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Item 1A. Risk Factors

2026-08-06 compared with 2026-05-07 · 152 added, 133 removed, 264 unchanged (52% of the section changed)

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Risks Related to the Operation and Growth of Our Business

● The demand for our products may decline in the major end markets we serve and reduce the ability of our products to penetrate additional markets;

• The demand for our products may decline in the major end markets we serve and our products may be unable to penetrate additional markets;

which may occur due to competitive factors, supply chain fluctuations, rising inflation or other changes in macroeconomic or geopolitical conditions;

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• the lengthy timing of our sales cycle;

● sales of our products through distributors, which limits our direct interaction with our end customers, reducing our ability to forecast sales and increasing the complexity of our business;

• sales of our products through distributors, which limits our direct interaction with our end customers, reducing our ability to forecast sales and increasing the complexity of managing our business;

• the cyclical nature of the power supply industry and cyclical market patterns across different end markets for which our products are used;

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Risks Related to the Operation and Growth of Our Business

If demand for our products declines in our major end markets and we do not penetrate additional markets, our net revenue will decrease.

If demand for our products decline in our major end markets and we do not penetrate additional markets, our net revenue will decrease.

When our customers are not successful in maintaining high levels of demand for their products, their demand for our products decreases, which adversely affects our operating results.

A limited number of applications of our products, such as consumer appliances and cellphone chargers, make up a significant percentage of our net revenue.

We expect that a significant level of our net revenue and operating results will continue to be dependent upon these applications in the near term.

A limited number of applications for our products, such as consumer appliances and cellphone chargers, make up a significant percentage of our revenue.

We expect that a significant level of our revenue and, therefore, our operating results will continue to be dependent upon these applications in the near and mid-term.

Demand for end products incorporating our products has been highly cyclical over time and has been impacted by economic downturns.

our recent results have been impacted by economic conditions, including softness in housing markets, which affects demand for consumer appliances and inflation.

Any economic slowdown or disruption in the end markets that we serve could cause a slowdown in demand for our ICs, causing our net revenue to decline and potentially result in write-offs of excess or obsolete inventory, which could cause the price of our stock to fall.

Our recent results have been impacted by economic conditions, including increases in inflation rates as well as softness in the housing market, which affects demand for consumer appliances.

Any economic slowdown or disruption in the end markets that we serve could cause a slowdown in demand for our products, causing our revenue to decline and potentially result in lower revenue and write-offs of excess or obsolete inventory, which could cause the price of our stock to fall.

We believe that our future success depends in part upon our ability to penetrate additional markets for our products.

We cannot assure that we will be able to overcome the marketing or technological challenges necessary to penetrate additional markets.

To the extent that a competitor penetrates additional markets before we do, or takes market share from us in our existing markets, our net revenue and financial condition could be materially adversely affected.

We do not have long-term contracts with any of our customers and if they fail to place, or if they cancel or reschedule orders for our products, our operating results and our business may suffer.

Our business is characterized by short-term customer orders and shipment schedules, and the ordering patterns of some of our large customers have been unpredictable in the past and will likely remain unpredictable in the future.

Not only does the volume of units ordered by particular customers vary substantially from period to period, but also purchase orders received from particular customers often vary substantially from early oral estimates provided by those customers for planning purposes.

In addition, customer orders can be canceled or rescheduled without significant penalty to the customer.

In the past, we have experienced customer cancellations of substantial orders for reasons beyond our control, and significant cancellations could occur again at any time.

Also, a relatively small number of distributors, OEMs and merchant power-supply manufacturers account for a significant portion of our revenue.

We cannot provide assurances that we will be able to overcome the marketing or technological challenges necessary to penetrate additional markets.

To the extent that a competitor penetrates additional markets before we do, or takes market share from us in our existing markets, our revenue and financial condition could be materially adversely affected.

We do not have long-term contracts with any of our customers and if they fail to place, cancel, or reschedule orders for our products, our operating results and our business may suffer.

Our business is characterized by short-term customer orders and shipment schedules.

The ordering patterns of some of our large customers have been unpredictable in the past and will likely remain unpredictable in the future.

Not only does the volume of units ordered by particular customers vary substantially from period to period, but purchase orders received from particular customers often vary substantially from early oral estimates provided by those customers for planning purposes.

In addition, customer orders can generally be canceled or rescheduled without significant penalty to the customer.

In the past, we have experienced customer cancellations of substantial orders for reasons beyond our control usually due to decreased demand from our customers’ end customers.

Significant cancellations could occur again at any time.

A relatively small number of distributors, OEMs, and other customers account for a significant portion of our revenue.

As a result, any challenges that we face with a key distributor, including the loss of a key distributor, could harm our business.

Similarly, although we sell through various distributors, certain end customers account for a significant portion of our revenue.

As such, the loss of demand for our products by customers who purchase through different distributors could harm our business even if the impacts through a single distributor are immaterial.

If our efforts to enhance existing products and introduce new products are not successful, we may not be able to generate demand for our products .

Our success depends in significant part upon our ability to develop new ICs for high-voltage power conversion for existing and new markets, to introduce these products in a timely manner and to have these products selected for design into products.

New product introduction schedules are subject to the risks and uncertainties that typically accompany development and delivery of complex technologies to the marketplace, including product development delays and defects.

We have experienced delays from time to time in completing new product development.

If we fail to develop and sell new products in a timely manner in the future, then our net revenue and ability to compete domestically or internationally could decline.

In addition, we cannot be sure that we will be able to adjust to changing market demands as quickly and cost-effectively as necessary to compete successfully.

Furthermore, we cannot assure that we will be able to introduce new

products in a timely and cost-effective manner or in sufficient quantities to meet customer demand or that these products will achieve market acceptance.

Our success depends in significant part upon our ability to develop new products for high-voltage power conversion for both existing and new markets, to introduce these products in a timely manner, and to have these products selected for design into our customers’ end products.

New product introduction schedules are subject to risks and uncertainties that typically accompany development and delivery of complex technologies to the marketplace, including product development delays and defects.

We have experienced delays in the past in completing new product development.

If we fail to develop and sell new products in a timely manner in the future, then our net revenue and ability to compete both domestically or internationally could decline.

In addition, we cannot be sure that we will be able to adjust to changing market demands as quickly and as cost-effectively as necessary to successfully compete.

