What changed in this filing

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Item 7. Management’s Discussion and Analysis

2024-02-20 compared with 2023-02-01 · 80 added, 89 removed, 186 unchanged (48% of the section changed)

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Fiscal 2023, 2022, and 2021 had 52 weeks.

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

Fiscal 2022, 2021 and 2020 ended on December 31, 2022, January 1, 2022 and January 2, 2021, respectively.

Impact of COVID-19

The COVID-19 pandemic has impacted the global economy, disrupting our operations, global supply chains and the operations of our customers.

We implemented a response plan and continued operations while largely transitioning our global workforce to a remote work model.

We have reopened offices in all of our locations, subject to local regulations.

The third parties that perform our semiconductor manufacturing, assembly, packaging and testing have generally remained operational.

The extent of the impact of the COVID-19 pandemic on our operational and financial performance will depend on future developments, including the duration, severity and spread of the pandemic, related restrictions on travel and transportation and other actions that may be taken by governmental authorities, the impact to the business of our suppliers or customers, and other items identified under “Risk Factors” above, all of which are uncertain and cannot be predicted.

Fiscal 2023, 2022 and 2021 ended on December 30, 2023, December 31, 2022 and January 1, 2022, respectively.

Impact of Macroeconomic Conditions

The current global economic environment is experiencing inflationary pressure, relatively high interest rates, and geopolitical tension.

We have experienced a decline in revenues, as our customers have slowed purchases to reduce existing inventories in a softening market.

The extent of the impact of these macroeconomic conditions on our operational and financial performance will depend on future developments, including the duration and severity of any economic downturn, the impact to the business of our suppliers and/or customers, and other items identified under “Risk Factors” above, all of which are uncertain and cannot be predicted.

An extended period of global supply chain and economic disruption could materially affect our business, results of operations, access to sources of liquidity and financial condition.

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We group our products as Industrial & Commercial or Home & Life based on the target markets they address.

As a fabless semiconductor company, we rely on third-party semiconductor fabricators in Asia, and to a lesser extent the United States and Europe, to manufacture the silicon wafers that reflect our IC designs.

Each wafer contains numerous die, which are cut from the wafer to create a chip for an IC.

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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.

Discontinued Operations

On July 26, 2021, we sold our infrastructure and automotive business to Skyworks Solutions, Inc.

for $2.75 billion in cash.

The prior year comparable period results of operations of the sold component have been presented in the accompanying Consolidated Financial Statements as discontinued operations and, therefore, are excluded from the following discussion of the results of our continuing operations.

Current Period Highlights of Continuing Operations

Revenues increased $303.2 million in fiscal 2022 compared to fiscal 2021 due to increased revenues from both our Industrial & Commercial products and Home & Life products.

Gross margin increased to 62.7% in fiscal 2022 compared to 59.0% in fiscal 2021 primarily due to increases in the price of our products and variations in product mix.

Operating expenses increased $65.1 million in fiscal 2022 compared to fiscal 2021 due primarily to increased personnel-related expenses, outside services, new product introduction costs, depreciation expense, and sales commissions offset in part by a decrease in the amortization of intangible assets.

Operating income (loss) in fiscal 2022 was $119.3 million compared to $(32.8) million in fiscal 2021.

We ended fiscal 2022 with $1.2 billion in cash, cash equivalents and short-term investments.

Net cash provided by operating activities was $141.3 million during fiscal 2022.

Revenues decreased $241.8 million in fiscal 2023 compared to fiscal 2022 due to decreased revenues from both our Industrial & Commercial products and Home & Life products.

Gross margin decreased to 58.9% in fiscal 2023 compared to 62.7% in fiscal 2022 primarily due to variations in the price and costs of our products and variations in product mix.

Operating expenses decreased $38.6 million in fiscal 2023 compared to fiscal 2022 due primarily to temporary cost containment measures taken in the third and fourth quarters of fiscal 2023, including the elimination of certain bonuses and certain other variable compensation, a reduction in the use of contract employees, and the suspension of all non-essential travel.

