What changed in this filing

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Item 1A. Risk Factors

2025-05-13 compared with 2024-11-04 · 69 added, 33 removed, 422 unchanged (19% of the section changed)

Global Business Risks

Our business, financial condition, and results of operations could be materially and adversely affected by tariffs, trade restrictions, and other barriers to international trade

Restrictions on international trade, such as tariffs and other controls on imports or exports of goods and technology can adversely affect our business and supply chain.

In response to U.S.

tariffs, several countries have imposed or threatened reciprocal tariffs and other retaliatory measures.

International trade restrictions may impact the cost and availability of raw materials, components, and finished goods, which could lead to supply chain disruptions, increased costs, and lower margins.

The global trade situation is highly dynamic, and modifications to tariffs may occur, as may additional sector-based trade measures.

For example, the U.S.

Department of Commerce initiated an investigation into imports of semiconductors, semiconductor manufacturing equipment, and related products.

The rapid and fluctuating changes in global trade policies have contributed to greater market volatility and general economic uncertainties, including the risk of recession, and could adversely affect customer demand, delay purchasing decisions, or limit our ability to operate efficiently in key markets.

If we are unable to mitigate any negative impacts of tariffs, trade restrictions, or related market

volatility through pricing adjustments, operational efficiencies, or alternative sourcing strategies, our business, financial condition, and results of operations could be materially and adversely affected.

We are subject to the cyclical nature of the semiconductor industry, which has been subject to significant fluctuations

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The industry has experienced significant fluctuations, often connected with, or in anticipation of, maturing product cycles and new product introductions of both semiconductor companies’ and their customers’ products and fluctuations in general economic conditions.

Deteriorating general worldwide economic conditions, including reduced economic activity, concerns about credit, interest rates and inflation, increased energy costs, decreased consumer confidence, reduced corporate profits, decreased spending and similar adverse business conditions, would make it very difficult for our customers, our vendors, and us to accurately forecast and plan future business activities and could cause U.S.

Deteriorating general worldwide economic conditions, including reduced economic activity, concerns about credit, interest rates and inflation, increased energy costs, decreased consumer confidence, reduced corporate profits, decreased spending and similar adverse business conditions, have in the past and may in the future make it very difficult for our customers, our vendors, and us to accurately forecast and plan future business activities and could cause U.S.

and foreign businesses to slow spending on our products.

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We expect that the market for our products will continually evolve and will be subject to rapid technological change.

For example, new products and disruptive technologies are being developed, and companies with which we compete have implemented artificial intelligence strategies for products and service offerings.

For example, new products and disruptive technologies are being developed, and companies with which we compete have implemented artificial intelligence (“AI”) strategies for products and service offerings.

This rapid pace of technological change can create opportunities for our competitors and harm our competitiveness in the market if our products do not evolve or we are unable to effectively keep up with such changes.

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We expect to face competition in the future from our current competitors, other manufacturers and designers of semiconductors, and start-up semiconductor design companies.

As the markets for

communications products grow, we also may face competition from traditional communications device companies.

As the markets for communications products grow, we also may face competition from traditional communications device companies.

These companies may enter the mixed-signal semiconductor market by introducing their own products or by entering into strategic relationships with or acquiring other existing providers of semiconductor products.

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We routinely face attacks that attempt to breach our security protocols, gain access to or disrupt our computerized systems or steal proprietary company, customer, partner or employee information.

These attacks are sometimes successful.

These attacks are

sometimes successful.

These attacks may be due to security breaches, employee error, theft, malfeasance, phishing schemes, ransomware, faulty password or data security management, or other irregularities.

Additionally, we use AI-driven efficiencies in our software development and customer support services.

Our use of AI may increase vulnerability to cybersecurity risks, including through unauthorized use or misuse of AI tools and bad inputs or logic or the introduction of malicious code incorporated into AI generated code.

AI and machine learning also may be used for certain cybersecurity attacks, improving or expanding the existing capabilities of threat actors in manners we cannot predict at this time, resulting in greater risks of security incidents and breaches.

The theft, loss, destruction, unavailability or misuse of personal or business data collected, used, stored or transferred by us to run our business could result in increased security costs or costs related to defending legal claims.

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We rely on information technology for the effective operation of our business.

Our systems are subject to damage or interruption from a number of potential sources, including natural disasters, accidents, power disruptions, telecommunications failures, acts of terrorism or war, computer viruses, theft, physical or electronic break-ins, cyber-attacks, sabotage, vandalism, or similar events or disruptions, including those described in the risk factor entitled “ We may be the victim of business disruptions and security breaches, including cyber-attacks, which could lead to liability or could damage our reputation and financial results ,” above.

Our security measures may not detect or prevent such security breaches.

