What changed in this filing

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Item 1A. Risk Factors

2023-11-13 compared with 2023-08-10 · 34 added, 29 removed, 497 unchanged (11% of the section changed)

Risk Factors.

Below is a summary the principal factors and uncertainties that make investing in our company risky.

Below is a summary of the principal factors and uncertainties that make investing in our company risky.

You should read this summary together with the more detailed description of each risk factor contained further below.

59 unchanged sentences

Operating costs have increased and may continue to increase further as a result of supply chain disruptions in connection with the sourcing of components, materials, equipment, engineering support, and services, labor shortages and other cost increases due to the COVID-19 pandemic and the effects of the Russia-Ukraine conflict.

In addition, we source components for certain of our tools from a supplier in Israel.

If the conflict in Israel and the surrounding area escalates, it could disrupt our supply chain, resulting in a material adverse impact on our business.

We have also experienced, and may continue to experience, production delays, disruptions and cost increases due to the worldwide shortage of semiconductor components as a result of sharp increases in demand for semiconductor products in general.

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Our efforts to mitigate any cost increases, labor impacts and supply chain delays and shortages may not be successful, and we cannot predict the duration of these current trends or other future increases in operating costs.

We may not be able to pass cost increases through to our customers fully (or at all), and if supply chain delays and shortages delay delivery of our products, our customers may seek to purchase from our competitors.

We may not be able to pass cost increases through to our customers fully (or at all), and if supply chain delays and shortages delay delivery of our products,

our customers may seek to purchase from our competitors.

Any such occurrence may have a material adverse impact on our gross margins and business, financial position, results of operations and cash flows.

1 unchanged sentence

Variations in the length of our sales cycles could cause our revenue and cash flows, and consequently, our business, financial condition, operating results and cash flows to fluctuate widely from period to period.

This variation could cause our

stock price to decline.

This variation could cause our stock price to decline.

Our customers generally take a long time to evaluate our inspection and/or film metrology systems and many people are involved in the evaluation process.

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The effects of the public health crisis caused by the COVID-19 pandemic and the resulting economic impact have affected, and may continue to affect, our operations and those of our suppliers, third-party service providers, and customers.

The extent to which the COVID-19 pandemic will continue to impact our business, results of operations, and financial conditions is difficult to predict and depends on numerous evolving factors including the duration and scope of the pandemic;

to which the COVID-19 pandemic will continue to impact our business, results of operations, and financial conditions is difficult to predict and depends on numerous evolving factors including the duration and scope of the pandemic;

government, social, business, and other actions that have been and will be taken in response to the pandemic;

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disruptions to our supply chain in connection with the sourcing of materials, support, and services;

disruption of

operations due to unavailability of employees as a result of illness, risk of illness, travel restrictions or other factors;

disruption of operations due to unavailability of employees as a result of illness, risk of illness, travel restrictions or other factors;

a potential decrease in short-term and/or long-term demand for our products;

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We expect that we will continue to depend on a small number of large customers for a sizable portion of our revenue.

In addition, as

large semiconductor device manufacturers seek to establish closer relationships with their suppliers, we expect that our customer base will become even more concentrated.

In addition, as large semiconductor device manufacturers seek to establish closer relationships with their suppliers, we expect that our customer base will become even more concentrated.

Risks Related to Product Development

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Violations by others of our confidentiality agreements and the loss of employees who have specialized knowledge and expertise could harm our competitive position and cause our sales and operating results to decline as a result of increased competition.

It also possible that third parties will misappropriate our trade secrets or other confidential information.

It is also possible that third parties will misappropriate our trade secrets or other confidential information.

We may be subject to cybersecurity breaches in which a third party obtains our confidential information.

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In some countries, it can be difficult to register trademarks because of the strict examination process or blocking trademarks for other goods.

Costly and time-consuming litigation might be necessary to enforce and determine the scope of our intellectual property rights, and failure to obtain or maintain trade secret protection might adversely affect our ability to continue our research or bring products to market.

time-consuming litigation might be necessary to enforce and determine the scope of our intellectual property rights, and failure to obtain or maintain trade secret protection might adversely affect our ability to continue our research or bring products to market.