Operating expenses also decreased due to reduced stock-based compensation from the expense reversal to adjust the estimated levels of achievement related to unvested performance stock units.

In the fourth quarter of fiscal 2023, we implemented a workforce reduction of approximately 10% of our employees.

We incurred total employee separation costs of $9.1 million.

Operating loss in fiscal 2023 was $24.2 million compared to operating income of $119.3 million in fiscal 2022.

Refer to “Results of Operations” below for further discussion.

We ended fiscal 2023 with $439.2 million in cash, cash equivalents and short-term investments.

Net cash used in operating activities was $30.3 million during fiscal 2023.

Accounts receivable were $29.3 million at December 30, 2023, representing 30 days sales outstanding (“DSO”).

Inventory was $194.3 million at December 30, 2023, representing 407 days of inventory (“DOI”).

During the second quarter of 2023, we paid $535.0 million in cash and issued 0.9 million shares of common stock in connection with the extinguishment of the remaining principal of our 2025 convertible senior notes.

In the third quarter of 2023, we repaid $35.0 million in borrowings under our revolving credit facility.

In fiscal 2023, we acquired 1.5 million shares of our common stock for $212.9 million.

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

In fiscal 2022, we introduced a portfolio of Matter development solutions providing support for Matter over Wi-Fi, Matter over Thread, Bluetooth Low Energy (LE) commissioning, and Matter bridges to Zigbee and Z-Wave;

an end-to-end development platform with complete connectivity support for Amazon Sidewalk;

a new flagship SoC and power amplifier for Wi-SUN®, the FG25 SoC and EFF01 Front End Module designed to provide a sub-gigahertz transmission range of up to 3 kilometers in dense urban environments with no data loss;

our first Wi-Fi 6 and Bluetooth LE SoC family ideal for battery-powered or energy-efficient IoT devices with always-on cloud connectivity;

a Bluetooth Location Services solution using accurate, low-power Bluetooth devices to simplify Angle of Arrival (AoA) and Angle of Departure (AoD) location services;

and a family of 2.4 GHz wireless SoCs for Bluetooth and multi-protocol operations with a built-in AI and Machine Learning (ML) accelerator, improving performance for AI and ML applications on battery-powered edge devices.

We plan to continue introducing 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.

We have continued to diversify our product portfolio and introduce new products and solutions with added functionality and integration.

In fiscal 2023, we introduced a new BB5 family of 8-bit microcontroller units optimized for price and performance, a dual-band SoC designed for long-range networks and protocols like Amazon Sidewalk, Wi-SUN®, and other proprietary protocols, and new integrated Bluetooth® SoC and MCU families that offer IoT device designers energy efficiency, high performance and trusted security for the smallest form factor IoT devices.

We plan to continue introducing products that expand the capabilities we offer in order to serve both current and emerging applications, enabling us to address new markets and expand our total available market opportunity.

During fiscal 2023, 2022 and 2021, we had no customer that represented more than 10% of our revenues.

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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.

Two of our distributors who sell to our customers, Arrow Electronics and Edom Technology, represented 33% and 17% during fiscal 2022, respectively.

Three of our distributors, Arrow Electronics, Edom Technology and Sekorm, represented 28%, 18% and 12% of our revenues during fiscal 2021, and 28%, 19% and 14% of our revenues during fiscal 2020, respectively.

Two of our distributors who sell to our customers, Arrow Electronics and Edom Technology, represented 34% and 15% of our revenues during fiscal 2023 and 33% and 17% during fiscal 2022, respectively.

Three of our distributors, Arrow Electronics, Edom Technology and Sekorm, represented 28%, 18% and 12% of our revenues during fiscal 2021, respectively.

The percentage of our revenues derived from outside of the United States was 88% in fiscal 2023, 83% in fiscal 2022 and 86% in fiscal 2021.

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Results of Operations

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

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

Revenues are generated predominately by sales of our products.

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Interest expense consists of interest on our short and long-term obligations, including our convertible senior notes and credit facility.

Interest expense on our convertible senior notes includes contractual interest, amortization of debt issuance costs, and for periods prior to fiscal 2022, amortization of the debt discount.

