What changed in this filing

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Item 2. Management’s Discussion and Analysis

2020-10-28 compared with 2020-07-29 · 93 added, 68 removed, 234 unchanged (41% of the section changed)

6 unchanged sentences

Fiscal 2019 had 52 weeks.

Our second quarter of fiscal 2020 ended July 4, 2020.

Our second quarter of fiscal 2019 ended June 29, 2019.

Our third quarter of fiscal 2020 ended October 3, 2020.

Our third quarter of fiscal 2019 ended September 28, 2019.

Impact of COVID-19

30 unchanged sentences

Current Period Highlights

Revenues increased $0.8 million in the recent quarter compared to the second quarter of fiscal 2019 due to increased revenues from our Infrastructure and automotive products, offset by decreased revenues from our IoT products.

Gross profit decreased $0.7 million during the same period due primarily to the fair value write-up associated with previously acquired inventory.

Gross margin decreased to 60.9% in the recent quarter compared to 61.5% in the second quarter of fiscal 2019 due primarily to variations in product mix.

Operating expenses increased by $6.7 million in the recent quarter compared to the second quarter of fiscal 2019 due primarily to increased personnel-related expenses and amortization of intangible assets, offset in part by decreased acquisition-related costs.

Operating income in the recent quarter was $7.1 million compared to $14.6 million in the second quarter of fiscal 2019.

We ended the second quarter with $723.3 million in cash, cash equivalents and short-term investments.

Net cash provided by operating activities was $100.5 million during the recent six-month period.

Accounts receivable was $70.5 million at July 4, 2020, representing 31 days sales outstanding (DSO).

Inventory was $70.0 million at July 4, 2020, representing 78 days of inventory (DOI).

Revenues decreased $1.9 million in the recent quarter compared to the third quarter of fiscal 2019 due to decreased revenues from our Infrastructure and automotive products, offset by increased revenues from our IoT products.

Gross profit decreased $4.0 million during the same period due primarily to decreased product sales and the fair value write-up associated with previously acquired inventory.

Gross margin decreased to 58.8% in the recent quarter compared to 60.1% in the third quarter of fiscal 2019 due primarily to variations in product mix.

Operating expenses increased by $10.2 million in the recent quarter compared to the third quarter of fiscal 2019 due primarily to increased personnel-related expenses, amortization of intangible assets and new product introduction costs.

Operating income in the recent quarter was $9.6 million compared to $23.8 million in the third quarter of fiscal 2019.

We ended the third quarter with $721.8 million in cash, cash equivalents and short-term investments.

Net cash provided by operating activities was $127.0 million during the recent nine-month period.

Accounts receivable was $80.5 million at October 3, 2020, representing 33 days sales outstanding (DSO).

Inventory was $66.2 million at October 3, 2020, representing 65 days of inventory (DOI).

Through acquisitions and internal development efforts, we have continued to diversify our product portfolio and introduce new products and solutions with added functionality and further integration.

On April 28, 2020, we acquired the Wi-Fi and Bluetooth business of Redpine Signals for approximately $317 million in cash.

The acquisition will accelerate our roadmap for Wi-Fi and Bluetooth silicon and software solutions.

In the first six months of fiscal 2020, we introduced energy-friendly power management ICs (PMICs) that enhance the energy efficiency of battery-powered applications;

We believe the acquisition will accelerate our roadmap for Wi-Fi and Bluetooth silicon and software solutions.

In the first nine months of fiscal 2020, we introduced new small form-factor, high-performance crystal oscillators (XOs) and voltage-controlled crystal oscillators (VCXOs) for applications that require low jitter and frequency-flexible clock synthesis;

a Bluetooth Low Energy system-in-package (SiP) that adds turnkey Bluetooth connectivity to extremely small products;

a major upgrade to our Integrated Developer Environment (IDE) with the launch of Simplicity Studio 5;

energy-friendly power management ICs (PMICs) that enhance the energy efficiency of battery-powered applications;

a Power over Ethernet (PoE) portfolio that reduces the cost and complexity of adding 90 W PoE to power sourcing equipment (PSE) and powered devices (PD);

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We plan to continue to introduce products that increase the content we provide for existing applications, thereby enabling us to serve markets we do not currently address and expand our total available market opportunity.

During the six months ended July 4, 2020, we had no customer that represented more than 10% of our revenues.

During the nine months ended October 3, 2020, we had no customer that represented more than 10% of our revenues.

