What changed in this filing

/stocks — the workspaceLOADING

Item 1A. Risk Factors

2020-08-19 compared with 2019-08-21 · 185 added, 157 removed, 270 unchanged (56% of the section changed)

1 unchanged sentence

If any of the risks described below actually occurs, our business, financial condition or results of operations could be materially and adversely affected.

Our financial condition and results of operations for fiscal 2021 and future periods may be adversely affected by the recent COVID-19 outbreak or other outbreak of infectious disease or similar public health threat.

COVID-19 continues to spread globally and has resulted in authorities implementing numerous measures to try to contain the virus, such as travel bans and restrictions, quarantines, shelter in place orders, and shutdowns.

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

We have significant manufacturing operations in the United States and China, and each of these countries has been affected by the outbreak and taken measures to try to contain it.

We have experienced some limited disruptions in supply from some of our suppliers, although the disruptions to date have not been significant.

Additionally, we have experienced a shift in customer demand.

There is considerable uncertainty regarding such measures and potential future measures.

Restrictions on access to our manufacturing facilities or on our support operations or workforce, or similar limitations for our vendors and suppliers, and restrictions or disruptions of transportation, such as reduced availability of air transport, port closures, and increased border controls or closures, could limit our capacity to meet customer demand, lead to increased costs and have a material adverse effect on our financial condition and results of operations.

The outbreak has significantly increased economic and demand uncertainty.

These uncertainties also make it more difficult for us to assess the quality of our product order backlog and to estimate future financial results.

The current outbreak of COVID-19 has caused an economic slowdown, and it is increasingly likely that its continued spread will lead to a global recession, which could have a material adverse effect on demand for our products and on our financial condition and results of operations.

The spread of COVID-19 has caused us to modify our business practices (including employee travel, employee work locations, and cancellation of physical participation in meetings, events, and conferences), and we may take further actions as may be required by government authorities or that we determine are in the best interests of our employees, customers, partners, and suppliers.

There is no certainty that such measures will be sufficient to mitigate the risks posed by the virus, and our ability to perform critical functions could be harmed.

In addition, in light of concerns about the spread of COVID-19, our workforce has at times been operating at reduced levels at our manufacturing facilities, which may continue to have an adverse impact on our ability to timely meet future customer orders.

The duration of the business disruption and related financial impact cannot be reasonably estimated at this time.

However, it may materially affect our ability to obtain raw materials, manage customer credit risk, manufacture products or deliver inventory in a timely manner, and it also may impair our ability to meet customer demand for products, result in lost sales, additional costs, or penalties, or damage our reputation.

The extent to which COVID-19 or any other health epidemic will further impact our results will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of COVID-19 and the actions to contain COVID-19 or treat its impact, among others.

Our operating results are substantially dependent on the acceptance of new products.

Our future success may depend on our ability to deliver new, higher performing and/or lower cost solutions for existing and new markets and for customers to accept those solutions.

We must introduce new products in a timely and cost-effective manner, and we must secure volume purchase orders for those products from our customers.

The development of new products is a highly complex process, and we have in some instances experienced delays in completing the development, introduction and qualification of new products which has impacted our results in the past.

1 unchanged sentence

The successful development, introduction and acceptance of new products depend on a number of factors, including the following:

• our ability to introduce new products in a timely and cost-effective manner;

• our ability to secure volume purchase orders related to new products;

• qualification and acceptance of our new product and systems designs, specifically entering into automotive applications which require even more stringent levels of qualification and standards;

• achievement of technology breakthroughs required to make commercially viable products;

1 unchanged sentence

• our ability to predict, influence and/or react to evolving standards;

qualification and acceptance of our new product and systems designs, specifically entering into automotive applications which require even more stringent levels of qualification and standards;

• acceptance of new technology in certain markets;

• our ability to protect intellectual property developed in new products;

• the availability of qualified research and development personnel;

8 unchanged sentences

In order to manage our growth and business strategy effectively relative to the uncertain pace of adoption, we must continue to:

maintain, expand, construct and purchase adequate manufacturing facilities and equipment, as well as secure sufficient third-party manufacturing resources, to meet customer demand, including specifically the expansion of our SiC capacity with the construction of a state-of-the-art, automated 200mm capable SiC and GaN fabrication facility and a large materials factory;

