What changed in this filing

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Item 1A. Risk Factors

2021-05-26 compared with 2020-11-18 · 47 added, 63 removed, 11 unchanged (91% of the section changed)

Other than the risk factors listed below, there have been no material changes from the risk factors previously described under Item 1A of our Annual Report on Form 10-K for the fiscal year ended January 26, 2020 and Item 1A of our Quarterly Reports on Form 10-Q for the fiscal quarters ended April 26, 2020 and July 26, 2020.

Before you buy our common stock, you should know that making such an investment involves some risks including, but not limited to, the risks described in Item 1A of our Annual Report on Form 10-K for the fiscal year ended January 26, 2020 and Item 1A of our Quarterly Reports on Form 10-Q for the fiscal quarters ended April 26, 2020 and July 26, 2020.

Additionally, any one of those risks could harm our business, financial condition and results of operations, which could cause our stock price to decline.

Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also impair our business operations.

We may not be able to realize the potential financial or strategic benefits of business acquisitions or strategic investments, including the Mellanox and Arm acquisitions, and we may not be able to successfully integrate acquisition targets, which could hurt our ability to grow our business, develop new products or sell our products.

We have in the past acquired and invested in, and may continue to acquire and invest in, other businesses that offer products, services and technologies that we believe will help expand or enhance our existing products, strategic objectives and business.

We completed our acquisition of Mellanox for approximately $7 billion on April 27, 2020.

In September 2020, we announced our agreement to acquire all of the allotted and issued ordinary shares of Arm in a transaction valued at $40 billion.

The Mellanox acquisition, the Arm acquisition and other past or future acquisitions or investments involve significant challenges and risks, and could impair our ability to grow our business, develop new products or sell our products, and ultimately could have a negative impact on our growth or our financial results.

Given that our resources are limited, our decision to pursue a transaction has opportunity costs;

accordingly, if we pursue a particular transaction, we may need to forgo the prospect of entering into other transactions that could help us achieve our strategic objectives.

Additional risks related to the Mellanox acquisition, the Arm acquisition and other acquisitions or strategic investments include, but are not limited to:

• difficulty in combining the technology, products, operations or workforce of the acquired business with our business;

• diversion of capital and other resources, including management’s attention;

• assumption of liabilities and incurring amortization expenses, impairment charges to goodwill or write-downs of acquired assets;

• integrating financial forecasting and controls, procedures and reporting cycles;

• coordinating and integrating operations in countries in which we have not previously operated;

• acquiring business challenges and risks, including, but not limited to, disputes with management and integrating international operations and joint ventures;

• difficulty in realizing a satisfactory return, if at all;

• difficulty in obtaining or inability to obtain governmental and regulatory consents and approvals, other approvals or financing;

• the potential impact on our stock price and financial results if we are unable to obtain regulatory approval for an acquisition, are required to pay reverse breakup fees or are otherwise unable to close an acquisition;

• failure and costs associated with the failure to consummate a proposed acquisition or other strategic investment;

• legal proceedings initiated as a result of an acquisition or investment;

• the potential for our acquisitions to result in dilutive issuances of our equity securities;

• the potential variability of the amount and form of any performance-based consideration;

• uncertainties and time needed to realize the benefits of an acquisition or strategic investment, if at all;

• negative changes in general economic conditions in the regions or the industries in which we or our target operate;

• the need to determine an alternative strategy if an acquisition does not meet our expectations;

• potential failure of our due diligence processes to identify significant issues with the acquired assets or company;

• impairment of relationships with, or loss of our or our target’s, employees, vendors and customers, as a result of our acquisition or investment.

The COVID-19 pandemic continues to impact our business and could materially adversely affect our financial condition and results of operations.

COVID-19 has spread worldwide, resulting in shutdowns of manufacturing and commerce.

COVID-19 has resulted in government authorities implementing numerous measures to try to contain the disease, such as travel bans and restrictions, quarantines, shelter-in-place orders and shutdowns.

