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Item 1A. Risk Factors

2021-02-22 compared with 2020-02-21 · 237 added, 251 removed, 173 unchanged (74% of the section changed)

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Any of these factors, many of which are beyond our control, could materially and adversely affect our business, financial condition, operating results, cash flow, and stock price.

Risks Related to Our Business, Finance and Operations

The effects of the COVID-19 pandemic have strained and have threatened to negatively impact our businesses and operations, and the duration and extent to which COVID-19 may impact our future results of operations and overall financial performance remains uncertain.

The outbreak and continuing spread of COVID-19 has resulted in a substantial curtailment of business activities worldwide and has caused and is likely to continue to cause weakened economic conditions, both in the United States and many countries abroad, including in markets in Asia and Europe from which we derive the majority of our revenue.

Government restrictions (such as stay-at-home orders), quarantines and worker absenteeism as a result of COVID-19 have led to a significant number of business closures and other slowdowns.

These slowdowns have adversely impacted and will likely continue to adversely impact Veeco directly, as well as our customers, suppliers and other partners.

We have determined that our operations are considered part of the critical and essential infrastructure defined by applicable government agencies.

Consequently, as of the date of filing this report, we are currently permitted and are endeavoring to maintain manufacturing and supply chain operations.

However, the conditions caused by COVID-19 could adversely affect our customers’ ability or willingness to purchase our products or services, delay prospective customers’ purchasing decisions, adversely impact our ability to source and deliver products and provide on-site services to our customers, delay the provisioning of our offerings, or lengthen payment terms, all of which could adversely affect our future sales, operating results and overall financial performance.

In addition, adverse impacts on the creditworthiness of our customers and other counterparties and their ability to pay amounts owed to us and our ability to collect such amounts may be adversely affected, which could materially and adversely affect our results of operations, financial condition and cash flows.

The COVID-19 pandemic has resulted in significant disruption of global financial markets and could materially impact the value of our common stock, our access to capital, and our business and results of operations in the near and long-term.

Unfavorable market conditions have adversely affected, and may continue to adversely affect, our operating results.

Conditions of the markets in which we operate are volatile and have experienced, and may in the future continue to experience, significant deterioration.

Demand for our equipment and services can change depending on several factors, including the nature and timing of technology inflections, the emergence of new technologies and competitors, production capacity and end-user demand, international trade barriers, access to affordable capital, and general economic conditions (including, for example, a prolonged U.S.

government shutdown).

Changing market conditions require that we continuously monitor and reassess our strategic resource allocation decisions.

If we fail to properly adapt to changing business

environments, we may lack the infrastructure and resources necessary to scale up our businesses to successfully compete during periods of growth, or we may incur excess fixed costs during periods of decreasing demand.

If we fail to properly adapt to changing business environments, we may lack the infrastructure and resources necessary to scale up our businesses to successfully compete during periods of growth, or we may incur excess fixed costs during periods of decreasing demand.

Adverse market conditions relative to our products have resulted in, and may continue to result in:

● reduced demand for our products;

● rescheduling and cancellations of orders for our products, resulting in negative backlog adjustments;

● rescheduling and cancellations of orders for our products, which may result in negative backlog adjustments;

● asset impairments, including the impairment of goodwill and other intangible assets;

● unfavorable changes in customer mix and product mix;

● increased price competition leading to lower margin for our products;

● increased price competition leading to a lower profit margin for our products;

● increased competition from sellers of used equipment or lower-priced alternatives to our products;

● increased inventory obsolescence;

● disruptions in our supply chain as we reduce our purchasing volumes and limit our contract manufacturing operations;

● disruptions in our supply chain;

● higher operating costs as a percentage of revenues;

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If the markets in which we participate continue to experience deteriorations or downturns, this could negatively impact our sales and revenue generation, margins, operating expenses, and profitability.

We are exposed to the risks of operating a global business.

The timing of our orders, shipments, and revenue recognition may cause our quarterly operating results to fluctuate significantly.

We derive a substantial portion of our net sales in any fiscal period from the sale of a relatively small number of high-priced systems.

As a result, the timing for the recognition of revenue for a single transaction could have a material effect on our sales and operating results for a particular fiscal period.

As is typical in our industry, orders and shipments often occur during the last few weeks of a quarter.

As a result, a delay of only a week or two can impact which period revenue is reported and can cause volatility in our revenue for a given reporting period.

Our quarterly results have fluctuated significantly in the past and we expect this trend to continue.

Our sales cycle is long and unpredictable.

Historically, we have experienced long and unpredictable sales cycles (the period between our initial contact with a potential customer and the time that we recognize revenue from resulting sales to that customer).

It is not uncommon for our sales cycle to exceed twelve months.

The timing of an order often depends on our customer’s capital expenditure budget, over which we have no control.

In addition, the time it takes us to procure and build a product to customer specifications typically ranges from three to twelve months.

When coupled with the fluctuating amount of time required for shipment, installation, and final acceptance, our sales cycles often vary widely, and these variations can cause fluctuations in our operating results.

As a result of our lengthy sales cycles, we may incur significant research, development, selling, general, and administrative expenses before we generate revenue for these products.

We may never generate the anticipated revenue if a customer cancels or otherwise changes its purchase plans, which could have an adverse effect on our business.

We are now confronting many of these risks as we gain traction in the Semiconductor market, which is often characterized by long customer qualification times, typically twelve to eighteen months.

Once qualified, the ramp to volume production can take an additional extended period of time, often twelve to twenty-four months.

During these periods, little to no revenue will be recognized by us, while we will continue to incur research and development costs.

Despite our efforts, our products may never be qualified and may never achieve design-tool-of-record (“DTOR”) or production-tool-of-record (“PTOR”) status, and our business, financial condition, and results of operations may be materially and adversely affected.

Our backlog is subject to customer cancellation or modification which could result in decreased sales, increased inventory obsolescence, and liabilities to our suppliers for products no longer needed.

Customer purchase orders may be cancelled or rescheduled by the customer, sometimes with limited or no penalties, which may result in increased or unrecoverable costs for the Company.

We adjust our backlog for such cancellations, contract modifications, and delivery delays that result in a delivery period in excess of one year, among other items.

A downturn in one or more of our businesses could result in an increase in order cancellations and postponements.

We write-off excess and obsolete inventory based on historical trends, future usage forecasts, and other factors including the amount of backlog we have on hand.

If our backlog is canceled or modified, our estimates of future product demand may prove to be inaccurate, in which case we may have understated the write-off required for excess and obsolete inventory.

In the future, if we determine that our inventory is overvalued, we will be required to recognize associated costs in our financial statements at the time of such determination.

In addition, we place orders with our suppliers based

on our customers’ orders.

If our customers cancel their orders with us, we may not be able to cancel our orders with our suppliers.

Any resulting charges could be materially adverse to our results of operations and financial condition.

We may be required to take impairment charges on assets.

We are required to assess goodwill and indefinite-lived intangible assets annually for impairment, or on an interim basis whenever certain events occur or circumstances change, such as an adverse change in business climate or a decline in the overall industry, that would more likely than not reduce the fair value below its carrying amount.

As part of our long term strategy, we may pursue future acquisitions of, or investments in, other companies or assets which could potentially increase our assets.

We are required to test certain of our assets, including acquired intangible assets, property, plant, and equipment, and equity investments without readily observable market prices, for recoverability and impairment whenever there are indicators of impairment such as an adverse change in business climate.

Adverse changes in business conditions or worse-than-expected performance by these acquired companies could negatively impact our estimates of future operations and result in impairment charges to these assets.

For example, in the fourth quarter of 2019 we recorded non-cash impairment charges of $25.0 million, primarily related to our equity investments without readily observable market prices.

