What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2024-11-15 compared with 2023-11-17 · 55 added, 92 removed, 108 unchanged (58% of the section changed)

3 unchanged sentences

Actual results may differ substantially and adversely from those referred to herein due to a number of factors, including, but not limited to, those described below and in Item 1A “Risk Factors” and elsewhere in this Annual Report on Form 10-K.

We, together with our consolidated subsidiaries, are empowering the wireless networking revolution.

Our highly innovative analog and mixed-signal semiconductors are connecting people, places, and things, spanning a number of new and previously unimagined applications within the aerospace, automotive, broadband, cellular infrastructure, connected home, defense, entertainment and gaming, industrial, medical, smartphone, tablet, and wearable markets.

Impact of COVID-19

The COVID-19 pandemic has affected business conditions in our industry.

The duration, severity, and future impact of the pandemic, including as a result of more contagious variants of the virus that causes COVID-19, continue to be uncertain and could still result in significant disruptions to our business operations, as well as negative impacts to our financial condition.

We, together with our consolidated subsidiaries, are a leading developer, manufacturer and provider of analog and mixed-signal semiconductor products and solutions for numerous applications, including aerospace, automotive, broadband, cellular infrastructure, connected home, defense, entertainment and gaming, industrial, medical, smartphone, tablet, and wearables.

RESULTS OF OPERATIONS

Fiscal Years Ended September 29, 2023, September 30, 2022, and October 1, 2021.

Fiscal Years Ended September 27, 2024, September 29, 2023, and September 30, 2022

The following table sets forth the results of our operations expressed as a percentage of net revenue.

See Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended September 29, 2023, filed with the SEC on November 17, 2023, as amended by Amendment No.

1 to such Annual Report on Form 10-K, filed with the SEC on January 27, 2023 (the “2022 10-K”), for Management’s Discussions and Analysis of Financial Condition and Results of Operations for the fiscal year ended October 1, 2021.

1 to such Annual Report on Form 10-K, filed with the SEC on January 26, 2024 (the “2023 10-K”), for Management’s Discussion and Analysis of Financial Condition and Results of Operations for the fiscal year ended September 30, 2022.

Fiscal Years Ended

September 29,

2023 September 30,

2022 October 1,

September 27, 2024 September 29, 2023 September 30, 2022

Net revenue 100.0 % 100.0 % 100.0 %

5 unchanged sentences

Amortization of intangibles — 0.7 1.8

Restructuring, impairment, and other charges 0.6 0.6 0.2

Impairment, restructuring, and other charges 3.6 0.6 0.6

Total operating expenses 25.9 20.6 19.7

6 unchanged sentences

During the fiscal year ended September 27, 2024, the following key factors contributed to our overall results of operations, financial position, and cash flows:

• Net revenue decreased 13.0% to $4,772.4 million in fiscal 2023, as compared to $5,485.5 million in fiscal 2022, driven primarily by a decrease in demand for our mobile products from smartphone customers in the Android ecosystem and for our connectivity solutions in consumer and enterprise markets.

• Net revenue decreased 12.5% to $4,178.0 million in fiscal 2024, as compared to $4,772.4 million in fiscal 2023, driven primarily by a decrease in demand for our mobile, analog, and mixed-signal products.

• Our ending cash, cash equivalents, and marketable securities balance increased 113.1% to $1,574.1 million in fiscal 2024, as compared to $738.5 million in fiscal 2023.

The increase in cash, cash equivalents, and marketable securities during fiscal 2024, was primarily due to cash generated from operations of $1,824.7 million, partially offset by

repayments of debt of $900.0 million, dividend payments of $405.2 million, and capital expenditures of $210.3 million.

dividend payments of $439.1 million, repayments of debt of $300.0 million, capital expenditures of $157.0 million, and share repurchases of $77.3 million.

Fiscal Years Ended

September 29,

2023 Change September 30,

2022 Change October 1,

(dollars in millions)

(dollars in millions) September 27, 2024 Change September 29, 2023 Change September 30, 2022

Net revenue $ 4,178.0 (12.5)% $ 4,772.4 (13.0)% $ 5,485.5

We market and sell our products directly to OEMs of communications and electronics products, third-party original design manufacturers and contract manufacturers, and indirectly through electronic components distributors.