Interest expense on our convertible senior notes included contractual interest, amortization of debt issuance costs, and for periods prior to fiscal 2022, amortization of the debt discount.

Provision (Benefit) for Income Taxes.

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.

Equity-method Earnings.

Equity-method earnings represents income or loss on our equity-method investment.

Equity-method Earnings (Loss).

Equity-method earnings (loss) represents income or loss on our equity-method investment.

Income from discontinued operations, net of income taxes.

Income from discontinued operations, net of income taxes includes the results of operations of our former infrastructure and automotive business.

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

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

Cost of revenues

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Income (loss) from continuing operations before income taxes

Provision (benefit) for income taxes

Equity-method earnings

Provision for income taxes

Equity-method earnings (loss)

Income (loss) from continuing operations

Income from discontinued operations, net of income taxes

Net income (loss)

Comparison of Fiscal 2023 to Fiscal 2022

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Industrial & Commercial

The increase in revenues in fiscal 2022 was due to increased revenues of $196.3 million from our Industrial & Commercial products and $106.9 million from our Home & Life products.

Unit volumes of our products increased while average selling prices increased substantially compared to fiscal 2021.

The decrease in revenues in fiscal 2023 was due to decreased revenues of $77.1 million from our Industrial & Commercial products and $164.7 million from our Home & Life products.

Unit volumes of our products decreased while average selling prices increased compared to fiscal 2022.

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.

The overall demand environment for our customers’ products is generally weak.

Customers are also seeking to reduce inventory levels relative to the amounts they held during the recent period of widespread supply chain disruptions.

As a result, the current demand environment for our products is experiencing high volatility and general weakness, with customers more frequently requesting cancellations, changes to delivery dates, and price and payment term concessions.

(in millions)

Gross profit increased in fiscal 2022 due primarily to increased product sales.

The increase in gross profit in fiscal 2022 was due to increases in gross profit for both of our product groups.

Gross margin increased primarily due to increases in the price of our products and variations in product mix.

Increased product demand and production capacity constraints have increased the selling price and costs of our products, and has resulted in period-to-period fluctuations in our gross margin.

We expect the prices we pay for inventory to continue to increase in future periods and that this will reduce our gross margins.

Gross profit decreased in fiscal 2023 due primarily to decreased product sales across both of our product groups.

Gross margin decreased primarily due to an increase in cost related to product mix.

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

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Percent of revenue

The increase in research and development expense in fiscal 2022 was primarily due to increases of $48.6 million for personnel-related expenses, $2.6 million for new product introduction costs and $2.3 million for depreciation expense.

The decrease in research and development expense as a percent of revenues in fiscal 2022 was due to our increased revenues.

We expect that research and development expense will increase in absolute dollars in the first quarter of 2023 compared to the fourth quarter of 2022.

The increase in research and development expense in fiscal 2023 was primarily due to an increase of $6.3 million for personnel-related expenses and an increase of $5.9 million for IT-related costs.

Within personnel-related expenses, increases of $15.0 million in salary expense, $2.4 million in stock compensation, and $7.2 million in termination benefits primarily from the workforce reduction in the fourth quarter were partially offset by a $21.8 million decrease in bonus and variable compensation from lower attainment and the cost containment efforts in the third and fourth quarters.

Other decreases to research and development expense in fiscal 2023 were $4.5 million for new product introduction costs and $3.7 million for the amortization of intangible assets.

The increase in research and development expense as a percent of revenues in fiscal 2023 was due to our decreased revenues.

We expect that research and development expense will remain relatively stable in absolute dollars in the first quarter of 2024 compared to the fourth quarter of 2023.

Selling, General and Administrative

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Percent of revenue

The increase in selling, general and administrative expense in fiscal 2022 was primarily due to increases of $5.1 million for personnel-related expenses, $4.0 million for outside services, and $1.3 million for sales commissions offset in part by a decrease of $7.1 million for the amortization of intangible assets.

The decrease in selling, general and administrative expense as a percent of revenues in fiscal 2022 was due to our increased revenues.