• maintain, expand, construct and purchase adequate manufacturing facilities and equipment, as well as secure sufficient third-party manufacturing resources, to meet customer demand, including specifically the expansion of our silicon carbide capacity with the construction of a state-of-the-art, automated 200mm capable silicon carbide fabrication facility and a large materials factory;

• manage an increasingly complex supply chain that has the ability to supply an increasing number of raw materials, subsystems and finished products with the required specifications and quality, and deliver on time to our manufacturing facilities, our third-party manufacturing facilities, or our logistics operations;

expand the capability of information systems to support a more complex business;

• expand the capability of our information systems to support a more complex business, such as our current initiative to upgrade our company-wide enterprise resource planning (ERP) system;

• be successful in the qualification and acceptance of our new product and systems designs, including those entering into automotive applications which require even more stringent levels of qualification and standards;

• expand research and development, sales and marketing, technical support, distribution capabilities, manufacturing planning and administrative functions;

• safeguard confidential information and protect our intellectual property;

• manage organizational complexity and communication;

4 unchanged sentences

While we intend to continue to focus on managing our costs and expenses, we expect to invest to support our growth and may have additional unexpected costs.

Such investments take time to become fully operational, and we may not be able to expand

quickly enough to exploit targeted market opportunities.

Such investments take time to become fully operational, and we may not be able to expand quickly enough to exploit targeted market opportunities.

For example, we continue converting the majority of our Wolfspeed power production from 100mm to 150mm substrates.

If we are unable to make this transition in a timely or cost-effective manner, our results could be negatively impacted.

If we are unable to complete this transition in a timely or cost-effective manner, our results could be negatively impacted.

In connection with our efforts to cost-effectively manage our growth, we have increasingly relied on contractors for production capacity, logistics support and certain administrative functions including hosting of certain information technology software applications.

2 unchanged sentences

Our operations may also be negatively impacted if any of these contract manufacturers, ODMs or other service providers do not have the financial capability to meet our growing needs.

There are also inherent execution risks in starting up a new factory or expanding production capacity, whether one of our own factories or that of our contract manufacturers or ODMs, or moving production to different contract manufacturers or ODMs, that could increase costs and reduce our operating results, including design and construction cost overruns, poor production process yields and reduced quality control.

In September 2019, we announced the intent to build the new fabrication facility in Marcy, New York to complement the factory expansion underway at our United States campus headquarters in Durham, North Carolina.

The establishment and operation of a new manufacturing facility or expansion of an existing facility involves significant risks and challenges, including, but not limited to, the following:

• design and construction delays and cost overruns;

• issues in installing and qualifying new equipment and ramping production;

• poor production process yields and reduced quality control;

• insufficient personnel with requisite expertise and experience to operate a fabrication facility.

We are also increasingly dependent on information technology to enable us to improve the effectiveness of our operations and to maintain financial accuracy and efficiency.

2 unchanged sentences

If we fail to evaluate and execute strategic opportunities successfully, our business may suffer.

From time to time, we evaluate strategic opportunities available to us for product, technology or business transactions, such as business acquisitions, investments, joint ventures, divestitures, or spin-offs.

For example, during the first quarter of fiscal 2018 we formed Cree Venture LED, a joint venture between San'an and us to produce and supply to customers high-performance mid-power LED components, in the third quarter of fiscal 2018, we acquired the Infineon RF Power business and in the fourth quarter of fiscal 2019, we completed the sale of our Lighting Products business unit to IDEAL.

From time to time, including the present, we evaluate strategic opportunities available to us for product, technology or business transactions, such as business acquisitions, investments, joint ventures, divestitures, or spin-offs.

For example, in the third quarter of fiscal 2018, we acquired the Infineon RF Power business and in the fourth quarter of fiscal 2019, we completed the sale of our Lighting Products business unit to IDEAL.

If we choose to enter into such transactions, we face certain risks including:

13 unchanged sentences

We may not be able to adequately address these risks or any other problems that arise from our prior or future acquisitions, investments, joint ventures, divestitures or spin-offs.