From time to time, we may find it necessary to initiate litigation against other persons or entities to protect and/or enforce our intellectual property or contractual rights.

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For example, litigation discovery practice in China, Japan, South Korea, continental Europe and Taiwan is not as robust as the United States, so it can be more difficult to determine if a company is infringing on our patents and more challenging to bring a lawsuit.

Monitoring and preventing unauthorized use are

also difficult and the measures we take to protect our intellectual property rights may not be adequate.

Monitoring and preventing unauthorized use are also difficult and the measures we take to protect our intellectual property rights may not be adequate.

Accordingly, infringement of our intellectual property rights poses a serious risk of doing business.

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The Russia–Ukraine conflict and related sanctions imposed by the U.S.

government may expose government entities and public and private U.S.

government may expose government entities

and public and private U.S.

companies to attempted or actual cybersecurity attacks launched in retaliation, and these attacks could materially disrupt our supply chain or our systems and operations or those of our customers and suppliers.

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information could be accessed or disclosed improperly.

delays in our ability to obtain necessary components for our products from those suppliers, which could hamper our ability to ship our products to our customers, harming our results of operations and our customer relationships.

In addition, cybersecurity incidents affecting our customers could result in substantial delays in our ability to ship to those customers or install our products, which could result in delays in revenue recognition or the cancellation of orders, and cybersecurity incidents affecting our suppliers could result in substantial delays in our ability to obtain necessary components for our products from those suppliers, which could hamper our ability to ship our products to our customers, harming our results of operations and our customer relationships.

Any or all of the above issues could negatively affect our ability to attract new customers, cause existing customers to choose to purchase from our competitors, result in reputational damage or subject us to third-party lawsuits, regulatory fines or other action or liability, which could adversely affect our operating results.

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We believe that our global support and service infrastructure is sufficient to meet the needs of our customers and potential customers.

However, some of our competitors have more extensive infrastructures than we do, which could place us at a disadvantage when competing for the business of global semiconductor device manufacturers.

However, some of our competitors have

more extensive infrastructures than we do, which could place us at a disadvantage when competing for the business of global semiconductor device manufacturers.

Many of our competitors are investing heavily in the development of new systems that will compete directly with our systems.

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government actions, including potential order cancellations.

If the sale of these products is delayed or we are unable to return or dispose of our inventory on favorable economic terms, we may incur additional carrying costs for the inventory or otherwise record charges associated with this inventory.

If the sale of these products is delayed or we are unable to return or dispose of

our inventory on favorable economic terms, we may incur additional carrying costs for the inventory or otherwise record charges associated with this inventory.

The administrative processing, attendant delays and risk of ultimately not obtaining required export approvals also put us at a disadvantage relative to our non-U.S.

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Foreign customers affected by current or future U.S.

government sanctions, controls or threats of sanctions

or controls may respond by developing their own solutions to replace our products or by utilizing our foreign competitors’

government sanctions, controls or threats of sanctions or controls may respond by developing their own solutions to replace our products or by utilizing our foreign competitors’

In addition, these export controls may also reduce overall global demand for our customers’

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As discussed below under the heading “Tariffs, export regulations, and other market barriers have impacted and may continue to impact both our ability to compete for the business of domestic customers in China and our results of operations,”

government recently issued, on October 7, 2022, new export control rules aimed at restricting China’s access to advanced computing technology.

government issued, new export control rules in 2022 aimed at restricting China’s access to advanced computing technology.

To comply with the new rules, Onto Innovation has had to expend time and resources that might otherwise have been used for revenue generating activities.

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We are subject to various global risks related to political and economic instabilities in countries in which we derive sales.

If terrorist activities, armed conflict, civil or military unrest or political instability occurs outside of the United States, these events may result in reduced demand for our products.

If terrorist activities, armed conflict, civil or military unrest or political instability occurs outside of the United States, these events may result in reduced demand for our products or adversely affect our supply chain.

