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Item 1A. Risk Factors

2021-08-18 compared with 2020-08-19 · 246 added, 216 removed, 239 unchanged (66% of the section changed)

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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.

Risk categories:

– Risks related to the effects of COVID-19 and other potential future public health crises, pandemics or similar events

– Risks related to sales, product development and manufacturing

– Risks related to our global operations

– Risks associated with our strategic transactions

– Risks associated with cybersecurity, intellectual property and litigation

– Risks related to legal, regulatory, accounting, tax and compliance matters

– General risk factors

Risks related to the effects of COVID-19 and other potential future public health crises, pandemics or similar events.

Our financial condition and results of operations for fiscal 2022 and future periods may be adversely affected by the COVID-19 pandemic or other outbreak of infectious disease or similar public health threat.

Although vaccines have become generally available in the United States and certain other countries, COVID-19 continues to spread both domestically and globally.

At the start of the pandemic, authorities implemented numerous restrictive measures to try to contain the virus and the variants of the virus that cause COVID-19, such as travel bans and restrictions, quarantines, shelter in place orders, and shutdowns.

These measures significantly impacted our workforce and operations, the operations of our customers, and those of our respective vendors and suppliers.

Additionally, we experienced a delay in customer demand.

We have significant manufacturing operations in the United States and contract manufacturing agreements in Asia, which were affected by the pandemic and the measures to try to contain it.

In the United States, we initially experienced some limited disruptions in supply from some of our suppliers, although the disruptions to date have not been significant.

At some of our contract manufacturers in Asia, which include captive lines, we are currently experiencing, and may continue to experience, some disruptions in supply from containment measures.

In the United States, restrictions were gradually lifted as vaccinations became increasingly available and the portion of vaccinated individuals increased.

However, despite significant declines in the number of new cases, COVID-19 cases have recently started to rise across the country.

Vaccine resistance, coupled with the emergence of fast-spreading variants have introduced renewed uncertainty into whether additional measures will be implemented to combat the spread of COVID-19.

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.

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 ability to meet customer demand, lead to increased costs and have a material adverse effect on our financial condition and results of operations.

The pandemic 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.

The COVID-19 pandemic initially caused an economic slowdown, and the continued spread of COVID-19 and its variants could 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 and its variants 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 its variants, and our ability to perform critical functions could be harmed.

In addition, in light of concerns about the spread of COVID-19 and its variants, our workforce has at times been operating at reduced levels at our manufacturing facilities and at the facilities of some of our contract manufacturers, 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 of the pandemic 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.

The extent to which COVID-19, its variants or any other health

epidemic will further impact our operations and 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 its variants, the efficacy and effectiveness of vaccines, and the actions to contain the virus or treat its impact, among others.

Risks related to sales, product development and manufacturing

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

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

• 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;

• our ability to effectively transfer increasingly complex products and technology from development to manufacturing, including the transition to 200mm substrates;

• 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;

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• our ability to develop repeatable processes to manufacture new products in sufficient quantities, with the desired specifications and at competitive costs;

• our ability to effectively transfer increasingly complex products and technology from development to manufacturing;

• our customers’ ability to develop competitive products incorporating our products;

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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 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 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;

• 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 device fabrication facility and an expansion of our materials factory;

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

• be successful in securing design-ins across our end markets, including automotive applications;

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

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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 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.

If our contract manufacturers, original design manufacturers (ODMs) or other service providers do not perform effectively, we may not be able to achieve the expected cost savings and may incur additional costs to correct errors or fulfill customer demand.

If our contract manufacturers (including those at which we maintain captive lines) or other service providers do not perform effectively, we may not be able to achieve the expected cost savings and may incur additional costs to correct errors or fulfill customer demand.

Depending on the function involved, such errors may also lead to business disruption, processing inefficiencies, the loss of or damage to intellectual property through security breach, or an impact on employee morale.

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.

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.

Our operations may also be negatively impacted if any of these contract manufacturers 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, as well as risks to moving production to different contract manufacturers, that could increase costs and reduce our operating results.

In September 2019, we announced the intent to build a new device 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:

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• poor production process yields and reduced quality control;

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

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

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Additionally, we face these same risks if we fail to allocate and effectively manage the resources necessary to build, implement, upgrade, integrate and sustain appropriate technology infrastructure over the longer term.

