What changed in this filing

/stocks — the workspaceLOADING

Item 1A. Risk Factors

2023-11-02 compared with 2023-04-27 · 125 added, 105 removed, 379 unchanged (38% of the section changed)

3 unchanged sentences

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

Risk categories:

Risk categories and certain principal risks under each category (each described more fully below):

– Risks related to our global operations, including global macroeconomic and market risks

• Our business may be adversely affected by the state of the global economy, uncertainties in global financial markets, our ability, or our customers', suppliers' or vendors' ability, to access funding, and possible trade tariffs and trade restrictions.

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

– Risks related to sales, product development and manufacturing

• We face significant challenges managing our growth strategy.

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

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

– Risks associated with our strategic transactions

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

• We are subject to a number of risks associated with the sale of the RF Business, and these risks could adversely impact our operations, financial condition and business.

– Risks associated with cybersecurity, intellectual property and litigation

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

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

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

• We may be required to recognize a significant charge to earnings if our goodwill or other assets become impaired.

• The adoption of or changes in government and/or industry policies, standards or regulations relating to the efficiency, performance, vehicle range or other aspects of our products and the products in which they are utilized could impact the demand for our products.

– General risk factors

• We have outstanding debt which could materially restrict our business and adversely affect our financial condition, liquidity and results of operations.

Risks related to our global operations, including global macroeconomic and market risks

Our business may be adversely affected by the state of the global economy, uncertainties in global financial markets, our ability to access funding, and possible trade tariffs and trade restrictions.

Our business may be adversely affected by the state of the global economy, uncertainties in global financial markets, our ability or our customers', suppliers' or vendors' ability to access funding, and possible trade tariffs and trade restrictions.

Our operations and performance depend significantly on worldwide economic and geopolitical 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, current global financial markets continue to reflect uncertainty, including recent bank failures in the United States, the ongoing military conflict between Russia and Ukraine and the COVID-19 pandemic.

For example, current global financial markets continue to reflect uncertainty, including, among other things, recent bank failures in the United States, the ongoing military conflicts between Russia and Ukraine and the recent conflict between Hamas and Israel.

Given these uncertainties, there could be further disruptions to the global economy, financial markets and consumer confidence.

5 unchanged sentences

Government actions to address economic slowdowns and increased inflation, including increased interest rates, also could result in negative impacts to our growth.

General trade tensions between the United States and China have been escalating, and 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.

General trade tensions between the United States and China continue, and 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.

Additionally, Russia’s invasion of Ukraine in early 2022 triggered significant sanctions from the U.S.

5 unchanged sentences

Further, the use of cyberattacks could expand as part of the conflict, which could adversely affect our ability to maintain or enhance our cyber-security and data protection measures.

Although we believe we have adequate liquidity and capital resources to fund our operations for at least the next 12 months, we expect to need additional funding to fully complete our intended expansion initiatives, which we may seek to obtain through, among other avenues, public or private equity offerings and debt financings.

Although we believe we have adequate liquidity and capital resources to fund our operations for at least the next 12 months, we expect to need additional funding to fully complete all of our intended expansion initiatives, which we may seek to obtain through, among other avenues, government funding in both the United States or Europe, public or private equity offerings, and debt financings (which may involve retiring some of our existing debt).

If unfavorable capital market conditions exist, we may not be able to raise sufficient capital on favorable terms and on a timely basis, if at all.

2 unchanged sentences

In a rising interest rate environment, debt financing will become more expensive and may have higher transactional and servicing costs.

In addition, our existing

indebtedness may limit our ability to obtain additional financing in the future.

In addition, our existing indebtedness may limit our ability to obtain additional financing in the future.

The potential inability to obtain adequate funding from debt or capital sources in the future could force us to self-fund strategic initiatives or even forego certain opportunities, which in turn could potentially harm our performance.

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.

In fiscal 2023, 80% of our revenue was from outside the United States and 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.