We generally experience seasonal peaks during our fourth and first fiscal quarters (which correspond to the second half of the calendar year), primarily as a result of increased worldwide production of consumer electronics in anticipation of increased holiday sales, whereas our second and third fiscal quarters are typically lower and in line with seasonal industry trends.

The decrease in net revenue in fiscal 2023, as compared to fiscal 2022, was driven primarily by a decrease in demand for our mobile products from smartphone customers in the Android ecosystem and for our connectivity solutions in consumer and enterprise markets.

We market and sell our products indirectly through electronic components distributors and directly to OEMs of communications and electronics products, third-party original design manufacturers and contract manufacturers.

We generally experience seasonal peaks during our fourth and first fiscal quarters (which correspond to the second half of the calendar year), primarily as a result of increased worldwide production of consumer electronics in anticipation of holiday sales, whereas our second and third fiscal quarters are typically lower and in line with seasonal industry trends.

The decrease in net revenue in fiscal 2024, as compared to fiscal 2023, was driven primarily by a decrease in demand for our mobile, analog, and mixed-signal products.

For information regarding net revenue by geographic region and customer concentration, see Note 14 to Item 8 of this Annual Report on Form 10-K.

Fiscal Years Ended

September 29,

2023 Change September 30,

2022 Change October 1,

(dollars in millions)

(dollars in millions) September 27, 2024 Change September 29, 2023 Change September 30, 2022

Gross profit $ 1,720.8 (18.3)% $ 2,107.3 (19.1)% $ 2,604.3

1 unchanged sentence

Gross profit represents net revenue less cost of goods sold.

Our cost of goods sold consists primarily of purchased materials, labor, and overhead (including depreciation, share-based compensation, and amortization of acquisition intangibles, including inventory step-up expense) associated with product manufacturing.

Our cost of goods sold consists primarily of purchased materials, labor, and overhead (including depreciation, share-based compensation expense, and amortization of acquisition intangibles) associated with product manufacturing.

Erosion of average selling prices of established products is typical of the semiconductor industry.

Consistent with trends in the industry, we anticipate that average selling prices for our established products will continue to decline over time.

As part of our normal course of business, we intend to improve gross profit with efforts to increase unit volumes, reduce material costs, improve manufacturing efficiencies, lower manufacturing costs of existing products, and by introducing new and higher value-added products.

The decrease in gross profit in fiscal 2023, as compared to fiscal 2022, was primarily the result of lower unit volumes, impairment charges on long-term supply capacity deposits, and lower average selling prices with a gross profit impact of $572.0 million, $47.5 million, and $41.8 million, respectively, partially offset by a favorable product mix with a gross profit impact of $261.2 million.

As part of our normal course of business, we intend to improve gross profit with efforts to increase unit volumes, improve manufacturing efficiencies, lower manufacturing costs of existing products, and by introducing new and higher value-added products.

The decrease in gross profit in fiscal 2024, as compared to fiscal 2023, was primarily the result of an unfavorable product mix, lower unit volumes, and lower average selling prices.

Research and Development

Fiscal Years Ended

September 29,

2023 Change September 30,

2022 Change October 1,

(dollars in millions)

(dollars in millions) September 27, 2024 Change September 29, 2023 Change September 30, 2022

Research and development $ 631.7 4.1% $ 606.8 (1.8)% $ 617.9

% of net revenue 15.1 % 12.7 % 11.3 %

Research and development expenses consist primarily of direct personnel costs including share-based compensation expense, costs for pre-production evaluation and testing of new devices, non-production masks, engineering prototypes, and design tool costs.

The decrease in research and development expense in fiscal 2023, as compared to fiscal 2022, was primarily related to a decrease in headcount-related expenses.

Research and development expenses consist primarily of direct personnel costs including share-based compensation expense, costs for pre-production evaluation units and testing of new devices, non-production masks, engineering prototypes, and design tool costs.

The increase in research and development expenses in fiscal 2024, as compared to fiscal 2023, was primarily related to increases in certain headcount-related expenses and costs for engineering prototypes as a result of our increased investment in developing new technologies and products, partially offset by a decrease in share-based compensation expense and a decrease in depreciation expense as a result of extending the useful lives of certain machinery and equipment.

For information regarding this change in accounting estimate, see Note 2 to Item 8 of this Annual Report on Form 10-K.

