What changed in this filing

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Item 1. Legal Proceedings

2022-11-10 compared with 2022-08-09 · 57 added, 49 removed, 460 unchanged (19% of the section changed)

5 unchanged sentences

Risks Related to the Covid-19 Pandemic

The effects of the COVID-19 pandemic have affected our business and could in the future adversely affect our business, results of operations, and financial condition.

The COVID-19 pandemic and the resulting economic impact and supply chain issues have affected our business and could in the future adversely affect our business, results of operations, and financial condition.

Risks Related to Our Operations

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If we are not successful in developing new and enhanced products for the semiconductor device manufacturing industry, we will lose sales and market share to our competitors.

If new products developed by us do not gain general market acceptance, we will be unable to generate revenue and recover our research and development costs.

If new products developed by us do not gain general market acceptance, we will be unable to generate revenue and recover our investments, which may result in a write down of inventory.

Even if we are able to develop new products that gain market acceptance, sales of these new products could impair our ability to sell existing products.

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We are subject to compliance with foreign laws and regulations, and the burden of complying with such laws and regulations, or any failure to comply, may adversely affect our business, financial condition and results of operations.

Tariffs and other market barriers have impacted and may continue to impact our competitiveness with non-U.S.

Tariffs, export regulations, and other market barriers have impacted and may continue to impact ability to compete for the business of non-U.S.

customers, which may adversely affect our results of operations.

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Risks Related to the COVID-19 Pandemic

The effects of the COVID-19 pandemic have affected our business and could in the future adversely affect our business, results of operations, and financial condition.

The effects of the public health crisis caused by the COVID-19 pandemic and the measures being taken to limit the spread of COVID-19 are uncertain and difficult to predict, but pose the following risks to our business, results of operations and financial condition:

Disruptions to our supply chain in connection with the sourcing of materials, equipment and engineering support, and services from geographic areas that have been impacted by COVID-19 and by efforts to contain the spread of COVID-19, which have resulted and may continue to result in increased costs, material shortages, the inability to fully satisfy customer demand in a timely manner and increased risk of inventory obsolescence due to the resulting need to commit to increased purchases and provide longer lead times to secure critical components;

The COVID-19 pandemic and the resulting economic impact have affected our business and could in the future adversely affect our business, results of operations, and financial condition.

The effects of the public health crisis caused by the COVID-19 pandemic and resulting economic impact are uncertain and difficult to predict, but pose the following risks to our business, results of operations and financial condition:

Disruptions to our supply chain in connection with the sourcing of materials, equipment and engineering support, and services, which have resulted and may continue to result in increased costs, material shortages, the inability to fully satisfy customer demand in a timely manner and increased risk of inventory obsolescence due to the resulting need to commit to increased purchases and provide longer lead times to secure critical components;

Disruption of operations if employees are unavailable due to illness, risk of illness, travel restrictions, remote work or other factors that may limit our access to key personnel or critical skills, or reduce productivity, and a shortage of available skilled personnel;

A potential decrease in short-term and/or long-term demand for our products and disruptions to our operations resulting from the immediate consequences of and responses to the pandemic, including precautionary measures instituted by governments and businesses to mitigate its spread, which have raised the prospect of an extended global recession, which would adversely impact the businesses of our customers, suppliers and partners;

A potential decrease in short-term and/or long-term demand for our products and disruptions to our operations resulting from the consequences of and responses to the pandemic, including interest rate increases, inflationary pressures and the prospect of an extended global recession, which would adversely impact the businesses of our

customers, suppliers and partners;

Changes in our operations in response to COVID-19 and employee illnesses resulting from the pandemic have resulted in, and may continue to result in, a reduction in qualification activities with customers and a reduction in production levels, and may further result in a reduction in sales to our customers and product development efforts.

19 through the changes in our operations which we have enacted at certain of our locations around the world in an effort to protect our employees’ health and well-being (including the implementation of work-from-home policies, social-distancing measures, modified work schedules and shifts, the suspension of employee travel, and limits on the number of employees attending in-person meetings and the number of people permitted to be present at our facilities at any one time);

In addition, there may be incremental costs related to business continuity initiatives, which cannot be avoided or alleviated through succession planning, employees working remotely or teleconferencing technologies as well as inefficiencies, delays, and increased costs resulting from our efforts to mitigate the impact and spread of COVID-19 through the changes in our operations which we have enacted at certain of our locations around the world in an effort to protect our employees’ health and well-being (including the implementation of work-from-home policies, social-distancing measures, modified work schedules and shifts, the suspension of employee travel, and limits on the number of employees attending in-person meetings and the number of people permitted to be present at our facilities at any one time);