37 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 Silicon Carbide capacity with the opening of a state-of-the-art, automated 200mm capable Silicon Carbide device fabrication facility in New York, an expansion of our materials factory in Durham, North Carolina, the construction of a new materials manufacturing facility in Siler City, North Carolina, and the planned construction of a new 200mm capable Silicon Carbide device fabrication facility in Saarland, Germany;

• meet our production commitments to our customers, including those customers who provide us with capacity reservation deposits or similar payments;

• 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 opening and ramping of a state-of-the-art, automated 200mm capable silicon carbide device fabrication facility in New York, an expansion of our materials factory in Durham, North Carolina, the construction of a new materials manufacturing facility in Siler City, North Carolina, the recent purchase of an epitaxy facility in Farmers Branch, Texas, and the planned construction of a new 200mm capable silicon carbide device fabrication facility in Saarland, Germany;

• meet our production capacity and delivery commitments to our customers, including those customers who provide us with capacity reservation deposits or similar payments;

• manage an increasingly complex supply chain (including managing the impacts of ongoing supply constraints in the semiconductor industry and meeting purchase commitments under take-or-pay arrangements with certain suppliers) 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, our logistics operations, or our customers;

• expand the skills and capabilities of our current management team;

• add experienced senior level managers and executives;

• attract and retain qualified employees;

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

• access capital markets to fund our growth initiatives, including our ongoing and planned capacity expansions;

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

1 unchanged sentence

• confirm our eligibility for and receive the expected benefits from refundable income tax credits and capital grants through the CHIPS Act, and receive and potentially sell any tax credits for which we may apply under the Inflation Reduction Act;

• access capital markets to fund our growth initiatives, including our ongoing and planned capacity expansions;

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

1 unchanged sentence

• manage organizational complexity and communication;

• expand the skills and capabilities of our current management team;

• add experienced senior level managers and executives;

• attract and retain qualified employees;

• execute, maintain and adjust the operational and financial controls that support our business.

6 unchanged sentences

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 the fourth quarter of fiscal 2022, we opened a new Silicon Carbide

device fabrication facility in Marcy, New York to complement the materials factory expansion underway at our United States campus headquarters in Durham, North Carolina.

In the fourth quarter of fiscal 2022, we opened the Mohawk Valley Fab to complement the materials factory expansion underway at our United States campus headquarters in Durham, North Carolina and the Mohawk Valley Fab began revenue production in late fiscal 2023.

We also commenced work on our new materials manufacturing facility in Siler City, North Carolina in the first quarter of fiscal 2023.

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:

The establishment and operation of a new manufacturing facility or expansion of an existing facility involves significant risks and challenges, some of which we have experienced and may experience in the future, including, but not limited to, the following:

• design and construction delays and cost overruns;

1 unchanged sentence

• poor production process yields and reduced quality control;

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

• insufficient personnel with requisite expertise and experience to operate an automated silicon carbide device fabrication facility and a materials manufacturing 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.

Allocation and effective management of the resources necessary to successfully implement, integrate, train personnel and sustain our information technology platforms will remain critical to ensure that we are not subject to transaction errors, processing inefficiencies, loss of customers, business disruptions or loss of or damage to intellectual property through a security breach in the near term.

Allocation and effective management of the resources necessary to successfully implement, integrate, train personnel and sustain our information technology platforms will remain critical to ensure that we are not subject to transaction errors, processing inefficiencies, loss of customers or suppliers, business disruptions or loss of or damage to intellectual property through a security breach in the near term.

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.

22 unchanged sentences

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.

Significant or prolonged shortages or delivery delays of our products to our customers could delay their manufacturing and negatively impact our relationships with these customers.

Significant or prolonged shortages or delivery delays of our products to our customers could delay their manufacturing and negatively impact our relationships with these customers, including triggering the potential payment of penalties on certain agreements.

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 quickly enough to correspond to the lower than expected demand.

3 unchanged sentences

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.

With the opening of our new Silicon Carbide device fabrication facility in Marcy, New York, we may experience increased pressure on margins during the period when production begins but before the facility is at full utilization.

