Peraso Inc. 10-K

Item 1. Business Overview Peraso Inc., together with its subsidiaries (“Peraso,” the “Company,” “we,” “our” or “us”), is a fabless semiconductor company focused on the development and sale of: i) semiconductor devices and modules based on our proprietary semiconductor devices and ii) performance of non-recurring engineering, or NRE, services and licensing of intellectual property, or IP. Our primary focus is the development of millimeter wavelength, or mmWave, wireless technology, for the 60 Gigahertz, or GHz, spectrum and for 5G cellular networks, or 5G. Our mmWave products enable a range of applications, such as 5G with low latency and high reliability, as well as multi-gigabit, mmWave links over 25 kilometers. Our mmWave products address consumer applications, such as wireless video streaming and untethered augmented reality and virtual reality, or AR/VR. We also have a line of memory-denominated integrated circuits for high-speed cloud networking, communications, security appliance, video, monitor and test, data center and computing markets that deliver time-to-market, performance, power, area and economic benefits for system original equipment manufacturers, or OEMs. 4 Business Combination We were formerly known as MoSys, Inc., or MoSys. On September 14, 2021, we and our subsidiaries, 2864552 Ontario Inc. and 2864555 Ontario Inc., entered into an Arrangement Agreement, or the Arrangement Agreement, with Peraso Technologies Inc., or Peraso Tech, a privately-held corporation existing under the laws of the province of Ontario, to acquire all of the issued and outstanding common shares of Peraso Tech, or the Peraso Shares, including those Peraso Shares to be issued in connection with the conversion or exchange of secured convertible debentures and common share purchase warrants of Peraso Tech, as applicable, by way of a statutory plan of arrangement, or the Arrangement, under the Business Corporations Act (Ontario). On December 17, 2021, following the satisfaction of the closing conditions set forth in the Arrangement Agreement, the Arrangement was completed and we changed our name from MoSys to “Peraso Inc.” and began trading on the Nasdaq Stock Market, or the Nasdaq, under the symbol “PRSO.” Industry Trends and Performance MMWave and 5G The demand for wireless services is increasing exponentially, therefore, wireless users and service providers will be required to eventually utilize higher frequency spectrum to meet the demand. We believe the 5G wireless industry is the best and latest example of how and why mmWave is the future of wireless networks. The 5G specification includes low, mid and mmWave frequencies. There are significant expectations that 5G will significantly improve cellular network performance, as evidence by slogans as “10X the bandwidth” and “10X reduction in latency.” From our perspective, in reality, only part of the 5G specification truly offers such improvement, and we believe this is represented by mmWave. mmWave is not without challenges, as mmWave signals do not typically travel as far as traditional wireless signals and are more attenuated by solid objects. Mitigation strategies must be deployed, in particular with regards to the management of signal propagation. Whereas traditional wireless devices utilize a broad, omni-antenna pattern, mmWave systems rely on phased array technology, which focusses the radio signal into a narrow beam to improve propagation characteristics. Peraso is a global leader in implementing these sophisticated radio systems and is one of the few companies in the market that is successfully shipping phased array devices in mass production. In terms of specific market opportunity, mmWave is a key differentiating update from 4G/LTE networks to 5G. Within the 5G market, there are several primary applications for mmWave. The initial target for Peraso is referred to as the fixed wireless access, or FWA, segment. In this market segment, carriers provide their customers with a fixed wireless link to a base station or small cell, thus providing the customer with high-speed access to the Internet. mmWave can provide download speeds of over 1 Gbps and upload speeds of several hundred megabits per second. In addition, mmWave is a much cheaper alternative to fiber and allows carriers an additional advantage and competitive advantage against other access technologies, such as cable. Additionally, Peraso 5G mmWave RF modules can be utilized in other applications, including hotspots, laptops and tablets. 