What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-04-28 compared with 2020-10-28 · 61 added, 106 removed, 221 unchanged (43% of the section changed)

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Our fiscal year-end financial reporting periods are a 52- or 53-week fiscal year that ends on the Saturday closest to December 31.

Fiscal 2020 will have 53 weeks with the extra week occurring in the first quarter of the year.

Fiscal 2019 had 52 weeks.

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

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

Fiscal 2021 will have 52 weeks.

Fiscal 2020 had 53 weeks with the extra week occurring in the first quarter of the year.

Our first quarter of fiscal 2020 ended April 3, 2021.

Our first quarter of fiscal 2019 ended April 4, 2020.

Impact of COVID-19

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and access products (Voice over IP (VoIP) products and embedded modems).

We have combined our previous product groups, Infrastructure, Broadcast and Access, into the Infrastructure and automotive product group.

Prior periods were retrospectively adjusted.

The sales cycle for our ICs can be as long as 12 months or more.

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Accordingly, if we incur substantial research and development costs without developing a commercially successful product, our operating results, as well as our growth prospects, could be adversely affected.

Because some of our ICs are designed for use in consumer products such as televisions, set-top boxes and radios, we expect that the demand for our products will be typically subject to some degree of seasonal demand.

Because some of our ICs are designed for use in consumer products, we expect that the demand for our products will be typically subject to some degree of seasonal demand.

However, rapid changes in our markets and across our product areas make it difficult for us to accurately estimate the impact of seasonal factors on our business.

Current Period Highlights

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).

Revenues increased $40.6 million in the recent quarter compared to the first quarter of fiscal 2020 primarily due to increased revenues from our IoT products.

Gross profit increased $21.4 million during the same period due primarily to increased product sales.

Gross margin decreased to 58.9% in the recent quarter compared to 60.1% in the first quarter of fiscal 2020 due primarily to variations in product mix.

Operating expenses increased by $3.2 million in the recent quarter compared to the first quarter of fiscal 2020 due primarily to increased new product introduction costs, amortization of intangible assets and personnel-related expenses, offset in part by decreased promotional and marketing expenses.

Operating income in the recent quarter was $22.2 million compared to $3.9 million in the first quarter of fiscal 2020.

We ended the first quarter with $572.9 million in cash, cash equivalents and short-term investments.

Net cash provided by operating activities was $14.5 million during the recent three-month period.

Accounts receivable was $103.7 million at April 3, 2021, representing 37 days sales outstanding (DSO).

Inventory was $79.2 million at April 3, 2021, representing 68 days of inventory (DOI).

During the first quarter, we paid $140.6 million in cash and issued 528,022 shares of common stock in connection with the redemption of the remaining principal of our 2022 convertible senior notes.

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.

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);

Secure Vault technology, a suite of state-of-the-art security features designed to help connected device manufacturers address escalating IoT security threats and regulatory pressures;

secure, proprietary wireless system-on-chip (SoC) devices designed for power- and size-constrained IoT products such as electronic shelf labels;

secure, ultra-low-power SoCs optimized for Zigbee® Green Power applications powered by coin cell batteries or energy-harvesting sources;

and a Bluetooth SoC solution delivering a combination of security features, wireless performance, energy efficiency, and software tools and stacks to meet the market demand for high-volume, battery-powered IoT products.

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

In the first three months of fiscal 2021, we introduced a new 32-bit MCU on our award-winning xG22 platform for IoT edge applications;

a new isolated gate driver board designed to simplify the development of systems using power modules;

and new SmartClock™ technology for our automotive timing solutions.

During the three months ended April 3, 2021, 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 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.

Two of our distributors who sell to our customers, Arrow Electronics and Edom Technology, each represented more than 10% of our revenues during the three months ended April 3, 2021.

The percentage of our revenues derived from outside of the United States was 90% during the three months ended April 3, 2021.

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

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Interest Income and Other, Net.

Interest income and other, net reflects interest earned on our cash, cash equivalents and investment balances, foreign currency remeasurement adjustments and other non-operating income and expenses.

Interest income and other, net reflects interest earned on our cash, cash equivalents and investment balances, foreign currency remeasurement adjustments, income or loss on equity method investments, and other non-operating income and expenses.

Interest Expense.

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Three Months Ended

Nine Months Ended

September 28,

Cost of revenues

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Three Months Ended

Nine Months Ended

September 28,

(in millions)

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The change in revenues in the recent three-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 $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.

● Increased revenues of $40.1 million for our IoT products, due primarily to increased demand for our wireless connectivity products and MCU products and the addition of revenues from an acquisition.

● Increased revenues of $0.5 million for our Infrastructure and automotive products, due primarily to increased demand for our access products, offset by decreased demand for our timing products.

Unit volumes of our products increased by 32.9% and average selling prices decreased by 10.1% compared to the three months ended April 4, 2020.

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

In general, as our products become more mature, we expect to experience decreases in average selling prices.

We anticipate that newly announced, higher priced, next generation products and product derivatives will offset some of these decreases.

Three Months Ended

Nine Months Ended

September 28,

(in millions)

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.

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

The change in gross profit in the recent period was due to an increase in gross profit of $22.9 million for our Internet of Things products, partially offset by a decrease in gross profit of $1.4 million for our Infrastructure and automotive products.

Gross margin decreased primarily due to variations in product mix and lower gross margins on our Infrastructure and automotive products.

Gross margin declines resulted primarily from lower average selling prices in the recent period.

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

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Three Months Ended

Nine Months Ended

September 28,

(in millions)

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Percent of revenue

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.

The increase in research and development expense in the recent three month period was primarily due to increases of $2.0 million for new product introduction costs, $1.2 million for personnel-related expenses, including costs associated with increased headcount and an acquisition, and $1.2 million for the amortization of intangible assets.