COVID-19 has spread worldwide, resulting in government authorities implementing numerous measures to try to contain the disease, such as travel bans and restrictions, quarantines, shelter-in-place orders and shutdowns.

These measures have impacted, and may further impact, our workforce and operations, the operations of our customers and our partners, and those of our respective vendors and suppliers (including our subcontractors and third-party contract manufacturers).

1 unchanged sentence

Our customers and suppliers worldwide have also been affected and may continue to be affected by COVID-19 related restrictions and closures.

The COVID-19 pandemic has increased economic and demand uncertainty.

In the third quarter of fiscal year 2021, our Gaming and Data Center market platforms benefited from stronger demand as people continue to work, learn, and play from home.

Our Professional Visualization market platform experienced stronger demand for mobile workstations due to work from home trends, but was negatively affected by lower corporate demand for desktop workstations.

Industry production volume returned to pre-COVID levels in our Auto market platform, but these production volumes may be further impacted by COVID-19.

The COVID-19 pandemic continues to evolve and affect our business and financial results and it has increased the duration and impact of economic and demand uncertainty.

In the first quarter of fiscal year 2022, our Gaming and Data Center market platforms benefited from stronger demand as people continue to work, learn, and play from home.

In Professional Visualization, notebook workstations continue to benefit from work-from-home trends and desktop workstations have started to recover as employees return onsite in certain markets.

In some regions, markets, or industries, where COVID-19 has driven an increase in sales for our products, the demand may not be sustainable if conditions change.

Additionally, stronger demand globally has limited the availability of capacity and components in our supply chain, which could cause us to order an excess amount if demand changes, pay higher prices, or limit our ability to obtain supply at necessary levels or at all.

The manufacture of product components, the final assembly of our products and other critical operations are concentrated in certain geographic locations, including Taiwan, China, Hong Kong and Korea.

Additionally, a significant portion of our finished goods product distribution occurs through Hong Kong.

Each of these countries has been affected by the pandemic and has taken measures to try to contain it.

There is considerable uncertainty regarding the impact of such measures and potential future measures, including restrictions on manufacturing facilities, on our support operations or workforce, or on our customers, partners, vendors and suppliers.

Such measures, as well as restrictions or disruptions of transportation, such as reduced availability or increased cost of air transport, port closures and increased border controls or closures, could limit our capacity to meet customer demand and have a material adverse effect on our financial condition and results of operations.

The spread of COVID-19 has caused us to modify our business practices (including employee travel, mandatory work-from-home policies and cancellation of physical participation in meetings, events and conferences), and we may take further actions as required by government authorities or that we determine are in the best interests of our employees, customers, partners and suppliers.

Most of our employees in the third quarter continued to work remotely.

The reopening of offices may also generate demand for our products that may be temporary.

Additionally, stronger demand globally has limited the availability of capacity and components in our supply chain, particularly in Gaming, which could cause us to order an excess amount if demand changes, pay higher prices, or limit our ability to obtain supply at necessary levels or at all.

As the COVID-19 pandemic continues, the timing and overall demand from customers and the availability of supply chain, logistical services and component supply may have a material net negative impact on our business and financial results.

The manufacture of product components, the final assembly of our products and other critical operations are concentrated in certain geographic locations, including Taiwan, China, Hong Kong, Israel and Korea.

A significant portion of our finished goods product distribution occurs through Hong Kong, Israel and Taiwan.

Additionally, our headquarters is in California.

Each of these countries and locations has been affected by the pandemic and has taken measures to try to contain it, including restrictions on manufacturing facilities, commerce, travel, on our support operations or workforce, or on our customers, partners, vendors and suppliers.

There is considerable uncertainty regarding the impact of such measures and potential future measures.

Such measures, as well as restrictions on or disruptions of transportation, such as reduced availability or increased cost of air transport, port closures and increased border controls or closures, could limit our capacity to meet customer demand and have a material adverse effect on our financial condition and results of operations.