Furthermore, we cannot provide assurances that we will be able to introduce new products in a timely and cost-effective manner or in sufficient quantities to meet customer demand or that these products will achieve market acceptance.

Our failure, or our customers’ failure, to develop and introduce new products successfully and in a timely manner would harm our business.

In addition, customers may defer or return orders for existing products.

While we maintain reserves for potential customer returns, we cannot assure that these reserves will be adequate.

While we maintain reserves for potential customer returns, we cannot provide assurances that these reserves will be adequate.

Our international sales activities account for a substantial portion of our net revenue, which subjects us to substantial risks.

Sales to customers outside of the U.S.

account for, and have accounted for, a large portion of our net revenue.

Approximately 98% of our net revenue for each of the years ended December 31, 2025, 2024 and 2023 was generated by sales to customers outside of the U.S.

account for, and have historically accounted for, a large portion of our revenue.

Approximately 98% of our revenue for each of the years ended December 31, 2025, 2024 and 2023 was generated by sales to customers outside of the U.S.

If our international sales decline and we are unable to increase domestic sales, our revenue and operating results would be harmed.

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• the impact of recessionary environments and inflation in the U.S.

and other economies where we do business;

and other geographies where we do business;

• global, regional, and local circumstances, including, but not limited to, social, economic, political, and supply chain instability related to the uncertainty regarding relationships among countries, including tensions between China and Taiwan and between China and other countries;

● ongoing, escalating or potential conflicts between countries or regions, including those currently involving Russia, Ukraine, Israel, Gaza, Lebanon, Iran and the United States, as well as the the risk of broader regional destabilization in the Middle East, and the related disruption to global energy supplies, volatility in oil and commodity prices, and adverse macroeconomic effects;

• ongoing, escalating or potential conflicts between countries or regions, including those currently involving Russia, Ukraine, Israel, Gaza, Lebanon, Iran, and the United States, as well as the risk of broader regional destabilization in the Middle East, and the related disruption to global energy supplies, volatility in oil and commodity prices, and adverse macroeconomic effects;

• the burdens of complying with a variety of foreign and applicable U.S.

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Furthermore, because substantially all of our foreign sales are denominated in U.S.

dollars, increases in the value of the dollar cause the price of our products in foreign markets to rise, making our products more expensive relative to competing products priced in local currencies.

dollars, increases in the value of the dollar versus other currencies causes the price of our products in foreign markets to rise, making our products more expensive relative to competing products priced in local currencies.

Because the sales cycle for our products can be lengthy, we may incur substantial expenses before we generate significant revenue, if any.

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The value of any design win will largely depend upon the commercial success of the customer’s product.

We cannot assure that we will continue to achieve design wins or that any design win will result in future revenue.

We cannot provide assurances that we will continue to achieve design wins or that any design win will result in future revenue.

If a customer decides at the design stage not to incorporate our products into its product, we may not have another opportunity for a design win with respect to that product for many months or years.

Our products are sold through distributors, which limits our direct interaction with our end customers, therefore reducing our ability to forecast sales and increasing the complexity of our business.

Sales to distributors account for a significant portion of our net revenue.

Sales to distributors account for a significant portion of our revenue.

Selling through distributors reduces our ability to forecast sales and creates challenges for our business by requiring us, among other things, to:

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Since we have limited ability to forecast inventory levels at our end customers, it is possible that there may be significant build-up of inventories in the distributor channel, with the OEM or the OEM’s contract manufacturer.

Such a buildup could result in a slowdown in orders, requests for returns from customers, or requests to move out planned shipments.

Such a buildup could result in a slowdown in orders, requests for returns from customers, or requests to move out future shipments.

This could adversely impact our revenue and profits.

Any failure to manage these complexities could disrupt or reduce sales of our products and unfavorably impact our financial results.

In addition, to the extent we are not able to keep our products away from unintended markets, demand and pricing dynamics can become distorted in our distributor channel and certain geographies, which could adversely affect our revenue.

Further, customers purchasing our products on unintended markets may use our products for purposes for which they were not intended, or may purchase counterfeit or substandard products, for instance that have been altered or damaged, which could harm our business and cause our reputation to be adversely affected.

The power supply industry routinely experiences cyclical market patterns and our products are used across different end markets.

A significant downturn in the industry or in any of these end markets could cause a meaningful reduction in demand for our products and adversely affect our operating results.

In addition, to the extent we are not able to keep our products away from unintended markets, demand and pricing dynamics can become distorted in our distributor channel and in certain geographies, which could adversely affect our revenue.

Customers purchasing our products on unintended markets may use our products for purposes for which they were not intended, or may purchase counterfeit or substandard products, for instance that have been altered or damaged, which could harm our business and cause our reputation to be adversely affected.

Our products are used across different end markets and a significant downturn in any of these end markets could cause a meaningful reduction in demand for our products and adversely affect our operating results.

The power supply industry is highly cyclical and subject to downturns, such as we have recently seen, and our revenue and gross margin can fluctuate significantly due to such downturns.

These downturns can be severe and prolonged and can result in price erosion and weak demand for our products.

These downturns can be severe and prolonged and result in price erosion and weak demand for our products.

Weak demand for our products resulting from general economic conditions affecting the end markets we serve, or the power supply industry specifically, and reduced spending by our customers can result, and in the past has resulted, in diminished product demand, high inventory levels, erosion of average selling prices, excess and obsolete inventories, and corresponding inventory write-downs.

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Accordingly, shortfalls in sales could adversely affect our operating results.

Furthermore, any significant upturn in the power supply industry could result in increased competition for access to raw materials and third-party service providers.

Furthermore, any

significant upturn in the power supply industry could result in increased competition for access to raw materials and third-party service providers.

For example, infrastructure investments in AI have increased substantially, driving significant demand increases in the data center computing market and straining the supply chain.

If we are unable to manage our supply chain or timely or efficiently scale to meet growing demand or if we have not accurately assessed the magnitude or sustainability of such demand, our results of operations could be adversely impacted.

Additionally, our products are used across different end markets, and demand for our products is difficult to predict and may vary within or among our end markets.

Our target markets may not grow or develop as we currently expect, and demand may increase or change in one or more of our end markets, and changes in demand may reduce our revenue, lower our gross margin and effect our operating results.

Additionally, our products are used across different end markets, and demand for our products is difficult to predict as demand varies within and among our end markets.