In addition to direct sales to customers, some of our end customers purchase products indirectly from us through distributors and contract manufacturers.

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Although we actually sell the products to, and are paid by, the distributors and contract manufacturers, we refer to such end customer as our customer.

Three of our distributors who sell to our customers, Arrow Electronics, Edom Technology and Sekorm, each represented more than 10% of our revenues during the six months ended July 4, 2020.

The percentage of our revenues derived from outside of the United States was 90% during the six months ended July 4, 2020.

Three of our distributors who sell to our customers, Arrow Electronics, Edom Technology and Sekorm, each represented more than 10% of our revenues during the nine months ended October 3, 2020.

The percentage of our revenues derived from outside of the United States was 90% during the nine months ended October 3, 2020.

All of our revenues to date have been denominated in U.S.

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Results of Operations

The following describes the line items set forth in our Condensed Consolidated Statements of Operations:

The following describes the line items set forth in our Condensed Consolidated Statements of Income:

Revenues are generated predominately by sales of our products.

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Provision (benefit) for income taxes includes both domestic and foreign income taxes at the applicable tax rates adjusted for non-deductible expenses, research and development tax credits and other permanent differences.

The following table sets forth our Condensed Consolidated Statements of Operations data as a percentage of revenues for the periods indicated:

The following table sets forth our Condensed Consolidated Statements of Income data as a percentage of revenues for the periods indicated:

Three Months Ended

Six Months Ended

Nine Months Ended

September 28,

Cost of revenues

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Interest expense

Income (loss) before income taxes

Income before income taxes

Provision (benefit) for income taxes

Net income (loss)

Three Months Ended

Six Months Ended

Nine Months Ended

September 28,

(in millions)

2 unchanged sentences

The change in revenues in the recent three-month period was due to:

● Decreased revenues of $9.6 million for our IoT products, due primarily to decreased demand for our wireless connectivity products, offset by increased demand for our MCU products.

● Increased revenues of $10.4 million for our Infrastructure and automotive products, due primarily to increased demand for our timing and power products, offset by decreased demand for our consumer products.

The change in revenues in the recent six month period was due to:

● Increased revenues of $3.8 million for our IoT products, due primarily to increased demand for our MCU products.

● Decreased revenues of $5.7 million for our Infrastructure and automotive products, due primarily to decreased demand for our consumer and access products.

The change in revenues in the recent nine-month period was due to:

● Increased revenues of $5.8 million for our IoT products, due primarily to increased demand for our MCU products, offset by decreased demand for our wireless connectivity products.

● Increased revenues of $25.6 million for our Infrastructure and automotive products, due primarily to increased demand for our power and timing products.

Unit volumes of our products increased by 7.6% and average selling prices decreased by 6.4% compared to the three months ended June 29, 2019.

Unit volumes of our products increased by 16.9% and average selling prices decreased by 8.3% compared to the six months ended June 29, 2019.

● Increased revenues of $19.9 million for our Infrastructure and automotive products, due primarily to increased demand for our power and timing products , offset by decreased demand for our consumer products.

Unit volumes of our products increased by 5.7% and average selling prices decreased by 6.1% compared to the three months ended September 28, 2019.

Unit volumes of our products increased by 12.6% and average selling prices decreased by 7.3% compared to the nine months ended September 28, 2019.

The average selling prices of our products may fluctuate significantly from period to period due to changes in product mix and other factors.

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Three Months Ended

Six Months Ended

Nine Months Ended

September 28,

(in millions)

Gross profit decreased during the recent three-month period due primarily to the fair value write-up associated with previously acquired inventory.

Gross profit increased during the recent six-month period due primarily to increased product sales.

The change in gross profit in the recent three-month period was due to a decrease in gross profit of $7.3 million for our Internet of Things products, offset by an increase in gross profit of $6.6 million for our Infrastructure and automotive products.

The change in gross profit in the recent six-month period was due to an increase in gross profit of $14.7 million for our Infrastructure and automotive products, offset by a decrease of $2.1 million for our Internet of Things products.

Gross profit in the recent three and six month periods included $0.5 million in charges for the fair value write-up associated with acquired inventory.

Gross margin decreased during the recent three and six month periods primarily due to lower gross margins on our IoT products, which resulted from lower average selling prices on such products in the recent periods.