Additionally, our large upfront investment in the facility to increase capacity does not guarantee we will need the capacity and we may experience lower than expected capacity once the facility is in production, which could result in further margin pressures.

With the opening of the Mohawk Valley Fab, we will experience increased pressure on margins during the period when production begins but before the facility is at full utilization, and in the initial periods we expect these underutilization costs to be substantial as we ramp up the facility.

Additionally, our large upfront investment in the facility, or any other new facility, to increase capacity does not guarantee we will need the capacity and we may experience lower than expected capacity once the facility is in production, which could result in further margin pressures.

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

23 unchanged sentences

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.

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, including take-or-pay arrangements.

We generally purchase these sole or limited source items with purchase orders, and we have limited guaranteed supply arrangements with such suppliers, including take-or-pay arrangements and capacity reserve deposit agreements.

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

9 unchanged sentences

We may also be adversely affected by an increase in freight surcharges due to rising fuel costs, oil 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, have increased and may further increase due to the ongoing COVID-19 pandemic.

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.

10 unchanged sentences

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.

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

We sell a portion of our products to distributors, including a distributor that represented more than 10% of our revenue in fiscal 2023.

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

If they are not successful, our growth and profitability may be adversely impacted.

Distributors must balance the need to have enough products in stock in order to meet their customers’ needs against their internal target inventory levels and the risk of potential inventory obsolescence.

The risks of inventory obsolescence are especially relevant to technological products.

The distributors’ internal target inventory levels vary depending on market cycles and a number of factors within each distributor over which we have very little, if any, control.

Distributors also have the ability to shift business to different manufacturers within their product portfolio based on a number of factors, including new product availability and performance.

Similarly, we have the ability to add, consolidate, or remove distributors.

We typically recognize revenue on products sold to distributors when the item is shipped and title passes to the distributor (sell-in method).

Certain distributors have limited rights to return inventory under stock rotation programs and have limited price adjustment rights for which we make estimates.

We evaluate inventory levels in the distribution channel, current economic trends and other related factors in order to account for these factors in our judgments and estimates.

As inventory levels and product return trends change or we make changes to our distributor roster, we may have to revise our estimates and incur additional costs, and our gross margins and operating results could be adversely impacted.

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 and distributors, two of which individually represented more than 10% of our consolidated revenue in fiscal 2023.

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

Therefore, these customers may alter their purchasing behavior with little or no notice to us for various reasons, including developing, or, in the case of our distributors, their customers developing, their own product solutions;

choosing to purchase or distribute product from our competitors;

incorrectly forecasting end market demand for their products;

or experiencing a reduction in their market share in the markets for which they purchase our products.

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.

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

8 unchanged sentences

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

We receive a significant amount of our revenue from a limited number of customers and distributors, two of which individually represented more than 10% of our consolidated revenue in fiscal 2022.

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

choosing to purchase or distribute product from our competitors;

incorrectly forecasting end market demand for their products;

or experiencing a reduction in their market share in the markets for which they purchase our products.

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

21 unchanged sentences

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

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

We sell a portion of our products to distributors, including a distributor that represented more than 10% of our revenue in fiscal 2022.

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

If they are not successful, our growth and profitability may be adversely impacted.

The risks of inventory obsolescence are especially relevant to technological products.

The distributors’ internal target inventory levels vary depending on market cycles and a number of factors within each distributor over which we have very little, if any, control.

Distributors also have the ability to shift business to different manufacturers within their product portfolio based on a number of factors, including new product availability and performance.

Similarly, we have the ability to add, consolidate, or remove distributors.

We typically recognize revenue on products sold to distributors when the item is shipped and title passes to the distributor (sell-in method).

Certain distributors have limited rights to return inventory under stock rotation programs and have limited price protection rights for which we make estimates.

We evaluate inventory levels in the distribution channel, current economic trends and other related factors in order to account for these factors in our judgments and estimates.