If our assets are further impaired, our financial condition and results of operations could be materially and adversely affected.

We are exposed to risks associated with business combinations, acquisitions, strategic investments and divestitures.

We have completed several significant acquisitions and investments in the past and we will consider new opportunities in the future.

Acquisitions and investments involve numerous risks, many of which are unpredictable and beyond our control, including the following:

● difficulties and increased costs in integrating the personnel, operations, technologies, and products of acquired companies;

● diversion of management’s attention and disruption of ongoing businesses;

● the inability to complete proposed transactions as anticipated, resulting in obligations to pay professional and other expenses, including any applicable termination fees;

● potential loss of key employees of acquired companies, especially if a relocation or change in responsibilities is involved;

● difficulties in managing geographically dispersed operations in a cost-effective manner;

● the failure to realize expected synergies;

● unknown, underestimated, and undisclosed commitments or liabilities;

● increased amortization expenses relating to intangible assets;

● other adverse effects on our business, including the potential impairment and write-down of amounts capitalized as intangible assets and goodwill as part of the acquisition, as a result of such matters as technological advancements or worse-than-expected performance by the acquired company.

If we issue equity securities to pay for an acquisition or investment, the ownership percentage of our then-current shareholders would be reduced and the value of the shares held by these shareholders could be diluted, which could adversely affect the price of our stock.

If we use cash to pay for an acquisition or investment, the payment could significantly reduce the cash that would be available to fund our operations, pay our indebtedness, or be used for other purposes, which could have a negative effect on our business.

In addition, we continually assess the strategic fit of our businesses and may from time to time seek to divest portions of our Company that no longer fit our strategic plan.

Divestitures involve significant risks and uncertainties, including the ability to sell such businesses at satisfactory prices, on acceptable terms, and in a timely manner.

Divestitures may also disrupt other parts of our businesses, distract the attention of our management, result in a loss of key employees or

customers, and require that we allocate internal resources that would otherwise be devoted to operating our existing businesses.

Divestitures may expose us to unanticipated liabilities (including those arising from representations and warranties made to a buyer regarding the businesses) and to ongoing obligations to support the businesses following such divestitures, any and all of which could adversely affect our business, financial condition, and results of operations.

We have adopted certain measures that may have anti-takeover effects which may make an acquisition of our Company by another company more difficult.

We have adopted, and may in the future adopt, certain measures that may have the effect of delaying, deferring, or preventing a takeover or other change in control of our Company, which a holder of our common stock might not consider to be in the holder’s best interest.

These measures include:

● “blank check” preferred stock;

● a classified board of directors;

● certain other provisions appearing in our certificate of incorporation and bylaws.

Our board of directors has the authority to issue up to 500,000 shares of preferred stock and to fix the rights (including voting rights), preferences and privileges of these shares (“blank check” preferred).

Such preferred stock may have rights, including economic rights, senior to our common stock.

As a result, the issuance of the preferred stock could have a material adverse effect on the price of our common stock and could make it more difficult for a third party to acquire a majority of our outstanding common stock.

Our board of directors is divided into three classes with each class serving a staggered three-year term.

The existence of a classified board makes it more difficult for our shareholders to change the composition of our board of directors, and therefore the Company’s policies, in a relatively short period of time.

We have adopted certain certificate of incorporation and bylaws provisions which have anti-takeover effects.

These include:

(a) requiring certain actions to be taken at a meeting of shareholders rather than by written consent, (b) requiring a super-majority of shareholders to approve certain amendments to our bylaws, (c) limiting the maximum number of directors, and (d) providing that directors may be removed only for cause.

These measures and those described above may have the effect of delaying, deferring, or preventing a takeover or other change in control of our Company that a holder of our common stock may not consider to be in the holder’s best interest.

In addition, we are subject to the provisions of Section 203 of the General Corporation Law of the State of Delaware, which prohibits a Delaware corporation from engaging in any business combination, including mergers and asset sales, with an interested stockholder (generally, a 15% or greater stockholder) for a period of three years after the date of the transaction in which the person became an interested stockholder, unless the business combination is approved in a prescribed manner.

The operation of Section 203 may have anti-takeover effects, which could delay, defer, or prevent a takeover attempt that a holder of our common stock may not consider to be in the holder’s best interest.

Despite the above measures, an activist shareholder could undertake action to implement governance, strategic, or other changes to the Company which a holder of our common stock may not consider to be in the holder’s best interest.

Such activities could interfere with our ability to execute our strategic plans, be costly and time consuming, disrupt our operations, and divert the attention of management and our employees.

We may not have the ability to raise the funds necessary to settle for cash conversions of our 2.70% Convertible Senior Notes due 2023 (the “2023 Notes”), our 3.50% Convertible Senior Notes due 2025 (the “2025 Notes”), or our 3.75% Convertible Senior Notes due 2027 (the “2027 Notes”) (the 2023 Notes, 2025 Notes, and 2027 Notes, together, the “Notes”) or to repurchase the Notes for cash upon a fundamental change, and any future debt may contain limitations on our ability to pay cash upon conversion or repurchase of the Notes.

As of December 31, 2020, we had $131.7 million in principal amounts outstanding in 2023 Notes, $132.5 million in principal amounts outstanding in 2025 Notes, and $125.0 million in principal amounts outstanding in 2027 Notes.

Holders of the Notes will have the right to require us to repurchase all or any portion of their Notes upon the occurrence of a fundamental change before the maturity date at a fundamental change repurchase price equal to 100% of the principal amount of the Notes to be repurchased, plus accrued and unpaid interest, if any, to, but excluding, the fundamental change repurchase date, as described in the applicable Notes and indenture.

In addition, upon conversion of the Notes, unless we elect to deliver solely shares of our common stock to settle such conversion (other than paying cash in lieu of delivering any fractional share), we will be required to make cash payments in respect of the notes being converted.

However, we may not have enough available cash or be able to obtain financing at the time we are required to make repurchases of the Notes surrendered therefor or pay cash with respect to the Notes being converted.

In addition, our ability to repurchase or to pay cash upon conversion of the Notes may be limited by law, by regulatory authority or by agreements governing our indebtedness that exist at the time of repurchase or conversion.

Our failure to repurchase the Notes at a time when the repurchase is required by the respective indenture or to pay any cash upon conversion of the Notes as required by the respective indenture would constitute a default under the indenture for that series of convertible notes and could also lead to a default under the indenture for the other series of convertible notes.

A default under either indenture or the fundamental change itself could lead to a default under any of our future indebtedness.

If the payment of the related indebtedness were to be accelerated after any applicable notice or grace periods, we may not have sufficient funds to repay the indebtedness and repurchase the Notes or to pay cash upon conversion of the Notes.

The conditional conversion features of the 2023 Notes, 2025 Notes, and 2027 Notes, if triggered, may materially and adversely affect our financial condition and operating results.

In the event the conditional conversion features of the 2023 Notes, 2025 Notes, and 2027 Notes are triggered, holders of notes will be entitled to convert the notes at any time during specified periods at their option.

If one or more holders elect to convert the notes, unless we elect to satisfy our conversion obligation by delivering solely shares of our common stock (other than paying cash in lieu of delivering any fractional share), we would be required to settle a portion or all of our conversion obligation through the payment of cash, which could adversely affect our liquidity.

In addition, even if holders do not elect to convert the notes, we could be required under applicable accounting rules to reclassify all or a portion of the outstanding principal of the notes as a current rather than long-term liability, which could result in a material reduction of our net working capital.

The accounting method for convertible debt securities that may be settled in cash, such as the Notes, could have a material effect on our reported financial results.

