What changed in this filing

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Item 1A. Risk Factors

2024-11-07 compared with 2024-05-02 · 111 added, 106 removed, 399 unchanged (35% of the section changed)

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– 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.

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

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

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

• We are subject to a number of risks associated with our restructuring plan, and these risks could impact our operations, financial condition and ability to realize expected cost savings.

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

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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.

Our business may be adversely affected by the state of the global economy, uncertainties in global financial markets, our ability or our customers' or suppliers' 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, higher interest rates 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, among other things, the ongoing military conflicts between Russia and Ukraine and the ongoing conflicts in the Middle East.

For example, current global financial markets continue to reflect uncertainty, including, as a result of the ongoing military conflict between Russia and Ukraine and the ongoing conflicts in the Middle East, as well as a slowdown of the economy in China, which has impacted and could continue to impact demand for our products used in industrial and energy applications.

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

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Additionally, increased inflation around the world, including in the United States, applies pressure to our costs.

Continued economic slowdowns or recessions and inflationary pressures could have a negative impact on our business, including decreased demand, increased costs, and other challenges.

Economic slowdowns or recessions and inflationary pressures could have a negative impact on our business, including decreased demand, increased costs, and other challenges.

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 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.

and European countries.

Resulting changes in U.S.

trade policy could trigger retaliatory actions by Russia, its allies and other affected countries, including China, resulting in a potential trade war.

Furthermore, if the current conflicts between Russia and Ukraine and in the Middle East continue for a prolonged period of time, or if other countries, including the U.S., become involved in these conflicts, we could face significant adverse effects to our business and financial condition.

Additionally, Russia’s invasion of Ukraine in early 2022 triggered significant sanctions from the United States and European countries.

Resulting changes in United States trade policy could trigger retaliatory actions by Russia, its allies and other affected countries, including China, resulting in a potential trade war.

Furthermore, if the conflicts between Russia and Ukraine and in the Middle East continue for a prolonged period of time, or if other countries, including the United States, become involved in these conflicts, we could face significant adverse effects to our business and financial condition.

For example, if our supply or customer arrangements are disrupted due to expanded sanctions or involvement of countries where we have operations or relationships, our business could be materially disrupted.

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 all of our intended expansion initiatives, which we may seek to obtain through, among other avenues, government funding in both the United States and 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.

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, equity offerings or other non-debt funding sources, and debt financings (which may involve retiring, refinancing or modifying some of our existing debt).

As discussed in Note 14, "Subsequent Events," to our unaudited consolidated financial statements in Part I, Item 1 of this Quarterly Report, in connection with the PMT we entered into with the United States Department of Commerce for proposed direct capital grants under the CHIPS Act, we have agreed to raise additional capital from non-debt sources over the next 12 months and to restructure or refinance our outstanding convertible notes at specified intervals.

If unfavorable capital market conditions exist, we may not be able to raise sufficient capital or restructure or refinance our outstanding convertible notes on favorable terms and on a timely basis, if at all, which would impact our ability to access government funds and issue additional 2030 Senior Notes.

If we issue equity or convertible debt securities to raise additional funds, our existing shareholders may experience dilution and the new equity or debt securities may have rights, preferences and privileges senior to those of our then-existing shareholders.

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

In fiscal 2023, approximately 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.

In fiscal 2024, 86% 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.

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.

Government has imposed, and in the future may impose, restrictions on shipments to some of our current customers.

Government restrictions on sales to certain foreign customers will reduce company revenue and profit related to those customers in the short term and could have a potential long-term impact.

The United States Government has imposed, and in the future may impose, restrictions on shipments to some of our current customers.

Government restrictions on sales to certain foreign customers will reduce our revenue and profit related to those customers in the short term and could have a potential long-term impact.

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.

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• 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, such as the additional customs duties accrued related to our former Lighting Products business unit;

• 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, such as the additional customs duties incurred in fiscal 2024 related to our former Lighting Products business unit;

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

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

For example, the United States has imposed significant tariffs on Chinese-made goods, which the Biden administration has largely left in place.

For example, the United States has imposed significant tariffs on Chinese-made goods, which the Biden administration has largely left in place, and in certain instances increased or proposed to increase such tariffs.

The 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.

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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.

Any reduction or elimination of incentives 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 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.

Changes in regulatory, geopolitical, social, economic, or monetary policies and other factors, including those which may result from the outcome of the 2024 United States Presidential election, 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.

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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 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 renovation 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;

• 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 ramping of our 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 and the construction of a new materials manufacturing facility in Siler City, North Carolina;

• complete comprehensive due diligence, negotiate and finalize award documentation and the intercreditor agreement with the Department of Commerce, and fulfill all conditions, requirements and milestones for and receive the expected benefits from capital grants through the CHIPS Act;

• access capital markets to fund our growth initiatives, including our ongoing and planned capacity expansions, and to satisfy conditions relating to availability of government funding based on the PMT and access to additional funds under the 2030 Senior Notes Indenture;

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

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

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• realize our expected local, state and federal government incentives, including capital investment reimbursements, property tax reimbursements and sales tax exemptions from state, county and local governments;

• 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;

• safeguard confidential information and protect our intellectual property;

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

If we receive government incentives through the CHIPS Act, or through state and local grants, the restrictions and operational requirements that are associated with such grants would add complexity to our operations and increase our costs.

For example, we have signed the PMT relating to proposed funding under the CHIPS Act to support expansion of our new facilities in North Carolina and New York.

The terms for awards of funding under the PMT are preliminary and are subject to a comprehensive due diligence process and continued negotiation and review of final award documentation and therefore ultimately may not result in us receiving the full CHIPS Act funding set forth in the PMT, if at all.

Our failure to conclude definitive agreements for any reason or to meet operational or financial milestones required to receive final awards could make it more difficult to maintain our liquidity requirements and could create a negative perception or reputational concern with respect to us and our business.

Any of the above factors could have a material adverse effect on our business, results of operations or financial condition.

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 or suppliers, 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 ensuring 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.

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

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

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

• variability in our process repeatability and control;

• contamination of the manufacturing environment;

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

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

• inventory shrinkage or human errors;

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

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

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

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

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

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

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

We continue 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.

Currently, we are focusing on increasing production capacity.

Currently, we are focusing on increasing production capacity that utilizes 200mm substrates.

If we are not able to increase our production capacity at our targeted rate, if there are unforeseen costs associated with increasing our capacity levels, or if we are unable to obtain advanced semiconductor manufacturing equipment in a timely manner, we may not be able to achieve our financial targets.

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

Additionally, if product demand decreases or if we fail to forecast demand decreases or changes accurately, which could lead to a mismatch between current product demand and manufactured product mix, our results may be adversely impacted, including due to higher costs resulting from lower factory utilization, causing higher fixed costs per unit produced.

For example, in fiscal 2024, we and other semiconductor companies have been experiencing softer demand for power products in industrial and energy applications than we expected, causing us to shift capacity to products for automotive applications.

Additionally, if product demand decreases or if we fail to forecast demand decreases or changes accurately, we may experience a mismatch between current product demand and manufactured product mix, adversely impacting our results, including due to higher costs resulting from lower factory utilization, causing higher fixed costs per unit produced.

For example, in fiscal and calendar 2024, we and other semiconductor companies experienced and have continued to experience softer demand for power products in industrial and energy applications than expected.

In response, we adjusted our production mix in our North Carolina fab to manufacture power products for automotive applications, which have higher unit costs in this fab.

Changes in product demand from our customers' forecasts may also cause variability in our supply costs if significant adjustments are needed to our forecasted or committed procurement and supply plans.

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 the Mohawk Valley Fab, we have experienced and will continue to 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.

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

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

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

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

• variability in our process repeatability and control;

• contamination of the manufacturing environment;

• equipment failure, power outages, fires, flooding, information or other system failures or variations in the manufacturing process, such as the equipment incident we experienced in our Durham fab in late fiscal 2024;

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

• inventory shrinkage or human errors;

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

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

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

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

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

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

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

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

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

• market acceptance of our products and our customers’ products;

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

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

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

• market acceptance of our products and our customers’ products.

If any of these or other similar factors becomes problematic, we may not be able to deliver and introduce new products in a timely or cost-effective manner.

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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.

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

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

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

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

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

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

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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.

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

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

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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).

We typically recognize revenue on products sold to distributors when an 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.

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.

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If failures or defects occur, they could result in significant losses or product recalls.

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

A significant product recall

could also result in adverse publicity, damage to our reputation and a loss of customer confidence in 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.

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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 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 market.

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.

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.

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 associated with our strategic transactions

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

• the inability to realize the expected benefits, both from a timing and amount perspective, from our ongoing and planned capacity expansions, including the construction of a new materials manufacturing facility in Siler City, North Carolina, the planned construction of a new 200mm capable silicon carbide device fabrication facility in Saarland, Germany and the renovation of an epitaxy facility in Farmers Branch, Texas;

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

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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 December 2, 2023, we completed the sale of our former RF product line (the RF Business) to MACOM Technology Solutions Holdings, Inc.

We are subject to a number of risks associated with our restructuring plan, and these risks could impact our operations, financial condition and ability to realize expected cost savings.

In the first quarter of fiscal 2025, we began implementing a restructuring plan to reduce costs, increase our operational efficiency and align our manufacturing capacity with our customers' demand.

This plan may result in business disruptions, including impacts to our customer relationships, unfavorable publicity and reputational harm, and loss of productivity from our employees.

The expected costs and charges of our restructuring plan may be greater than we have forecasted, and the estimated cost savings may be lower than we have forecasted.

We may not be able to implement our restructuring program as planned, and we may need to take additional measures and incur additional costs to fulfill the objectives of our restructuring.

If we experience any of these adverse consequences, our restructuring plan may not achieve or sustain the intended benefits and could adversely affect our business, results of operations or financial condition.

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

On December 2, 2023, we completed the sale of the RF Business to MACOM Technology Solutions Holdings, Inc.

(MACOM) pursuant to the Asset Purchase Agreement dated August 22, 2023 (the RF Purchase Agreement).

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

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

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

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

• the diversion of our management's attention away from the operation of the business we retained;

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

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

• 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.

• our failure to realize the full purchase price anticipated under the RF Purchase Agreement, including due to fluctuations in the market price of MACOM’s common stock before we are able to sell the shares received as partial consideration for the RF Business (the MACOM Shares) following MACOM's assumption of control of the Company's 100mm GaN wafer fabrication facility in Research Triangle Park, North Carolina, approximately two years following the closing of the transaction (the RTP Fab Transfer) and/or 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 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 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.

As a result of these risks, we may be unable to realize the anticipated benefits of the transaction.

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

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

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

We are subject to risks associated with this transaction, including risks associated with any required payments of indemnification obligations under the Purchase Agreement with IDEAL for retained liabilities and breaches of representations, warranties or covenants.

As a result, we may be unable to realize the anticipated benefits of the transaction.

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

(IDEAL) and on March 1, 2021, we completed the sale of our former LED Products business unit (the LED Business) to SMART Global Holdings, Inc.

We are subject to risks associated with these transactions, including risks associated with any required payments of indemnification obligations under the Purchase Agreement with IDEAL and the Asset Purchase Agreement with SGH for retained liabilities and breaches of representations, warranties or covenants.

As a result, we may be unable to realize the anticipated benefits of these transactions.

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

Risks associated with cybersecurity, intellectual property and litigation

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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.

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

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

• potential changes in tax laws or alterations in the interpretation of such tax laws and changes in generally accepted accounting principles, for example interpretations and U.S.

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), the Coronavirus Aid, Relief and Economic Security Act of 2020 and the Inflation Reduction Act (the IRA);

• potential changes in tax laws or alterations in the interpretation of such tax laws and changes in generally accepted accounting principles, for example interpretations and United States regulations issued as a result of the significant changes to the United States 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 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;

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• changes in the valuation of our deferred tax assets and liabilities;

• the ongoing restructuring of our existing legal entities, including the restructuring of our Luxembourg holding company;

• adjustments to estimated taxes upon finalization of various tax returns;

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• the recognition and measurement of uncertain tax positions;

• variations in realized tax deductions for certain stock-based compensation awards (such as non-qualified stock options and restricted stock) from those originally anticipated;

• the repatriation of non-U.S.

earnings for which we have not previously provided for taxes or any changes in legislation that may result in these earnings being taxed, regardless of our decision regarding repatriation of funds.

For example, the TCJA included a one-time tax on deemed repatriated earnings of non-U.S.

subsidiaries.

• variations in realized tax deductions for certain stock-based compensation awards (such as restricted stock) from those originally anticipated;

• the repatriation of non-United States earnings for which we have not previously provided for taxes or any changes in legislation that may result in these earnings being taxed, regardless of our decision regarding repatriation of funds.

For example, the TCJA included a one-time tax on deemed repatriated earnings of non-United States subsidiaries.

Any significant increase or decrease in our future effective tax rates could impact net (loss) income for future periods.

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Existing and future environmental laws and regulations could also require us to acquire pollution abatement or remediation equipment, modify our product designs or incur other expenses, such as permit costs, associated with such laws and regulations.

Many new materials that we are evaluating for use in our operations may be subject to regulation under existing or future environmental laws and regulations that may restrict our use of

one or more of such materials in our manufacturing, assembly and test processes or products.

Many new materials that we are evaluating for use in our operations may be subject to regulation under existing or future environmental laws and regulations that may restrict our use of one or more of such materials in our manufacturing, assembly and test processes or products.

Any of these restrictions could harm our business and results of operations by increasing our expenses or requiring us to alter our manufacturing processes.

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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.

Regulations related to conflict-free minerals may force us to incur additional expenses.

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

As of March 31, 2024, 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 2029 Notes (the 2026 Notes, the 2028 Notes and 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 has provided the Company deposits in an aggregate principal amount of $1.5 billion with a commitment to provide additional deposits in an aggregate principal amount of up to an additional $500 million 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.

As of September 29, 2024, our indebtedness consisted of $575.0 million aggregate principal amount of our 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, and together with the 2026 Notes and the 2028 Notes, the Outstanding Convertible Notes) and $1,250.0 million aggregate principal amount of 2030 Senior Notes and an aggregate principal amount of $2,000.0 million of deposits under the CRD Agreement with Renesas America.

As discussed in Note 14, "Subsequent Events," to our unaudited consolidated financial statements in Part I, Item 1 of this Quarterly Report, on October 15, 2024, we entered into the 2030 Senior Notes Indenture which amends certain terms and conditions of the 2030 Senior Notes and permits us to issue and sell $750.0 million of additional notes, subject to the fulfillment of certain conditions.

On October 22, 2024, we issued an additional $250.0 million of 2030 Senior Notes.

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 is dependent upon our ability to manage our business operations and generate sufficient cash flows to service such debt.

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• 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;

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• 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 million as of the last day of any calendar month, which amount will be reduced over time upon the fulfillment of certain conditions.

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 $630 million as of the last day of any calendar month ending on or prior to March 31, 2025 and (b) $750 million as of April 1, 2025 and as of the last day of any calendar month ending thereafter, 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 things:

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.

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.

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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.

Our business could be negatively impacted by shareholder activism.

We have been subject to shareholder activism and may be subject to such activism in the future, which could result in substantial costs and divert management's and our board's attention and resources from our business.

For example, on April 22, 2024, JANA Partners LLC delivered a letter to our board of directors calling for a comprehensive review of strategic alternatives.

Responding to actions by activist shareholders, such as potential nominations of candidates for election to our board of directors, requests to pursue a strategic combination or other transaction, or other special requests may disrupt our business and divert the attention of management and employees.

In addition, any perceived uncertainties as to our future direction resulting from such a situation could result in the loss of potential business opportunities, be exploited by our competitors, cause concern to our current or potential customers and make it more difficult to attract and retain qualified personnel and business partners, any of which could negatively impact our business.

Shareholder activism could result in substantial costs.

In addition, actions of activist shareholders may cause significant fluctuations in our stock price based on temporary or speculative market perceptions or other factors that do not necessarily reflect the underlying fundamentals of our business.

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

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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 either case, to the extent that such market price exceeds the cap price of the capped call transactions.

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 ($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.

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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.

Hiring and retaining qualified 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 where we do business 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.

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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 $23.77 to a high of $67.94 during the twelve months ended March 31, 2024.

For example, the closing price per share of our common stock on the New York Stock Exchange ranged from a low of $7.59 to a high of $46.84 during the twelve months ended September 29, 2024.

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

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We are exposed to fluctuations in the market value of our investment portfolio and in interest rates, and therefore, impairment of our investments or lower investment income could harm our earnings.

We are exposed to market value and inherent interest rate risk related to our investment portfolio.

We are exposed to market value fluctuations and inherent interest rate risk related to our investment portfolio.

We have historically invested portions of our available cash in fixed interest rate securities such as high-grade corporate debt, commercial paper, municipal bonds, certificates of deposit, government securities and other fixed interest rate investments.

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However, these investments are generally not Federal Deposit Insurance Corporation insured and may lose value and/or become illiquid regardless of their credit rating.

In addition, we currently hold shares in MACOM Technology Solutions Holdings, Inc.

that we acquired in connection with the sale of the RF Business.

In addition, we currently hold the MACOM Shares that we acquired in connection with the RF Business Divestiture.

These shares are subject to risks inherent in the business of that company and to trends affecting the equity markets as a whole.

As more fully discussed further in Note 2, "Discontinued Operations," in our unaudited financial statements in Part I, Item 1 of this Quarterly Report, the shares are also subject to restrictions on transfer prior to the RTP Fab Transfer and one quarter of the shares are subject to the risk of forfeiture in the event that the RTP Fab Transfer is not completed within four years following the closing of the transaction.

As discussed further in Note 2, "Discontinued Operations," in our unaudited financial statements in Part I, Item 1 of this Quarterly Report, the shares are also subject to restrictions on transfer prior to the RTP Fab Transfer and one quarter of the shares are subject to the risk of forfeiture in the event that the RTP Fab Transfer is not completed within four years following the closing of the transaction.

Should the value of these shares decline, the related write-down in value could have a material adverse effect on our financial condition and results of operations.

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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.

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.

We have significant manufacturing operations in the United States and contract manufacturing operations 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.

For example, during the COVID-19 pandemic, we experienced some limited disruptions in our supply chain and may experience similar disruptions in the future in the event of a pandemic.

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.

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.

proceeding brought on behalf of Wolfspeed, (ii) any action asserting a claim of breach of a fiduciary duty owed by any director, officer or other employee of Wolfspeed to Wolfspeed or our shareholders, (iii) any action asserting a claim arising pursuant to any provision of the North Carolina Business Corporation Act (the NCBCA), our restated articles of incorporation, as amended, or our amended and restated bylaws, (iv) any action to interpret, apply, enforce, or determine the validity of our restated articles of incorporation, as amended, or our amended and restated bylaws, or (v) any action asserting a claim governed by the internal affairs doctrine, shall be the state courts of North Carolina, or if such courts lack jurisdiction, a federal court located within the State of North Carolina, in all cases subject to the court’s having personal jurisdiction over the indispensable parties named as defendants.

Our amended and restated bylaws provide that, unless we consent in writing to the selection of an alternative forum, the sole and exclusive forum for all litigation relating to our internal affairs, including without limitation (i) any derivative action or proceeding brought on behalf of Wolfspeed, (ii) any action asserting a claim of breach of a fiduciary duty owed by any director, officer or other employee of Wolfspeed to Wolfspeed or our shareholders, (iii) any action asserting a claim arising pursuant to any provision of the North Carolina Business Corporation Act (the NCBCA), and our amended and restated articles of incorporation, or our amended and restated bylaws, (iv) any action to interpret, apply, enforce, or determine the validity of our amended and restated articles of incorporation, or our amended and restated bylaws, or (v) any action asserting a claim governed by the internal affairs doctrine, shall be the state courts of North Carolina, or if such courts lack jurisdiction, a federal court located within the State of North Carolina, in all cases subject to the courts having personal jurisdiction over the indispensable parties named as defendants.

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.

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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