Our target markets may not grow or develop as we currently expect, and demand may increase or change in one or more of our end markets.

Changes in demand may reduce our revenue, lower our gross margin, and effect our operating results.

Any deterioration in these end markets, reductions in the magnitude of revenue streams, our inability to meet design and pricing requirements, or volatility in demand for our products could lead to a reduction in our revenue and adversely affect our operating results.

Our success in our end markets depends on many factors, including the strength or financial performance of the customers in our end markets, our ability to timely meet rapidly changing product requirements, market needs, and our ability to maintain design wins across different markets and customers to dampen the effects of market volatility.

Our success in our end markets depends on many factors, including the strength or financial performance of our customers, our ability to timely meet rapidly changing product requirements, market needs, and our ability to maintain design wins across different markets and customers to dampen the effects of market volatility.

The dynamics of the markets in which we operate make prediction of and timely reaction to such events difficult.

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The high-voltage power supply industry is intensely competitive and characterized by significant price sensitivity.

Our products face competition from alternative technologies, such as linear

transformers, discrete switcher power supplies, and other integrated and hybrid solutions.

Our products face competition from alternative technologies, such as linear transformers, discrete switcher power supplies, and other integrated and hybrid solutions.

If the price of competing solutions decreases significantly, the cost effectiveness of our products will be adversely affected.

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Additionally, we compete with major domestic and international semiconductor companies, many of which have greater market recognition and substantially greater financial, technical, marketing, distribution, and other resources than we do.

In addition, some governments, such as China, may provide, or have provided and may continue to provide, significant assistance financial or otherwise, to some of our competitors, or to new entrants, and may intervene in support of national industries and/or competitors, including to try to disrupt the U.S.

In addition, some governments, such as China, may provide, or have provided and may continue to provide, significant financial assistance or otherwise, to some of our competitors, or to new entrants, and may intervene in support of national industries and/or competitors, including to try to disrupt the U.S.

semiconductor industry.

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Although some aspects of our relationships with our fabs are contractual, many important aspects of these relationships depend on their continued cooperation.

We cannot assure that we will continue to work successfully with our wafer suppliers in the future, and that the wafer foundries’ capacity will meet our needs.

We cannot provide assurances that we will continue to work successfully with our wafer suppliers in the future, and that the wafer foundries’ capacity will meet our needs.

Additionally, one or more of these wafer foundries could seek an early termination of their wafer supply agreements with us.

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Although we provide our foundries with rolling forecasts of our production requirements, their ability to provide wafers to us is ultimately limited by the available capacity of the wafer foundry.

Any reduction in wafer foundry capacity available to us could require us to pay amounts in excess of contracted or anticipated amounts for wafer deliveries or require us to make other concessions to meet our customers’ requirements or may limit our ability to meet demand for our products.

Any reduction in wafer foundry capacity available to us could require us to pay amounts in excess of contracted or anticipated amounts for wafer deliveries, require us to make other concessions to meet our customers’ requirements, or may limit our ability to meet demand for our products.

Further, to the extent demand for our products exceeds wafer foundry capacity, this could inhibit us from expanding our business and harm relationships with our customers.

Any of these concessions or limitations could harm our business.

If our third-party suppliers and independent subcontractors do not produce our wafers and assemble our finished products at acceptable yields, our net revenue may decline.

If our third-party suppliers and independent subcontractors do not produce our wafers and assemble our finished products at acceptable yields, our revenue may decline.

We depend on independent foundries to produce wafers, and independent subcontractors to assemble and test finished products, at acceptable yields and to deliver them to us in a timely manner.

The failure of the foundries to supply us wafers at acceptable yields could prevent us from selling our products to our customers and would likely cause a decline in our net revenue and gross margin.

In addition, our IC assembly process requires our manufacturers to use a high-voltage molding compound that has been available from only a few suppliers.

These compounds and their specified processing conditions require a more exacting level of process control than normally required for standard IC packages.

Unavailability of assembly materials or problems with the assembly process can materially and adversely affect yields, timely delivery and cost to manufacture.

The failure of the foundries to supply us with wafers at acceptable yields could prevent us from selling our products to our customers and would likely cause a decline in our revenue and gross margin.

In addition, our assembly process requires our manufacturers to use a high-voltage molding compound that has been available from only a few suppliers.

These compounds and their specified processing conditions require a more exacting level of process control than normally required for standard semiconductor packages.

Unavailability of assembly materials or issues with the assembly process can materially and adversely affect yields, timely delivery, and cost to manufacture.

We may not be able to maintain acceptable yields in the future.

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If China were to restrict or stop exporting these materials, our suppliers' ability to obtain such supply may be constrained and we may be unable to obtain sufficient quantities, or obtain supply in a timely manner, or at a commercially reasonable cost.

Constrained supply of rare earth elements, minerals, and metals may restrict our ability to manufacture certain of our products and make it difficult or impossible to compete with other semiconductor memory manufacturers who are able to obtain sufficient quantities of these materials from China or other countries.

Constrained supply of rare earth elements, minerals, and metals may restrict our ability to manufacture certain of our products and make it difficult or impossible to compete with other semiconductor manufacturers who are able to obtain sufficient quantities of these materials from China or other countries.

Our products must meet exacting specifications, and undetected defects, failures or other quality issues may occur which may cause customers to return or stop buying our products and/or impose significant costs to us.

Our customers generally establish demanding specifications for quality, performance, and reliability, and our products must meet these specifications.

ICs encounter development delays and may contain undetected defects, failures or other quality issues when first introduced or after commencement of commercial shipments.

We have from time to time in the past experienced product quality, performance or reliability problems.

If defects and failures occur in our products or if or any such failures are alleged to result in bodily injury, death, and/or property damage, we could experience lost revenue, decreased ability to compete, increased costs (including product warranty or liability claims) and costs associated with customer support and product recalls, delays in or cancellations or rescheduling of orders or shipments and product returns or discounts.

Semiconductors encounter development delays and may contain undetected defects, failures, or other quality issues when first introduced or after commencement of commercial shipments.

We have in the past experienced product quality, performance, and reliability issues.

Some OEMs expect suppliers to warrant their products for longer periods of time and are increasingly looking to them for contribution when faced with product liability claims or recalls.

While we specifically exclude consequential damages in our standard terms and conditions, certain of our contracts may not exclude such liabilities.