Under Accounting Standards Codification 470-20, Debt with Conversion and Other Options , which we refer to as ASC 470-20, an entity must separately account for the liability and equity components of certain convertible debt instruments (such as the Notes) that may be settled entirely or partially in cash upon conversion in a manner that reflects the issuer’s economic interest cost.

The effect of ASC 470-20 on the accounting for the Notes is that the equity component is required to be included in the additional paid-in capital section of stockholders’ equity on our consolidated balance sheet at the issuance date, and the value of the equity component is treated as debt discount for purposes of accounting for the debt component of the Notes.

As a result, we are required to record a greater amount of non-cash interest expense as a result of the amortization of the discounted carrying value of the Notes to their face amount over the respective terms of the Notes.

We report lower net income (or higher net loss) in our financial results because ASC 470-20 requires interest to include both the amortization of the debt discount and the instrument’s coupon interest rate, which could adversely affect our financial results, the trading price of our common stock, and the trading price of the Notes.

In addition, under certain circumstances, including our ability and intent to settle the convertible debt instruments in cash, convertible debt instruments (such as the Notes) that may be settled entirely or partly in cash are currently accounted for utilizing the treasury stock method, the effect of which is that the shares issuable upon conversion of the Notes are not included in the calculation of diluted income per share except to the extent that the conversion value of the Notes exceeds their principal amount.

Under the treasury stock method, for diluted income per share purposes, the transaction is accounted for as if the number of shares of common stock that would be necessary to settle such excess, if we elected to settle such excess in shares, are issued.

We cannot be sure that we will meet the criteria to utilize the treasury stock method in the future.

If we are unable to utilize the treasury stock method, we would be required to apply

the if-converted method.

Under this method, diluted income per share would generally be calculated assuming that all the Notes were converted into shares of our common stock at the beginning of the reporting period, unless the result would be anti-dilutive.

If we are unable or otherwise elect not to use the treasury stock method in accounting for the shares issuable upon conversion of the Notes, then our diluted income per share could be adversely affected.

In August 2020, the FASB issued ASU 2020-06:

Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40):

Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity .

Under the standard, which will be effective for our fiscal year 2022, if not earlier adopted, an entity is no longer required to separately account for the liability and equity components of convertible debt instruments, such as those described above.

As a result, entities will account for a convertible debt instrument wholly as debt, unless certain other conditions are met.

The elimination of these seperation models will reduce non-cash interest expense, and thereby increasing net income (or reducing net loss) for entities that have issued a convertible instrument that was within the scope of those models before the adoption of ASU 2020-06.

Additionally, ASU 2020-06 requires the application of the if-converted method for calculating diluted earnings per share, and precludes the use of the treasury stock method for certain debt instruments, which could adversely affect our diluted net income (loss) per share.

We cannot be sure whether other changes may be made to the current accounting standards related to the Notes, or otherwise, that could have an adverse impact on our financial statements.

Issuance of our common stock, if any, upon conversion of the Notes, as well as the capped call transactions and the hedging activities of the option counterparties, may impair or reduce our ability to utilize our net operating loss carryforwards or our research and development credits carryforwards in the future.

Pursuant to U.S.

federal and state tax rules, a corporation is generally permitted to deduct from taxable income in any year net operating losses (“NOLs”) carried forward from prior years and to reduce from tax liabilities in any year R&D credits carried forward from prior years.

As of December 31, 2020, we had U.S.

federal NOL carryforwards of approximately $219.3 million, of which $6.9 million has an indefinite carryforward period, with the remaining expiring in varying amounts between 2034 and 2037, if not utilized.

We also had U.S.

federal R&D credits carryforwards of approximately $28.8 million expiring in varying amounts between 2021 and 2040.

If we were to experience a “change in ownership” under Section 382 of the Internal Revenue Code (“Section 382”), the NOL carry forward limitations under Section 382 would impose an annual limit on the amount of the future taxable income that may be offset by our NOLs generated prior to the change in ownership.

The R&D credits carry forward limitation under Section 383 of the Internal Revenue Code would impose an annual limit on the amount of tax liabilities that may be offset by R&D credits generated prior to the change in ownership.

If an ownership change were to occur, we may be unable to use a significant portion of our NOLs to offset future taxable income and/or a significant portion of R&D credits to offset future tax liabilities.

The shares of common stock, if any, issued upon conversion of the Notes will, upon such issuance, be taken into account when determining the cumulative change in our ownership for Section 382 purposes.

As a result, any conversion of the Notes that we elect to settle in shares may materially increase the risk that we could experience an ownership change in the future.

The capped call transactions may affect the value of the 2027 Notes and our common stock.

With respect to the 2027 Notes, we have entered into capped call transactions with certain option counterparties.

The capped call transactions were expected generally to reduce the potential dilution upon conversion of the 2027 Notes and/or offset any cash payments we are required to make in excess of the principal amount of converted 2027 Notes, as the case may be, with such reduction and/or offset subject to a cap.

The option counterparties or their affiliates may enter into or modify hedge positions by entering into or unwinding various derivatives with respect to our common stock and/or purchasing or selling our common stock or other securities of ours in secondary market transactions prior to the maturity of the 2027 Notes (and are likely to do so during any observation period related to a conversion of the 2027 Notes).

This activity could also cause or avoid an increase or a

decrease in the market price of our common stock and the 2027 Notes, which could affect the ability of the noteholders to convert the 2027 Notes and, to the extent the activity occurs during any observation period related to a conversion of the 2027 Notes, it could affect the number of shares and value of the consideration that noteholders will receive upon conversion of the 2027 Notes.

Risks Associated with Operating a Global Business

We are exposed to risks of operating businesses outside the United States.

Most of our sales are to customers located outside of the United States, and we expect sales from non-U.S.

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● reliance on various information systems and information technology to conduct our business, making us vulnerable to additional cyberattacks by third parties or breaches due to employee error, misuse, or other causes, that could result in further business disruptions, loss of or damage to our intellectual property and confidential information (and that of our customers and other business partners), reputational harm, transaction errors, processing inefficiencies, or other adverse consequences;

● regional economic downturns, varying foreign government support, unstable political environments, and other changes in foreign economic conditions (such as the United Kingdom’s planned departure from the European Union, commonly referred to as Brexit);

● the impact of public health epidemics on employees, suppliers, customers and the global economy, such as the recent outbreak of a novel strain of coronavirus first identified in Wuhan, Hubei Province, China;

● regional economic downturns, varying foreign government support, unstable political environments, and other changes in foreign economic conditions (such as the United Kingdom’s departure from the European Union, commonly referred to as Brexit);

● the impact of public health epidemics, such as the COVID-19 pandemic, on employees, suppliers, customers and the global economy;

● difficulties in managing a global enterprise, including staffing, managing distributors and representatives, and repatriating cash;

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and China have adversely affected, and may continue to adversely affect, our business, results of operations, and financial condition.

government has recently enacted changes in trade policy, including the imposition of tariffs on certain items, proposed tariffs on additional items, and new export controls.

On May 15, 2019, the President of the United States issued an Executive Order that authorized the creation and implementation of controls over transactions involving Chinese and possibly other entities involving threats to U.S.

national security.

On the same day, the U.S.

Commerce Department added Huawei (a multinational technology company with its headquarters in China) and many of its affiliates to the Entity List, which essentially requires U.S.

companies and others to obtain licenses before providing commodities, software, and technology subject to the regulations.

Further, the Trump Administration has expressed an intent to implement new regulations designed to address concerns about the export of emerging and foundational technologies to China, and additional controls on the export of items to China and other countries may be forthcoming.

While the United States and China signed a preliminary “Phase One” trade agreement in January 2020, many uncertainties remain.

