performance memory module market is driven by increasing demand from data center and enterprise storage applications for improved input/output performance, lower latency and data retention capabilities in the event of unexpected system failure.

The proliferation of mobile devices, social media platforms, cognitive/artificial intelligence systems and cloud-based software applications is resulting in the creation of unprecedented amounts of unstructured data.

In order to manage and analyze this data, we believe new computing and memory architectures need to be developed to satisfy the needs in the industry.

Technical challenges arising from the production of dynamic random access memory integrated circuits (“DRAM ICs” or “DRAM”) using leading edge semiconductor manufacturing processes is limiting the material's long-term viability as the high-speed memory of choice in demanding computing environments.

Netlist provides high-performance memory solutions to enterprise customers in diverse industries.

Our products in various capacities and form factors and our line of custom and specialty memory products bring leading performance to customers in a variety of industries globally and cloud service providers.

Netlist licenses its portfolio of intellectual property, including solutions relating to volatile memory, storage memory, and hybrid memory.

The global high-performance memory module market is driven by increasing demand from data center and enterprise storage applications for improved input/output performance, lower latency, and increased redundant persistent data storage capacities.

The proliferation of mobile devices, social media platforms, cognitive/artificial intelligence systems and cloud-based software applications has resulted in the accelerating creation and transmission of data.

To manage and analyze this data, we believe new memory and storage technologies need to be developed and implemented to satisfy the needs in the industry.

Technical challenges arising from the production of dynamic random access memory integrated circuits (“DRAM ICs” or “DRAM”) is limiting the material's long-term viability as the high-speed memory of choice in demanding computing environments.

Conversely, NAND flash memory (“NAND flash”), while characterized by lower access speeds, is scaling down in cost and scaling up in density at a significantly better rate than DRAM.

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We expect memory subsystems relying on intelligent controller technology to leverage NAND flash will most effectively address the industry's growing need for high-speed data management and analytics.

Further, DRAM-based memory solutions are being developed to accommodate the industry’s need for significant memory bandwidth increases.

These growing needs have led to the development and implementation of new DDR5 Dual Inline Memory Module (“DIMM”) technologies like power management on-module, as well as higher-capacity High Bandwidth Memory (“HBM”) components.

As one example of a possible trend in developing technologies to support the newest DDR5 standard – and beyond – we expect continued focus on moving logic and management functionality away from host systems and onto memory modules themselves.

Product Technologies

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Distributed Buffer Architecture

We invented the distributed buffer architecture that enables the buffering of data signals along the bottom edge of the memory module using multiple data buffer devices distributed between the edge connector and the DRAM.

The result is shorter data paths, improved signal integrity, and reduced latency compared to the industry-standard design for DDR3 load-reduced dual in-line memory module ("LRDIMM").

The memory industry has widely adopted our

distributed architecture for DDR4 LRDIMM.

Our HyperCloud product was our first LRDIMM product built on this distributed buffer architecture.

We invented the distributed buffer architecture that enables the buffering of data signals along the bottom edge of a memory module using multiple data buffer devices distributed between the edge connector and the DRAM.

The result was shorter data paths, improved signal integrity, and reduced latency compared to the industry-standard design for DDR3 load-reduced dual in-line memory module ("LRDIMM").

The memory industry has widely adopted our distributed architecture for DDR4 LRDIMM.

Our HyperCloud product was our first LRDIMM product built on this innovative and proprietary distributed buffer architecture.

Localized Module-Based Power Management Architecture

Early in our company’s history of research and development efforts, we developed innovative solutions for improving the performance of memory through the increased precision of voltage regulation.

Netlist’s solution was to

transfer the power management capabilities away from the host system and move them nearer to the components on the memory modules themselves.

The result was improved granularity of system power loading, which could translate to improved functionality and higher data transfer speed.

Relocating power management functionality onto modules also allows multiple distinct devices on a single module to receive power and operate harmoniously.

While many in the memory industry have now adopted this approach for their DDR5-based DIMMs, our NVvault products incorporated this localized power management functionality long before.

Design Expertise

We have designed special algorithms that can be implemented in stand-alone integrated circuits or integrated into other functional blocks in application-specific integrated circuits (“ASICs”).

We utilize these algorithms in our HybriDIMM product to incorporate load reduction functionality.

We also incorporate these algorithms in our NVvault product line, which is also known in the industry as NVDIMM-N.

We utilized these algorithms in our HybriDIMM product to incorporate load reduction functionality.

We also incorporated these algorithms in our NVvault product line, which is known in the industry as NVDIMM-N.

Proprietary PCB Designs

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Our technology has allowed us to decrease the system board space required for memory, and improve thermal performance and operating speeds, by enabling our customers to use alternative methods of component layout.

High-Profile Designs

We have designed expanded-size memory systems in a form factor of two inches in height.

Our larger 2” tall DIMM designs and associated technologies can provide developers with solutions requiring greatly expanded DIMM capacities while still satisfying requirements for high bandwidth functionality.

Thermal Management Designs

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We also develop and use proprietary heat spreaders to enhance the thermal management characteristics of our memory subsystems.

Compute Express Link Technology

We are investing in new technologies like memory expansion applications that utilize Compute Express Link (“CXL”), which improves server capacity and bandwidth beyond what traditional memory channels can provide.

Traditional memory channel bandwidth and capacities can no longer keep up with host central processing unit needs.