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Third parties with which we conduct business, such as foundries, assembly and test contractors, distributors and customers, have access to certain portions of our sensitive data.

In the event that these third parties do not properly safeguard our data that they hold, security breaches could result and negatively impact our reputation, business operations

and financial results.

In the event that these third parties do not properly safeguard our data that they hold, security breaches could result and negatively impact our reputation, business operations and financial results.

Additionally, a successful cyber-attack against one of these third parties’ information technology systems may disrupt our supply chain.

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Some of our current and potential competitors have longer operating histories, significantly greater resources and name recognition and a larger base of customers than we have.

As a result, these competitors may have greater credibility with our existing and potential customers.

As a result, these competitors may have greater credibility with

our existing and potential customers.

They also may be able to adopt more aggressive pricing policies and devote greater resources to the development, promotion and sale of their products than we can to ours.

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trade barriers, may restrict our participation in the China market or may prevent us from competing effectively with Chinese companies or companies from other countries that China favors over the United States.

See the risk factor entitled “ Our business, financial condition, and results of operations could be materially and adversely affected by tariffs, trade restrictions, and other barriers to international trade ”.

Furthermore, our current or potential competitors may be acquired by third parties with greater available resources and the ability to initiate or withstand substantial price competition, which may include price concessions, delayed payment terms, financing terms, or other terms and conditions that are more enticing to potential customers.

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Competition could decrease our prices, reduce our sales, lower our gross profit and/or decrease our market share.

From time to time, governments around the world may provide incentives or make other investments that could benefit and give competitive advantages to our competitors.

For example, in August 2022, the CHIPS and Science Act of 2022 (“CHIPS Act”) was signed into law to provide financial incentives to the U.S.

semiconductor industry.

Government incentives, including any that may be offered in connection with the CHIPS Act, may not be available to us on acceptable terms or at all, and to the extent that the incoming administration modifies or repeals the CHIPS Act, the availability of any such incentives may be even less certain.

If our competitors can benefit from such government incentives and we cannot, it could strengthen our competitors’ relative position and have a material adverse effect on our reputation and business.

We may not be able to maintain our historical growth and may experience significant period-to-period fluctuations in our revenues and operating results, which may result in volatility in our stock price

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• Changes in market standards;

• Volatility in foreign currency exchange rates and any requirements for buying and/or selling in currencies other than the U.S.

• Impairment charges related to inventory, equipment or other long-lived assets;

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Our customers typically complete their own qualification process.

If we fail to properly balance customer demand across the existing semiconductor fabrication facilities that we utilize or are required by our foundry partners to increase, or otherwise change

the number of fab lines that we utilize for our production, we might not be able to fulfill demand for our products and may need to divert our engineering resources away from new product development initiatives to support the fab line transition, which would adversely affect our operating results.

If we fail to properly balance customer demand across the existing semiconductor fabrication facilities that we utilize or are required by our foundry partners to increase, or otherwise change the number of fab lines that we utilize for our production, we might not be able to fulfill demand for our products and may need to divert our engineering resources away from new product development initiatives to support the fab line transition, which would adversely affect our operating results.

In addition, geopolitical changes in China-Taiwan relations could disrupt TSMC’s operations and impact our third-party assembly subcontractors in Asia.

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This has included the establishment of a headquarters in Singapore for non-U.S.

During the nine months ended September 28, 2024, the percentage of our revenues derived from outside of the United States was 93% (and the revenue associated with end customers in China was 15%, and revenue attributed to China based on shipped-to location was 33%).

During the three months ended April 5, 2025, the percentage of our revenues derived from outside of the United States was 91% (and the revenue associated with end customers in China was 13%, and revenue attributed to China based on shipped-to location was 33%).

We may not be able to maintain or increase global market demand for our products.

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Similarly, a decrease in the value of the U.S.

dollar could reduce our buying power with respect to international suppliers.

dollar, such as has occurred since the beginning of 2025, may reduce our buying power with respect to international suppliers.

However, we may be required to buy or sell in other currencies as a result of changes in industry standards.

Operating or transacting in currencies other than the U.S.

dollar may result in enhanced volatility in our operating results.

Our inability to manage growth could materially and adversely affect our business

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As a result, we have devoted and expect to continue to devote a large amount of resources to develop products based on new and emerging technologies and standards that will be commercially introduced in the future.

Research and development expense during the nine months ended September 28, 2024 was $83.2 million, or 50.0% of revenues.

Research and development expense during the three months ended April 5, 2025 was $88.2 million, or 49.6% of revenues.

A number of companies are actively involved in the development of these new technologies and standards.

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In addition, if we do not correctly anticipate new technologies and standards, or if the products that we develop based on these new technologies and standards fail to achieve market acceptance, our competitors may be better able to address market demand than we would.