These new tariffs, and other changes in U.S.

government has recently enacted several changes in trade policy which have adversely affected the Company’s ability to sell and service its products to and for customers located in China and in certain other countries.

These changes have included, without limitation, the elimination of license exception CIV, the addition of several companies to the U.S.

Commerce Department’s Entity List, and the implementation of new regulations governing the sale of equipment to

defined “Military End Users” and for defined “Military End Uses”.

The effect of these changes, among others, is that U.S.

companies are now required to obtain export licenses before providing commodities, software, and technology (that are subject to the regulations) to customers for whom licensing requirements did not previously apply.

The administrative processing, attendant delays and risk of ultimately not obtaining required export approvals pose a particular disadvantage to the Company relative to our non-U.S.

competitors who are not required to comply with U.S.

export controls.

This difficulty and uncertainty has adversely affected our ability to compete for and win business from customers in China.

Foreign customers affected by these and future U.S.

government sanctions or threats of sanctions may respond by developing their own solutions to replace our products or by utilizing our foreign competitors’ products.

This “trade war” with China, together with the prospect of additional governmental action related to international sanctions and tariffs, has adversely affected, and is likely to continue to adversely affect, demand for our products and the results of our operations and financial condition.

The changes in U.S.

trade policy and export controls, as well as sanctions imposed by the U.S.

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companies access to critical raw materials.

Also, China has provided, and is expected to continue to provide, significant assistance, financial and otherwise, to their domestic industries, including some of our competitors, and to intervene in support of national industries and/or competitors.

In addition, China has provided, and is expected to continue to provide, significant assistance, financial and otherwise, to its domestic industries, including some of our competitors.

We face increasing competition as a result of significant investment in the semiconductor industry by the Chinese government and various state-owned or affiliated entities that is intended to advance China's stated national policy objectives.

In addition, the Chinese government may restrict us from participating in the China market or may prevent us from competing effectively with Chinese companies.

A “trade war” of this nature or other governmental action related to tariffs or international trade agreements or policies has the potential to adversely affect demand for our products, our costs, customers, suppliers, and/or the U.S.

economy or certain sectors thereof and, in turn, may have a material adverse effect on our business, results of operations and financial condition.

Further, we hold inventory of products affected by the recent U.S.

government actions and there is uncertainty relating to the disposition of this inventory.

While we continue to take steps to mitigate our exposure to this developing situation, if the sale of these products is delayed or we are unable to return or dispose of our inventory on favorable economic terms, we may experience order cancellations, incur additional carrying costs for the inventory or otherwise record losses associated with the inventory.

In addition, we have experienced increasing difficulty and uncertainty in obtaining export licenses required to sell products to certain foreign customers.

Further, the U.S.

Bureau of Industry and Security (BIS) has indicated its intention to eliminate license exception CIV, which we utilize to facilitate the shipment of many of our products to customers in China.

Without this license exception, we will be required to obtain export licenses from BIS prior to shipment.

This would likely create delay and uncertainty, which would make our products less attractive to customers in China than competing products from suppliers in Europe and elsewhere which do not require an export license for shipment to China.

This difficulty and uncertainty has adversely affected our ability to compete for and win business from customers in these foreign jurisdictions.

Foreign customers affected by these and future U.S.

government sanctions or threats of sanctions may respond by developing their own solutions to replace our products or by utilizing our foreign competitors’ products.

Tariff and trade policy discussions between the U.S., China and its other trading partners are ongoing and fluid.

These tariffs and other policy changes are subject to a number of uncertainties as they are implemented.

The ultimate reaction of other countries and the individuals in each of these countries may have an adverse impact on the U.S.

and global economies, and our business, results of operations and financial condition.

Further, we hold inventory of products that may be affected by the recent U.S.

government actions, including potential order cancellations.

While we continue to take steps to mitigate our exposure to this developing situation, if the sale of these products is delayed or we are unable to return or dispose of our inventory on favorable economic terms, we may incur additional carrying costs for the inventory or otherwise record charges associated with this inventory.

We may be unable to obtain required export licenses for the sale of our products.

Whether with respect to sales to customers located in China or otherwise, products which (i) are manufactured in the United States, (ii) incorporate controlled U.S.

origin parts, technology, or software, or (iii) are based on U.S.

technology, are subject to the U.S.

Export Administration Regulations (“EAR”) when exported to and re-exported from international jurisdictions, in addition to the local jurisdiction’s export regulations applicable to individual shipments.

Currently, our MOCVD, MBE, laser annealing and certain other systems and products are controlled for export under the EAR.

Licenses or proper license exceptions may be required for the shipment of our products to certain customers or countries.

Obtaining an export license or determining whether an export license exception exists often requires considerable effort by us and cooperation from the customer, which can add time to the order fulfillment process.

We may be unable to obtain required export licenses or qualify for export license exceptions and, as a result, we may be unable to export products to our customers and/or meet their servicing needs.

Non-compliance with the EAR or other applicable export regulations could result in a wide range of penalties including the denial of export privileges, fines, criminal penalties, and the seizure of commodities.

In the event that an export regulatory body determines that any of our shipments violate applicable export regulations, we could be fined significant sums and our export capabilities could be restricted, which could have a material adverse impact on our business.

We are exposed to various risks associated with global regulatory requirements.

As a public company with global operations, we are subject to the laws of the United States and multiple foreign jurisdictions, and the rules and regulations of various governing bodies, which may differ among jurisdictions.

We are required to comply with legal and regulatory requirements pertaining to such matters as data privacy (including, for example, the European Union General Data Protection Regulation and similar laws), labor laws, immigration, customs, trade, taxes, corporate governance, conflict minerals and other social responsibility legislation, and antitrust regulations, among others.

These laws and regulations, which are ever-evolving and at times complex and inconsistent, impose costs on our business and divert management time and attention from revenue-generating activities.

Changes to or ambiguities in these laws and regulations may create uncertainty regarding our compliance requirements.

While we intend to invest

the required resources to comply with these regulatory requirements, if we are found by a court or regulatory agency to have failed in these efforts, our business, financial condition, and results of operations could be adversely affected.

We may be exposed to liabilities under the Foreign Corrupt Practices Act and other similar laws.

We are subject to the Foreign Corrupt Practices Act of 1977 (“FCPA”) and other laws that prohibit improper payments or offers of payments to foreign government officials, as defined by the statute, for the purpose of obtaining or retaining business.

Violations of the FCPA or similar laws or similar customer policies may result in severe criminal or civil sanctions or the loss of supplier privileges to a customer and we may be subject to other liabilities, which could negatively affect our business, financial condition, and results of operations.

Our operating results may be adversely affected by tightening credit markets.

As a global company with worldwide operations, we are subject to volatility and adverse consequences associated with economic downturns in different parts of the world.

In the event of a downturn, many of our customers may delay or reduce their purchases of our products and services.

If negative conditions in the credit markets prevent our customers from obtaining credit or necessary financing, product orders in these channels may decrease, which could result in lower revenue.

In addition, we may experience cancellations of orders in backlog, rescheduling of customer deliveries, and attendant pricing pressures.

If our suppliers face challenges in obtaining credit, in selling their products, or otherwise in operating their businesses, their ability to continue to supply materials to us may be negatively affected.

In addition, we finance some of our sales through trade credit.

In addition to ongoing credit evaluations of our customers’ financial condition, we seek to mitigate our credit risk by obtaining deposits and letters of credit on certain of our sales arrangements.

We could suffer significant losses if a customer whose accounts receivable we have not secured fails or is otherwise unable to pay us, or if financial institutions providing letters of credit become insolvent.

A loss in collections on our accounts receivable would have a negative impact on our financial condition and results of operations.

