What changed in this filing

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Item 1A. Risk Factors

2022-08-29 compared with 2021-08-27 · 179 added, 119 removed, 486 unchanged (38% of the section changed)

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Operational and Execution Risks

• The effects of the COVID-19 pandemic adversely affected our business operations, financial condition and results of operations, and there are no assurances adverse effects will not continue.

• The effects of the COVID-19 pandemic and other macroeconomic factors exacerbated by the COVID-19 pandemic adversely affected our business operations, financial condition and results of operations, and there are no assurances adverse effects will not continue.

• Recent events in eastern Europe and the Taiwan Strait present challenges and risks to us, and no assurances can be given that current or future developments would not have a material adverse effect on our business, results of operations and financial condition.

• Adverse economic conditions may harm our business.

• Our quarterly operating results have fluctuated and will likely fluctuate in the future.

• Our revenue and margins for a particular period are difficult to predict, and a shortfall in revenue or decline in margins may harm our operating results.

• As we increasingly target larger customers and larger sales opportunities, our customer base may become more concentrated, our cost of sales may increase, our margins may be lower, our borrowings may be higher with effects on our cash flow, we are exposed to inventory risks, and our sales may be less predictable.

• If we fail to meet any publicly announced financial guidance or other expectations about our business, it could cause our stock to decline in value.

• Increases in average selling prices for our server solutions have historically significantly contributed to increases in net sales in some of the periods covered by this Annual Report.

• Increases in average selling prices for our Total IT Solutions have historically significantly contributed to increases in net sales in some of the periods covered.

Such prices are subject to decline if customers do not continue to purchase our latest generation products or additional components, which could harm our results of operations.

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• We may not be able to successfully manage our business for growth and expansion.

• We depend upon the development of new products and enhancements to our existing products, and if we fail to predict or respond to emerging technological trends and our customers’ changing needs, our operating results and market share may suffer.

• Our growth into markets outside the United States exposes us to risks inherent in international business operations.

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• We depend upon the development of new products & enhancements to existing products.

If we fail to predict or respond to emerging technological trends & our customers’ changing needs, our operating results and market share may suffer.

• The market in which we participate is highly competitive.

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• Our failure to deliver high quality server and storage solutions could damage our reputation and diminish demand for our products.

• Our growth into markets outside the United States exposes us to risks inherent in international business operations.

• Our results of operations may be subject to fluctuations based upon our investment in corporate ventures.

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• Our operations could involve the use of regulated materials, and we must comply with environmental, health and safety laws and regulations, which can be expensive.

• If we are unable to maintain and further develop effective internal control over financial reporting, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our common stock may decrease.

• The matters leading to the delay in the filing of our 2017 10-K and adverse publicity and potential concerns from our customers have had and could continue to have an adverse effect on our business and financial condition.

• If we are unable to maintain effective internal control over financial reporting, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our common stock may decrease.

• Failure to comply with the U.S.

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Financial Risks

• We incurred significant expenses related to the matters that led to the delay in the filing of our 2017 10-K and may incur expenses related to any resulting litigation.

• Our research and development expenditures, as a percentage of our net sales, are considerably higher than many of our competitors.

• We incurred significant expenses related to the matters that led to the delay in the filing of our 2017 10-K and may incur additional expenses related to resulting litigation.

• Our R&D expenditures, as a percentage of our net sales, are considerably higher than many of our competitors.

• Our future effective income tax rates could be affected by changes in the relative mix of our operations and income among different geographic regions and by changes in domestic and foreign income tax laws.

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• Future sales of shares by existing stockholders could cause our stock price to decline.

• The concentration of our capital stock ownership with insiders will likely limit your ability to influence corporate matters.

• The concentration of our capital stock ownership with insiders likely limits your ability to influence corporate matters.

• We do not expect to pay any cash dividends for the foreseeable future.

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• Our business and operations may be impacted by natural disaster events, including those brought on by climate change.

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Operational and Execution Risks

The effects of the COVID-19 pandemic adversely affected our business operations, financial condition and results of operations, and there are no assurances adverse effects will not continue.

The effects of the COVID-19 pandemic and other macroeconomic factors exacerbated by the COVID-19 pandemic adversely affected our business operations, financial condition and results of operations, and there are no assurances adverse effects will not continue.

The novel strain of the coronavirus identified in Wuhan, China in late 2019 (COVID-19) spread throughout the world and resulted in authorities imposing, and businesses and individuals implementing, numerous unprecedented measures to try to contain the virus, including travel bans and restrictions, quarantines, shelter-in-place/stay-at-home and social distancing orders, and shutdowns.

These measures impacted and may continue to impact our business operations, the operations of our customers, and those of our respective vendors, suppliers, and partners.

During the pandemic, we continued our manufacturing operations and customers’ orders processing and services, although our productivity at times slowed especially in the United States and in the Netherlands.

Travel restrictions and logistics challenges impacted, and continue to have an impact on, our supply chain.

The pandemic also impacted shipments to our customers and (to a lesser extent) our ability to provide services and support to our customers.

We have invested capital to procure key components so we can maintain reasonable lead times to fulfill orders for our customers.

While there are positive signs with vaccine availability and reductions in infection rates, particularly in the United States, the possibility of new virus strains, vaccine supply constraints, and high infection rates, particularly in other places around the world makes us unable to predict the ultimate extent to which the global COVID-19 pandemic may further impact our business operations, financial performance and results of operations.

The extent to which the effects of the COVID-19 pandemic will continue to impact our business, operations, financial condition and results of operations will depend on numerous evolving factors that we may not be able to control or predict, including:

During the COVID-19 pandemic, we continued our manufacturing operations and customers’ orders processing and services, although our productivity at times slowed, especially in the United States and in the Netherlands.

Logistics has continued to be a challenge during the COVID-19 pandemic as the global transportation industry, and particularly ocean transportation, has been constrained by shortages of containers, labor, truckers and crowded ports.

The COVID-19 pandemic also adversely impacted shipments to our customers and, to a lesser extent, our ability to provide services and support to our customers.

As a result, shipping by air has been used more frequently despite that it is more expensive and there are fewer flights during the COVID-19 pandemic than there were previously.

We have experienced increased costs in freight.

In addition, we also experienced increased direct labor costs as we incentivized our employees to continue to work and assist us in serving our customers, many of whom are in critical industries.

We expect both of these trends to continue until the COVID-19 pandemic and other macroeconomic factors exacerbated by the COVID-19 pandemic end.

We have invested capital to procure key components (such as CPUs, memory, SSDs and GPUs) so we can maintain reasonable lead times to fulfill orders for our customers.