We carry various commercial liability policies, including umbrella/excess policies which cover certain damages arising out of product defects.

These policies may not cover all claims or be of a sufficient amount to fully protect against such claims, and a successful warranty or product liability claim against us in excess of our available insurance coverage, or a requirement that we participate in a product recall, could have adverse effects on our business results.

Further, in the future, it is possible that we will not be able to obtain insurance coverage in the amounts and for the risks we seek at policy costs and terms we desire.

We carry various commercial liability policies, including umbrella/excess policies which may cover certain damages arising out of product defects.

that we participate in a product recall, could have an adverse effect on our business results.

Further, in the future, it is possible that we will not be able to obtain insurance coverage in the amounts and for the risks we seek at costs and terms we desire.

Additionally, if our products fail to perform as expected or such failure of our products results in a recall, our reputation may be damaged, which could make it more difficult for us to sell our products to existing and prospective customers and could materially and adversely affect our business, results of operations, and financial condition.

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Our success depends to a significant extent upon the continued service of our executive officers and other key management and technical personnel, and on our ability to continue to attract, retain, and motivate qualified personnel, such as experienced analog design engineers and systems applications engineers.

The competition for these employees is intense, particularly in Silicon Valley.

The loss of the services of one or more of our engineers, executive officers or other key personnel could harm our business.

The competition for these employees is intense, particularly in Silicon Valley, where we are headquartered.

The loss of the services of our engineers, executive officers, or other key personnel could harm our business.

In addition, if qualified personnel leave our employ, and we are unable to quickly and efficiently replace those individuals with qualified personnel who can smoothly transition into their new roles, our business may suffer.

We do not have long-term employment contracts with, and we do not have in place key person life insurance policies on, any of our employees.

We do not have employment contracts with, and we do not have in place key person life insurance policies on, any of our employees.

Changes in our management team can also disrupt our business and adversely affect our results of operations, given the lengthy sales cycle for our products and the large capital investments over a long time period required for our operations.

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Changes in global trade, in particular the escalation and imposition of new and higher tariffs and additional export controls, could reduce demand for end products that incorporate our products, which could have a material adverse effect on our revenue and operating results.

Further, increased tariffs or the imposition of other barriers to international trade could place pressure on our prices as our customers seek to offset the impact of increased tariffs on them.

Compliance with import and export controls could impair our ability to compete in international markets or subject us to liability if we violate these controls.

Although power supplies using our products are designed and distributed worldwide, most of these power supplies are manufactured by our customers in Asia.

As a result, our business is subject to risks related to tariffs and other trade protection measures put in place by the United States or other countries, as well as evolving international trade relations, including but not limited to those between the U.S., China, countries in the APAC region and the EU.

During the year 2025, the United States government imposed and threatened significant additional tariffs on goods imported into the U.S.

As a result, our business is subject to risks related to tariffs and other trade protection measures put in place by the U.S.

or other countries, as well as evolving international trade relations, including but not limited to those between the U.S., China, countries in the APAC region, and the EU.

During 2025, the U.S.

government imposed and threatened significant additional tariffs on goods imported into the U.S.

from most of its trading partners, and, in response, multiple countries imposed or threatened retaliatory tariffs and other actions.

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Resulting trade disputes, trade restrictions, tariffs, and other political tensions between the U.S.

and other countries or among countries may also exacerbate unfavorable macroeconomic conditions including inflationary pressures, foreign exchange volatility, financial market instability, and economic recessions or downturns, which may also negatively impact customer demand for our products or services, delay purchases or renewals, limit our ability to obtain equipment, components or raw materials, limit expansion opportunities with customers, limit our access to capital, or otherwise negatively affect our business and operations.

and other countries or among countries may also exacerbate unfavorable macroeconomic conditions including inflationary pressures, foreign exchange volatility, financial market instability, and economic recessions or downturns, which may also negatively impact customer demand for our products, delay purchases or renewals, limit our ability to obtain equipment, components or raw materials, limit expansion opportunities with customers, limit our access to capital, or otherwise negatively affect our business and operations.

Ongoing tariff, trade restrictions and macroeconomic uncertainty also has and may continue to contribute to volatility in the price of our common stock.

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Department of Commerce and trade and economic sanctions, including those administered by the U.S.

Treasury Department’s Office of Foreign Assets Control.

Treasury Department’s Office of Foreign Assets

As such, licenses and notices may be required to import, export, or re-export our products and power supplies using our products to certain countries and end users or for certain end uses.

The process for obtaining necessary licenses or making required notices may be time-consuming or unsuccessful, potentially causing delays in sales or losses of sales opportunities.

Trade controls are complex and dynamic regimes and monitoring and ensuring compliance can be challenging.

The process of obtaining necessary licenses or making required notices may be time-consuming or unsuccessful, potentially causing delays in sales or losses of sales opportunities.

Trade controls are complex and ensuring compliance can be challenging.

Failure to adhere to such rules and regulations can result in the incurrence of fines, loss of import or export privileges, seizure of products, loss of reputation and other penalties, any of which could have a material adverse effect on our business, sales, and earnings.

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or our ability to effectively operate other aspects of our business.

Adverse effects of our restructuring activities could lead to additional costs, harm our efficiency or impact

our ability to effectively operate our business.

Adverse effects of our restructuring activities could lead to additional costs, harm our efficiency, or impact our ability to effectively operate our business.

In addition, we may be unsuccessful in our efforts to realign our organizational structure and shift our investments.

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We also cannot guarantee that we will not have to undertake additional workforce reductions or related activities in the future.

Such cost reduction efforts may in the future adversely affect our ability to attract and retain employees, and may adversely affect our culture and impact our ability to effectively pursue our business strategy.

Such future cost reduction efforts may adversely affect our ability to attract and retain employees, and may adversely affect our culture and impact our ability to effectively pursue our business strategy.

For example, our workforce reduction could yield unanticipated consequences, such as attrition beyond planned staff reductions, increased difficulties in our day-to-day operations, and reduced employee morale.

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Debt obligations we incur in the future could adversely affect our financial condition.

On April 10, 2026, the PNC Loan Agreement became effective and available for use when we terminated our Prior Credit Agreement.

We had no advances outstanding under the PNC Loan Agreement as of April 10, 2026.

We may incur, under the PNC Loan Agreement or otherwise in the future, debt to finance our capital investments, general corporate purposes and other activities.