We are subject to foreign currency exchange risks.

We are exposed to foreign currency exchange rate risks that are inherent in our anticipated sales, purchase commitments, and assets and liabilities that are denominated in currencies other than the U.S.

Although we attempt to mitigate our exposure to fluctuations in currency exchange rates, hedging activities may not always be available or adequate to mitigate the impact of our exchange rate exposure.

Failure to sufficiently hedge or otherwise manage foreign currency risks properly could materially and adversely affect our financial condition, results of operations, and liquidity.

Risks Related to Intellectual Property and Cybersecurity

Disruptions in our information technology systems or data security incidents could result in significant financial, legal, regulatory, business, and reputational harm to us.

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Attacks of this nature are increasing in their frequency, levels of persistence, sophistication, and intensity, and are being conducted by sophisticated and organized groups and individuals with a wide range of expertise and motives (including industrial espionage), including organized criminal groups, nation states, and others.

In addition to the extraction of sensitive information, attacks could include the deployment of harmful malware, ransomware, or other means which could affect service reliability and threaten the confidentiality, integrity, and availability of information.

In addition to the extraction of

sensitive information, attacks could include the deployment of harmful malware, ransomware, or other means which could affect service reliability and threaten the confidentiality, integrity, and availability of information.

Significant disruptions in our, or our third-party vendors’, information technology systems or other data security incidents could adversely affect our business operations and result in the loss or misappropriation of, and unauthorized access to, sensitive information, which could result in financial, legal, regulatory, business, and reputational harm to us.

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We notified law enforcement of the attack and retained forensic experts to assist with the investigation.

It currently remains unclear whether we will be able to determine the extent of the breach or the potential impact on our operations.

Also unclear is whether we will be able to identify who is responsible for the attack, or whether we will be able to pursue legal action or other remedies.

The attack, including the expenses incurred to address it, may have an adverse effect on our results of operations and financial condition, may result in litigation, and may cause reputational harm.

While we are engaged in remediation and have implemented, and are continuing to implement, security measures intended to protect our information technology systems and infrastructure, there can be no assurance that such remediation and security measures will successfully prevent further security incidents.

We were not able to definitively determine the extent of the breach or the potential impact on our operations.

We also were not able to definitively identify who was responsible for the attack.

While we have engaged in remediation and implemented, and are continuing to implement, security measures intended to protect our information technology systems and infrastructure, there can be no assurance that such remediation and security measures will successfully prevent further security incidents.

Additional information technology system disruptions, whether from attacks on our technology environment or from computer viruses, natural disasters, terrorism, war or other causes, could result in a material disruption in our business operations, force us to incur significant costs and engage in litigation, harm our reputation, and subject us to liability under laws, regulations, and contractual obligations.

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and international patents and have additional pending patent applications relating to certain of our products and technologies.

The process of seeking patent protection is lengthy and expensive, and we cannot be certain that pending or future applications will actually result in issued patents or that issued patents will be of sufficient scope or strength to provide meaningful protection or commercial advantage.

In addition, our intellectual property rights may be circumvented,

invalidated, or rendered obsolete by the rapid pace of technological change, or through efforts by others to reverse engineer our products or design around patents that we own.

The process of seeking patent protection is lengthy and expensive, and we cannot be certain that pending or future applications will result in issued patents or that issued patents will be of sufficient scope or strength to provide meaningful protection or commercial advantage.

In addition, our intellectual property rights may be circumvented, invalidated, or rendered obsolete by the rapid pace of technological change, or through efforts by others to reverse engineer our products or design around patents that we own.

Policing unauthorized use of our products and technologies is difficult and time consuming and the laws of other countries may not protect our proprietary rights as fully or as readily as U.S.

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We also periodically receive notices from customers who believe that we are required to indemnify them for damages they may incur related to infringement claims made against these customers by third parties.

Our customary practice is to evaluate such assertions and to consider the available alternatives, including whether to seek a license, if appropriate.

Our customary practice is to evaluate such assertions and to consider the available alternatives, including

whether to seek a license, if appropriate.

However, we cannot ensure that licenses can be obtained or, if obtained, will be on acceptable terms or that costly litigation or other administrative proceedings will not occur.

If we are not able to resolve a claim, negotiate a settlement of the matter, obtain necessary licenses on commercially reasonable terms, or successfully prosecute and defend our position, our business, financial condition, and results of operations could be materially and adversely affected.

Risks Associated with Our Industry

We face significant competition.

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New product introductions or enhancements by us or our competitors could cause a decline in sales or loss of market acceptance of our existing or prior generation products.

Increased competitive pressure could also lead to intensified price competition resulting in lower margins.

To remain competitive, we may enter into strategic alliances with customers, suppliers, and other third parties to explore new market opportunities and possible technological advancements.

These alliances may require significant investments of capital and other resources and often involve the exchange of sensitive confidential information.

The success of these alliances may depend on factors over which we have limited control and will likely require ongoing cooperation and good faith efforts from our strategic partners.

Strategic alliances are inherently subject to significant risks, and the inability to effectively manage these risks could materially and adversely affect our business and operating results.

Increased competitive pressure could also lead to intensified price competition resulting in lower profit margins.

We operate in industries characterized by rapid technological change.

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Our ability to remain competitive depends on our ability to enhance existing products and develop and manufacture new products in a timely and cost effective manner and to accurately predict technology transitions.

New product development commitments must be made well in advance of sales, and we must anticipate the future demand for products when selecting which development programs to fund and pursue.

Our financial results depend on the successful introduction of new products, many of which require the achievement of increasingly stringent technical specifications.

We may not be successful in selecting, developing, manufacturing, and marketing new products and new technologies or in enhancing our existing products.

Our performance may be adversely affected if we are unable to accurately predict evolving market trends and related customer needs and to effectively allocate our resources among new and existing products and technologies.

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Factors that could influence the levels of spending on consumer electronic products include consumer confidence, access to credit, volatility in fuel and other energy costs, conditions in the residential real estate and mortgage markets, labor and healthcare costs, and other macroeconomic factors affecting consumer spending behavior.

These and other economic factors have had and could continue to have a material adverse effect on the demand for our customers’ products and, in turn, on our customers’ demand for our products and services.

The emergence of new or competing technologies may also affect demand for consumer electronic products.

These and other factors have had and could continue to have an adverse effect on the demand for our customers’ products and, in turn, on our customers’ demand for our products and services.

Furthermore, in the past, some of our customers have overestimated their potential for market share growth.

If this growth is overestimated, we may experience cancellations of orders in backlog, rescheduling of customer deliveries, obsolete inventory, and liabilities to our suppliers for products no longer needed.

In addition, the demand for our customers’ products can be even more volatile and unpredictable due to the possibility of competing technologies, such as flash memory as an alternative to HDDs.

Unpredictable fluctuations in demand for our customers’ products or rapid shifts in demand from our customers’ products to alternative technologies could materially and adversely impact our future results of operations.

We have a concentrated customer base, located primarily in a limited number of regions, which operates in highly concentrated industries.

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If a principal customer discontinues its relationship with us or suffers economic setbacks, our business, financial condition, and operating results could be materially and adversely affected.

Our ability to increase sales in the future will depend in part upon our ability to obtain orders from new customers and we cannot be certain that we will be successful in these

Our ability to increase sales in the future will depend in part upon our ability to obtain orders from new customers and we cannot be certain that we will be successful in these efforts.

In addition, because a relatively small number of large manufacturers, many of whom are our customers, dominate the industries in which they operate, it may be especially difficult for us to replace these customers if we lose their business.

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The cyclicality of the industries we serve directly affects our business.