Any failure to successfully evaluate strategic opportunities and address risks or other problems that arise related to any such business transaction could adversely affect our business, results of operations or

financial condition.

Variations in our production could impact our ability to reduce costs and could cause our margins to decline and our operating results to suffer.

All of our products are manufactured using technologies that are highly complex.

The number of usable items, or yield, from our production processes may fluctuate as a result of many factors, including but not limited to the following:

• variability in our process repeatability and control;

• contamination of the manufacturing environment;

• equipment failure, power outages, fires, flooding, information or other system failures or variations in the manufacturing process;

• lack of consistency and adequate quality and quantity of piece parts, other raw materials and other bill of materials items;

• inventory shrinkage or human errors;

• defects in production processes (including system assembly) either within our facilities or at our suppliers;

• any transitions or changes in our production process, planned or unplanned.

In the past, we have experienced difficulties in achieving acceptable yields on certain products, which has adversely affected our operating results.

We may experience similar problems in the future, and we cannot predict when they may occur or their severity.

In some instances, we may offer products for future delivery at prices based on planned yield improvements or increased cost efficiencies from other production advances.

Failure to achieve these planned improvements or advances could have a significant impact on our margins and operating results.

In addition, our ability to convert volume manufacturing to larger diameter substrates can be an important factor in providing a more cost-effective manufacturing process.

We continue converting the majority of our Wolfspeed power production from 100mm to 150mm substrates.

If we are unable to make this transition in a timely or cost-effective manner, our results could be negatively impacted.

Global economic conditions could materially adversely impact demand for our products and services.

1 unchanged sentence

Uncertainty about global economic conditions could result in customers postponing purchases of our products and services in response to tighter credit, unemployment, negative financial news and/or declines in income or asset values and other macroeconomic factors, which could have a material negative effect on demand for our products and services and, accordingly, on our business, results of operations or financial condition.

For example, any economic and political uncertainty caused by the United States tariffs imposed on goods from China, among other potential countries, and any corresponding tariffs from China or such other countries in response, may negatively impact demand and/or increase the cost for our products.

For example, any economic and political uncertainty caused by the United States tariffs imposed on goods from China, among other potential countries, and any corresponding tariffs or currency devaluations from China or such other countries in response, has, and may in the future, negatively impact demand and/or increase the cost for our products.

Additionally, our international sales are subject to variability as our selling prices become less competitive in countries with currencies that are declining in value against the U.S.

2 unchanged sentences

Dollar weakens against the foreign currencies in which we are billed.

Our results of operations, financial condition and business could be harmed if we are unable to balance customer demand and capacity.

As customer demand for our products changes, we must be able to adjust our production capacity to meet demand.

We are continually taking steps to address our manufacturing capacity needs for our products.

If we are not able to increase or decrease our production capacity at our targeted rate or if there are unforeseen costs associated with adjusting our capacity levels, we may not be able to achieve our financial targets when our factories are underutilized.

We may be unable to build or qualify new capacity on a timely basis to meet customer demand and customers may fulfill their orders with one of our competitors instead.

In addition, as we introduce new products and change product generations, we must balance the production and inventory of prior generation products with the production and inventory of new generation products, whether manufactured by us or our contract manufacturers, to maintain a product mix that will satisfy customer demand and mitigate the risk of incurring cost write-downs on the previous generation products, related raw materials and tooling.

Due to the proportionately high fixed cost nature of our business (such as facility costs), if demand does not materialize at the rate forecasted, we may not be able to scale back our manufacturing expenses or overhead costs to correspond to the demand.

This could result in lower margins and adversely impact our business and results of operations.

Additionally, if product demand decreases or we fail to forecast demand accurately, our results may be adversely impacted due to higher costs resulting from lower factory utilization, causing higher fixed costs per unit produced.

Further, we may be required to recognize impairments on our long-lived assets or recognize excess inventory write-off charges, or excess capacity charges, which would have a negative impact on our results of operations.

In addition, our efforts to improve quoted delivery lead-time performance may result in corresponding reductions in order backlog.

A decline in backlog levels could result in more variability and less predictability in our quarter-to-quarter net revenue and operating results.

We are subject to risks related to international sales and purchases.