The spread of COVID-19 has caused us to modify our business practices (including employee travel, mandatory work-from-home policies and cancellation of physical participation in meetings, events and conferences), and we may take further actions as required by government authorities and regulations or that we determine are in the best interests of our employees, customers, partners and suppliers.

Some regions are easing COVID-19 related restrictions;

however, most of our employees continue to work remotely and we continue to temporarily prohibit most business travel.

There is no certainty that such measures will be sufficient to mitigate the risks posed by the disease, and our ability to perform critical functions could be harmed.

In addition, while the extent and duration of the COVID-19 pandemic on the global economy and our business in particular is difficult to assess or predict, the pandemic has resulted in, and may continue to result in, significant disruption of global financial markets, which may reduce our ability to access capital or our customers’ ability to pay us for past or future purchases, which could negatively affect our liquidity.

As our offices begin to reopen, we expect to incur incremental expenses as we resume onsite services and related in-office costs, which could adversely impact our results of operations.

While the extent and duration of the COVID-19 pandemic on the global economy and our business is difficult to assess or predict, the pandemic has resulted in, and may continue to result in, significant disruption of global financial markets, which may reduce our ability to access capital or our customers’ ability to pay us for past or future purchases, which could negatively affect our liquidity.

A recession or financial market correction resulting from the lack of containment and spread of COVID-19 could impact overall technology spending, adversely affecting demand for our products, our business and the value of our common stock.

The ultimate impact of the COVID-19 pandemic or a similar health epidemic is highly uncertain and subject to change.

disease or treat its impact, further related restrictions on travel, and the duration, timing and severity of the impact on customer spending, including any recession resulting from the pandemic, all of which are uncertain and cannot be predicted.

The extent of the impact of the COVID-19 pandemic on our operational and financial performance, including our ability to execute our business strategies and initiatives in the expected time frame, will depend on future developments, including, but not limited to, the duration and continued spread of the pandemic, its severity, the actions to contain the disease or treat its impact, availability of vaccines or other treatments, further related restrictions on travel, and the duration, timing and severity of the impact on customer spending, including any recession resulting from the pandemic, all of which are uncertain and cannot be predicted.

An extended period of global supply chain and economic disruption as a result of the COVID-19 pandemic could have a material negative impact on our business, results of operations, access to sources of liquidity and financial condition, though the full extent and duration is uncertain.

Business disruptions could harm our business, lead to a decline in revenues and increase our costs.

Our worldwide operations could be disrupted by earthquakes, telecommunications failures, power or water shortages, outages at cloud service providers, tsunamis, floods, hurricanes, typhoons, fires, extreme weather conditions, cyber-attacks, terrorist attacks, medical epidemics or pandemics (including, but not limited to, COVID-19) and other natural or man-made disasters, catastrophic events or climate change.

The occurrence of any of these disruptions could harm our business and result in significant losses, a decline in revenue and an increase in our costs and expenses.

Any of these business disruptions could require substantial expenditures and recovery time in order to fully resume operations.

Such risks are discussed further in the risk factor “The COVID-19 pandemic continues to impact our business and could materially adversely affect our financial condition and results of operations.” Our corporate headquarters, and a portion of our research and development activities, are located in California, and other critical business operations, finished goods inventory, and some of our suppliers are located in Asia, near major earthquake faults known for seismic activity.

In addition, a large portion of our current data center capacity is located in California, making our operations vulnerable to natural disasters or other business disruptions occurring in these geographical areas.

Additionally, a significant portion of our finished goods product distribution occurs through Hong Kong.

Geopolitical change or changes in government regulations and policies in the United States or abroad may result in changing regulatory requirements, trade policies, import duties and economic disruptions that could impact our operating strategies, product demand, access to global markets, hiring, and profitability.