Our business depends in large part upon the capital expenditures of manufacturers in our four key markets:

Front-End Semiconductor;

Advanced Packaging, MEMS & RF Filters;

LED Lighting, Display & Compound Semiconductor;

and Scientific & Industrial.

Our business depends in large part upon the capital expenditures of manufacturers in our four end-markets:

Semiconductor;

Compound Semiconductor;

Data Storage;

and Scientific & Other.

We are subject to the business cycles of these industries, the timing, length, and volatility of which are difficult to predict.

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Our net sales and operating results may be negatively affected if our customers experience economic downturns or slowdowns in their businesses.

The timing of our orders, shipments, and revenue recognition may cause our quarterly operating results to fluctuate significantly.

We derive a substantial portion of our net sales in any fiscal period from the sale of a relatively small number of high-priced systems.

As a result, the timing of recognition of revenue for a single transaction could have a material effect on our sales and operating results for a particular fiscal period.

As is typical in our industry, orders and shipments often occur during the last few weeks of a quarter.

As a result, a delay of only a week or two can impact which period revenue is reported and can cause volatility in our revenue for a given reporting period.

Our quarterly results have fluctuated significantly in the past and we expect this trend to continue.

If our orders, shipments, net sales, or operating results in a particular quarter do not meet expectations, our stock price may be adversely affected as well.

Our sales cycle is long and unpredictable.

It is not uncommon for our sales cycle to exceed twelve months.

The timing of an order often depends on our customer’s capital expenditure budget, over which we have no control.

In addition, the time it takes us to build a product to customer specifications typically

ranges from three to six months.

As a result of our lengthy sales cycles, we may incur significant research, development, selling, general, and administrative expenses before we generate revenue for these products.

We may never generate the anticipated revenue if a customer cancels or otherwise changes its purchase plans, which could have an adverse effect on our business.

We are now confronting many of these risks as we gain traction in the front-end semiconductor market, which is often characterized by long customer qualification times, typically twelve to eighteen months.

Once qualified, the ramp to volume production can take an additional extended period of time, often twelve to twenty-four months.

During these periods, little to no revenue will be recognized by us, while we will continue to incur research and development costs.

Customer purchase orders may be cancelled or rescheduled by the customer, sometimes with limited or no penalties, which may result in increased or unrecoverable costs for the Company.

We adjust our backlog for such cancellations, contract modifications, and delivery delays that result in a delivery period in excess of one year, among other items.

A downturn in one or more of our businesses could result in an increase in order cancellations and postponements.

We write-off excess and obsolete inventory based on historical trends, future usage forecasts, and other factors including the amount of backlog we have on hand.

In the future, if we determine that our inventory is overvalued, we will be required to recognize associated costs in our financial statements at the time of such determination.

In addition, we place orders with our suppliers based on our customers’ orders.

If our customers cancel their orders with us, we may not be able to cancel our orders with our suppliers.

Any such charges could be materially adverse to our results of operations and financial condition.

We may be unable to obtain required export licenses for the sale of our products.

Products which are either manufactured in the United States or based on U.S.

technology are subject to the U.S.

Currently, our MOCVD, MBE, and certain other systems and products are controlled for export under the EAR.

Licenses or proper license exceptions may be required for the shipment of our products to certain customers or countries (and, as noted above, the U.S.

Bureau of Industry and Security has indicated its intention to eliminate license exception CIV, which we currently utilize to facilitate the shipment of many of our products to customers in China).

We may be unable to obtain required export licenses or unable to qualify for export license exceptions and, as a result, we may be unable to export products to our customers and/or meet their servicing needs.

The administrative processing, potential delay and risk of ultimately not obtaining required export approvals pose a particular disadvantage to us relative to our non-U.S.

competitors who are not required to comply with U.S.

export controls.

Our operating results may be adversely affected by tightening credit markets.

As a global company with worldwide operations, we are subject to volatility and adverse consequences associated with economic downturns in different parts of the world.

In the event of a downturn, many of our customers may delay or reduce their purchases of our products and services.

If negative conditions in the credit markets prevent our customers from obtaining credit or necessary financing, product orders in these channels may decrease, which could result in lower revenue.

In addition, we may experience cancellations of orders in backlog, rescheduling of customer deliveries, and attendant pricing pressures.

In addition, we finance some of our sales through trade credit.

A loss in collections on our accounts receivable would have a negative impact on our financial condition and results of operations.

Our failure to estimate customer demand accurately could result in inventory obsolescence, liabilities to our suppliers for products no longer needed, and manufacturing interruptions or delays which could affect our ability to meet customer demand.

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● information technology or infrastructure failures;

● natural disasters such as earthquakes, tsunamis, floods, or storms;

● natural disasters such as earthquakes, tsunamis, fires, floods, or storms;

● other causes such as regional economic downturns, international trade disruptions, pandemics, political instability, terrorism, or acts of war, which could result in delayed deliveries, manufacturing inefficiencies, increased costs, or order cancellations.

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To better align our costs with market conditions, increase the percentage of variable costs relative to total costs, and to increase productivity and operational efficiency, we have outsourced certain functions to third parties, including the manufacture of several of our systems.

While we maintain some level of internal manufacturing capability for these systems, we rely on our outsourcing partners to perform their contracted functions to allow us flexibility to adapt to

changing market conditions, including periods of significantly diminished order volumes.

While we maintain some level of internal manufacturing capability for these systems, we rely on our outsourcing partners to perform their contracted functions to allow us flexibility to adapt to changing market conditions, including periods of significantly diminished order volumes.

If our outsourcing partners do not perform as required, or if our outsourcing efforts do not allow us to realize the intended cost savings and flexibility, our results of operations (and those of our third-party providers) may be adversely affected.

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Although we attempt to select reputable providers, one or more of these providers could fail to perform as we expect.

If we do not effectively manage our outsourcing efforts or if third party providers do not perform as anticipated, we may not realize the benefits of productivity improvements and we may experience operational difficulties, increased costs, manufacturing and installation interruptions or delays, inefficiencies in the structure and operation of our supply chain, loss of intellectual property rights, quality issues, increased product time-to-market, and an inefficient allocation of our human resources, any or all of which could materially and adversely affect our business, financial condition, and results of operations.

loss of intellectual property rights, quality issues, increased product time-to-market, and an inefficient allocation of our human resources, any or all of which could materially and adversely affect our business, financial condition, and results of operations.

We rely on a limited number of suppliers, some of whom are our sole source for particular components.

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Our inability to develop alternative sources, as necessary, could result in a prolonged interruption in our ability to supply related products, a failure on our part to meet the demands our customers, and a significant increase in the price of related products, which could adversely affect our business, financial condition, and results of operations.

General Risk Factors

The price of our common shares is volatile and could decrease.

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The trading price of our common shares has fluctuated significantly and could decline independent of the overall market, and shareholders could lose all or a substantial part of their investment.

The market price of our common shares could continue to fluctuate in response to several factors, including among others:

The market price of our common shares could continue to fluctuate in response to several factors, including those mentioned elsewhere in this section and, among others:

● difficult macroeconomic conditions, international trade disputes, unfavorable geopolitical events, and general stock market uncertainties, such as those occasioned by a global liquidity crisis and a failure of large financial institutions;

● the emergence of competitors and competing technologies;

● receipt of large orders or cancellations of orders for our products;

● issues associated with the performance of our products, or the performance of our internal systems such as our customer relationship management (“CRM”) system or our enterprise resource planning (“ERP”) system;

● actual or anticipated variations in our results of operations;

● announcements of financial developments or technological innovations;

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● changes in recommendations and financial estimates by investment research analysts, and decisions by investment research analysts to cease coverage of our company;

● strategic transactions, such as acquisitions, divestitures, and spin-offs, and the results of our investment decisions;

● our failure to successfully and timely implement cost reduction initiatives and restructuring activities, if and when required;

● delays or difficulties in satisfying internal control evaluations and attestation requirements of Section 404 of the Sarbanes Oxley Act of 2002;

● the commencement of, and rulings on, litigation and legal proceedings;

● the dilutive impact of our Convertible Senior Notes;

● the occurrence of major catastrophic events.