There are positive signs with the expiration of various COVID-19 mandates, vaccine availability and the rollout of boosters;

however, with the possibility of the emergence of other new virus strains and vaccine supply constraints, we are unable to predict the ultimate extent to which the global COVID-19 pandemic (or other potential infectious diseases, such as the currently spreading monkeypox virus) may further impact our business operations, financial performance and results of operations.

The extent to which the effects of the COVID-19 pandemic and other macroeconomic factors exacerbated by the COVID-19 pandemic will continue to impact our business, operations, financial condition and results of operations will depend on numerous evolving factors that we may not be able to control or predict, including:

• The duration and scope of the COVID-19 pandemic;

• The extent and effectiveness of responsive actions by authorities and the impact of these and other factors on our employees, customers and vendors;

• difficulty in adding new customers due to inability to gain direct access;

• The rate of spending on server and storage solutions, including delays in prospective customers’ purchasing decisions and delays in the provisioning of our products;

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• The rate at which our customers can perform acceptance testing or qualify our products, particularly if they contain new technologies;

• the length of heightened unemployment and economic recession pressures;

• Factors affecting the availability of human capital, including either shortage of labor and/or heightened unemployment;

• The global economic recession and/or inflation pressures;

• The health impact of the pandemic on our employees, including key personnel;

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• Erosion of economic activity by small and medium size business or sectors to which we are exposed through OEMs and indirect sales channels.

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Recent events in eastern Europe and the Taiwan strait present challenges and risks to us, and no assurances can be given that current or future developments will not have a material adverse effect on our business, results of operations and financial condition.

The crisis in eastern Europe continues to be a challenge to global companies, including us, which have customers in the impacted regions.

and other global governments have placed restrictions on how companies may transact with businesses in these regions, particularly Russia, Belarus and restricted areas in Ukraine.

Because of these restrictions and the growing logistical and other challenges, we have paused sales to Russia, Belarus and the restricted areas in Ukraine.

This decision, which is in line with the approach of other global technology companies, helps us comply with our obligations under the various requirements in the U.S.

and around the world.

While it is difficult to estimate the impact on our business and financial position of both (i) our pause in sales to Russia, Belarus and the restricted areas in Ukraine and the current or future sanctions and (ii) tensions in the Taiwan strait, our pause in sales and these sanctions and continuing rising tensions could have adverse impacts on us in future periods, although they have not been material to date.

For example, with respect to Russia, Belarus and the restricted areas in Ukraine, we do not make a material portion of our sales or acquire a material portion of our parts or components directly from impacted regions;

however, our suppliers and their suppliers may acquire raw materials for parts or components from the impacted regions.

Supply disruptions may make it harder for them to find favorable pricing and reliable sources for materials they need, which may put upward pressure on their costs and increasing the risks that our costs may increase and that it may be more difficult, or we may be unable, to acquire materials needed.

In addition, the crises may further exacerbate inflationary pressures that have indirect impacts on our business, such as further increasing our logistics costs from rising fuel prices and/or continuing to increase our compensation expense.

In addition, no assurances can be given that additional developments in the impacted regions, and responses thereto from the U.S.

and other global governments, would not have a material adverse effect on our business, results of operations and financial condition.

Adverse economic conditions may harm our business.

Our business depends on the overall demand for accelerated compute platforms.

Global financial developments and downturns seemingly unrelated to us or our industry may harm us.

If economic conditions, including inflation, increased interest rates, economic output and currency exchange rates, in these markets and other key potential markets for our Total IT Solutions remain uncertain or further deteriorate, including as a result of the downturn in the global economy, the Russia-Ukraine conflict and related sanctions and trade restrictions, the effects of the COVID-19 pandemic or other reasons, customers may delay or reduce their spending.

General economic weakness may also lead to longer collection cycles for payments due from our customers, an increase in customer bad debt, and impairment of investments.

Furthermore, the continued weakness and uncertainty in worldwide credit markets may harm our customers’ available budgetary spending, which could lead to cancellations or delays in planned purchases of our Total IT Solutions.

If our customers or potential customers experience economic hardship, this could reduce the demand for our Total IT Solutions, delay and lengthen sales cycles, lower prices for our Total IT Solutions, and lead to slower growth or even a decline in our revenues, operating results and cash flows.

Inflation in the U.S.

has recently increased at a rate not seen in several decades, which may result in decreased demand for our Total IT Solutions, increases in our operating costs including our labor costs, constrained credit and liquidity, reduced spending and volatility in financial markets.

Inflation may continue to increase, both in the U.S.

and globally, which could increase our operating costs and reduce demand for our Total IT Solutions.

The Federal Reserve has significantly raised, and may again raise, interest rates in response to concerns over inflation risk, which may increase our own borrowing costs and/or reduce our clients’ access to debt financing, reduce technology expenditures and demand for our Total IT Solutions.

Our quarterly operating results have fluctuated and will likely fluctuate in the future, which could cause rapid declines in our stock price.

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• Fluctuations based upon seasonality, with the quarters ending March 31 and September 30 typically being weaker;

• The occurrence of global pandemics, including COVID-19, and other events that impact the global economy or one or more sectors of the global economy;

• The occurrence of global pandemics, including COVID-19, and other events that impact the global economy or one or more sectors of the global economy, such as the global economic downturn and recent events in eastern Europe;

• The ability of our customers and suppliers to obtain financing or fund capital expenditures;

• Fluctuations in the timing and size of large customer orders, including with respect to changes in sales and implementation cycles of our products into our customers’ spending plans and associated revenue;

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• Variability of our margins based on the mix of server and storage systems, subsystems and accessories we sell and the percentage of our sales to internet data center, cloud computing customers or certain geographical regions;

• Fluctuations in availability and costs associated with key components, particularly semiconductors, memory, storage solutions, and other materials needed to satisfy customer requirements, especially during a period of global market disruption, and, in particular, the impact of the extended duration of the COVID-19 pandemic on our supply chain and the supply chain of our suppliers;

• Fluctuations in availability and costs associated with key components, particularly semiconductors, memory, storage solutions, and other materials needed to satisfy customer requirements, especially during a period of global market disruption, and, in particular, the impact of the extended duration of both the COVID-19 pandemic, the global economic downturn and recent events in eastern Europe on our supply chain and the supply chain of our suppliers;

• The timing of the introduction of new products by leading microprocessor vendors and other suppliers;

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• Impact of regulatory changes on our cost of doing business.

• Costs associated with remediation and legal proceedings related to restatement of our financial statements in prior years.

In addition, customers may hesitate to purchase, or not continue to purchase, our products based upon past unwarranted reports about security risks associated with the use of our products.

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Our revenue and margins for a particular period are difficult to predict, and a shortfall in revenue or decline in margins may harm our operating results.