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

We continue to expand into new markets and new market segments.

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

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

response, our customers may reduce or discontinue their orders for our 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.

19 unchanged sentences

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.

We are subject to a number of risks associated with the sale of the RF Business, and these risks could adversely impact our operations, financial condition and business.

On August 22, 2023, we entered into a definitive agreement (the RF Purchase Agreement) with MACOM Technology Solutions Holdings, Inc.

(MACOM) with respect to the RF Business Divestiture.

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

• the failure to satisfy, on a timely basis or at all, the closing conditions set forth in the RF Purchase Agreement;

• the separation of the RF product line (the RF Business), and related information technology, from the businesses we are retaining and the operation of our retained business without the RF Business;

• issues, delays or complications in completing required transition activities to allow the RF Business to operate under MACOM after the closing, including incurring unanticipated costs to complete such activities;

• unfavorable reaction to the sale by customers, competitors, suppliers and employees;

• the disruption to and uncertainty in our business and our relationships with our customers, including attempts by our customers to terminate or renegotiate their relationships with us or decisions by our customers to defer or delay purchases from us;

• difficulties in hiring, retaining and motivating key personnel during this process or as a result of uncertainties generated by this process or any developments or actions relating to it;

• the diversion of our management’s attention away from the operation of the business we are retaining;

• the need to incur significant transaction costs in connection with the transaction, regardless of whether it is completed;

• the restrictions on and obligations with respect to our business set forth in the RF Purchase Agreement and, following closing, the RF master supply agreement and the transition services agreement, in each case between us and MACOM;

• the need to provide transition services in connection with the transaction, which may result in the diversion of resources and focus;

• our failure to realize the full purchase price anticipated under the RF Purchase Agreement, including due to fluctuations in the market price of the 711,528 shares of MACOM’s common stock that constitute a portion of the purchase price under the RF Purchase Agreement (the MACOM Shares) before we are able to sell the MACOM Shares following MACOM's assumption of control of the Company's 100mm gallium nitride wafer fabrication facility in Research Triangle Park, North Carolina approximately two years following the closing of the transaction (the RTP Fab Transfer) and the forfeiture of one-quarter of the MACOM Shares in the event that the RTP Fab Transfer is not completed within four years following the closing of the transaction.

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.

We are subject to a number of risks associated with the sale of our former LED Products segment, and these risks could adversely impact our operations, financial condition and business.

On March 1, 2021, we completed the sale of our former LED Products segment to SMART pursuant to the Asset Purchase Agreement dated October 18, 2020 (the LED Purchase Agreement).

On March 1, 2021, we completed the sale of our former LED Products segment to SMART Global Holdings, Inc.

(SGH) pursuant to the Asset Purchase Agreement dated October 18, 2020 (the LED Purchase Agreement).

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

• the restrictions on and obligations with respect to our business set forth in the transition services agreement and the Wafer Supply Agreement, in each case between us and CreeLED;

• the restrictions on and obligations with respect to our business set forth in the Wafer Supply Agreement between us and CreeLED;

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

38 unchanged sentences

Litigation could adversely affect our operating results and financial condition.

We are often involved in litigation, primarily patent litigation.

We are often involved in litigation, primarily patent litigation, such as our patent dispute with The Trustees of Purdue University, as discussed further in Note 13, "Commitments and Contingencies," in our unaudited financial statements in Part I, Item 1 of this Quarterly Report.

Defending against existing and potential litigation will likely require significant attention and resources and, regardless of the outcome, result in significant legal expenses, which could adversely affect our results unless covered by insurance or recovered from third parties.

29 unchanged sentences

For other assets such as finite-lived intangible assets and fixed assets, we assess the recoverability of the asset balance when indicators of potential impairment are present.

For example, in the first quarter of fiscal 2024, we recorded an impairment to assets held for sale associated with the pending RF Business Divestiture of $144.6 million.

The recognition of a significant charge to earnings in our consolidated financial statements resulting from any impairment of our goodwill or other assets could adversely impact our results of operations.