Selling, General, and Administrative

Fiscal Years Ended

September 29,

2023 Change September 30,

2022 Change October 1,

(dollars in millions)

(dollars in millions) September 27, 2024 Change September 29, 2023 Change September 30, 2022

Selling, general, and administrative $ 300.8 (4.2)% $ 314.0 (4.8)% $ 329.8

1 unchanged sentence

Selling, general, and administrative expenses include legal and related costs, accounting, treasury, human resources, information systems, customer service, bad debt expense, sales commissions, share-based compensation expense, advertising, marketing, costs associated with business combinations completed or contemplated during the period, and other costs.

The decrease in selling, general, and administrative expenses in fiscal 2023, as compared to fiscal 2022, was primarily related to a decrease in headcount-related expenses, including share-based compensation.

The decrease in selling, general, and administrative expenses in fiscal 2024, as compared to fiscal 2023, was primarily related to a gain on the sale of property, plant, and equipment, a decrease in professional services costs, and a decrease in share-based compensation expense.

Amortization of Intangibles

Fiscal Years Ended

September 29,

2023 Change September 30,

2022 Change October 1,

(dollars in millions)

(dollars in millions) September 27, 2024 Change September 29, 2023 Change September 30, 2022

Amortization of intangibles $ 0.9 (97.3)% $ 33.2 (66.4)% $ 98.9

% of net revenue — % 0.7 % 1.8 %

The decrease in amortization expense for fiscal 2023, as compared to fiscal 2022, was primarily due to certain intangible assets that were acquired in prior fiscal years reaching the end of their useful lives.

Restructuring, Impairment, and Other Charges

The decrease in amortization expense in fiscal 2024, as compared to fiscal 2023, was primarily due to certain intangible assets that were acquired in prior fiscal years reaching the end of their useful lives.

Impairment, Restructuring, and Other Charges

Fiscal Years Ended

September 29,

2023 Change September 30,

2022 Change October 1,

(dollars in millions)

Restructuring, impairment, and other charges $ 28.3 (7.8)% $ 30.7 244.9% $ 8.9

(dollars in millions) September 27, 2024 Change September 29, 2023 Change September 30, 2022

Impairment, restructuring, and other charges $ 150.0 430.0% $ 28.3 (7.8)% $ 30.7

% of net revenue 3.6 % 0.6 % 0.6 %

Restructuring, impairment, and other charges incurred in fiscal 2023 were primarily due to employee severance costs and impairment charges on divested assets.

Restructuring, impairment, and other charges incurred in fiscal 2022 were primarily related to the abandonment of previously capitalized in-process research and development projects.

Impairment, restructuring, and other charges in fiscal 2024 were primarily due to the abandonment or delay of previously capitalized in-process research and development (“IPR&D”) projects of $147.9 million and employee severance costs.

Impairment, restructuring, and other charges in fiscal 2023 were primarily due to employee severance costs and impairment charges on divested assets.

Interest Expense

Fiscal Years Ended

September 29,

2023 Change September 30,

2022 Change October 1,

(dollars in millions)

(dollars in millions) September 27, 2024 Change September 29, 2023 Change September 30, 2022

Interest expense $ 30.7 (52.3)% $ 64.4 34.4% $ 47.9

% of net revenue 0.7 % 1.3 % 0.9 %

The increase in interest expense for fiscal 2023, as compared to fiscal 2022, was due to an increase in the variable interest rate associated with the borrowing on the Term Loans, partially offset by a lower average balance of debt outstanding.

The decrease in interest expense in fiscal 2024, as compared to fiscal 2023, was due to certain debt repayments that reduced the amount of outstanding indebtedness.

Other Income (Expense), Net

Fiscal Years Ended

September 29,

2023 Change September 30,

2022 Change October 1,

(dollars in millions)

(dollars in millions) September 27, 2024 Change September 29, 2023 Change September 30, 2022

Other income (expense), net $ 29.7 63.2% $ 18.2 828.0% $ (2.5)

$ 18.2 828.0% $ (2.5) 316.7% $ (0.6)

% of net revenue 0.7 % 0.4 % — %

The increase in other income for fiscal 2023, as compared to fiscal 2022, was due to an increase in interest income as a result of higher interest rates.

The increase in other income, net in fiscal 2024, as compared to fiscal 2023, was primarily due to an increase in interest income generated from cash, cash equivalents, and marketable securities.