Management focus on mitigating the impact of the COVID-19 pandemic, which has required and will continue to require a substantial investment of time and resources across our enterprise, which has resulted and can be expected to continue to result in a diversion of management attention and resources;

Delays in our ability to install or service our products due to travel bans or the requirement to quarantine for a lengthy period after entering a jurisdiction;

An increase in potential opportunities for the Company to be subject to an adverse cybersecurity event as a result of the implementation of our work-from-home policy, which could give rise to business disruptions, loss of information, intellectual property and critical data as well as other negative impacts;

A potential decrease in availability under our credit agreement, which permits us to borrow up to 70% of the value of eligible securities held at the time the line of credit is accessed, if there is a decrease in the value of eligible securities resulting from the impact of COVID-19 on global markets;

An increase in potential opportunities for the Company to be subject to an adverse cybersecurity event as a result of an increase in employees working from home, which could give rise to business disruptions, loss of information, intellectual property and critical data as well as other negative impacts;

Potential difficulty accessing capital, if needed in the future, through a sale of securities, or in obtaining favorable terms of such securities, due to market conditions generally or a decline or volatility in the market for our securities.

The resumption of normal business operations after such interruptions may be delayed or constrained by lingering effects of COVID-19 on our suppliers, third-party service providers, and/or customers.

The recovery of our business from these effects may be delayed or constrained by lingering effects of COVID-19 and the resulting economic impact on our suppliers, third-party service providers, and/or customers.

These effects, alone or taken together, could have a material adverse effect on our business, results of operations, legal exposure, or financial condition.

The duration of the COVID-19 pandemic, resurgences, the severity of newly identified strains of the virus and the efficacy of vaccines and treatments with respect to new strains cannot be determined.

The duration of the COVID-19 pandemic, resurgences, the severity of newly identified strains of the virus and the efficacy of vaccines and treatments with respect to new strains, as well as the resulting macroeconomic conditions, cannot be determined.

Additional sustained or prolonged outbreaks of virus variants, delays in rollout of any needed boosters or modifications to vaccines to address variants, or continued widespread hesitancy to utilize vaccines could exacerbate the adverse impact of such measures.

11 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 related government restrictions on travel and business operations.

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.

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.

These risks may be heightened because we obtain some of the components and subassemblies included in our systems from a limited group of suppliers and do not have long-term contracts with many of our suppliers.

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If such a supplier is unable or unwilling to manufacture and deliver components to us on the time schedule and of the quality or quantity that we require, we may be forced to seek to engage an additional or replacement supplier or redesign our product to use alternative components, which could result in additional expenses and delays in product development or shipment of product to our customers.

Disruption or termination of the supply of components has delayed and could continue to delay

shipments of some of our systems.

Disruption or termination of the supply of components has delayed and could continue to delay shipments of some of our systems.

Such delays may damage our customer relationships and reduce our sales.

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In response to anticipated long lead times to obtain inventory and materials from outside suppliers and foundries, we periodically order materials in advance of customer demand.

This advance ordering has in the past and may in the future result in excess

inventory levels or unanticipated inventory write-downs if expected orders fail to materialize, or other factors make our products less saleable.

This advance ordering has in the past and may in the future result in excess inventory levels or unanticipated inventory write-downs if expected orders fail to materialize, or other factors make our products less saleable.

In addition, any significant future cancellation or deferral of product orders could adversely affect our revenue and margins, increase inventory write-downs due to obsolete inventory, and adversely affect our operating results and stock price.

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We do not have key person life insurance on any of our executives.

In addition, to support our future growth, we will need to attract and retain additional qualified employees.

In addition, to support our future

growth, we will need to attract and retain additional qualified employees.

Competition for such personnel in our industry is intense, and we may not be successful in attracting and retaining qualified employees.

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We may experience difficulties or delays in our development efforts with respect to new systems, and we may not ultimately be successful in our product enhancement efforts to improve and advance products or in responding effectively to technological change, as not all research and development activities result in viable commercial products.

In addition, we cannot provide assurance that we will be able to develop new products for the most opportunistic new

markets and applications.

In addition, we cannot provide assurance that we will be able to develop new products for the most opportunistic new markets and applications.

