MONOLITHIC POWER SYSTEMS, INC.

FORM 10-K

FOR THE FISCAL YEAR ENDED December 31, 2023

TABLE OF CONTENTS

FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, that have been made pursuant to and in reliance on the provisions of the Private Securities Litigation Reform Act of 1995. These statements include, among others, statements concerning:
 

In some cases, words such as “would,” “could,” “may,” “should,” “predict,” “potential,” “targets,” “continue,” “anticipate,” “expect,” “intend,” “plan,” “believe,” “seek,” “estimate,” “project,” “forecast,” “will,” the negative of these terms or other variations of such terms and similar expressions relating to the future identify forward-looking statements. All forward-looking statements are based on our current outlook, expectations, estimates, projections, beliefs and plans or objectives about our business, and our industry and the global economy, including our expectations regarding the potential impacts of macroeconomic factors, such as the COVID-19 pandemic2023 banking crisis, the global economic downturn, the Russia-Ukraine conflict and the Middle East conflict on the semiconductor industry and our business. These statements are not guarantees of future performance and are subject to significant risks and uncertainties. Actual events or results could differ materially and adversely from those expressed in any such forward-looking statements. Risks and uncertainties that could cause actual results to differ materially include those set forth throughout this Annual Report on Form 10-K and,including, in particular, in the section entitled “Item 1A. Risk Factors.” Except as required by law, we disclaim any duty, to, and undertake no obligation, to update any forward-looking statements, whether as a result of new information relating to existing conditions, future events or otherwise or to release publicly the results of any future revisions we may make to forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. Readers are cautioned not to place undue reliance on such statements, which speak only as of the date of this Annual Report on Form 10-K.10-K and entail significant risks. Readers should carefully review future reports and documents that we file from time to time with the Securities and Exchange Commission (“SEC”(the “SEC”), such as our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and any Current Reports on Form 8-K. 

Except as the context otherwise requires, the terms “Monolithic Power Systems,” “MPS,” “Registrant,” ���Company,“Company,” “we,” “us,” or “our” as used herein are references to Monolithic Power Systems, Inc. and its consolidated subsidiaries.

PART I

General

Monolithic Power Systems, Inc. (“MPS”) is a leading semiconductorfabless global company that designs, develops and marketsprovides high-performance, semiconductor-based power electronics solutions. Incorporated in 1997, our three core strengths include deep system-level and applications knowledge, strong analogsemiconductor design expertise, and innovative proprietary process technologies.technologies in the areas of semiconductor processes, system integration, and packaging. These combined strengthsadvantages enable us to deliver highly integratedreliable, compact, and monolithic products that offer energy-efficient, cost-effective, easy-to-use solutions for systems found in storage and computing, and storage,enterprise data, automotive, industrial, communications and consumer applications. Our mission is to reduce total energy and material consumption in our customers’ systems with green, practicalto improve all aspects of quality of life and compact solutions.create a sustainable future. We believe that we differentiate ourselves by offering solutions that are more highly integrated, smaller in size, more energy-efficient, more accurate with respect to performance specifications and, consequently, more cost-effective than many competing solutions. We plan to continue to introduce new products within our existing product families, as well as in new innovative product categories.

Our principal executive office is located in Kirkland, Washington. We have over 2,2003,500 employees worldwide, with locations in Asia (primarily in China, India, Japan, Singapore, South Korea Singapore and Taiwan), Europe (primarily in France, Germany, Hungary, Italy, Portugal, Spain, Switzerland and the United Kingdom), and the United States.

Industry Overview

Semiconductors comprise the basic building blocks of electronic systems and equipment. Within the semiconductor industry, components can be classified either as discrete devices, such as individual transistors or integrated circuits (“ICs”), in which a number of transistors and other elements are combined to form a more complicated electronic circuit. ICs can be further divided into three primary categories: digital, analog, and mixed-signal. Digital ICs, such as memory devices and microprocessors, can store or perform arithmetic functions on data that is represented by a series of ones and zeroes. Analog ICs, in contrast, handle real world signals such as temperature, pressure, light, sound, or speed. In addition, analog ICs also perform power management functions, such as regulating or converting voltages, for electronic devices. Mixed-signal ICs combine digital and analog functions onto a single chip and play an important role in bridging real world to digital systems.

Analog and Mixed-Signal Markets. We focus on the market for high performance analog and mixed-signal ICs. High performance products generally are differentiated by functionality and performance factors, which include integration of higher levels of functionality onto a single chip, greater precision, better power efficiency and density, higher speed and lower heat and noise. There are several key factors that distinguish the analog and mixed-signal IC markets from digital IC markets. These factors include longer product life cycles, numerous market segments, technology that is difficult to replicate, relative complexity of design and process technologies, importance of experienced design engineers, lower capital requirements and diversity of end markets. We have targeted product and market areas that we believe have the ability to offer above-average growth over the long term compared to the semiconductor industry as a whole.

End Markets and Applications

We design and develop our products for the storage and computing, and storage,enterprise data, automotive, industrial, communications and consumer markets, with the computingstorage and storagecomputing market representing the largest portion of our revenue in 2020.2023. The following table is a summary of the various end market applications for our products, and those markets’ contribution as a percentage of our total revenue:

Product Families

Our proprietary process and packaging technologies enable us to design and deliver smaller, single-chip power management ICs. These technologies simplify the design process and are applicable across a wide range of analog applications within the storage and computing, and storage,enterprise data, automotive, industrial, communications and consumer markets. Our product families are differentiated from those of our competitors with respect to their high degree of integration and strong levels of accuracy, power efficiency, quality and efficiency,longevity, making them cost-effective and more sustainable relative to many competing solutions. Our key product families include the following:

Direct Current (“DC”(“DC”) to DC Products.DC to DC ICs are used to convert and control voltages within a broad range of electronic systems, such as portable electronic devices, wireless LAN access points, computerscloud-based CPU servers, server AI applications, storage applications, commercial notebooks, digital cockpit, power sources, home appliances, 4G and notebooks, monitors, infotainment applications5G infrastructure and medical equipment.satellite communications applications. We believe that our DC to DC products are differentiated in the market, particularly with respect to their high degree of integration, high voltage operation, high load current, high switching speed, small footprint, and small footprint.high energy efficiency. These features are important to our customers as they are designed to result in fewer components that need to be produced and consumed, a smaller form factor, more accurate regulation of voltages, lower power consumption and, ultimately, lower system cost, and increased reliability and lower carbon emissions through the elimination of many discrete components and power devices. The DC to DC product family accounted for 95%, 94% and 92% of our total revenue in 2020, 20192023 and 2018, respectively.95% of our total revenue in both 2022 and 2021.

Lighting Control Products. Lighting control ICs are used in backlighting and general illumination products. Lighting control ICs for backlighting are used in systems that provide the light source for LCD panels typically found in computers and notebooks, monitors, car navigation systems and televisions. Backlighting solutions are typically either white light emitting diode lighting sources or cold cathode fluorescent lamps. The Lighting Control product family accounted for 5%, 6% and 8% of our total revenue in 2020, 20192023 and 2018, respectively.5% of our total revenue in both 2022 and 2021.

In the future, we plan to continue to introduce additional new products within our existing product families, as well as expand our newerin new innovative product families.categories. Our ability to achieve revenue growth will depend in part upon our ability to continue to innovate while fulfilling our customers’ evolving needs, enter new market segments, gain market share,obtain design wins, grow our sales to customers in regions outside of China, Taiwan and other Asian markets, expand our customer base and continue to secure manufacturing capacity.

Customers, Sales and Marketing

We have sales offices in China, India, Japan, Singapore, South Korea, Taiwan, the United States and throughout Europe. Our products typically require a highly technical sales and applications engineering effort where we assist our customers in the design and use of our products in their application. We maintain a staff of applications engineers who work directly with our customers’ engineers in the development of their systems’ electronics containing our products.

Once we secure our product positioning through our technical sales and applications engineers’ efforts, we then sell our products through third-party distributors, value-added resellers and directly to original equipment manufacturers (“OEMs”), original design manufacturers (“ODMs”), electronic manufacturing service (“EMS”) providers and other end customers. Our third-party distributors are subject to distribution agreements with us, which allow the distributors to sell our products to end customers and other resellers, including OEMs, ODMs or EMS providers. Our value-added resellers may second source our products and provide other services to customers. ODMs typically design and manufacture electronic products on behalf of OEMs, and EMS providers typically provide manufacturing services for OEMs and other electronic product suppliers.

Sales toIn 2023, our three largest distributordistributors accounted for 26%, 19% and 10% of our total revenue. In 2022, our two largest distributors accounted for 24% and 19% of our total revenue in 2020, 23% in 2019, and 22% in 2018.revenue. In addition, one other distributor2021, our three largest distributors accounted for 11%26%, 15% and 10% of our total revenue in 2020 and 10% in 2018.revenue. No other distributors or end customers accounted for more than 10% of our full-year, total revenue in any of the periods presented.

Current distribution agreements with several of our major distributors provide that each distributor has the non-exclusive right to sell and shall use its best efforts to promote and develop a market for our products. These agreements provide that payment for purchases from us will generally occur within 30 to 90 days from the date of invoice. In addition, we allow for limited stock rotation in certain agreements.

We have sales offices located in China, India, Japan, Korea, Singapore, Taiwan, the United States and throughout Europe. Our products typically require a highly technical sales and applications engineering effort where we assist our customers in the design and use of our products in their application. We maintain a staff of applications engineers who work directly with our customers’ engineers in the development of their systems’ electronics containing our products.

Because our sales are primarily billed and payable in United States dollars, our sales are generally not subject to fluctuating currency exchange rates. However, because a majority of our revenue is attributable to sales to customers in Asia, changes in the relative value of the dollar may create pricing pressures for our products. In 2020, 20192023, 2022 and 2018,2021, our revenue from sales to customers in Asia was 91%87%, 89%86% and 88%90%, respectively.

Our sales are made primarily pursuant to standard individual purchase orders. Our backlog consists of orders that we have received from customers which have not yet shipped. Because orders in backlog are subject to cancellation or postponement, and backlog at any particular date is not necessarily representative of actual sales for any succeeding period, we believe that our backlog is not necessarily a reliable indicator of future revenue.

Our manufacturingTypical supply chain lead times for orders are generally 16 to 26 weeks and weweeks. We often build inventory in advance of customer orders based on our forecast of future customer orders. This subjects us to certain risks, most notably the possibility that sales will not meet our forecast, which could lead to inventories in excess of demand. If excess inventory exists, it may be necessary for us to sell it at a substantial discount, take a significant write-down or dispose of it altogether, all of which would negatively affect our profit margins. In addition, in response to market conditions, we may slow the rate of manufacturing our products, which could result in insufficient inventory levels and reduced sales if we underestimate the demand for our products.

We operate in the cyclical semiconductor industry where there is seasonal demand for certain

Research and Development

We have assembled a qualified team of engineers primarily in China, Spain, Taiwan and the United States, Taiwan, Spain, Switzerland, Hungary, Portugal and Germany with core competencies in analog and mixed-signal design. Through our research and development efforts, we have developed a collection of intellectual property and know-how that we are able to leverage across our products and markets. These include the development of high efficiency power devices, the design of precision analog circuits and systems, expertise in mixed-signal design, and integration and the development of proprietary semiconductor process technologies.

Our research and development efforts are generally targeted at three areas: systems architecture, circuit design and implementation, and process technologies. In the area of systems architecture, we are exploring new ways of solving our customers’ system design challenges and are investing in the development of systems expertise in new markets and applications that align well with our core capabilities. In the area of circuit design and implementation, our initiatives include expanding our portfolio of products and adding new features to our products. In the area of process technologies, we are investing in research and development resources to provide leading-edge analog power processes for our next generation of integrated circuits. ProcessICs. We believe process technologies are key strategic components to our future growth. 