4 unchanged sentences

Our ability and the ability of our competitors to meet evolving government and/or industry requirements could impact competitive dynamics in the market.

Changes in our effective tax rate may affect our results.

Our future effective tax rates may be affected by a number of factors including:

Changes in our effective tax rate or the ability to obtain future tax credits may affect our results and financial condition.

Our future effective tax rates and our ability to obtain future tax credits may affect our results and financial condition due to a number of factors, including:

• the jurisdiction in which profits are determined to be earned and taxed;

1 unchanged sentence

regulations issued as a result of the significant changes to the U.S.

tax law included within the Tax Cuts and Jobs Act of 2017 (the TCJA) and the Coronavirus Aid, Relief and Economic Security Act of 2020;

• the imposition of the proposed global corporate minimum tax rate;

tax law included within the Tax Cuts and Jobs Act of 2017 (the TCJA), the Coronavirus Aid, Relief and Economic Security Act of 2020 and the Inflation Reduction Act (the IRA);

• changes in available tax credits, including the eligibility for or the receipt of the expected benefits from refundable investment tax credits obtained through the CHIPS Act;

• the implementation of international tax and profit shifting rules in countries in which we operate, as recommended by the Organization for Economic Co-operation and Development’s Base Erosion, including the establishment of a minimum tax of 15% on global income;

• the resolution of issues arising from tax audits with various authorities;

3 unchanged sentences

• increases in expenses not deductible for tax purposes, including impairment of goodwill in connection with acquisitions;

• changes in available tax credits;

• the recognition and measurement of uncertain tax positions;

18 unchanged sentences

New climate change laws and regulations could require us to change our manufacturing processes or procure substitute raw materials that may cost more or be more difficult to procure.

Various jurisdictions in which we do business have implemented, or in the future could implement or amend, restrictions on emissions of carbon dioxide or other greenhouse gases, limitations or restrictions on water use, regulations on energy management and waste management, and other climate change-based rules and regulations, which may increase our expenses and adversely affect our operating results.

Various jurisdictions in which we do business have implemented,

or in the future could implement or amend, restrictions on emissions of carbon dioxide or other greenhouse gases, limitations or restrictions on water use, regulations on energy management and waste management, and other climate change-based rules and regulations, which may increase our expenses and adversely affect our operating results.

We expect increased worldwide regulatory activity relating to climate change in the future.

1 unchanged sentence

Our results could vary as a result of the methods, estimates and judgments that we use in applying our accounting policies, including changes in the accounting standards to be applied.

The methods, estimates and judgments that we use in applying our accounting policies have a significant impact on our results (see “Critical Accounting Estimates” in Item 7, "Management’s Discussion and Analysis of Financial Condition and Results of Operations" in our 2022 Annual Report).

Such methods, estimates and judgments are, by their nature, subject to substantial risks, uncertainties and assumptions, and factors may arise over time that lead us to change our methods, estimates and judgments.

Changes in those methods, estimates and judgments could significantly affect our results of operations or financial condition, such as the change in estimated useful lives of certain assets applied in the first quarter of fiscal 2022.

Changes in those methods, estimates and judgments could significantly affect our results of operations or financial condition.

Likewise, our results may be impacted due to changes in the accounting standards to be applied, such as the changes in convertible debt recognition requirements.

4 unchanged sentences

General risk factors

We may be subject to volatility and uncertainty in customer demand, supply chains, worldwide economies and financial markets resulting from the COVID-19 pandemic or other outbreak of infectious disease or similar public health threat.

We have significant manufacturing operations in the United States and contract manufacturing agreements in Asia, which were affected by the COVID-19 pandemic and the measures to try to contain it.

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 and contract packaging facilities, we have experienced, and may experience in the future, some disruptions in supply from containment measures.

The emergence of fast-spreading variants and the potential waning effectiveness of vaccines have introduced renewed uncertainty into whether additional measures will be implemented to combat the spread of COVID-19.

