What changed in this filing

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Item 1. Business

2021-02-05 compared with 2020-02-07 · 63 added, 49 removed, 255 unchanged (31% of the section changed)

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Power supplies incorporating our products are used with all manner of electronic products including mobile phones, computing and networking equipment, appliances, electronic utility meters, battery-powered tools, industrial controls, and “home-automation,” or “internet of things” applications such as networked thermostats, power strips and security devices.

We also supply high-voltage LED drivers, which are AC-DC ICs specifically designed for lighting applications that utilize light-emitting diodes.

In 2018, we introduced a new category of power-conversion ICs, a family of motor-driver ICs addressing brushless DC (BLDC) motors used in refrigerators, HVAC systems, ceiling fans and other consumer-appliance and light commercial applications.

We also supply high-voltage LED drivers, which are AC-DC ICs specifically designed for lighting applications that utilize light-emitting diodes, and motor-driver ICs addressing brushless DC (BLDC) motors used in refrigerators, HVAC systems, ceiling fans and other consumer-appliance and light commercial applications.

We also offer high-voltage gate drivers—either standalone ICs or circuit boards containing ICs, electrical isolation components and other circuitry—used to operate high-voltage switches such as insulated-gate bipolar transistors (IGBTs) and silicon-carbide (SiC) MOSFETs.

These combinations of switches and drivers are used for power conversion in high-power applications (i.e., power levels ranging from a few kilowatts up to one gigawatt) such as industrial motors, solar- and wind-power systems, electric vehicles and high-voltage DC transmission systems.

These combinations of switches and drivers are used for power conversion in high-power applications (i.e., power levels ranging from a few kilowatts up to gigawatts) such as industrial motors, solar- and wind-power systems, electric vehicles (EVs) and high-voltage DC transmission systems.

Our products bring a number of important benefits to the power-conversion market compared with less advanced alternatives, including reduced component count and design complexity, smaller size, higher reliability and reduced time-to-market.

Our products also improve the energy efficiency of power converters, helping our customers meet the increasingly stringent efficiency standards that have been adopted around the world for many electronic products, and improving the efficacy of renewable-energy systems, electric vehicles and other high-power applications.

Our products also reduce the energy consumption of power converters during normal use and in “standby” operation, when the end product is not in use.

In addition to the environmental benefits of reduced energy usage, our energy-saving technologies provide a number of benefits to our customers;

these include helping them meet the increasingly stringent efficiency standards now in effect for many electronic products, and enabling the elimination of bulky heatsinks used to dissipate the heat produced by wasted electricity.

While the size of our addressable market fluctuates with changes in macroeconomic and industry conditions, the market has generally exhibited a modest growth rate over time as growth in the unit volume of power converters has been offset to a large degree by reductions in the average selling price of components in this market.

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● Increase our penetration of the markets we serve.

We currently address AC-DC applications with power outputs up to approximately 500 watts, gate-driver applications of approximately ten kilowatts and higher, and motor-drive applications up to approximately 300 watts.

We currently address AC-DC applications with power outputs up to approximately 500 watts, gate-driver applications ranging from a few kilowatts up to gigawatts, and motor-drive applications up to approximately 400 watts.

Through our research and development efforts, we seek to introduce more advanced products for these markets offering higher levels of integration and performance compared to earlier products.

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Since that time we have expanded our SAM to more than $4 billion through a variety of means.

These include the introduction of products that enable us to address higher-power AC-DC applications (such as our Hiper™ product families), the introduction of LED-driver products, and our entry into the gate-driver market through the acquisition

of CT-Concept Technologie AG in 2012.

In 2016 we introduced the SCALE-iDriver TM family of gate-driver ICs, broadening the range of gate-driver applications we can address, and in 2018 we introduced our BridgeSwitch™ motor-driver ICs, addressing BLDC motors, as described above.

In 2016 we introduced the SCALE-iDriver TM family of ICs, broadening the range of gate-driver applications we can address, and in 2018 we introduced our BridgeSwitch™ motor-driver ICs, addressing BLDC motors, as described above.

We have recently introduced a series of automotive-qualified versions of our products, including SCALE-iDriver, InnoSwitch™ and LinkSwitch™ ICs, targeting the EV market;

we expect to introduce additional products targeting EVs in the future, and expect automotive applications to become a significant portion of our SAM over time.

Also contributing to our SAM expansion has been the emergence of new applications within the power ranges that our products can address.

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For example, our InnoSwitch™ ICs integrate circuitry from the secondary, or low-voltage, side of AC-DC power supplies, whereas earlier product families integrated circuitry only on the primary, or high-voltage side.

In 2019 we introduced new members of our InnoSwitch™ family incorporating gallium-nitride (GaN) transistors, which enable a higher level of energy efficiency than ICs with traditional silicon transistors.