We expect that research and development expense will increase in absolute dollars in the second quarter of fiscal 2021.

Selling, General and Administrative

Three Months Ended

Nine Months Ended

September 28,

(in millions)

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Percent of revenue

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.

The decrease in selling, general and administrative expense in the recent three month period was primarily due to decreases of $1.0 million for promotional and marketing expenses and $0.7 million for personnel-related expenses.

We expect that selling, general and administrative expense will remain relatively stable in absolute dollars in the second quarter of fiscal 2021.

Interest Income and Other, Net

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 income and other, net for the three months ended April 3, 2021 was $2.9 million compared to $3.3 million for the three months ended April 4, 2020.

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

Interest Expense

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.

Interest expense for the three months ended April 3, 2021 was $11.3 million compared to $5.5 million for the three months ended April 4, 2020.

The increase in interest expense in the recent three-month period was primarily due to a loss of $3.4 million recorded on the early extinguishment of the remaining 2022 Notes and a net increase of $2.4 million in interest resulting from an increase in the aggregate balance of notes outstanding.

Provision (Benefit) for Income Taxes

Three Months Ended

Nine Months Ended

September 28,

(in millions)

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Effective tax rate

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.

federal statutory tax rates of 21% due to the amount of income earned in foreign jurisdictions where the tax rate may be higher or lower than the federal statutory tax rate, and other permanent items including research and development tax credits, the tax effects of stock-based compensation and GILTI, or global intangible low-tax income.

The increase in the effective tax rate for the three months ended April 3, 2021 as compared to the prior period was primarily due to the decreased impact of excess tax benefits from stock-based compensation and federal research and development credits on increased pre-tax book income.

Business Outlook

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

The following represents our business outlook for the second quarter of fiscal 2021.

Income Statement Item

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Liquidity and Capital Resources

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.

Our principal sources of liquidity as of April 3, 2021 consisted of $572.9 million in cash, cash equivalents and short-term investments, of which approximately $401.7 million was held by our U.S.

The remaining balance was held by our foreign subsidiaries.

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government securities;

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

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

and money market funds.

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Operating Activities

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.

Net cash provided by operating activities was $14.5 million during the three months ended April 3, 2021, compared to net cash provided of $59.7 million during the three months ended April 4, 2020.

Operating cash flows during the three months ended April 3, 2021 reflect our net income of $13.5 million, adjustments of $36.7 million for depreciation, amortization, stock-based compensation and deferred income taxes, and a net cash outflow of $35.7 million due to changes in our operating assets and liabilities.

Accounts receivable increased to $103.7 million at April 3, 2021 from $95.2 million at January 2, 2021.

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

Our average DSO was 37 days at April 3, 2021 and 35 days at January 2, 2021.

Inventory increased to $79.2 million at April 3, 2021 from $66.7 million at January 2, 2021.

Our inventory level will vary based on the availability of supply as well as the impact of variations between forecasted demand used for purchasing inventory and actual demand.

Our DOI was 68 days at April 3, 2021 and 59 days at January 2, 2021.

Investing Activities

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.

Net cash provided by investing activities was $146.4 million during the three months ended April 3, 2021, compared to net cash provided of $51.5 million during the three months ended April 4, 2020.

The increase in cash inflows was principally due to an increase in cash inflows of $97.1 million from net sales and purchases of marketable securities in the current period.

Financing Activities

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 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.

Net cash used in financing activities was $158.4 million during the three months ended April 3, 2021, compared to net cash provided of $277.4 million during the three months ended April 4, 2020.

The decrease in cash inflows was principally due to $310 million in proceeds from our revolving line of credit in the prior period and $140.6 million in payments on debt in the current period, offset by a decrease of $16.3 million for repurchases of our common stock in the current period.

As of April 3, 2021, our debt included $535 million principal amount convertible senior notes (the “2025 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.

On March 27, 2020, we borrowed $310 million under the revolving credit facility.

On June 1, 2020, we used $310.0 million of the 2025 Notes proceeds to repay the revolving credit facility in full.

We used the remainder of the proceeds, along with cash on hand, to repurchase approximately $236.8 million aggregate principal amount of its outstanding 2022 Notes.

We had increased our borrowings as a precautionary measure in order to increase our cash position and preserve financial flexibility in light of current uncertainty in the global markets resulting from the COVID-19 pandemic.

On January 6, 2021, we issued a notice of redemption for the remaining 2022 convertible senior notes (the “2022 Notes”).

During the three months ended April 3, 2021, we paid $140.6 million in cash and issued 528,022 shares of common stock in connection with the redemption of the remaining 2022 Notes.

See Note 6, Debt , to the Condensed Consolidated Financial Statements for additional information.

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We assess goodwill for impairment by comparing the fair value of a reporting unit to its carrying amount.

In determining fair value, the accounting guidance allows for the use of several valuation methodologies, although it states quoted market prices are the best evidence of fair value.

In determining fair value, several valuation methodologies are allowed, although quoted market prices are the best evidence of fair value.

If the fair value of the reporting unit is less than its carrying amount, we recognize an impairment loss equal to that excess amount.

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interest rates.

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.

Our investment portfolio holdings as April 3, 2021 yielded less than 100 basis points.

A decline in yield to zero basis points on our investment portfolio holdings as of April 3, 2021 would decrease our future annual interest income by approximately $3.3 million.

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

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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 October 3, 2020.

While we have drawn from the credit facility in the past, we have no borrowings as of April 3, 2021.

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

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Investments in Auction-rate Securities

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.

As of April 3, 2021, 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.

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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 2. Management’s Discussion and Analysis