Provision for Income Taxes

Fiscal Years Ended

September 29,

2023 Change September 30,

2022 Change October 1,

(dollars in millions)

(dollars in millions) September 27, 2024 Change September 29, 2023 Change September 30, 2022

Provision for income taxes $ 40.4 (57.9)% $ 96.0 (52.3)% $ 201.4

% of net revenue 1.0 % 2.0 % 3.7 %

We recorded a provision for income taxes of $96.0 million (which consisted of $62.0 million and $34.0 million related to United States and foreign income taxes, respectively) and $201.4 million (which consisted of $132.8 million and $68.6 million related to United States and foreign income taxes, respectively) for fiscal 2023 and fiscal 2022, respectively.

The decrease in income tax expense for fiscal 2023, as compared with the corresponding period in fiscal 2022, was primarily due to lower income from operations, a decrease in tax on global intangible low-taxed income (“GILTI”), an increase in the benefit from foreign-derived intangible income deduction (“FDII”), partially offset by a current period shortfall in tax deductions for share-based compensation, compared to windfall deductions in the prior year.

In August 2022, the U.S.

government enacted the Inflation Reduction Act, which imposes a corporate alternative minimum tax (“CAMT”) of 15% on corporations with three-year average annual adjusted financial statement income exceeding $1.0 billion, as well as a 1% excise tax on corporate stock repurchases made after December 31, 2022.

We are currently evaluating the impact this law may have on our effective tax rate.

CAMT is effective for the Company in fiscal year 2024.

We recorded a provision for income taxes of $40.4 million (which consisted of benefits of $41.5 million and $0.3 million related to United States federal and state income taxes, respectively, and a provision of $82.2 million related to foreign income taxes) and $96.0 million (which consisted of $62.0 million and $34.0 million related to United States and foreign income taxes, respectively) in fiscal 2024 and fiscal 2023, respectively.

The decrease in income tax expense in fiscal 2024, as compared to fiscal 2023, was primarily due to lower income from operations and a higher proportion of foreign income compared to domestic, partially offset by a decrease in the benefit from foreign-derived intangible income (“FDII”), an increase in tax expense related to a change in the reserve for uncertain tax positions, and an increase in the tax on global intangible low-taxed income (“GILTI”), net of foreign tax credits.

Future changes in tax laws could arise related to the BEPS Project of the OECD, including Pillar One and Pillar Two;

the European Commission’s “state aid” investigations;

enactment of a global corporate minimum tax;

and other developments that could have an adverse effect on the taxation of our business, including reducing the availability of tax credits and payment of higher income taxes.

Many countries have implemented laws based on Pillar Two which will be effective for us in fiscal year 2025.

We continue to evaluate the impact of proposed and enacted legislative changes to our effective tax rate as new guidance becomes available.

See Note 8 to Item 8 of this Annual Report on Form 10-K for additional information regarding income taxes.

LIQUIDITY AND CAPITAL RESOURCES

Set forth below is a summary of our cash flows for the periods indicated:

Fiscal Years Ended

(in millions) September 29,

2023 September 30,

2022 October 1,

(in millions) September 27, 2024 September 29, 2023 September 30, 2022

Cash and cash equivalents at beginning of period $ 718.8 $ 566.0 $ 882.9

1 unchanged sentence

Net cash used in investing activities (355.9) (224.4) (378.9)

Net cash (used in) provided by financing activities (1,479.2) (1,362.6) 1,677.4

Net cash used in financing activities (819.0) (1,479.2) (1,362.6)

Cash and cash equivalents at end of period $ 1,368.6 $ 718.8 $ 566.0

1 unchanged sentence

Cash provided by operating activities consists of net income for the period adjusted for certain non-cash items and changes in certain operating assets and liabilities.

The $431.8 million increase in cash provided by operating activities for fiscal 2023, as compared to fiscal 2022, was primarily related to favorable changes in working capital of $988.5 million, due primarily to a decrease in accounts receivable and inventory, partially offset by lower net income.

The $31.7 million decrease in cash provided by operating activities for fiscal 2024, as compared to fiscal 2023, was primarily related to lower net income, partially offset by favorable changes in working capital of $402.9 million, due primarily to a decrease in inventory and accounts receivable.

Cash used in investing activities:

Cash used in investing activities consists primarily of capital expenditures and cash paid related to the purchase of marketable securities, offset by cash received related to the sale or maturity of marketable securities.