2 unchanged sentences

We also purchase a portion of the materials included in our products from overseas sources.

Our international sales and purchases are subject to numerous U.S.

and foreign laws and regulations, including, without limitation, tariffs, trade sanctions, trade barriers, trade embargoes, regulations relating to import-export control, technology transfer restrictions, the International Traffic in Arms Regulation promulgated under the Arms Export Control Act, the Foreign Corrupt Practices Act and the anti-boycott provisions of the U.S.

Our international sales and purchases are subject to numerous United States and foreign laws and regulations, including, without limitation, tariffs, trade sanctions, trade barriers, trade embargoes, regulations relating to import-export control, technology transfer restrictions, the International Traffic in Arms Regulation promulgated under the Arms Export Control Act, the Foreign Corrupt Practices Act and the anti-boycott provisions of the U.S.

Export Administration Act.

2 unchanged sentences

and 68 of its affiliates (collectively, “Huawei”) to the “Entity List” maintained by the U.S.

Department of Commerce, which imposes limitations on the supply of certain U.S.

items and product support to Huawei.

Department of Commerce, which imposes limitations on the supply of certain United States items and product support to Huawei.

To comply with the Entity List restrictions, we suspended shipments of all products to Huawei and cannot predict when we will be able to resume such shipments, which has reduced our revenue and profit in at least the near term and increased our inventories of product intended for Huawei.

Government maintains the restrictions on Huawei or imposes restrictions on sales to other foreign customers, it will reduce company revenue and profit related to that customer at least in the short term and could have a potential longer-term impact.

Government maintains the restrictions on Huawei or imposes restrictions on sales to other foreign customers, as it did in October 2019 with the addition of 28 new companies to the Entity List, it will reduce company revenue and profit related to those customers at least in the short term and could have a potential longer-term impact.

In the second quarter of fiscal 2020, we recorded an $8.3 million reserve on inventory manufactured for Huawei.

Additionally, like many global manufacturers, we continue to address the short-term and potential long-term impact of the United States tariffs imposed on Chinese goods and corresponding Chinese tariffs in response.

1 unchanged sentence

International sales and purchases are also subject to a variety of other risks, including risks arising from currency fluctuations, collection issues and taxes.

We have entered and may in the future enter into foreign currency derivative financial instruments in an effort to manage or hedge some of our foreign exchange rate risk.

We have entered into and may in the future enter into foreign currency derivative financial instruments in an effort to manage or hedge some of our foreign exchange rate risk.

We may not be able to engage in hedging transactions in the future, and, even if we do, foreign currency fluctuations may still have a material adverse effect on our results of operations.

We are subject to a number of risks associated with the recently completed sale of the Lighting Products business unit, and these risks could adversely impact our operations, financial condition and business.

On May 13, 2019, we closed the sale of our former Lighting Products business unit to IDEAL.

We are subject to a number of risks associated with this transaction, including risks associated with:

the operation of our retained businesses without the Lighting Products business unit;

the restrictions on and obligations with respect to our remaining businesses following closing set forth in the transition services agreement and the LED supply agreement, in each case between us and IDEAL, including the need to provide transition services in connection with the transaction, which may result in the diversion of resources and focus from our remaining businesses;

issues, delays, complications and/or additional costs associated with the transition of the operations, systems, technology infrastructure and data, third-party contracts, and personnel of the Lighting Products business unit and provision of transition services, each, as applicable, within the term of the transition services agreement;

any required payments of indemnification obligations under the Purchase Agreement for retained liabilities and breaches of representations, warranties or covenants;

our failure to realize the full purchase price anticipated under the Purchase Agreement, including the ability of the Lighting Products business unit to generate adjusted EBITDA in the third year post-closing sufficient to result in payment of the targeted earnout or any earnout payment.

As a result of these risks, we may be unable to realize the anticipated benefits of the transaction, including the total amount of cash we expect to realize.

Our failure to realize the anticipated benefits of the transaction would adversely impact our operations, financial condition and business and could limit our ability to pursue additional strategic transactions.

Our operations in foreign countries expose us to certain risks inherent in doing business internationally, which may adversely affect our business, results of operations or financial condition.