In 2019 we began incorporating proprietary gallium-nitride (GaN) transistors in some our products, enabling a higher level of energy efficiency than ICs with traditional silicon transistors.

We intend to continue expanding our SAM in the years ahead through all of the means described above.

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In 1994 we introduced TOPSwitch, the industry’s first cost-effective high-voltage IC for switched-mode AC-DC power supplies.

we have since introduced a range of other product families such as TinySwitch, LinkSwitch, Hiper and InnoSwitch which have expanded the range of power-supply applications we can address.

We have since introduced a range of other product families, expanding the range of power-supply applications we can serve and enhancing our competitiveness in applications that we already addressed .

In 2012 we expanded our addressable market to include high-voltage gate drivers.

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Our highly integrated ICs and gate drivers enable designs with up to 70% fewer components than comparable discrete designs.

This reduction in component count enhances reliability and efficiency, reduces size, accelerates time-to-market and results in lower manufacturing costs for our customers.

This reduction in component count enhances reliability and efficiency, reduces size, and results in lower manufacturing costs for our customers.

Power supplies that incorporate our ICs are also lighter and more portable than comparable power supplies built with linear transformers, which are still used in some low-power applications.

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The Alliance to Save Energy has estimated that a conversion to efficient lighting technologies such as compact fluorescent bulbs and LEDs could save as much as $18 billion worth of electricity and 158 million tons of carbon dioxide emissions per year in the United States alone.

In response to concerns about the environmental impact of carbon emissions, policymakers are taking action to promote energy efficiency.

In response to concerns about the environmental impact of carbon emissions, policymakers have taken action to promote energy efficiency.

For example, the ENERGY STAR® program and the European Union Code of Conduct encourage manufacturers of electronic devices to comply with voluntary energy-efficiency specifications.

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The EISA legislation also required substantial improvements in the efficiency of lighting technologies beginning in 2012;

as of 2014, traditional 100-, 75-, 60- and 40-watt bulbs may no longer be manufactured or sold in the United States.

as of 2014, traditional 100-, 75-, 60- and 40-watt bulbs are no longer permitted to be manufactured or sold in the United States.

Plans to eliminate conventional incandescent bulbs have also been announced or enacted in other geographies such as Canada, Australia and Europe.

In December 2019 the government of China published new efficiency standards for room air conditioners, which are scheduled to take effect on July 1, 2020.

In December 2019 the government of China published new efficiency standards for room air conditioners, which took effect on July 1, 2020.

We believe we offer products that enable manufacturers to meet or exceed these regulations, and all other such regulations of which we are aware.

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We have also introduced products designed specifically for LED-lighting applications, known as LYTSwitch ICs, as well as a range of high-performance, high-voltage diodes known as Qspeed diodes.

In 2014 we introduced our InnoSwitch product family, the first-ever power-supply ICs to combine primary, secondary and feedback circuits into a single package.

In 2014 we introduced our InnoSwitch product family, the first power-supply ICs to combine primary, secondary and feedback circuits into a single package.

These ICs employ a proprietary technology known as FluxLink to enable precise control without the need for optical components, which tend to add cost and diminish the reliability of power supplies.

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We offer a range of high-voltage gate-driver products sold primarily under the SCALE and SCALE-2 product-family names.

These products are fully assembled circuit boards incorporating multiple ICs, electrical isolation components and other circuitry.

These products are fully assembled circuit boards incorporating multiple ICs, electrical isolation

components and other circuitry.

We offer both ready-to-operate “plug-and-play” drivers designed specifically for use with particular IGBT modules, as well as “driver cores,” which provide more basic driver functionality that customers can customize to their own specifications after purchase.

In May 2016 we introduced the SCALE-iDriver family of standalone ICs, which enables us to address applications between approximately 10 kilowatts and 100 kilowatts, whereas previously our sales of high-power products were primarily for applications above 100 kilowatts.

In May 2016 we introduced the SCALE-iDriver family of standalone ICs, which enables us to address applications ranging from a few kilowatts up to about 100 kilowatts, whereas previously our sales of high-power products were primarily for applications above 100 kilowatts.