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

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:

• the failure of an acquired business, investee or joint venture to meet our performance and financial expectations;

• identification of additional liabilities relating to an acquired business;

• loss of existing customers of our current and acquired businesses due to concerns that new product lines may be in competition with the customers’ existing product lines or due to regulatory actions taken by governmental agencies;

• that we are not able to enter into acceptable contractual arrangements with the significant customers of an acquired business;

• difficulty integrating an acquired business's operations, personnel and financial and operating systems into our current business;

• that we are not able to develop and expand customer bases and accurately anticipate demand from end customers, which can result in increased inventory and reduced orders as we experience wide fluctuations in supply and demand;

• diversion of management attention;

• difficulty separating the operations, personnel and financial and operating systems of a spin-off or divestiture from our current business;

• the possibility we are unable to complete the transaction and expend substantial resources without achieving the desired benefit;

• the inability to obtain required regulatory agency approvals;

• reliance on a transaction counterparty for transition services for an extended period of time, which may result in additional expenses and delay the integration of the acquired business and realization of the desired benefit of the transaction;

• uncertainty of the financial markets or circumstances that cause conditions that are less favorable and/or different than expected;

• expenses incurred to complete a transaction may be significantly higher than anticipated.

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.

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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.

Our operations and performance depend significantly on worldwide economic conditions.

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 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.

Dollar and more competitive in countries with currencies that are increasing in value against the U.S.

In addition, our international purchases can become more expensive if the U.S.

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

We continue to prepare for production using 200mm substrates and if we are unable to make this transition in a timely or cost-effective manner, our results could be negatively impacted.

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

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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.

Currently, we are focusing on increasing production capacity.

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

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.

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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.

We expect that revenue from international sales will continue to represent a significant portion of our total revenue.

As such, a significant slowdown or instability in relevant foreign economies or lower investments in new infrastructure, could have a negative impact on our sales.

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

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.

For example, on May 15, 2019, the Bureau of Industry and Security (BIS) of the U.S.

Department of Commerce added Huawei Technologies Co., Ltd.

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 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, 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.

If we fail to comply with these laws and regulations, we could be liable for administrative, civil or criminal liabilities, and, in the extreme case, we could be suspended or debarred from government contracts or have our export privileges suspended, which could have a material adverse effect on our business.

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 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.

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.

We have revenue, operations, manufacturing facilities and contract manufacturing arrangements in foreign countries that expose us to certain risks.

For example, fluctuations in exchange rates may affect our revenue, expenses and results of operations as well as the value of our assets and liabilities as reflected in our financial statements.

We are also subject to other types of risks, including the following:

• protection of intellectual property and trade secrets;

• 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 United States or international taxation policies;

• timing and availability of export licenses;

• rising labor costs;

• 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;

• difficulties in staffing and managing international operations;

• 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 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.

Government incentives may include tax rebates, reduced tax rates, favorable lending policies and other measures, some or all of which may be available to us due to our foreign operations.

Any of these incentives could be reduced or eliminated by governmental authorities at any time or as a result of our inability to maintain minimum operations necessary to earn the incentives.

Any reduction or elimination of incentives currently provided for our operations could adversely affect our business and results of operations.

These same governments also may provide increased incentives to or require production processes that favor local companies, which could further negatively impact our business and results of operations.

Changes in regulatory, geopolitical, social, economic, or monetary policies and other factors, if any, may have a material adverse effect on our business in the future, or may require us to exit a particular market or significantly modify our current business practices.

Abrupt political change, terrorist activity and armed conflict pose a risk of general economic disruption in affected countries, which could also result in an adverse effect on our business and results of operations.

We operate in industries that are subject to significant fluctuation in supply and demand and ultimately pricing that affects our revenue and profitability.

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, and may in the future experience, significant fluctuations, often in connection with, or in anticipation of, product cycles and changes in general economic conditions.

We operate in industries that are subject to significant fluctuation in supply and demand and ultimately pricing, which affects our revenue and profitability.

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 seen in the LED market.

These fluctuations have been characterized by lower product demand, production overcapacity, higher inventory levels and aggressive pricing actions by our competitors.

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.

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

We sell a substantial portion of our products to distributors.

We sell a portion of our products to distributors.

We rely on distributors to develop and expand their customer base as well as anticipate demand from their customers.

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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 impacted.

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.

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.

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.

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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.

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.

As competition increases, we need to continue to develop new products that meet or exceed the needs of our customers.

Therefore, our ability to continually produce more efficient and lower cost power, RF and LED products that meet the evolving needs of our customers will be critical to our success.

Therefore, our ability to continually produce more efficient and lower cost power and RF products that meet the evolving needs of our customers will be critical to our success.

Competitors may also try to align with some of our strategic customers.

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Any of these developments could have an adverse effect on our business, results of operations or financial condition.

We will continue to face increased competition in the future across our businesses.

If the investment in capacity exceeds the growth in demand, such as exists in the current LED market, the LED market is likely to become more competitive with additional pricing pressures.

Additionally, new technologies could emerge or improvements could be made in existing technologies that may also reduce the demand for LEDs in certain markets.

We depend on a limited number of customers, including distributors, for a substantial portion of our revenue, and the loss of, or a significant reduction in purchases by, one or more of these customers could adversely affect our operating results.

We receive a significant amount of our revenue from a limited number of customers, including distributors, one of which represented 15% of our consolidated revenue in fiscal 2020.

We receive a significant amount of our revenue from a limited number of customers and distributors, three of which individually represented more than 10% of our consolidated revenue from continuing operations in fiscal 2021.