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 COVID-19 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 COVID-19 pandemic initially caused an economic slowdown, and the continued spread of COVID-19 and its variants could contribute to or exacerbate a global economic slowdown or 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.

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 COVID-19 pandemic cannot be reasonably estimated at this time.

However, it may materially affect our ability to obtain raw materials, manage input costs, 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, its variants or an outbreak of any other infectious disease 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.

We have outstanding debt which could materially restrict our business and adversely affect our financial condition, liquidity and results of operations.

As of September 24, 2023, our indebtedness consisted of $575.0 million aggregate principal amount of our 1.75% convertible senior notes due May 1, 2026 (the 2026 Notes), $750.0 million aggregate principal amount of our 0.25% convertible senior notes due February 15, 2028 (the 2028 Notes), $1,750.0 million aggregate principal amount of our 1.875% convertible senior notes due December 1, 2029 (the 2029 Notes) (collectively, the Outstanding Convertible Notes) and $1,250.0 million aggregate principal amount of the 2030 Senior Notes.

In addition, on July 5, 2023, we entered into the CRD Agreement with Renesas Electronics America Inc.

(Renesas America) pursuant to which Renesas America provided the Company an initial deposit in an aggregate principal amount of $1 billion with a commitment to provide additional deposits in an aggregate principal amount of up to an additional $1 billion at our discretion in calendar year 2024, in connection with our entry into a wafer supply agreement with Renesas Electronics Corporation, an affiliate of Renesas America.

Our ability to pay interest and repay the principal for any outstanding indebtedness under the Outstanding Convertible Notes, the 2030 Senior Notes and the CRD Agreement (if applicable) is dependent upon our ability to manage our business operations and generate sufficient cash flows to service such debt.

There can be no assurance that we will be able to manage any of these risks successfully.

The level of our outstanding debt may adversely affect our operating results and financial condition by, among other things:

• increasing our vulnerability to downturns in our business, to competitive pressures and to adverse general economic and industry conditions;

• requiring the dedication of an increased portion of our expected cash flows from operations to service our indebtedness, thereby reducing the amount of expected cash flow available for other purposes, including capital expenditures, research and development and stock repurchases;

• limiting our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate;

• placing us at a competitive disadvantage compared to our peers that may have less indebtedness than we have by limiting our ability to borrow additional funds needed to operate and grow our business;

• increasing our interest expense if interest rates increase.

The Indenture governing the 2030 Senior Notes (the 2030 Senior Notes Indenture) includes a liquidity maintenance financial covenant requiring us to have an aggregate amount of unrestricted cash and cash equivalents maintained in accounts over which the trustee and collateral agent for the 2030 Senior Notes has been granted a perfected first lien security interest of at least $500,000,000 as of the last day of any calendar month, which amount will be reduced over time upon the fulfillment of certain conditions.

In addition, the 2030 Senior Notes Indenture contains certain restrictions that could limit our ability to, among other

incur additional indebtedness, dispose of assets, create liens on assets, make acquisitions or engage in mergers or consolidations, and engage in certain transactions with our subsidiaries and affiliates.

The 2030 Senior Notes Indenture also requires us to make an offer to repurchase the 2030 Senior Notes with 100% of the net cash proceeds of certain non-ordinary course asset sales and casualty events, subject to the ability to reinvest the proceeds of such casualty events and asset sales (subject to certain limitations), or upon a change of control.

The Indentures governing the Outstanding Convertible Notes (the Convertible Notes Indentures) require us to repurchase the Outstanding Convertible Notes upon certain fundamental changes relating to our common stock, and also prohibit our consolidation, merger, or sale of all or substantially all of our assets except with or to a successor entity assuming our obligations under the Indentures.

The CRD Agreement contains certain restrictions on our ability to incur debt and liens, consummate non-arm’s-length transactions with affiliates, mergers and consolidations whereby obligations under the CRD Agreement are not assumed, and change the nature of our business.