In particular, revisions to laws or regulations or their interpretation and enforcement could result in increased taxation, trade sanctions, the imposition of import duties or tariffs, restrictions and controls on imports or exports, or other retaliatory actions, which could have an adverse effect on our business plans.

For example, regulations to implement the Export Control Reform Act of 2018 could have an adverse effect on our business plans.

Catastrophic events can also have an impact on third-party vendors who provide us critical infrastructure services for IT and research and development systems and personnel.

In addition, geopolitical and domestic political developments, such as existing and potential trade wars, political or social unrest, elections and post-election developments, and other events beyond our control, can increase levels of political and economic unpredictability globally and increase the volatility of global financial markets.

Political instability or adverse political developments in or around any of the major countries in which we do business would also likely harm our business, financial condition and results of operations.

Our operations could be harmed if manufacturing, logistics or other operations in these locations are disrupted for any reason, including natural disasters, high heat events or water shortages, information technology system failures, military actions or economic, business, labor, environmental, public health, regulatory or political issues.

The ultimate impact on us, our third-party foundries and other suppliers and our general infrastructure of being located near major earthquake faults and being consolidated in certain geographical areas is unknown.

In the event a major earthquake or other disaster or catastrophic event affects us or the third-party systems on which we rely, our business could be harmed as a result of declines in revenue, increases in expenses, substantial expenditures and time spent to fully resume operations.

All of these risks and conditions could materially adversely affect our future sales and operating results.

Our operating results have in the past fluctuated and may in the future fluctuate, and if our operating results are below the expectations of securities analysts or investors, our stock price could decline.

Our operating results have in the past fluctuated and may in the future continue to fluctuate due to numerous factors.

Therefore, investors should not rely on quarterly comparisons of our results of operations as an indication of our future performance.

Additional factors, other than or in addition to those described elsewhere in these risk factors, that could affect our results of operations in the future include, but are not limited to:

• our ability to achieve volume production of our next-generation products;

• our inability to adjust spending to offset revenue shortfalls due to the multi-year development cycle for some of our products and services;

• fluctuations in the demand for our products related to cryptocurrencies and COVID-19, as discussed further in the risk factor “If we fail to estimate customer demand properly, our financial results could be harmed” in Item 1A of our Annual Report on Form 10-K for the fiscal year ended January 31, 2021;

• changes in the timing of product orders due to unexpected delays in the introduction of our partners’ products;

• our ability to cover the manufacturing and design costs of our products through competitive pricing;

• our ability to comply and continue to comply with our customers’ contractual obligations;

• product rates of return in excess of that forecasted or expected due to quality issues;

• our ability to secure appropriate safety certifications and meet industry safety standards;

• supply constraints for and changes in the cost of the other components incorporated into our products;

• inventory write-downs;

• our ability to continue generating revenue from our partner network, including by generating sales within our partner network and ensuring our products are incorporated into our partners product ecosystems, and our partner network’s ability to sell products that incorporate our technologies;

• our dependence on third party vendors and end users to adopt our products, including InfiniBand;

• the inability of certain of our customers to make required payments to us, and our ability to obtain credit insurance over the purchasing credit extended to these customers;

• customer bad debt write-offs;

• any unanticipated costs associated with environmental liabilities;

• unexpected costs related to our ownership of real property;

• our ability to maintain and scale our business processes, information systems and internal controls;

• increases in our future tax rates, as discussed further in the risk factor “We may have exposure to additional tax liabilities and our operating results may be adversely impacted by higher than expected tax rates” in Item 1A of our Annual Report on Form 10-K for the fiscal year ended January 31, 2021;

• changes in financial accounting standards or interpretations of existing standards;

• general macroeconomic or industry events and factors affecting the overall market and our target markets, including global and domestic inflation rates.

Any one or more of the factors discussed above could prevent us from achieving our expected future financial results.

Any such failure to meet our expectations or the expectations of our investors or security analysts could cause our stock price to decline or experience substantial price volatility.

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