5G mmWave has support from major industry players. Apple has incorporated mmWave wireless into all versions of the iPhone12 for sale in the US market. The basic premise is common, which is the ever-increasing demand for bandwidth. Verizon is the leading carrier in the US at deploying mmWave for both mobile and fixed wireless access. The initial use case for cellular service providers is to provide their customer base (primarily smart phone customers) with continuity of network access in highly congested environments , such as sporting events, public beaches, music festivals or generally any large gathering where thousands of users are attempting to access the network simultaneously. Peraso believes that mmWave will gain universal acceptance, as users will demand full continuity in terms of network access. Below are some early examples of carriers deploying mmWave technology: • May 9, 2021: Major Japanese carriers, including NTT DOCOMO, KDDI, Rakuten and SoftBank deploy mmWave technology; • June 8, 2021: UScellular sets record with 5G mmWave links of 10 kilometers; • June 9, 2021: the United States Department of Defense announces use of 5G mmWave for secure communications; • June 11, 2021: Verizon launches On Sit e , for the use of mmWave for on-premises, private 5G networks; and 5 • July 11, 2021: Verizon announces expansion of 5G home - internet, fixed - wireless service using mmWave spectrum. Longer term, we believe we are well positioned to address the mobile opportunity for mmWave, which is expected to present an order of magnitude increase in the total available market. Memory Our memory solutions deliver time-to-market, performance, power, area and economic benefits for system original equipment manufacturers, or OEMs. Our primary product line is marketed under the Accelerator Engine name and comprises our Bandwidth Engine and Programmable HyperSpeed Engine IC products, which integrate our proprietary, 1T-SRAM high-density embedded memory and a highly-efficient serial interface protocol resulting in a monolithic memory IC solution optimized for memory bandwidth and transaction access performance. Further performance benefits can be achieved to offload statistical, search or other custom functions using our optional integrated logic and processor elements. As data rates and the amount of high-speed processing increase, critical memory access bottlenecks occur. Our Accelerator Engine ICs dramatically increase memory accesses per second, removing these bottlenecks. In addition, the serial interface and high-memory capacity reduce the board footprint, number of pins and complexity, while using less power. Our Products Our primary focus is the development, marketing and sale of our mmWave products. mmWave is generally described as the frequency band from 24 GHz to 300 GHz. Currently, there are two industry standards that incorporate mmWave technology for wireless communications: (i) IEEE 802.11ad/ay and (ii) 3GPP Release 15-17 (commonly referred to as 5G). We have developed and continue to develop products that conform to these standards. mmWave ICs Our first product line operates in the 60 GHz band and conforms to the IEEE 802.11ad standard. This product line includes a baseband IC, including multiple variations of mmWave radio frequency, or RF, integrated circuits, or ICs, as well as associated antenna technology. The second product line is currently in development and addresses the 5G mmWave opportunity. Given our experience in the development of mmWave technology and devices, we believe 5G mmWave, is a logical adjacent market. The first market targeted was the 60GHz IEEE 802.11ad market. Our 60GHz IEEE802.11ad products had two very important advantages over traditional 2.4GHz and 5GHz Wi-Fi products: very high data rates (up to 4.5 gigabits per second, or nGb/s) and low latency (less than 5 meters per second). The first application that had traction was outdoor broadband. This included applications such as point-to-point, or PtP, backhaul links or fixed wireless access, FWA, using point-to-multipoint links, or PtMP. products using the 60GHz band are for this market. As the spectrum is unlicensed (free), wireless carriers can provide services without having to spend significantly on wireless spectrum. We are a leading supplier of semiconductors in the PtP and PtMP markets. We are currently shipping to leading equipment suppliers in this space, as well as directly to service providers building their own equipment. We believe our products and technology bring key advantages to the market. First, our products support the spectrum from 66 GHz to 71 GHz. These are often referred to as channels 5 and 6 in the 802.11ad/ay specifications. The key advantage in supporting these channels is that the signals are able to propagate much further than channels 1-4; this is a result of significantly lower oxygen absorption at frequencies above 66 GHz. Currently, customers have achieved links in the range of 25 kilometers, which we believe is substantially longer than any 60 GHz links achieved to date. In the indoor area, the 802.11ad technology is ideal for high speed, low latency video applications. In indoor environments, our products can support 3 Gb/s links with under 5ms of latency. Example applications include: • AR/VR links between the headset and the video console; • Universal serial bus, or USB, video cameras for corporate video conferencing; • Wireless security cameras; and • Smart factory safety and surveillance. 