On April 10, 2026, we entered into a new unsecured loan agreement with PNC Bank, National Association (the “PNC Loan Agreement”) and terminated our credit agreement with Wells Fargo Bank, National Association.

We had no advances outstanding under the PNC Loan Agreement as of June 30, 2026.

In the future, we may incur, under the PNC Loan Agreement or otherwise, debt to finance our capital investments, general corporate purposes, and other activities.

Any debt obligations could adversely impact us as follows:

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There can be no assurance that our business will generate cash flow from operations, or that additional capital will be available to us, in amounts sufficient to enable us to meet our debt payment obligations and to fund other liquidity needs.

Additionally, events and circumstances may occur which would cause us to not be able to satisfy applicable draw-down conditions and utilize our PNC Loan Agreement.

Additionally, events and circumstances may occur which would cause us to be unable to satisfy applicable draw-down conditions and therefore be unable to utilize our PNC Loan Agreement.

If we are unable to generate sufficient cash flows to service our debt payment obligations or satisfy our debt covenants, we may need to refinance, restructure, or amend the terms of our debt, sell assets, reduce or delay capital investments, or seek to raise additional capital.

If we are unable to implement one or more of these alternatives, we may be unable to meet our debt payment obligations, which could have a material adverse effect on our business, results of operations, or financial condition.

Provisions in our charter documents and Delaware law could prevent, delay, or impede a change in control of us and may negatively affect the market price of our common stock.

Provisions of our certificate of incorporation and bylaws could have the effect of discouraging, delaying, or preventing a merger or acquisition that a stockholder may consider favorable.

For example, our certificate of incorporation authorizes the issuance of blank-check preferred stock, the rights, preferences and privileges of which may be designated by our board of directors without stockholder approval.

Our certificate of incorporation also does not permit stockholders to act by written consent in lieu of a meeting.

In addition, while our bylaws permit stockholders holding at least 10% of the shares entitled to vote to call a special meeting, they impose detailed procedural and informational requirements on any such request, and our bylaws separately include advance notice provisions governing stockholder nominations of directors and proposals of other business at a stockholders' meeting.

Our board of directors is expressly authorized to make, alter, or repeal our bylaws, and our certificate of incorporation requires the affirmative vote of holders of a majority of the outstanding voting power of our capital stock to amend or repeal certain provisions of our certificate of incorporation.

We also are subject to the anti-takeover laws of Delaware which may discourage, delay, or prevent someone from acquiring or merging with us, which may adversely affect the market price of our common stock.

Risks Related to Laws and Regulations

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Our success depends upon our ability to continue our technological innovation and protect our intellectual property, including patents, trade secrets, copyrights, and know-how.

We cannot assure that the steps we have taken to protect our intellectual property will be adequate to prevent misappropriation, or that others will not develop competitive technologies or products.

From time to time, we have received, and we may receive in the future, communications alleging possible infringement of patents or other intellectual property rights of others.

We cannot provide assurances that the steps we have taken to protect our intellectual property will be adequate to prevent misappropriation, or that others will not develop competitive technologies or products.

From time to time, we have received, and we may receive in the future, communications alleging our possible infringement of patents or other intellectual property rights of others.

Costly litigation may be necessary to enforce our intellectual property rights or to defend us against claimed infringement.

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patents have expiration dates ranging from 2026 to 2046.

We cannot assure that our products will continue to compete favorably or that we will be successful in the face of increasing competition from new products and enhancements introduced by existing competitors or new companies entering this market.

We cannot provide assurances that our products will continue to compete favorably or that we will be successful in the face of increasing competition from new products and enhancements introduced by existing competitors or new companies entering the market.

We believe our failure to compete successfully in the high-voltage power supply business, including our ability to introduce new products with higher average selling prices, would materially harm our operating results.

As our patents expire, we will lose intellectual property protection previously afforded by those patents.

Additionally, the laws of some foreign countries in which our technology is or may in the future be licensed may not protect our intellectual property rights to the same extent as the laws of the United States, thus limiting the protections applicable to our technology.

Additionally, the laws of some foreign countries in

which our technology is or may in the future be licensed may not protect our intellectual property rights to the same extent as the laws of the U.S., thus limiting the protections applicable to our technology.

If we do not prevail in our litigation, we will have expended significant financial resources, potentially without any benefit, and may also suffer the loss of rights to use some technologies.

We recently successfully defended a patent litigation matter.

See Note 11, Commitments and Contingencies , in our Notes to Unaudited Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q.

In the event of an adverse outcome in any litigation, we may be required to pay substantial damages, stop our manufacture, use, sale, or importation of infringing products, or obtain licenses to any intellectual property found to have been infringed.

In the event of an adverse outcome in any litigation challenging our use of intellectual property, we may be required to pay substantial damages, stop our manufacture, use, sale, or importation of infringing products, or obtain licenses to any intellectual property we are found to have infringed.

We have incurred significant legal costs in conducting lawsuits, and our involvement in any future intellectual property litigation could adversely affect sales and divert the efforts and attention of our technical and management personnel, whether or not such litigation is resolved in our favor.

We have been and may be subject to or involved in litigation, threatened litigation or other disputes, the outcome of which may be difficult to predict, and which may be costly to defend, divert management attention, require us to pay damages or other payments, or restrict the operation of our business.

From time to time, we have been and may be subject to disputes and litigation, with and without merit, that may be costly and which may divert the attention of our management and our resources in general.

Such disputes and litigation are various and may include, but are not limited to, indemnification claims, employment-related claims, including claims of wrongful termination, discrimination, harassment, retaliation, and wage and hour disputes, claims of alleged infringement of patents, trademarks, copyrights and other IP rights, claims of alleged non-compliance with contract provisions and claims related to alleged violations of laws and regulations.

The results of complex legal proceedings are difficult to predict.

Moreover, complaints filed against us may not specify the amount of damages that plaintiffs seek, and we therefore may be unable to estimate the possible range of damages that might be incurred should these lawsuits be resolved against us.

Even if we are able to estimate losses related to these actions, the ultimate amount of loss may be materially higher than our estimates.

Any resolution of litigation, threatened litigation, or other disputes, could involve the payment of damages, payments or expenses by us, which may be significant or involve an agreement with terms that restrict the operation of our business.