As a result of a variety of factors discussed in this Annual Report, our revenue and margins for a particular quarter are difficult to predict, especially in light of a challenging and inconsistent global macroeconomic environment, the significant impacts of the COVID-19 pandemic, steps we are taking in response to the COVID-19 pandemic, increased competition, the effects of the ongoing trade disputes between the United States and China and related market uncertainty.

As a result of a variety of factors discussed in this Annual Report, our revenue and margins for a particular quarter are difficult to predict, especially in light of a challenging and inconsistent global macroeconomic environment, the significant impacts of the COVID-19 pandemic, the global economic downturn and recent events in eastern Europe, steps we are taking in response thereto, increased competition, the effects of the ongoing trade disputes between the United States and China and related market uncertainty.

Our revenue may grow at a slower rate than in past periods or decline.

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Any of the above factors could have a material adverse impact on our operations and financial results.

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As we increasingly target larger customers and larger sales opportunities, our customer base may become more concentrated, our cost of sales may increase, our margins may be lower, our borrowings to fund purchases of key components may be higher, we are exposed to inventory risks and our sales may be less predictable.

We have become increasingly dependent upon larger sales to grow our business.

In particular, in recent years, we have completed larger sales to leading internet data center and cloud customers, large enterprise customers and OEMs.

No single customer accounted for 10% or more of net sales in fiscal years 2021, 2020 or 2019.

No single customer accounted for 10% or more of net sales in any of fiscal years 2022, 2021 or 2020.

If customers buy our products in greater volumes and their business becomes a larger percentage of our net sales, we may grow increasingly dependent on those customers to maintain our growth.

If our largest customers do not purchase our products, or we are unable to supply such customers with products, at the levels, in the timeframes or within the geographies that we expect, including as a result of the impact of COVID-19 on their or our businesses, our ability to maintain or grow our net sales will be adversely affected.

If our largest customers do not purchase our products, or we are unable to supply such customers with products, at the levels, in the timeframes or within the geographies that we expect, including as a result of the impact of COVID-19, the global economic downturn or recent events in eastern Europe on their or our businesses, our ability to maintain or grow our net sales will be adversely affected.

Increased sales to larger customers may also cause fluctuations in results of operations.

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Our sales cycle may become longer, and more expensive, as larger customers typically spend more time negotiating contracts than smaller customers.

Larger customers also often seek greater levels of support in the implementation and use of our server solutions.

Such larger orders may require greater commitments of working capital, which may require increased borrowings under our credit facilities to fund purchases of key components (such as CPUs, memory, SSDs and GPUs) necessary for such orders, which could adversely affect our cash flow and expose us to the risk of holding excess and obsolete inventory, if there are delays or cancellations.

Furthermore, larger customers also often seek greater levels of support in the implementation and use of our server solutions.

An actual or perceived inability to meet customer support demands may adversely affect our relationship with such customers, which may affect the likelihood of future purchases of our products.

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If we fail to meet any publicly announced financial guidance or other expectations about our business, it could cause our stock to decline in value.

Before the COVID-19 pandemic, we provided forward looking financial guidance when we announced our financial results for the prior quarter.

We g enerally provide forward looking financial guidance when we announce our financial results for the prior quarter.

No assurances can be given that we will continue to provide forward looking financial guidance, and if we do issue forward looking guidance, the uncertainties related to these items could cause us to revise such guidance.

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In the past, our financial results have failed to meet the guidance we provided.

There are a number of reasons why we have failed to meet guidance in the past and might fail again in the future, including, but not limited to, the factors described in these Risk Factors.

Increases in average selling prices for our server solutions have historically significantly contributed to increases in net sales in some of the periods covered by this Annual Report.

There are a number of reasons why we have at times failed to meet guidance in the past and might fail again in the future, including, but not limited to, the factors described in these Risk Factors.

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Increases in average selling prices for our solutions have historically significantly contributed to increases in net sales in some of the periods covered by this Annual Report.

Such prices are subject to decline if customers do not continue to purchase our latest generation products or additional components, which could harm our results of operations.

Increases in average selling prices for our server solutions have significantly contributed to increases in net sales in some of the periods covered by this Annual Report.

Recently, the market for key components has become more volatile during the COVID-19 pandemic.

Recently, the market for key components has become more volatile during the COVID-19 pandemic, the global economic downturn and recent events in eastern Europe.

As with most electronics-based products, average selling prices of server and storage products are typically highest at the time of introduction of new products, which utilize the latest technology, and tend to decrease over time as such products become commoditized and are ultimately replaced by even newer generation products.

We cannot predict the timing or amount of any decline in the average selling prices of our server solutions that we may experience in the future, which may be exacerbated by continued effects from the COVID-19 pandemic.

In some instances, our agreements with our indirect sales channel partners limit our ability to reduce prices unless we make such price reductions available to them, or price protect their inventory.

If we are unable to decrease the average per unit manufacturing costs faster than the rate at which average selling prices continue to decline, our business, financial condition and results of operations will be harmed.

If we are unable to either (i) decrease the average per unit manufacturing costs faster than the rate at which average selling prices decline or (ii) increase the average selling prices at the same pace at which average per unit manufacturing costs increase, our business, financial condition and results of operations will be harmed.

Our cost structure and ability to deliver server solutions to customers in a timely manner may be adversely affected by volatility of the market for core components and certain materials for our products.

Prices of certain materials and core components utilized in the manufacture of our server and storage solutions, such as serverboards, chassis, CPUs, memory, hard drives and SSDs, represent a significant portion of our cost of sales.

While we have increased our purchases of certain critical materials and core components in response to the supply and demand uncertainties associated with the COVID-19 pandemic, we do not have long-term supply contracts for all critical materials and core components, but instead often purchase these materials and components on a purchase order basis.

While we have increased our purchases of certain critical materials and core components in response to the supply and demand uncertainties associated with the COVID-19 pandemic, the global economic downturn and recent events in eastern Europe, we do not have long-term supply contracts for all critical materials and core components, but instead often purchase these materials and components on a purchase order basis.

Prices of these core components and materials are volatile, and, as a result, it is difficult to predict expense levels and operating results.

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Because we often acquire materials and key components on an as needed basis, we may be limited in our ability to effectively and efficiently respond to customer orders because of the then-current availability or the terms and pricing of these materials and key components.

Our industry has experienced materials shortages and delivery delays in the past, including as a result of the negative impact of COVID-19 on global supply chains, and we may experience shortages or delays of critical materials or increased logistics costs to obtain necessary materials in a timely manner in the future.

The COVID-19 pandemic has resulted in widely reported shortages of semiconductors.

Our industry has experienced materials shortages and delivery delays in the past, including as a result of the negative impact of COVID-19, the global economic downturn and recent events in eastern Europe on global supply chains, and we may experience shortages or delays of critical materials or increased logistics costs to obtain necessary materials in a timely manner in the future.