6 We have developed a high-volume mmWave production test methodology using standard, low-cost production test equipment. It has taken us several years to refine performance of this production test methodology, and we believe this places us in a leadership position in addressing the operational challenges of competitively producing and delivering mmWave products into high-volume markets. mmWave modules In 2021, we began producing and selling complete mmWave modules. The primary advantage provided by a module is that the silicon and the antenna are integrated into a single device. A differentiating characteristic of mmWave technology is that the RF amplifiers must be as close as possible to the antenna to minimize loss. By providing a module, we can guarantee the performance of the amplifier to antenna interface, which simplifies the RF design engineering, facilitating more opportunities for companies that have not provided RF - type systems, as well as shortening the time to market for new product s . It is possible for third parties to provide module products, but, given our significant mmWave antenna technology and intellectual property portfolio, we believe it enables us to provide a highly competitive solution, as we own the module technology and produce the significant module components. Memory Accelerator Engines Our Accelerator Engine IC products are targeted for FPGA-based systems and include the Bandwidth Engine, which is targeted for high-performance applications where throughput is critical, and the Programmable HyperSpeed Engine, which combines the features of the Bandwidth Engine with 32 RISC processors to allow user-defined functions or algorithms to be embedded in the Programmable HyperSpeed Engine. The target applications for our memory ICs include a broad range of markets, including test and measurement, 5G networks, router, switching, security, computational storage, database acceleration, Big Data, aerospace and defense, advanced video, high-performance computing, machine learning and AI and other data-driven areas. The Bandwidth Engine is a memory-dominated IC that has been designed to be a high-performance companion IC to packet processors. While the Bandwidth Engine primarily functions as a memory device with a high-performance and high-efficiency interface, it also can accelerate certain processing operations by serving as a co-processor element. Our Bandwidth Engine ICs combine: (1) our proprietary high-density, high-speed, low latency embedded memory, (2) our high-speed serial interface technology, or SerDes, (3) an open-standard interface protocol and (4) intelligent access technology. We believe an IC combining our 1T-SRAM memory and serial interface with logic and other intelligence functions provides a system-level solution and significantly improves overall system performance at lower cost, size and power consumption. Our Bandwidth Engine ICs can provide up to and over 6.5 billion memory accesses per second externally and 12 billion memory accesses per second internally, which we believe is more than three times the performance of current memory-based solutions. They also can enable system designers to significantly narrow the gap between processor and memory IC performance. Our customers that design Bandwidth Engine ICs onto the line cards in their systems will re-architect their systems at the line-card level and use our product to replace traditional memory solutions. When compared with existing commercially available solutions, our Bandwidth Engine ICs may: • provide up to four times the performance; • reduce power consumption by approximately 50%; • reduce cost by greater than 50%; and • result in a dramatic reduction in IC pin counts on the line card. Our Bandwidth Engine 2 IC products contain 576 megabits, or Mb, of memory and use a SerDes interface with up to 16 lanes operating at up to 12.5Gbps per lane. We have been shipping our Bandwidth Engine 2 IC products since 2013. Our Bandwidth Engine 3 IC products contain 1152Mb of memory and use a SerDes interface with up to 16 lanes operating at up to 25Gbps per lane. Our Bandwidth Engine 3 ICs target support for packet-processing applications with up to five billion memory single word accesses per second, as well as burst mode to enable full duplex buffering up to 400 Gbps for ingress, egress and oversubscription applications. The devices provide benefits of size, power, pin count and cost savings to our customers. Our Programmable HyperSpeed Engine IC products further leverage our proven serial interface technology and high-density integrated memory with the processor engine architecture to enable high-speed customizable 7 search, security, and data analysis functions for networking, security, and data center applications, as well as new markets such as video and compute acceleration. The product architecture features 32 search-optimized processor engines, data flow schedulers, and over a terabit of internal access bandwidth. The device leverages