What changed in this filing

/stocks — the workspaceLOADING

Item 1. Business

2020-10-22 compared with 2019-11-06 · 268 added, 159 removed, 1124 unchanged (28% of the section changed)

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The relationship also provides our supplier with access to that market through our in-country infrastructure and capabilities.

We have continued to build upon our business in Brazil by adding our battery assembly capability to address the local smartphone market.

In order to diversify and grow our business, we acquired Penguin Computing, Inc., or Penguin Computing, in June 2018, and created our Specialty Compute and Storage Solutions, or SCSS, product group.

As a result, we have expanded our serviceable markets into areas requiring specialized computing platforms in artificial intelligence, or AI, machine learning, or ML, advanced modeling and high performance computing, or HPC.

In our Specialty Compute and Storage Solutions, or SCSS, product group, we have expanded our serviceable markets into areas requiring specialized computing platforms in artificial intelligence, or AI, machine learning, or ML, advanced modeling and high performance computing, or HPC.

Penguin Computing provides solutions to Tier 1 and a broad base of secondary customers in the financial services, energy, government, social media and education markets.

Additionally, in July 2019, we expanded our SCSS product line to include embedded computing products through the acquisitions of Artesyn Embedded Computing, Inc., or AEC, and Inforce Computing, Inc., or Inforce.

AEC is a global leader in the design and manufacture of standard and custom products providing highly reliable embedded computing solutions for a broad range of defense, industrial, telecommunications infrastructure and network edge computing, and transportation customers for over 35 years.

Inforce is a leading system-on-module, or SOM, and single board computer, or SBC, supplier targeting a wide range of IoT endpoint applications across the industrial, digital health, smart city, and smart office markets.

We expanded SCSS in July 2019 to include embedded and wireless computing products through the acquisitions of Artesyn Embedded Computing, Inc., or AEC, and Inforce Computing, Inc., or Inforce.

The AEC acquisition brought more than 30 years of experience with the design and manufacturing of standard and custom embedded computing products specializing in highly reliable, long life solutions for a range of customers in defense, telecommunications, network edge and industrial applications.

Inforce is a leading system-on-module, or SOM;

single board computer, or SBC;

supplier supporting leading customers in IoT endpoint applications across industrial, digital health and smart city/building markets.

After completion of these acquisitions, we changed the name of AEC to SMART Embedded Computing, Inc., or SMART EC, and changed the name of Inforce to SMART Wireless Computing, Inc., or SMART Wireless.

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We collaborate closely with our global OEM customers throughout their design process and across multiple projects to create solutions for demanding applications with differentiated requirements, such as specific form factors, higher density, lower power, specific firmware or greater durability and reliability compared to standard solutions.

We target opportunities where we believe we can be a primary supplier of longer-lifecycle solutions to OEM customers for diverse and growing end markets within the industrial, defense, networking and communications, and enterprise storage and computing markets as well as other vertical markets.

We target opportunities where we believe we can be a primary supplier of longer-lifecycle solutions to OEM customers for diverse and growing end markets within the industrial, defense, networking and

communications, and enterprise storage and computing markets as well as other vertical markets.

In this business, we offer an extensive portfolio of over 2,000 products available in standard and rugged formats.

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These technologies are incorporated into enterprise memory and hybrid memory solutions in standard and rugged formats.

These modules encompass a broad range of form factors and functions, including dual in-line memory modules, or DIMMs, nonvolatile DIMMs, load reducing DIMMs, registered DIMMs, unbuffered DIMMs, small outline dual in-line memory modules, and mini-DIMMs and XR-DIMMs for industrial and defense, networking and communications, enterprise storage and computing, and other vertical markets .

These modules encompass a broad range of form factors and functions, including dual in-line memory modules, or DIMMs, nonvolatile DIMMs, load reduced DIMMs, registered DIMMs, unbuffered DIMMs, small outline dual in-line memory modules, and mini-DIMMs and XR-DIMMs for industrial and defense, networking and communications, enterprise storage and computing, and other vertical markets.

These memory modules come in configurations of up to 288 pins and densities of up to 128 gigabytes.

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Our wide range of Flash memory products includes Serial Advanced Technology Attachment, or SATA, and PCIe NVMe products in 2.5” enclosures, M.2 and other module form factors.

We also offer Flash component products such as embedded multimedia controllers, or eMMC, and embedded and removal products in USB, CompactFlash and SD/microSD Card configurations.

We also offer Flash component products such as embedded MultiMediaCard, or eMMC, and embedded and removal products in USB, CompactFlash and SD/microSD Card configurations.

Our Flash capabilities include application-specific and customized firmware development.

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The expanded product offering includes mobile or low power DRAM, eMMC products, and embedded multi-chip package, or eMCP products for smartphones.

We also have continued to build upon our success in Brazil by adding our battery assembly capabilities and we are now expanding our manufacturing to include products for the IoT market.

We also have continued to build upon our success and are now expanding to include products for the IoT market.

Specialty Compute and Storage Solutions

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We also provide turn-key storage solutions that provide power and flexibility with hardware optimized for software-defined storage based upon our Frostbyte™ storage platform.

Our rackmount servers and GPU accelerated computing platforms give customers powerful tools to implement their AI and ML advanced modeling and high performance computing applications.

Our rackmount servers and GPU

accelerated computing platforms give customers powerful tools to implement their AI and ML advanced modeling and high performance computing applications.

Complementing our compute, storage and networking hardware solutions is our Scyld Software line of cloud and cluster management software.

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In addition, they enable customers to provide their own HPC cloud with remote access via our proprietary Cloud Workstation browser-based solution.

Our SMART E C products, which are now part of SCSS, provide advanced computing solutions and low profile embedded computing solutions.

Building on its long heritage, SMART E C is a well- recognized , leading provider of advanced computing solutions and professional services.

Our SMART EC products, which are now part of SCSS, provide advanced computing solutions and low profile embedded computing solutions.

Building on its long heritage, SMART EC is a well-recognized, leading provider of advanced computing solutions and professional services.

Our high-end advanced computing system solutions include application-ready platforms, SBCs, enclosures, blades, enabling software, edge servers and network accelerator cards.

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These manufacturing facilities have been ISO 9001:2015, ISO 14001:2015 and ISO 45001:2018 certified.

We also have manufacturing and integration facilities in Fremont, California where assembly and test of our Penguin Computing products is done.

We also have a test and integration facility in Tempe, Arizona for SMART EC and other products as well as a manufacturing and integration facility in Fremont, California where assembly and test of our Penguin Computing products is done.

Additionally, we are a member of the Responsible Business Alliance, or RBA, and our manufacturing facilities are compliant with the RBA Code of Conduct which is increasingly a business requirement of our customers.

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At Penguin Computing, we have developed capabilities for design and development of large scale systems and dense HPC clusters that have significant power requirements with manufacturing and test for our HPC products being done in Fremont, California.

At SMART EC and SMART Wireless, we have developed capabilities for design and development of a wide range of embedded and wireless

computing products which we assemble or manufacture in our manufacturing facilities in Tempe, Arizona, Newark California and Penang, Malaysia.

Product testing is an important aspect of our manufacturing operations and we believe that we have established substantial technical expertise in the testing of products for high-end applications.

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Of our end customers, Samsung Electronics Co., Ltd., or Samsung, (for whom all sales are direct sales) accounted for 17%, 18% and 34% of net sales in fiscal 2020, 2019 and 2018, respectively;

Nutanix, Inc., or Nutanix, accounted for 11% of net sales in fiscal 2020;

Cisco Systems, Inc., or Cisco, accounted for 11% and 12% of net sales in fiscal 2019 and 2018, respectively;

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Direct sales to Flex accounted for 14%, 17% and 13% of net sales in fiscal 2020, 2019 and 2018, respectively.

and direct sales to Hon Hai accounted for 13% of net sales in fiscal 2017.

During these periods, no other customers accounted for more than 10% of our net sales.

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To address the needs of our customers, we have developed and maintained relationships with leading semiconductor suppliers located in Asia, Europe and the Americas.

Our semiconductor suppliers include many of the world’s largest memory manufacturers including Samsung Semiconductor, Inc., or Samsung, Micron Technology, Inc., or Micron, SK Hynix, Inc., or SK Hynix, and Toshiba Corporation, or Toshiba.

They also include some of the world’s largest providers of computing, communications and graphics processers including Intel Corporation, or Intel,, Advanced Micro Devices, Inc., or AMD, Nvidia Corporation, or Nvidia and Qualcomm Incorporated, or Qualcomm;

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We primarily sell our products directly to global OEMs, enterprise, government and other end customers located across North America, Latin America, Asia and Europe.

Our sales and marketing efforts are conducted through an integrated process incorporating our direct sales force, customer service representatives and our on-site field application engineers, or FAEs, with a network of independent sales representatives, distributors, integrators and resellers.

Our sales and marketing efforts are conducted through an integrated process incorporating our direct sales force, e-commerce, customer service representatives and our on-site field application engineers, or FAEs, with a network of independent sales representatives, distributors, integrators and resellers.

Our sales and marketing efforts also include a high level of involvement from our senior executives.

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The combination of our integrated sales network with our FAEs enables us to be more responsive and successful in navigating through each customer’s unique and oftentimes complex design qualification or bid proposal processes.

Our marketing activities include advertising in technical journals, publishing articles in leading industry periodicals, social media, periodic webinars, publishing white papers and utilizing direct email solicitation.

In addition to these marketing activities, we also participate in many industry trade shows worldwide.

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Our research and development activities are focused on driving innovation in our products as well as continuous process improvement for our procurement, test and manufacturing.

Our product development in specialty memory and Brazil includes innovations for next generation DRAM products, mobile DRAM, hybrid memories such as hybrid volatile and non-volatile DRAM or NVDIMM, enterprise memory, many Flash-based products, such as eMMC and eMCP, and new battery assembly technologies.

Our research and product development for Penguin Computing includes server selection and design, designs to enable integration of racks and clusters, storage system design and evaluation, high performance network design, component testing for switches, cables and interface devices, and development of software defined storage systems.

research and product development for Penguin Computing includes server selection and design, design s to enable integration of racks and clusters, storage system design and evaluation, high performance network desi gn, component testing for switches, cables and interface devices, and development of software defined storage systems.

Our product development for SMART EC and SMART Wireless includes embedded computer boards and systems .

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We continue to develop a broad offering of Flash-based products targeting the industrial, defense, communications, and enterprise storage and compute markets.

In order to enhance our efforts to develop innovative Flash products, we continue to increase our engineering resources significantly, including in our research and development center in New Taipei City, where our engineering team is dedicated to firmware development, systems engineering and integration, system and platform validation and applications, and product and reliability engineering for new Flash memory products.

In addition, in order to take advantage of local regulations and government incentive programs for the growing mobile memory market in Brazil, we have invested substantial financial and management resources to expand our Brazilian research and development capabilities to enable us to develop a broad offering of Flash-based products for the local market.