4 unchanged sentences

• tariffs, customs, trade sanctions, trade embargoes and other barriers to importing/exporting materials and products in a cost-effective and timely manner, or changes in applicable tariffs or custom rules;

the burden of complying with and changes in U.S.

or international taxation policies;

• the burden of complying with and changes in United States or international taxation policies;

• timing and availability of export licenses;

1 unchanged sentence

• disruptions in or inadequate infrastructure of the countries where we operate;

• the impact of public health epidemics on employees and the global economy, such as COVID-19;

• difficulties in collecting accounts receivable;

1 unchanged sentence

• the burden of complying with foreign and international laws and treaties.

For example, the United States tariffs imposed on Chinese goods, among other potential countries and any corresponding tariffs from China or such other countries in response may negatively impact demand and/or increase the costs for our products.

In some instances, we have received and may continue to receive incentives from foreign governments to encourage our investment in certain countries, regions or areas outside of the United States.

For example, the United States tariffs imposed on Chinese goods, among other potential countries and any corresponding tariffs from China or such other countries in response has, and may in the future, negatively impact demand and/or increase the costs for our products.

In some instances, we have received and may continue to receive incentives from foreign governments to

encourage our investment in certain countries, regions or areas outside of the United States.

In particular, we have received and may continue to receive such incentives in connection with our operations in Asia, as Asian national and local governments seek to encourage the development of the technology industry.

7 unchanged sentences

The industries we serve are in different stages of adoption and are characterized by constant and rapid technological change, rapid product obsolescence and price erosion, evolving standards, short product life-cycles in the case of the LED industry and fluctuations in product supply and demand.

The power, RF, and LED industries have experienced significant fluctuations, often in connection with, or in anticipation of, product cycles and changes in general economic conditions.

The power, RF, and LED industries have experienced, and may in the future experience, significant fluctuations, often in connection with, or in anticipation of, product cycles and changes in general economic conditions.

The semiconductor industry is characterized by rapid technological change, high capital expenditures, short product life cycles and continuous advancements in process technologies and manufacturing facilities.

As the markets for our products mature, additional fluctuations may result from variability and consolidations within the industry’s customer base.

These fluctuations have been characterized by lower product demand, production overcapacity, higher inventory levels and increased pricing pressure as currently experienced in the LED market.

These fluctuations have also been characterized by higher demand for key components and equipment used in, or in the manufacture of,

our products resulting in longer lead times, supply delays and production disruptions.

These fluctuations have been characterized by lower product demand, production overcapacity, higher inventory levels and increased pricing pressure as currently seen in the LED market.

These fluctuations have also been characterized by higher demand for key components and equipment used in, or in the manufacture of, our products resulting in longer lead times, supply delays and production disruptions.

We have experienced these conditions in our business and may experience such conditions in the future, which could have a material negative impact on our business, results of operations or financial condition.

In addition, as we diversify our product offerings and as pricing differences in the average selling prices among our product lines widen, a change in the mix of sales among our product lines may increase volatility in our revenue and gross margin from period to period.

Our results of operations, financial condition and business could be harmed if we are unable to balance customer demand and capacity.

As customer demand for our products changes, we must be able to adjust our production capacity to meet demand.

We are continually taking steps to address our manufacturing capacity needs for our products.

For example, while our utilization in Wolfspeed remains high, our LED capacity is currently underutilized.

We may be unable to build or qualify new capacity on a timely basis to meet customer demand and customers may fulfill their orders with one of our competitors instead.

This could result in lower margins and adversely impact our business and results of operations.

In addition, our efforts to improve quoted delivery lead-time performance may result in corresponding reductions in order backlog.

A decline in backlog levels could result in more variability and less predictability in our quarter-to-quarter net revenue and operating results.

If we are unable to effectively develop, manage and expand our sales channels for our products, our operating results may suffer.

13 unchanged sentences

Our distributors have the ability to shift business to different suppliers within their product portfolio based on a number of factors, including customer service and new product availability.

If we are unable to effectively penetrate these channels or develop alternate channels to ensure our products are reaching the intended customer base, our financial results may be adversely

If we are unable to effectively penetrate these channels or develop alternate channels to ensure our products are reaching the intended customer base, our financial results may

be adversely impacted.