Our growth is fueled by our customers’ need for our power-efficient solutions. Consequently, we focus on continually improving the energy efficiency of our products in our research and development efforts in all three targeted areas. Our products are principally positioned to achieve lower power loss and enable significant reductions in circuit board space by shrinking or eliminating many passive components that are otherwise needed by competitors’ offerings. In addition, the life cycles of our products are typically over 10 years, reducing the manufacturing needs and associated carbon emissions associated with the production of replacement products.

Patents and Intellectual Property Matters

We rely on our proprietary technologies, which include both our proprietary circuit designs for our products and our proprietary manufacturing process technologies. Our future success and competitive position depend in part upon our ability to obtain and maintain protection of our proprietary technologies.

In general, we have elected to pursue patent protection for aspects of our circuit and device designs that we believe are patentable and to protect our manufacturing process technologies by maintaining those process technologies as trade secrets. As of December 31, 2020,2023, we had 1,3271,701 patents/applications issued or pending, of which 475585 patents have been issued in the United States. Our issued patents are scheduled to expire at various times through December 2039.2043. Our patents are material to our business, but we do not rely on any one particular patent for our success. 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. We also seek to register certain of our trademarks as we deem appropriate. We have not registered any of our copyrights and do not believe registration of copyrights is material to our business. Despite precautions that we take, it may be possible for unauthorized third parties to copy aspects of our current or future technology or products or to obtain and use information that we regard as proprietary. There can be no assurance that the steps we take will beare 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 United States. Our failure to adequately protect our proprietary technologies could materially harm our business.

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 against infringement claims. Any suchSuch litigation couldcan be very costly and may divert our management resources. Further, we have agreed to indemnify certain of our customers and suppliers in some circumstances against liability from infringement by our products. In the event any third party were to make an infringement claim against us or our customers, we could be enjoined from selling selected products, could be required to indemnify our customers or suppliers, or could pay royalties or other damages to third parties. If any of our products are found to infringe and we are unable to obtain necessary licenses or other rights on acceptable terms, we would either have to change our product so that it does not infringe or stop making the infringing product, which could have a material adverse effect on our operating results, financial condition and cash flows.

Manufacturing

We utilize a fabless business model, working with third parties to manufacture and assemble our ICs. This fabless approach allows us to focus our engineering and design resources on our strengths and to reduce our fixed costs and capital expenditures. In contrast to many fabless semiconductor companies, which utilize standard process technologies and design rules established by their foundry partners, we have developed our own proprietary process and packaging technologies and collaborate with our foundry partners to install our technologies on their equipment in their facilities for use on our behalf. This close collaboration and control over the manufacturing process has historically resulted in favorable yields and product performance for our ICs.

We currently contract with several suppliers to manufacture our wafers in foundries located in China, Taiwan, South Korea and Korea.Singapore. Once our silicon wafers have been produced, they are shipped to the facilities in China, Taiwan, and Singapore that we and our facility in Chengdu, Chinapartners utilize for wafer sort, which is a testing process performed to identify non-functioning dies. Our semiconductor products are then assembled and packaged by independent subcontractors in China, Taiwan and Malaysia. The assembled ICs are then sent either for final testing atto the facilities in China, Taiwan and Malaysia that we and our Chengdu facility, or to other turnkey providers who perform final testing based on our standardspartners utilize prior to shipping to our customers.

We have a 60,000 square-foot
 
The manufacturing facility locatedfacilities we utilize in Chengdu, China, which enablesAsia enable us to benefit from shorter manufacturing cycle times and lower labor and overhead costs. We have expanded our product testing capabilities in this facilitythese facilities and are able to take advantage of the rich pool of local engineering talent to expand our manufacturing support and engineering operations.

Competition

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 both applications engineering and design engineering personnel, our ability to introduce new products, and our ability to maintain the rate at which we introduce these new products.products, and our ability to meet our and customers’ energy efficiency goals. Our industry is characterized by decreasing average selling prices over the life of a product. We compete with domestic and international 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, have a broader number of product offerings that may enable them to more effectively market and sell to customers.customers and engage sales partners. We are in direct and active competition, with respect to one or more of our product lines, with several manufacturers of such products, of varying size and financial strength. We consider our primary competitors to include Analog Devices, Infineon Technologies, Maxim Integrated Products, NXP Semiconductors, ON Semiconductor, Power Integrations, Renesas Electronics, ROHM Semiconductor, Semtech, STMicroelectronics and Texas Instruments.

We expect continued competition from existing competitors as well as competition from new entrants into the semiconductor market. We believe that we are competitive in the markets in which we sell and on the basis of key competitive factors in our industry, particularly because our ICs typically are smaller in size, are highly integrated with lower energy consumption, possess higher levels of power management functionalities and achieve high performance specifications at lower price points than most of our competition.competitors. However, there is no assurance 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 this market.our markets. In addition, there has recently been a high level of consolidation in the semiconductor industry. If these or future acquisitions are successful, competition may intensify and our competitors may have additional resources to compete against us.

SeasonalityWe operate in the cyclical semiconductor industry. While we are subject to industry downturns, we have targeted product and market areas that we believe have the ability to offer above average industry performance over the long term.

Our revenue and operating results tend to vary seasonally. Historically, our revenue has generally been higher in the second half of the year than in the first half although various factors, such as market conditions and the timing of key product introductions, could impact this trend.

Government Regulations

We are subject to international, federal and local legislation, regulations, and other requirements relating to the discharge of substances into the environment; the treatment, transport, and disposal of hazardous wastes; recycling and product packaging; worker health and safety; and other activities affecting the environment, our workforce, and the management of our manufacturing operations. We believe that our operations and facilities comply in all material respects with applicable environmental laws and worker health and safety laws.

We are also subject to import/export controls, tariffs, and other trade-related regulations and restrictions in the countries in which we have operations or otherwise do business. In recent years, these controls, tariffs,Government regulations and restrictions have had, and we believe may continue to have, a material impact on our business, including our ability to sell products and to manufacture or source components.

Government regulationsimport/export controls can be complex and are subject to change in the future, and accordingly, we are unable to assess the possible effect of compliance with future requirements. Our efforts to comply with these government regulations could have material impacts on our capital expenditures and operating expenses, revenue, resource allocation, operations, competitive position, or financial condition, though the magnitude and duration of such impacts are uncertain and difficult to quantify. Refer to “Item 1A. Risk Factors” for further discussion of material risks related to government policies and regulations on environmental laws, international trade policies and restrictions, including tariffs on imports of foreign goods and regulations restricting the export of goods and services between the U.S. and China.

Human Capital Management

Our performance is substantially dependent on the performance of our executive officers and key employees. Due to the relative complexity of the design of our analog and mixed-signal ICs, our engineers generally have many years of experience and greater circuit design aptitude. Analog engineers with advanced skills are limited in number and difficult to replace. The loss of the services of key officers, managers, engineers and other technical personnel would materially harm our business. Our future success depends, in part, on our ability to attract, train, retain, and motivate highly qualified technical and managerial personnel. We may notpersonnel, and there can be successful in attracting and retaining such personnel. Our employees are not represented by a collective bargaining organization, andno assurance we have never experienced a work stoppage or strike. will be successful.
 
As of December 31, 2020,2023, we employed 2,2093,564 employees primarily located in Asia, Europe, South America and the United States, compared with 2,0023,247 employees as of December 31, 2019.

Competition for talent in the semiconductor industry is strong,2022. Certain employees are subject to collective bargaining agreements and compensation is critical to our recruiting and retention philosophy, especially given our rapid growth and our need to attract talented employeeswe believe that we have good relations with a broad range of skills. Our total compensation packages are competitive, fair, and structured to encourage employees to invest in our future. Our employee benefits programs include a combination of supplemental benefits including paid time off for holidays and vacations, health insurance and other plan benefits.these employees. We have never experienced an employee-based work stoppage or strike.

We are an equal-opportunity employer,strive to maintain a culture that encourages innovation and we make employment decisions based on merit and business needs. We are committed to providingcreate a workplace that values diverse backgrounds, a healthy and safe environment, for all our workers. Our Worker Health and Safety Plan is certified to ISO45001 standards, the world’s voluntary, international standard for occupational health and safety. We believe that certifying to these standards enables our company to provide safe and healthy workplaces by preventing work-related injury and health issues.professional growth opportunities.
 

Available Information

Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports that are filed or furnished pursuant to Sections 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, are available free of charge. They may be obtained from our website at www.monolithicpower.com under “Investor Relations” as soon as reasonably practicable after we electronically file such documents with, or furnish them to, the SEC, or at the SEC website at www.sec.gov. We also make available on our website the charters for our audit committee, compensation committee, and nominating and corporate governance committee, our code of ethics, our director voting policy and our code of social responsibility. In addition, we intend towill disclose on our website any amendments to, or waivers from, our codes of business conduct, our code of social responsibility andethics. We also disclose on our website our report on environment, social responsibility and governance. Information contained on our website is not a part of this Annual Report on Form 10-K.

Information About Executive Officers

Information regarding our executive officers as of March 1, 2021February 29, 2024 is as follows:

Michael Hsing has served onas the chairman of our Board of Directors and has served as our President and Chief Executive Officer since founding MPS in August 1997. Prior to founding MPS, Mr. Hsing was a Senior Silicon Technology Developer at several analog IC companies, where he developed and patented key technologies, which set new standards in the power electronics industry. Mr. Hsing is an inventor on numerous patents related to the process development of bipolar mixed-signal semiconductor manufacturing. Mr. Hsing holds a B.S.E.E. from the University of Florida.

Bernie Blegen has served as our Chief Financial Officer since July 2016 and is responsible for finance, accounting, tax, treasury and investor relations. From August 2011 to June 2016, Mr. Blegen served as our Corporate Controller. Prior to joining MPS, Mr. Blegen held a number of executive finance and accounting positions for other publicly traded technology companies, including Xilinx, Inc. and Credence Systems. Mr. Blegen holds a B.A. from the University of California, Santa Barbara.

Deming Xiao has served as our President of Asia Operations since January 2008. Since joining us in May 2001, Mr. Xiao has held several executive positions, including Foundry Manager and Senior Vice President of Operations. Before joining MPS, from June 2000 to May 2001, Mr. Xiao was Engineering Account Manager at Chartered Semiconductor Manufacturing, Inc. Prior to that, Mr. Xiao spent six years as the Manager of Process Integration Engineering at Fairchild Imaging Sensors. Mr. Xiao holds a B.S. in Semiconductor Physics from Sichuan University, Chengdu, China and an M.S.E.E. from Wayne State University.

Maurice Sciammas has served as our Senior Vice President of Worldwide Sales and Marketing since 2007. Mr. Sciammas joined MPS in July 1999 and served as Vice President of Products and Vice President of Sales (excluding greater China) until he was appointed to his current position. Before joining MPS, he was Director of IC Products at Supertex from 1990 to 1999. He has also held positions at Micrel, Inc. He holds a B.S.E.E. degree from San Jose State University.

Saria Tseng has served as our Vice President, General Counsel and Corporate Secretary since 2004 and additionally as our Vice President, Strategic Corporate Development since 2009. Ms. Tseng joined the Company from MaXXan Systems, Inc., where she was Vice President and General Counsel from 2001 to 2004. Previously, Ms. Tseng was an attorney at Gray Cary Ware & Freidenrich, LLP and Jones, Day, Reavis & Pogue. Ms. Tseng is a member of the state bar in both California and New York and is a member of the bar association of the Republic of China (Taiwan). Ms. Tseng currently serves on the Boardholds Master of Directors of Super Micro Computer, Inc., a global leader in high performance server technology. Ms. Tseng holds Masters of LawLaws degrees from the University of California at Berkeley and the Chinese Culture University in Taipei.

ITEM

Item 1A. RISK FACTORS

Risk Factors

Our business involves numerous risks and uncertainties. You should carefully consideruncertainties, including but not limited to the material risks described below, togetherbelow. This section should be read in conjunction with all of the other information in this Annual Report on Form 10-K and our other filings with the SEC in evaluating our business.SEC. If any of the followingthese risks actually occur,materialize from time to time, then our business, reputation, financial condition, operating results, and growth prospects would likelycould 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 involve 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 toread the full risk factor discussion carefully.