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In Brazil, local manufacturers of DRAM modules and Flash products and local manufacturers of memory ICs, including HT Micron Semicondutores Ltda., or HT Micron, Adata Integration S/A, or Adata, Multilaser Indústria de Equipamentos de Informática Eletrônicos e Ópticos Ltda., or Multilaser, Cal-Comp Indústria de Semicondutores S/A, or Cal-Comp;

Semiconductor memory IC manufacturers that also manufacture DRAM modules and Flash products, including Samsung, Micron, Western Digital Corporation, or Western Digital, SK Hynix, and Toshiba;

Semiconductor memory IC manufacturers that also manufacture DRAM modules and Flash products, including Samsung, Micron, Western Digital Corporation, or Western Digital, Intel, SK Hynix, and Kioxia (formerly Toshiba);

In our supply chain services business, a broad set of companies, including distributors and third party logistics providers as well as our customers’ in-house solutions;

Providers of compute and storage systems, including HPE, Dell, Cray Computer Corporation, or Cray (recently announced to be acquired by HPE);

Providers of compute and storage systems, including HPE and Dell;

Semiconductor and subsystem manufacturers including Intel, NVIDIA, GigaByte, Quanta Services, Inc., or Quanta, Synnex Corporation, or Synnex, and Super Micro Computer, Inc., or Super Micro;

Providers of embedded computing platforms and systems including ADLink, Advantech, Kontron, Curtis Wright, and Mercury Systems;

Providers of system-on-modules and single board computers including Intrynsic, Thundercomm, and Toradex.

Providers of system-on-modules and single board computers including Lantronix, Intrynsic, Thundercomm, eInfochips and Toradex.

Some of our global competitors are large international companies that have substantially greater financial, technical, marketing, distribution and other resources, as well as greater name recognition and longer-standing relationships with customers and suppliers than we do.

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In Brazil, other than the large, global semiconductor manufacturers, our competitors are generally much smaller in scale than we are in terms of revenue and capabilities for manufacturing and for research and development.

To a lesser degree, we compete with companies that import DRAM and Flash components and products as well as battery products.

To a lesser degree, we compete with companies that import DRAM and Flash components and products.

Intellectual Property

We rely on a combination of trade secrets, know-how, trademarks, copyright and, to a lesser extent, patents to protect our intellectual property rights.

As of October 18, 2019, we have 155 issued patents, including 115 patents issued in the United States, 36 patents issued in China, one patent issued in Brazil and 3 patents issued in South Korea, expiring between 2019 and 2037, excluding any additional patent term for patent term adjustments.

As of October 2, 2020, we have 153 issued patents, including 110 patents issued in the United States, 38 patents issued in China, 2 patents issued in Brazil and 3 patents issued in South Korea, expiring between 2022 and 2038, excluding any additional patent term for patent term adjustments.

In addition, we have 30 patent applications pending, including 11 patent applications in the United States, 5 patent applications in China, 6 patent applications in Brazil, 7 patent applications in Malaysia and 1 patent application in Argentina.

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These requirements have been important in the development of numerous industries in Brazil, including automotive, oil and gas, aerospace and healthcare.

Beginning in 1991, local manufacturing regulation was introduced to vitalize Brazil’s IT industry as government programs began to be implemented to incentivize manufacturers to establish and expand their operations in Brazil and to incentivize OEMs to apply and utilize locally manufactured components for their products.

Beginning in 1991, local manufacturing regulations were introduced to vitalize Brazil’s IT industry as government programs began to be implemented to incentivize manufacturers to establish and expand their operations in Brazil and to incentivize OEMs to apply and utilize locally manufactured components for their products.

We have participated in three government investment incentive programs.

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These tax benefits are a strong incentive for OEMs to purchase products from local manufacturers such as our Brazilian subsidiaries.

The PPB/IT Program requirements for locally sourced memory components from calendar years 2008 through June 30, 2019 were enacted through several ordinances portions of which are set forth below.

The PPB/IT Program requirements for locally sourced memory components from calendar years 2008 through August 2020 were enacted through several ordinances portions of which are set forth below.

Lei do Bem, 2005 :

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Furthermore, combining PADIS with PPB/IT Program-compliance can provide additional financial incentives to OEMs that apply or utilize memory components that are locally processed from wafers.

PPB/IT Program Requirements for PC

and Server Memory (1)

Below is a table that sets forth the historical local manufacturing requirements that were in effect as of August 2020.

PPB/IT Program Requirements for PC and Server Memory (1)

Notebook DRAM IC Packaging

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Server DRAM IC Packaging

PPB/IT Program Requirements for

Mobile Memory (1)

PPB/IT Program Requirements for Mobile Memory (1)

Notebook SSD IC Package

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Brazilian Ministry of Science, Technology and Innovation, Interministerial Ordinances 287/2014, 85/2014, 239/2016, 179/2016, 141/2015, 263/2014, 14/2016, 21/2017, 41/2017, 52/2017, 03/2018, 20/2018, 44/2018 and 52/2018.

As the leading local manufacturer , as measured by market share, of desktop, notebook and server DRAM modules a nd DRAM components as well as DRAM and Flash mobile memory products in Brazil, we have benefited from these requirements and incentives.

As the leading local manufacturer, as measured by market share, of desktop, notebook and server DRAM modules and DRAM components as well as DRAM and Flash mobile memory products in Brazil, we have benefited from these requirements and incentives.

In 2013, the European Union, or EU, later joined by Japan, requested the establishment of a panel within the World Trade Organization, or WTO, to determine whether the structure of certain programs enacted by the Brazilian government concerning incentives and local content requirements for the automotive and several other industries (including the IT industry and including portions of Lei do Bem that do not relate to our business, as well as PADIS and the PPB/IT Program), were inconsistent with WTO rules.

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Our manufacturing processes related to memory products are a valuable part of the electronics manufacturing chain and, as such, are expected to provide our customers the opportunity to accomplish a significant number of the overall points required if they purchase products manufactured by us in Brazil.

While we believe that this score-based system will continue to incentivize our Brazilian customers to purchase products from us in Brazil, there can be no assurance that the replacement programs will ultimately be structured and implemented in a way that will provide the same or a similar level of support and benefit for our customers and our business as was previously in place.

As part of making the local regulation compatible with the WTO principles, the government of Brazil also enacted a new law that provides for changes in the mechanism of incentives granted to the IT sector that impacts SMART Brazil and SMART do Brazil as well as their customers.

Effective April 1, 2020, the reduction of the IPI for PPB/IT Program was eliminated for certain types of customers along with, for PADIS companies, the zero rates of IPI, PIS and COFINS levied on sales .

Instead, participants in the PPB/IT Program as well as PADIS companies, are entitled to a subsidy of operational costs in the form of financial credits calculated based on effective disbursements made on research and development initiatives under the aforesaid programs.

These financial credits may be used by participants either as a credit against certain federal taxes, or to request a refund in cash.

PADIS beneficiaries are entitled t o financial credits equivalent to 2.62 times the effective disbursements on research and development initiatives under PADIS, limited to a cap of 1 3.1% of the total incentivized revenues within the country.

The financial credits under the PPB/IT Program range from 2.73 to 3.41 times the research and development invest ment , limited to 10.92% to 13.65% of domestic gross sales revenues, depending on the location of the participant and on what products it manufactures and sells .

These multipliers and caps decline over time.

Under the current law the financial credits are available for PADIS companies through January 2022 and for other PPB/IT Program participants through December 2029.

Notwithstanding the legislative changes that took effect in April 2020, IPI on sales to OEM and contract manufacturing customers are still suspended under the PPB/IT Program.

Such sales to OEM and contract manufacturing customers are also not subject to the research and development investment requirements and therefore not eligible for financial credits .

While we believe that the score-based system will continue to incentivize our Brazilian customers to purchase products from us in Brazil, there can be no assurance that the replacement programs will ultimately be structured and implemented in a way that will provide the same or a similar level of support and benefit for our customers and our business as was previously in place.

There can also be no assurance that the WTO, the EU and Japan will agree that this new program structure is compliant with the WTO agreements.

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Our telephone number at this address is (510) 623-1231.

Our principal website is http://www.smartm.com.

Our principal website is http://www.smartgh.com .

The information contained on, or that can be accessed through, our website is not a part of this Annual Report.

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Risks Relating to Our Business

We face risks related to the novel coronavirus (COVID-19) as well as other pandemics, which could significantly disrupt our operations, including our manufacturing, research and development, and sales and marketing activities, and which could have a material adverse impact on our business, financial condition, operating results and cash flows.

The outbreak of coronavirus disease 2019 (“COVID-19”) has resulted in millions of infections and over one million deaths worldwide, as of the date of filing of this Annual Report, and continues to spread in the United States, Asia, Europe and Brazil, the major markets in which we operate.

The COVID-19 pandemic has resulted in significant governmental measures being implemented to control the spread of the virus, and our operations as well as the operations of our suppliers, customers and third-party sales representatives and distributors have been and will continue to be disrupted by varying individual and governmental responses to COVID-19 around the world such as business shutdowns, stay-at-home directives, travel restrictions, border closures, and other travel or health-related restrictions as well as by absenteeism, quarantines, self-isolations, office and factory closures, delays on deliveries, and disruptions to ports and other freight infrastructure.

These restrictions have caused consumers and businesses to reduce their activities and their spending, have caused a slowdown in the global economy and have had, and may continue to have, a negative impact on our sales and marketing, and our product development activities.

While we have not yet experienced a significant disruption of our operations as a result of the COVID-19 pandemic, the pandemic has resulted in reduced sales volumes of certain product lines within our SCSS business in the second half of fiscal 2020 and if these conditions continue, or if we have an outbreak in any of our facilities, such reduced sales volumes may continue or worsen and we may, among other issues, experience, in any or all product lines, delays in product development, a decreased ability to support our customers, disruptions in sales and manufacturing activities and overall reduced productivity each of which could have a negative impact on our ability to meet customer commitments and on our revenue and profitability.

Similarly, while we have not yet experienced a major disruption in our supply chain as a result of the COVID-19 pandemic, if there is a significant outbreak or if travel restrictions or stay-at-home or work remote or from home conditions or other governmental or voluntary restrictions relating to the COVID-19 pandemic significantly impact our suppliers’ ability to manufacture or deliver raw materials or provide key components or services, we could experience delays or reductions in our ability to manufacture and ship products to our customers.

The pandemic may also impact the demand for our customers’ products or our customers’ ability to manufacture their products, which could reduce their demand for our products or services.

While we do not know and cannot quantify specific impacts, we expect we may be negatively affected if we encounter manufacturing or supply chain problems, reductions in demand due to disruptions in the operations of our customers or their end customers, disruptions in local and global economies, volatility in the global financial markets, overall reductions in demand, restrictions on the export or shipment of our products or other COVID-19 ramifications.

The impact of the effects of COVID-19 on our business may worsen in the future.

We source our materials from different parts of the world that have been affected by the virus and if the impacts of the pandemic worsen in any of these geographies, it could have an adverse impact on our supply chain and our ability to get the materials we need to build our products.

Government shutdown orders or stay-at-home directives or individual decisions to reduce work and commercial activities, or an outbreak among or quarantine of the employees in any of our facilities, could cause significant interruptions to, or temporary closures of our operations.

Since a large percentage of our production is done in a small number of facilities, a disruption to operations in any one facility could have a material impact on our business.

In addition, COVID-19 has in the short- term , and , together with other disease outbreaks, may over the longer term, adversely affect the economies and financial markets within many countries and regions, including in the United States, Brazil, Asia and Europe, which are the primary geographic areas in which we conduct business , resulting in a significant economic downturn .