our GCI interface technology and high-density integrated memory (1152Mb of 1T-SRAM embedded memory). QPR Our quad partition rate, or QPR, family of low cost, ultra-high speed SRAM memory devices features an architecture that allows for parallel accesses to multiple partitions of the memory simultaneously and allows access of up to 576 bits per read or write cycle. The QPR device includes four independent partitions per input/output and each partition functions as a stand-alone random-access SRAM. The high-performance interface, larger density and the multiple partitions work together to support multiple independent functional blocks within an FPGA with one QPR device. The MoSys MSQ220 and MSQ230 QPR devices are ideally suited for random-access applications. We also offer an optional FPGA RTL memory controller to simplify the interface to its high capacity 567Mb or 1Gb devices. We also offer an RTL memory controller that presents an SRAM-like interface to simplify the QPR design effort. Research and Development Our ability to compete in the future depends on successfully improving our technology to meet the market’s increasing demand for higher performance and lower cost solutions. Development of new IC products requires specialized chip design and product engineers, as well as significant fabrication and testing costs, including mask costs. We have over 12 years’ worth of technical know-how in the design and manufacturing of mmWave technology. The most important aspect of this knowledge is knowing how mmWave circuits will perform in a real-world environment. Traditionally, semiconductor design utilizes sophisticated computer-aided design tools to simulate the performance of a device that is manufactured at a specific semiconductor manufacturing plant. However, mmWave is extremely difficult to model precisely. Therefore, the only path to understand how well a device will perform is to produce the device and test it in a real-world application. Over the last decade, many companies have attempted to develop mmWave semiconductor devices, however, given that the devices had inconsistent or weak performance, a number of them were unsuccessful and abandoned their design and product development efforts. At a system level, there are additional technical challenges presented by mmWave technology that Peraso has overcome and form a key part of the internal know-how of Peraso. For example, a key technology of mmWave is the concept of beamforming and beam steering using a phased array antenna. This technology is utilized to concentrate the RF energy into a narrow beam to improve the range and coverage of mmWave devices. We have developed effective of beamforming and beam steering technology for phased array circuits and antennas. While there are many academic examples of successful phased array implementations, there is a vast barrier between a “laboratory” version of phased array technology and a version that is deployed for commercial use. One such aspect is the implementation of the beamforming procedure, which seeks to maximize throughput and do so while not impacting latency. While the details of achieving this are complex, it is important-intellectual property that we have gained through real - world experience. With regard to our memory products, we do not have internal resources to develop new, memory IC products, and do not intend to expend any development efforts to develop new memory products. That said, we believe our Accelerator Engine IC products will provide us with meaningful revenue and gross margin contributions for the foreseeable future. We intend to continue to devote substantially all of our research and development efforts toward further expanding our mmWave technology portfolio. 8 Sales and Marketing In addition to our direct sales personnel, we sell through sales representatives and distributors in the United States and Asia. During 2020, we entered into new distribution relationships with Arrow Electronics and DigiKey Electronics, which are two of the largest worldwide IC distributors. These distributors have a global presence with offices and technical selling and applications engineering capabilities, which we believe will enable us to reach new potential customers for our products. We also have applications engineers who support our customer engagements and engage with the customers’ system architects and designers to propose and implement our IC and IP solutions to address system design challenges and improve performance. In the markets we serve, the time from a design win to production volume shipments of our IC products can range from 12 to 36 months. Networking, wireless and wired communication and security appliance systems can have a product life from a few years to over 10 years once a product like ours has been designed into the system. Historically, our revenue has been highly concentrated, with a few customers accounting for a significant percentage of our total revenue. During the year ended December 31, 