 
Our revenue and expenses are difficult to predict, have varied significantly in the past, and will continue tocould 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:

Risks Associated with Global Pandemics on Our Business

The effects of global pandemics such as COVID-19 could adversely affect our business, results of operations and financial condition.

We face various risks related to epidemics and pandemics, including the global outbreak of COVID-19 first identified in December 2019. In March 2020, the World Health Organization characterized the COVID-19 outbreak as a pandemic. Since then, governments around the world have imposed various mandatory measures and the private sectors have taken actions in an effort to combat the spread of the disease, such as travel restrictions, quarantines and business shutdowns. In addition, the U.S. government has declared a state of emergency or similar disaster declaration, and many states, including Washington and California where we have substantial operations, have enacted shelter-in-place or similar restrictive orders. These events have led to significant disruptions and uncertainties in the global economy and in the financial markets, which could materially and adversely affect our financial condition and results of operations. Uncertainties regarding the economic impact of the pandemic is likely to result in sustained market turmoil and could adversely impact the semiconductor industry, which could in turn negatively and materially impact our business, financial condition and results of operations.

The extent of the impact of the pandemic on our operational and financial performance will depend on numerous evolving developments, including the duration and magnitude of the pandemic, and the effects on our customers, employees, suppliers and other partners, all of which are uncertain and difficult to predict at this time. A sustained or prolonged outbreak could exacerbate the adverse impact on our business, which may include:

We are workingRisks Associated with our stakeholders, including customers, suppliers and employees, to address the impact of this global pandemic. We continue to monitor the situation, to assess further possible implications to our business, supply chain and customers, and to take actions in an effort to mitigate adverse consequences. Should such disruption continue for an extended period of time, or if and when the pandemic ends, the resumption of normal business operations may be delayed or constrained by lingering effects of the pandemic (including limitations imposed by governmental authorities on our ability to return to normal operating practices). These effects, alone or taken together, could have a material adverse impact on our business, results of operations or financial condition.

Risks Associated with OurOur Significant Operations in Asia, in Particular China

Our business has been and may be significantly impacted by worldwide economic conditions, in particular changing economic conditions in China.

In recent years, global credit and financial markets experienced disruptions, and may experience disruptions in the future, including diminished liquidity and credit availability, declines in consumer confidence, declines in economic growth, increases in unemployment rates, and uncertainty about economic stability. Economic uncertainty affects businesses such as ours in a number of ways, making it difficult to accurately forecast and plan our future business activities. The tightening of credit in financial markets may lead consumers and businesses to postpone spending, which may cause our customers to cancel, decrease or delay their existing and future orders with us. In addition, financial difficulties experienced by our suppliers or distributors could result in product delays, increased accounts receivable defaults and inventory challenges. Volatility in the credit markets could severely diminish liquidity and capital availability.

Demand for our products is a function of the health of the economies in the United States, Europe, China and the rest of Asia. We cannot predict the timing, strength or duration of any economic disruptions, such as those resulting from the COVID-19 pandemic, or subsequent 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. These and other economic factors have had, and may in the future have, a material adverse effect on demand for our products and on our financial condition and operating results.

In particular, since we have significant operationsParticularly 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. A slowdown in economic growth in China could adversely impact our customers, prospective customers, suppliers, distributors and partners in China, which could have a material adverse effect on our results of the operations and financial condition. There is no guarantee that economic downturns, whether actual or perceived, any further decrease in economic growth rates or an otherwise uncertain economic outlook in China will not occur or persist in the future, that they will not be protracted, or that governments will respond adequately to control and reverse such conditions, any of which could materially and adversely affect our business, financial condition and results of operations.

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 throughunder distribution arrangements and value-added reseller agreements with parties located in Asia. As a result, we are subject to increasedsignificant risks due to this geographic concentration of business and operations. For the year ended December 31, 2020, 91%2023, 87% of our revenue was from customers in Asia. There are risks inherent in doing business in Asia, and internationally in general, including:

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.

We and our manufacturing partners are or will be subject to extensive Chinese government regulation, and the benefit of various incentives from Chinese governments that we and our manufacturing partners receive may be reduced or eliminated, which could increase our costs or limit our ability to sell products and conduct activities in China.

We have manufacturing and testing facilities in China and most of our manufacturing partners are located in China. The Chinese government has broad discretion and authority to regulate the technology industry in China. Additionally, China’s government has implemented policies from time to time to regulate economic expansion in China. It exercises significant control over China’s economic growth through the allocation of resources, controlling payment of foreign currency-denominated obligations, setting monetary policy and providing preferential treatment to particular industries or companies.

Personal privacy, cyber security, and data protection are becoming increasingly significant issues in China. To address these issues, the Standing Committee of the National People’s Congress promulgated the Cyber Security Law of the People’s Republic of China (the “Cyber Security Law”), which took effect on June 1, 2017. The Cyber Security Law sets forth various requirements relating to the collection, use, storage, disclosure and security of data, among other things. Various Chinese agencies are expected to issue additional regulations in the future to define these requirements more precisely. These requirements may increase our costs of compliance. We cannot assure you that we will be able to comply with all of these regulatory requirements.Any failure to comply with the Cyber Security Law and the relevant regulations and policies could result in further cost and liability to us and could adversely affect our business and results of operations. Additionally, increased costs to comply with, and other burdens imposed by, the Cyber Security Law and relevant regulations and policies that are applicable to the businesses of our suppliers, vendors and other service providers, as well as our customers, could adversely affect our business and results of operations.

Any additional new regulations or the amendment or modification of previously implemented regulations could require us and our manufacturing partners to change our business plans, increase our costs, or limit our ability to sell products and conduct activities in China, which could adversely affect our business and operating results.

The Chinese government and provincial and local governments also have provided, and continue to provide, various incentives to encourage the development of the semiconductor industry in China. Such incentives include tax rebates, reduced tax rates, favorable lending policies and other measures, some or all of which may be available to our manufacturing partners and to us with respect to our facilities in China. Any of these incentives could be reduced or eliminated by governmental authorities at any time. Any such reduction or elimination of incentives currently provided to us and our manufacturing partners could adversely affect our business and operating results. 

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, due to economic uncertainties in 2023, some of our customers cancelled, decreased or delayed their existing and future orders with us, which impacted our financial results and made our forecasting much more difficult. In addition, volatility in the credit markets could severely diminish our customers’ liquidity and capital availability, which could materially harm our business.
 
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 the global economic downturn, the Russia-Ukraine conflict, the Middle East conflict or subsequent 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. 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. 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. 

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:

If we are unable to maintain our facilities in China at fullyfull operational status with qualified workers, appropriate manufacturing controls and reasonable cost levels, we may incur costs higher costs than our current expense levels, which would affect our gross margins.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.

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 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 sell products and conduct business activities in China, which could materially and adversely affect our business and operating results.
 
The Chinese government and 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.

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, among other things, foreign investments and manufacturing 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 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 towards 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 proceed with our business plans in China.

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.

As a global company headquartered in the United States, weWe are subject to U.S. laws and regulations that could limit and restrict the export of some of our products and services and may restrict our transactions with certain customers, business partners and other persons,individuals, including, in certain cases, dealings with or between our employees and subsidiaries. In certain circumstances, export controlcontrols and economic sanctions regulations 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 materially limit them in the future, which would materially and adversely affect our business and results of operations. We maintain an export compliance program, but there are risks that theour compliance controls could be circumvented, exposing us to legal liabilities.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 recent past, there is a significant risk that 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 andor restrict the export of some of our products and services to our customers may also encourage our customers to develop their own solutions to replace our products, or seek to obtain a greater supply of similar or substitute products from our competitors that are not subject to these restrictions, which could materially and adversely affect our business, financial condition and results of operations.

Since 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 beginningincreasing focus on the risks and strategic importance of 2018, thereAI technologies has resulted in regulatory restrictions that target products and services capable of enabling 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.
 
There has been increasing rhetoric, in some cases coupled with legislative or executive action, from several U.S. and foreign leaders regarding tariffs against foreign imports of certain materials. More specifically, there have been several rounds of U.S. tariffs on Chinese goods takingthat have taken effect in the past few years, some of which prompted 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.condition, as well as our business and financial results. If these tariffs continue or additional new 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, including 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 and suppliers 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, could disrupt our business operations and materially and adversely affect our results of operations.
 
In addition, the Chinese government has promulgated new regulations impacting economic and political stability within Hong Kong where many of our customers are located. Due to the sensitive political climate these regulations created, there are increasing risks that this China’s national security law may trigger sanctions or other forms of restrictions by foreign governments including the U.S., which could affect companies conducting business in Hong Kong. It is difficult for us to predict the impact, if any, the implementation of the national security law 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 foreign currencies, including the Renminbi, may adversely affect our results of operations.

OurMany of our manufacturing and packagingother suppliers are and will continue to be primarily located in China for the foreseeable future. In connection with the global economic downturn, 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 in the U.S.,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.SU.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 the timing of payments forcertain transactions, including intercompany transactions between the U.S. and our foreign subsidiaries, whichthat are reporteddenominated in interest andcurrencies other income inthan the statements of operations.functional currencies. Fluctuations in the value of the U.S. Dollar relative to the 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.

A significant portion of our manufacturing capacity comes from suppliers in China, which exposes us to political, cultural, regulatory, economic, foreign exchange, and operational risks.

A significant portion of our manufacturing, assembly and packaging capacity comes from key suppliers located in China. As a result, we are subject to significant political, regulatory, economic, foreign exchange, and operational risks due to this geographic concentration in our business. Although our management has an established long-term strategy to diversify capacity outside China, there is no guarantee that we will be able to identify, qualify and engage additional foundry partners and assembly and packaging suppliers in other regions in order to mitigate these risks, or that the quality, price or terms of such production will be sufficient or acceptable to us, any of which could negatively and materially harm our business and results of operations.

Risks Associated with Product Demand and Sales

We may not experienceachieve 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 certain of our customers, unfavorable changes in our operations, reduced global electronics demand, a deterioration in market conditions including as a result of the global economic downturn, end-customer market downturn, market acceptance and penetration of our current and future products, and litigation. A material decrease in our growth rates, or a decline in revenue, could materially and adversely affect our stock pricebusiness 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, and storage,enterprise data, automotive, industrial, communicationscommunication and consumer 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 thecertain of our current major end markets, that we serve, our revenue willwould 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 abilityrequirement 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, 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 supplier, we may have difficulty both in accurately predicting our future revenue and appropriately managing our expenses.

Because we provide components 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 dependsdepend 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, allforecast. All of which maythese factors continue to be exacerbated by the adverse effects of macroeconomic factors, including inflation, increased interest rates, supply chain disruptions, decreased economic output, fluctuations in currency rates, the COVID-19 pandemic.Russia-Ukraine conflict and the Middle East conflict. If our customers, including distributors, 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 decline on a quarterly basis, and we may have difficulty forecasting our expenses and inventory levels, which could reduce our revenue, result in inventory write offs, and adversely 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 wouldcould impact our overall gross margin and financial performance.

Our success depends on our development and sale of products that are differentiated in the market, which result inwith gross margins that have historically been above industry averages. Should we fail to improve or maintain our gross marginmargins in the future, and accordingly develop and introduce sufficiently differentiated products that result in higher gross margins than industry averages, 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 aremay 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 and additional conditions, we may not be able to successfully penetrate new markets.

 
The success of a new product depends on accurate forecasts of long-term market demand and future technological developments, as well as on a variety of specific implementationother factors, including:

To the extent that we fail to timely introduce new products or to quickly penetrate new markets, our business, financial condition and results of operations could be materially and adversely affected.

We depend on a limited number of customers, including distributors, for a significant percentage of our revenue.

Historically, we have generated most of our revenue from a limited number of customers, including distributors. For example, sales to our largest distributor accounted for 24% of our total revenue for the year ended December 31, 2020. We continue to rely on a limited number of customers for a significant portion of our revenue. Because we rely on a limited number of customers for significant percentages of our revenue, a decrease in demand or significant pricing pressure for our products from any of our major customers for any reason (including due to competition, market conditions, catastrophic events or otherwise) could have a materially adverse impact on our business, financial condition and results of operations.