Gross profit decreased during the recent three-month period due primarily to decreased product sales and the impact of the fair value write-up associated with previously acquired inventory.

Gross profit increased during the recent nine-month period due primarily to increased product sales.

The change in gross profit in the recent three-month period was due to a decrease in gross profit of $4.2 million for our Infrastructure and automotive products, partially offset by an increase in gross profit of $0.2 million for our Internet of Things products.

The change in gross profit in the recent nine-month period was due to an increase in gross profit of $10.6 million for our Infrastructure and automotive products, partially offset by a decrease of $2.0 million for our Internet of Things products.

Gross profit in the recent three and nine month periods included $1.2 million and $1.8 million, respectively, in charges for the fair value write-up associated with acquired inventory.

Gross margin decreased during the recent three-month period primarily due to lower gross margins on our Infrastructure and automotive products.

Gross margin decreased during the recent nine-month period primarily due to lower gross margins on our IoT products.

Gross margin declines resulted from lower average selling prices on such products in the recent periods.

We may experience declines in the average selling prices of certain of our products.

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Three Months Ended

Six Months Ended

Nine Months Ended

September 28,

(in millions)

1 unchanged sentence

Percent of revenue

The increase in research and development expense in the three-month period was primarily due to increases of $5.8 million for personnel-related expenses, including costs associated with increased headcount and an acquisition and $0.8 million for the amortization of intangible assets.

The increase research and development expense in the six-month period was primarily due to increases of $14.1 million for personnel-related expenses and $1.0 million for occupancy costs.

We expect that research and development expense will remain relatively stable in absolute dollars in the third quarter of fiscal 2020.

The increase in research and development expense in the three-month period was primarily due to increases of $4.5 million for personnel-related expenses, including costs associated with increased headcount and an acquisition, $2.0 million for the amortization of intangible assets and $1.7 million for new product introduction costs.

The increase research and development expense in the nine-month period was primarily due to increases of $18.6 million for personnel-related expenses, $2.5 million for new product introduction costs, $2.2 million for the amortization of intangible assets and $1.1 million for occupancy costs.

We expect that research and development expense will increase in absolute dollars in the fourth quarter of fiscal 2020.

Selling, General and Administrative

Three Months Ended

Six Months Ended

Nine Months Ended

September 28,

(in millions)

1 unchanged sentence

Percent of revenue

The decrease in selling, general and administrative expense in the three-month period was primarily due to a decrease of $1.0 million for acquisition-related costs, offset by an increase of $0.9 million for personnel-related expenses, including costs associated with increased headcount.

The increase in selling, general and administrative expense in the six-month period was primarily due to an increase of $4.5 million for personnel-related expenses.

We expect that selling, general and administrative expense will remain relatively stable in absolute dollars in the third quarter of fiscal 2020.

The increase in selling, general and administrative expense in the three-month period was primarily due to an increase of $0.4 million for the amortization of intangible assets.

The increase in selling, general and administrative expense in the nine-month period was primarily due to increases of $4.6 million for personnel-related expenses, including costs associated with increased headcount, and $0.6 million for the amortization of intangible assets.

We expect that selling, general and administrative expense will remain relatively stable in absolute dollars in the fourth quarter of fiscal 2020.

Interest Income and Other, Net

Interest income and other, net for the three and six months ended July 4, 2020 was $3.3 million and $6.5 million, respectively, compared to $3.7 million and $6.5 million for the three and six months ended June 29, 2019, respectively.

Interest income and other, net for the three and nine months ended October 3, 2020 was $2.0 million and $8.6 million, respectively, compared to $3.2 million and $9.7 million for the three and nine months ended September 28, 2019, respectively.

The decrease in interest income and other, net in the recent three and nine month periods was primarily due to lower interest rates on the underlying instruments.

Interest Expense

Interest expense for the three and six months ended July 4, 2020 was $11.8 million and $17.3 million, respectively, compared to $5.0 million and $10.0 million for the three and six months ended June 29, 2019, respectively.

The increase in interest expense in the recent three and six month periods was primarily due to a loss of $3.7 million recorded on the early extinguishment of a portion of the 2022 Notes and $2.2 million in interest on the 2025 Notes.

Interest expense for the three and nine months ended October 3, 2020 was $8.6 million and $25.9 million, respectively, compared to $5.1 million and $15.1 million for the three and nine months ended September 28, 2019, respectively.