Moreover, to the extent the COVID-19 pandemic or any worsening of the global business and economic environment as a result thereof, continues to adversely affect our business and financial results, it may also have the effect of heightening or exacerbating many of the other risks described in these Risk Factors, such as those relating to factors affecting fluctuations in our operating results from quarter to quarter, worldwide economic and political conditions, changes in the political or economic environments in Brazil, Malaysia or other international geographies in which we do business, reliance on a limited number of customers for a significant portion of our net sales, inventory write-downs or write-offs, our dependence on a small number of sole or limited source suppliers, our ability to maintain manufacturing efficiency, disruption of our operations at our manufacturing facilities, our reliance on third-party sales representatives to assist in selling our products, risks generally associated with international business operations, risks related to foreign currency exchange rates, our high level of indebtedness, including our need to generate sufficient cash flows to service our indebtedness and our ability to comply with the covenants contained in the agreements that govern our indebtedness and our ability raise additional funds when and as needed.

There can be no assurance that decreases in sales resulting from the wide-ranging effects of COVID-19 will be offset by increased sales in subsequent periods.

We are unable to accurately predict the impact that COVID-19 will have on future periods due to various uncertainties and future developments, including the ultimate geographic spread of the virus, the severity of the disease, the duration of the outbreak, the occurrence of other epidemics, the imposition of related public health measures and travel and business restrictions or other actions that may be taken by governmental authorities in an effort to contain or treat the virus, all of which, together with the disruptions and other factors discussed above could have a material adverse effect on our customer relationships, operating results, cash flows, financial condition and have a negative impact on our stock price.

Our operating results have fluctuated in the past and may fluctuate from quarter to quarter in the future, which makes them difficult to predict.

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Our operating results in any given quarter can be influenced by numerous factors, many of which we are unable to predict or are outside of our control, including:

the adverse effects of COVID-19 on economic conditions and on our business;

interruptions in supply or operations as a result of COVID-19 outbreaks or preventative measures taken by governments or businesses to slow such outbreaks or spreads;

the cyclical nature of the markets in which we compete;

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For example, in fiscal 2020, we had a net loss of $1.1 million.

Our ability to maintain profitability depends in part on revenue growth from, among other things, increased demand for our memory solutions, products and related service offerings in our current markets including Brazil, growth in our SCSS business unit including the newly acquired companies SMART EC and SMART Wireless, as well as our ability to expand into new markets.

Our ability to maintain profitability depends in part on revenue growth from, among other things, increased demand for our memory solutions, products and related service offerings in our current markets including Brazil, growth in our SCSS business unit including the recently acquired companies SMART EC and SMART Wireless, as well as our ability to expand into new markets.

We may not be successful in achieving the revenue and revenue growth necessary to maintain profitability.

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These downturns have been characterized by diminished product demand, production overcapacity, high inventory levels and accelerated erosion of selling prices and inventory values.

Our industry depends on the continued growth of the electronics industry and on end-user demand for our customers’ products.

Our business depends on the continued growth of the electronics industry and on end-user demand for our customers’ products.

Economic downturns often have had an adverse effect upon manufacturers and end-users of electronics products.

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Additionally, due to changing conditions, our customers have experienced and may in the future experience periods of excess inventory that could have a significant adverse impact on our sales.

During an industry downturn, there is also a higher risk that some of our trade receivables become delinquent or even uncollectible and that our inventory would decrease in value.

During a downturn in any of the markets that we serve, there is also a higher risk that some of our trade receivables become delinquent or even uncollectible and that our inventory would decrease in value.

We cannot predict the timing or the severity of the cycles within our industry.

In particular, it is difficult to predict how long and to what levels any industry upturn or downturn, or general economic strength or weakness, will last or develop.

Our OEM customers primarily serve end users in the industrial, networking and communications, storage and computing, mobile products, defense, financial services, energy, social media, education, network edge computing, transportation, and IoT endpoint applications markets.

We, as well as our OEM customers, primarily serve end users in the industrial, networking and communications, storage and computing, mobile products, defense, financial services, energy, social media, education, network edge computing, transportation, and IoT endpoint applications markets.

Sales of our products are dependent upon demand in these markets.

From time to time, each of these markets has experienced cyclical downturns, often in connection with, or in anticipation of, declines in general economic conditions, and we may experience substantial period-to-period fluctuations in our operating results due to factors affecting these markets.

From time to time, each of these markets has experienced cyclical downturns, often in connection with, or in anticipation of, declines in general economic conditions, and we may

experience substantial period-to-period fluctuations in our operating results due to factors affecting these markets.

Changes in end-user demand for our customers’ products and services could have a material adverse effect on demand for our products and services, particularly if the customer has accumulated excess inventories of products purchased from us or from competitors selling similar products.

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During periods of overcapacity, our net sales may decline if we fail to increase sales volume of existing products or to introduce and sell new products in quantities sufficient to offset declines in selling prices.

Our efforts to increase sales or to introduce new products to offset the impact of

declines in average selling prices may not be successful.

Our efforts to increase sales or to introduce new products to offset the impact of declines in average selling prices may not be successful.

Furthermore, our competitors and customers also impose significant pricing pressures on us.

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market acceptance of our products.

If demand for our products decreases, our manufacturing or assembly and test capacity could be underutilized, and we may be required to record an impairment on our long-lived assets, including facilities and equipment, as well as intangible assets, which would increase our expenses.

as intangible assets, which would increase our expenses.

In addition, if product demand decreases or we fail to forecast demand accurately, we could be required to write-off inventory or record underutilization charges, which would have a negative impact on our profitability.

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Changes in U.S.

trade policies, including the imposition of tariffs and a potential resulting trade war, could have a material adverse impact on our business.

trade policies, including the imposition of tariffs and a potential resulting or expanded trade war, could have a material adverse impact on our business.

We source materials from and sell products in foreign countries, including China, making the price and availability of our merchandise susceptible to international trade risks and other international conditions.

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Our price increases may not be sufficient to fully offset the impact of the tariffs and result in lowering our margin on products sold.

In addition, the current U.S.

administration has indicated that it may withdraw the U.S.

from the North American Free Trade

Agreement (“NAFTA”) in order to encourage the U.S.

Congress to vote on the ratification of the United States-Mexico-Canada Agreement (“USMCA”) which was signed in 2018 and which is intended to be the successor to NAFTA.

government increases or implements additional tariffs, withdraws from NAFTA, the ratification and implementation of the USMCA is not completed promptly and effectively, or if additional tariffs or trade restrictions are implemented by the U.S.

or other countries, the resulting trade barriers could have a significant adverse impact on our suppliers, our customers and on our business.

government increases or implements additional tariffs, or if additional tariffs or trade restrictions are implemented by other countries, the resulting trade barriers could have a significant adverse impact on our suppliers, our customers and on our business.

We are not able to predict future trade policy of the U.S.

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In fiscal 2020, 2019 and 2018, sales to our ten largest end customers (including sales to contract manufacturers or ODMs at the direction of such end customers) accounted for 66%, 73% and 84% of net sales, respectively.

Of our end customers, Samsung (for whom all sales are direct sales) accounted for 18%, 34% and 19% of net sales in fiscal 2019, 2018 and 2017, respectively;

Cisco accounted for 11%, 12% and 15% of net sales in fiscal 2019, 2018 and 2017, respectively;

Lenovo accounted for 13%, 11% and 11% of net sales in fiscal 2019, 2018 and 2017, respectively;

and Dell accounted for 10% of net sales in fiscal 2018.

Of our end customers, Samsung Electronics Co., Ltd., or Samsung, (for whom all sales are direct sales) accounted for 17%, 18% and 34% of net sales in fiscal 2020, 2019 and 2018, respectively;

Nutanix, Inc., or Nutanix, accounted for 11% of net sales in fiscal 2020;

Cisco Systems, Inc., or Cisco, accounted for 11% and 12% of net sales in fiscal 2019 and 2018, respectively;

Lenovo Group Limited, or Lenovo, accounted for 13% and 11% of net sales in fiscal 2019 and 2018, respectively;

and Dell Technologies Inc., or Dell, accounted for 10% of net sales in fiscal 2018.

Direct sales to Flex accounted for 14%, 17% and 13% of net sales in fiscal 2020, 2019 and 2018, respectively.

and direct sales to Hon Hai accounted for 13% of net sales in fiscal 2017.

While Samsung is a significant customer of ours, purchasing eMCPs from us in their smartphone division and DRAM modules from us in their PC division, Samsung’s semiconductor division is also a major supplier and a competitor.

See “Risk Factors—Risks Relating to Our Business—Our dependence on a small number of sole or limited source suppliers subjects us to certain risks, including the risk that we may be unable to obtain adequate supplies at a reasonable price and in a timely manner” and “—The memory market is intensely competitive, and we may not be able to maintain or improve our competitive position.”

While Samsung is a significant customer of ours, purchasing embedded multichip packages, or eMCP, products from us in their smartphone division and DRAM modules from us in their PC division, Samsung’s semiconductor division is also a major supplier and a competitor.

See “Risk Factors—Risks Relating to Our Business— Our dependence on a small number of sole or limited source suppliers subjects us to certain risks, including the risk that we may be unable to obtain adequate supplies at reasonable prices and in a timely manner” and “—The markets we serve are intensely competitive, and we may not be able to maintain or improve our competitive position.”

We expect that sales to relatively few customers will continue to account for a significant percentage of our net sales for the foreseeable future.

However, we can provide no assurance that any of these customers or any of our other customers will continue to utilize our products or our services at current levels, or at all.

Although we have master agreements with one or more key customers, these agreements govern the terms and conditions of the relationship and do not contain requirements for them to purchase minimum volumes.

Although we have master agreements with some of our customers, these agreements govern the terms and conditions of the relationship and do not contain requirements for them to purchase minimum volumes.

Our customer concentration may also subject us to perceived or actual bargaining leverage that our key customers may have, given their relative size and importance to us.

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In Brazil, we compete against local manufacturers of DRAM modules and local manufacturers of memory ICs, including HT Micron, Adata, Cal Comp and Multilaser.

We compete globally against semiconductor memory IC manufacturers that also manufacture DRAM ICs and modules and Flash products, including Samsung, Micron, Western Digital, SK Hynix and Toshiba.

We compete globally against semiconductor memory IC manufacturers that also manufacture DRAM ICs and modules and Flash products, including Samsung, Micron, Western Digital, Intel, SK Hynix and Kioxia (formerly known as Toshiba).

While these companies generally focus on higher volume commodity products, they sometimes compete with some of our specialty memory products.

In addition to competing with certain portions of our product offering, Samsung is also a major supplier and a significant customer.

In addition to competing with certain portions of our product offerings, Samsung is also a major supplier and a significant customer.

See “Risk Factors—Risks Relating to Our Business—Sales to a limited number of customers represents a significant portion of our net sales, and the loss of any key customer or key program, or the demands of our key customers, could materially harm our business, results of operations and financial condition” and “—Our dependence on a small number of sole or limited source suppliers subjects us to certain risks, including the risk that we may be unable to obtain adequate supplies at a reasonable price and in a timely manner.”

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Through imports of DRAM components and modules and Flash products, we face some of the same competitors in Brazil as we do elsewhere.

We also face competition from local manufacturers of DRAM modules and Flash products, and expect to face more competition in the future from local semiconductor packaging companies, such as Adata Integration Brazil S/A, which began production of its new packaging plant in Brazil in the first half of calendar year 2017.

We believe that import duties and local content requirements in Brazil give us an advantage over companies that import DRAM modules or Flash products or import memory components;

however, that competitive advantage may become less significant in the event that competitors build manufacturing facilities in Brazil or local content regulations change or are eliminated.