Many of our customer orders are made on a purchase order basis, which does not generally require any long-term customer commitments.

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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.

This risk may increase from unpredictable and unstable changes in economic conditions, including recession, inflation, or other changes, which may negatively affect 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.

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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.

The risks mentioned above, including our sole source or limited source suppliers' ability to produce products and adequately access capital, and our ability to arrange effective shipping arrangements, may further increase due to the COVID-19 pandemic.

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

We may also be adversely affected by an increase in freight surcharges due to rising fuel costs, oil 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 and the potential impacts of increased inflation.

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

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Our revenue is highly dependent on our customers’ ability to produce, market and sell more integrated products.

Our revenue in our Wolfspeed and LED Products segments depends on getting our products designed into a larger number of our customers’ products and in turn, our customers’ ability to produce, market and sell their products.

Our revenue depends on getting our products designed into a larger number of our customers’ products and in turn, our customers’ ability to produce, market and sell their products.

For example, we have current and prospective customers that create, or plan to create, power and RF products or systems using our substrates, die, components or modules.

Even if our customers are able to develop and produce products or systems that incorporate our substrates, die, components or modules, there can be no assurance that our customers will be successful in marketing and selling these products or systems in the marketplace.

In order to compete, we must attract, motivate and retain key employees, and our failure to do so could harm our results of operations.

Hiring and retaining qualified executives, scientists, engineers, technical staff, sales personnel and production personnel is critical to our business, and competition for experienced employees in our industry can be intense.

As a global company, this issue is not limited to the United States, but includes our other locations such as Europe and Asia.

For example, there is substantial competition for qualified and capable personnel, particularly experienced engineers and technical personnel, which may make it difficult for us to recruit and retain qualified employees.

If we are unable to staff sufficient and adequate personnel at our facilities, we may experience lower revenue or increased manufacturing costs, which would adversely affect our results of operations.

To help attract, motivate and retain key employees, we use benefits such as stock-based compensation awards.

If the value of such awards does not appreciate, as measured by the performance of the price of our common stock or if our stock-based compensation otherwise ceases to be viewed as a valuable benefit, our ability to attract, retain and motivate employees could be weakened, which could harm our business and results of operations.

Our results may be negatively impacted if customers do not maintain their favorable perception of our brands and products.

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Success in promoting and enhancing brand value depends in large part on our ability to provide high-quality products.

Brand value could diminish significantly due to a number of factors, including adverse publicity about our products (whether valid or not), a failure to maintain the quality of our products (whether perceived or real), the failure of our products or Cree to deliver consistently positive consumer experiences, the products becoming unavailable to consumers or consumer perception that we have acted in an irresponsible manner.

Brand value could diminish significantly due to a number of factors, including adverse publicity about our products (whether valid or not), our previously announced intention to change our corporate name from "Cree, Inc." to "Wolfspeed, Inc.", a failure to maintain the quality of our products (whether perceived or real), the failure of our products to deliver consistently positive consumer experiences, the products becoming unavailable to consumers or consumer perception that we have acted in an irresponsible manner.

Damage to our brand, reputation or loss of customer confidence in our brand or products could result in decreased demand for our products and have a negative impact on our business, results of operations or financial condition.

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A significant product recall could also result in adverse publicity, damage to our reputation and a loss of customer or consumer confidence in our products.

We also may be the target of product liability lawsuits or regulatory proceedings by the Consumer Product Safety Commission (CPSC) and could suffer losses from a significant product liability judgment or adverse CPSC finding against us if the use of our products at issue is determined to have caused injury or contained a substantial product hazard.

We provide warranty periods ranging from 90 days to 5.5 years on our products.

We also may be the target of product liability lawsuits against us if the use of our products at issue is determined to have caused injury or contained a substantial product hazard.

We provide standard warranty periods of 90 days on our products, with longer periods under a limited number of customer contracts.

Although we believe our reserves are appropriate, we are making projections about the future reliability of new products and technologies, and we may experience increased variability in warranty claims.

Increased warranty claims could result in significant losses due to a rise in warranty expense and costs associated with customer support.

As a result of our continued expansion into new markets, we may compete with existing customers who may reduce their orders.

Through organic growth and acquisitions, we continue to expand into new markets and new market segments.

Many of our existing customers who purchase our Wolfspeed substrate materials develop and manufacture devices, die and components using those wafers that are offered in the same power and RF markets.

As a result, some of our current customers perceive us as a competitor in these market segments.

In response, our customers may reduce or discontinue their orders for our Wolfspeed substrate materials.

This reduction in or discontinuation of orders could occur faster than our sales growth in these new markets, which could adversely affect our business, results of operations or financial condition.

Risks related to our global operations

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

Our operations and performance depend significantly on worldwide economic conditions.

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 negatively impacted, and may in the future, negatively impact, demand and/or increase the cost for our products.