● Motor-driver products

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Communications

Mobile-phone chargers, routers, cordless phones, broadband modems, voice-over-IP phones, other network and telecom gear

Mobile-phone chargers, adaptors for routers, cordless phones, broadband modems, voice-over-IP phones, other network and telecom gear

Desktop PCs and monitors, servers, adapters for tablets and notebook computers, other computer peripherals

Major and small appliances, air conditioners, TV set-top boxes, digital cameras, TVs, video-game consoles

Industrial controls, LED lighting, utility meters, motor controls, uninterruptible power supplies, tools, networked thermostats, power strips and other “smart home” devices, industrial motor drives, renewable energy systems, electric locomotives, electric buses and other electric vehicles, high-voltage DC transmission systems

Industrial controls, LED lighting, utility meters, motor controls, uninterruptible power supplies, battery-powered tools, networked thermostats, power strips and other “smart home” devices, industrial motor drives, renewable energy systems, electric locomotives, electric buses and other electric vehicles, high-voltage DC transmission systems

Sales, Distribution and Marketing

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Our distributors are not subject to minimum purchase requirements, and sales representatives and distributors can discontinue marketing our products at any time.

Our top ten customers, including distributors that resell to OEMs and merchant power supply manufacturers, accounted for approximately 54% , 56% and 54% of net revenues in 2019 , 2018 and 2017 , respectively.

In each of 2019 , 2018 and 2017 one distributor accounted for more than 10% of revenues.

The following table discloses this customer’s percentage of net revenues for the respective years:

Year Ended December 31,

No other customers accounted for more than 10% of net revenues in these periods.

Sales to customers outside of the United States accounted for approximately 97% of our net revenues in 2019 and 96% in each of 2018 and 2017 , with sales to customers within the United States accounting for the remainder in each of the corresponding years.

See Note 8, “ Significant Customers and Geographic Net Revenues ,” in our Notes to Consolidated Financial Statements in this Annual Report on Form 10-K regarding sales to customers located in foreign countries.

See our consolidated financial statements in Item 8 regarding total revenues and profits for the last three fiscal years, and total assets.

We are subject to risks stemming from the fact that most of our manufacturing and most of our customers are located in foreign jurisdictions.

Risks related to our foreign operations are set forth in Item 1A of this Annual Report on Form 10-K, and include:

potential weaker intellectual property rights under foreign laws, the burden of complying with foreign laws and foreign-currency exchange risk.

See, in particular, the risk factor “Our international sales activities account for a substantial portion of our net revenues, which subjects us to substantial risks” in Item 1A of this Form 10-K.

Our sales are primarily made pursuant to standard purchase orders.

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Historically, our business has been characterized by short-lead-time orders and quick delivery schedules.

for this reason, and because orders in backlog are subject to cancellation or postponement, backlog is not necessarily a reliable indicator of future revenues.

Our top ten customers, including distributors that resell to OEMs and merchant power supply manufacturers, accounted for approximately 62%, 54% and 56% of net revenues in 2020, 2019 and 2018, respectively.

In 2020, two distributors accounted for more than 10% of revenues.

In 2019 and 2018, one of these distributors accounted for more than 10% of revenues.

Research and Development

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We also hold trademarks in the U.S.

and various other geographies including Taiwan, Korea, Hong Kong, China, Europe and Japan.

and various other geographies including Taiwan, Korea, Hong Kong, China, Europe, Japan, India, and Brazil.

We regard as proprietary some equipment, processes, information and knowledge that we have developed and used in the design and manufacture of our products.

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Under the terms of the Lapis and Epson agreements, each supplier has agreed to reserve a specified amount of production capacity and to sell wafers to us at fixed prices, which are subject to periodic review jointly by the supplier and us.

In addition, Lapis and Epson require us to supply them with a rolling six-month forecast on a monthly basis.

In addition, Lapis and

Epson require us to supply them with a rolling six-month forecast on a monthly basis.

Our agreements with Lapis and Epson each provide for the purchase of wafers in U.S.

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Under the terms and conditions of sale, our liability is limited generally to either a credit equal to the purchase price or replacement of the defective part.

As of December 31, 2019 , we employed 699 full-time personnel, consisting of 75 in manufacturing, 263 in research and development, 298 in sales, marketing and applications support, and 63 in finance and administration.

Human Capital

As of December 31, 2020, we employed 725 full-time personnel across 14 countries with 363, or 50% of the total, residing in North America, while 50% resided offshore comprising 259 in the Asia-Pacific region and 103 across Europe, Middle East and Africa.

As of December 31, 2020, 5% of our worldwide employees were foreign nationals, defined as individuals requiring employment visas in the countries where they are employed.

Women comprise more than 40% of our U.S.

non-technical workforce.

The ethnic makeup of our U.S.

workforce is approximately as follows:

7% Hispanic or Latino;

Innovation is the lifeblood of our company, and we depend on our people to sustain our competitive advantage.

We offer attractive compensation with generous comprehensive benefits for employees and dependents (including domestic partners), including health, dental and vision insurance, matching 401(k) contributions, employee stock plans, paid time off and family leave, life insurance, flu vaccinations, charitable gift matching, a health-and-wellness program designed to promote physical well-being, and an employee assistance program and other mental health services.