The restrictions imposed by the 2030 Senior Notes Indenture, the Convertible Notes Indentures, and the CRD Agreement could limit our ability to plan for or react to changing business conditions, or could otherwise restrict our business activities and plans.

Our ability to comply with the provisions of the 2030 Senior Notes Indenture, the Convertible Notes Indentures, and the CRD Agreement may also be affected by events beyond our control and if any of these restrictions or terms is breached, it could lead to an event of default under the 2030 Senior Notes, the Outstanding Convertible Notes, and the CRD Agreement.

A default, if not cured or waived, may permit acceleration of our indebtedness.

In addition, our lenders could terminate their commitments to make further loans under the 2030 Senior Notes Indenture or the CRD Agreement.

If our indebtedness is accelerated, we cannot be certain that we will have sufficient funds to pay the accelerated indebtedness or that we will have the ability to refinance accelerated indebtedness on terms favorable to us or at all.

The capped call transactions may not prevent dilution of our common stock upon conversion of the 2028 Notes or the 2029 Notes.

In connection with the pricing of the 2028 Notes and the 2029 Notes, we entered into privately negotiated capped call transactions with the option counterparties.

The capped call transactions are expected generally to reduce the potential dilution to our common stock upon any conversion of the 2028 Notes and 2029 Notes and/or offset any potential cash payments we are required to make in excess of the principal amount of the converted 2028 Notes and 2029 Notes, as the case may be, upon conversion of the 2028 Notes and 2029 Notes.

If, however, the market price per share of our common stock, as measured under the terms of the capped call transactions, exceeds the cap price of the capped call transactions (currently $212.04 for the 2028 Notes and $202.538 for the 2029 Notes), there would nevertheless be dilution and/or there would not be an offset of such potential cash payments, in each case, to the extent that such market price exceeds the cap price of the capped call transactions.

Catastrophic events and disaster recovery may disrupt business continuity.

12 unchanged sentences

Historically, our common stock has experienced substantial price volatility, particularly as a result of significant fluctuations in our revenue, earnings and margins over the past few years, and variations between our actual financial results and the published expectations of analysts.

For example, the closing price per share of our common stock on the New York Stock Exchange ranged from a low of $58.67 to a high of $122.07 during the twelve months ended March 26, 2023.

For example, the closing price per share of our common stock on the New York Stock Exchange ranged from a low of $35.93 to a high of $117.72 during the twelve months ended September 24, 2023.

If our future operating results or margins are below the expectations of stock market analysts or our investors, our stock price will likely decline.

Speculation and opinions in the press or investment community about our strategic position, financial condition, results of operations or significant transactions can also cause changes in our stock price.

In particular, competition in some of the markets we address such as electric vehicles and 5G, the ramp up of our business, and the effect of tariffs or COVID-19 on our business, may have a dramatic effect on our stock price.

In particular, competition in some of the markets we address such as electric vehicles and 5G, the ramp up of our business, and the effect of tariffs on our business, may have a dramatic effect on our stock price.

Additionally, actions taken by the option counterparties in the capped call transactions entered into in connection with the 2028 Notes and the 2029 Notes may affect our stock price, including the potential modifications of their hedge positions by entering into or unwinding various derivatives with respect to our common stock.

5 unchanged sentences

From time to time, we have also made investments in public and private companies that engage in complementary businesses.

We have outstanding debt which could materially restrict our business and adversely affect our financial condition, liquidity and results of operations.

As of March 26, 2023, our indebtedness consisted of $575.0 million aggregate principal amount of the 2026 Notes, $750.0 million aggregate principal amount of the 2028 Notes and $1,750.0 million aggregate principal amount of the 2029 Notes (collectively, the Outstanding Notes) and potential borrowings from our revolving line of credit.

Our ability to pay interest and

repay the principal for any outstanding indebtedness under our line of credit and the Outstanding Notes is dependent upon our ability to manage our business operations and generate sufficient cash flows to service such debt.

There can be no assurance that we will be able to manage any of these risks successfully.