For example, the Ukraine–Russia geographic region is a major source of critical raw materials used for semiconductor manufacturing (such as neon and palladium), and any supply chain disruptions or shortages of such materials due to the ongoing conflict in that region could impact our customers in a manner that reduces demand for our products.

Similarly, if the conflict in Israel and the surrounding area escalates, it could result in disruptions to our supply chain and/or the operations of our customers in a manner that reduces demand for our products.

In addition, due to the complex relationships among China, Hong Kong, Taiwan, and the United States, there is risk that political, diplomatic, and national security influences might lead to trade, technology, or capital disputes, or disruptions affecting the semiconductor industry.

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if supply of those materials is disrupted it could adversely impact our ability manufacture and sell those products, which could adversely affect our results of operations.

Likewise, we do not have material operations in Israel and our operations have not been materially adversely affected by the conflict in Israel and the surrounding area to date.

If the conflict escalates, however, it could result in disruptions to our supply chain and/or the operations of our customers in a manner than reduces demand for our products.

We may face difficulties in staffing and managing foreign branch operations due to political tensions or cultural differences .

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We are subject to the Foreign Corrupt Practices Act of 1977, as amended (the “FCPA”), and other laws that prohibit improper payments or offers of payments to foreign governments and their officials and political parties by U.S.

persons and issuers as defined by the statute, for the purpose of obtaining or retaining business.

issuers as defined by the statute, for the purpose of obtaining or retaining business.

Also, similar worldwide anti-bribery laws, such as the U.K.

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Although Congress is considering legislation that would defer the amortization requirement to later years, we have no assurance that the provision will be repealed or otherwise modified.

The requirement reduced our cash flows for 2022 and may continue to reduce our cash flows in 2023 and beyond, unless repealed.

The requirement reduced our cash flows for 2022 and the first nine months of 2023, and may continue to reduce our cash flows unless repealed.

In addition, recent proposals to increase the U.S.

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Adverse economic conditions, such as sustained periods of economic uncertainty or a crisis in the financial markets may have a material adverse effect on our liquidity and financial condition if our ability to obtain credit from the capital financial markets, or from trade creditors was impaired.

In addition, a worsening economy or an economic crisis could also adversely impact our customers’

In addition, a worsening economy

or an economic crisis could also adversely impact our customers’

ability to finance the purchase of systems from us or our suppliers’

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We may unintentionally violate environmental laws or regulations in the future as a result of human error, equipment failure or other causes.

In addition to the potential adverse effects on our business operations of such an event, we are committed to maintaining

safe working conditions for our employees and sourcing, manufacturing, and distributing our products in a responsible and environmentally friendly manner, and any failure on our part to do so may cause reputational harm for the Company.

In addition to the potential adverse effects on our business operations of such an event, we are committed to maintaining safe working conditions for our employees and sourcing, manufacturing, and distributing our products in a responsible and environmentally friendly manner, and any failure on our part to do so may cause reputational harm for the Company.

Risks Related to Growth and Acquisitions

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We might need to raise additional funds through public or private equity or debt financings to finance any acquisition.

In that event, we could be forced to obtain financing on terms that are not favorable to us and, in the case of equity financing, that result in dilution to our stockholders.

In that event, we could be forced to obtain financing on terms that are not favorable to us and, in the case of equity

financing, that result in dilution to our stockholders.

In addition, any impairment of goodwill or other intangible assets, amortization of intangible assets, write-down of other assets or charges resulting from the costs of acquisitions and purchase accounting could harm our business and operating results.

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Growth in the metrology market is dependent to a large extent upon new chip designs and capacity expansion of microelectronic manufacturers.

Growth in the lithography market is dependent on the development of cost-effective packaging with high fine pitch RDLs, ultimately migrating to multi-die, large, form-factor packages.

Growth in the lithography market is dependent on the

development of cost-effective packaging with high fine pitch RDLs, ultimately migrating to multi-die, large, form-factor packages.

There can be no assurance that manufacturers will undertake these actions at the rate we expect.

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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