We also face competition from local manufacturers of DRAM modules and Flash products, and expect to face more competition in the future from local semiconductor packaging companies, such as HT Micron Semiconductors S/A and Adata Integration Brazil S/A, which began production of new packagings plants in Brazil in the first half of calendar years 2014 and 2017, respectively.

We believe that import duties and local manufacturing requirements in Brazil give us an advantage over companies that import DRAM modules or Flash products or import memory components into Brazil;

however, that competitive advantage may become less significant in the event that competitors build manufacturing facilities in Brazil or local manufacturing regulations change or are eliminated.

As the local market grows, competition may increase in Brazil.

In our Penguin Computing business, we compete with HPE, Dell, Cray (recently announced to be acquired by HPE), and other smaller companies manufacturing computing components and products.

We also compete with the direct to customer efforts from several of our large partners including Intel Corporation, or Intel, Quanta Services, Inc., or Quanta, Synnex Corporation, or Synnex, and Super Micro Computer, Inc., or Super Micro.

In our SMART EC products we compete with providers of embedded computing platforms and systems including ADLink, Advantech, Kontron, Curtis Wright, and Mercury Systems.

In our SMART Wireless products we compete with providers of SOMs and SBCs including Intrynsic, Thundercomm, and Toradex.

In our Penguin Computing business, we compete with HPE, Dell, Cray (recently acquired by HPE), and other smaller companies manufacturing computing components and products.

We also compete with the direct to customer efforts from several of our large partners including Intel Corporation, or Intel, NVIDIA Corporation, or NVIDIA, GigaByte, Quanta Services, Inc., or Quanta, Synnex Corporation, or Synnex, and Super Micro Computer, Inc., or Super Micro.

In our SMART E C products, we compete with providers of embedded computing platforms and systems including ADLink, Advantech, Kontron, Curtis Wright, and Mercury Systems .

In our SMART Wireless products, we compete with providers of SOMs and SBCs including Lantronix, Intrynsic, Thundercomm, eInfochips and Toradex.

We face competition from existing competitors and expect to face new companies that may enter our existing or future markets with similar or alternative products, which may be less costly or provide additional features.

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On occasion, customers may require rapid increases in production, which can challenge our resources and can reduce profit margins.

We may not have sufficient capacity at any given time to meet our customers’ demands.

We may not have sufficient capacity at any given time to

meet our customers’ demands.

Downturns in the markets in which our customers compete can, and have, caused our customers to significantly reduce the amount of products ordered from us or to cancel or delay existing orders leading to lower utilization of our facilities.

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We can provide no assurance, however, that the customers will comply with these obligations.

If a customer of our supply chain services has significant delays in delivery of inventory, this could have a negative impact on our profitability.

If a customer of our supply chain services has significant delays in delivery of inventory, we could have liability to the customer and this could have a negative impact on our profitability.

If a customer of our supply chain services fails to consume the inventory that we purchase for it, this could result in significant inventory write-downs or write-offs.

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We have made and expect to continue to make significant investments in various products.

There is significant competition in the markets for these markets and we can provide no assurance that we will develop and introduce products in a timely manner or that our new products will gain market acceptance, be price competitive or result in any significant increase in our net sales.

There is significant competition for many new products and markets and we can provide no assurance that we will develop and introduce products in a timely manner or that our new products will gain market acceptance, be price competitive or result in any significant increase in our net sales.

If these investments fail to provide the expected returns, then such failure would have a material adverse effect on our business, results of operations and financial condition.

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If we delay or do not succeed in qualifying a product with an existing or prospective customer, we will not be able to sell that product to that customer, which may result in us losing potential revenue and holding excess or obsolete inventory, any of which may have a material adverse effect on our business, results of operations and financial condition.

If our OEM customers decide to utilize a standardized memory solution instead of our specialty memory products, our net sales and market share may decline.

Many of our specialty memory products are specifically designed for our OEM customers’ systems.

In an effort to reduce costs and assure supply of their memory module requirements, a number of our OEM customers design commodity JEDEC-standard DRAM modules into their products.

Although we also manufacture JEDEC-standard modules, an increase in such efforts by our customers could reduce the demand for our higher priced specialized or customized memory solutions, which in turn would have a negative impact on our business, results of operations and financial condition.

In addition, when customers utilizing custom memory solutions choose to adopt a JEDEC-standard instead of a custom module, new competitors producing standardized memory modules may take a portion of our customers’ business previously purchased from us.

If our OEM customers decide to utilize standardized solutions instead of our specialty products, our net sales and market share may decline.

Many of our specialty products are specifically designed for our OEM customers’ systems.

In an effort to reduce costs or to assure, a number of our OEM customers design standardized or commodity modules or subsystems into their products.

Although we also manufacture standard modules and subsystems, an increase in such efforts by our customers could reduce the demand for our higher priced specialized or customized solutions, which in turn would have a negative impact on our business, results of operations and financial condition.

In addition, when customers utilizing custom solutions choose to adopt a standard instead of custom modules or subsystems, new competitors producing standardized modules or subsystems may take a portion of our customers’ business previously purchased from us.

Our dependence on a small number of sole or limited source suppliers subjects us to certain risks, including the risk that we may be unable to obtain adequate supplies at reasonable prices and in a timely manner.

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In addition, there can be no assurance that we will reach agreement with our wafer supplier on the pricing and quantities of wafers that they will supply and we will purchase.

The markets in which we operate have experienced, and may experience in the future, shortages in components, including DRAM and Flash ICs, which are essential components of our memory products.

In our SCSS business, our major suppliers include Intel, NVIDIA and Qualcomm.

These suppliers also compete with us in specialty compute products.

The markets in which we operate have experienced, and may experience in the future, shortages in components, including DRAM and Flash ICs, which are essential components of our memory products, as well as processors, motherboard and communications products which are essential to our SCSS products.

These shortages cause some suppliers to place their customers, including us, on component allocation.

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Unless we maintain manufacturing efficiency, we may not remain profitable and our future profitability could be materially adversely affected.

The memory industry is characterized by constant and rapid technological changes and product obsolescence.

The industries in which we conduct business are characterized by constant and rapid technological changes and product obsolescence.

For example, new manufacturing process technologies using smaller feature sizes and offering better performance characteristics are generally introduced every one to two years.

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This can also cause decreases in demand for the older technology products and our manufacturing or assembly and test capacity to be under-utilized.

As a result, we may be required to record an impairment on our long-lived assets, including facilities and equipment, as well as intangible assets, which would increase our expenses.

As a result, we may be required to record additional obsolescence charges or an impairment on our long-lived assets, including facilities and equipment, as well as intangible assets, which would increase our expenses.

When new technologies are introduced, the capacity to manufacture the new products often cannot meet the demand and product shortages can arise.

If our suppliers cannot support such demand, we may not be able to fill customer orders or participate in new markets as they emerge.

If we or our suppliers cannot support such demand, we may not be able to fill customer orders or participate in new markets as they emerge.

Our manufacturing efficiency can significantly affect our results of operations, and we cannot be sure that we will be able to maintain or increase our manufacturing efficiency to the same extent as our competitors.

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Disruption of our operations at our manufacturing facilities would substantially harm our business.

We rely on a limited number of production facilities for each of our various product lines.

A disruption at one of our manufacturing facilities could adversely impact our manufacturing operations and consequently our customer relations and our business.

Such a disruption could result from, among other things, sustained process abnormalities, government intervention, waste disposal issues, power failures or other circumstances, or from ramp-up related challenges, such as obtaining sufficient raw materials, hiring of qualified factory personnel, installation and efficient operation of new equipment and management and coordination of our logistics networks within our global operations.

Such a disruption could result from, among other things, local outbreaks of COVID-19 or other infectious diseases, sustained process abnormalities, government intervention, waste disposal issues, power failures or other circumstances, or from ramp-up related challenges, such as obtaining sufficient raw materials, hiring of qualified factory personnel, installation and efficient operation of new equipment and management and coordination of our logistics networks within our global operations.

We maintain insurance to protect against certain claims associated with business interruption, however, our insurance may not cover all or any part of a particular loss.

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These agencies review a contractor’s performance under its contracts, its cost structure, its business systems and compliance with applicable laws, regulations and standards.

Certain government

agencies have the ability to decrease or withhold certain payments when it deems systems subject to its review to be inadequate.

Certain government agencies have the ability to decrease or withhold certain payments when it deems systems subject to its review to be inadequate.

Additionally, any costs found to be misclassified may be subject to repayment.

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Any decision by a government agency not to exercise contract options or to terminate, cancel, modify or curtail any major programs or contracts would adversely affect our revenues, revenue growth and profitability.

We may experience and continue to experience periodic performance issues under certain of our contracts.

We may experience periodic performance issues under certain of our contracts.

Depending on the nature and value of the contract, a performance issue or termination for default could cause our actual results to differ from those anticipated and could harm our reputation and our operating results and financial condition.

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We are subject to laws, rules, and regulations in the United States and other countries relating to the collection, use, transmission, processing and security of user and other data.

Our ability to execute transactions and to possess, process, transmit and use personal information and data in conducting our business subjects us to legislative and regulatory burdens that, among other things, may require us to notify regulators and customers, employees, or other individuals of a data security breach, including in the EU and the European Economic Area where the General Data Protection Regulation, or GDPR, took effect in May 2018.

employees, or other individuals of a data security breach, including in the EU and the European Economic Area where the General Data Protection Regulation, or GDPR, took effect in May 2018, in Brazil where the LGPD data privacy laws are being implemented and in California where the California Consumer Privacy Act, or CCPA, recently became law.

We have incurred, and will continue to incur, significant expenses to comply with mandatory privacy and security standards and protocols imposed by law, regulation, industry standards, or contractual obligations, but despite such expenditures may face regulatory and other legal actions in the event of a data breach or perceived or actual non-compliance with such requirements.

The GDPR imposes significant obligations and compliance with these obligations depends in part on how particular regulators apply and interpret them.

If we fail to comply with the GDPR, or if regulators assert we have failed to comply with the GDPR, it may lead to regulatory enforcement actions, which can result in monetary penalties of up to 4% of worldwide revenue, private lawsuits, or reputational damage.

The various data privacy enactments impose significant obligations and compliance with these obligations depends in part on how particular regulators apply and interpret them.

In particular, if we fail to comply with the GDPR, or if regulators assert we have failed to comply with the GDPR, it may lead to regulatory enforcement actions, which can result in monetary penalties of up to 4% of worldwide revenue, private lawsuits, or reputational damage.

Open source development and licensing practices may limit the value of our SCSS software assets.

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If our expected returns on these investments are not achieved, it could adversely impact our business, results of operations and financial condition.

In fiscal 2019, we spent $76.1 million to acquire SMART EC, SMART Wireless and Premiere Logistics and in fiscal 2018, we spent $45.1 million to acquire Penguin Computing.

In fiscal 2019, we spent $76.1 million to acquire SMART EC, SMART Wireless and Premiere Customs Brokers and Premiere Logistics and in fiscal 2018, we spent $45.1 million to acquire Penguin Computing.

We plan to continue exploring additional acquisition opportunities in the future.

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If we are not successful in integrating the technologies, operations and personnel of acquired businesses or fail to realize the anticipated benefits of an acquisition, our business, results of operations and financial condition may be adversely affected.

As part of our business and growth strategy, we have in the past and may in the future acquire or make significant investments in businesses, products or technologies, such as our acquisitions of Penguin Computing, SMART EC and SMART Wireless, in an effort to complement our existing product offering, expand our market coverage, increase our engineering workforce or enhance our technological capabilities.