The level of our outstanding debt may adversely affect our operating results and financial condition by, among other things:

• increasing our vulnerability to downturns in our business, to competitive pressures and to adverse general economic and industry conditions;

• limiting our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate;

• increasing our interest expense if interest rates increase.

Our line of credit requires us to maintain compliance with an asset coverage ratio.

In addition, our line of credit contains certain restrictions that could limit our ability to, among other things:

The Indentures governing the Outstanding Notes require us to repurchase the Outstanding Notes upon certain fundamental changes relating to our common stock, and also prohibit our consolidation, merger, or sale of all or substantially all of our assets except with or to a successor entity assuming our obligations under the Indentures.

The restrictions imposed by our line of credit and by the Indentures governing the Outstanding Notes could limit our ability to plan for or react to changing business conditions, or could otherwise restrict our business activities and plans.

Our ability to comply with our loan covenants and the provisions of the Indentures governing the Outstanding Notes may also be affected by events beyond our control and if any of these restrictions or terms is breached, it could lead to an event of default under our line of credit or the Outstanding Notes.

A default, if not cured or waived, may permit acceleration of our indebtedness.

In addition, our lenders could terminate their commitments to make further extensions of credit under our line of credit.

The capped call transactions may not prevent dilution of our common stock upon conversion of the 2028 Notes or the 2029 Notes.

In connection with the pricing of the 2028 Notes and the 2029 Notes, we entered into privately negotiated capped call transactions with the option counterparties.

We may be subject to volatility and uncertainty in customer demand, supply chains, worldwide economies and financial markets resulting from the outbreak of infectious disease or similar public health threat, such as the COVID-19 pandemic.

We have significant manufacturing operations in the United States and contract manufacturing agreements in Asia, which may be affected by the outbreak of infectious diseases or other similar public health threats and the measures to try to contain it.

At the beginning of the COVID-19 pandemic, 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 and contract packaging facilities, we experienced some disruptions in supply from containment measures in connection with the COVID-19 pandemic and may experience similar disruptions in the future from additional outbreaks of COVID-19 or other infectious diseases.

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 in connection with future outbreaks of infectious diseases or similar public health events 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.

Our amended and restated bylaws provide that, unless we consent in writing to the selection of an alternative forum, the state courts of North Carolina will be the sole and exclusive forum for substantially all disputes between us and our shareholders, which could limit our shareholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers, or employees or agents.

1 unchanged sentence

Any such action filed in a North Carolina state court shall be designated by the party filing the action as a mandatory complex business case.

In any such action where the NCBCA specifies the division or county wherein the action must be brought, the action shall be brought in such division or county.

Our amended and restated bylaws also provide that,

notwithstanding the foregoing, (x) the provisions described above will not apply to suits brought to enforce any liability or duty created by the Exchange Act or any other claim for which the federal courts have exclusive jurisdiction, and (y) unless we consent in writing to the selection of an alternative forum, the federal district courts shall, to the fullest extent permitted by law, be the exclusive forum for the resolution of any complaint asserting a cause of action against Wolfspeed or any director, officer, employee, or agent of Wolfspeed and arising under the Securities Act.

In any such action where the NCBCA specifies the division or county wherein the action

must be brought, the action shall be brought in such division or county.

Our amended and restated bylaws also provide that, notwithstanding the foregoing, (x) the provisions described above will not apply to suits brought to enforce any liability or duty created by the Exchange Act or any other claim for which the federal courts have exclusive jurisdiction, and (y) unless we consent in writing to the selection of an alternative forum, the federal district courts shall, to the fullest extent permitted by law, be the exclusive forum for the resolution of any complaint asserting a cause of action against Wolfspeed or any director, officer, employee, or agent of Wolfspeed and arising under the Securities Act.

If a court were to find the choice of forum provision contained in our amended and restated bylaws to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could harm our business, results of operations, and financial condition.

7 unchanged sentences

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

What changed 10-Q

Item 1A. Risk Factors