In addition, if we successfully penetrate or develop these channels, we cannot guarantee that customers will accept our products or that we will be able to manufacture and deliver them in the timeline established by our customers.

Variations in our production could impact our ability to reduce costs and could cause our margins to decline and our operating results to suffer.

All of our products are manufactured using technologies that are highly complex.

The number of usable items, or yield, from our production processes may fluctuate as a result of many factors, including but not limited to the following:

variability in our process repeatability and control;

contamination of the manufacturing environment;

equipment failure, power outages, fires, flooding, information or other system failures or variations in the manufacturing process;

lack of consistency and adequate quality and quantity of piece parts, other raw materials and other bill of materials items;

inventory shrinkage or human errors;

defects in production processes (including system assembly) either within our facilities or at our suppliers;

any transitions or changes in our production process, planned or unplanned.

In the past, we have experienced difficulties in achieving acceptable yields on certain products, which has adversely affected our operating results.

We may experience similar problems in the future, and we cannot predict when they may occur or their severity.

In some instances, we may offer products for future delivery at prices based on planned yield improvements or increased cost efficiencies from other production advances.

Failure to achieve these planned improvements or advances could have a significant impact on our margins and operating results.

In addition, our ability to convert volume manufacturing to larger diameter substrates can be an important factor in providing a more cost-effective manufacturing process.

We continue converting the majority of our Wolfspeed power production from 100mm to 150mm substrates.

If we are unable to make this transition in a timely or cost-effective manner, our results could be negatively impacted.

We rely on a number of key sole source and limited source suppliers and are subject to high price volatility on certain commodity inputs, variations in parts quality, and raw material consistency and availability.

We depend on a number of sole source and limited source suppliers for certain raw materials, components, services and equipment used in manufacturing our products, including key materials and equipment used in critical stages of our manufacturing processes.

Although alternative sources generally exist for these items, qualification of many of these alternative sources could take up to six months or longer.

Where possible, we attempt to identify and qualify alternative sources for our sole and limited source suppliers.

We generally purchase these sole or limited source items with purchase orders, and we have limited guaranteed supply arrangements with such suppliers.

Some of our sources can have variations in attributes and availability which can affect our ability to produce products in sufficient volume or quality.

We do not control the time and resources that these suppliers devote to our business, and we cannot be sure that these suppliers will perform their obligations to us.

Additionally, general shortages in the marketplace of certain raw materials or key components may adversely impact our business.

In the past, we have experienced decreases in our production yields when suppliers have varied from previously agreed upon specifications or made other modifications we do not specify, which impacted our cost of revenue.

Additionally, the inability of our suppliers to access capital efficiently could cause disruptions in their businesses, thereby negatively impacting ours.

This risk may increase if an economic downturn negatively affects key suppliers or a significant number of our other suppliers.

Any delay in product delivery or other interruption or variation in supply from these suppliers could prevent us from meeting commercial demand for our products.

If we were to lose key suppliers, if our key suppliers were unable to support our demand for any reason or if we were unable to identify and qualify alternative suppliers, our manufacturing operations could be interrupted or hampered significantly.

We rely on arrangements with independent shipping companies for the delivery of our products from vendors and to customers both in the United States and abroad.

The failure or inability of these shipping companies to deliver products or the unavailability of shipping or port services, even temporarily, could have a material adverse effect on our business.

We may also be adversely affected by an increase in freight surcharges due to rising fuel costs and added security.

In our fabrication process, we consume a number of precious metals and other commodities, which are subject to high price volatility.

Our operating margins could be significantly affected if we are not able to pass along price increases to our customers.

In addition, production could be disrupted by the unavailability of the resources used in production such as water, silicon, electricity and gases.

Future environmental regulations could restrict supply or increase the cost of certain of those materials.

We may be subject to confidential information theft or misuse, which could harm our business and results of operations.

We face attempts by others to gain unauthorized access to our information technology systems on which we maintain proprietary and other confidential information.

Our security measures may be breached as the result of industrial or other espionage actions of outside parties, employees, employee error, malfeasance or otherwise, and as a result, an unauthorized party may obtain access to our systems.