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These lawsuits, if and when brought, can result in substantial costs and a diversion of management’s attention and resources, which can adversely affect our financial condition, results of operations, and liquidity.

We may be required to take impairment charges on assets.

We maintain a single reporting unit, and as such, if our stock price decreases to the point where our fair value, as determined by our adjusted market capitalization, is less than the carrying value of our single reporting unit, this would also indicate a potential impairment, and we may be required to record an impairment charge in that period, which could adversely affect our results of operations.

Such an impairment charge was taken by the Company during the fourth quarter of 2018, in the amount of $122.8 million.

As part of our long term strategy, we may pursue future acquisitions of, or investments in, other companies or assets which could potentially increase our assets.

For example, during the second quarter of 2018, we recorded an asset impairment charge of $252.3 million related to the intangible assets acquired as part of our acquisition of Ultratech, Inc.

In addition, in the fourth quarter of 2019 we recorded asset impairment charges of $25.0 million, primarily related to our equity investments without readily observable market prices.

If our assets are further impaired, our financial condition and results of operations could be materially and adversely affected.

We are subject to risks of non-compliance with environmental, health, and safety regulations.

From a corporate governance perspective, there is an increasing focus on reducing energy usage and improving the environmental impact and sustainability associated with manufacturing operations.

In addition, we are subject to environmental, health, and safety regulations in connection with our business operations, including but not limited to

regulations related to the development, manufacture and use of our products, recycling and disposal of related materials, and the operation and use of our facilities and real property.

Failure or inability to comply with existing or future environmental, safety and sustainability standards and regulations could result in significant remediation liabilities, the imposition of fines, the suspension or termination of research, development, or use of certain of our products, and other harm to the Company, which could have a material adverse effect on our business, financial condition, and results of operations.

Aside from these potential adverse effects on our business operations, we are committed to ensuring safe

working conditions, treating our employees with dignity and respect, and sourcing, manufacturing, and distributing our

products in a responsible and environmentally friendly manner, and any failure on our part to do so may cause

reputational harm for the Company.

Furthermore, some of our operations involve the storage, handling, and use of hazardous materials that may pose a risk of fire, explosion, or environmental release.

Such events could result from acts of terrorism, natural disasters, or operational failures and may result in injury or loss of life to our employees and others, local environmental contamination, and property damage.

These events may cause a temporary shutdown of an affected facility, or portion thereof, and we could be subject to penalties or claims as a result.

Each of these events could have a material adverse effect on our business, financial condition, and results of operations.

Our inability to attract, retain, and motivate employees could have a material adverse effect on our business.

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We have entered into employment agreements with certain key personnel but our inability to attract, retain, and motivate key personnel could have a material adverse effect on our business, financial condition, and results of operations.

We are exposed to risks associated with business combinations, acquisitions, strategic investments and divestitures.

We have completed several significant acquisitions and investments in the past and we will consider new opportunities in the future.

Acquisitions and investments involve numerous risks, many of which are unpredictable and beyond our control, including the following:

● difficulties and increased costs in integrating the personnel, operations, technologies, and products of acquired companies;

● diversion of management’s attention and disruption of ongoing businesses;

● the inability to complete proposed transactions as anticipated, resulting in obligations to pay professional and other expenses, including any applicable termination fees;

● potential loss of key employees of acquired companies, especially if a relocation or change in responsibilities is involved;

● difficulties in managing geographically dispersed operations in a cost effective manner;

● the failure to realize expected synergies;

● unknown, underestimated, and undisclosed commitments or liabilities;

● increased amortization expenses relating to intangible assets;

In addition, we continually assess the strategic fit of our businesses and may from time to time seek to divest portions of our business that no longer fit our strategic plan, such as the potential sale of a non-core product line that was classified as held for sale as of December 31, 2019.

Divestitures involve significant risks and uncertainties, including the ability to sell such businesses at satisfactory prices, on acceptable terms, and in a timely manner.

Divestitures may also disrupt other parts of our businesses, distract the attention of our management, result in a loss of key employees or customers, and require that we allocate internal resources that would otherwise be devoted to operating our existing businesses.

We are subject to internal control evaluations and attestation requirements of Section 404 of the Sarbanes-Oxley Act and any delays or difficulties in satisfying these requirements or negative reports concerning our internal controls could adversely affect our future results of operations and our stock price.

Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, we must include in our Annual Report on Form 10-K a report by management on the effectiveness of our internal control over financial reporting.

Ongoing compliance with this requirement is complex, costly, time-consuming, and is subject to significant judgment.

If our internal controls are ineffective or if our management does not timely assess the adequacy of such internal controls, our ability to file timely and accurate periodic reports may be impeded.

Any delays in filing may cause us to face the following risks and concerns, among others:

● concern on the part of our customers, partners, investors, and employees about our financial condition and filing delay status, including the potential loss of business opportunities;

● significant time and expense required to complete delayed filings and the distraction of our senior management team and board of directors as we work to complete delayed filings;

● investigations by the SEC and other regulatory authorities of the Company and our management;

● limitations on our ability to raise capital or possible violations of existing debt covenants;

● suspension or termination of our stock listing on The NASDAQ Global Select Market and the removal of our stock as a component of certain stock market indices;

● general reputational harm.

Any or all of the foregoing could result in the commencement of stockholder lawsuits against the Company.

Any such litigation, as well as any proceedings that could arise as a result of a filing delay and the circumstances which gave rise to it, may be time consuming and expensive, may divert management attention from the conduct of our business, could have a material adverse effect on our business, financial condition, and results of operations, and may expose us to costly indemnification obligations to current or former officers, directors, or other personnel, regardless of the outcome of such matters, which may not be adequately covered by insurance.

Changes in accounting pronouncements or taxation rules or practices may adversely affect our financial results.

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In addition, our effective tax rate could increase if we determine that it is no longer more likely than not that we are able to realize our remaining net deferred tax assets, if we are unable to generate sufficient future taxable income in certain jurisdictions, or if we are otherwise required to increase our valuation allowances against our deferred tax assets.

We have indebtedness in the form of convertible senior notes which could adversely affect our financial position, prevent us from implementing our strategy, and dilute the ownership interest of our existing shareholders.

In January of 2017, we issued $345 million of 2.70% Convertible Senior Notes due 2023 (“Convertible Senior Notes”).

The Convertible Senior Notes are convertible into Company common stock at an initial conversion rate of 24.98 shares of Company common stock per $1,000 principal amount of the Convertible Senior Notes.

The Company is obligated to repurchase the Convertible Senior Notes upon the occurrence of certain events described in the indenture relating to the Convertible Senior Notes.

The degree to which we are leveraged could have negative consequences, including but not limited to the following:

● we may be more vulnerable to economic downturns, less able to withstand competitive pressures, and less flexible in responding to changing business and economic conditions;

● our ability to obtain additional financing in the future for working capital, capital expenditures, acquisitions, general corporate, and other purposes may be limited;

● a substantial portion of our cash flows from operations in the future may be required for the payment of the principal amount of our existing indebtedness when it becomes due;

● we may elect to make cash payments upon any conversion of the Convertible Senior Notes, which would reduce our cash on hand.

Our ability to meet our payment obligations under the Convertible Senior Notes depends on our ability to generate significant cash flow in the future.