The COVID-19 pandemic and other macroeconomic factors exacerbated by the COVID-19 pandemic has resulted in widely reported shortages of semiconductors.

From time to time, we have been forced to delay the introduction of certain of our products or the fulfillment of customer orders as a result of shortages of materials and key components, which can adversely impact our revenue.

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We could lose orders, be unable to develop or sell some products cost-effectively or on a timely basis, if at all, and have significantly decreased revenues, margins and earnings, which would have a material adverse effect on our business, results of operations and financial condition.

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We may lose sales or incur unexpected expenses relating to insufficient, excess or obsolete inventory.

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In addition, from time to time we assume greater inventory risk in connection with the purchase or manufacture of more specialized components in connection with higher volume sales opportunities.

There are uncertainties and risks related to COVID-19, for which we have taken certain actions including our increased purchase of certain critical materials and components as a part of our pandemic response planning.

Since that time we have continued to add to our inventories of key components such as CPUs, memory, SSDs and to a lesser extent GPUs such that customer orders can be fulfilled as they are received.

There are uncertainties and risks related to COVID-19, the global economic downturn and recent events in eastern Europe, for which we have taken certain actions including our increased purchase of certain critical materials and components as a part of our response planning.

Specifically, we sought to actively manage our supply chain for potential risks of shortage by first building inventories of critical components required for our motherboards and other system printed circuit boards and continued to add to our inventories of key components such as CPUs, memory, SSDs and to a lesser extent GPUs such that customer orders can be fulfilled as they are received.

Nevertheless, no assurances can be given that such efforts will be successful to manage inventory, and we could be exposed to risks of insufficient, excess, or obsolete inventory.

We have from time to time experienced inventory write downs associated with higher volume sales that were not completed as anticipated.

We expect that we will experience such write downs from time to time in the future related to existing and future commitments, and potentially related to our proactive purchase of certain critical materials and components as part of our planning in light of COVID-19.

We expect that we will experience such write downs from time-to-time in the future related to existing and future commitments, and potentially related to our proactive purchase of certain critical materials and components as part of our planning in light of COVID-19, the global economic downturn and recent events in eastern Europe.

Excess or obsolete inventory levels for these or other reasons could result in unexpected expenses or increases in our reserves against potential future charges which would adversely affect our business, results of operations and financial condition.

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Computer programmers and hackers also may be able to develop and deploy viruses, worms and other malicious software programs that attack our products or otherwise exploit any security vulnerabilities of our products.

While we employ a number of protective measures, including firewalls, anti-virus and endpoint detection and response technologies, these measures may fail to prevent or detect attacks on our systems.

While we employ a number of protective measures, including firewalls, anti-virus and endpoint detection and response technologies, regular annual training of employees with respect to cyber-security, these measures may fail to prevent or detect attacks on our systems.

While there have been unauthorized intrusions into our network in the past, none of these intrusions, individually or in the aggregate, had a material adverse effect on our business, operations, or products.

We have taken steps to enhance the security of our network and computer systems but, despite these efforts, we may experience future intrusions, which could adversely affect our business, operations, or products.

We have taken steps to enhance the security of our network and computer systems and we provide regular updates to our Board at our quarterly meetings with respect to cyber-security matters.

Despite these efforts, we may experience future intrusions, which could adversely affect our business, operations, or products.

In addition, our hardware and software or third-party components and software that we utilize in our products may contain defects in design or manufacture, including “bugs” and other problems that could unexpectedly interfere with the operation or security of the products.

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Any claim that our products or systems are subject to a cyber-security risk, whether valid or not, could damage our reputation and adversely impact our revenues and results of operations.

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We manage and store various proprietary information and sensitive or confidential data relating to our business as well as information from our suppliers and customers.

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New hires require significant training and may take six months or longer before they reach full productivity.

Our recent hires and planned hires may not become as productive as we would like, and we may be unable to hire sufficient numbers of qualified individuals in the future in the markets where we do business.

Our recent hires and planned hires may not become as productive as we would like, we may be unable to hire sufficient numbers of qualified individuals in the future in the markets where we do business, and individuals we hire may not perform pursuant to our expectations in the event of inadequate supervision.

If we are unable to hire, develop and retain sufficient numbers of productive sales personnel, our customer relationships and resulting sales of our server solutions will suffer.

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Our purchases of products from Ablecom and Compuware represented 8.2%, 7.8% and 10.1% of our cost of sales for fiscal years 2022, 2021 and 2020, respectively.

Ablecom and Compuware’s sales to us constitute a substantial majority of Ablecom and Compuware’s net sales.

Ablecom and Compuware’s sales to us constitute a substantial majority of Ablecom’s and Compuware’s net sales.

Ablecom and Compuware are both privately held Taiwan-based companies.

In addition, we have entered into a distribution agreement with Compuware, under which we have appointed Compuware as a nonexclusive distributor of our products in Taiwan, China and Australia.

We have also entered into a tripartite agreement with Ablecom and Compuware related to a three-way purchase of land in proximity to our campus in Bade, Taiwan.

Steve Liang, Ablecom’s Chief Executive Officer and largest shareholder, is the brother of Charles Liang, our President, Chief Executive Officer and Chairman of our Board of Directors (the “Board”).

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As of June 30, 2022, the amount due on the unsecured loan (including principal and accrued interest) was approximately $15.7 million.

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Bill Liang is also the Chief Executive Officer of Compuware, a member of Compuware’s Board of Directors and a holder of a significant equity interest in Compuware.

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In order to provide a larger volume of contract manufacturing services for us, we anticipate that Ablecom will continue to warehouse for us an increasing number of components and subassemblies manufactured by multiple suppliers prior to shipment to our facilities in the United States and Europe.

We also anticipate that we will continue to lease office space from Ablecom in Taiwan to support our

research and development efforts.

We also anticipate that we will continue to lease office space from Ablecom in Taiwan to support our research and development efforts.

We operate a joint management company with Ablecom to manage the common areas shared by us and Ablecom for our separately constructed manufacturing facilities in Taiwan.

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If any of these things should occur, our net sales, margins and earnings could significantly decrease, which would have a material adverse effect on our business, results of operations and financial condition.

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If negative publicity arises with respect to us, our employees, our third-party service providers or our partners, our business and operating results could be adversely affected, regardless of whether the negative publicity is true.

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The October 2018 news article, the follow up news article published in January 2021, and any similar future article making similar false allegations, may continue to have a negative impact in the future.

Harm to our reputation can also arise from many other sources, including employee misconduct, which we have experienced in the past, and misconduct by our partners and outsourced service providers.

Harm to our reputation can also arise from many other sources, including employee misconduct, which we have experienced in the past, and misconduct by our partners, consultants and outsourced service providers.

Additionally, negative publicity with respect to our partners or service providers could also affect our business and operating results to the extent that we rely on these partners or if our customers or prospective customers associate our company with these partners.