The increase in interest expense in the recent three-month period was primarily due to a net increase of $3.2 million in interest resulting from an increase in the aggregate balance of notes outstanding.

The increase in interest expense in the recent nine-month period was primarily due to a net increase of $5.0 million in interest resulting from an increase in the aggregate balance of notes outstanding and a loss of $4.0 million recorded on the early extinguishment of a portion of the 2022 Notes.

Provision (Benefit) for Income Taxes

Three Months Ended

Six Months Ended

Nine Months Ended

September 28,

(in millions)

1 unchanged sentence

Effective tax rate

The significant change in the effective tax rate for the three and six months ended July 4, 2020 as compared to the prior periods was primarily due to the impact in the prior periods of a change in the Company’s position related to the treatment of stock-based compensation within its intercompany cost-sharing arrangement as well as a change in the proportion of permanent tax impacts relative to a decrease in current year pre-tax book income.

The decrease in the effective tax rate for the three months ended October 3, 2020 as compared to the prior period was primarily due to the impact of permanent tax differences relative to the decreased current period pre-tax book income.

The significant decrease in the effective tax rate for the nine months ended October 3, 2020 as compared to the prior period was primarily due to the impact in the prior period of a change in the Company’s position related to the treatment of stock-based compensation within its intercompany cost-sharing arrangement.

The effective tax rates for each of the periods presented differ from the U.S.

1 unchanged sentence

Business Outlook

The following represents our business outlook for the third quarter of fiscal 2020.

The following represents our business outlook for the fourth quarter of fiscal 2020.

Income Statement Item

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Effective tax rate

Diluted earnings (loss) per share

Diluted earnings per share

$0.02 to $0.12

Liquidity and Capital Resources

Our principal sources of liquidity as of July 4, 2020 consisted of $723.3 million in cash, cash equivalents and short-term investments, of which approximately $543.4 million was held by our U.S.

Our principal sources of liquidity as of October 3, 2020 consisted of $721.8 million in cash, cash equivalents and short-term investments, of which approximately $561.3 million was held by our U.S.

The remaining balance was held by our foreign subsidiaries.

Our cash equivalents and short-term investments consisted of government debt securities, which include agency bonds, municipal bonds and U.S.

Our cash equivalents and short-term investments consisted of government debt securities, which include agency bonds, municipal bonds, variable-rate demand notes, U.S.

Treasury bills and U.S.

government securities;

corporate debt securities, which include asset-backed securities, corporate bonds and commercial paper;

corporate debt securities, which include asset-backed securities, corporate bonds, certificates of deposit, Yankee bonds and commercial paper;

and money market funds.

1 unchanged sentence

Operating Activities

Net cash provided by operating activities was $100.5 million during the six months ended July 4, 2020, compared to net cash provided of $71.4 million during the six months ended June 29, 2019.

Operating cash flows during the six months ended July 4, 2020 reflect our net income of $0.4 million, adjustments of $73.0 million for depreciation, amortization, stock-based compensation and deferred income taxes, and a net cash inflow of $27.1 million due to changes in our operating assets and liabilities.

Accounts receivable decreased to $70.5 million at July 4, 2020 from $75.6 million at December 28, 2019.

The decrease in accounts receivable resulted primarily from normal variations in the timing of collections and billings.

Our average DSO was 31 days at July 4, 2020 and December 28, 2019.

Inventory decreased to $70.0 million at July 4, 2020 from $73.1 million at December 28, 2019.

Net cash provided by operating activities was $127.0 million during the nine months ended October 3, 2020, compared to net cash provided of $134.9 million during the nine months ended September 28, 2019.

Operating cash flows during the nine months ended October 3, 2020 reflect our net income of $3.6 million, adjustments of $101.5 million for depreciation, amortization, stock-based compensation and deferred income taxes, and a net cash inflow of $21.9 million due to changes in our operating assets and liabilities.

Accounts receivable increased to $80.5 million at October 3, 2020 from $75.6 million at December 28, 2019.

The increase in accounts receivable resulted primarily from normal variations in the timing of collections and billings.

Our average DSO was 33 days at October 3, 2020 and 31 days at December 28, 2019.

Inventory decreased to $66.2 million at October 3, 2020 from $73.1 million at December 28, 2019.

Our inventory level is primarily impacted by our need to make purchase commitments to support forecasted demand and variations between forecasted and actual demand.

Our DOI was 78 days at July 4, 2020 and 76 days at December 28, 2019.