As part of our business and growth strategy, we have in the past and may in the future acquire or make significant investments in businesses, products or technologies, such as our acquisitions of Penguin Computing, SMART EC, SMART Wireless, Premiere Customs Brokers and Premiere Logistics, in an effort to complement our existing product offering, expand our market coverage, increase our engineering workforce or enhance our technological capabilities.

Any acquisitions or investments would expose us to the risks commonly encountered in acquisitions of businesses or technologies.

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In addition, there may be other grounds for us to dispute the indemnification claim and/or the amounts of any indemnifiable losses of SanDisk.

While we believe that the infringement claims are without merit, we can provide no assurance that SanDisk will be successful in defending the infringement claims or that we will otherwise be successful in disputing the indemnification claim and/or the amount of indemnifiable losses.

While we believe that the infringement claims are without merit, we can provide no assurance that SanDisk will be successful in defending the infringement claims against Netlist or that we will otherwise be successful in disputing the indemnification claim and/or the amount of indemnifiable losses against SanDisk.

On May 19, 2020 the court entered an order granting the joint stipulation of dismissal filed by Netlist and SanDisk.

In addition to the infringement claim described above, we continue to have an obligation to indemnify SanDisk for certain specified matters, including tax obligations for pre-closing tax periods, some of which indemnification obligations are capped at certain amounts and survive for periods of time set forth in the Sale Agreement.

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Our future operating results depend in significant part upon the continued contributions of our key senior management and technical personnel, many of whom would be difficult to replace.

We are particularly dependent on the continued service of Ajay Shah, our Chairman, President and Chief Executive Officer, and Jack Pacheco, our Executive Vice President, Chief Operating Officer and Chief Financial Officer.

We are particularly dependent on the continued service of Ajay Shah, our Executive Chairman, Mark Adams, our President and Chief Executive Officer, and Jack Pacheco, our Executive Vice President, Chief Operating Officer and Chief Financial Officer.

Our future operating results also depend in significant part upon our ability to attract, train and retain qualified management, including for manufacturing and quality assurance, engineering, design, finance, marketing, sales and support personnel.

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To keep pace with our anticipated growth in Brazil, we anticipate the need to increase the number of our technical personnel.

Additionally, to meet the obligations associated with certain tax incentives, we are required to invest in research and development activities which could require an increase in engineering and other technical personnel.

Additionally, to meet the obligations associated with certain local manufacturing incentives, we are required to invest in research and development activities which could require an increase in engineering and other technical personnel.

To the extent that competitors enter or expand in the local market, our labor force could be targeted, which could result in the loss of personnel and/or the increase in wages to retain personnel.

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Any disclosure to or misappropriation by third parties of our confidential proprietary information could enable competitors to quickly duplicate or surpass our technological achievements, thus eroding our competitive position in our market.

We seek to protect our confidential proprietary information, in part, by confidentiality and non-disclosure agreements and invention assignment agreements with our employees, consultants, advisors, contractors and collaborators.

We seek to protect our confidential

proprietary information, in part, by confidentiality and non-disclosure agreements and invention assignment agreements with our employees, consultants, advisors, contractors and collaborators.

These agreements are designed to protect our proprietary information, however, we cannot be certain that such agreements have been entered into with all relevant parties, and we cannot be certain that our trade secrets and other confidential proprietary information will not be disclosed or that competitors will not otherwise gain access to our trade secrets or independently develop substantially equivalent information and techniques.

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expend significant resources to develop or acquire rights to use non-infringing technology;

and/or discontinue the use of certain processes or obtain licenses

and pay one-time fees and/or on-going royalties to use the infringing or allegedly infringing technology.

and/or discontinue the use of certain processes or obtain licenses and pay one-time fees and/or on-going royalties to use the infringing or allegedly infringing technology.

The occurrence of any of the foregoing could result in unexpected expenses or require us to recognize an impairment of our assets, which would reduce the value of our assets and increase our expenses.

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Additionally, many of the beneficial treatments must be renewed periodically, and our enjoyment thereof is conditioned upon compliance with several legal requirements and is subject to change.

See “—Risks Relating to our International Operations—If the tax incentive or tax holiday arrangements from which we benefit in Brazil or Malaysia change or cease to be in effect or applicable in part or in whole, for any reason, or if our assumptions and interpretations regarding tax laws and incentive or holiday arrangements prove to be incorrect, the amount of corporate income, excise, import and contribution taxes we have to pay could increase significantly.”

See “—Risks Relating to our International Operations—If the government incentives or tax holiday arrangements from which we benefit in Brazil or Malaysia change or cease to be in effect or applicable in part or in whole, for any reason, or if our assumptions and interpretations regarding tax laws and incentive or holiday arrangements prove to be incorrect, the amount of corporate income, excise, import and contribution taxes we have to pay could increase significantly.”

We are subject to tax examination in the United States and in foreign jurisdictions, including in Brazil where we have had several audits and are currently being audited with respect to certain taxes.

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Noncompliance with applicable regulations or requirements could subject us to investigations, sanctions, mandatory product recalls, enforcement actions, disgorgement of profits, disbarment from government projects, fines, damages and civil and criminal penalties or injunctions that could harm our business, results of operations and financial condition.

In addition, from time to time we have received, and may receive in the future, correspondence from former employees and parties with whom we have done business with, threatening to bring claims against us alleging that we have violated one or more regulations related to customs, labor and employment, foreign currency control or other laws or regulations.

In addition, from time to time we have received, and may receive in the future, correspondence from former employees and parties with whom we have done business, threatening to bring claims against us alleging that we have violated one or more regulations related to customs, labor and employment, foreign currency control or other laws or regulations.

An adverse outcome in any litigation or proceeding related to such matters could require us to pay damages, attorneys’ fees and/or other costs.

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Additionally, the occurrence or threat of terrorist attacks may in the future adversely affect demand for our products.

In addition, such attacks may negatively affect our operations directly or indirectly and such attacks or other armed conflicts may directly impact our physical facilities or those of our suppliers or customers.

In addition, such attacks may negatively affect our operations directly or indirectly and such attacks or other armed conflicts may directly impact our facilities or those of our suppliers or customers.

Such attacks may make travel and the transportation of our products more difficult and more expensive, ultimately having a negative effect on our business.

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

Our operations in different parts of the world could be subject to natural disasters, health epidemics and other business disruptions, which could have a material adverse effect on our business, results of operation and financial condition.

Our operations in different parts of the world could be subject to natural disasters, health epidemics or pandemics and other business disruptions, which could have a material adverse effect on our business, results of operation and financial condition.

Our operations in different parts of the world could be subject to natural disasters, including earthquakes, monsoons, cyclones and floods.

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In the event of a major earthquake, cyclone, monsoon or other natural or manmade disaster, we could experience business interruptions, destruction of facilities and/or loss of life, any of which could materially adversely affect our business.

In addition, our business could be adversely affected by the outbreak of diseases and pandemics.

Any occurrence of these pandemic diseases or other adverse public health developments in Malaysia or elsewhere could severely disrupt our business or the business of our customers and suppliers, which could materially adversely affect our business.

In addition, our business could be adversely affected by the outbreak of diseases, epidemics or pandemics.

Any outbreak of disease or other adverse public health developments in any of the locations in which we conduct business could severely disrupt our business or the business of our customers and suppliers, which could in turn materially adversely affect our business.

Since a large percentage of our production is done in a small number of facilities, a disruption to operations could have a material adverse effect on our business, results of operations and financial condition.

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A decline or significant shortfall in demand in any of the markets that we serve could have a significant negative impact on the demand for our products.

In addition, a prolonged economic downturn in Brazil, even absent a worldwide economic downturn, may lead to higher interest rates or significant changes in the rate of inflation in Brazil, or an inability of our Brazilian customers and suppliers to access capital on acceptable terms.

In addition, a prolonged economic downturn in Brazil, even absent a worldwide economic downturn, may lead to higher interest rates or significant changes in currency exchange rates, the rate of inflation in Brazil, or an inability of our Brazilian customers and suppliers to access capital on acceptable terms.

Our customers and suppliers in Brazil could experience cash flow problems, credit defaults or other financial hardships.

In addition, as discussed in greater detail below, our sales and our profit margins in Brazil have been favorably impacted by laws establishing local content requirements for electronics products which laws are undergoing changes as a result rulings by the WTO.

See “—Our success in Brazil depends in part on Brazilian laws establishing local content requirements for electronics products.

The elimination of or a reduction in the local content requirements, or our inability to secure the benefits of these regulations, could significantly reduce the demand for, and the profit margins on, our products in Brazil.”

In addition, as discussed in greater detail below, our sales and our profit margins in Brazil have been favorably impacted by laws that established local content requirements for electronics products which laws have been undergoing changes as a result rulings by the WTO.

See “—Our success in Brazil depends in part on Brazilian laws establishing incentives for local manufacturing of electronics products.

The elimination of or a reduction in the incentives for local manufacturing, or our inability to secure the benefits of these regulations, could significantly reduce the demand for, and the profit margins on, our products in Brazil.”

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

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The PPB/IT Program provided an incentive for certain customers to purchase products from us because they were not required to pay the regular level of IPI on their purchases.

Under the PPB/IT Program, the percentage of local content required in specified IT products has increased significantly from 2006 to 2019.

For example, under the PPB/IT Program, from 2006 to 2019, the total requirement of DRAM modules made with locally packaged DRAM ICs for notebook computers has increased from 0% to 80%.

Under the PPB/IT Program, the percentage of local content required in specified IT products increased significantly from 2006 to 2019.

For example, under the PPB/IT Program, from 2006 to 2019, the total requirement of DRAM modules made with locally packaged DRAM ICs for notebook computers increased from 0% to 80%.

In order to receive the intended treatment as a PPB/IT Program supplier, our subsidiary, SMART do Brazil, was required to invest in research and development activities in an amount equal to 4% of its gross annual sales revenues reduced by the following:

the cost of raw materials qualified as products eligible for the PPB/IT Program, including the ICs that are purchased from our other Brazilian subsidiary, SMART Brazil, and that are used to make memory modules;

the cost of raw materials qualified as products eligible for the PPB/IT Program, including the ICs that were purchased from our other Brazilian subsidiary, SMART Brazil, and that were used to make memory modules;

applicable sales taxes;

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and the value of products shipped to the Manaus Free Trade Zone.

Brazil’s local content requirements for the IT industry have been subject to criticism by other governments and international organizations.

In 2013, the EU, later joined by Japan, requested the establishment of a panel within the WTO to determine whether the structure of certain programs enacted by the Brazilian government concerning incentives and local content requirements for the automotive and several other industries (including the IT industry and including portions of Lei do Bem that do not relate to our business, PADIS and the PPB/IT Program), are inconsistent with WTO rules.

Brazil’s local content requirements for the IT industry have been subjected to criticism by other governments and international organizations.

In 2013, the European Union, or the EU, later joined by Japan, requested the establishment of a panel within the World Trade Organization, or the WTO, to determine whether the structure of certain programs enacted by the Brazilian government concerning incentives and local content requirements for the automotive and several other industries (including the IT industry and including portions of Lei do Bem that do not relate to our business, PADIS and the PPB/IT Program), are inconsistent with WTO rules.

On August 30, 2017, the WTO panel released a report and on December 13, 2018, after hearing appeals, the appellate body of the WTO released its decision in which it upheld some of the panel’s findings that, among other things, the tax exemptions, reductions and suspensions granted for the automotive, IT and other industries amount to subsidies that are inconsistent with the principles of the various WTO agreements, while also rejecting some of the complaints by the EU and Japan.