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Additionally, we are particularly dependent on the continued service of our existing research and development personnel because of the complexity of our products and technologies.

Our employment arrangements with our executives and employees do not require them to provide services to us for any specific length of time, and they can terminate their employment with us at any time, with or without

notice, without penalty.

The loss of services of any of these executives or of one or more other key members of our team could seriously harm our business.

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Our failure to implement an effective direct sales strategy that maintains and expands our relationships in our indirect sales channel and with our OEMs could lead to a decline in sales, harm relationships and adversely affect our business, results of operations and financial condition.

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If we are unable to attract and integrate additional key employees in a manner that enables us to scale our business and operations effectively, or if we do not maintain competitive compensation policies to retain our employees, our ability to operate effectively and efficiently could be limited.

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Since inception, we have conducted a majority of our manufacturing operations in San Jose, California.

We continue to increase our manufacturing capacity in Taiwan and in the Netherlands, and as a result of the COVID-19 pandemic have sought to accelerate manufacturing in Taiwan in order to better diversify our geographical manufacturing concentration.

We continue to increase our manufacturing capacity in Taiwan and in the Netherlands and have sought to accelerate manufacturing in Taiwan in order to better diversify our geographical manufacturing concentration.

In order to continue to successfully increase our operations in Taiwan, we must efficiently manage our Taiwan operations from our headquarters in San Jose, California and continue to develop a strong local management team.

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We may not be able to successfully manage our business for growth and expansion.

Over time we expect to continue to make investments to pursue new customers and expand our product and service offerings to grow our business.

We expect to continue to make investments to pursue new customers and expand our product and service offerings to grow our business.

We also expect that our annual operating expenses will continue to increase as we invest in sales and marketing, research and development, manufacturing and production infrastructure, software and product service offerings, and strengthen customer service and support resources for our customers.

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If our business grows, we will have to manage additional product design projects, materials procurement processes and sales efforts and marketing for an increasing number of SKUs, provide and update an increasing amount of software utilized in our hardware offerings, provide more sophisticated product service offerings to support our customers, and expand the number and scope of our relationships with suppliers, distributors and end customers.

If we fail to manage these additional

responsibilities and relationships successfully, we may incur significant costs, which may negatively impact our operating results.

If we fail to manage these additional responsibilities and relationships successfully, we may incur significant costs, which may negatively impact our operating results.

Additionally, in our efforts to be first to market with new products with innovative functionality and features, we may devote significant research and development resources to products and product features for which a market does not develop quickly, or at all.

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If our new hires perform poorly, or if we are unsuccessful in hiring, training, managing and integrating these new employees, or if we are not successful in retaining our employees, our business may be harmed.

While in the past we have had significant growth in headcount, particularly during periods of rapid growth, our headcount has remained relatively flat in recent periods.

A growth in headcount would continue to increase our cost base, which would make it more difficult for us to offset any future revenue shortfalls by offsetting expense reductions in the short term.

If we fail to successfully manage our growth, we will be unable to execute our business plan.

SMCI | 2022 Form 10-K | 21

Our growth into markets outside the United States exposes us to risks inherent in international business operations.

We market and sell our systems and subsystems and accessories both inside and outside the United States.

We intend to expand our international sales efforts, especially into Asia, and we are expanding our business operations in Europe and Asia, particularly in Taiwan, the Netherlands and Japan.

In particular, we have made, and continue to make, substantial investments for the purchase of land and the development of new facilities in Taiwan to accommodate our expected growth and the migration of a substantial portion of our contract manufacturing operations to Taiwan.

Our international expansion efforts may not be successful.

Our international operations expose us to risks and challenges that we would otherwise not face if we conducted our business only in the United States, such as:

• Heightened price sensitivity from customers in emerging markets;

• Our ability to establish local manufacturing, support and service functions, and to form channel relationships with value added resellers in non-United States markets;

• Localization of our systems and components, including translation into foreign languages and the associated expenses;

• Compliance with multiple, conflicting and changing governmental laws and regulations;

• Foreign currency fluctuations and inflation;

• Limited visibility into sales of our products by our channel partners;

• Greater concentration of competitors in some foreign markets than in the United States;

• Laws favoring local competitors;

• Weaker legal protections of intellectual property rights and mechanisms for enforcing those rights;

• Market disruptions created by world events, such as the global economic downturn and recent events in eastern Europe, or by other public health crises in regions outside the United States, such as avian flu, SARS and other diseases;

• Import and export tariffs;

• Difficulties in staffing and the costs of managing foreign operations, including challenges presented by relationships with workers’ councils and labor unions;

• Changing regional economic and political conditions.

These factors could limit our future international sales or otherwise adversely impact our operations or our results of operations.

We depend upon the development of new products and enhancements to our existing products, and if we fail to predict or respond to emerging technological trends and our customers’ changing needs, our operating results and market share may suffer.

The markets for our products are characterized by rapidly changing technology, evolving industry standards, new product introductions, and evolving methods of operations.

Our operating results depend on our ability to develop and introduce new products into existing and emerging markets and to reduce the production costs of existing products.

While our revenues increased in fiscal year 2022, the global economic downturn may affect customer purchasing trends, and our operating results depend on our ability to develop and introduce new products into existing and emerging markets and to reduce the production costs of existing products.

If our customers do not purchase our products, our business will be harmed.

The COVID-19 pandemic may also result in long-term changes in customer needs for our products in various sectors, along with capital spending reductions or shifts in spending focus, that could materially adversely affect us if we are unable to adjust our product offerings to match customer needs.

The process of developing products incorporating new technologies is complex and uncertain, and if we fail to accurately predict customers’ changing needs and emerging technological trends our business could be harmed.

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In addition, our business could be adversely affected in periods surrounding our new product introductions if customers delay purchasing decisions to qualify or otherwise evaluate the new product offerings.

SMCI | 2022 Form 10-K | 22

Furthermore, we may not execute successfully on our vision or strategy because of challenges with regard to product planning and timing, technical hurdles that we fail to overcome in a timely fashion, or a lack of appropriate resources.

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Barriers to entry in our market are relatively low and we expect increased challenges from existing as well as new competitors.

Some of our principal competitors offer server solutions at a lower price, which has resulted in pricing

pressures on sales of our server solutions.

Some of our principal competitors offer server solutions at a lower price, which has resulted in pricing pressures on sales of our server solutions.

We expect further downward pricing pressure from our competitors and expect that we will have to price some of our server and storage solutions aggressively to increase our market share with respect to those products or geographies, particularly for internet data center and cloud customers and other large sale opportunities.

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As a result, they may possess sensitive knowledge or experience which may be used against us competitively and/or which may require us to alter our supply arrangements or sources in a way which could adversely impact our cost of sales or results of operations.