Furthermore, if markets for these new technologies and standards develop later than we anticipate, or do not develop at all, demand for our products that are currently in development would suffer, resulting in lower sales of these products than we currently anticipate.

Furthermore, if markets for these new technologies and standards develop later than we anticipate, or do not develop at all,

demand for our products that are currently in development would suffer, resulting in lower sales of these products than we currently anticipate.

We depend on our key personnel to manage our business effectively in a rapidly changing market, and if we are unable to retain our current personnel and hire additional personnel, our ability to develop and successfully market our products could be harmed

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We believe that our future success will be dependent on retaining the services of our key personnel, developing their successors and certain internal processes to reduce our reliance on specific individuals, and on properly managing the transition of key roles when they occur.

There is currently a shortage of qualified personnel with significant experience in the design, development, manufacturing, marketing and sales of analog and mixed-signal products, and competition for such personnel is intense.

Competition for qualified personnel with significant experience in the design, development, manufacturing, marketing and sales of analog and mixed-signal products has been, and continues to be, intense.

Our key technical personnel represent a significant asset and serve as the primary source for our technological and product innovations.

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As part of our growth and product diversification strategy, we continue to evaluate opportunities to acquire other businesses, intellectual property or technologies that would complement our current offerings, expand the breadth of our markets or enhance our technical capabilities.

The acquisitions that we have made and may make in the future entail a number of risks that could materially and adversely affect our business and operating results, including:

The acquisitions that we may make in the future entail a number of risks that could materially and adversely affect our business and operating results, including:

• Problems integrating the acquired operations, technologies or products with our existing business and products;

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The future growth of our business will depend in large part on our ability to manage our relationships with current and future distributors and sales representatives, develop additional channels for the distribution and sale of our products and manage these relationships.

During the nine months ended September 28, 2024, 69% of our revenue was derived from distributors (and 44% of our revenue was derived from our two largest distributors).

During the three months ended April 5, 2025, 66% of our revenue was derived from distributors (and 45% of our revenue was derived from our two largest distributors).

As we execute our indirect sales strategy, we must manage the potential conflicts that may arise with our direct sales efforts.

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In order to ensure availability of our products for some of our largest customers, we start the manufacturing of our products in advance of receiving purchase orders based on forecasts provided by these customers.

However, these forecasts do not represent binding purchase commitments and we do not recognize sales for these products until they are shipped to

the customer.

However, these forecasts do not represent binding purchase commitments and we do not recognize sales for these products until they are shipped to the customer.

As a result, we incur inventory and manufacturing costs in advance of anticipated sales.

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We rely primarily on our in-house testing personnel to design test operations and procedures to detect any errors or vulnerabilities prior to delivery of our products to our customers.

Additionally, we have used and may increase our use of new technology such as AI or generative AI to enhance our products, decrease our development times, or improve our customers’ efficiency.

Although we maintain AI governance programs and internal oversight committees, the use of AI technologies is still in the early stages and these new technologies may not always operate as expected and deliver our intended results, may produce output that contain errors and incorrect information or other unintended consequences, including cyber security vulnerabilities.

Any ineffective AI usage could negatively impact our or our customer’s business reputation and negatively impact our competitive standing.

Should problems occur in the operation or performance of our products, we may experience delays in meeting key introduction dates or scheduled delivery dates to our customers.

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Our products are typically sold at prices that are significantly lower than the cost of the end-products into which they are incorporated.

A defect, failure or vulnerability in our product could cause failure in our customer’s end-product, so we could face claims for damages that are disproportionately higher than the revenues and profits we receive from the products involved.

A defect, failure or vulnerability in our products, including as a result of AI used in the development of our products, or by our customers in end-products that incorporate our products, could cause failure in our customer’s end-product, so we could face claims for damages that are disproportionately higher than the revenues and profits we receive from the products involved.

Furthermore, product liability risks are particularly significant with respect to medical and automotive applications because of the risk of serious harm to users of these end-products.

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Any dispositions could harm our financial condition

Any disposition of a business or product line would entail a number of risks that could materially and adversely affect our business and operating results, including:

Any disposition of a business or product line that we have made and may make in the future would entail a number of risks that could materially and adversely affect our business and operating results, including:

• Diversion of management’s time and attention from our core business;

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If our products fail to achieve market acceptance, our growth prospects, operating results and competitive position could be adversely affected.

We have identified a material weakness in our internal control over financial reporting and if we are unable to implement and maintain effective internal control over financial reporting, or our independent registered public accounting firm is unable to provide an unqualified report thereon, we could be materially adversely effected

As more fully disclosed in Item 9A.