We receive a significant portion of our revenue from distribution arrangements and value-added resellers, and direct customers, and the loss of any one of these distributors, value-added resellers or direct customers, or failure to collect a receivable from them could materially and adversely affect our financial position and results of operations.

We market our products through distribution arrangements and value-added resellers, and through our direct sales and applications support organization to customers that include OEMs, ODMs and EMS providers. Receivables from our customers are generally not secured by any type of collateral and are subject to the risk of being uncollectible. Sales to our largest distributor accounted for 24% of our total revenue for the year ended December 31, 2020. Significant deterioration in the liquidity or financial condition of any of oursuch major customers or any group of our customers could have a material adverse impact on the collectability of our accounts receivable and our future financial condition and operating results. We primarily conductWhile we could partner with other distributors or value-added resellers to replace any of our salescustomers, the change in business partners could interrupt our operations, cause us to have to identify and qualify new partners, and have a materially adverse impact on a purchase order basis,our business, financial condition and we do not have any long-term supply commitments. 

results of operations.
 
Moreover, we believe a high percentage of our products are eventually sold to a number of OEMs.OEMs and ODMs. Although we communicate with OEMs and/or ODMs in an attempt to achieve “design wins,” which are decisions by OEMs and/or ODMs to incorporate our products, we do not have purchase commitments from these end users. Therefore, there can be no assurance that the OEMs and/or ODMs will continue to incorporate our ICs into their products.products, even if we secure a design win. OEM 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, that our direct customers will continue to be successful in selling to the OEMs, or that the OEMs will be successful in selling products which incorporate our ICs. The loss of any significant customer, any material reduction in orders by any of our significant customers or by their OEM customers, the cancellation of a significant customer order, or the cancellation or delay of a customer’s or an OEM’s significant program or product could reduce our revenue 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 thereof,thereto, or raw materialchanges in the materials used in the manufacturing processes may cause our products to fail. We have fromFrom time to time, in the pastwe have experienced product quality, performance or reliability problems. Our standard warranty period is generally one toor 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 losta loss of customers and/or a decrease in revenue, increased costs, including warranty expense and costs associated with customer support, cancellations or rescheduling of orders or shipments, and product returns or discounts, any of which would harm our operating results.

 
In addition, product liability claims may be asserted by our customers with respect to our technology or products.customers. Although we currently have insurance, there can be no assurance that we have obtained a sufficient amount of 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, due to recent changes in the insurance industry, 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. All of these factors could have a material and adverse impact on our business, financial condition and results of operations.

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 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:

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.orders, particularly as such customers are exposed to economic risks in connection with the global economic downturn. 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 productpurchase order changes occur, we could lose anticipated sales and not have sufficient time to reduce our inventory and operating expenses.
 

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 the available capacity, particularly capacity in the geometries we require, at the facilities in which they manufacture wafers for us.  For example, we believe the strong increase in industry-wide demand for electronic equipment for remote work arrangements as a result of the COVID-19 pandemic has resulted, and will continue to result, in capacity shortages of our suppliers.us. As a result, 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. 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 revenue and gross margin may materially decline. We may also be required to increase the prices of our products in order to remain profitable, which could result in a loss of customers. 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 business and results of operations. Delays in increasing third-party manufacturing capacity may also limit our ability to meet customer demand.

There may be unanticipated costs associated with adding to or supplementingincreasing our third-party suppliers’ manufacturing capacity.

We anticipate that future growth of our business will require increased manufacturing capacity on the part of third-party supply foundries, assembly shops, and testing facilities for our products. In order to facilitate such growth, we may need to enter into strategic transactions, investments and other activities.activities, with both our current suppliers and new suppliers. Such activities are subject to a number of risks, including:

These and other risks may affect the ultimate cost and timing of any expansion of our third-party suppliers’supplier capacity. If our manufacturing costs increase, including as a result of inflationary pressure, or we experience supply constraints, we may be required to raise the prices forof our products to remain profitable, which could result in a loss of 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.

We currently depend on third-party suppliers to provide us with wafers for our products. If any of our wafer suppliers are acquired, become insolvent or capacity constrained, andor are otherwise unable to provide us sufficient wafers at acceptable yields andor at anticipated costs, our revenue and gross margin may decline or we may not be able to fulfill our customer orders.

We have a supply arrangementarrangements with certain suppliers for the production of wafers. Should any of our suppliers arebe acquired or become insolvent or capacity constrained, we may not be able to fulfill our customer orders, which would likely cause a decline in our revenue.

 
While certain aspects of our relationshiprelationships with these suppliers are contractual, many important aspects of this relationshipour relationships depend on our suppliers’ continued cooperation and our management of such relationships with the supplier relationships.suppliers. Our relationships could also 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.yields and supply of our products. The failure of our suppliers to supply usprovide wafers at acceptable yields could prevent us from fulfilling our customer orders for our products 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.
 
Further, as is common in the semiconductor industry, our customers may reschedule or cancel orders on relatively short notice. If our customers cancel orders after we submit a committed forecast to our suppliers for the corresponding wafers, we may be required to purchase wafers that we may not be able to resell, which would adversely affect our financial condition, results of operations and cash flows.

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, events such as global economic crisesthe Russia-Ukraine conflict, the Middle East conflict and the COVID-19 pandemicsupply chain disruptions may materially impact our assembly 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 in advance of selling our products.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 the impacts of the global economic downturn, 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 productproducts within the timeframe that is required, we may have insufficient inventory to meet our customercustomers’ demands. In addition, a perceived negative trend in market conditionconditions could lead us to decrease the manufacturing volume of our products to avoid excess inventory. If we inaccurately assessed theassess market conditions for our products, we would have insufficient inventory to meet our customer demands.demands resulting in lost potential revenue. In the event that we order products that we are unable to sell due to a decrease in orders, unexpected order cancellations, injunctions due to patent litigation, 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 (e.g., 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.

Our products incorporate commodities such as gold, copper and silicon. An increase in the price or a decrease in the availability of these commodities and similar commodities that we use could negatively impact our business and results of operations.

Risks Associated with Industry Dynamics and Competition

The highly cyclical nature of the semiconductor industry, which has producedresulted 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. These conditions have caused significant variances in product demand and production capacity, as well as rapid erosion of average selling prices. The industry may experience severe or prolonged downturnsprices, which have resulted, and could in the future which could result, in lower demand for our products, downward pressure on the price of our products, as well as lower demand forand/or increased inventory due to our products.customers’ delayed production schedule. Because significant portions 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 couldwould 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.

In recent years, there has been a trend toward semiconductor industry consolidation. We expect this trend to continue 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 vendorssuppliers of multiple products for customers. This could lead to more variability in our operating results and could have a material adverse effect on 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 these resources to develop their own products internally. The future 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. Future sales prospects also are dependent upon acceptance of third-party sourcing for products as an alternative to in-house development. Customers may in the future continue to use 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. If our customers fail to accept our products as an alternative, if they develop or acquire the technology to develop such components internally rather than purchase our products, or if we are otherwise unable to develop or maintain strong relationships with them, our business, financial condition and results of operations could be materially and adversely affected.

We compete against many companies with substantially greater financial and other resources, and our market share may be reduced 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 applicationsapplication engineers and design talent, our ability to introduce new products, and our ability to maintain the rate at which we introduce these new products. We compete with domestic and non-domesticforeign semiconductor companies, many of which have substantially greater financial and other resources with which to pursue engineering, manufacturing, marketing, and distribution of their products.products, and, in some cases, may have a broader number of 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 respect to one or more of our product lines, with many manufacturers of such products, 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 assure youguarantee 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 this market, 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 many 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 were not eligible for such investments. Many of our competitors benefitted from the investments, which will help 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.

our products as an alternative to their internally developed products. Future sales prospects also are dependent upon acceptance 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. If any of these situations were to occur, our business, financial condition and results of operations could be materially and adversely affected.

 

Risks Associated with Information TechnologyIT and Cybersecurity

 

Implementation of anenhanced enterprise resource planning (“ERP”) or other information technologyIT 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 requiresmay 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.

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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 flow.

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. From time to time, there have been claims challenging the ownership of open-source software against companies that incorporate open-source software into their products or services or alleging that these companies have violated the terms of an open-source license. As a result, we could be subject to lawsuits by parties claiming ownership of what we believe to be open-source software or alleging that we have violated the terms of an open-source license. Litigation could be costly for us to defend, have a negative effect on our operating results and financial condition or require us to devote additional research and development resources to change our solutions. In addition, if we were to combine our proprietary software solutions with open-source software in certain circumstances, we could, under certain open-source licenses, be required to publicly release the source code of our proprietary software solutions, which could harm our business and ability to compete. If we inappropriately use open-source software, we may be required to re-engineer our solutions, discontinue the sale of our solutions, release the source code of our proprietary software to the public at no cost or take other remedial actions, which could 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 in a way that could impose unanticipated conditions or restrictions on our ability to commercialize our solutions, which could adversely affect our business, operating results and financial condition.

 

System security risks, data protection or privacy breaches, cyber attacks andcyberattacks, 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.

 

Experienced hackers may be able to penetrate our network security and misappropriate or compromise our confidential and proprietary information, create system disruptions or cause shutdowns. As AI capabilities improve, threat actors may quickly develop more sophisticated and convincing attacks. These attacks could be crafted with an AI tool to directly attack information systems with increased speed and efficiency or create more effective phishing emails. 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 interruptions and delays that may impede our sales, manufacturing, distribution, financial reporting or other critical functions.

 
In the ordinary course of business, we store sensitive data on our internal systems, network and servers, such as proprietary business and financial information, and confidential data pertaining to our customers, suppliers and business partners. The secure maintenanceMaintaining security of sensitive information on our networks and the protection features of our solutions are both critical to our operations and business strategy. We devote significant resources to network security, data encryption, and other security measures to protect our systems and data. However, these security measures cannot provide absolute security. Although we make significant efforts to maintain the security and integrity of our systems and solutions, any destructive or intrusive breach could compromise our networks, creating system disruptions or slowdowns, and the information stored on our networks could be accessed, publicly disclosed, lost or stolen. The increase in remoteRemote working arrangements, during the COVID-19 pandemic hasRussia-Ukraine conflict, the Middle East conflict, and AI-powered cybersecurity threats have also heightened our potential exposure to cyber attacks,cyberattacks, which could put the sensitive proprietary and financial informationdata we store on our internal systems at risk. If any of these types of security breaches were to occur and we were unable to protect sensitive data, our reputation and relationships with our business partners and customers could be materially damaged, our reputation could be materially harmed, and we could be exposed to a riskrisks of litigation and possible significant liability.

 
Portions of our IT infrastructure may also may 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 losta loss of customers resulting from these disruptions could adversely affect our financial results stock price and reputation.

Effective May 25, 2018, the European Union (“EU”) implemented the General Data Protection Regulation (“GDPR”), a broad data protection framework that expands the scope of current EU data protection law to non-European Union entities that process, or control the processing of, the personal information of EU subjects. The GDPR allows for the imposition of fines and corrective action on entities that improperly use or disclose the personal information of EU subjects, including through a data security breach. The State of California enacted the California Consumer Privacy Act of 2018 (“CCPA”), effective on January 1, 2020, which contains requirements similar to GDPR for the handling of personal information of California residents.

Our failure to fully comply with GDPR, CCPA and other laws could lead to significant fines and require onerous corrective action. In addition, data security breaches experienced by us could result in the loss of trade secrets or other intellectual property, public disclosure of sensitive commercial data, and the exposure of personally identifiable information (including sensitive personal information) of our employees, customers, suppliers and others.