Any significant delay in releasing new systems could cause our products to become obsolete, adversely affect our reputation, give a competitor a first-to-market advantage or cause a competitor to achieve greater market share.

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Further, customers that may otherwise desire to purchase our products from us and purchase other products from our competitors may nevertheless purchase competing products from our competitors rather than purchase our products due to a variety of reasons, including to gain favor or volume pricing from our competitors.

If new products developed by us do not gain general market acceptance, we will be unable to generate revenue and recover our investments.

If new products developed by us do not gain general market acceptance, we will be unable to generate revenue and recover our investments, which may result in a write down of inventory.

Inspection, lithography and metrology product development is inherently risky because it is difficult to foresee developments in semiconductor device manufacturing technology, coordinate technical personnel, and identify and eliminate system design flaws.

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If we fail to adequately protect our intellectual property, it will give our competitors a significant advantage.

We own or have licensed a number of patents relating to our metrology, lithography, wafer and macro-defect

inspection systems, including both embedded and application software, and have filed applications for additional patents.

We own or have licensed a number of patents relating to our metrology, lithography, wafer and macro-defect inspection systems, including both embedded and application software, and have filed applications for additional patents.

Any of our pending patent applications may be rejected, and we may be unable to develop additional proprietary technology that is patentable in the future.

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We may be required to initiate litigation in order to enforce our intellectual property rights or to determine the noninfringement, scope or validity of a third party’s intellectual property rights.

Any litigation, regardless of outcome, could be expensive and time consuming and could subject us to significant liabilities or require us to re-engineer our products or obtain expensive licenses from third parties.

Any litigation, regardless of outcome, could be expensive and time consuming and could subject us to significant liabilities or require us to re-engineer our products or obtain

expensive licenses from third parties.

There can be no assurance that any patents, copyrights or other intellectual property rights issued to or licensed by us will not be challenged, invalidated or circumvented, or that the rights granted thereunder will provide us with a competitive advantage.

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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 these 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.

Although we have not identified any incidents of unauthorized access that have had a material impact to date, 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.

The General Data Protection Regulation (“GDPR”) is a regulation in European Union (“EU”) law on data protection and privacy for the individuals within the EU and the European Economic Area (“EEA”).

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federal and state and foreign laws and regulations, including GDPR which can be enforced by private parties or government entities, are constantly evolving and can be subject to significant change.

In addition, the application and interpretation of these laws and regulations, including GDPR, are often uncertain, particularly in our evolving industry, and may be interpreted and applied differently from country to country.

Appropriate technical and organizational measures are necessary to implement these data protection principles.

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Each of our products also competes with products that use different metrology, inspection or lithography techniques.

Some of our competitors have greater financial,

engineering, manufacturing and marketing resources, broader product offerings and service capabilities and larger installed customer bases than we do.

Some of our competitors have greater financial, engineering, manufacturing and marketing resources, broader product offerings and service capabilities and larger installed customer bases than we do.

As a result, these competitors may be able to respond more quickly to new or emerging technologies or market developments by devoting greater resources to the development, promotion and sale of products, which, in turn, could impair sales of our products.

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We are faced with various risks that may be associated with our compliance with existing, new, different, inconsistent or conflicting laws, regulations and rules enacted by governments and/or their regulatory agencies in the countries in which we operate as well as rules and policies implemented at our customer sites.

These laws, regulations, rules and policies could relate to any of an array of issues including, but not limited to, environmental, tax, intellectual property, trade secrets, product liability, contracts, antitrust, employment, securities, import/export and unfair competition.

These laws, regulations, rules and policies could relate to any of an array of issues including, but not limited to, environmental, tax, intellectual property, trade secrets, product

liability, contracts, antitrust, employment, securities, import/export and unfair competition.

The cost of maintaining compliance under multiple and changing regulatory regimes may adversely affect our business, financial condition and results of operations.

In the event that we fail to comply with or violate U.S.

For example, as discussed below under the heading “ Tariffs, export regulations, and other market barriers have impacted and may continue to impact our ability to compete for the business of non-U.S.

customers, which may adversely affect our results of operations,” the U.S.

government recently issued new export control rules 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.

Further regulatory changes could require additional diversion of resources to compliance efforts.

In addition, in the event that we fail to comply with or violate U.S.

or foreign laws or regulations or customer policies, we could be subject to civil or criminal claims or proceedings that may result in monetary fines, penalties or other costs against us or our employees, which may adversely affect our operating results, financial condition, customer relations and ability to conduct our business.