Even if any future lawsuits are not resolved against us, the costs of defending such lawsuits may be significant.

It is possible that we will not be able to obtain insurance coverage for our litigation and disputes in the amounts and for the risks we seek at policy costs and terms we desire.

We have been and, in the future, may be subject to or involved in litigation, threatened litigation, or other disputes, the outcome of which may be difficult to predict, and which may be costly to defend, divert management attention, require us to pay damages or other payments, or restrict the operation of our business.

From time to time, we have been and, in the future, may be subject to a variety of disputes and litigation, with and without merit, all of which may be costly and may divert the attention of our management.

The claims underlying such disputes and litigation could be various and may include, but are not limited to, product indemnification claims, employment-related claims, including claims of wrongful termination, discrimination, harassment, retaliation, and wage and hour disputes, claims of alleged infringement of patents, trademarks, copyrights and other intellectual property rights, claims of alleged non-compliance with contract provisions, and claims related to alleged violations of laws and regulations.

In 2021, we were named in a wrongful termination lawsuit by a former employee.

The matter went to trial in 2025 and resulted in a jury verdict adverse to the Company in the amount of $9.15 million plus significant additional costs.

The results of any complex legal proceeding is difficult to predict.

The resolution of any litigation, threatened litigation, or other dispute, could involve the payment, which may be significant or involve an agreement that restricts the operation of our business.

Regardless of the amount in damages we may pay, even if minimal, the costs of defending any such lawsuits may be significant.

We may be unable to obtain insurance coverage for the claims underlying all of our litigation and dispute risks on terms acceptable to us, or at all.

Allegations made in the course of legal proceedings may also harm our reputation, regardless of whether there is merit to such claims.

We can provide no assurance that additional litigation will not be filed against us in the future.

The impacts of litigation, threatened litigation or other disputes could be harmful to our business and results of operations.

Any litigation, threatened litigation, or other disputes could be harmful to our business and results of operations.

Changes in tax rules and regulations, changes in interpretation of tax rules and regulations, or unfavorable assessments from tax audits may increase the amount of taxes we are required to pay.

Our operations are subject to income and transaction taxes in the United States and in multiple foreign jurisdictions and to review or audit by the U.S.

Internal Revenue Service and state, local and foreign tax authorities.

In addition, the United States, countries in Asia and other

countries where we do business have recently enacted or are considering changes in relevant tax, accounting and other laws, regulations and interpretations, including changes to tax laws applicable to multinational companies.

For example, on July 4, 2025, the United States enacted federal tax legislation commonly referred to as the “One Big Beautiful Bill Act”, which, among other changes, allows domestic research and development expenditures to be expensed for tax years beginning on or after January 1, 2025 and modifies certain international tax provisions for tax years starting on or after January 1, 2026.

Our operations are subject to income and other taxes in the U.S.

and in multiple foreign jurisdictions.

The U.S., countries in Asia, and other countries where we do business have recently enacted or are considering changes in relevant tax, accounting, and related laws, regulations, and interpretations, including changes to tax laws applicable to multinational companies.

For example, on July 4, 2025, the U.S.

enacted legislation commonly referred to as the “One Big Beautiful Bill Act,” which, among other changes, allows domestic research and development expenditures to be expensed for tax years beginning on January 1, 2025 and modifies certain international tax provisions for tax years starting on January 1, 2026.

This legislation or other potential changes could adversely affect our effective tax rates or result in other costs to us.

The EU member states formally adopted the EU’s Pillar Two Directive, which was established by the Organization for Economic Cooperation and Development (the “OECD”), and which generally provides for a 15 per cent minimum effective tax rate for multinational corporations, in all jurisdictions in which they operate (“Pillar Two”).

However, on January 5, 2026, the OECD announced a “side-by-side” elective safe harbor that exempts U.S.-parented multinational corporations from certain provisions of Pillar Two for fiscal years beginning on or after January 1, 2026.

The EU member states formally adopted the EU’s Pillar Two Directive, which was established by the Organization for Economic Cooperation and Development (the “OECD”), and which generally provides for a 15% minimum effective tax rate for multinational corporations, in all jurisdictions in which they operate (“Pillar Two”).

The foregoing items could have a material effect on our business, cash flow, results of operations or financial conditions.

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Changing environmental regulations and the timetable to implement them continue to impact our customers’ demand for our products.

Currently we have limited visibility into our customers’ strategies to implement these changing environmental regulations into their business.

The inability to accurately determine our customers’ strategies could increase our inventory costs related to obsolescence.

The semiconductor industry is subject to environmental regulations, particularly those that control and restrict the sourcing, use, transportation, storage, and disposal of certain mineral, chemicals, and materials used in the semiconductor manufacturing process.

We expect the heightened worldwide awareness regarding climate change and the environmental impact to continue, which may result in new environmental laws and regulations that could affect us, our suppliers and/or our customers.

New environmental laws and regulations could require us or our suppliers to obtain alternative materials that may increase our costs more or be less available, which may adversely affect our operating results.

Currently we have limited visibility into our customers’ strategies to implement these changing environmental regulations into their business operations.

The inability to accurately determine our customers’ strategies could make some of our products obsolete, thereby increasing our inventory-related costs.

The semiconductor industry is subject to environmental regulations, particularly those that control and restrict the sourcing, use, transportation, storage, and disposal of certain minerals, chemicals, and materials used in the semiconductor manufacturing process.

We expect the heightened worldwide awareness regarding climate change and its environmental impact to continue, which may result in new environmental laws and regulations that could affect us, our suppliers, or our customers.

New environmental laws and regulations could require us or our suppliers to obtain alternative materials that may increase our costs or be unavailable to us, thereby negatively impacting our ability to manufacture our products, which may adversely affect our operating results.

Additionally, the heightened worldwide awareness regarding climate change could also result in risks such as shifting customer preferences.

Changing customer preferences may result in increased expectations regarding our solutions, products, and services, including the use of packaging materials and other components in our products and their environmental impact.

These expectations may cause us to incur additional costs or make other changes to our operations to respond to them, which could adversely affect our financial results.

These expectations may cause us to incur additional costs or make other changes to our operations to respond to these changes, which could adversely affect our financial results.

If we fail to manage transition risks and customer expectations in an effective manner, customer demand for our solutions, products, and services could diminish, and our profitability could suffer.