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Government officials in Brazil have continued to express their intent to restructure the incentives to be consistent with the WTO principles while still continuing to support local industry.

In June 2019, the authorities in Brazil published the first of a series of new ordinances, effective as of July 1, 2019, that provide a structure for revised support for local manufacturing utilizing a score-based point system for eligibility for incentives.

In June 2019, the authorities in Brazil published the first of a series of new ordinances, effective as of July 1, 2019, that provided a structure for revised support for local manufacturing utilizing a score-based point system for eligibility for incentives.

In this system, each manufacturing process within an electronic device is assigned a different number of points.

As a result of the changes, the reduction of the IPI for PPB/IT Program was eliminated along with, for PADIS companies, the zero rates of IPI, PIS and COFINS levied over sales.

While participants in the PPB/IT Program will no longer be allowed some of the prior benefits, these participants will be granted financial credits based on varying multipliers of effective disbursement s on research and development initiatives subject to varying caps related to certain percentages of the sales revenue within the country.

These financial credits can be used by participants either as a credit against certain taxes, or to request a refund in cash.

See Business section - “Brazil Local Manufacturing Requirements” and Risk Factors “If the government incentives or tax holiday arrangements from which we benefit in Brazil or Malaysia change or cease to be in effect or applicable in part or in whole, for any reason, or if our assumptions and interpretations regarding tax laws and incentive or holiday arrangements prove to be incorrect, the amount of corporate income, excise, import and contribution taxes we have to pay could increase significantly.”

While we believe that this score-based system will continue to incentivize our Brazilian customers to purchase products from us in Brazil, there can be no assurance that the replacement programs will ultimately provide the same or a similar level of support and benefit for our customers and our business as was previously in place.

There can also be no assurance that the WTO, the EU and Japan will agree that this new program structure is compliant with the WTO agreements.

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Significant changes in the political or economic environments in Brazil or Malaysia could adversely affect our business, results of operations and financial condition.

We have extensive operations in Malaysia and significant operations and sales in Brazil.

We have significant operations in Malaysia and Brazil.

The governments of these countries frequently intervene in their respective economies and occasionally make significant changes in policies and regulations.

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Any new policies or changes in current policies may have a material adverse effect on our business and financial condition.

If the tax incentive or tax holiday arrangements from which we benefit in Brazil or Malaysia change or cease to be in effect or applicable in part or in whole, for any reason, or if our assumptions and interpretations regarding tax laws and incentive or holiday arrangements prove to be incorrect, the amount of corporate income, excise, import and contribution taxes we have to pay could increase significantly.

We have structured our operations in a manner designed to maximize our benefit from various tax incentives and/or tax holidays extended to manufacturers in Brazil and Malaysia to encourage investment and employment.

If the government incentives or tax holiday arrangements from which we benefit in Brazil or Malaysia change or cease to be in effect or applicable in part or in whole, for any reason, or if our assumptions and interpretations regarding tax laws and incentive or holiday arrangements prove to be incorrect, the amount of corporate income, excise, import and contribution taxes we have to pay could increase significantly.

We have structured our operations in a manner designed to maximize our benefit from various government incentives and/or tax holidays extended to manufacturers in Brazil and Malaysia to encourage investment and employment.

In Brazil, we participate in the following government investment incentive programs, among others:

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PADIS is designed to promote the development of the local semiconductor industry.

In December 2010 and January 2011, the required agencies of the Brazilian government approved our application for beneficial tax treatment under the PADIS program for DRAM ICs and we began operations under the PADIS rules in February 2011.

Subsequently, we received approvals for PADIS benefits for microSD cards and USB Flash drives in June 2012, mobile, or low power DRAM in March 2013, eMMC and Flash Fine-pitch Ball Grid Array, or Flash FBGA, in February 2014, eMCP in June 2014, DDR4 DRAM in July 2016, and for any other mounted components in May 2015.

We began operations under the PADIS rules in February 2011 and have been qualified for beneficial tax treatment in connection with several products that we manufacture in Brazil.

The PADIS benefits include:

(i) relief from Brazil’s corporate income tax, resulting in a reduction in the Brazilian statutory income tax rate from 34% to 9% on taxable income from the semiconductor IC portion of our operations, (ii) relief from the PIS and COFINS Contributions, the IPI, and Brazil’s import tax, on both the import and domestic acquisition of fixed assets, inputs, software and sale of final products eligible

for PADIS, and (iii) relief from Brazil’s tax on outbound royalties, or CIDE.

To realize these benefits, our subsidiary, SMART Brazil, is required to invest a percentage of its gross annual semiconductor sales revenues (reduced by the following:

the cost of raw materials covered within the scope of PADIS, applicable sales taxes, the value of products exported out of Brazil and the value of products shipped to the Manaus Free Trade Zone) in research and development activities conducted in Brazil each calendar year.

Effective April 1, 2020, the reduction of the IPI, PIS and COFINS rates to zero percent on our sales is no longer available as a result of a December 2019 amendment to the PADIS Program intended at making PADIS compatible with the principles of the WTO.

Instead, participants in the PADIS program are entitled to financial credits based on varying multipliers of their annual research and development, or R&D, investments subject to caps related to certain percentages of the sales revenue within the country.

PADIS companies are entitled to financial credits equivalent to 2.62 times the effective disbursements on research and development initiatives under PADIS limited to a cap of 13.1% of total incentivized revenues within the country.

These financial credits can be used by participants either as a credit against certain taxes, or to request a refund in cash.

To realize these benefits, our subsidiary, SMART Brazil, is required to invest a percentage of its gross annual semiconductor sales revenues (reduced by certain permitted deductions) in research and development activities conducted in Brazil each calendar year.

The applicable percentage was 3% for 2015, increasing to 4% for 2016 through 2018, and increasing to 5% for 2019 and beyond.

As part of the amendment effective on April 1, 2020, the amount of permitted deductions from gross revenues has decreased.

Furthermore, SMART Brazil is not permitted to distribute to shareholders (through dividends, capital reductions or otherwise) the amount of corporate income taxes not paid as a result of the PADIS benefits.

Failure to comply with our obligations under the PADIS would result in our being charged the amount of the relieved taxes, plus interest equal to the Central Bank of Brazil’s overnight rate, or the SELIC rate, plus a 75% penalty and could also result in the suspension of our participation in PADIS and ultimate termination of PADIS should SMART Brazil fail to repair the infraction within 90 days or should SMART Brazil have PADIS suspended twice in the period of two years.

Failure to comply with our obligations under the PADIS could result in significant penalties and could also result in the suspension of our participation in PADIS and ultimate termination of PADIS should SMART Brazil fail to repair the infraction within 90 days or should SMART Brazil have PADIS suspended twice in the period of two years.

If SMART Brazil’s participation in PADIS were terminated, it would be permitted to reapply for the program only after a two-year period.

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Brazil’s PPB/IT Program, in which we also began to participate in February 2011, is intended to promote local manufacturing by allowing qualified PPB/IT Program companies to sell certain IT products with a reduced rate of IPI as compared to the rate that is required to be collected by non-qualified suppliers.

The PPB/IT Program provides an incentive for certain customers to purchase from us because our sales will not be subject to the regular level of IPI.

In order to receive the intended treatment as a PPB/IT Program supplier, our subsidiary SMART do Brazil is required to invest in research and development activities conducted in Brazil in an amount equal to 4% of its gross annual sales revenues reduced by the following:

Effective April 1, 2020, the reduction of the IPI is no longer available on sales to certain customers as a result of an amendment to the PPB/IT Program which was intended at making the PPB/IT Program compatible with the principles of the WTO.

Instead, PPB/IT Program participants are entitled to financial credits calculated based on the R&D investments made under PPB/IT Program, that can be used by the participants either as a credit against certain taxes, or for a request of a refund in cash.

The multipliers of the financial credits range from 2.7 to 3.4 times the R&D invested, limited to 10.92% to 13.65% of the gross sales revenues, until December 31, 2024, depending on the location of the participant and on what products it manufactures and sells.

The financial credits will be gradually reduced over time to a range of 2.73 to 3.41 times the R&D invested, limited to 10.92% to 13.65% of the gross annual sales revenues by December 31, 2029 when the PPB/IT Program is scheduled to expire.

The PPB/IT Program provided an incentive for certain customers to purchase from us because our sales were not subject to the regular level of IPI before March 31, 2020, and effective April 1, 2020, our OEM and contract manufacturing customers will benefit from the PPB/IT Program as they will be

allowed to purchase qualified products from us with the suspension of IPI.

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and the value of products shipped to the Manaus Free Trade Zone.

Failure to comply with our obligations under the PPB/IT Program would result in our being charged the amount of the relieved taxes, plus interest equal to the SELIC rate, plus a 75% penalty and could also result in the suspension of our participation in the PPB/IT Program and ultimate termination should SMART do Brazil fail to cure the infraction within 180 days.

Effective April 1, 2020, the annual R&D investment is calculated over the gross annual sales of qualified products made by SMART do Brazil to customers that do not benefit from the PPB/IT Law (and, therefore, will be subject to the ordinary IPI rate), reduced by sales to the Manaus Free Trade Zone, cancelations of sales, devolution of products, IPI and ICMS-ST, plus PIS, COFINS and statutory ICMS.

Failure to comply with our obligations under the PPB/IT Program would result in significant penalties and could also result in the suspension of our participation in the PPB/IT Program and ultimate termination should SMART do Brazil fail to cure the infraction within 180 days.

Compliance with these programs is measured annually, on a calendar year basis.

We believe that we have fulfilled these research and development investment requirements through calendar 2019, however, for certain years the authorities in Brazil have not yet completed the relevant review.

For calendar years 2011 to 2016, the authorities have requested additional information in order to review whether certain of our reported research and development investments as required for SMART do Brazil qualify for the PPB/IT Program.

We believe that all of our research and development investments do qualify and we have provided the additional information.

While we believe that all of our reported investments qualify for the research and development requirements, we cannot provide assurance that the Brazilian authorities will agree with our classification in which case we may be required to make incremental payments to the authorities or to make incremental research and development investments in the future.

For calendar years 2011 to 2016, the authorities requested additional information in order to review whether certain of our reported research and development investments as required for SMART do Brazil qualify for the PPB/IT Program and for calendar years 2011, 2013, 2014 and 2015 the authorities have rejected some of our submissions.

We believe that all of our research and development investments do qualify and we intend to appeal the decision of the authorities.

The rejected submissions aggregate approximately R$4.5 million (or $0.9 million).

If our appeals are not successful, we may be required to make incremental payments to the authorities or to make incremental research and development investments in the future.

If we fail to make the additional payments or additional investments if required, we may lose the anticipated benefits of these programs and could be penalized for failing to make the research and development investments when required, or, where applicable, for failing to pay required statutory income taxes, or to collect the required PIS/COFINS and IPI upon our sales, or ultimately to return either partially or in total, the financial credits granted to us after April 1, 2020 plus significant penalties.

In addition, there is a risk that modifications to laws may prohibit, interrupt, limit, terminate early or change the use of these existing tax incentives.

Additionally, we cannot provide assurance that we will be able to make the required investments in the future.