2021, three customers accounted for 10% or more of our net revenues, including CEAC International Limited at 48%, WeLink Communications LLC at 19% and Alltek Technology Corp at 12%. During the year ended December 31, 2020, three customers accounted for 10% or more of our net revenues, including Ubiquiti Inc. at 55%, XCOM Labs, Inc. at 27% and Alltek Technology Corp at 12%. Intellectual Property We regard our patents, copyrights, trademarks, trade secrets and similar intellectual property as critical to our success and rely on a combination of patent, trademark, copyright, and trade secret laws to protect our proprietary rights. As of December 31, 2021, we held 105 United States and 55 foreign patents on various aspects of our mmWave, antenna, memory and other technology, with expiration dates ranging from 2022 to 2040. We also held 25 pending patent applications in the United States and abroad. There can be no assurance that others will not independently develop or patent similar or competing technology or design around any patents that may be issued to us, or that we will be able to successfully enforce our patents against infringement by others. We were also an active participant in the development of the IEEE 802.11ay wireless specification and, to date, have been granted nine essential claims patents with respect to this standard. Essential claims patents are of particular value as a specification cannot be implemented without violating the patents. The semiconductor industry is characterized by frequent litigation regarding patent and other intellectual property rights. Our IC customers, licensees or we might, from time to time, receive notice of claims that we have infringed patents or other intellectual property rights owned by others. Our successful protection of our patents and other intellectual property rights and our ability to make, use, import, offer to sell, and sell products free from the intellectual property rights of others are subject to a number of factors, particularly those described in Part I, Item 1A, “Risk Factors.” Competition mmWave mmWave circuit and system design is a highly specialized engineering skill, as well as a challenging technology to ship in mass production. At frequencies above 24 GHz, circuits are extremely vulnerable to small variances in the semiconductor manufacturing process. Designing circuits that minimize susceptibility to these variances takes years of practice, and we believe we are one of the few companies in the world that is skilled in mmWave design. Further, we have shipped mmWave devices in volume, and ensuring all devices sold adhere to strict performance standards is a core competency we have developed. In addition, we have developed our own mmWave phased array antenna technology, which allows us to be highly competitive in terms of overall system cost. Our customers do not need to engage with third-party antenna suppliers, thus eliminating the additional cost for a third-party antenna. 9 IEEE 802.11ad/ay Market: Our primary competitor in the IEEE802.11ad/ay market is Qualcomm. The primary benefit that we provide to the market is the support of the higher frequency bands from 66 GHz to 71 GHz. The advantage at these frequencies is that oxygen attenuation is significantly reduced, and signals can travel much further. We also have key points of differentiation compared to Qualcomm for wireless video devices. We are well positioned in this market, as we have USB 3.0 built into our devices, so our products generally support USB architectures. A prime example is the replacement of the USB cable with a wireless version using our technology. There are many applications where this can be of use, including USB web cams, wireless displays, and AR/VR headsets. We have invested significant software resources into providing the market with wireless USB solutions, and we believe there is no other mmWave vendor in the world that can offer multi-gigabit solutions as a replacement for wired USB. 5G Market: With 5G, our efforts are focused on the mmWave RF front-end phased array component of the system. This focus is in contrast to the IEEE solution, in which Peraso provides a baseband device as well as an mmWave RF front-end phased array device. The 5G product instantiation is an RF module that embraces a broad swath of intellectual property that establishes a substantial moat to potential competitors. Key elements of our mmWave intellectual property include: • RF circuits; • phased array antenna; and • in-system circuit calibration, beam forming, real-time system monitoring. From a competitive perspective, we are currently the only pure - play, 5G vendor to offer a dual-band (28/39GHz) RF solution for the FWA market. Qualcomm does offer a 5G RF solution for the FWA market, however its solution is based on aggregating its mobile RF solution, which requires several compromises in terms of cost, performance, and power consumptio n . With an initial focus on fixed wireless access, we can derive advantages