This, to some extent, is subject to general economic, financial, competitive, legislative, regulatory, and other factors that are beyond our control.

There can be no assurance that our business will generate cash flow from operations, or that additional capital will be available to us, in an amount sufficient for us to meet our debt payment obligations and to fund other liquidity needs.

If we are unable to generate sufficient cash flow to service our debt obligations, we may need to refinance or restructure our debt, sell assets, reduce or delay capital investments, or seek to raise additional capital.

If we are unable to implement one or more of these alternatives, we may be unable to meet our debt payment obligations, which could have a material adverse effect on our business, results of operations, and financial condition.

Furthermore, if the Convertible Senior Notes are converted into shares of Company common stock, the issuance of additional shares of Company common stock would dilute the ownership interest of our existing shareholders and could have a dilutive effect on our net income per share to the extent that the price of our common stock exceeds the conversion price of the Convertible Senior Notes.

In addition, any sales in the public market of our common stock issuable upon conversion of the Convertible Senior Notes could adversely affect prevailing market prices of our common stock.

The accounting method for convertible debt securities that may be settled in cash, such as the Convertible Senior Notes, could have a material effect on our reported financial results.

Under Accounting Standards Codification 470-20, Debt with Conversion and Other Options (“ASC 470-20”), an entity must separately account for the liability and equity components of certain convertible debt instruments (such as the Convertible Senior Notes) that may be settled entirely or partially in cash upon conversion in a manner that reflects the issuer’s economic interest cost.

The effect of ASC 470-20 on the accounting for the Convertible Senior Notes is that the equity component is required to be included in the additional paid-in capital section of stockholders’ equity on our consolidated balance sheet, and the value of the equity component would be treated as original issue discount for purposes of accounting for the debt component of the Convertible Senior Notes.

As a result, we will be required to record a greater amount of non-cash interest expense in current periods presented as a result of the amortization of the discounted carrying value of the Convertible Senior Notes to their face amount over the term of the Convertible Senior Notes.

We will report lower net income in our financial results because ASC 470-20 will require interest to include both the current period’s amortization of the debt discount and the instrument’s coupon interest, which could adversely affect our financial results, the trading price of our common stock, and the trading price of the Convertible Senior Notes.

In addition, under certain circumstances, including our ability and intent to settle the convertible debt instruments in cash, convertible debt instruments (such as the Convertible Senior Notes) that may be settled entirely or partly in cash can be accounted for utilizing the treasury stock method, the effect of which is that the shares issuable upon conversion of the Convertible Senior Notes are not included in the calculation of diluted income per share except to the extent that the conversion value of the Convertible Senior Notes exceeds their principal amount.

We cannot be sure that we will meet the criteria to utilize the treasury stock method in the future.

If we are unable to utilize the treasury stock method, we would be required to apply the if-converted method.

Under that method, diluted income per share would generally be calculated assuming that all the Convertible Senior Notes were converted solely into shares of our common stock at the beginning of the reporting period, unless the result would be anti-dilutive.

If we are unable or otherwise elect not to use the treasury stock method in accounting for the shares issuable upon conversion of the Convertible Senior Notes, then our diluted income per share would be adversely affected.

In July 2019, the FASB issued an exposure draft that proposes to change the accounting for convertible debt instruments, such as the Convertible Senior Notes.

Under the exposure draft, an entity may no longer be required to separately account for the liability and equity components of convertible debt instruments.

This could have the impact of reducing non-cash interest expense, and thereby increasing net income.

Additionally, as currently proposed, the treasury stock method for calculating earnings per share will no longer be allowed for convertible debt instruments whose principal amount may be settled using shares.

Rather, the if-converted method may be required, which would adversely affect our diluted net income per share.

We cannot be sure that the proposed changes in this exposure draft will be adopted, or will be adopted in their current format.

We also cannot be sure whether other changes may be made to the current accounting standards related to the Convertible Senior Notes, or otherwise, that could have an adverse impact on our financial statements.

We are subject to foreign currency exchange risks.

We are exposed to foreign currency exchange rate risks that are inherent in our anticipated sales, sales and purchase commitments, and assets and liabilities that are denominated in currencies other than the U.S.

Failure to sufficiently hedge or otherwise manage foreign currency risks properly could materially and adversely affect our financial condition, results of operations, and liquidity.

We have adopted certain measures that may have anti-takeover effects which may make an acquisition of our Company by another company more difficult.

These measures include:

● “blank check” preferred stock;

● a classified board of directors;

● certain other provisions appearing in our certificate of incorporation and bylaws.

Such preferred stock may have rights, including economic rights, senior to our common stock.

Our board of directors is divided into three classes with each class serving a staggered three-year term.

We have adopted certain certificate of incorporation and bylaws provisions which have anti-takeover effects.

These include:

Such activities could interfere with our ability to execute our strategic plans, be costly and time consuming, disrupt our operations, and divert the attention of management and our employees.

We are exposed to various risks associated with global regulatory requirements.

These laws and regulations, which are ever-evolving and at times complex and inconsistent, impose costs on our business and divert management time and attention from revenue-generating activities.

Changes to or ambiguities in these laws and regulations may create uncertainty regarding our compliance requirements.

While we intend to invest the required resources to comply with these regulatory requirements, if we are found by a court or regulatory agency to have failed in these efforts, our business, financial condition, and results of operations could be adversely affected.

We may be exposed to liabilities under the Foreign Corrupt Practices Act and other similar laws.

In addition, many of our customers have policies limiting or prohibiting us from providing certain types or amounts of entertainment, meals, or gifts to their employees.

It is our policy to implement safeguards to discourage these practices by our employees and representatives.

However, our safeguards may prove to be ineffective and our employees, consultants, sales agents, or distributors may engage in conduct for which we may be held responsible.

In addition, we may acquire a company that has engaged in unlawful conduct in the past, and be held responsible for this conduct through successor liability principles.

We are subject to risks of non-compliance with environmental, health, and safety regulations.

From a corporate governance perspective, there is an increasing focus on reducing energy usage and improving the environmental impact and sustainability associated with manufacturing operations.

In addition, we are subject to environmental, health, and safety regulations in connection with our business operations, including but not limited to regulations related to the development, manufacture and use of our products, recycling and disposal of related materials, and the operation and use of our facilities and real property.

Furthermore, some of our operations involve the storage, handling, and use of hazardous materials that may pose a risk of fire, explosion, or environmental release.

These events may cause a temporary shutdown of an affected facility, or portion thereof, and we could be subject to penalties or claims as a result.

Each of these events could have a material adverse effect on our business, financial condition, and results of operations.

We have significant operations in locations which could be materially and adversely impacted in the event of a natural disaster, an act of terrorism, or other significant disruption.

Our operations in the United States, in the Asia-Pacific region, and in other areas could be subject to natural disasters or other significant disruptions, including earthquakes, tsunamis, fires, hurricanes, floods, water shortages, other extreme weather conditions, medical epidemics and severe outbreaks (such as coronavirus), power shortages and blackouts, telecommunications failures, and other natural and manmade disasters or disruptions.

In the event of such a natural disaster or other disruption, we could experience disruptions or interruptions to our operations and to the operations of our suppliers, distributors, resellers and customers, destruction of facilities and loss of life, all of which could materially increase our costs and expenses and materially and adversely affect our business, financial condition, and results of operations.

In addition, various regions of the world in which we do business are subject to the threat of terrorism and acts of war.

Any act of terrorism or war that affects the economy or the industries in which we operate could result in significant harm to us, including the loss of life and property, manufacturing and transportation delays, disruptions in our supply chain, the need to comply with enhanced security measures, and other increased costs.

Unresolved Staff Comments

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