We expect that selling, general and administrative expense will remain relatively stable in absolute dollars in the first quarter of 2023 compared to the fourth quarter of 2022.

The decrease in selling, general and administrative expense in fiscal 2023 was primarily due to a $35.4 million decrease to personnel-related costs, which included a $20.7 million decrease in certain bonus and variable compensation as a result of the cost containment efforts in the third and fourth quarters and a $14.7 million reduction in stock compensation driven by a decline in expected achievement for certain performance-based awards.

Additionally, amortization of intangible assets decreased by $5.0 million and outside services decreased by $5.1 million, partially offset by an increase in IT-related costs of $1.3 million.

The increase in selling, general and administrative expense as a percent of revenues in fiscal 2023 was due to our decreased revenues.

We expect that selling, general and administrative expense will increase in absolute dollars in the first quarter of 2024 compared to the fourth quarter of 2023.

Interest Income and Other, Net

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Interest expense in fiscal 2023 was $5.6 million compared to $6.7 million in fiscal 2022.

The decrease in interest expense in fiscal 2022 was primarily due to a decrease of $20.9 million in amortization of debt discount in fiscal 2022 and a loss of $3.4 million recorded on the early extinguishment of our remaining 2022 convertible senior notes in fiscal 2021.

See Note 11, Debt , to the Consolidated Financial Statements for additional information.

Provision (Benefit) for Income Taxes

Provision for Income Taxes

(in millions)

Provision (benefit) for income taxes

Provision for income taxes

Effective tax rate

The increase in the effective tax rate for fiscal 2022 was primarily due to the recognition of certain tax benefits for fiscal 2021 in discontinued operations under the FASB ASU 2019-12, Simplifying the Accounting for Income Taxes, and the required adoption of new U.S.

tax rules regarding the capitalization of research and experimental costs in fiscal 2022.

Equity-method Earnings

Equity-method earnings in fiscal 2022 were $3.4 million compared to $13.7 million in fiscal 2021.

The decrease in equity-method earnings in fiscal 2022 was due to a decrease in the unrealized gains on an equity-method investment.

Income from discontinued operations, net of income taxes

(in millions)

Income from discontinued operations, net of income taxes

There was no income from prior year discontinued operations in fiscal 2022.

Income from discontinued operations in fiscal 2021 was $2.2 billion, including a gain on sale of $2.1 billion, net of tax.

The decrease in the provision for income taxes for fiscal 2023 was primarily due to decreases in pre-tax book income and global intangible low-taxed income inclusions as compared to fiscal 2022.

Equity-method Earnings (Loss)

Equity-method loss in fiscal 2023 was $16.0 million compared to earnings of $3.4 million in fiscal 2022.

The decrease in equity-method earnings in fiscal 2023 was due primarily to the loss recognized on the sale of an equity-method investment.

Business Outlook

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Operating expenses

Effective tax rate

Diluted earnings per share

Diluted loss per share

$(1.89) to $(2.05)

Liquidity and Capital Resources

Our principal sources of liquidity as of December 31, 2022 consisted of $1.2 billion in cash, cash equivalents and short-term investments, of which $0.9 billion was held by our U.S.

Our principal sources of liquidity as of December 30, 2023 consisted of $439.2 million in cash, cash equivalents and short-term investments, of which $226.9 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, variable rate demand notes and U.S.

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

government securities;

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

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

and money market funds.

Operating Activities

Net cash provided by operating activities was $141.3 million during fiscal 2022, compared to net cash provided of $91.2 million during fiscal 2021.

Operating cash flows during fiscal 2022 reflect our net income of $91.4 million, adjustments of $97.5 million for depreciation, amortization, stock-based compensation, equity-method earnings and deferred income taxes, and a net cash outflow of $47.6 million due to changes in our operating assets and liabilities.

Accounts receivable decreased to $71.4 million at December 31, 2022 from $98.3 million at January 1, 2022.

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

Our DSO was 25 days at December 31, 2022 and 42 days at January 1, 2022.