Our DOI was 65 days at October 3, 2020 and 76 days at December 28, 2019.

Investing Activities

Net cash used in investing activities was $272.3 million during the six months ended July 4, 2020, compared to net cash used of $44.7 million during the six months ended June 29, 2019.

Net cash used in investing activities was $324.3 million during the nine months ended October 3, 2020, compared to net cash used of $58.4 million during the nine months ended September 28, 2019.

The increase in cash outflows was principally due to a payment of $316.8 million for the acquisition of the Wi-Fi and Bluetooth business of Redpine Signals, offset by an increase in cash inflows of $47.5 million from net sales and purchases of marketable securities in the current period.

Financing Activities

Net cash provided by financing activities was $222.3 million during the six months ended July 4, 2020, compared to net cash used of $34.1 million during the six months ended June 29, 2019.

Net cash provided by financing activities was $200.6 million during the nine months ended October 3, 2020, compared to net cash used of $36.4 million during the nine months ended September 28, 2019.

The increase in cash inflows was principally due to $845 million in proceeds from the issuance of debt and a decrease of $10.4 million for repurchases of our common stock, offset by $617.6 million in payments on debt in the current period.

As of July 4, 2020, our debt included $535 million principal amount convertible senior notes (the “2025 Notes”) and $163 million principal amount convertible senior notes (the “2022 Notes”) and we had an undrawn $400 million revolving credit facility.

As of October 3, 2020, our debt included $535 million principal amount convertible senior notes (the “2025 Notes”) and $145.6 million principal amount convertible senior notes (the “2022 Notes”) and we had an undrawn $400 million revolving credit facility.

We have an option to increase the size of the borrowing capacity of the revolving credit facility by up to the greater of an aggregate of $250 million and 100% of EBITDA, plus an amount that would not cause a secured leverage ratio to exceed 3.25 to 1.00, subject to certain conditions.

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If our estimates of consideration are inaccurate, we may recognize too much or too little revenue in a period.

Stock-based compensation - We recognize the fair-value of stock-based compensation transactions in the Consolidated Statements of Operations.

We may adjust assumptions used to estimate consideration periodically based on analysis of prior estimates.

Stock-based compensation - We recognize the fair-value of stock-based compensation transactions in the Consolidated Statements of Income.

The fair value of our full-value stock awards (with the exception of market-based performance awards) equals the fair market value of our stock on the date of grant.

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We believe adequate provisions for income taxes have been made for all periods.

Recent Accounting Pronouncements

Information regarding recent accounting pronouncements is provided in Note 1, Significant Accounting Policies , to the Condensed Consolidated Financial Statements.

Such information is incorporated by reference herein.

Quantitative and Qualitative Disclosures about Market Risk

4 unchanged sentences

interest rates.

A 100 basis point decline in yield on our investment portfolio holdings as of July 4, 2020 would decrease our future annual interest income by approximately $6.6 million.

Our investment portfolio holdings as October 3, 2020 yielded less than 100 basis points.

A decline in yield to zero basis points on our investment portfolio holdings as of October 3, 2020 would decrease our future annual interest income by approximately $5.6 million.

We believe that our investment policy, which defines the duration, concentration, and minimum credit quality of the allowable investments, meets our investment objectives.

2 unchanged sentences

The interest rate on the credit facility consists of a variable-rate of interest and an applicable margin.

While we have drawn from the credit facility in the past, we have no borrowings as of July 4, 2020.

While we have drawn from the credit facility in the past, we have no borrowings as of October 3, 2020.

If we borrow from the credit facility in the future, we will again be exposed to interest rate fluctuations.

4 unchanged sentences

Accordingly, gains and losses resulting from remeasuring transactions denominated in currencies other than U.S.

dollars are recorded in the Consolidated Statements of Operations.

dollars are recorded in the Consolidated Statements of Income.

We use foreign currency forward contracts to manage exposure to foreign exchange risk.

1 unchanged sentence

Investments in Auction-rate Securities

As of July 4, 2020, we held $6.0 million par value auction-rate securities, all of which have experienced failed auctions because sell orders exceeded buy orders.

As of October 3, 2020, we held $6.0 million par value auction-rate securities, all of which have experienced failed auctions because sell orders exceeded buy orders.

We are unable to predict if these funds will become available before their maturity dates.

8 unchanged sentences

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 2. Management’s Discussion and Analysis