Concerns over climate change, as well as the adoption of new laws or regulations, may also impact market dynamics and may result in shifts in customer expectations, preferences, or requirements, which may require us to change our practices or incur increased costs or adversely impact customer demand for our products and services.

Concerns over climate change, as well as the adoption of new laws or regulations, may also result in shifts in customer expectations, preferences, or requirements, which may require us to change our practices or incur increased costs or adversely impact customer demand for our products and services.

Securities laws and regulations, including potential risk resulting from our evaluation of internal controls over financial reporting, will continue to impact our results.

Complying with the requirements of the federal securities laws, state laws, stock exchange requirements, and other legal requirements has imposed significant legal and financial compliance costs, and are expected to continue to impose significant costs and management burden on us.

These rules and regulations also may make it more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage.

Complying with the requirements of federal securities laws, state laws, stock exchange requirements, and other legal requirements has imposed significant compliance costs, and are expected to continue to impose significant costs as well as a management burden, on us.

These rules and regulations could also make it more difficult for us to attract and retain qualified executive officers and members of our board of directors, particularly qualified members to serve on our audit committee, as executive officers and members of our board of directors expect that we will provide adequate director and officer liability insurance, which may not be available to us on terms which are acceptable to us, or at all.

Additionally, because these laws, regulations, and standards are expected to be subject to varying interpretations, their application in practice may evolve over time as new guidance becomes available.

This evolution may result in continuing uncertainty regarding compliance matters and additional costs necessitated by ongoing revisions to our disclosure and governance practices.

Changes in privacy and data security and protection laws could have an adverse effect on our operations.

We are or may become subject to a variety of laws and regulations regarding privacy, data protection, and data security, such as the European Union’s General Data Protection Regulation (“GDPR”).

There are numerous U.S.

federal, state, and local laws and regulations and foreign laws and regulations regarding privacy and the collection, sharing, use, processing, disclosure, and protection of personal data.

Such laws and regulations often vary in scope, may be subject to differing interpretations, and may be inconsistent among different jurisdictions.

The costs of compliance with the GDPR and similar laws may have an adverse effect on our operations.

Given that the scope, interpretation, and application of these laws and regulations are often uncertain and may be in conflict across jurisdictions, it is possible they may be interpreted and applied in a manner that is inconsistent from one jurisdiction to another and may conflict with other rules or our practices.

Any failure or perceived failure by us to comply with our privacy or security policies or privacy-related legal obligations, or any compromise of security that results in the unauthorized release or transfer of personal data, may result in governmental enforcement actions, litigation, or negative publicity, and could have an adverse effect on our operating results and financial condition.

General Risk Factors

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Like other U.S.

companies, our business and operating results are subject to uncertainties arising out of economic consequences of current and potential military actions, civil unrest (including theft, looting or vandalism), terrorist activities or other acts of violence and associated political instability, and the impact of heightened security concerns on domestic and international travel and commerce.

These uncertainties could also lead to delays or cancellations of customer orders, a general decrease in corporate spending or our inability to effectively market and sell our products.

companies, our business and operating results are subject to uncertainties arising out of economic consequences of current and potential military actions, civil unrest (including theft, looting, and vandalism), terrorist activities or other acts of violence and associated political instability, and the impact of heightened security concerns on domestic and international travel and commerce.

These uncertainties could also lead to delays or cancellations of customer

orders, a general decrease in corporate spending, or our inability to effectively market and sell our products.

Any of these results could substantially harm our business and results of operations, causing a decrease in our revenue.

The ongoing military conflict involving the United States, Israel, Iran and other countries in the Middle East and beyond, has increased regional and global tensions.

As a result, actions have been taken that impact trade, including imposing sanctions that limit access to the Strait of Hormuz.

The ongoing military conflict involving the U.S., Israel, Iran, and other countries in the Middle East and beyond, has increased regional and global tensions.

As a result, actions have been taken that impact trade, including blockades of or other sanctions that limit access to the Strait of Hormuz.

This conflict may continue to cause instability in the Middle East, disruption to global energy supplies and transportation routes, and volatility or sustained increase in oil, other energy, and commodity prices.

Such developments could further increase costs to us, our customers or our supplies, contribute to inflationary pressures, and adversely affect global economic conditions, which may have an adverse effect on our business.

Such developments could further increase costs to us, our customers, or our suppliers, contribute to inflationary pressures, and adversely affect global economic conditions, which may have an adverse effect on our business.

If these conflicts, sanctions, or geopolitical tensions worsen, we cannot provide assurances that our business will not be impacted negatively in the future.

Any failure, disruption, or security breach or incident otherwise affecting our information technology infrastructure or information management systems could have an adverse impact on our business and operations.

Cyber-attacks have become increasingly more prevalent and much harder to detect, defend against or prevent.

As the frequency of cyber-attacks and resulting breaches reported by other businesses and governments increases, we expect to continue to devote significant resources to improve and maintain our IT infrastructure and its security.

Cyberattacks have become increasingly more prevalent and much harder to detect, defend against, and prevent.

As the frequency of cyberattacks and resulting breaches reported by other businesses and governments increase, we expect to continue to devote significant resources to improve and maintain our IT infrastructure and its security.

We have incurred and may in the future incur significant costs in order to implement, maintain, and/or update security systems we believe are necessary to protect our IT infrastructure.

As the techniques used to obtain unauthorized access to or to sabotage or otherwise disrupt systems change frequently and are often not recognized until launched against a target, we may be unable to anticipate these techniques or to implement adequate preventive measures.

A breakdown in existing controls and procedures around our cyber-security environment may prevent us from detecting, reporting or responding to cyber incidents in a timely manner and any such breakdown, or any security breach or incident suffered by us of our third-party service providers, could have a material adverse effect including but not limited to i nterruptions, other disruptions or delays in our business operations, loss of existing or future customers, claims, demands and liabilities and damage to our reputation, which could adversely affect our business, reputation, and financial results .

We cannot guarantee that our implemented processes for IT and risk mitigation measures will be effective for IT systems under our control.

A breakdown in existing controls and procedures around our cybersecurity environment may prevent us from detecting, reporting, or responding to cyber incidents in a timely manner and any such breakdown, or any security breach or incident suffered by us or our third-party service providers, could have a material adverse effect including, but not limited to, i nterruptions, disruptions, or delays in our business operations, loss of existing or future customers, claims, demands, and liabilities as well as damage to our reputation, which could adversely affect our business, reputation, and financial results .