 
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 or vendors 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 related actions, and penalties by regulatory authorities. In addition, we could incur significant costs in notifying affected personsindividuals and entities and otherwise complying with the multitude of foreign, federal, state and local laws and regulations relating to the unauthorized access to, or use or disclosure of, personal information. Finally, any perceived or actual unauthorized access to, or use or disclosure of, such information could harm our reputation and substantially impair our ability to attract and retain customers, andwhich could have an adverse 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 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 use these tools, which poses additional risks relating to the protection of data, including the potential exposure of our proprietary confidential information to unauthorized recipients and the misuse of our or third-party intellectual property. Use of AI tools may result in allegations or claims against us related to violation of third-party intellectual property rights, unauthorized access to or use of proprietary information and failure to comply with open-source software requirements. 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 maintaining, training, monitoring and enforcement of appropriate policies and procedures governing the use of AI tools, and the results of any such use, by us or our partners.

We are subject to various U.S. and international laws, policies and other regulations regarding data protection.

Privacy, cyber security, and data protection are becoming increasingly significant issues. To address these issues, the Standing Committee of the National People’s Congress promulgated the Cyber Security Law of the People’s Republic of China (the “Cyber Security Law”), which took effect on June 1, 2017. The Cyber Security Law sets forth various requirements relating to the collection, use, storage, disclosure and security of data, among other things. On June 10, 2021, the National People’s Congress passed the Data Security Law of the People’s Republic of China (the “Data Security Law”), which became effective on September 1, 2021. The Data Security Law is the first comprehensive data security legislation in China, which becomes a key supplement to the Cyber Security Law and aims to regulate a wide range of issues in relation to the collection, storage, processing, use, provision, transaction and publication of any kind of data. Various Chinese agencies are expected to issue additional regulations in the future to define these requirements more precisely. For example, the Personal Information Protection Law (“PIPL”), took effect on November 1, 2021. PIPL is aimed at protecting and controlling the use and transfer of personal data in China. There is significant uncertainty in how regulators will interpret and enforce the law, and it contains provisions that allow substantial government oversight and include fines for failure to obtain required approval from China’s cyber and data protection regulators for cross-border transfers of personal data. 

 

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Effective May 25, 2018, the European Union (“EU”) implemented the General Data Protection Regulation (“GDPR”), a broad data protection framework that expands the scope of EU data protection law to non-European Union entities that process, or control the processing of, the personal data of EU subjects. The GDPR allows for the imposition of fines and corrective action on entities that improperly use, disclose or secure the personal data of EU subjects, including through a data security breach. In addition, an increasing number of states in the U.S. have enacted laws containing similar requirements to the GDPR for businesses collecting or processing personal data. For example, the State of California enacted the California Consumer Privacy Act of 2018 (“CCPA”), which was significantly amended by the California Privacy Rights Act, and sets forth comprehensive privacy and security obligations regarding the collection and processing of personal data of eligible California residents. Other states have, or are expected to, enact similar or more expansive legislation regarding the collection and processing of personal data.
 
These regulatory requirements may increase our costs of compliance. Any failure to fully comply with the Cyber Security Law, the Data Security Law, PIPL, GDPR, CCPA, and other applicable laws and regulations could lead to significant fines and regulatory corrective actions, along with reputational damage or third-party lawsuits, which could adversely affect our business and results of operations. In addition, data security breaches experienced by us could result in the loss of trade secrets or other intellectual property, public disclosure of sensitive commercial data, and the exposure of personal data (including sensitive personal data) of our employees, customers, suppliers and others. Such incidents could subject us to significant monetary damages, regulatory enforcement actions and/or criminal prosecution, and cause us to lose customers and their related revenue in the future.

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 intoin research and development. We expect to have to continue to investinvesting heavily in research and development in the future in order to continue to innovatekeep innovating and introduceintroducing new products in a timely manner and increase our revenue and profitability. If we have to invest more resourcesIncreased investments in research and development than we anticipate, we could see anwill increase in our operating expenses, which may negatively impact our operating results.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 see 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.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 decline.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 harm our ability to innovate and compete. Research and development expenses are likely to fluctuate from time to time to the extent we make periodic incremental investments in research and development and these investments may be independent of our level of revenue, which could negatively impact our financial results. 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 absolute dollars in the foreseeable future due to the increased complexity and the greater 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 andand/or cause us to incur debt or to assume contingent liabilities, which could adversely affect our business.

 

As a 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 competitive 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 in the semiconductor industry, the valuation expectations of acquisition candidates and applicable antitrust or other policies, laws or related regulations. If we are unable to identify and complete acquisitions, we may not be able to successfully expand our business and product offerings.

 
In January 2024, we completed the acquisition of Axign B.V. (“Axign”), a fabless semiconductor company located in the Netherlands that specializes in the development of consumer audio applications. We cannot guarantee that this or any future acquisitions will improve our results of operations or that we will otherwise realize the anticipated benefits of any acquisitions. In addition, if we are unsuccessful in integrating Axign, or 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;

 

•	conformingintegrating the acquired company’s standards, processes, procedures and controls with our operations;

 

•	coordinating new product and process development;

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•	hiring additional management and other critical personnel;

 

•	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;

 

•	the risk of undisclosed liabilities of the acquired businesses and potential legal disputes with founders or stockholders of acquired companies;

 

•	our inability to commercialize acquired technologies;

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•	the risk that the futureprojected business potential as projected 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.

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

 

The complexity of calculating our tax provision may result in errors that could result in restatements of our financial statements.

 

Due to the complexity associated with the calculation of our tax provision, including the effects of the U.S. Tax Cuts and Jobs Act enacted in December 2017 (“2017 Tax Act”) and the enactment of othernew 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 us having to restatea 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.

 

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, such as the 2017 Tax Act, 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 (“IRS”(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.

 

Our international operations subject us to potentially significant tax consequences, which could adversely affect our results of operations.

 
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 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 penalties, resulting in higher effective tax rates, reduced cash flows and lower overall profitability of our operations. Additionally, our future worldwide tax raterates, financial position and financial positionoperating results may be affected by changes in the relevant tax laws, interpretation of such tax laws or the influence of certain tax policy efforts, ofincluding in the European UnionEU and the Organization for Economic Co-operationCooperation and Development.

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We face risks in connection with our internal control over financial reporting.reporting and a material weakness was identified.

 

Effective internal control over financial reporting is necessary for us to provide reliableAs more fully disclosed in Item 9A. Controls 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. Our failure to implement and maintain effective internal control over financial reporting could resultProcedures of this Annual Report, late in the audit process, a material misstatementweakness was identified that existed as of December 31, 2023, regarding ineffective design of the controls related to management’s review and documentation of our financial statementsinventory demand information and other assumptions used to determine the inventory carrying value adjustments necessary to record such quantities at the lower of their cost or otherwise cause usnet realizable value.

Due to fail to meet our financial reporting obligations. This, in turn, could result inthis finding of a loss of investor confidence in the accuracy and completeness of our financial reports, which could have an adverse effect on our results of operations and/or have a negative impact on the trading price of our common stock, and could subject us to stockholder litigation. In addition,material weakness, we cannot assure youconcluded that we will not in the future identify material weaknesses in our internal control over financial reporting was not effective as of December 31, 2023. While we do not believe that we have not discovered to date, which may impactthis material weakness has impacted the reliabilityaccuracy or reporting of our consolidated financial results, until this material weakness is remediated, or should new material weaknesses arise or be discovered in the future, 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 financial statements.regulations, which could result in investigations and sanctions by regulatory authorities. Any of these results could adversely affect our business and the value of our common stock. 

 

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Risks Associated with Regulatory Compliance, Intellectual Property Protection and Litigation

 
We are subject to anti-corruption laws in the jurisdictions in which we operate, including the U.S. Foreign Corrupt Practices Act (the “FCPA”“FCPA”). and the U.K. Bribery Act. Our failure to comply with these laws could result in penalties which could harm our reputation and have a material adverse effect on our business, financial condition and results of operations.

 
We are subject to the FCPA, the U.K. Bribery Act and various anti-corruption laws of other jurisdictions, which generally prohibitsprohibit companies and their intermediaries from making improper payments to foreign officials for the purpose of obtaining or keeping business and/or other benefits, along with various other anti-corruption laws.benefits. Although we have implemented policies and procedures designed to ensure that we, our employees and other intermediaries comply with the FCPA, the U.K. Bribery Act and other anti-corruption laws to which we are subject, there is no assurance that such policies or procedures will work effectively all of the time or protect us against liability under the FCPA or otherthese 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 personsindividuals who may be considered “foreign officials” under the FCPA or other anti-corruption laws, resulting in an elevated risk of potential FCPA violations. If we are not in compliance with the FCPA and other laws governing the conduct of business with government entities (including local laws), we may be subject to criminal and civil penalties and other remedial measures, including restatements of our financial reports, which could have a material adverse impact on our business, financial condition, results of operations and liquidity. Any investigation or allegations of any potential violations of the FCPA or other anti-corruption laws by the U.S. or foreign authorities could harm our reputation and have an adverse 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 expense. 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 with,in, including export control laws such as the Export Administration Act, the Export Administration Regulations and other laws, regulations and requirements governing international trade and technology transfer. These laws and regulations are complex, change frequently and have generally become more stringent over time. We may be required to incur significant expense 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 impact 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.

 

Environmental laws and regulations could cause a disruption in our business and operations.

 
We are subject to various foreign, federal, state federal and internationallocal laws and regulations governingthat 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 European UnionEU 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 costcosts were to become prohibitive.

 

If weWe are unsuccessfulsubject to increasing regulatory and reporting standards related to ESG matters, which could increase our expenses.
 
In recent years, there has been an increase in legal proceedings brought against us or anypublic 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, the SEC has proposed new rules that require public companies to provide detailed disclosures of their climate-related risks, greenhouse gas emissions data, and net-zero transition plans, and in October 2023, California passed two bills that will require companies to disclose greenhouse gas emissions data and climate-related financial risks. In addition, many of our customers we could be preventedincreasingly include stringent environmental and other non-standard compliance requirements in their contracts with us or request significant amount of data from selling many of 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 timeus for their Scope 3 emissions reporting. While we are a partycommitted to various legal proceedings. If we are not successful in litigation that couldmaintaining strong ESG strategies, practices, policies and disclosures, there can be brought against us or our customers, we could be ordered to pay monetary fines and/or damages. If we are found liable for willful patent infringement, damages could be significant. 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, and our products and our customers’ accounts payable to us could be seized. Finally, interim developments in these proceedings could increase the volatility in our stock price as the market assesses the impact of such developments on the likelihoodno assurance that we will be able to achieve our goals, or that our compliance initiatives will not ultimately prevailbe deemed sufficiently robust by regulators, stockholders, customers and other key stakeholders. The achievement of our goals and initiatives may be impacted by factors that are outside our control. Some of our stakeholders may disagree 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 these proceedings.which we operate. Any failure, or perceived failure, by us to achieve 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 litigation, regulatory action or other legal claims, penalties, injunction or other remedies against us, damage our reputation and materially and adversely 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 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, which could contribute to increased volatility in 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 in general. We may also 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, our stock price could be materially impacted.and adversely affected.

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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 additional infringement claims. Such litigation is very costly. In the event any third party makes a new infringement claim against us or our customers, we could incur additional ongoing legal expenses. In addition,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 adversely affected. Further, ifIf we are not successful in any of our intellectual property defenses, we may have to cease production of certain products, design around such technologies, or pay royalty payments, any of which could harm our financial condition could be adversely affected and our business could be harmed.business. Our management team may also be required to devote a great deal of time and effort to these legal proceedings, which could divert management’s attention from focusing on our operations, andwhich could adversely 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 United States.U.S. Our failure to adequately protect our proprietary technologies could materially harm our business.

 

If we are unsuccessful in legal proceedings brought against us or any of our customers, we could be prevented from selling many of 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 could be brought against us or our customers, we could be ordered to pay monetary fines and/or damages, including expenses and damages against our customers. If we are found liable for willful patent infringement, damages could be significant. 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, and our products and our customers’ accounts payable to us could be seized. Finally, interim developments in these proceedings could increase the volatility 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 favorably, such proceedings can be very expensive and time consuming, and may divert management’s attention from other business operations.