Controls and Procedures in our Annual Report on Form 10-K for the year ended December 30, 2023 filed with the SEC on February 20, 2024, we have identified a material weakness that existed as of the end of our fiscal 2023 regarding our internal controls over inventory valuation, primarily the undue reliance on forecasted inventory demand which was not subjected to a sufficient level of management review.

We previously identified a material weakness in our internal control over financial reporting.

Although we have remediated this material weakness, we may identify additional material weaknesses or other deficiencies in the future or otherwise fail to maintain an effective system of internal controls, including disclosure controls and procedures, and this could result in material misstatements of our financial statements or cause us to fail to meet our reporting obligations

We previously identified a material weakness that existed as of the end of our fiscal 2023 regarding our internal controls over inventory valuation, primarily the undue reliance on forecasted inventory demand which was not subjected to a sufficient level of management review.

As a result of this material weakness, management concluded that our disclosure controls and procedures and internal control over financial reporting were not effective as of December 30, 2023.

Unless and until this material weakness has been remediated, or should new material weaknesses arise or be discovered in the future, material misstatements could occur and go undetected in our interim or annual consolidated financial statements and we may be required to restate our financial statements.

In addition, we may experience delays in satisfying our reporting obligations or to comply with SEC rules and regulations, which could result in investigations and sanctions by regulatory authorities.

During the quarter ended December 28, 2024, we successfully completed the testing necessary to conclude that the material weakness has been remediated.

While the material weakness has been remediated, we continue to seek improvements to enhance our control environment and to strengthen our internal controls to provide reasonable assurance that our financial statements continue to be fairly stated in all material respects.

Should new material weaknesses arise or be discovered in the future, material misstatements could occur and go undetected in our interim or annual consolidated financial statements.

If we fail to remediate any future material weaknesses or maintain proper and effective internal control over financial reporting in the future, we may be required to restate our financial statements, experience delays in satisfying our reporting obligations or fail to comply with SEC rules and regulations, which could result in investigations and sanctions by regulatory authorities.

Any of these results could adversely affect our business and the value of our common stock.

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We also receive communications from customers or suppliers requesting indemnification for allegations brought against them by third parties.

Some of these allegations have resulted, and may result in the future, in our involvement in litigation.

Some of these allegations have resulted, and may result in the future, in our

involvement in litigation.

We have certain contractual obligations to defend and indemnify our customers from certain infringement claims.

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We rely on a combination of patent, copyright, trademark and trade secret laws and restrictions on disclosure to protect our intellectual property rights.

We also enter into

confidentiality or license agreements with our employees, consultants, intellectual property providers and business partners, and control access to and distribution of our documentation and other proprietary information.

We also enter into confidentiality or license agreements with our employees, consultants, intellectual property providers and business partners, and control access to and distribution of our documentation and other proprietary information.

Despite these efforts, unauthorized parties may attempt to copy or otherwise obtain and use our proprietary technology.

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Our credit facility also contains covenants, including financial covenants.

If we breach any of the covenants under our credit facility and do not obtain appropriate waivers, then, subject to any applicable cure periods, any outstanding indebtedness thereunder could be declared immediately due and payable.

In May 2024, we received a waiver of the requirement that we meet an interest coverage test for each fiscal quarter through the fiscal first quarter of 2025 and in February 2025 received a waiver through the third quarter of 2025.

We did not have any outstanding indebtedness under the credit facility at the time the waiver was granted, and the waiver allowed us to borrow under the facility without compliance with that specific financial covenant, although we have not borrowed under the facility while the waiver has been in effect.

If we are unable to satisfy or otherwise obtain waivers of the covenants under our credit facility, we may be prohibited from borrowing thereunder.

Further, if we breach any of the covenants under our credit facility and do not obtain appropriate waivers, then, subject to any applicable cure periods, any outstanding indebtedness thereunder could be declared immediately due and payable.

We could seek to raise additional debt or equity capital in the future, but additional capital may not be available on terms acceptable to us, or at all

We believe that our existing cash, cash equivalents, investments, and credit under our credit facility will be sufficient to meet our working capital needs, capital expenditures, investment requirements and commitments for at least the next 12 months.

However, our ability to borrow further under the credit facility is dependent upon our ability to satisfy various

conditions, covenants and representations.

However, our ability to borrow further under the credit facility is dependent upon our ability to satisfy various conditions, covenants and representations.

It is possible that we may need to raise additional funds to finance our activities or to facilitate acquisitions of other businesses, products, intellectual property or technologies.

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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.

Unregistered Sales of Equity Securities and Use of Proceeds

There were no repurchases of our common stock during the three months ended April 5, 2025.

Defaults Upon Senior Securities

Not applicable

Mine Safety Disclosures

Not applicable

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