We cannot guarantee that our implemented processes for IT and risk mitigation measures will be effective for our IT systems.

Furthermore, we rely on products and services provided by third-party suppliers to operate certain critical business systems.

We cannot guarantee that third parties and infrastructure in our supply chain or our partners’ supply chains have not been or will not be compromised or that they do not or will not in the future contain exploitable defects or bugs that could result in a breach of or disruption to or other incident impacting our IT infrastructure, including our products and services, or the third-party information technology systems that support our services.

We cannot guarantee that third parties and the infrastructure in our supply chain or our partners’ supply chains have not been or will not be compromised or that they do not or will not in the future contain exploitable defects or bugs that could result in a breach of or disruption to or other incident impacting our IT infrastructure, including our products and services, or the third-party information technology systems that support our services.

We have limited insight into the data privacy or security practices of third-party service providers.

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We rely on the efficient and uninterrupted operation of complex information technology systems and networks to operate our business.

Any significant system or network disruption, including but not limited to new system implementations, faulty software provided by one of our security vendors, computer viruses, security breaches or incidents, or energy blackouts could have a material adverse impact on our operations, sales and operating results.

Any significant system or network disruption, including but not limited to, new system implementations, faulty software provided by one of our vendors, computer viruses, security breaches or incidents, or energy blackouts could have a material adverse impact on our operations, sales, and operating results.

We have implemented measures to manage our risks related to such disruptions, but such disruptions could still occur and negatively impact our operations and financial results.

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Unfavorable or uncertain market conditions and risks relating to the adoption, use, or application of emerging technologies, including AI, by our customers and in our business, may impact financial results and could result in reputational and financial harm and liability.

The adoption of AI solutions and other emerging technologies may not develop in the manner or in the time periods we anticipate, and as these markets are still developing and continue to evolve, demand for products and solutions related to or that support such technologies may be unpredictable and may vary significantly from one period to another.

related to or that support such technologies may be unpredictable and may vary significantly from one period to another.

In addition, market enthusiasm and capital spending for AI-related infrastructure and applications may be cyclical or volatile.

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These markets may also not develop as anticipated if AI training and inference costs drop materially due to customer adoption of less expensive alternative technologies or approaches, or if customers achieve desired performance using alternative solutions that reduce the need for certain components.

Even if these markets evolve in the manner we anticipate, if we do not have timely, competitively priced and market-accepted products available to meet customer needs in these areas, we may miss significant opportunities business, financial condition and results of operations could be materially and adversely affected.

Even if these markets evolve in the manner we anticipate, if we do not have timely, competitively priced and market-accepted products available to meet customer needs in these areas, we may miss significant opportunities, our business, financial condition, and results of operations could be materially and adversely affected.

We also use AI technologies in our own business, including in our operations, and internal processes, and we expect our use of such technologies to increase over time.

Our use of AI presents risks and challenges that could affect our business and reputation, including the potential for inaccurate, incomplete, biased, or unreliable outputs;

errors in design, data, or implementation;

intellectual property, privacy, cybersecurity, or other legal claims;

and reputational harm, any of which could adversely affect our business, financial condition, and results of operations.

Fluctuations in exchange rates, particularly the exchange rate between the U.S.

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dollars but is subject to contractual exchange rate provisions.

The fluctuation in the exchange rate is shared between Power Integrations and each of these suppliers.

The fluctuation in the exchange rate is shared between us and these suppliers.

We maintain cash denominated in Swiss francs and euros to fund the operations of our Swiss subsidiary.

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Our principal executive offices and operating facilities are situated near San Francisco, California, and most of our major suppliers, which are wafer foundries and assembly houses, are located in areas that have been subject to severe earthquakes, such as Japan.

Many of our suppliers are also susceptible to other disasters such as tropical storms, typhoons, tsunamis or other catastrophic events, including those caused by climate change.

Many of our suppliers are also susceptible to other disasters such as tropical storms, typhoons, tsunamis, or other catastrophic events.

In the event of a disaster, we or one or more of our major suppliers may be temporarily unable to continue operations and may suffer significant property damage.

Additionally, our business or the business of our suppliers may in the future be adversely impacted by world-wide responses to any global health or other crises.

Additionally, our business or our suppliers may, in the future, be adversely impacted by worldwide responses to any global health or other crises.

Such impacts could include public health measures, travel restrictions, business shutdowns, border closures, delivery and freight delays, and other disruptions.

Any interruption in our ability, or that of our major suppliers, to continue operations could delay the development and shipment of our products and have a substantial negative impact on our financial results.

Any interruption in our ability, or that of our suppliers, to continue operations could delay the development and shipment of our products and have a substantial negative impact on our financial results.

We are exposed to risks associated with acquisitions and strategic investments.

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Acquisitions involve numerous risks, including but not limited to:

● inability to realize anticipated benefits, which may occur due to any of the reasons described below, or for other unanticipated reasons;

• the inability to realize anticipated benefits, which may occur due to any of the reasons described below, or for other unanticipated reasons;

• the risk of litigation or disputes with customers, suppliers, partners, or stockholders of an acquisition target arising from a proposed or completed transaction;

• impairment of acquired intangible assets and goodwill as a result of changing business conditions, technological advancements, or worse-than-expected performance, which would adversely affect our financial results;

● unknown, underestimated and/or undisclosed commitments, liabilities or issues not discovered in our due diligence of such transactions.

We also in the future may have strategic relationships with other companies, which may decline in value and/or not meet desired objectives.

The success of these strategic relationships depends on various factors over which we may have limited or no control and requires ongoing and effective cooperation with strategic partners.

Moreover, these relationships are often illiquid, such that it may be difficult or impossible for us to monetize such relationships.

• unknown, underestimated, or undisclosed commitments, liabilities, or issues not discovered in our due diligence of such transactions.

We may also make strategic investments with other companies, which may decline in value or not meet our desired objectives.

The success of these strategic investments depends on various factors over which we may have limited or no control and requires ongoing and effective cooperation with our strategic partners.

Moreover, these relationships are often illiquid, such that it may be difficult or impossible for us to exit such relationships without loss of all or a significant portion of the amounts we invested.

Our inability to successfully integrate, or realize the expected benefits from, our acquisitions could adversely affect our results.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1A. Risk Factors