Approximately 97% of eligible U.S.

employees participate in our 401(k) plan.

These benefits, combined with our culture of innovation and sustainable growth, contribute to low employee turnover and an average tenure of nearly 10 years.

It is our policy to ensure equal employment opportunity for all applicants and employees without regard to prohibited considerations of race, color, religion, sex (including pregnancy, gender identity and sexual orientation), national origin, age, disability or genetic information, marital status or any other classification protected by applicable local, state or federal laws.

Our employees are encouraged to engage with company leadership and raise concerns and questions in-person, via e-mail (anonymously if desired), or at our quarterly employee communications meeting with the CEO and senior management team.

All employees receive training in the prevention of sexual harassment and abusive conduct in the workplace.

We value our employees, giving them the tools and training to grow as individuals, and the freedom to take risks in the service of innovation.

We offer tuition reimbursement for job-related education and provide live and online classes covering topics such as communication, leadership and management, software, and time management.

Subject to restrictions due to the current COVID-19 pandemic, we also offer catered lunch-time workshops on a range of personal-development topics such as financial planning, nutrition and stress management.

Additional information regarding our commitment to our people can be found on our website at https://www.power.com/company/sustainability-citizenship/.

Investor Information

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Information About Our Executive Officers

As of January 31, 2020, our executive officers, who are appointed by and serve at the discretion of the board of directors, were as follows:

As of February 1, 2021, our executive officers, who are appointed by and serve at the discretion of the board of directors, were as follows:

Position With Power Integrations

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Vice President, Technology

Vice President, Operations

David “Mike” Matthews

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Vice President, Worldwide Sales

Raja Petrakian

Vice President, Operations

Clifford Walker

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Barsan has 40 years of commercial experience in semiconductor and photonic components development, engineering and operations.

Sunil Gupta has served as our vice president of operations since August 2020.

Prior to joining Power Integrations, Mr.

Gupta was vice president of operations at Renesas Electronics Corporation, a provider of electronics solutions, from July 2017 until August 2020, in which position he was responsible for global operations for Intersil and IDT products as well as the integration into the operations of Renesas.

Prior to joining Renesas he was Senior Vice President, Global Operations at Intersil Corporation, a developer of power management and precision analog integrated circuits, from June 2016 to July 2017, in which position he led the global operations and technology teams, and was Vice President, Quality and Technology Development at Intersil was from September 2013 to June 2016, in which position he led the quality, reliability, yield, process technology and package technology teams.

Gupta joined Intersil in 2012 as its Vice President, Quality and Reliability.

Prior to joining Intersil, Mr.

Gupta was the Director of Worldwide Customer Quality Engineering at Qualcomm, and prior to Qualcomm Mr.

Gupta spent 16 years at National Semiconductor in wafer fab operations and quality.

Mike Matthews has served as our vice president of product development since August 2012.

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Sandeep Nayyar has served as our vice president and chief financial officer since June 2010.

Previously Mr.

Nayyar served as vice president of finance at Applied Biosystems, Inc., a developer and manufacturer of life-sciences products, from 2002 to 2009.

Nayyar was a member of the executive team with world-wide responsibilities for finance.

From 2002 to 2009 Mr.

Nayyar served as vice president of finance at Applied Biosystems, Inc., a developer and manufacturer of life-sciences products, where he was a member of the executive team with world-wide responsibilities for finance.

From 1990 to 2001, Mr.

Nayyar served in a succession of financial roles including vice president of finance at Quantum Corporation, a computer storage company.

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Nayyar is a Certified Public Accountant, Chartered Accountant and has a Bachelor of Commerce from the University of Delhi, India.

Nayyar has also served as a director and chairman of the audit committee for Smart Global Holdings, Inc.

since September 2014.

Since 2014, Mr.

Nayyar has served as a director and audit-committee chairman of Smart Global Holdings, Inc., a manufacturer of specialty memory solutions;

in 2021 he was named lead independent director.

Ben Sutherland has served as our vice president, worldwide sales since July 2011.

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Sutherland served in various product marketing and sales roles at Vishay Intertechnology, Inc., a manufacturer and supplier of discrete semiconductors and passive electronic components.

Raja Petrakian has served as vice president of operations since May 2015.

From 1995 to 2015, Dr.

Petrakian served in a succession of roles in operations and supply chain management, most recently as senior vice president of worldwide operations, at Xilinx Inc.

where he was responsible for manufacturing, supply chain management (fabrication through delivery), customer service, supplier relationships, purchasing, import/export compliance, new product introduction operations, and logistics.

Prior to joining Xilinx he was a research staff member at the IBM T.J.

Watson Research Center.

Clifford Walker has served as our vice president, corporate development since June 1995.

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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