In 2013, the EU, later joined by Japan, requested the establishment of a panel within the World Trade Organization, or WTO, to determine whether the structure of certain programs enacted by the Brazilian government concerning incentives and local content requirements for the automotive and several other industries (including the IT industry and including portions of Lei do Bem that do not relate to our business, as well as PADIS and the PPB/IT Program), were inconsistent with WTO rules.

In 2013, the EU, later joined by Japan, requested the establishment of a panel within the WTO to determine whether the structure of certain programs enacted by the Brazilian government concerning incentives and local content requirements for the automotive and several other industries (including the IT industry and including portions of Lei do Bem that do not relate to our business, as well as PADIS and the PPB/IT Program), were inconsistent with WTO rules.

See “Risks Related to our International Operations—Our success in Brazil depends in part on Brazilian laws establishing incentives for local manufacturing of electronics products.

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Any such modified structure or strategy may not be as beneficial to us from an income tax expense or operational perspective as the benefits provided under the present tax incentive arrangements.

We have received approvals for these tax incentives for up to ten years beginning September 2019, subject to certain operating conditions.

We have received approvals for these tax incentives for up to

ten years beginning September 2019, subject to certain operating conditions.

The impact of these tax incentives will be recorded in the period in which they are realized.

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The enrollment does not constitute a lien or encumbrance on the assets.

The assets covered by the enrollment are typically assets classified as fixed assets or non-current assets and include assets that are subject to any form of registration before a

public deed service or equivalent, such as real estate and vehicles.

The assets covered by the enrollment are typically assets classified as fixed assets or non-current assets and include assets that are subject to any form of registration before a public deed service or equivalent, such as real estate and vehicles.

Other assets may be subject to enrollment in the event that the assets described above are not sufficient to satisfy the amount of the tax liability.

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On December 12, 2013, SMART Brazil received another notice of assessment in the amount of R$3.6 million (or $0.7 million) with respect to the same import-related tax issues and penalties as discussed above for 2012 and 2013 (the Third Assessment).

This new assessment does not seek import duties and related taxes on DRAM products and only seeks import duties and related taxes on Flash unmounted components with respect to the months of January 2012 to June 2012.

This is because SMART Brazil’s imports of DRAM unmounted components were subject to 0%, and after June 2012, SMART Brazil’s imports of Flash unmounted components became subject to 0%, import duties and related taxes as a result of PADIS.

Even with this 0%, if SMART Brazil is found to have used the incorrect product classification code, SMART Brazil will be subject to an administrative penalty equal to 1% of the value of the imports.

This new assessment does not seek import duties and related taxes on DRAM products and only seeks import duties and related taxes on Flash unmounted components with respect to the months

of January 2012 to June 2012.

This is because SMART Brazil’s imports of DRAM unmounted components were subject to 0% import duties and related taxes, and after June 2012, SMART Brazil’s imports of Flash unmounted components became subject to 0% import duties and related taxes as a result of PADIS.

If SMART Brazil is found to have used the incorrect product classification code, SMART Brazil will be subject to an administrative penalty equal to 1% of the value of the imports.

SMART Brazil has filed defenses to this assessment.

We believe that SMART Brazil used the correct product code on its imports and that the Third Assessment is incorrect.

As a result of the CARF decision in favor of SMART Brazil on the First Assessment and the Second Assessment, we believe that the probability of any material charges as a result of the Third Assessment is remote.

On September 8, 2020, the first level administrative court unanimously ruled in favor of SMART Brazil with respect to the Third Assessment.

Due to the size of the Third Assessment, Brazil law required that the tax authorities appeal the decision to CARF.

As a result of the CARF decision in favor of SMART Brazil on the First Assessment and the Second Assessment, as well as the basis given by the tax authorities in the favorable ruling on the Third Assessment, we believe that the probability of any material charges as a result of the Third Assessment is remote.

We can provide no assurance that SMART Brazil ultimately will prevail on the remaining tax assessments or the administrative penalties, and no amounts have been accrued in the financial statements for any such assessments or penalties.

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Further, given our executive officers’ lack of physical proximity to our foreign country activities and the inherent limitations of cross-border information flow, our executive officers may at times face extra challenges in their ability to effectively oversee the day-to-day management of our international operations.

The challenges facing management to effectively recruit, employ and retain qualified personnel and to otherwise effectively manage our international operations could result in compliance, control or other issues that could have a material negative impact on our business, results of operations and financial condition.

The challenges facing management to effectively recruit, employ and retain qualified personnel and to otherwise effectively manage our international operations could result in compliance, control or other issues that could have a material adverse impact on our business, results of operations and financial condition.

If we were to lose the tax-related benefits of being a Cayman Islands company, our business could be adversely affected.

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Gains and losses on the conversion to U.S.

dollars of such revenues and of other associated monetary assets and liabilities, as well as profits and losses incurred in certain countries, may contribute to fluctuations in the value of our assets and our results of operations.

and our results of operations.

We also have costs and expenses that are denominated in foreign currencies, and decreases in the value of the U.S.

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Foreign exchange forward contracts outstanding at August 28, 2020 are not designated as hedging instruments for hedge accounting purposes.

As a result of the COVID-19 pandemic, the exchange rate of the Brazilian Reais has experienced wide fluctuations and increased from 4.0307 on December 31, 2019 to as high as 5.4760 as of June 30, 2020.

This substantial increase could have a significant negative impact on the economy in Brazil and on the cost of and demand for our products.

We are a holding company.

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Inflation, along with government measures to curb inflation and public speculation about possible future government measures, have had significant negative effects on the Brazilian economy and contributed to economic uncertainty in Brazil and heightened volatility in the Brazilian securities market, which may have an adverse effect on us.

If Brazil experiences substantial inflation or deflation in the future, we and our ability to comply with our obligations may be adversely affected.

If Brazil experiences substantial inflation or deflation in the future, our business may be adversely affected.

In addition, we may not be able to adjust the prices we charge our customers to offset the impact of inflation on our expenses, leading to an increase in our expenses and a reduction in our net operating margin.

This could have a material negative impact on our business, results of operations and financial condition.

This could have a material adverse impact on our business, results of operations and financial condition.

Developments and the perception of risk in other countries, such as the 2008-2009 developments in the global financial markets, and particularly in emerging market countries, may adversely affect the perceived value of companies with substantial operations in Brazil, causing the market price of our ordinary shares to decline.

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Our indebtedness could impair our financial condition and harm our ability to operate our business.

Certain of our subsidiaries have incurred indebtedness under a senior secured term loan and revolving credit facility, which we refer to, together with all related loan documents, as amended and restated in August 2017 and as amended thereafter, as the Amended Credit Agreement.

Certain of our subsidiaries have incurred indebtedness under a senior secured term loan and revolving credit facility, which we refer to, together with all related loan documents, as amended and restated in March 2020 and as amended thereafter, as the Amended Credit Agreement.

The obligations under the Amended Credit Agreement are jointly and severally guaranteed on a senior basis by certain of our subsidiaries and secured by a pledge of the capital stock of, or equity interests in, most of our subsidiaries and by substantially all of our assets and those of our subsidiaries.

Our Brazilian operating subsidiary, SMART Brazil, has incurred additional indebtedness under a credit facility with the Brazilian Development Bank, or BNDES, which we refer to, together with all related loan documents and as amended from time to time, as the BNDES 2013 Credit Agreement.

Our Brazilian operating subsidiary, SMART Brazil, had previously incurred additional indebtedness under a credit facility with the Brazilian Development Bank, or BNDES, which we refer to, together with all related loan documents and as amended from time to time, as the BNDES 2013 Credit Agreement.

Under the BNDES 2013 Credit Agreement, credit in the amount of R$50.6 million (or $9.7 million) was made available to SMART Brazil for investments in infrastructure, research and development in Brazil and acquisitions of equipment not otherwise available in the Brazilian domestic market.

The BNDES 2013 Credit Agreement was repaid in full as of July 15, 2019.

In December 2014, SMART Brazil entered into a second credit facility with BNDES, which we refer to, together with all related loan documents and as amended from time to time, as the BNDES 2014 Credit Agreement.

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Under the BNDES 2014 Credit Agreement, a total of R$52.8 million (or $10.1 million) was made available to SMART Brazil for research and development conducted in Brazil related to IC packaging and for acquisitions of equipment not otherwise available in the Brazilian domestic market.

SMART Brazil’s obligations under the BNDES Agreements are guaranteed by Banco Votorantim S/A, or Banco Votorantim.

SMART Brazil has entered into an agreement with Banco Votorantim to assure payment to Banco Votorantim in the event that BNDES collects on either of the guarantees.

As of August 30, 2019, the outstanding principal balance under the Amended Credit Agreement and the BNDES 2014 Credit Agreement, respectively, was $208.5 million and R$13.2 million (or $3.5 million).

The BNDES 2014 Credit Agreement was repaid in full as of July 15, 2020.

SMART Brazil’s obligations under the BNDES Agreements were guaranteed by Banco Votorantim S/A, or Banco Votorantim.

SMART Brazil entered into an agreement with Banco Votorantim to assure payment to Banco Votorantim in the event that BNDES collects on either of the guarantees.

As of August 28, 2020, there were no balances outstanding under the term loans of the Amended Credit Agreement or under the BNDES Credit Agreements.

As of August 28, 2020, there was no outstanding balance under the revolver portion of the Amended Credit Agreement.

We have a right to draw an additional $50.0 million under the revolving loan provisions of the Amended Credit Agreement.

In February 2020, we issued $250.0 million in aggregate principal amount of 2.25% convertible senior notes due 2026, the Notes, in a private placement, including $30.0 million in aggregate principal amount of the Notes that we issued resulting from initial purchasers fully exercising their option to purchase additional notes.

The Notes are general unsecured obligations and bear interest at an annual rate of 2.25% per year, payable semi-annually on February 15 and August 15 of each year, beginning on August 15, 2020 .

The Notes are governed by an indenture, the Indenture, between us and U.S.

Bank National Association, as trustee.

The Notes will mature on February 15, 2026, unless earlier converted, redeemed or repurchased.

No sinking fund is provided for the Notes.

As of August 28, 2020, the balance outstanding under the Notes, was $250 million of principal and $0.2 million of accrued and unpaid interest.

Our indebtedness may have important consequences, including, but not limited to, the following:

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enter into certain transactions with affiliates.

Under the Amended Credit Agreement, in certain circumstances we also are required to satisfy and maintain specified financial ratios.

Under the Amended Credit Agreement, in certain circumstances we also are required to satisfy and maintain specified financial ratios if we have outstanding debt under the revolver.

Our ability to meet those financial ratios could be affected by events beyond our control, and there can be no assurance that we will meet those ratios.

The failure to comply with any of these covenants would cause a default under the Amended Credit Agreement.

A default, if not waived, could result in acceleration of the outstanding indebtedness under the Amended Credit Agreement, in which case such indebtedness would become immediately due and payable.

A default, if not waived, could result in acceleration of the outstanding indebtedness under the Amended Credit Agreement as well as under the Notes, in which case such indebtedness would become immediately due and

If any default occurs, we may not be able to pay our debt or borrow sufficient funds to refinance it.

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Complying with these covenants may cause us to take actions that we otherwise would not take or not take actions that we otherwise would take.

We may be unable to raise the funds necessary to repurchase the Notes for cash following a fundamental change, or to pay any cash amounts due upon conversion, and our other indebtedness may limit our ability to repurchase the Notes or pay cash upon their conversion.