Tariffs and other market barriers have impacted and may continue to impact our competitiveness with non-U.S.

Tariffs, export regulations and other market barriers have impacted and may continue to impact our ability to compete for the business of non-U.S.

customers, which may adversely affect our results of operations.

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Department of Commerce imposed new export controls on the transfer of many U.S.

products and technologies, including many commercial-grade electronics, to “military end users” or for “military end use” in

China, which may include many Chinese commercial companies that sell products to or do business with the Chinese military.

products and technologies, including many commercial-grade electronics, to “military end users” or for “military end use” in China, which may include many Chinese commercial companies that sell products to or do business with the Chinese military.

Likewise, since May 2019, the U.S.

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software or technology, to Huawei Technologies Co., Ltd., and a large number of its overseas affiliates, including HiSilicon, followed by a comparable action in December of 2020, related to Semiconductor Manufacturing International Corporation (SMIC) and a large number of its overseas affiliates, including Ningbo Semiconductor International Corporation (NSIC) and SJ Semiconductor (Jiangyin) Corporation.

It is possible that the U.S.

government will impose additional export controls on our products or systems, which could lead to further revenue losses.

The effect of these changes, among others, is that U.S.

companies are now required to obtain export licenses before providing commodities, software, and technology that are subject to the regulations to customers for whom licensing requirements did not previously apply.

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

competitors who are not required to comply with U.S.

export controls.

This difficulty and uncertainty has adversely affected our ability to compete for and win business from domestic customers in China.

Foreign customers affected by these and any future U.S.

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

Further, we hold inventory of products that may be affected by the recent U.S.

Most recently, on October 7, 2022, BIS announced the New Export Controls aimed at restricting China’s access to advanced computing technology.

The effect of these changes, among others, is that Onto Innovation is required to obtain export licenses before providing products to certain customers.

While we are taking appropriate measures to comply with all current export control laws and regulations applicable to our business and are applying for export licenses when required, there can be no assurance that export licenses applied for by us or our customers, will be granted in a timely manner or at all.

We may experience a temporary loss of revenues while we are obtaining licenses with certain customers affected by export controls.

Failure to obtain any required license could result in a reduction of anticipated revenues until we are able to replace unlicensed orders with other customer orders for which a license has been obtained or is not required, and there can be no assurance that replacement orders will be obtained on favorable terms, in a timely manner, or at all.

In addition, any licenses that are granted to us or to our customers may have a short duration or require us to satisfy various conditions.

Any of these occurrences could have a material adverse effect on our revenues, business, financial condition and results of operations.

Further, we hold inventory of products that may be affected by these recent U.S.

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.

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.

competitors who may not be required to comply with U.S.

export controls.

This difficulty and uncertainty has adversely affected our ability to compete for and win business from domestic customers in China.

It is possible that the U.S.

government will impose additional export controls on our products or systems, which could lead to further revenue losses.

Foreign customers affected by the actions described above and any 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’ products.

government is also engaged in an ongoing process of assessing which “emerging and foundational technologies” warrant new or additional controls, which could subject additional U.S.-origin products and services to more stringent export restrictions.

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technology, in turn reducing demand for our products, which could have a material adverse effect on our business, financial condition and results of operations.

Increased restrictions on China exports may also lead to regulatory retaliation by the Chinese government and could further escalate geopolitical tensions between China and Taiwan, and any such scenarios may adversely impact our

International trade disputes could result in increases in tariffs and other trade restrictions and protectionist measures that could adversely impact our operations and reduce the competitiveness of our products relative to local and global competitors.

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However, if the Russia-Ukraine conflict escalates and/or the U.S.

and other jurisdictions impose additional sanctions on Russia and its supporters, there could be a disruption to the global economy and/or

supply chains that could adversely affect our business.

and other jurisdictions impose additional sanctions on Russia and its supporters, there could be a disruption to the global economy and/or supply chains that could adversely affect our business.

For example, components used in certain of our products use raw materials that are sourced from Russia and Ukraine;

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A substantial portion of our international sales are denominated in U.S.

As a result, if the dollar rises in value in relation to foreign currencies, our systems will become more expensive to customers outside the United States and less competitive with systems produced by competitors outside the United States.

As a result, if the dollar continues to rise in value in relation to foreign currencies, our systems will become more expensive to customers outside the United States and may be less competitive with systems produced by competitors outside the United States.

These conditions could negatively impact our international sales.

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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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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 1. Legal Proceedings