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 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 us longer than expected and divert 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, applications,engineering, finance and legal stafffunctions or to make continued improvements to our internal systems, particularly in the accounting and finance area, our business may suffer.

 
If we fail to continue to adequately staff our sales, applications,engineering, financial and legal staff,positions, maintain or upgrade our business systems and maintain internal controlcontrols that meet the demands of our business, we may not be able to effectively execute our ability to operate effectively will suffer.business strategy. The operation of our business also depends upon our ability to retain these employees, as these employeesthey 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.

 

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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 future 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;

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•	general economic, industry and market conditions worldwide;
•	performance, including our ability to outperform the market and outperform at a level that meets or exceeds our investors’ expectations;
•	whether our guidance meets the expectations of our investors;
•	the breath and liquidity of the marketaccurately forecast future demand for our common stock; products;
•	actual or anticipated manufacturing capacity limitations;
•	our ability to develop new products, enter new market segments, 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 wafer capacity and qualifying additional third-party wafer fabrication facilities;
•	our loss of key customers;
•	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 Index;
•	developments generally affecting the semiconductor industry;
•	commencement of or developments relating to our involvement in litigation;
•	investor perceptions of us and our business strategies;
•	changes in securities analysts’ expectations or our failure to meet those expectations;
•	actions by institutional or other large stockholders;
•	terrorist acts or acts of war;
•	epidemics and pandemics, such as the COVID-19 pandemic;
•	trading activity in our common stock, including short positions;
•	actual or anticipated manufacturing capacity limitations;
•	developments with respect to intellectual property rights;
•	introduction of new products by us or our competitors;
•	our sale of common stock or other securities in the future;
•	conditions and trends in technology industries;
•	our loss of key customers;
•	changes in market valuation or earnings of our competitors;
•	any mergers, acquisitions or divestitures of assets undertaken by us;
•	government debt default; 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;
•	our ability to continue the stock repurchase program and pay quarterly cash dividends to stockholders;
•	our ability to meet or exceed our, 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;
•	investor perceptions of us and our business strategies;
•	the breadth and liquidity of the market for our common stock;

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•	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;
•	terrorist acts or acts of war, including the ongoing Ukraine-Russia and Middle East 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 in certain foreign markets, particularly in China;
•	our ability to obtain governmental licenses and approvals for international trading activities or technology transfers, including export licenses;
•	ratings published by third-party organizations with respect to our environmental, social and governanceESG compliance efforts;

•	our ability to develop new products, enter new market segments, gain market share, manage litigation risk, diversify our customer base and successfully secure manufacturing capacity;
•	our ability to increase our gross margins; compliance with regulatory mandates focusing on ESG issues, including climate risks and social initiatives; and
•	our performance against the ESG guidelines set by institutional stockholders and customers, and our ability to accurately forecast future demand for our products;
•	market reactions to guidance from other semiconductor companiesmeet or third-party research groups;

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•	market reactions to merger and acquisition activities in the semiconductor industry, and rumors or expectations of further consolidation in the industry;
•	investments in sales and marketing resources to enter new markets;
•	costs of increasing wafer capacity and qualifying additional third-party wafer fabrication facilities;
•	cyber attacks or other system security, data protection and privacy breaches;
•	our ability to pay quarterly cash dividends to stockholders; and
•	changes in the estimation of the future size and growth rate of our markets. exceed their expectations.

 

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.

 
Historically, there have been “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 that could place additional downward pressure on our stock price. This could lead to further increases in the existing short position in our common stock and cause decreases 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 at all or in any particular amounts.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 at all or in any particular amounts.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 October 2023, our Board of Directors approved a stock repurchase program authorizing the repurchase of up to $640 million in the aggregate of our common stock. The repurchase program will expire on October 29, 2026. 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. We also issue restricted stock units (“RSUs”) to employees, which convert into shares of common stock upon vesting. 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 result inrequire additional regulatory requirements,compliance, such as stockholder approval.

 

General Risk Factors

 

Our worldwide operations are subject to political, economic and geopolitical uncertainty, health risks, 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 manufacturersmanufacturing and assemblers,assembly partners, are concentrated in Asia, particularly in China. Such concentration increases the risk that earthquakes or other natural disasters, labor strikes, terrorism, war, political unrest, epidemics and pandemics, and/or health advisories could disrupt our operations. For example, the COVID-19 pandemic has resulted in disruptions in business operations and other global economic activities. Any of these events may cause disruptions and have a material adverse impact on our business and results of operations.

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For example, in 2022, China experienced a severe heatwave during the summer months in the Sichuan province, which resulted in widespread power shortages, rolling backouts and temporary business shutdowns imposed by the local governments. Although we were able to successfully execute our contingency plan and our operations were not materially and adversely disrupted by the events, we cannot guarantee that we will be able to mitigate the operational risks caused by extreme weather conditions or other events in the future.

 

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 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 could adversely affect our operating results and financial condition.

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ITEMItem 1B.

UNRESOLVED STAFF COMMENTSUnresolved Staff Comments

 

None.

 

ITEM 2.Item 1C.

PROPERTIESCybersecurity

 

The following table summarizesCybersecurity Risk Management and Strategy

We recognize the imperative to diligently manage cybersecurity risks as defined in Item 106(a) of Regulation S-K. Such risks include operational risks of ransomware, phishing, fraud, extortion, harm to employees or customers and violation of data privacy or security laws.

We address cybersecurity risks in our significant propertiesbusiness, technical operations, privacy and compliance issues through a diversified approach including threat-monitoring and assessments by third-parties, adopting IT security ISO standards/governance, proactive risk and compliance reviews. In order to defend against cybersecurity incidents, we carry out real-time cybersecurity threat monitoring of IT assets, perform penetration testing, audit applicable data policies and conduct directed employee training. We also monitor existing and emerging laws and regulations related to data protection and information security and implement appropriate changes. We maintain an insurance policy that provides certain coverage for losses we incur due to data breaches and other cybersecurity incidents.

We implemented incident response and breach management processes consisting of four stages: 1) monitor for and identify cybersecurity incidents, 2) carry out security incident analysis, 3) contain and recover, and 4) improve with post-incident analysis. Such incident responses are governed by the Cybersecurity Steering Committee.

We regularly engage external auditors to assess our internal cybersecurity programs and compliance and have been certified to conform to the requirements of ISO/IEC 27001.

There are no identified cybersecurity threats that have materially affected or are reasonably likely to materially affect our results of operations, or financial condition as of December 31, 2020:the date of this Annual Report on Form 10-K.

See “Risk Factors” for more information on our cybersecurity risks.

Cybersecurity Governance

As an important part of our risk management processes, cybersecurity is a focus area for our Board and management. Our Nominating and Corporate Governance Committee (the “NCG Committee”), which consists of independent members of the Board of Directors, is responsible for the oversight of risks from cybersecurity threats. The NCG Committee receives quarterly updates from the Cybersecurity Steering Committee. These updates include existing and emerging cybersecurity threats, risks, cybersecurity incident management and key information security initiatives. The NCG Committee also provides updates to our cybersecurity risk management and strategy programs to the Board of Directors on a quarterly basis.

Our cybersecurity risk management and strategy processes are overseen by the Cybersecurity Steering Committee, which includes individuals with an average of over 18 years of prior work experience in various roles involving IT governance and management, cybersecurity, auditing, and compliance. The Cybersecurity Steering Committee actively participates in the cybersecurity risk management and strategy processes as described above, and regularly reports to senior management and the NCG Committee. 

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LocationItem 2.		Approximate Building Square Footage			Primary Use
Owned:
United States:
Kirkland, Washington			70,000		Principal executive office, research and development, sales and marketing
Livonia, Michigan			40,000		Sales and marketing, research and development
San Jose, California			106,000		Research and development, sales and marketing, administrative
International:
Chengdu, China			200,000		Research and development, administrative
Chengdu, China			60,000		Testing and manufacturing operations
Hangzhou, China			68,000		Research and development
Shanghai, China			23,000		Sales and marketing
Shenzhen, China			8,000		Sales and marketing
Taipei, Taiwan			47,000		Sales and marketing, research and development
Leased:
Chengdu, China			89,000		Manufacturing operations, inventory warehouse
Barcelona, Spain			12,000		Research and development, sales and marketingProperties

As of December 31, 2023, our owned and leased facilities in excess of 10,000 square feet consisted of:

		United States				Other Countries				Total
						(in square feet)
Owned facilities			216,000				923,000				1,139,000
Leased facilities			-				290,000				290,000
Total facilities			216,000				1,213,000				1,429,000

 

We also lease other sales and marketing, and research and development offices in Asia, Europe and the United States. We believe that our existing facilities are adequatesuitable for our current operations.

 

ITEMItem 3.

LEGAL PROCEEDINGSLegal Proceedings

 

We are a party to actions and proceedings in the ordinary course of business, including potential litigation initiated by our stockholders, challenges to the enforceability or validity of our intellectual property, claims that our products infringe on the intellectual property rights of others, and employment matters. We may also be subject to litigation initiated by our stockholders. These proceedings often involve complex questions of fact and law and may require the expenditure of significant funds and the diversion of other resources to prosecute and defend. We defend ourselves vigorously against any such claims. As of December 31, 20202023,there were no material pending legal proceedings to which we were a party. 

 

ITEMItem 4.

MINE SAFETY DISCLOSURESMine Safety Disclosures

 

Not applicable.

 

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PART II

 

ITEMItem 5.

Market for Registrant’sRegistrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

 

Common Stock Information

 

Our common stock is traded on the Nasdaq Global Select Market under the symbol “MPWR.”“MPWR”.

 

Holders of Common Stock

 

As of February 22, 2021,2024, there were 3468 registered holders of record of our common stock. A substantially greater number of holders of our common stock are “street name” or beneficial holders, whose shares are held by banks, brokers and other financial institutions on their behalf.

 

Issuer Purchases of Equity Securities

In October 2023, our Board of Directors approved a stock repurchase program authorizing us to repurchase up to $640.0 million in the aggregate of our common stock through October 29, 2026. Shares are retired upon repurchase. We repurchased approximately 7,000 shares of our common stock for an aggregate purchase price of $3.7 million during the year ended December 31, 2023.

Stock repurchases under the program may be made through open market repurchases, privately negotiated transactions or other structures in accordance with applicable state and federal securities laws, at times and in amounts as management deems appropriate. The timing and the number of any repurchased common stock will be determined by our management based on the evaluation of market conditions, legal requirements, stock price, and other factors. The repurchase program does not obligate us to purchase any particular number of shares and may be suspended, modified, or discontinued at any time without prior notice.

The following table represents details of our stock repurchase transactions during the fourth quarter of 2023:

Period		Total Number of Shares Purchased			Average Price Paid per Share			Total Number of Shares Purchased as Part of Publicly Announced Program			Approximate Dollar Value of Shares that May Yet Be Purchased Under the Program
		(in thousands, except per share amounts)
November 1, 2023 – November 30, 2023			5		$	505.65			5		$	637,465
December 1, 2023 – December 31, 2023			2		$	603.15			2		$	636,259
Total			7		$	533.45			7

Dividend Policy

 

We currently have a dividend program approved by our Board of Directors, pursuant to which we intend to pay quarterly cash dividends on our common stock. Based on our historical practice, stockholders of record as of the last business day of the quarter are entitled to receive the quarterly cash dividends when and if declared by our Board of Directors, which are payable to the stockholders in the following month. 

 

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 the stockholders.

 

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Stock Performance Graph

 

The following graph compares the cumulative five-year total return on our common stock relative to the cumulative total returns of the Nasdaq Composite Index and the PHLX Semiconductor Sector Index. An investment of $100 is assumed to have been made in our common stock on December 31, 20152018, and its performance relative to the performance of a similar investment in the two indexes is shown through December 31, 2020,2023, assuming the reinvestment of dividends. Historic stock performance is not indicative of future performance.

The information contained in this stock performance graph section shall not be deemed to be “soliciting“soliciting material,” or “filed”“filed” or incorporated by reference in future filings with the SEC, or subject to the liabilities of Section18 of the Securities Exchange Act of 1934, except to the extent that we specifically incorporate it by reference into a document filed under the Securities Act of 1933 or the Securities Exchange Act of 1934.