The risk of a security breach or disruption, particularly through cyber-attacks, or cyber intrusion, including by computer hackers, foreign governments, and cyber terrorists, has generally increased as cyber-attacks have become more prevalent and harder to detect and fight against.

Additionally, outside parties may attempt to access our confidential information through other means, for example by fraudulently inducing our employees to disclose confidential information.

We actively seek to prevent, detect and investigate any unauthorized access, which sometimes occurs.

To date, we do not believe that such unauthorized access has caused us any material damage.

We might be unaware of any such access or unable to determine its magnitude and effects.

In addition, these threats are constantly evolving, thereby increasing the difficulty of successfully defending against them or implementing adequate preventative measures.

The theft and/or unauthorized use or publication of our trade secrets and other confidential business information as a result of such an incident could adversely affect our competitive position and the value of our investment in research and development could be reduced.

Our business could be subject to significant disruption and we could suffer monetary or other losses.

Our disclosure controls and procedures address cybersecurity and include elements intended to ensure that there is an analysis of potential disclosure obligations arising from security breaches.

In addition, we are subject to data privacy, protection and security laws and regulations, including the European General Data Protection Act (GDPR) that governs personal information of European persons.

We also maintain compliance programs to address the potential applicability of restrictions against trading while in possession of material, nonpublic information generally and in connection with a cyber-security breach.

However, a breakdown in existing controls and procedures around our cyber-security environment may prevent us from detecting, reporting or responding to cyber incidents in a timely manner and could have a material adverse effect on our financial position and value of our stock.

There are limitations on our ability to protect our intellectual property.

Our intellectual property position is based in part on patents owned by us and patents licensed to us.

We intend to continue to file patent applications in the future, where appropriate, and to pursue such applications with U.S.

and certain foreign patent authorities.

Our existing patents are subject to expiration and re-examination and we cannot be sure that additional patents will be issued on any new applications around the covered technology or that our existing or future patents will not be successfully contested by third parties.

Also, since issuance of a valid patent does not prevent other companies from using alternative, non-infringing technology, we cannot be sure that any of our patents, or patents issued to others and licensed to us, will provide significant commercial protection, especially as new competitors enter the market.

We periodically discover products that are counterfeit reproductions of our products or that otherwise infringe on our intellectual property rights.

The actions we take to establish and protect trademarks, patents and other intellectual property rights may not be adequate to prevent imitation of our products by others, and therefore, may adversely affect our sales and our brand and result in the shift of customer preference away from our products.

Further, the actions we take to establish and protect trademarks, patents and other intellectual property rights could result in significant legal expense and divert the efforts of our technical personnel and management, even if the litigation or other action results in a determination favorable to us.

We also rely on trade secrets and other non-patented proprietary information relating to our product development and manufacturing activities.

We try to protect this information through appropriate efforts to maintain its secrecy, including requiring employees and third parties to sign confidentiality agreements.

We cannot be sure that these efforts will be successful or that the confidentiality agreements will not be breached.

We also cannot be sure that we would have adequate remedies for any breach of such agreements or other misappropriation of our trade secrets, or that our trade secrets and proprietary know-how will not otherwise become known or be independently discovered by others.

The markets in which we operate are highly competitive and have evolving technical requirements.

2 unchanged sentences

Competitors continue to offer new products with aggressive pricing, additional features and improved performance.

Competitive pricing pressures remain a challenge and continue to accelerate the rate of decline in our sales prices, particularly in our LED Products segment.

Competitive pricing

pressures remain a challenge and continue to accelerate the rate of decline in our sales prices, particularly in our LED Products segment.

Aggressive pricing actions by our competitors in our businesses could reduce margins if we are not able to reduce costs at an equal or greater rate than the sales price decline.

15 unchanged sentences

If our customers alter their purchasing behavior, if our customers’ purchasing behavior does not match our expectations or if we encounter any problems collecting amounts due from them, our financial condition and results of operations could be negatively impacted.

We face risks relating to our suppliers, including that we rely on a number of key sole source and limited source suppliers, are subject to high price volatility on certain commodity inputs, variations in parts quality, and raw material consistency and availability, and rely on independent shipping companies for delivery of our products.