by optimizing our silicon for that specific market. Furthermore, we have experienced initial success in the unlicensed, 60 GHz, FWA market, and we believe we will be able to transfer all of our knowledge gained from the 60 GHz market to the 5G market. However, this market opportunity is more competitive, and potential competitors, in addition to Qualcomm, include Mediatek and Samsung Electronics Co., Ltd., or Samsung. Memory The markets for our memory products are highly competitive. We believe that the principal competitive factors are: • processing speed and performance; • density and cost; • power consumption; • reliability; • interface requirements; • ease with which technology can be customized for and incorporated into customers’ products; and • level of technical support provided. 10 We believe that our products compete favorably with respect to each of these criteria. Our proprietary 1T-SRAM embedded memory and high-speed serial interface IP can provide our Accelerator Engine ICs with a competitive advantage over alternative devices. Alternative solutions are either DRAM or SRAM-based and can support either the memory size or speed requirements of high-performance networking systems, but generally not both. DRAM solutions provide a significant amount of memory at competitive cost, but DRAM solutions do not have the required fast access and cycle times to enable high-performance. The DRAM solutions currently used in networking systems include RLDRAM from Micron Technology, Inc., or Micron, LLDRAM from Renesas, DDR from Samsung, Micron and others, and HBM, which is stacked DRAM memory from Samsung and SK Hynix. SRAM solutions can meet high-speed performance requirements, but often lack adequate memory size. The SRAM solutions currently used in networking systems primarily include QDR or similar SRAM products from Cypress Semiconductor Corporation and GSI Technology, Inc. Most of the currently available SRAM and DRAM solutions use a parallel, rather than a serial interface. To offset these drawbacks, system designers generally must use more discrete memory ICs, resulting in higher power consumption and greater utilization of space on the line card. Our competitors include established semiconductor companies with significantly longer operating histories, greater name recognition and reputation, large customer bases, dedicated manufacturing facilities and greater financial, technical, sales and marketing resources. This may allow them to respond more quickly than us to new or emerging technologies or changes in customer requirements. Generally, customers prefer suppliers with greater financial resources than we have currently. Many of our competitors also have significant influence in the semiconductor industry. They may be able to introduce new technologies or devote greater resources to the development, marketing and sales of their products than we can. Furthermore, in the event of a manufacturing capacity shortage, these competitors may be able to manufacture products when we are unable to do so. Our Accelerator Engine ICs compete with embedded memory solutions, stand-alone memory ICs, including both DRAM and SRAM ICs, ASICs designed by customers in-house to meet their system requirements, and NPUs that use significant internal memory and customer-designed software to implement tasks. Manufacturing We depend on third-party vendors to manufacture, package, assemble and test our IC products, as we do not own or operate a semiconductor fabrication, packaging or production testing facility. By outsourcing manufacturing, we can avoid the high cost associated with owning and operating our own facilities, allowing us to focus our efforts on the design and marketing of our products. We perform an ongoing review of our product manufacturing and testing processes. Our IC products are subjected to extensive testing to assess whether their performance meets design specifications. Our test vendors provide us with immediate test data and the ability to generate characterization reports that are made available to our customers. Employees As of December 31, 2021, we had 82 employees, including 22 located in the United States and 60 located in Canada. Our headcount consists of 64 in research and development and manufacturing operations and 18 in sales, marketing and general and administrative functions. Available Information We were founded in 1991 and reincorporated in Delaware in 2000. Our website address is www.peraso.com. The information in our website is not incorporated by reference into this report. Through a link on the Investor section of our website, we make available our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, as soon as reasonably practicable after they are filed with, or furnished to, the Securities and Exchange Commission, or SEC. You can also read any materials submitted electronically by us to the SEC on its website (www.sec.gov), which contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC, including us. 11