The $154.5 million decrease in cash used in investing activities for fiscal 2023, as compared to fiscal 2022, was primarily related to a decrease of $279.1 million in cash used for capital expenditures, partially offset by a decrease of $117.9 million in the net sale of marketable securities.

Cash used in investing activities consists primarily of capital expenditures, cash paid to acquire intangible assets, and cash paid to purchase marketable securities, offset by cash received related to the sale or maturity of marketable securities.

$131.5 million increase in cash used in investing activities for fiscal 2024, as compared to fiscal 2023, was primarily related to a decrease of $207.5 million in sales of marketable securities, partially offset by a decrease of $17.9 million in purchases of marketable securities and a decrease of $53.3 million in cash used for capital expenditures.

Cash used in financing activities:

Cash used in financing activities consists primarily of proceeds and payments related to our long-term borrowings and cash transactions related to equity.

The $116.6 million increase in cash used in financing activities for fiscal 2023, as compared to fiscal 2022, was primarily related to an increase of $850.0 million for the repayment of debt, an increase of $32.1 million in dividend payments, partially offset by a decrease of $711.5 million in stock repurchase activity, and a decrease of $52.6 million related to the minimum statutory payroll tax withholdings upon vesting of employee performance and restricted stock awards.

The $660.2 million decrease in cash used in financing activities for fiscal 2024, as compared to fiscal 2023, was primarily related to a decrease of $600.0 million for the repayment of debt and a decrease of $98.0 million in stock repurchase activity, partially offset by an increase of $33.9 million in dividend payments.

Cash, cash equivalents, and marketable securities totaled $1,574.1 million as of September 27, 2024, representing an increase of $835.6 million from September 29, 2023.

We have outstanding $500.0 million of Notes Due 2026 and $500.0 million of Notes Due 2031 (the “Notes”).

We have a term credit agreement (the “Term Credit Agreement”) providing for a $1.0 billion term loan facility (the “Term Loan Facility”).

On July 26, 2021, the Company borrowed $1.0 billion in aggregate principal amount of term loans (the “Term Loans”) under the Term Loan Facility to finance a portion of the purchase price for the acquisition of the Infrastructure and Automotive business of Silicon Laboratories Inc.

and to pay fees and expenses incurred in connection therewith.

During fiscal 2023, 2022, and 2021, we repaid $400.0 million, $50.0 million, and $250.0 million, of outstanding borrowings under the Term Loans, respectively.

As of September 29, 2023, there were $300.0 million of borrowings outstanding under the Term Credit Agreement.

We have outstanding $500.0 million of Notes Due 2026 and $500.0 million of Notes Due 2031.

During fiscal 2024, 2023, and 2022, we repaid $300.0 million, $900.0 million, and $50.0 million of outstanding borrowings, respectively.

We have a Revolving Credit Agreement (the “Revolving Credit Agreement”) under which we may borrow up to $750.0 million for general corporate purposes and working capital needs of the Company and its subsidiaries.

5 unchanged sentences

However, we cannot be certain that our cash on hand, cash generated from operations, and funds from our Revolver will be available in the future to fund all of our capital and operating requirements.

In addition, any future strategic investments and significant acquisitions may require additional

cash and capital resources.

In addition, any future strategic investments and significant acquisitions may require additional cash and capital resources.

If we are unable to obtain sufficient cash or capital to meet our needs on a timely basis and on favorable terms, our business and operations could be materially and adversely affected.

1 unchanged sentence

money market funds, U.S.

Treasury securities, municipal bonds, and agency securities.

Treasury and government securities, corporate bonds and notes, and municipal bonds.

CRITICAL ACCOUNTING ESTIMATES

The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles (“GAAP”).

The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with U.S.

generally accepted accounting principles (“GAAP”).

The preparation of these financial statements requires us to make estimates and judgments in applying our most critical accounting policies that can have a significant impact on the results we report in our financial statements.

9 unchanged sentences

Our revenue reserves contain uncertainties because they require management to make assumptions and to apply judgment to estimate the value of future credits to customers for product returns, price protection, price adjustments, and stock rotation for products sold to certain electronic component distributors.

We base these estimates on the expected value method considering all reasonably available information, including our historical experience and current expectations, and are reflected in the transaction price when sales are recorded.

We base these estimates on the expected value method considering all reasonably available information, including our historical experience and current expectations, and are reflected in the

transaction price when sales are recorded.

Changes in actual demand or market conditions could adversely or beneficially impact our reserve calculations.

11 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis