Item 1A.
Risk Factors
Our business involves numerous risks and uncertainties, including but not limited to the material risks described below. This section should be read in conjunction with all the other information in this Annual Report on Form 10-K and our other filings with the SEC. If any of these risks materialize from time to time, then our business, reputation, financial condition, operating results, and growth prospects could be materially and adversely affected. In such an event, the trading price of our common stock could decline, and you could lose all or part of your investment in our common stock. Additional risks, trends and uncertainties may arise that could also harm our business, reputation, financial condition, operating results, and growth prospects.
Our past financial performance should not be considered to be a reliable indicator of future performance, and investors should not use historical trends to anticipate results or trends in future periods. These risks include those related to forward-looking statements and our actual results may differ substantially from those discussed in these forward-looking statements.
Risk Factors Summary
The following summary description sets forth an overview of the material risks we are exposed to in the normal course of our business activities. The summary does not purport to be complete and is qualified in its entirety by reference to the full risk factor discussion immediately following this summary description. We encourage you to read the full risk factor discussion carefully.
Our revenue and expenses are difficult to predict, have varied significantly in the past, and could fluctuate significantly in the future due to numerous risks and uncertainties, many of which are beyond our control. As a result, we may not be profitable on a quarterly or annual basis. Our business, results of operations and financial condition, as well as your investment in our common stock, could be materially and adversely affected by any of the following material risks:
our dependence on the markets in Asia for our customer base, which may expose us to political, cultural, regulatory, economic, foreign currency and operational risks;
inherent risks associated with the operation in China, which could increase product costs or cause a delay in product shipments;
changes in general economic conditions in the countries where our products are sold or used, particularly those in China;
the impact of extensive Chinese government regulations, reduction or elimination of incentives, and uncertainties with respect to China’s legal system, on us and our manufacturing partners and suppliers;
changes in international trade policy, such as tariffs on imports of foreign goods and regulations restricting the export of goods and services, between the U.S. and China or other countries;
political and other risks in Taiwan and Hong Kong due to their tense relationships with China;
fluctuations in the value of the U.S. Dollar relative to other currencies, including the Renminbi;
our reliance on key suppliers in China, which may expose us to political, cultural, regulatory, economic, foreign exchange, operational and capacity shortage risks;
our ability to achieve growth rates or financial performance comparable to past years;
changes in general demand for electronic products in the end markets that we serve;
our ability to accurately forecast sales and expenses due to the nature of our business as a component supplier;
our ability to timely develop and introduce new products, and the acceptance of our new products in the marketplace;
our dependency on a limited number of customers for a significant portion of our revenue;
potential product liability risks due to defects or failures to meet specifications;
lengthy sales cycles for our products balanced against the fixed nature of a substantial portion of our expenses;
availability of adequate manufacturing capacity from our suppliers, and our ability to increase product sales in spite of capacity challenges;
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increases in unanticipated costs as a result of increasing manufacturing capacity;
our dependency on third-party suppliers for wafer purchases and other key components, and potential increases in prices for such materials due to general capacity shortages;
our ability to deliver products on a timely basis despite disruptions in our relationships with assembly and test subcontractors;
our ability to manage our inventory levels, including the levels of inventory held by our distributors;
increases in manufacturing costs due to commodity price increases;
the highly cyclical nature of the semiconductor industry, and increased competition due to industry consolidation;
competition from companies with greater financial and technological resources, and customers developing products internally;
the impact of system upgrades, cyberattacks or other system security, data protection and privacy breaches on our business operations;
our significant investment of resources in research and development that may not result in increased future sales;
our ability to realize the anticipated benefits of any business acquisitions and other strategic investments;
the impact of new tax laws and interpretations of those laws on our tax provision and tax planning;
examination of our income tax returns, which could result in changes in effective tax rates or other adverse outcomes;
the complexity of certain accounting areas;
risks in connection with our internal control over financial reporting, the identified material weakness and the restatement of our prior financial statements;
our failure to comply with various governmental laws and regulations, including anti-corruption laws, export control laws, environmental laws, regulation and reporting standards related to environmental, social and governance (“ESG”);
our ability to successfully defend ourselves in legal proceedings and protect our intellectual property, and the significant increase in legal expenses as a result of such proceedings;
risks in connection with the use of open source code software;
the loss of key personnel and our ability to retain key employees to maintain or upgrade our business systems and maintain internal controls;
risks associated with owning our stock, including volatility in our trading price due to our business and financial performance, analyst downgrades, failure to meet our own or analyst expectations, short positions in our common stock, changes to our stock repurchase or dividend program, and dilution from issuance of additional shares; and
economy and geopolitical uncertainties and risks associated with business continuity in the event of natural or other disasters including pandemics, war, climate crises and other natural disasters.
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Risks Associated with Our Significant Operations in Asia, Particularly in China
We derive most of our revenue from direct or indirect sales to customers in Asia and have significant operations in Asia, which may expose us to political, cultural, regulatory, economic, foreign exchange, and operational risks.
We derive most of our revenue from customers located in Asia through direct sales or indirect sales under distribution arrangements and value-added reseller agreements with parties located in Asia. As a result, we are subject to significant risks due to this geographic concentration of business and operations. For the year ended December 31, 2025, 92% of our total revenue was from customers in Asia. There are risks inherent in doing business in Asia, and internationally in general, including:
changes in, or impositions of, legislative or regulatory requirements or restrictions, including tax and trade laws in the U.S., and in the countries in which we manufacture or sell our products, and governmental action or restrict our ability to sell to foreign customers where sales of products may require export licenses;
trade restrictions imposed by the U.S. related to goods imported from regions in China with records of forced labor and other human rights issues;
changes in U.S. laws, or the interpretation and enforcement of these laws, regarding investment in China or other countries;
fluctuations in the value of the U.S. Dollar relative to other currencies, which could affect the competitiveness of our products;
transportation delays and other supply chain issues;
changes in tax regulations in China that may impact our tax status in Chengdu, Hangzhou and other regions where we have significant operations;
multi-tiered distribution channels that may diminish visibility to end customer pricing and purchasing patterns;
international political relationships and acts or threats of war;
terrorism and threats of terrorism;
adverse weather conditions or other natural disasters that may cause work stoppages and affect our operations in China;
work stoppages due to economic, social and political instability;
longer accounts receivable collection cycles;
currency exchange rate fluctuations impacting intercompany transactions;
enforcing contracts; and
less effective protection of intellectual property and contractual arrangements.
If we fail to expand our customer base and significantly reduce the geographic concentration of our customers, we will continue to be subject to the foregoing risks, which could materially and adversely affect our business, financial condition and results of operations.
There are inherent risks associated with the operation of our manufacturing and testing facilities in China, which could increase product costs or cause a delay in product shipments.
We have manufacturing and testing facilities in China. We face the following risks, among others, with respect to our operations in China:
challenges to hire and maintain a qualified workforce;
natural disasters such as earthquakes, flooding, severe heatwaves or droughts, which could result in power outages, water restrictions or grid constraints that impact our facilities;
challenges to maintain appropriate and acceptable manufacturing controls; and
higher than anticipated overhead and other operational costs.
If we are unable to maintain our facilities in China at full operational status with qualified workers, appropriate manufacturing controls and reasonable cost levels, we may incur costs higher than our current expense levels, which would affect our gross margins and operating expenses. In addition, if capacity restraints result in significant delays in product shipments, our business and results of operations would be materially and adversely affected.
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Our business has been and may be significantly impacted by worldwide economic conditions, in particular changing economic conditions in China.
Our operations and performance depend significantly on global economic conditions. Adverse macroeconomic conditions, including inflation, slowing growth, recession, stagflation, new or increased tariffs and other barriers to trade, tighter credit, higher interest rates, currency fluctuations, higher unemployment, labor shortages, lower capital expenditures by businesses, and lower consumer confidence and spending, have in the past, and could in the future, have a material adverse effect on logistics, demand for our products, and our product and operational costs. For example, to the extent there are economic uncertainties, some of our customers may cancel, decrease or delay their existing and future orders with us, which could impact our financial results and make our forecasting much more difficult.
Demand for our products is a function of the health of the economies in the U.S., Europe, China and the rest of Asia. We cannot predict the timing, strength or duration of any economic disruptions, such as those resulting from global economic uncertainties, changes to trade laws and policies by the U.S. administration, and current and potential global conflicts, or the rate or magnitude of economic recovery worldwide, in our industry, or in the different markets that we serve. We also may not accurately assess the impact of changing market and economic conditions on our business and operations, resulting in excess or insufficient inventory, increased costs, inability to forecast and adverse effects on our financial condition or operating results. These and other economic factors could have a material adverse effect on demand for our products, and on our financial condition and operating results.
In particular, since we have significant operations in China, our business development plans, results of operations and financial condition may be materially and adversely affected by significant political, social and economic developments in China or in U.S./China relations. The current stagnation in China’s economy has adversely impacted, and could further adversely impact, our customers, prospective customers, suppliers, distributors and partners in China, which could have a material adverse effect on our operating results and financial condition.
We and many of our manufacturing partners and suppliers are subject to extensive Chinese government regulations, and the benefit of various incentives from Chinese governments that we and many of our manufacturing partners and suppliers receive may be reduced or eliminated, which could increase our costs or limit our ability to sell products and conduct activities in China.
The Chinese government has broad discretion and authority to regulate the technology industry in China. Additionally, the Chinese government has implemented policies from time to time to regulate economic activities in China. It exercises significant control over China’s economy through the allocation of resources, controlling payment of foreign currency-denominated obligations, setting monetary policy and providing preferential treatment to particular industries or companies.
Any additional regulations or the amendment, or reinterpretation of previously implemented regulations could require us and our manufacturing partners and suppliers to change our business plans, increase our costs, or limit our ability to manufacture or sell products and conduct business activities in China, which could materially and adversely affect our business and operating results.
The Chinese provincial and local governments have also provided, and may continue to provide, various incentives to encourage the development of the semiconductor industry in China. Such incentives include cash awards, tax rebates, reduced tax rates, favorable lending policies and other measures, some or all of which may be available to our manufacturing partners, suppliers and us. Any of these incentives could be reduced or eliminated by governmental authorities at any time, which could materially and adversely affect our business and operating results.
Uncertainties with respect to China’s legal system, including uncertainties regarding the enforcement of laws, and sudden or unexpected changes in policies, laws and regulations in China could materially and adversely affect our operations.
China’s legal system is a civil law system based on written statutes. Unlike the common law system, prior court decisions under the civil law system may be cited for reference but have limited precedential value. Since China’s legal system continues to rapidly evolve, the interpretations and enforcement of these laws and regulations are not always uniform and involve uncertainties. In addition, any new or amended laws and regulations related to foreign investments, manufacturing or other matters could have a material adverse effect on our business and our ability to operate business in China.
From time to time, we may have to resort to administrative and court proceedings to enforce our legal rights. Any administrative and court proceedings in China may be protracted, resulting in substantial costs and diversion of resources and management attention. Since China’s administrative and court authorities have significant discretion in interpreting and implementing statutory provisions and contractual terms, it may be more difficult to evaluate the outcome of administrative and court proceedings and the level of legal protection than those that may be provided in other jurisdictions. These uncertainties or adverse rulings may impede our ability to enforce contracts in China and could materially and adversely affect our business and results of operations.
Furthermore, China’s legal system is based in part on government policies and internal rules, some of which are not published on a timely basis, or at all, and may have retroactive effects. As a result, we may not be aware of our violation of any of these policies and rules until some time after the violation may have occurred. Such unpredictability regarding our contractual, property and procedural rights and any failure to quickly respond to changes in the regulatory environment in China could materially and adversely affect our business and impede our ability to continue our operations and execute on our business plans in China.
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We are subject to export laws, trade policies and restrictions including international tariffs that could materially and adversely affect our business and results of operations.
We are subject to U.S. laws and regulations that could limit or restrict the export of some of our products, supplies and services and may restrict our transactions with certain customers, business partners and other individuals, including, in certain cases, dealings with or between us and our employees and subsidiaries. In certain circumstances, export controls and economic sanctions may prohibit the export of certain products, services and technologies, and in other circumstances we may be required to obtain an export license before exporting the controlled item. Compliance with these laws and regulations has not materially limited our operations or our sales, but could in the future, which would materially and adversely affect our business and results of operations. We maintain an export compliance program, but our compliance controls could be circumvented, exposing us to legal liabilities, sanctions and restrictions on our business. We must also comply with export restrictions and laws imposed by other countries affecting trade and investments. Although these restrictions and laws have not materially restricted our operations in the past, they could do so in the future, which would materially and adversely affect our business and results of operations. In addition, U.S. laws and regulations and sanctions, or threat of sanctions, that could limit or restrict the export of some of our products and services may also encourage our customers to develop their own solutions to replace our products, or seek to obtain a supply of similar or substitute products from our competitors that are not subject to these restrictions, which could materially and affect our business, financial condition and results of operations. Furthermore, our customers’ end products and systems that incorporate our components could be subject to export laws, trade policies and other sales restrictions, which could indirectly affect our business, financial conditions and results of operations. For example, the increasing focus on the risks and strategic importance of AI technologies has resulted in regulatory restrictions that target products and services capable of or facilitating AI, and may in the future result in additional restrictions impacting the sales of AI technologies or products. Any of such regulatory restrictions could, in turn, impact the sales of our products supporting AI applications. We are also subject to U.S. laws restricting or prohibiting investments in certain countries, that may our ability to purchase from, invest in, or with, companies in those countries and could subject us to , or other enforcement action.
There have been several rounds of U.S. tariffs on Chinese goods that have taken effect in the past few years, as well as additional tariffs imposed by the U.S. administration in 2025, some of which prompted, and could prompt additional, retaliatory Chinese tariffs on U.S. goods. The institution of trade tariffs both globally and between the U.S. and China specifically carries the risk of negatively affecting both countries’ overall economic condition, as well as our business and financial results. If these tariffs continue or additional tariffs are imposed in the future, they could have a negative impact on us as we have significant operations in China and the U.S.
Additionally, the imposition of tariffs is dependent upon the classification of goods under the U.S. Harmonized Tariff System (“HTS”) and the country of origin of the goods. Determination of the HTS and the origin of the goods is a technical matter that can be subjective in nature. Accordingly, although we believe our classifications of both HTS and origin are appropriate, there is no certainty that our assessment will be consistent with that of the U.S. government. If the U.S. government does not agree with our determinations, we could be required to pay additional amounts, our ability to sell products in the U.S. may be restricted or eliminated, we may be required to change our suppliers or supply routes and we may incur substantial additional costs or potential penalties.
We face political and other risks conducting business in Taiwan and Hong Kong, particularly due to their tense relationships with China.
We have significant business operations in Taiwan, and many of our manufacturing partners, suppliers and customers are located in Taiwan. Accordingly, our business, financial condition and results of operations may be affected by changes in governmental and economic policies in Taiwan, social instability and diplomatic and social developments in or affecting Taiwan due to its unique international political status. Although Taiwan and China have significant economic and cultural relations, we cannot assure that relations between Taiwan and China will not face political, military or economic challenges or actions in the future. Any deterioration in the relations between Taiwan and China, and other factors affecting military, political or economic conditions in Taiwan or elsewhere in Asia, could disrupt our business operations and materially and adversely affect our results of operations.
In addition, the Chinese government has promulgated various laws and regulations impacting economic and political stability within Hong Kong where many of our customers are located. Due to the sensitive political climate these laws and regulations created, there are risks that these laws and regulations, or future, more stringent laws or regulations, may trigger sanctions or other forms of restrictions by foreign governments including the U.S., which could affect companies, including us, conducting business in Hong Kong. It is difficult for us to predict the impact, if any, the implementation of these laws and regulations will have on our business, as such impact will depend on future developments, which are highly uncertain and cannot be predicted.
Fluctuations in the value of the U.S. Dollar relative to other currencies, including the Renminbi, may adversely affect our results of operations.
Many of our manufacturing and other suppliers are and will continue to be primarily located in China for the foreseeable future. Recently, there has been an increased level of global currency fluctuation and volatility. If the value of the Renminbi rises against the U.S. Dollar, there could be an increase in our manufacturing costs relative to competitors who have manufacturing facilities located outside China, which could adversely affect our financial results and operations. In addition, our sales are primarily denominated in the U.S. Dollar. If the value of the U.S. Dollar rises against other currencies, it may adversely affect the demand for our products in international markets, which could negatively and materially impact our business and results of operations.
We incur foreign currency exchange gains or losses related to certain transactions, including intercompany transactions between the U.S. and our foreign subsidiaries, that are denominated in currencies other than the functional currencies used by those subsidiaries. Fluctuations in the value of the U.S. Dollar relative to foreign currencies could increase the amount of foreign currency exchange losses we record, which could have an adverse and material impact on our results of operations.
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A significant portion of our manufacturing, testing, assembly and packaging capacity comes from suppliers in China, which exposes us to political, cultural, regulatory, economic, foreign exchange, operational risks and capacity shortage risks.
A significant portion of our manufacturing, testing, assembly and packaging capacity comes from key suppliers located in China. As a result, we are subject to significant political, regulatory, tax, economic, foreign exchange, and operational risks due to this geographic concentration in our business. Although we have made significant progress in diversifying capacity outside of China, there is no guarantee that our progress is sufficient or will be sufficient to mitigate these risks. Furthermore, we cannot guarantee that our new manufacturing, testing, assembly and packaging partners will not be costlier than our legacy partners in China. In addition, as we pivot our manufacturing, testing, assembly and packaging capacity concentration from China to another region, we will be subject to the risks of doing business in that particular region. If we decide to further diversify our capacity, it could be costly due to lost pricing benefits from production volume, as well as the time and cost to qualify new partners. Furthermore, there is no guarantee that the quality of the products from new suppliers will be acceptable to us, or that these suppliers will be able to meet our demand.
Risks Associated with Product Demand and Sales
We may not achieve growth rates or financial performance comparable to past years.
In the past, our revenue increased significantly in certain years due to increased sales of certain of our products. We are subject to numerous risks and factors that could cause a decrease in our growth rates, or a decline in revenue compared to past periods, including increased competition, loss of, or reductions in demand or the growth rate of demand from, certain of our customers, unfavorable changes in our operations, changing technologies and customer requirements and demand, reduced global electronics demand, a deterioration in market conditions including as a result of the global economic uncertainties and tariffs, end customer market downturns, market acceptance and penetration of our current and future products, and litigation. A decrease in our rate of growth, or a decline in revenue, could materially and adversely affect our business and results of operations.
If demand for our products declines in the major end markets that we serve, our revenue will decrease and our results of operations and financial condition would be materially and adversely affected.
We believe that the application of our products in the storage and computing, enterprise data, automotive, industrial, communication and consumer end markets will continue to account for the majority of our revenue. If we are not able to accurately predict new end markets to serve or if the demand for our products declines in certain of our current major end markets, our revenue would decrease compared to prior year periods and our results of operations and financial condition would be materially and adversely affected. In addition, as technology evolves, the requirement to integrate the functionalities of various components, including our discrete semiconductor products, onto a single chip and/or onto other components of systems containing our products increases. Should our customers require integrated solutions that we do not offer, or if our products cannot be integrated effectively into changing technological requirements of our customers, demand for our products could decrease, and our business, financial condition and results of operations would be materially and adversely affected.
Due to the nature of our business as a component and solution supplier, we may have difficulty both in accurately predicting our future revenue and appropriately managing our expenses.
Because we provide components and solutions for end products and systems, demand for our products is influenced by our customers’ end product demand. As a result, we may have difficulty in accurately forecasting our revenue and expenses. Our expenses and revenue depend on the timing, size, and speed of commercial introductions of end products and systems that incorporate our products, all of which are inherently difficult to forecast, as well as the ongoing demand for previously introduced end products and systems. In addition, demand for our products is influenced by our customers’ ability to manage their inventory. Our sales to distributors are also subject to higher volatility because they service demand from multiple levels of the supply chain which, in itself, is inherently difficult to forecast. All of these factors continue to be exacerbated by the adverse effects of macroeconomic factors, including inflation, increased interest rates, decreased economic output, fluctuations in currency rates, geopolitical tensions, global tariffs and retaliatory measures and announcements regarding the same. If our customers reduce their orders from us, do not manage their inventory correctly or misjudge their customers’ demand, our shipments to and orders from our customers may vary significantly or on a quarterly basis, and we may have forecasting our expenses and inventory levels, which could reduce our revenue or revenue , result in inventory write-offs, and affect our financial condition and results of operations.
We may be unsuccessful in developing and selling new products with margins similar to, or better than, what we have experienced in the past, which could impact our overall gross margin and financial performance.
Our success depends on our development and sale of products that are differentiated in the market, with gross margins that have historically been above industry averages. Should we fail to improve or maintain our gross margins in the future, and accordingly develop and introduce sufficiently differentiated products that result in higher gross margins than industry averages or meet or exceed our historical margins, our business, financial condition and results of operations could be materially and adversely affected.
We may be unsuccessful in developing and selling new products or in penetrating new markets required to maintain or expand our business.
Our competitiveness and future success depend on our ability to design, develop, manufacture, assemble, test, market, and support new products and enhancements on a timely and cost-effective basis. A fundamental shift in technologies in any of our product markets could have a material adverse effect on our competitive position within these markets. Our failure to timely develop new technologies or to react quickly to changes in existing technologies could materially delay our development of new products, which could result in product obsolescence, decreased revenue, and/or a loss of market share to competitors.
As we develop new product lines, we must adapt to market conditions that may be unfamiliar to us, such as competitors and distribution channels that are different from those we have known in the past. Some of our new product lines require us to re-equip our labs to test parameters we have not tested in the past. If we are unable to adapt rapidly to these new conditions, we may not be able to successfully penetrate new markets.
The success of a new product depends on our ability to achieve design wins with key distributors and end customers, as well as our ability to accurately forecast long-term market demand and future technological developments, as well as on a variety of other factors, including:
timely and efficient completion of process design and device structure improvements;
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timely and efficient implementation of manufacturing, assembly, and test processes;
the ability to secure and effectively utilize fabrication capacity in different geometries;
product performance;
integration with other components and technologies;
product availability and pricing;
product quality and reliability; and
effective marketing, sales and services.
To the extent that we fail to timely obtain design wins, introduce new products or to quickly penetrate new markets, our business, financial condition and results of operations could be materially and adversely affected.
The loss of any significant distributors, value-added resellers or direct or indirect customers, or failure to collect accounts receivable from them could adversely affect our financial position and results of operations.
We market our products either through distribution arrangements and value-added resellers, or through our direct sales to customers. A relatively small number of distributors account for a significant portion of our revenues. Specifically, our top three customers, all of which are distributors, accounted for an aggregate of 54%, 61% and 55% of our revenue in the years ended December 31, 2025, 2024 and 2023, respectively. Concentration in a small number of distributors increases our exposure to their credit profiles, inventory practices, covenant constraints, and strategic priorities, any of which can amplify order volatility or returns. If we lose a major customer or a major customer changes their products or technologies or chooses to purchase our competitors’ products such that they decrease, or eliminate the amount of our products they purchase, and we are not able to replace such customers with additional orders from other customers, this could result in a material adverse impact on our financial condition and results of operations. Significant deterioration in the liquidity or financial condition of any of our major customers or any group of our customers could have a material adverse impact on the collectability of our accounts receivable and our financial condition and operating results. While we could partner with other distributors or value-added resellers to replace any of our customers, the change in business partners could our operations, require us to identify and qualify new partners, and have a materially impact on our business, financial condition and results of operations.
Moreover, we believe a high percentage of our products are eventually sold to a number of original equipment manufacturers (“OEMs”) and original design manufacturers (“ODMs”). Although we communicate with OEMs and ODMs to achieve “design wins,” which are decisions by OEMs and ODMs to incorporate our products, we do not have purchase commitments from these customers. Therefore, there can be no assurance that the OEMs and ODMs will continue to incorporate our ICs into their products, even if we may have secured a design win with them. OEM and ODM technical specifications and requirements can change rapidly, and we may not have products that fit new specifications from an end customer for whom we have had previous design wins. We cannot be certain that we will continue to achieve design wins from large OEMs and ODMs, or that the OEMs and ODMs will be successful in selling products that incorporate our ICs.
Furthermore, we may not be able to maintain or increase sales to our key direct or indirect customers for other reasons, including:
many of our customers have pre-existing or concurrent relationships with our current or potential competitors, including, in some cases, suppliers with a broader array of products than we offer, that may affect our customers’ decisions to purchase our products;
our customers face intense competition from other manufacturers that do not use our products;
our customers may be subject to investigations and litigation that could result in injunctive or other relief that negatively impacts sales of their products, which in turn would result in a decrease in demand for our products; and
our customers regularly evaluate alternative sources of supply in order to diversify their supplier base, which could result in lower sales of our products or a decrease in growth of sales of our products, and increase their negotiating leverage with us.
A material reduction in orders, or rumors or threats of same, by any of our significant direct or indirect customers, could reduce our revenue, cause a decline in our stock price, and adversely affect our financial condition and results of operations.
Our products must meet specifications, and undetected defects and failures may occur, which may cause customers to return or stop buying our products and may expose us to product liability risk.
Our customers generally establish demanding specifications for quality, performance, energy efficiency and reliability that our products must meet. ICs as complex as ours often encounter development delays and may contain undetected defects or failures when first introduced or after commencement of commercial shipments, which might require product replacement or recall. Further, our third-party manufacturing processes or changes thereto, or changes in the materials used in the manufacturing processes may cause our products to fail. From time to time, we have experienced product quality, performance or reliability problems. Our standard warranty period is generally one or two years, which exposes us to significant risks of claims for defects and failures. If defects and failures occur in our products, we could experience a of revenue and/or customers, increased costs, including warranty expense and costs associated with customer support, or rescheduling of orders or shipments, and product returns or discounts, any of which would our operating results.
In addition, product liability claims may be asserted by our customers. Although we currently have insurance, there can be no assurance that we have obtained sufficient insurance coverage or that asserted claims will be within the scope of coverage. Our insurance providers could deny or challenge these claims, and as a result, reimbursement to us is not guaranteed or could be delayed. If coverage is denied, we may not have sufficient resources to pay for these claims. Furthermore, we may experience a significant increase in premiums and therefore decide to self-insure, which may not meet the expectations or requirements of certain customers, and could result in significant costs to us. All of these factors could have a material and adverse impact on our business, financial condition and results of operations.
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Because of the lengthy sales cycles for our products and the fixed nature of a significant portion of our expenses, we may incur substantial expenses before we earn associated revenue and may not ultimately achieve our forecasted sales for our products.
The introduction of new products presents significant business challenges because product development plans and expenditures may be made up to two years or more in advance of any sales. It generally takes us up to 12 months or more for us to design and manufacture a new product prototype. Only after we have a prototype do we introduce the product to the market and begin selling efforts in an attempt to achieve design wins. This sales process requires us to expend significant sales and marketing resources without any assurance of success. Volume production of products that use our ICs, if any, may not be achieved for an additional period of time after an initial sale. Sales cycles for our products are lengthy for a number of reasons, including:
our products must be designed to operate with and into our customers’ products or systems, which usually includes an in-depth technical evaluation of our products by our customers before they place a purchase order;
delays attributable to the development of our customers’ products; and
delays attributable to commercial adoption by our end customers upon the initial release of our products in order for our customers to evaluate product performance and consumer demand.
As a result of our lengthy sales cycles, we may incur substantial expenses before we earn associated revenue because a significant portion of our operating expenses is relatively fixed and based on expected revenue. The lengthy sales cycles of our products also make forecasting the volume and timing of orders difficult. In addition, the delays inherent in lengthy sales cycles raise additional risks that customers may cancel or change their orders, particularly as our customers are exposed to economic risks in connection with global economic uncertainty and political tensions, including tariffs, or move to another supplier, in whole or in part, as well as the risks inherent in introducing new products or entering new markets. Our sales are made by purchase orders. Because industry practice allows customers to reschedule or cancel orders on relatively short notice, backlog is not always a good indicator of our future sales. If customer cancellations or purchase order changes occur, we could lose anticipated sales. Furthermore, if our customers cancel orders after we submit a committed forecast to our suppliers, we may be required to purchase supplies or materials that we are to resell or utilize in our other products, which could affect our financial condition, results of operations and cash flows.
Risks Associated with Supply and Manufacturing
Our ability to increase product sales and revenue may be constrained by the manufacturing capacity of our suppliers.
Although we provide our suppliers with rolling forecasts of our production requirements, their ability to provide wafers to us is limited by their available capacity, particularly capacity in the geometries we require, at the facilities in which they manufacture wafers for us. This lack of capacity has at times constrained our product sales and revenue growth. In addition, an increased need for capacity to meet internal demands or demands of other customers could cause our suppliers to reduce capacity available to us. Our suppliers may also require us to pay amounts in excess of contracted or anticipated amounts for wafer deliveries or require us to make other concessions in order to acquire the wafer supply necessary to meet our customer requirements. Such concessions can include long‑term capacity reservations, prepayments, take‑or‑pay terms, or tool funding, which may increase working capital needs and reduce flexibility across product cycles. If our suppliers extend lead times, limit supplies or the types of capacity we require, or increase prices due to capacity constraints or other factors, our revenues and our gross margin may materially decline in the future. In addition, if we experience supply delays or limitations, our customers may reduce their purchase levels with us and/or seek alternative solutions to meet their demand, which could materially and adversely impact our revenue and results of operations.
There may be unanticipated costs associated with increasing our third-party suppliers’ manufacturing capacity.
We anticipate that future growth of our business will require increased manufacturing capacity from our third-party supply foundries, assembly shops, and testing facilities. In order to facilitate such growth, we may need to enter into strategic transactions, investments and other activities, with both our current suppliers and new suppliers. The need for additional manufacturing, assembly and testing involves numerous risks, including:
the costs associated with such increased capacity, including requirements to make long-term purchase commitments including upfront cash deposits to our suppliers;
the availability of modern foundries to be developed, acquired, leased or otherwise made available to us or our third-party suppliers;
the ability of foundries and our third-party suppliers to obtain the advanced equipment used in the production of our products;
delays in identifying and negotiating agreements with new foundries and suppliers; and
environmental, engineering or manufacturing qualification problems relating to existing or new foundry facilities, including delays in qualification of new foundries by our customers.
These and other risks may affect the ultimate cost and timing of any expansion of our third-party supplier capacity. If our manufacturing costs increase, including as a result of inflationary pressure and global tariffs, or we experience supply constraints, we may be required to raise the prices of our products to remain profitable, which could result in a loss of customers or a decline in orders from customers. If we are unable to increase or maintain our manufacturing capacity, we may be unable to meet demand, which would harm our revenue and results of operations and may result in a loss of customers as they seek supply from other sources.
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We currently depend on third-party suppliers to provide us with wafers and other key components for our products. If any of our suppliers are acquired, become insolvent or capacity constrained, or are otherwise unable to provide us with sufficient wafers and other key components at acceptable yields or at anticipated costs, our revenue and gross margin may decline or we may not be able to fulfill our customer orders.
While certain aspects of our relationships with these suppliers are contractual, many important aspects of our relationships depend on our suppliers’ continued cooperation and our management of such relationships with the suppliers. Our relationships could be negatively impacted by changes in control or changes in the management team of the suppliers. In addition, the fabrication of ICs is a highly complex and precise process. Problems in the fabrication process can cause a substantial percentage of wafers to be rejected or numerous ICs on each wafer to be non-functional. This could potentially reduce yields and supply of our products. The failure of our suppliers to provide wafers at acceptable yields could prevent us from fulfilling our customer orders and would likely cause a decline in our revenue.
In addition, adverse macroeconomic conditions, such as inflationary pressures resulting from worldwide supply chain constraints and other factors, have increased, and may continue to increase, the prices we pay to our suppliers. As a result of the increased costs, we have raised, and may be required to further raise the prices of our products in order to remain profitable, which could result in a loss of customers and reduced revenue. If we are unable to increase our prices to reflect higher costs, our margins will decrease.
We might not be able to deliver our products on a timely basis if our relationships with our assembly and test subcontractors are disrupted or terminated.
We do not have direct control over product delivery schedules or product quality because all of our products are assembled by third-party subcontractors and a portion of our testing is currently performed by third-party subcontractors. Also, due to the amount of time typically required to qualify assembly and test subcontractors, we could experience delays in the shipment of our products if we were forced to find alternate third parties to assemble or test our products. In addition, current and potential global conflicts and supply chain disruptions may materially impact our assembly or testing suppliers’ ability to operate. Any future product delivery delays or disruptions in our relationships with our subcontractors could have a material adverse effect on our financial condition, results of operations and cash flows.
We purchase inventory in advance based on expected demand for our products, and if demand is not as expected, we may have insufficient or excess inventory, which could adversely impact our financial position.
As a fabless semiconductor company, we purchase our inventory from third-party manufacturers. We place orders with our manufacturers based on existing and expected orders from our customers for particular products. While most of our contracts with our customers and distributors include lead time requirements and cancellation penalties that are designed to protect us from misalignment between customer orders and inventory levels, we must nonetheless make some predictions when we place orders with our manufacturers. Some of our customers and distributors may nevertheless cancel orders as a result of economic conditions, their own specific business challenges or for other reasons. In the event that our predictions are inaccurate due to unexpected increases in orders or unavailability of products within the timeframe that is required, we may have insufficient inventory to meet our customers’ demands. In addition, a negative trend in market conditions could lead us to decrease the manufacturing volume of our products to avoid excess inventory. If we inaccurately assess market conditions for our products, we could have inventory to meet our customer demands resulting in potential revenue. In the event that we order products that we are to sell due to a decrease in orders, order , due to patent , import/export restrictions or product returns, we may have excess inventory which, if not sold, may need to be written down or would result in a decrease in our revenue in future periods as the excess inventory at our distributors is sold. If any of these situations were to arise, it could have a material impact on our business, financial condition and results of operations.
The price and availability of commodities used in our products, such as gold, copper and silicon, may adversely impact our ability to deliver our products in a timely and cost-effective manner, and may adversely affect our business and results of operations.
We work with our engineers and suppliers to continuously seek opportunities to reduce our product costs. However, the price and availability of these commodities is beyond our control. A significant increase in pricing or a decrease in the availability of these commodities that we use could negatively impact our business and results of operations.
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Risks Associated with Industry Dynamics and Competition
The highly cyclical nature of the semiconductor industry, which has resulted in significant and sometimes prolonged downturns, could materially and adversely affect our financial condition and results of operations.
Historically, the semiconductor industry has been highly cyclical and, at various times, has experienced significant downturns and wide fluctuations in supply and demand. Certain segments of the semiconductor market may experience significant downturns while other segments could be growing. These conditions have caused significant variances in product demand and production capacity, as well as rapid erosion of average selling prices, which have resulted, and could in the future result, in lower demand for our products, downward pressure on the price of our products, and/or increased inventory due to our customers’ delayed production schedule. Because a significant portion of our expenses are fixed in the short term or incurred in advance of anticipated sales, we may not be able to decrease our expenses in a timely manner to offset any sales shortfall. Any significant or prolonged downturns, whether in the overall semiconductor industry or in a specific market segment, would have a material adverse effect on our business, financial condition and results of operations.
Industry consolidation may lead to increased competition and may harm our operating results.
The semiconductor industry has a history of consolidation as companies attempt to improve the leverage of growing research and development costs, strengthen or hold their market positions in an evolving industry, or become unable to continue operations unless they find an acquirer or consolidate with another company. In addition, companies that are strategic alliance partners in some areas of our business may acquire or form alliances with our competitors, thereby reducing their business with us. We believe that semiconductor industry consolidation may result in stronger competitors that are better able to compete as sole-source suppliers of multiple products for customers. This could harm our operating results and could have a material adverse effect on our business, financial condition and results of operations.
We compete against many companies with substantially greater financial and other resources, and our market share may decline if we are unable to respond to our competitors effectively.
The analog and mixed-signal semiconductor industry is highly competitive, and we expect competitive pressures to continue. Our ability to compete effectively and to expand our business will depend on our ability to continue to recruit application and design engineers, introduce new products, and maintain the rate at which we introduce new products. We compete with domestic and foreign semiconductor companies, many of which have substantially greater financial and other resources with which to pursue engineering, manufacturing, marketing, and distribution of their products, and, in some cases, may have broader product offerings that enable them to more effectively market and sell to customers and engage sales partners. We are in direct and active competition with many manufacturers of varying size and financial strength. The number of our competitors has grown due to the expansion of the market segments in which we participate.
We cannot guarantee that our products will continue to compete favorably, or that we will be successful in the face of increasing competition from new products and enhancements introduced by existing competitors or new companies entering our markets, which would materially and adversely affect our results of operations and our financial condition.
In addition, from time to time, governments may provide subsidies or make other investments that could give competitive advantages to competing semiconductor companies. For example, in August 2022, the U.S. enacted the CHIPS Act, which, among other things, provides funding to increase domestic production and research and development in the semiconductor industry. Because we operate a fabless business model, we are not eligible for such investments. Many of our competitors benefit from these and other investments, which helps increase their production capacities, shorten their lead times and gain market share. These competitive pressures could materially and adversely affect our business, financial condition and results of operations.
We may face competition from customers developing products internally.
Our customers generally have substantial technological capabilities and financial resources. Some customers have traditionally used, and continue to use, these resources to develop their own products internally. The prospects for our products in these markets are dependent in part upon our customers’ acceptance of our products as an alternative to their internally developed products. Our future sales prospects also are dependent upon acceptance and qualification of third-party sourcing for products as an alternative to in-house development. Customers may continue to increase their use of internally developed components. They may also decide to develop or acquire components, technologies or products that are similar to, or that may be substituted for, our products, or acquire companies that compete with us. If any of these situations were to occur, our business, financial condition and results of operations could be materially and adversely affected.
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Risks Associated with IT and Cybersecurity
Implementation of enhanced enterprise resource planning (“ERP”) or other IT systems could result in significant disruptions to our operations.
From time to time, we may implement new ERP software solutions or upgrade existing systems. Implementation of these solutions and systems is highly dependent on coordination of system providers and internal business teams. We may experience difficulties as we transition to these new or upgraded systems and processes, including system downtime causing interruptions in business operations. In addition, transitioning to these new systems may require significant capital investments and personnel resources. Difficulties in implementing new or upgraded information systems or any significant system failures could disrupt our operations and financial reporting, which could have a material adverse effect on our capital resources, financial condition or results of operations.
Cybersecurity risks, data protection or privacy breaches, cyberattacks, systems integration issues and unauthorized use of AI tools could disrupt our internal operations and/or harm our reputation, and any such disruption or harm could cause a reduction in our expected revenue, increase our expenses, negatively impact our results of operation or otherwise adversely affect our stock price.
Threat actors may be able to penetrate our network security and misappropriate or compromise our confidential and proprietary information, create system disruptions or cause shutdowns, among other things. Further, as AI capabilities improve, threat actors may quickly develop more sophisticated and convincing attacks. Cybersecurity incidents, attacks and threats are increasingly sophisticated, constantly evolving and originate from many sources globally and often cannot be recognized or understood until the target has already been attacked. The costs to us to eliminate or alleviate cyber or other security problems, bugs, viruses, worms, malicious software programs and security vulnerabilities could be significant, and our efforts to address these problems may not be successful and could result in and that may our sales, manufacturing, distribution, financial reporting or other functions. our efforts to prevent these and to our information technology systems, these systems and those of our third-party providers may be affected by or resulting from, among other causes, cybersecurity , attacks, security , power , system or operational or malware (including ransomware and other programs that operate with intent).
In the ordinary course of business, we store data on our internal systems, network and servers, such as proprietary intellectual property, business and financial information, and confidential data pertaining to our customers, suppliers and business partners. In addition, we also use third-party cloud services. Maintaining security of information on our and third-party networks and the protection features of the solutions and services we use are both critical to our operations and business strategy. We devote significant resources to network security, data encryption, and other security measures to protect the systems and data. However, these security measures cannot provide absolute security. Although we make significant efforts to maintain the security and integrity of the systems and solutions that we use, any destructive or intrusive breach could compromise our or third-party networks, creating system disruptions or slowdowns, and the information stored on our or third-party networks could be accessed, publicly disclosed, lost or stolen. Remote working arrangements, current and potential global , and AI-powered cybersecurity have also heightened our potential exposure to , which could put the data we store on our internal or third-party systems at risk. If any of these types of cybersecurity , security , or other attacks were to occur and we were to protect our data, our reputation and relationships with our business partners and customers could be materially , and we could be to risks of and possible significant liability.
Portions of our IT infrastructure may also experience interruptions, delays or cessations of service or produce errors in connection with systems integration or migration work that takes place from time to time. We may not be successful in implementing new systems and transitioning data, which could cause business disruptions and our remediation efforts may be expensive, time consuming, disruptive and resource-intensive. Such disruptions could adversely impact our ability to fulfill orders in a timely manner and interrupt other processes. Delayed sales or a loss of customers resulting from these disruptions could adversely affect our financial results and reputation.
Unauthorized use or disclosure of, or access to, any personal information maintained by us or on our behalf, whether through breach of our systems, breach of the systems of our suppliers by an unauthorized party, or through employee error, theft or misuse, or otherwise, could harm our business. If any such unauthorized use or disclosure of, or access to, such personal information was to occur, our operations could be seriously disrupted, and we could be subject to demands, claims and litigation by private parties, and investigations and penalties by regulatory authorities. In addition, we could incur significant costs in notifying affected individuals and entities and otherwise complying with the multitude of foreign, federal, state and local laws and regulations relating to the access to, or use or disclosure of, personal information. Finally, any perceived or actual access to, or use or disclosure of, such information could our reputation and substantially our ability to attract and retain customers, which could have an impact on our business, financial condition and results of operations.
Our ability to manage and aggregate data may be limited by the effectiveness of our policies, programs, processes, systems and practices that govern how data is acquired, validated, used, stored, protected, processed and shared. Failure to manage data effectively and to aggregate data in an accurate and timely manner may limit our ability to manage current and emerging risks, as well as to manage changing business needs.
While we attempt to restrict the use of third-party and open source AI tools, such as ChatGPT, our employees and consultants may use these tools on an unauthorized basis and our partners may also use these tools. Such use of AI tools poses potential risks relating to intellectual property and data protection, including cybersecurity risks, exposure of our proprietary information to unauthorized recipients, the misuse of our or third-party intellectual property, and the inability to claim ownership of intellectual property rights in outputs of AI tools. AI tools may also produce inaccurate responses that could lead to errors in our decision-making, product development or other business activities, which could have a negative impact on our business, operating results and financial condition. Our ability to mitigate these risks will depend on our continued effective maintenance, training, monitoring and enforcement of appropriate policies and procedures governing the use of AI tools, the results of any such use by us or our partners, and the compliance with such policies and procedures by our workforce.
AI technology may also give rise to significant legal and regulatory liability and risk. Governments around the world have adopted, and may continue to adopt, laws and regulations related to AI, including the European Union’s (“EU”) Artificial Intelligence Act. Federal and state agencies in the U.S. have enacted or are considering enacting new laws and regulations regarding the use of AI, and there are increased investigations and enforcement efforts related to the use of AI technology, all of which could increase our compliance costs and affect our ability to use AI in the development of our products and in our operations. In addition to AI regulations under general consumer protection and privacy laws, legislations specifically aimed at regulating the development, deployment and use of AI have been enacted in several states and have also been proposed at the federal level. Recent Executive Orders have further addressed federal regulation and policies related to AI. These laws, proposed laws, and Executive Orders may create inconsistent and evolving compliance obligations, which may be costly and difficult to resolve. While the current U.S. administration has signaled that AI policy will be a priority, the scope and impact of any such policies cannot yet be determined. Any failure or perceived by us to comply with any legal or regulatory requirement could subject us to legal liability, our reputation or otherwise affect our business.
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Risks Associated with Strategic Investments and Initiatives
Our success depends on our investment of significant resources in research and development. We may have to invest more resources in research and development than anticipated, which could increase our operating expenses and negatively impact our operating results.
Our success depends on us investing significant amounts of resources in research and development. We expect to continue investing heavily in research and development in the future in order to keep innovating and introducing new products in a timely manner and increase our revenue and profitability. Increased investments in research and development will increase our operating expenses and may divert investment from other areas of our business, which may negatively impact our operating results, and we may not achieve the return on these investments that we anticipate, or be able to reduce such expenses in a timely manner if we experience a downturn in sales. Also, if we are unable to properly manage and effectively utilize our research and development resources, we could experience material adverse effects on our business, financial condition and operating results.
In addition, if new competitors, technological advances by existing competitors, our entry into new markets, or other competitive factors require us to invest significantly greater resources than anticipated in our research and development efforts, our operating expenses would increase further. If we are required to invest significantly greater resources than anticipated in research and development efforts without a corresponding increase in revenue, our operating results could be harmed. Many of our competitors have significantly greater resources than we have and are able to invest substantially greater amounts into research and development initiatives than we are, which could reduce the technological advances that we may be able to achieve and may harm our ability to compete. In order to remain competitive, we anticipate that we will continue to devote substantial resources to research and development, and we expect these expenses to increase in the foreseeable future due to the increased complexity and the number of products under development.
We may not realize the anticipated benefits of any company or business that we acquire. In addition, acquisitions could result in diluting the ownership interests of our stockholders, reduce our cash balances and/or cause us to incur debt or to assume contingent liabilities, which could adversely affect our business.
As part of our business strategy, from time to time we review acquisition prospects that would complement our current product offerings, enhance our design capability or offer other business opportunities. As a result of completing acquisitions, we could use a significant portion of our available cash, cash equivalents and short-term investments, issue equity securities that would dilute current stockholders’ percentage ownership or incur substantial debt or contingent liabilities. Such actions could impact our financial condition, operating results and the price of our common stock.
In addition, we may be unable to identify or complete prospective acquisitions for various reasons, including competition from other companies or financial investors, the valuation expectations of acquisition candidates and applicable antitrust or other policies, laws or regulations. If we are unable to identify and complete acquisitions, we may not be able to successfully expand our business and product offerings.
If we are unsuccessful in integrating any acquired company or business into our operations, or if integration is more difficult than anticipated, we may experience disruptions that could harm our business and result in our failure to realize the anticipated benefits of the acquisitions. Some of the risks that may adversely affect our ability to integrate or realize any anticipated benefits from the acquired companies, businesses or assets include those associated with:
unexpected losses of key employees or customers of the acquired companies or businesses;
integrating the acquired company’s standards, processes, procedures and controls with our operations;
integrating the acquired company’s technology or products into our products or product offerings;
coordinating new product and process development;
hiring additional management and other critical personnel;
increasing the scope, geographic diversity and complexity of our operations;
difficulties in consolidating facilities and transferring processes and know-how;
difficulties in the assimilation of acquired operations, technologies or products;
undisclosed liabilities of the acquired businesses and potential legal disputes with founders or stockholders of acquired companies;
our inability to commercialize acquired technologies;
the projected business potential is not realized and as a result, we may be required to take an impairment charge related to goodwill or acquired intangibles that would impact our profitability;
difficulties in assessing the fair value of earn-out arrangements;
diversion of management’s attention from other business concerns; and
adverse effects on existing business relationships with customers.
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Alternatively, third parties may be interested in acquiring us. We will continue to consider, evaluate and negotiate any such transactions as our Board of Directors deems appropriate and in the best interest of our stockholders. Such potential transactions may divert the attention of management, and cause us to incur various costs and expenses in investigating, evaluating and negotiating such transactions, whether or not they are consummated.
Risks Associated with Financial Reporting
Our worldwide tax rates, financial position and operating results may be affected by changes in the relevant tax laws, interpretation of such tax laws or the influence of certain tax policy efforts.
We conduct our international operations through wholly-owned subsidiaries, branches and representative offices and report our taxable income in various jurisdictions worldwide based upon our business operations in those jurisdictions. Such corporate structures are subject to complex transfer pricing, permanent establishment challenges and other global and local regulations administered by taxing authorities in various jurisdictions. Our provision for income taxes and cash tax liabilities in the future could be adversely affected by numerous factors, including changes in the geographic mix of our earnings and corporate tax rates among jurisdictions, challenges by tax authorities to our tax positions and intercompany transfer pricing arrangements, failure to meet performance obligations with respect to tax incentive agreements, expanding our operations in various countries, fluctuations in foreign currency exchange rates, adverse resolution of audits and examinations of previously filed tax returns, and changes in tax laws and regulations. The relevant taxing authorities may disagree with our determinations as to the income and expenses attributable to specific jurisdictions. If such a disagreement were to occur, and our positions were not sustained, we could be required to pay additional taxes, interest and , resulting in higher tax rates, reduced cash flows and lower overall of our operations.
The Organization for Economic Co-operation and Development (“OECD”) has created the framework of a global minimum tax of 15% under the Pillar Two framework. Many countries have already implemented or are taking steps to implement Pillar Two. It is under each country’s own discretion to adopt Pillar Two. Many aspects of Pillar Two were effective for tax years 2024 and 2025. Pillar Two could result in additional tax liability over the regular corporate tax liability in a particular jurisdiction to the extent that the effective tax rate is less than the minimum rate. The impact on our provision for income taxes, net income, and cash flows could be materially impacted by the global minimum tax of 15% in jurisdictions where we have significant business operations.
In January 2025, the OECD released new Administrative Guidance on the application of the Global Anti-Base Erosion Model Rules affecting Pillar Two. In June 2025, the Group of Seven agreed to exclude U.S. Multi-National Entities from certain aspects of the global minimum tax (the “G7 Statement”). We will continue to monitor developments of the new Administrative Guidance and the G7 Statement. We cannot predict the timing or manner in which we would adopt the new Administrative Guidance, the G7 Statement, or whether the OECD will release additional guidance in the future. The potential impact could materially and adversely our future global tax provision and results of operations.
In 2024, one of our foreign subsidiaries was granted a ten-year tax incentive, beginning in tax year 2025. A deferred tax benefit of $1.1 billion, net of $0.2 billion of deferred tax liability and $0.1 billion of valuation allowance, was recorded in the year ended December 31, 2024 to reflect the estimated future reductions in cash tax paid in that jurisdiction associated with the incentive. If the new Administrative Guidance released by the OECD in January 2025 is adopted by the jurisdiction that granted the tax incentive, it may materially impact our global tax provision. We cannot predict the timing and how that foreign jurisdiction would adopt the new Administrative Guidance, or whether the OECD will release additional guidance in the future.
Changes in effective tax rates or adverse outcomes resulting from examination of our income tax returns could adversely affect our results of operations.
Our future effective tax rates could be adversely affected by earnings being lower than anticipated in countries where we have lower statutory rates and higher than anticipated in countries where we have higher statutory rates, by changes in the valuation of our deferred tax assets, or by changes in tax laws, regulations, accounting principles or interpretations thereof and discrete items. In addition, we are subject to potential future examinations of our income tax returns by the Internal Revenue Service (the “IRS”) and tax authorities in various jurisdictions where we have business operations. We assess the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of our provision for income taxes. There can be no assurance that the outcomes from any examinations will not have an adverse effect on our financial condition and results of operations.
The challenging, subjective or complex judgments of certain accounting areas may not be accurate, and could result in restatements of our financial statements.
Certain areas of our accounting, including but not limited to our income tax provision and inventory valuation require a significant amount of management judgment and are complex. We base our management judgements on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, as provided in the section titled Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. For example, due to the complexity associated with the calculation of our tax provision, including the effects of the enactment of new tax laws, we engage third-party tax advisors to assist us in the calculation. If we or our tax advisors fail to resolve or fully understand certain issues that we may have had in the past and issues that may arise in the future, we could be subject to errors, which, if material, would result in a restatement of our financial statements. Restatements are generally costly and could adversely impact our results of operations, damage our reputation, and/or have a negative impact on the trading price of our common stock. Our operating results may be affected if our assumptions change or if actual circumstances differ from those in our assumptions, which could cause our operating results to fall below the expectations of securities analysts and investors, resulting in a in the trading price of our common stock.
The restatement of our 2024 annual financial statements and our 2025 quarterly financial statements may affect investor confidence and raise reputational issues and may subject us to additional risks and uncertainties, including increased professional costs and the increased possibility of legal proceedings and regulatory inquiries.
As discussed in Notes 2 and 17 to the Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K, we restated our audited consolidated financial statements for the fiscal year ended December 31, 2024 and our unaudited condensed consolidated financial statements for the quarterly periods ended March 31, 2025, June 30, 2025 and September 30, 2025 after we determined that we had not appropriately accounted for deferred income taxes associated with a one-time tax incentive granted by a certain foreign jurisdiction. As a result of this error and the resulting restatement of our audited consolidated financial statements and unaudited condensed consolidated financial statements for the impacted periods, we have incurred, and may continue to incur, unanticipated accounting and legal fees in connection with or related to the restatement, and are subject to a number of additional risks and uncertainties, including the increased possibility of litigation and regulatory inquiries. The restatement may adversely affect investor confidence in the accuracy of our financial disclosures, may harm our reputation and our business and could cause our stock price to .
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We face risks in connection with our internal control over financial reporting and the identified material weakness.
Effective internal control over financial reporting is necessary for us to provide reliable and accurate financial reports. If we cannot provide reliable financial reports or prevent fraud or other financial misconduct, our business and operating results could be harmed. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
As more fully disclosed in Item 9A. Controls and Procedures of this Annual Report, a material weakness was identified in internal control over financial reporting related to the accounting for deferred income taxes. Due to this finding of a material weakness, we concluded that our internal control over financial reporting was not effective as of December 31, 2024 and December 31, 2025. Until this material weakness is remediated, there is a reasonable possibility that a material misstatement of our interim or annual financial statements will not be prevented or detected on a timely basis. In addition, we may experience delays in satisfying our reporting obligations to comply with SEC rules and regulations, which could result in investigations and sanctions by regulatory authorities. Furthermore, we may in the future identify additional material weaknesses in our internal control over financial reporting, which may impact the reliability of our financial reporting and financial statements. Any of these results could affect our business and the value of our common stock.
Risks Associated with Regulatory Compliance, Intellectual Property Protection and Litigation
We are subject to anti-corruption laws in the jurisdictions in which we operate. Our failure to comply with these laws could result in penalties that could harm our reputation and have a material adverse effect on our business, financial condition and results of operations.
We are subject to the U.S. Foreign Corrupt Practices Act, or FCPA, the U.K. Bribery Act and various anti-corruption laws of other jurisdictions, which generally prohibit companies and their intermediaries from making improper payments to foreign officials for the purpose of obtaining or keeping business and/or other benefits. While the U.S. administration has suspended the commencement of new investigations and enforcement actions under the FCPA, the FCPA remains in effect and it is uncertain whether enforcement actions and investigations will re-commence or whether the law will be changed or re-interpreted. Moreover, non‑U.S. enforcement authorities may continue investigations or actions irrespective of U.S. policy, resulting in multi‑jurisdictional inquiries, duplicative penalties, or heightened remediation costs. Although we have implemented policies and procedures designed to ensure that we, our employees and other intermediaries comply with anti-corruption laws to which we are subject, there is no assurance that such policies or procedures will work effectively all the time or protect us liability under these laws for actions taken by our employees and other intermediaries with respect to our business or any businesses that we may acquire. We have significant operations in Asia, which place us in frequent contact with individuals who may be considered “foreign officials” under the FCPA or other anti- laws, resulting in an elevated risk of potential . If we are not in compliance with applicable anti- laws (including local laws), we may be subject to and civil and other remedial measures, including of our financial reports, which could have a material impact on our business, financial condition, results of operations and liquidity. Any or of any potential of anti- laws by the U.S. or foreign authorities could our reputation and have an impact on our business, financial condition and results of operations.
Our business is subject to various governmental laws and regulations, and compliance with these regulations may impact our revenue and cause us to incur significant expenses. If we fail to maintain compliance with applicable regulations or obtain government licenses and approvals for our desired international trading activities or technology transfers, we may be forced to recall products and cease their distribution, and we could be subject to civil or criminal penalties.
Our business is subject to various significant laws and other legal requirements imposed by the U.S. and other countries we conduct business in, including export control laws such as the Export Administration Act, the Export Administration Regulations and other laws, regulations and requirements governing international trade, investments and technology transfers. These laws and regulations are complex, change frequently and have generally become more stringent over time. We may be required to incur significant expenses to comply with these regulations or to remedy violations of these regulations. In addition, if our customers fail to comply with these regulations, we may be required to suspend sales to these customers, which could negatively affect our results of operations. We must conform the manufacture and distribution of our products to various laws and adapt to regulatory requirements in many countries as these requirements change. If we fail to comply with these requirements in the manufacture or distribution of our products, we could be required to pay civil penalties, face criminal prosecution and, in some cases, be prohibited from distributing our products commercially until the products are brought into compliance.
Compliance with environmental laws and regulations could cause disruptions in our business and operations.
We are subject to various foreign, federal, state and local laws and regulations that govern the environment, including those restricting the presence of certain substances in electronic products and making manufacturers of those products financially responsible for the collection, treatment, recycling and disposal of certain products. Such laws and regulations have been passed in several jurisdictions in which we operate, including various EU member countries and countries in Asia. There can be no assurance that similar laws and regulations will not be implemented in other jurisdictions resulting in additional costs, possible delays in delivering products, and even the discontinuance of existing and planned future products if the costs were to become prohibitive.
We are subject to regulatory and reporting standards related to ESG matters, which could increase our expenses.
In recent years, there has been an increase in public awareness and requirements from regulators, investors, customers and other key stakeholders focusing on ESG compliance efforts, including those related to environmental sustainability and social responsibility. For example, California passed several bills that require companies to disclose greenhouse gas emissions data and climate-related financial risks. We are also subject to increasing regulatory and compliance requirements related to labor and human rights within our supply chain, including the responsible sourcing of conflict minerals and the prohibition of conducting business with certain suppliers under the U.S. Uyghur Forced Labor Prevention Act. In addition, many of our customers increasingly include stringent environmental and other compliance requirements in their contracts with us or request significant amounts of data from us for their Scope 3 emissions reporting and supply chain compliance. While we are committed to maintaining strong ESG strategies, practices, policies and disclosures, there can be no assurance that we will be able to achieve our goals, or that our compliance initiatives and efforts will be deemed sufficiently robust by regulators, stockholders, customers and other key stakeholders. The of our goals and initiatives may be impacted by factors that are outside our control. Some of our stakeholders may with our goals and initiatives, and the focus and views of our stakeholders may change and evolve over time and vary depending on the jurisdictions in which we operate. Any , or perceived , by us to our goals, implement new initiatives, comply with federal, state or international laws and regulations, or meet evolving and varied stakeholder expectations and views, could result in , regulatory action or other legal , , or other remedies us, our reputation and materially and affect our business, financial condition and results of operations.
Furthermore, our compliance efforts, including the collection, assessment and reporting of ESG data, are subject to evolving reporting standards and can be costly, complex and time-consuming. In addition, climate change concerns and the potential associated environmental impact, as well as labor and human rights issues, could result in the proposal and passage of additional laws and regulations in various jurisdictions that may affect us, our suppliers and customers. Such laws and regulations could cause us to incur additional compliance costs, and failure to comply with the regulatory standards in a timely manner could result in penalties and fines. These operational, legal, compliance and other risks could damage our reputation and materially and adversely affect our business, financial condition and results of operations.
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Given our inability to control the timing and nature of significant events in our legal proceedings that either have arisen or may arise, our legal expenses are difficult to forecast and may vary substantially from our publicly disclosed forecasts with respect to any given quarter, and we could be liable for significant damages or other expenses, which could harm our stock price and financial condition.
Historically, we have incurred significant expenses in connection with various legal proceedings that vary with the level of activity in the proceeding. It is difficult for us to forecast our legal expenses for any given quarter, which adversely affects our ability to forecast our expected results of operations, and the ultimate outcome of such legal proceedings, including any damages we might incur is difficult to predict. We have been, and may continue to be, subject to unanticipated legal proceedings, which would result in us incurring unexpected legal expenses. If we fail to meet the expectations of securities or industry analysts as a result of unexpected changes in our legal expenses or we are found liable for significant damages or other expenses, our stock price and results of operations could be materially and adversely affected.
Future legal proceedings may divert our financial and management resources.
The semiconductor industry is characterized by frequent claims of infringement and litigation regarding patent and other intellectual property rights. Patent infringement is an ongoing risk, in part because other companies in our industry could have patent rights that may not be identifiable when we initiate development efforts. Litigation may be necessary to enforce our intellectual property rights, and we may have to defend ourselves, and in some circumstances our key customers or suppliers, against infringement claims. Such litigation is very costly. Further, in connection with these legal proceedings, we may be required to post bonds to defend our intellectual property rights in certain countries for an indefinite period of time, until such dispute is resolved. If our legal expenses materially increase or exceed anticipated amounts, our capital resources and financial condition could be affected. If we are not in any intellectual property or us, we may have to production and sale of certain products, design around such technologies, or pay royalty payments to license technology, any of which could our financial condition and our business. Our management team may also be required to devote a deal of time and effort to these legal proceedings, which could management’s attention from focusing on our operations, which could affect our business.
Failure to protect our proprietary technologies or maintain the right to certain technologies may negatively affect our ability to compete.
We rely heavily on our proprietary technologies. Our future success and competitive position depend in part upon our ability to obtain and maintain protection of certain proprietary technologies used in our products. We pursue patents for some of our new products and unique technologies, and we also rely on a combination of nondisclosure agreements and other contractual provisions, as well as our employees’ commitment to confidentiality and loyalty, to protect our technology, know-how and processes. Despite the precautions we take, it may be possible for unauthorized third parties to copy aspects of our current or future technologies or products, or to obtain and use information that we regard as proprietary. We intend to continue to protect our proprietary technologies, including through patents. However, there can be no assurance that the steps we take will be adequate to protect our proprietary rights, that our patent applications will lead to issued patents, that others will not develop or patent similar or superior products or technologies, or that our patents will not be challenged, invalidated or circumvented by others. Furthermore, the laws of the countries in which our products are or may be developed, manufactured or sold may not protect our products and intellectual property rights to the same extent as laws in the U.S. Our to protect our proprietary technologies could materially our business.
If we are unsuccessful in legal proceedings brought against us or any of our customers, we could be prevented from selling our products and/or be required to pay substantial damages. An unfavorable outcome or an additional award of damages, attorneys’ fees or an injunction could cause our revenue to decline significantly and could severely harm our business and operating results.
From time to time, we are a party to various legal proceedings. If we are not successful in litigation that has been or could be brought against us or our customers, we could be ordered to pay monetary fines and/or damages, including expenses and damages incurred by our customers. If we are found liable for patent infringement, damages could be significant, particularly if our actions are found to be willful. We and/or our customers could also be prevented from selling some or all of our products. Moreover, our customers and end users could decide not to use our products due to the threat of infringement claims, even if unfounded and, if we are found to infringe, our products and our customers’ accounts payable to us could be . Finally, interim developments in these proceedings could our relationships with our customers and increase the in our stock price as the market assesses the impact of such developments on the likelihood that we will or will not ultimately prevail in these proceedings. Even if resolved , such proceedings can be very expensive and time consuming, and may management’s attention from other business operations.
Certain software we use is from open source code sources, which, under certain circumstances, may lead to unintended consequences and, therefore, could materially adversely affect our business, financial condition, operating results and cash flows.
We use open source software in connection with certain of our products and services, and we intend to continue to use open source software in the future. Some open source software licenses require the source code of derivative works of the open source software be made available to the public and modifications of the open source software be licensed under the same restrictive terms. If we combine our proprietary software with open source software in certain ways, we could, under certain open source licenses, be required to release the source code of our proprietary software, and make our proprietary software available under the same open source licenses, which could harm our business and ability to compete. In the event that potions of our proprietary software are determined to be subject to an open source license, we could be required to release the affected portions of our source code to the public at no cost, re-engineer all or a portion of our software solutions, discontinue the sale of our solutions, or otherwise be limited in the commercial licensing of our solutions, each of which could reduce or eliminate the value of our intellectual property, increase our costs, harm our ability to compete and have a material adverse effect on our business, operating results and financial condition. There is also a risk that open source licenses could be construed by the courts in a manner that could impose conditions or restrictions on our ability to commercialize our software solutions, which could affect our business, operating results and financial condition.
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Risks Associated with Human Capital Management
The loss of any of our key personnel or the failure to attract or retain specialized technical and management personnel could affect our operations or impair our ability to grow our business.
Our future success depends, in part, upon our ability to attract and retain highly qualified technical and managerial personnel. We are particularly dependent on the continued services of our key executives, including Michael Hsing, our President and Chief Executive Officer, who founded our company and developed our proprietary process technology. In addition, personnel with highly skilled analog and mixed-signal design engineering expertise are scarce and competition for personnel with these skills is intense. There can be no assurance that we will be able to retain existing key employees or that we will be successful in attracting, integrating or retaining other highly qualified personnel with critical capabilities in the future. If we are unable to retain the services of existing key employees or are unsuccessful in attracting new highly qualified employees quickly enough to meet the demands of our business, including design cycles, our business could be harmed. Furthermore, if we lose key personnel, the search for a qualified replacement and the transition could interrupt our operations as the search could take longer than expected and management resources, and the newly hired employee could take longer than expected to effectively integrate into the team.
If we fail to retain key employees in our sales, engineering, finance and legal functions or to make continued improvements to our internal systems, our business may suffer.
If we fail to continue to adequately staff our sales, engineering, financial and legal functions, maintain or upgrade our business systems and maintain internal controls that meet the demands of our business, we may not be able to effectively execute our business strategy. The operation of our business also depends upon our ability to retain these employees, as they hold a significant amount of institutional knowledge about us and our products and, if they were to terminate their employment, our sales, operations and internal control over financial reporting could be adversely affected.
Risks Associated with Ownership of Our Stock
The future trading price of our common stock could be subject to wide fluctuations in response to a variety of factors.
The trading price of our common stock has been, and is likely to continue to be, highly volatile and could be subject to wide fluctuations in response to various factors, many of which are beyond our control, including:
actual or anticipated results of operations and financial performance, including our ability to accurately forecast future demand for our products;
actual or anticipated manufacturing capacity limitations;
our ability to develop new products, enter new markets, gain market share, manage litigation risk, diversify our customer base and successfully secure manufacturing capacity;
our ability to maintain or increase our gross margins;
costs of increasing manufacturing capacity and qualifying additional third-party wafer fabrication facilities;
the loss of, or a material reduction in sales to, our key customers, or rumors with respect thereto;
investments in sales and marketing resources to enter new markets;
commencement of, or developments relating to, litigation;
cyberattacks or other system security, data protection and privacy breaches;
the inclusion, exclusion or deletion of our common stock from any major trading indices, such as the S&P 500 or NASDAQ 100 Indices;
our sale of common stock or other securities in the future;
any mergers, acquisitions or divestitures of assets undertaken by us;
our ability to obtain governmental licenses and approvals for international trading activities or technology transfers, including export licenses;
our ability to meet or exceed the guidance that we provide to our investors and analysts;
the extent to which we continue to execute the stock repurchase program and continue payment of quarterly cash dividends to stockholders;
our ability to meet or exceed our investors’ or analysts’ expectations;
market reactions to guidance from other semiconductor companies or third-party research groups;
market reactions to merger and acquisition activities in the semiconductor industry, and rumors or expectations of further consolidation in the industry;
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investor perceptions of us and our business strategies;
the breadth and liquidity of the market for our common stock;
trading activity in our common stock, including short positions;
actions by institutional or other large stockholders;
changes in the estimation of the future size and growth rate of our markets;
introduction of new products by us or our competitors;
general economic, industry and market conditions worldwide, including any global economic downturn;
developments generally affecting the semiconductor industry or specific segments of the industry in which we compete;
terrorist acts or acts of war, including ongoing and potential global conflicts;
epidemics and pandemics;
developments with respect to intellectual property rights;
conditions and trends in technology industries;
changes in market valuation or earnings of our competitors;
government debt default;
changes in corporate tax laws;
government policies and regulations on international trade policies and restrictions, including tariffs on imports of foreign goods;
export controls, trade and economic sanctions and regulations, and other regulatory or contractual limitations on our ability to sell or develop our products or invest in certain foreign markets, particularly in China;
our compliance with regulatory mandates focusing on ESG issues, including climate risks and social initiatives;
our performance against the ESG guidelines set by institutional stockholders and customers, and our ability to meet or exceed their expectations; and
our ability to timely and adequately remediate our material weakness.
In addition, the stock market often experiences substantial volatility that may be unrelated to the operating performance of particular companies. These broad market fluctuations may adversely affect the trading price of our common stock.
If securities or industry analysts downgrade our stock or do not continue to publish research or reports about our business, our stock price and trading volume could decline.
The trading market for our common stock will depend, in part, on the research and reports that industry or securities analysts publish about us or our business. We do not have any control over these analysts. If we fail to meet the expectations of these analysts, or one or more of the analysts who cover us downgrade our stock, our stock price would likely decline. If one or more of these analysts cease coverage of us or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline.
Short positions in our stock could have a substantial impact on the trading price of our stock.
There are “short” positions in our common stock. The anticipated downward pressure on our stock price due to actual or anticipated sales of our stock by some institutions or individuals who engage in short sales of our common stock could cause our stock price to decline. Such stock price decreases could encourage further short sales and cause additional declines and volatility in our stock price. The volatility of our stock may cause the value of a stockholder’s investment to decline rapidly. Additionally, if our stock price declines, it may be more difficult for us to raise capital and may have other adverse effects on our business.
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There can be no assurance that we will continue to declare cash dividends in any particular amounts or at all.
We have a dividend program approved by our Board of Directors, pursuant to which we intend to pay quarterly cash dividends on our common stock. The declaration of any future cash dividends is at the discretion of our Board of Directors and will depend on, among other things, our financial condition, results of operations, capital requirements, business conditions, and other factors that our Board of Directors may deem relevant, as well as a determination that cash dividends are in the best interests of our stockholders. Our dividend payments may change from time to time, and we cannot provide assurance that we will continue to declare dividends in any particular amounts or at all. A reduction in or elimination of our dividend payments could have a negative effect on the price of our common stock and on the return achieved by our stockholders.
We cannot guarantee that our stock repurchase program will enhance long-term stockholder value.
In February 2025, our Board of Directors approved a stock repurchase program authorizing the repurchase of up to $500 million of our common stock. The repurchase program will expire in February 2028. The amount, timing and execution of our stock repurchase program may fluctuate based on market conditions and our priorities for the use of our cash. We are not obligated to repurchase a specified number or dollar value of shares, on any particular timetable, or at all. The repurchase program may be suspended or terminated at any time and, even if fully implemented, may not enhance long-term stockholder value.
If we issue additional shares of stock in the future, it may have a dilutive effect on our stockholders.
We may issue additional shares of common stock in the future in order to raise additional capital to fund our global operations or in connection with an acquisition. Any issuance of our common stock may result in immediate dilution to our stockholders. In addition, the issuance of a significant amount of our common stock may require additional regulatory compliance, such as stockholder approval.
General Risk Factors
Our worldwide operations are subject to economic and geopolitical uncertainty and risks associated with business continuity in the event of natural or other disasters including pandemics, war, climate crises and other natural disasters, which could have a material adverse effect on our business operations.
Our offices in California and Washington, the production facilities of our third-party wafer suppliers, our IC testing and manufacturing facilities, a portion of our assembly and research and development activities, and certain other critical business operations are located in or near seismically active regions and are subject to periodic earthquakes. We do not maintain earthquake insurance and could be materially and adversely affected in the event of a major earthquake. Much of our revenue, as well as our manufacturing and assembly partners, are concentrated in Asia, particularly in China. Such concentration increases the risk that earthquakes or other natural disasters, labor strikes, epidemics and pandemics, and/or health advisories could disrupt our operations and have a material adverse impact on our business and results of operations. We cannot guarantee that we will be able to mitigate the operational risks caused by extreme weather conditions or other events.
In addition, we rely heavily on our internal information and communications systems and on systems or support services from third parties to manage our operations efficiently and effectively. Any of these are subject to failure due to a natural disaster, intentional acts, technical or power outages or other disruptions. System-wide or local failures that affect our information processing could have material adverse effects on our business, financial condition and results of operations.
Furthermore, worldwide political conditions may create uncertainties that could adversely affect our business. The U.S. and other regions where we conduct business have been and may continue to be affected by conflicts that could, among other things, disrupt our supply chain, and impact customer demands and component prices. For example, the U.S. and other countries have imposed economic sanctions and export control measures on Russia due to the conflict in Ukraine. Although such measures have not significantly affected our business or operations, future developments in this conflict or in other global conflicts could adversely affect our operating results and financial condition.
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