SMCI | 2022 Form 10-K | 23

Our competitors may be able to respond more quickly and effectively than we can to new or changing opportunities, technologies, standards or customer requirements.

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The challenges we face from larger competitors will become even greater if consolidation or collaboration between or among our competitors occurs in our industry.

Also, initiatives like the Open Compute Project, a project to establish more industry standard data center configurations, could have the impact of supporting an approach which is less favorable to the flexibility and customization that we offer.

Also, initiatives to establish more industry standard data center configurations, could have the impact of supporting an approach which is less favorable to the flexibility and customization that we offer.

These changes could have a significant impact on the market and impact our results of operations.

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We need our material and key component suppliers, such as Intel, AMD and Nvidia, to provide us with components that are innovative, reliable and attractive to our customers.

Due to the pace of innovation in our industry, many of our customers may delay or reduce purchase decisions until they believe that they are receiving best of breed products that will not be rendered obsolete by an impending technological development.

Accordingly, demand for new server and storage systems that incorporate new products and features is significantly impacted by our suppliers’ new product introduction schedules and the functionality, performance and reliability of those new products.

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If our suppliers’ components do not function properly, we may incur additional costs and our relationships with our customers may be adversely affected.

SMCI | 2022 Form 10-K | 24

We rely on a limited number of suppliers for certain components used to manufacture our products.

Certain components used in the manufacture of our products are available from a limited number of suppliers.

Shortages could occur in these essential materials due to an interruption of supply, including interruptions on the global supply chain in connection with COVID-19, or increased demand in the industry.

One of our suppliers accounted for 20.3%, 26.8%, and 21.8% of total purchases of components for the fiscal years ended June 30, 2021, 2020 and 2019, respectively.

Shortages could occur in these essential materials due to an interruption of supply, including interruptions on the global supply chain in connection with COVID-19, the global economic downturn or recent events in eastern Europe, or increased demand in the industry.

Two of our suppliers accounted for 18.1% and 11.4% of total purchases for the fiscal year ended June 30, 2022.

Two of our suppliers accounted for 20.3% and 11.8% of total purchases for the fiscal years ended June 30, 2021.

One of our suppliers accounted for 26.8% of total purchases for the fiscal years ended June 30, 2020.

Ablecom and Compuware, related parties, accounted for 8.2%, 7.8% and 10.1% of our total cost of sales for the fiscal years ended June 30, 2022, 2021 and 2020, respectively.

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For all of these reasons, customer dissatisfaction with the quality of our products could substantially impair our ability to grow our business.

Our growth into markets outside the United States exposes us to risks inherent in international business operations.

We market and sell our systems and subsystems and accessories both inside and outside the United States.

We intend to expand our international sales efforts, especially into Asia, and we are expanding our business operations in Europe and Asia, particularly in Taiwan, the Netherlands and Japan.

O ur international expansion efforts may not be successful.

Our international operations expose us to risks and challenges that we would otherwise not face if we conducted our business only in the United States, such as:

• Heightened price sensitivity from customers in emerging markets;

• Our ability to establish local manufacturing, support and service functions, and to form channel relationships with value added resellers in non-United States markets;

• Localization of our systems and components, including translation into foreign languages and the associated expenses;

• Compliance with multiple, conflicting and changing governmental laws and regulations;

• Foreign currency fluctuations;

• Limited visibility into sales of our products by our channel partners;

• Greater concentration of competitors in some foreign markets than in the United States;

• Laws favoring local competitors;

• Weaker legal protections of intellectual property rights and mechanisms for enforcing those rights;

• Market disruptions created by other public health crises in regions outside the United States, such as avian flu, SARS and other diseases;

• Import and export tariffs;

• Difficulties in staffing and the costs of managing foreign operations, including challenges presented by relationships with workers’ councils and labor unions;

• Changing regional economic and political conditions.

These factors could limit our future international sales or otherwise adversely impact our operations or our results of operations.

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Our results of operations may be subject to fluctuations based upon our investment in corporate ventures.

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We currently do not intend to make any additional investment in this corporate venture.

See Part II, Item 8, Note 8, “Investment in a Corporate Venture” to the consolidated financial statements in this Annual Report.

See Part II, Item 8, Note 12, “Related Party Transactions” to the consolidated financial statements in this Annual Report.

We may make investments in other corporate ventures.

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Legal and Regulatory Risks

Because our products and services may store, process and use data, some of which contains personal information, we are subject to complex and evolving federal, state and foreign laws and regulations regarding privacy, data protection and other matters, which are subject to change.

We are subject to a variety of laws and regulations in the United States and other countries that involve matters central to our business, including with respect to user privacy, rights of publicity, data protection, content, protection of minors and consumer protection.

These laws can be particularly restrictive in countries outside the United States.

Both in the United States and abroad, these laws and regulations constantly evolve and remain subject to significant change.

In addition, the application and interpretation of these laws and regulations are often uncertain, particularly in the new and rapidly evolving industry in which we operate.

Because our products and services store, process and use data, some of which contains personal information, we are subject to complex and evolving federal, state and foreign laws and regulations regarding privacy, data protection and other matters.

Many of these laws and regulations are subject to change and uncertain interpretation and even our inadvertent failure to comply with such laws and regulations could result in investigations, claims, damages to our reputation, changes to our business practices, increased cost of operations and declines in user growth, retention or engagement, any of which could materially adversely affect our business, results of operations and financial condition.

Because our products and services may store, process and use data, some of which contains personal information, we are subject to complex and evolving domestic and international laws and regulations regarding privacy, data protection and other matters, which are subject to change.

Because our products and services store, process and use data, some of which contains personal information, we are subject to complex and evolving domestic and international laws and regulations regarding privacy, data protection, rights of publicity, content, protection of minors and consumer protection.

Many of these laws and regulations, which can be particularly restrictive outside of the U.S., are subject to change and uncertain interpretation.

Even our inadvertent failure to comply with such laws and regulations could result in investigations, claims, damages to our reputation, changes to our business practices, increased cost of operations and declines in user growth, retention or engagement, any of which could materially adversely affect our business, results of operations and financial condition.

Costs to comply with and implement these privacy-related and data protection measures could be significant.

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Costs to comply with and implement these privacy-related and data protection measures could be significant.

For example, the EU General Data Protection Regulation 2016/679 (“GDPR”), which came into effect on May 25, 2018, imposes stringent EU data protection requirements on companies established in the European Union or companies that offer goods or services to, or monitor the behavior of, individuals in the European Union.

The GDPR establishes a robust framework of data subjects’ rights and imposes onerous accountability obligations on companies, with penalties for noncompliance of up to the greater of 20 million euros or four percent of annual global revenue.