Holders of the Notes, may, subject to a limited exception, require us to repurchase their Notes following a “fundamental change” (as defined in the indenture governing the Notes, or the Indenture), before the maturity date at a cash repurchase price generally equal to the principal amount of the Notes to be repurchased, plus accrued and unpaid interest, if any.

In addition, upon conversion, we will satisfy part or all of our conversion obligation in cash unless we elect to settle conversions solely in ordinary shares (other than paying cash in lieu of delivering any fractional share).

We may not have enough available cash or be able to obtain financing at the time we are required to repurchase the Notes or pay the cash amounts due upon conversion.

In addition, applicable law, regulatory authorities and the agreements governing our other indebtedness, including our Amended Credit Agreement, may restrict our ability to repurchase the Notes or pay the cash amounts due upon conversion.

Our failure to repurchase Notes or to pay the cash amounts due upon conversion when required will constitute a default under the Indenture.

A default under the Indenture or the fundamental change itself could also lead to a default under agreements governing our other indebtedness, which may result in that other indebtedness becoming immediately payable in full.

We may not have sufficient funds to satisfy all amounts due under the other indebtedness and the Notes.

Provisions in the Notes and the Indenture could delay or prevent an otherwise beneficial takeover of us.

Certain provisions in the Notes and the Indenture could make a third-party attempt to acquire us more difficult or expensive.

For example, if a takeover constitutes a “fundamental change”, then noteholders will have the right to require us to repurchase their Notes for cash.

In addition, if a takeover constitutes a “make-whole fundamental change” (as defined in the Indenture), then we may be required to temporarily increase the conversion rate.

In either case, and in other cases, our obligations under the Notes and the Indenture could increase the cost of acquiring us or otherwise discourage a third party from acquiring us, including in a transaction that noteholders or holders of our ordinary shares may view as favorable.

The accounting method for the Notes could adversely affect our reported financial condition and results.

The accounting method for reflecting the Notes on our balance sheet, accruing interest expense for the Notes and reflecting the underlying ordinary shares in our reported diluted earnings per share may adversely affect our reported earnings and financial condition.

In accounting for the issuance of the Notes, we separated the Notes into liability and equity components.

Under applicable accounting principles, the initial liability carrying amount of the Notes is the fair value of a similar debt instrument that does not have a conversion feature, valued using our cost of capital for straight, non-convertible debt.

We reflected the difference between the net proceeds from the issuance of the Notes and the initial carrying amount as a debt discount for accounting purposes, which will be amortized into interest expense over the term of the Notes.

As a result of this amortization, the interest expense that we expect to recognize for the Notes for accounting purposes will be greater than the cash interest payments we will pay on the Notes, which will result in lower reported income or higher reported losses.

The lower reported income or higher reported loss resulting from this accounting treatment could depress the trading price of our ordinary shares and the Notes.

In addition, because we intend to settle conversions by paying the conversion value in cash up to the principal amount being converted and any excess in shares, we expect to be eligible to use the treasury stock method to reflect the shares underlying the Notes in our diluted earnings per share.

Under this method, if the conversion value of the Notes exceeds their principal amount for a reporting period, then we will calculate our diluted earnings per share assuming that all the Notes were converted and that we issued ordinary shares to settle the excess.

However, if reflecting the Notes in diluted earnings per share in this manner is anti-dilutive, or if the conversion value of the Notes does not exceed their principal amount for a reporting period, then the shares underlying the Notes will not be reflected in our diluted earnings per share.

In addition, if accounting standards change in the future and we are not

permitted to use the treasury stock method, then our diluted earnings per share may decline.

For example, in August 20 20 , the Financial Accounting Standards Board issue d Accounting Standards Updates 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40):

Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity to amend these accounting standards to eliminate the treasury stock method for convertible instruments and instead require application of the “if-converted” method.

This amendment is required to be implemented no later than September 2022.

Under that method, if it is adopted, diluted earnings per share would generally be calculated assuming that all the Notes were converted solely into ordinary shares at the beginning of the reporting period, unless the result would be anti-dilutive.

The application of the if-converted method may reduce our reported diluted earnings per share.

Furthermore, if any of the conditions to the convertibility of the Notes is satisfied, then we may be required under applicable accounting standards to reclassify the liability carrying value of the Notes as a current, rather than a long-term, liability.

This reclassification could be required even if no noteholders convert their Notes and could materially reduce our reported working capital.

The conditional conversion feature of the Notes, if triggered, may adversely affect our financial condition and operating results.

In the event the conditional conversion feature of the Notes is triggered, holders of Notes will be entitled to convert the Notes at any time during specified periods at their option.

If one or more holders elect to convert their Notes, unless we elect to satisfy our conversion obligation by delivering solely ordinary shares (other than paying cash in lieu of delivering any fractional ordinary share), we would be required to settle a portion or all of our conversion obligation through the payment of cash, which could adversely affect our liquidity.

The capped call transactions may affect the value of the Notes and our ordinary shares.

In connection with the pricing of the Notes, we have entered into privately negotiated capped call transactions, or Capped Calls, with certain financial institutions.

The Capped Calls are expected generally to reduce the potential economic dilution to holders of our ordinary shares upon any conversion of the Notes, with such reduction and/or offset subject to a cap.

At the time of the issuance of the Notes, we were not permitted under the terms of our amended and restated memorandum and articles of association, to repurchase our ordinary shares.

As such, until we notified the counterparties to the Capped Calls that we have obtained shareholder approval to receive shares in connection with the Capped Calls, we were only entitled to receive cash upon settlement, cancellation or termination of the Capped Calls.

On March 30, 2020 we received such shareholder approval and on March 31, 2020 we notified the counterparties to the Capped Calls of this approval.

In connection with establishing their initial hedges of the Capped Calls, the Capped Call counterparties or their respective affiliates likely entered into various derivative transactions with respect to our ordinary shares and/or purchased ordinary shares concurrently with or shortly after the pricing of the Notes.

In addition, the Capped Call counterparties and/or their respective affiliates may modify their hedge positions by entering into or unwinding various derivatives with respect to our ordinary shares and/or purchasing or selling our ordinary shares or other securities of ours in secondary market transactions prior to the maturity of the Notes (and are likely to do so during any Observation Period (as defined in the Indenture) related to a conversion of Notes).

This activity could also cause or avoid an increase or a decrease in the market price of our ordinary shares or the Notes.

The potential effect, if any, of these transactions and activities on the trading price of our ordinary shares or the Notes will depend in part on market conditions.

Any of these activities could adversely affect the trading price of our ordinary shares or the Notes.

Our ability to generate cash to service or to pay off our debt depends on many factors beyond our control.

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This, to a certain extent, is subject to prevailing economic and competitive conditions and to certain financial, business, regulatory and other factors beyond our control.

Our business may not generate sufficient cash flows from operations, and future borrowings may not be available to us under the Amended Credit Agreement or the BNDES 2014 Credit Agreement in an amount sufficient to enable us to service our debt or to fund our other liquidity needs.

Our business may not generate sufficient cash flows from operations, and future borrowings may not be available to us under the Amended Credit Agreement in an amount sufficient to enable us to service our debt or to

fund our other liquidity needs.

If we are unable to meet our debt obligations or fund our other liquidity needs, we may need to restructure or refinance all or a portion of our debt or sell certain of our assets on or before the maturity of our debt.

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Any refinancing of our indebtedness could be at higher interest rates and may require us to comply with more onerous covenants that could further restrict our business operations.

The outstanding principal balance of all term loans under the Amended Credit Agreement is due in full on August 9, 2022.

As of August 30, 2019, the outstanding principal balance of these term loans was $208.5 million.

The outstanding principal balance of all revolving loans under the Amended Credit Agreement is due in full in March 2025.

As of August 28, 2020, there was no outstanding principal balance of our revolving loans and the outstanding principal balance of the Notes was $250 million.

If we are not able to refinance or restructure our debt obligations before they become due, this could cause us to default on our debt obligations and impair our liquidity.

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As of October 2, 2020, 48% of our ordinary shares outstanding immediately after our initial public offering, or IPO, in May 2017 were owned by Silver Lake Partners III Cayman (AIV III), L.P., Silver Lake Sumeru Fund Cayman, L.P.

(investment funds affiliated with Silver Lake Partners and Silver Lake Sumeru, collectively Silver Lake) and their affiliates, including certain of our directors and our Chief Executive Officer.

(investment funds affiliated with Silver Lake Partners and Silver Lake Sumeru, collectively Silver Lake) and their affiliates, including certain of our directors.

Pursuant to the terms of the Amended and Restated Sponsors Shareholder Agreement dated as of May 30, 2017, or the Sponsor Shareholder Agreement, entered into in connection with the IPO, Silver Lake has the right to nominate members of our board of directors as follows:

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The market price of our ordinary shares could be subject to wide fluctuations in response to the risk factors listed in this section and others beyond our control, including, among other things:

the impacts of the COVID-19 pandemic on our business;

actual or anticipated variations in our operating results;

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We have also filed registration statements on Form S-8 to register the total number of shares of our common stock that may be issued under the SMART Global Holdings, Inc.

2017 Share Incentive Plan (the SGH Plan), including the equity awards issued to our executive officers and directors, and shares purchased under the SMART Global Holdings, Inc.

2018 Employee Share Purchase Plan (ESPP).

As of August 30, 2019, there are 2,297,758 options outstanding to purchase our ordinary shares, and 1,078,218 RSUs outstanding under the SGH Plan, and there are 1,427,339 additional shares available for issuance under the SGH Plan and 540,090 shares available for purchase under the ESPP.

2017 Share Incentive Plan, or as amended, the SGH Plan, including the equity awards issued to our executive officers and directors, and shares purchased under the SMART Global

Holdings, Inc.

2018 Employee Share Purchase Plan, or ESPP .

As of August 28, 2020, there were 2,109,469 options outstanding to purchase our ordinary shares, and 1,273,441 RSUs outstanding under the SGH Plan, and there are 1,432,721 additional shares available for issuance under the SGH Plan and 683,184 shares available for purchase under the ESPP.

These ordinary shares can be freely sold in the public market upon issuance under the SGH Plan or purchase under the ESPP subject to any restrictions on such shares pursuant to the respective plan documents.

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Failure to comply with Section 404 could subject us to regulatory scrutiny and sanctions, impair our ability to raise revenue, cause investors to lose confidence in the accuracy and completeness of our financial reports and negatively affect the price of our ordinary shares.

We no longer qualify as an “emerging growth company” and will be required to comply with certain provisions of the Sarbanes-Oxley Act and can no longer take advantage of reduced disclosure requirements.

For as long as we remained an emerging growth company, we could take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding a non-binding advisory vote on executive compensation.

We no longer qualify for such status, and as we are no longer an emerging growth company, we expect to incur additional expenses and devote substantial management effort toward ensuring compliance with those requirements applicable to companies that are not emerging growth companies.

Anti-takeover provisions in our organizational documents may discourage our acquisition by a third party, which could limit shareholders’ opportunity to sell their ordinary shares at a premium.

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Even in the absence of a takeover attempt, the existence of these provisions may adversely affect the prevailing market price of our ordinary shares if they are viewed as discouraging future takeover attempts.

As of October 18, 2019, 40% of our outstanding ordinary shares were owned by Silver Lake and their affiliates, including certain of our directors and our Chief Executive Officer.

As of October 2, 2020, 40% of our outstanding ordinary shares were owned by Silver Lake and their affiliates, including certain of our directors and our former Chief Executive Officer.

We do not anticipate paying any cash dividends in the foreseeable future.

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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