As this space matures, we believe that CXL technology will allow larger memory pools to be placed further away from the host central processing unit and still be seamlessly utilized with the traditional channel memory.

Our commercially available memory subsystem products and other products that we sell include:

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Due to our relationships with memory channel customers, in addition to our own products, we resell certain component products that we purchase for the purpose of resale.

We have purchased certain of these products under the terms of a product supply agreement with SK hynix, Inc.

(“SK hynix”).

We have purchased certain of these products under the terms of a product supply agreement with SK hynix, Inc., a South Korean memory semiconductor supplier (“SK hynix”).

We have also sourced resale products from other suppliers.

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For information regarding our concentrations and customers, see Note 10 “Major Customers, Suppliers and Products” of the Notes to Consolidated Financial Statements in Part II, Item 8 of this Form 10-K.

Storage Class Memory

Using an industry standard DDR4 LRDIMM interface, we believe HybriDIMM is the industry’s first storage class memory product capable of operating in existing Intel x86 servers without BIOS and hardware changes.

HybriDIMM unifies DRAM and NAND flash in a plug-and-play module, delivering terabyte storage capacities operating at DRAM-like nanosecond memory speeds.

HybriDIMM’s architecture combines an on-DIMM co-processor

with our software-defined data management algorithm.

HybriDIMM’s feature set encompasses the non-volatile dual in-line memory modules (“NVDIMM”) functionalities adopted by the industry.

HybriDIMM dramatically improves application performance by reducing data access latency by up to 1,000 times versus the fastest existing storage solution known to us.

Nonvolatile Memory

Our Vault product line enables customers to accelerate data running through their servers and storage and reliably protect enterprise-level cache, metadata and log data by providing near instantaneous recovery in the event of a system failure or power outage.

Our nonvolatile memory offering includes:

NVvault DDR4 NVDIMM (“ NV4 ”).

NV4 is an NVDIMM-N that provides data acceleration and protection in the Joint Electron Device Engineering Council (“JEDEC”) standard DDR4 interface.

It is designed to be integrated into industry standard server or storage solutions.

Specialty DIMMs and Embedded Flash

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Our supplier quality program and incoming material quality control program are important aspects of our manufacturing and sale processes.

As of January 1, 2022, we had 99 active U.S.

and foreign patents and 31 pending U.S and foreign patent applications.

Our patents have various terms expiring between 2022 and 2037.

As of December 31, 2022, we had over 100 patents, which have various terms expiring through 2041.

Our issued patents cover various aspects of our innovations and include various claim scopes and, as a result, we believe our business is not materially dependent on any one claim in any of our existing patents or pending patent applications.

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We believe the continued and timely development of new products and improvement of existing products are critical to our business and prospects for growth.

To this end, we have assembled a team of engineers with expertise in computer architectures, system memory, subsystem design and memory software, ASIC design, as well as high density PCB design and thermal management.

Our engineers also focus on developing and incorporating new techniques, methodologies and processes for testing and manufacturing our products, and also collaborate with our customers to provide us with insights into and expertise in systems architecture, power budget, performance requirements, operating environment (such as air flow and operating temperature) and any mechanical constraints.

Our research and development activities are conducted at our headquarters in Irvine, California.

Our engineering team delivers innovative solutions with a focus on meeting our customers’ performance requirements with our expertise in computer architectures, system memory, subsystem design and memory software, ASIC design, as well as high density PCB design and thermal management.

Our engineers focus on developing and incorporating new techniques, methodologies and processes for testing and manufacturing our products.

Our engineers also collaborate with our customers to provide us with insights into and expertise in systems architecture, power budget, performance requirements, operating environment (such as air flow and operating temperature) and any mechanical constraints.

We have invested significant resources in our product research and development efforts.

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Human Capital

As of January 1, 2022, we had approximately 120 full-time and part-time employees globally.

As of December 31, 2022, we had approximately 100 full-time and part-time employees globally.

Our future success will depend in part on our ability to attract, retain and motivate highly qualified technical, managerial and other personnel for whom competition is intense.

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We offer our employees opportunities to advance their careers at Netlist.

We are focused on leadership progression and encourage our employees take advantage of new opportunities.

We are focused on leadership progression and encourage our employees to take advantage of new opportunities.

Government Regulations

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Foreign Corrupt Practices Act and applicable foreign anti-bribery laws), data protection, public reporting and taxation, among others.

It is difficult and costly to manage the requirements of every authority having jurisdiction over our various activities and to comply with their varying standards.

Any changes to existing regulations or adoption of new regulations may result in significant

additional expense to us or our customers.

It is difficult and costly to manage the requirements of every authority having jurisdiction over our various activities and to comply with

their varying standards.

Any changes to existing regulations or adoption of new regulations may result in significant additional expense to us or our customers.

Further, our failure to comply with any applicable laws and regulations may result in a variety of administrative, civil and criminal enforcement measures, including monetary penalties or imposition of sanctions or other corrective requirements.

Available Information

Information about us is available at our website, www.netlist.com.

Information about us is available at our website, www.netlist.com, to which we regularly post copies of our press releases as well as additional information about us.

Our filings are available free of charge on our website as soon as reasonably practicable after they are electronically filed with, or furnished to the Securities and Exchange Commission (“SEC”), including our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy and information statements and amendments to these reports or statements.

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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-K

Item 1. Business