 

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ITEM

Item 6.  SELECTED FINANCIAL DATA

[Reserved]

 

Not applicable.

ITEM

Item 7.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

The following discussion should be read in conjunction with the consolidated financial statements and related notes which appear under Item 8 in this Annual Report on Form 10-K. This discussion and analysis contains,contain, in addition to historical information, forward-looking statements that includeinvolve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certainmany factors, including those set forth under “Item“Part I, Item 1A. Risk Factors” and elsewhere in this Annual Report on Form 10-K.

 

Discussions of 20182021 results and year-to-year comparisons between 20192022 and 20182021 that are omitted in this Annual Report on Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2019,2022, filed with the SEC on February 28, 2020.24, 2023.

 

Overview

 

We are a leading semiconductorfabless global company that designs, developsprovides high-performance, semiconductor-based power electronics solutions. MPS’s mission is to reduce energy and markets high-performance power solutions. Incorporatedmaterial consumption to improve all aspects of quality of life and create a sustainable future. Founded in 1997 by our CEO Michael Hsing, MPS has three core strengths includestrengths: deep system-level and applications knowledge, strong analogsemiconductor design expertise, and innovative proprietary process technologies.technologies in the areas of semiconductor processes, system integration, and packaging. These combined strengthsadvantages are designed to enable usMPS to deliver highly integratedreliable, compact, and monolithic products that offer energy-efficient, cost-effective, easy-to-use solutions for systems found in computing and storage, automotive, industrial, communications and consumer applications. Our mission is to reduce total energy consumption in our customers’ systems with green, practical and compact solutions. We believe that we differentiate ourselves by offering solutions that are more highly integrated, smaller in size, more energy-efficient, more accurate with respectcost-effective, and environmentally responsible while providing a consistent return on investment to performance specifications and, consequently, more cost-effective than many competing solutions. We plan to continue to introduce new products within our existing product families, as well as in new innovative product categories.stockholders.

 

We operate in the cyclical semiconductor industry where there is seasonal demand for certain products.industry. We are not immune from current and futuresubject to industry downturns, but we have targeted product and market areas that we believe have the ability to offer above average industry performance over the long term. Historically, our revenue has generally been higher in the second half of the year than in the first half although various factors, such as market conditions and the timing of key product introductions, could impact this trend.

 

We work with third parties to manufacture and assemble our ICs. This has enabled us to limit our capital expenditures and fixed costs, while focusing our engineering and design resources on our core strengths.

 

Following the introduction of a product, our sales cycle generally takes a number of quarters after we receive an initial customer order for a new product to ramp up. Typical supply chain lead times for orders are generally 16 to 26 weeks. These factors, combined with the fact that orders in the semiconductor industryour customers can typically be cancelledcancel or rescheduledreschedule orders without significant penalty to the customer, make the forecasting of our orders and revenue difficult.

 

We derive most of our revenue from sales through distribution arrangements and direct sales to customers in Asia, where our products are incorporated into end-user products. Our revenue from direct or indirect sales to customers in Asia was 91%87%, 89%86% and 88%90% for the years ended December 31, 2020, 20192023, 2022 and 2018,2021, respectively. We derive a majority of our revenue from the sales of our DC to DC converter products which serve the storage and computing, and storage,enterprise data, automotive, industrial, communications and consumer markets. We believe our ability to achieve revenue growth will depend, in part, on our ability to develop new products, enter new market segments, gain market share, manage litigation risk, diversify our customer base and continue to secure manufacturing capacity.

 

Impact of COVID-19 on Our BusinessMacroeconomic Conditions and Recent Regulations

 

In March 2020,During 2023, the World Health Organization declared the COVID-19 outbreak a pandemic, whichsemiconductor industry faced, and continues to spread rapidlyface, a number of macro-economic challenges including reduced consumer spending, fluctuations in demand for semiconductors, rising inflation, increased interest rates, and fluctuations in currency rates. We remain cautious in light of continued challenging macroeconomic conditions and will continue to monitor the U.S.potential impact on our operations. The extent and globally. Governmental authoritiesduration of the direct and indirect impact of macroeconomic events on our business, results of operations and overall financial position remain uncertain and depend on future developments.

We closely monitor changes to export control laws, trade regulations and other trade requirements. As of December 31, 2023 and through the date we filed this Annual Report, no existing or newly introduced restrictions have implemented numerous containment measures, including travel-related restrictions, quarantines, shelter-in-place orders,had a material impact on our revenue and business restrictionsoperations. We will continue to monitor any changes or developments to export control laws, trade regulations and shutdowns. These measures have significantly affected the global economyother trade requirements, or interpretations thereof and are disrupting business operations worldwide for an unknown period of time until the disease is contained. Economic conditions remained uncertain as of the end of 2020.

Our primary focus iscommitted to continue to execute our business plancomplying with all applicable trade laws, regulations and mitigate the effect of the pandemic on our financial position and operations, while actively taking all necessary precautions to ensure the safety of our employees, our suppliers and our customers. The pandemic did not materially and adversely impact our overall operating results or business operations during 2020. Some of the key developments and initiatives we implemented since March 2020 include, but are not limited to, the following:other requirements.

●

Employees:

Our top priority during the pandemic is protecting the health and safety of our employees. As governments continue to institute new restrictions on commercial operations, we continue to monitor new developments and work to ensure our compliance while also maintaining business continuity for essential operations. In the U.S. and certain international locations, we continue to implement work-from-home arrangements in accordance with local regulations. To date, we believe these arrangements have contributed to the health and safety of our employees and allowed us to successfully maintain business operations and customer relations.

 

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●	Facilities and Supply Chain:
	Our manufacturing facilities in China, Taiwan and South Korea are fully operational and have experienced minimal disruptions, as we continue to follow the proper guidance issued by governmental authorities. In addition, we have not experienced any major supply chain disruptions as a result of the pandemic.

●	Customers:
	Overall, we did not experience an adverse impact on customer demand during 2020 as a result of the pandemic. Our revenue increased in all of our end markets compared to 2019. Furthermore, there were no significant delays in payments by our customers. However, we cannot provide assurance that we will not experience a material and adverse impact on customer demand during 2021 as a result of the pandemic.
	Our automotive revenue was negatively affected by the pandemic in the second quarter of 2020 after a number of automotive OEMs temporarily shut down production. However, revenue has since returned to more normal ordering levels. We continue to receive significant interest from customers in our technology and design capabilities in applications including infotainment, smart lighting, advanced driver-assistance systems and autonomous driving. We believe we are well-positioned to accelerate growth as the automotive market conditions continue to improve.

●	Liquidity and Capital Resources:
	Our cash and investment balances remain strong and we continue to generate positive operating cash flows. We believe we have sufficient liquidity to satisfy our cash needs as we manage through the current uncertain environment. However, we will continue to monitor, evaluate and take action, as necessary, to preserve adequate liquidity to support our business for 2021 and beyond.

We are actively working with our stakeholders, including customers, suppliers and employees, to address the impact of the pandemic. We will continue to monitor the situation, to assess further possible implications to our business, supply chain and customers, and to take actions in an effort to mitigate adverse consequences. However, we cannot reasonably estimate the duration and severity of the pandemic or its ultimate impact on the global economy, the semiconductor industry and our business. A prolonged economic slowdown as a result of the pandemic could materially and adversely impact our business, results of operations and financial condition for 2021 and beyond.

Critical Accounting Policies and Estimates

 

Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the U.S.United States (“GAAP”). The preparation of these financial statements requires us to make estimates and judgments that affect the reported amount of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. We evaluate our estimates on an on-going basis, including those related to revenue recognition, stock-based compensation, inventories, income taxes and contingencies. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making the judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Estimates and judgments used in the preparation of our financial statements are, by their nature, uncertain and unpredictable, and depend upon, among other things, many factors outside of our control, including demand for our products, economic conditions and other current and future events, such as macroeconomic factors, including the impact of the COVID-19 pandemic.2023 banking crisis, global economic downturn, Russia-Ukraine conflict and the Middle East conflict. Actual results could differ from these estimates and assumptions, and any such differences maybe material to our consolidated financial statements. 

AsSee Note 1 of the dateNotes to Consolidated Financial Statements included in Item 8 of issuancethis Annual Report on Form 10-K for a summary of these consolidatedsignificant accounting policies and the effect on our financial statements, we are notaware of any specific event or circumstance related to the pandemic that would require management to update the significant estimates and assumptions used in the preparation of the consolidated financial statements. As new events continue to evolve and additional information becomes available, any changes to these estimates and assumptions will be recognized in the consolidated financial statements as soon as they become known.statements. 

 

We believe the following critical accounting policies reflect our more significant judgments used in the preparation of our consolidated financial statements.

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Revenue Recognition

 

We generate revenue primarily from product sales, which include assembled and tested ICs, as well as dies in wafer form. These product sales accounted for 97%, 99% and 98% of our total revenue for the years ended December 31, 2020, 2019 and 2018,Revenue Recognition respectively. The remaining revenue primarily includes royalty revenue from licensing arrangements and revenue from wafer testing services performed for thirdparties, which have notbeen significant in all periods presented.

We recognize revenue when we satisfy a performance obligation by transferring control of the promised goods or services to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services.

Product sales consist of a single performance obligation that we satisfy at a point in time. We recognize product revenue from distributors and direct end customers when the following events have occurred: (a) we have transferred physical possession of the products, (b) we have a present right to payment, (c) the customer has legal title to the products, and (d) the customer bears significant risks and rewards of ownership of the products. In accordance with the shipping terms specified in the contracts, these criteria are generally met when the products are shipped from our facilities (such as the “Ex Works” shipping term) or delivered to the customers’ locations (such as the “Delivered Duty Paid” shipping term).

Under certain consignment agreements, revenue is notrecognized when the products are shipped and delivered to be held at customers’ designated locations because we continue to control the products and retain ownership, and the customers do nothave an unconditional obligation to pay. We recognize revenue when the customers consume the products from the consigned inventory locations or, in some cases, after a 60-day period from the delivery date has passed, at which time control transfers to the customers and we invoice them for payment.

 

We account for price adjustmentadjustments and stock rotation rights as variable consideration that reduces the transaction price and recognize that reduction in the same period the associated revenue is recognized. FourCertain U.S.-based distributors have price adjustment rights when they sell our products to their end customers at a price that is lower than the distribution price invoiced by us. When we receive claims from the distributors that products have been sold to the end customers at the lower price, we issue the distributors credit memos for the price adjustments. We estimate the price adjustments using the expected value method based on an analysis of historical claims, at both the distributor and product level, as well as an assessment of any known trends of product sales mix. Other U.S. distributors and non-U.S. distributors, which make up the majority of our total sales to distributors, do nothave price adjustment rights. We record a credit against accounts receivable for the estimated price adjustments, with a corresponding reduction to revenue.

 

Certain distributors have limited stock rotation rights that permit the return of a small percentage of the previous six months’ purchases in accordance with the contract terms. We estimate the stock rotation returns using the expected value method based on an analysis of historical returns, and the current level of inventory in the distribution channel. We record a liability for the stock rotation reserve, with a corresponding reduction

Overall, our estimates of adjustments to revenue. In addition, we recognize an asset for product returns which represents the rightcontract price due to recover products from the customers related to stock rotations, with a corresponding reduction to cost of revenue.

We pay sales commissions based on the achievement of pre-determined product sales targets. We have elected the practical expedient to expense sales commissions as incurred because the amortization period wouldvariable consideration have been one year or less. 

Inventory Valuationmaterially consistent with actual results; however, these estimates are subject to management’s judgment and actual provisions could be different from our estimates and current provisions, resulting in future adjustments to our revenue and operating results.