For example, the EU General Data Protection Regulation 2016/679 (“GDPR”), and further amendments and interpretations thereof, impose stringent EU data protection requirements on companies established in the European Union or companies that offer goods or services to, or monitor the behavior of, individuals in the European Union.

The GDPR establishes a robust framework of data subjects’ rights and imposes onerous accountability obligations on companies, including certain data transfer and security mechanisms.

Noncompliance with the GDPR can trigger steep fines of up to the greater of 20 million euros or four percent of annual global revenue.

Jurisdictions outside of the European Union are also considering and/or enacting comprehensive data protection legislation.

For example, on July 8, 2019, Brazil enacted the General Data Protection Law, or the LGPD, and on June 5, 2020, Japan passed amendments to its Act on the Protection of Personal Information, or the APPI.

Both laws broadly regulate the processing of personal information in a manner comparable to the GDPR, and violators of the LGPD and APPI face substantial penalties.

We also continue to see jurisdictions, such as Russia, imposing data localization laws, which under Russian laws require personal information of Russian citizens to be, among other data processing operations, initially collected, stored, and modified in Russia.

Similarly, on November 1, 2021, China’s Personal Information Protection law came into effect, which places restrictions on the transfer of personal information to third parties within China or overseas.

These regulations may deter customers from using services such as ours, and may inhibit our ability to expand into those markets or prohibit us from continuing to offer services in those markets without significant financial burden.

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In addition, numerous states in the U.S.

are also expanding data protection through legislation.

For example, in June 2018, California enacted the California Consumer Privacy Act, which took effect on January 1, 2020, and gives California residents expanded privacy rights and protections and provide for civil penalties for violations and a private right of action for data breaches.

At the same time, certain developing countries in which we do business have already or are also currently considering adopting privacy and data protection laws and regulations.

While we have implemented policies and procedures to address GDPR and other data privacy requirements, failure to comply or concerns about our practices or compliance with GDPR or other privacy-related laws and regulations could materially adversely affect our business, results of operations and financial condition.

For example, California’s Consumer Privacy Act (“CCPA”) gives California residents expanded privacy rights and protections and provides for civil penalties for violations and a private right of action for data breaches.

Further, California voters approved the ballot initiative known as the California Privacy Rights Act of 2020 (“CPRA”), enforcement of which begins on July 1, 2023.

The CPRA significantly expands privacy rights for California consumers and creates additional obligations on businesses, which could subject us to additional compliance costs as well as potential fines, individual claims and commercial liabilities.

The CPRA also establishes the California Privacy Protection Agency (“CPPA”), which has the power to implement and enforce the CCPA and CPRA through administrative actions, including administrative fines.

The effects of the CCPA and the CPRA are potentially significant and may require us to modify our data collection or processing practices and policies and to incur substantial costs and expenses in an effort to comply and increase our potential exposure to regulatory enforcement and/or litigation.

Certain other state laws, including Virginia, Colorado, Connecticut and Utah data privacy laws, impose similar privacy obligations and will take effect beginning in 2023.

We anticipate that more states may enact legislation similar to the CCPA, by providing consumers with new privacy rights and increasing the privacy and security obligations of entities handling certain personal information of such consumers.

The CCPA has prompted a number of proposals for new federal and state-level privacy legislation.

Such proposed legislation, if enacted, may add additional complexity, variation in requirements, restrictions and potential legal risk, require additional investment of resources in compliance programs, impact strategies and the availability of previously useful data and could result in increased compliance costs and/or changes in business practices and policies.

We have developed and implemented policies and procedures to address applicable data privacy and protection law requirements.

However, because the interpretation and application of many privacy and data protection laws, commercial frameworks, and standards are uncertain, it is possible that these laws, frameworks, and standards may be interpreted and applied in a manner that is inconsistent with our existing data protection practices.

If so, we and our customers are at risk of enforcement actions taken by data protection authorities or litigation from consumer advocacy groups acting on behalf of data subjects.

In addition to the possibility of fines, lawsuits, breach of contract claims, and other claims and penalties, we could be required to fundamentally change our business activities and practices or modify our solutions, which could materially adversely affect our business, results of operations and financial condition.

Our operations could involve the use of regulated materials, and we must comply with environmental, health and safety laws and regulations, which can be expensive, and may affect our business, results of operations and financial condition.

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These requirements and best practices can affect the cost and ease of sourcing minerals used in the manufacture of electronics.

If we are unable to maintain and further develop effective internal control over financial reporting, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our common stock may decrease.

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If we are unable to maintain effective internal control over financial reporting, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our common stock may decrease.

As a public company, we are required to maintain internal control over financial reporting and to report any material weaknesses in such internal controls.

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We could also become subject to stockholder or other third-party litigation as well as investigations by the stock exchange on which our securities are listed, the SEC or other regulatory authorities, which could require additional financial and management resources and could result in fines, penalties, trading suspensions or other remedies.

The matters leading to the delay in the filing of our 2017 10-K and adverse publicity and potential concerns from our customers, including from our prior lack of effective internal control over financial reporting, have had and could continue to have an adverse effect on our business and financial condition.

We have been and could continue to be the subject of negative publicity focused on the matters that led to the delay in the filing of our 2017 10-K.

We may be adversely impacted by negative reactions to this publicity from our customers or others with whom we do business.

Concerns include the time and effort required to address our accounting and control environment and our ability to be a long-term provider to our customers.

The continued occurrence of any of the foregoing could harm our business and have an adverse effect on our financial condition.

Failure to comply with the U.S.

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Any future violations could have an adverse impact on our ability to sell our products to United States federal, state and local government and related entities.

We have business relationships with companies in China who have been, or may in the future be, added to the restricted party list.

We have business relationships with companies in China, Russia, and elsewhere in eastern Europe who have been, or may in the future be, added to the restricted party list.

We take steps to minimize business disruption when these situations arise;

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The United States and other countries continually update their lists of export-controlled items and technologies, and may impose new or more-restrictive export requirements on our products in the future.

As a result of regulatory changes, we may be required to obtain licenses or other authorizations to continue supporting existing customers or to supply existing products to new customers in China and elsewhere.

Further escalations in trade restrictions, particularly between the United States and China, could impede our ability to sell or support our products.

Further escalations in trade restrictions or hostilities, particularly between the United States and China or Russia, could impede our ability to sell or support our products.

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In addition, while we have implemented policies, internal controls and other measures reasonably designed to promote compliance with applicable anti-corruption and anti-bribery laws and regulations, and certain safeguards designed to ensure compliance with U.S.

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Any claim, regardless of its merits, could be expensive and time consuming to defend against, and divert the attention of our technical and management resources.

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Provisions of our certificate of incorporation and bylaws and Delaware law might discourage, delay or prevent a change of control of our company or changes in our management and, as a result, depress the trading price of our common stock.