Inventory increased to $100.4 million at December 31, 2022 from $49.3 million at January 1, 2022.

Our inventory levels will vary based on the availability of supply, and to a lesser extent, the impact of variations between forecasted demand used for purchasing inventory and actual demand.

Increased product demand and higher product costs have increased the value of the inventory we hold.

Our DOI was 90 days at December 31, 2022 and 55 days at January 1, 2022.

Net cash used in operating activities was $30.3 million during fiscal 2023, compared to net cash provided by operating activities of $141.3 million during fiscal 2022.

Operating cash flows during fiscal 2023 reflect our net loss of $34.5 million, adjustments of $104.4 million for depreciation, amortization, stock-based compensation, equity-method losses and deferred income taxes, and a net cash outflow of $100.3 million due to changes in our operating assets and liabilities.

Accounts receivable decreased to $29.3 million at December 30, 2023 from $71.4 million at December 31, 2022.

The decrease in accounts receivable resulted primarily from a decrease in shipments during the last quarter of fiscal 2023 compared to the last quarter of fiscal 2022.

Our DSO was 30 days at December 30, 2023 and 25 days at December 31, 2022.

Inventory increased to $194.3 million at December 30, 2023 from $100.4 million at December 31, 2022.

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

Inventory has increased in part due to us investing in building inventory to minimize potential supply disruptions and meet forecasted future demand.

Our DOI was 407 days at December 30, 2023 and 90 days at December 31, 2022;

the increase is in part due to the lower cost of sales combined with higher inventory levels during the last quarter of fiscal 2023 compared to the last quarter of fiscal 2022.

Investing Activities

Net cash provided by investing activities was $240.5 million during fiscal 2022, compared to net cash used of $476.7 million during fiscal 2021.

The increase in cash inflows was principally due to a decrease in cash outflows of $714.0 million from net purchases, sales and maturities of marketable securities in 2022.

Net cash provided by investing activities was $469.8 million during fiscal 2023, compared to $240.5 million during fiscal 2022.

The increase in cash inflows was principally due to cash provided by net purchases, sales, and maturities of marketable securities of $492.6 million in fiscal 2023.

Financing Activities

Net cash used in financing activities was $887.1 million during fiscal 2022, compared to cash used of $1.3 billion during fiscal 2021.

The decrease in cash outflows was principally due to a decrease of $266.6 million for repurchases of our common stock and a decrease of $140.6 million in payments on debt in fiscal 2022.

Net cash used in financing activities was $711.9 million during fiscal 2023, compared to $887.1 million during fiscal 2022.

The decrease in cash outflows was principally due to a decrease of $666.3 million for repurchases of our common stock, partially offset by an increase of $571.1 million in payments on debt in fiscal 2023.

Discontinued Operations

Net cash used in discontinued operations was $69.5 million during fiscal 2022 related to income tax payments, compared to net cash provided of $2.6 billion during fiscal 2021.

The decrease in cash inflows was principally due to $2.75 billion in proceeds from the sale of our infrastructure and automotive business in fiscal 2021, offset by a decrease of $183.3 million for incomes tax payments on the gain on sale.

As of December 31, 2022, our debt included $535 million principal amount of convertible senior notes (the “2025 Notes”).

On January 2, 2022, we irrevocably elected cash settlement for the principal amount of the 2025 Notes.

We also 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.

Net cash used in discontinued operations was zero during fiscal 2023, compared to net cash used of $69.5 million during fiscal 2022 related to income tax payments.

As of December 30, 2023, we had a $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 net leverage ratio to exceed 3.50 to 1.00, subject to certain conditions.

In June 2023, we borrowed $80 million under the revolving credit facility.

In the third quarter, we repaid $35.0 million in borrowings under our revolving credit facility.

As of December 30, 2023, the outstanding balance in the revolving credit facility is $45.0 million.

In June 2023, we paid $535.0 million in cash and issued 0.9 million shares of common stock in connection with the settlement of our 2025 convertible senior notes.

Capital Requirements

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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.

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

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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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-K

Item 7. Management’s Discussion and Analysis