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Financial Risks

We incurred significant expenses related to the matters that led to the delay in the filing of our 2017 10-K and may incur expenses related to any resulting litigation.

We incurred significant expenses related to the matters that led to the delay in the filing of our 2017 10-K and may incur additional expenses related to resulting litigation.

We devoted substantial internal and external resources towards investigating, discovering, understanding and remediating the matters that led to the delay in the filing of our 2017 10-K (all as described in the 2017 10-K).

As a result of these efforts, we incurred substantial incremental fees and expenses for additional accounting, financial and other consulting and professional services, as well as the implementation and maintenance of systems and processes that will need to be updated, supplemented or replaced.

Specifically, in connection with these efforts, we incurred professional fees of approximately $0.5 million, $14 million, $67 million and $42 million in fiscal years 2021, 2020, 2019 and 2018, respectively.

In addition, as of and for the year ended June 30, 2020, we recorded a liability of $17.5 million for our SEC settlement of the investigation into our Company's financial accounting for fiscal years 2014 to 2017.

Specifically, in connection with these efforts, we incurred professional fees of approximately $4.4 million, $0.5 million and $14.0 million in fiscal years 2022, 2021 and 2020, respectively.

In addition, as of and for the year ended June 30, 2022, we recorded a net litigation settlement cost of $2.0 million associated with the settlement of one of the stockholder actions associated with the delay in the filing of our 2017 10-K and, as of and for the year ended June 30, 2020, we recorded a liability of $17.5 million for our SEC settlement of the investigation into our Company's financial accounting for fiscal years 2014 to 2017.

We have taken a number of steps in order to strengthen our corporate culture, sales processes, and accounting function so as to allow us to be able to provide timely and accurate financial reporting.

To the extent these steps are not successful, we could be required to devote significant additional time and incur significant additional expenses.

Even if these steps are successful, we may incur significant legal fees in future periods as we address litigation and regulatory action arising from the matters that led to the delay in the filing our 2017 10-K.

The expenses we are incurring in this regard, as well as the substantial time devoted by our management to identify and address internal control deficiencies, could have a material adverse effect on our business, results of operations and financial condition.

Even if these steps are successful, we may incur significant legal fees in future periods as we continue to address litigation arising from the matters that led to the delay in the filing our 2017 10-K.

The expenses we are and may incur in this regard, as well as the substantial time devoted by our management to identify and address internal control deficiencies, could have a material adverse effect on our business, results of operations and financial condition.

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Our research and development expenditures, as a percentage of our net sales, are considerably higher than many of our competitors and our earnings will depend upon maintaining revenues and margins that offset these expenditures.

Our strategy is to focus on being consistently first-to-market with flexible and application optimized server and storage systems that take advantage of our own internal development and the latest technologies offered by microprocessor manufacturers and other component vendors.

Consistent with this strategy, we spend higher amounts, as a percentage of revenues, on research and development costs than many of our competitors.

One of our key strategies is to focus on being consistently first-to-market with flexible and application optimized server and storage systems that take advantage of our own internal development and the latest technologies offered by microprocessor manufacturers and other component vendors.

Consistent with this strategy, we believe we spend higher amounts, as a percentage of revenues, on research and development costs than many of our competitors.

If we cannot sell our products in sufficient volume and with adequate gross margins to compensate for such investment in research and development, our earnings may be materially and adversely affected.

Our future effective income tax rates could be affected by changes in the relative mix of our operations and income among different geographic regions and by changes in domestic and foreign income tax laws, which could affect our future operating results, financial condition and cash flows.

On December 22, 2017, the U.S.

federal government enacted the Tax Cuts and Jobs Act (“2017 Tax Reform Act”), and in December 2019, we realigned our international business operations and group structure to take advantage of certain international tax planning opportunities and incentives.

Following the U.S.

federal government’s enactment of the Tax Cuts and Jobs Act (“2017 Tax Reform Act”), we realigned our international business operations and group structure to take advantage of certain international tax planning opportunities and incentives.

Our future effective income tax rates could be adversely affected if tax authorities challenge our international tax structure or if the relative mix of our United States and international income changes for any reason, or due to changes in U.S.

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Backlog does not provide a substantial portion of our net sales in any quarter.

Our net sales are difficult to forecast because we do not have sufficient backlog of unfilled orders or sufficient recurring revenue to meet our quarterly net sales targets at the beginning of a quarter.

While we had greater than normal backlog during certain periods of fiscal year 2022, historically, our net sales are difficult to forecast because we do not have sufficient backlog of unfilled orders or sufficient recurring revenue to meet our quarterly net sales targets at the beginning of a quarter.

Rather, a majority of our net sales in any quarter depend upon customer orders that we receive and fulfill in that quarter.

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The trading prices of technology company securities historically have been highly volatile.

In addition, the global markets have experienced volatility as a result of the COVID-19 pandemic.

In addition, the global markets have experienced volatility as a result of the COVID-19 pandemic, the global economic downturn and recent events in eastern Europe.

The trading price of our common stock has been and is likely to continue to be subject to wide fluctuations.

Factors, in addition to those outlined elsewhere in this filing, that may affect the trading price of our common stock include:

• The impact of COVID-19 on our business, the global economy and trading markets;

• The impact of COVID-19, the global economic downturn and recent events in eastern Europe on our business, the global economy and trading markets;

• The outcome of litigation and claims as well as regulatory examinations, investigations, proceedings and orders to which we are subject;

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• The financial projections we may provide to the public, any changes in these projections or our failure to meet these projections;

SMCI | 2022 Form 10-K | 31

• False or misleading press releases or articles regarding our company or our products;

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If these additional shares are sold, or if it is perceived that they will be sold in the public market, the trading price of our common stock could decline.

The concentration of our capital stock ownership with insiders will likely limit your ability to influence corporate matters.

The concentration of our capital stock ownership with insiders likely limits your ability to influence corporate matters.

As of July 31, 2022, our executive officers, directors, current five percent or greater stockholders and affiliated entities together beneficially owned 37.4% of our common stock, net of treasury stock.

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In addition, under the terms of the credit agreement with Bank of America, dated April 19, 2018, we cannot pay any dividends, with limited exceptions.

Accordingly, investors must rely on sales of their common stock after price appreciation, which may

never occur, as the only way to realize any future gains on their investment.

Accordingly, investors must rely on sales of their common stock after price appreciation, which may never occur, as the only way to realize any future gains on their investment.

Investors seeking cash dividends in the foreseeable future should not purchase our common stock.

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If we do not satisfy customer requirements for products that help mitigate climate change, and document how they contribute to such change, it could have a material adverse impact on our business, operating results, and financial conditions.

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Our business and operations may be impacted by natural disaster events, including those brought on by climate change.

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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 1A. Risk Factors