 

We value our inventoriesInventory Valuation

Inventories are stated at the lower of the standard cost (which approximates actual cost determined on a first-in first-out basis) or their currentand estimated net realizable value. We write down excess and obsolete inventories based on assumptions about futuretheir age and forecasted demand, which includes estimates taking into consideration our revenue forecast, outlook on market and market conditions.economic conditions, technology changes, new product introductions and changes in strategic direction. If actual demand or market conditions are less favorable than those projected by management, additional inventory write-downs may be required. Conversely, if actual demand or market conditions are more favorable, inventories may be sold that were previously written down. 

 

Accounting for Income Taxes

We recognize federal, state and foreign current tax liabilities or assets based on our estimate of taxes payable or refundable in the current fiscal year by tax jurisdiction. We also recognize federal, state and foreign deferred tax assets or liabilities for our estimate of future tax effects attributable to temporary differences and carryforwards. We record a valuation allowance to reduce any deferred tax assets by the amount of any tax benefits that, based on available evidence and judgment, are not expected to be realized.

 

Our calculation of current and deferred tax assets and liabilities is based on certain estimates and judgments and involves dealing with uncertainties in the application of complex tax laws. Our estimates of current and deferred tax assets and liabilities may change based, in part, on added certainty, finality or uncertainty to an anticipated outcome, changes in accounting or tax laws in the U.S. or foreign jurisdictions where we operate, or changes in other facts or circumstances. In addition, we recognize liabilities for potential U.S. and foreign income tax for uncertain income tax positions taken on our tax returns if it has less than a 50% likelihood of being sustained. If we determine that payment of these amounts is unnecessary or if the recorded tax liability is less than our current assessment, we may be required to recognize an income tax benefit or additional income tax expense in our financial statements in the period such determination is made.  We have calculated our uncertain tax positions which were attributable to certain estimates and judgments.

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As of December 31, 20202023 and 2019,2022, we had a valuation allowance of $18.2$35.0 million and $15.4$20.3 million, respectively, attributable to management’s determination that it is more likely than not that certain deferred tax assets will not be fully realized. In the event we determine that it is more likely than not that we would be able to realize the deferred tax assets in the future in excess of our net recorded amount, an adjustment to the valuation allowance for the deferred tax assets would increase income in the period such determination was made. Likewise, should it be determined that additional amounts of the net deferred tax assets will not be realized in the future, an adjustment to increase the deferred tax assets valuation allowance will be charged to income in the period such determination is made.

 

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Contingencies

 

We are a party to actions and proceedings in the ordinary course of business, including potential litigation regarding our stockholders and our intellectual property, challenges to the enforceability or validity of our intellectual property, claims that our products infringe on the intellectual property rights of others, and employment matters. The pending proceedings involve complex questions of fact and law and will require the expenditure of significant funds and the diversion of other resources to prosecute and defend. In addition, from time to time, we become aware that we are subject to other contingent liabilities. When this occurs, we will evaluate the appropriate accounting for the potential contingent liabilities to determine whetherrecord a contingent liability should be recorded. In making this determination, management may, depending onrelated to pending legal and regulatory proceedings when it is probable that a loss has been incurred and the nature of the matter, consult with internal and external legal counsel and technical experts.amount is reasonably estimable. Based on the facts and circumstances in each matter, we use our judgment to determine whether it is probable that a contingent loss has occurred and whether the amountdetermination of such loss can be estimated. If we determine a loss is probable and estimable, we record a contingent loss.liability requires significant judgment. In determining the amount of a contingent loss, we take into account advice received from experts for each specific matter regarding the status of legal proceedings, settlement negotiations, prior case history and other factors. Should the judgments and estimates made by management need to be adjusted as additional information becomes available, we may need to record additional contingent losses that could materially and adversely impact our results of operations. Alternatively, if the judgments and estimates made by management are adjusted, for example, if a particular contingent loss does not occur, the contingent loss recorded would be reversed which could result in a favorable impact on our results of operations.

Stock-Based Compensation

 

We measure the cost of employee services received in exchange for an award ofFor equity instruments based on the grant-date fair value of the award.The fair value of RSUs with service conditions is based on the grant date share price. The fair value of shares issued under the employee stock purchase plan (“ESPP”) and RSUs with performance conditions is estimated using the Black-Scholes model. The fair value of RSUs with market conditions, as well as RSUs containing both market and performance conditions, is estimated using a Monte Carlo simulation model. 

Compensation expense related to awards with service conditions is recorded on a straight-line basis over the requisite service period. Compensation expense related to awards subject to market or performance conditions is recognized over the requisite service period for each separately vesting tranche. For awards with performance conditions, as well as awards containing both market and performance conditions, we recognize compensation expense when the performance goals are achieved, or when it becomes probable that the performance goals will be achieved. Management performs the probability assessment on a quarterly basis by reviewing external factors, such as macroeconomic conditions and the analog industry revenue forecasts, and internal factors, such as our business and operational objectives and revenue forecasts. Changes in the probability assessment of achievement of the performance conditions are accounted for in the period of change by recording a cumulative catch-up adjustment as if the new estimate had been applied since the service inception date. If the projected achievement was revised upward or if the actual results were higher than the projected achievement, additional compensation expense would be recorded for the awards due to the cumulative catch-up adjustment, which would have an adverse impact on our results of operations. Conversely, if the projected achievement was revised downward or if the actual results were lower than the projected achievement, previously accrued compensation expense would be reversed for the awards, which would have a favorable impact on our results of operations. As a result, our stock-based compensation expense is subject to volatility and may fluctuate significantly each quarter due to changes in our probability assessment of achievement of the performance conditions or actual results being different from projections made by management.

 

We account for forfeitures of equity awards when they occur.

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Recent Accounting Pronouncements

 

See Note 1 of the Notes to Consolidated Financial Statements regarding a recently adopted accounting pronouncementspronouncement and recent accounting pronouncements not yet adopted as of December 31, 2020.2023.

 

Results of Operations

 

The following table summarizes our results of operations:

 

		Year Ended December 31,																								Year Ended December 31,
		2020								2019								2018								2023								2022								2021
		(in thousands, except percentages)																								(in thousands, except percentages)
Revenue		$	844,452				100.0	%		$	627,921				100.0	%		$	582,382				100.0	%		$	1,821,072				100.0	%		$	1,794,148				100.0	%		$	1,207,798				100.0	%
Cost of revenue			378,498				44.8				281,596				44.8				259,714				44.6				799,953				43.9				745,596				41.6				522,339				43.2
Gross profit			465,954				55.2				346,325				55.2				322,668				55.4				1,021,119				56.1				1,048,552				58.4				685,459				56.8
Operating expenses:
Research and development			137,598				16.3				107,757				17.2				93,455				16.0				263,643				14.5				240,171				13.4				190,627				15.8
Selling, general and administrative			161,670				19.1				133,542				21.3				113,803				19.5				275,740				15.1				281,596				15.6				232,415				19.3
Litigation expense			7,804				1.0				2,464				0.4				1,922				0.4
Total operating expenses			307,072				36.4				243,763				38.9				209,180				35.9				539,383				29.6				521,767				29.0				423,042				35.1
Income from operations			158,882				18.8				102,562				16.3				113,488				19.5
Other income, net			10,460				1.3				10,558				1.7				4,994				0.9
Operating income																											481,736				26.5				526,785				29.4				262,417				21.7
Other income (expense), net																											24,105				1.3				(1,848	)			(0.1	)			9,802				0.8
Income before income taxes			169,342				20.1				113,120				18.0				118,482				20.4				505,841				27.8				524,937				29.3				272,219				22.5
Income tax expense			4,967				0.6				4,281				0.7				13,214				2.3				78,467				4.3				87,265				4.9				30,196				2.5
Net income		$	164,375				19.5	%		$	108,839				17.3	%		$	105,268				18.1	%		$	427,374				23.5	%		$	437,672				24.4	%		$	242,023				20.0	%

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Revenue

 

The following table summarizes our revenue by end market:

 

		Year Ended December 31,																								Change								Year Ended December 31,
End Market		2020				% of Revenue				2019				% of Revenue				2018				% of Revenue				From 2019 to 2020				From 2018 to 2019				2023				% of Revenue				2022				% of Revenue				2021				% of Revenue
		(in thousands, except percentages)																																(in thousands, except percentages)
Computing and storage		$	253,177				30.0	%		$	189,215				30.1	%		$	159,121				27.3	%			33.8	%			18.9	%
Storage and Computing																																		$	491,139				27.0	%		$	452,594				25.3	%		$	255,933				21.2	%
Enterprise Data																																			322,980				17.7				251,415				14.0				116,345				9.6
Automotive			108,966				12.9				90,303				14.4				80,078				13.8				20.7	%			12.8	%			394,665				21.7				300,016				16.7				204,335				16.9
Industrial			119,603				14.2				99,381				15.8				88,472				15.2				20.3	%			12.3	%			172,717				9.4				219,179				12.2				184,784				15.3
Communications			142,326				16.8				84,794				13.5				70,589				12.1				67.8	%			20.1	%			204,911				11.3				251,452				14.0				164,091				13.6
Consumer			220,380				26.1				164,228				26.2				184,122				31.6				34.2	%			(10.8	)%			234,660				12.9				319,492				17.8				282,310				23.4
Total		$	844,452				100.0	%		$	627,921				100.0	%		$	582,382				100.0	%			34.5	%			7.8	%		$	1,821,072				100.0	%		$	1,794,148				100.0	%		$	1,207,798				100.0	%

 

Revenue for the year ended December 31, 20202023 was $844.5$1,821.1 million, an increase of $216.6$27.0 million, or 34.5%1.5%, from $627.9$1,794.1 million for the year ended December 31, 2019. This increase was driven by higher sales in all of our end markets. Overall unit shipments increased by 7% and average sales prices increased by approximately 24% compared to the same period in 2019.2022. The increase in average sales pricesrevenue was primarily driven by favorable changesdue to increases in the average selling prices resulting primarily from product mix, with more sales coming from products with higher unit prices. partially offset by lower shipment volume.

 

For the year ended December 31, 2020,2023, revenue from the communicationsstorage and computing market increased $57.5$38.5 million, or 67.8%8.5%, from the same period in 2019. This increase was primarily driven by increased infrastructure sales. Revenue from the consumer market increased $56.2 million, or 34.2%, from the same period in 2019.2022. This increase was primarily driven by increased sales of products for gaming and mobile products.notebooks. Revenue from the computing and storageenterprise data market increased $64.0$71.6 million, or 33.8%28.5%, from the same period in 2019.2022. This increase was primarily due to higher sales of our power management solutions for AI applications. Revenue from the automotive market increased $94.6 million, or 31.5%, from the same period in 2022. This increase was primarily driven by strength in cloud computingincreased sales of our highly integrated applications supporting advanced driver assistance systems, body electronics and storage.the digital cockpit. Revenue from the automotiveindustrial market increased $18.7decreased $46.5 million, or 20.7%21.2%, from the same period in 2019.2022. This increase wasdecrease primarily driven by higherreflected lower sales of productsin applications for infotainment applications, despite temporary production shutdowns by certain OEMs during the second quarter due to the COVID-19 pandemic.industrial automation, security and power sources. Revenue from the industrialcommunications market increased $20.2decreased $46.5 million, or 20.3%18.5%, from the same period in 2019.2022. The decrease was a result of lower 4G and 5G infrastructure sales. Revenue from the consumer market decreased $84.8 million, or 26.6%, from the same period in 2022. This increasedecrease was primarily driven by higher sales in power source products.a result of broad market weakness across all segments.

 

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Cost of Revenue and Gross Margin 

 

Cost of revenue primarily consists of costs incurred to manufacture, assemble and test our products, as well as warranty costs, inventory-related and other overhead costs, and stock-based compensation expenses. 

 

		Year Ended December 31,												Change								Year Ended December 31,
		2020				2019				2018				From 2019 to 2020				From 2018 to 2019				2023				2022				2021
		(in thousands, except percentages)																				(in thousands, except percentages)
Cost of revenue		$	378,498			$	281,596			$	259,714				34.4	%			8.4	%		$	799,953			$	745,596			$	522,339
As a percentage of revenue			44.8	%			44.8	%			44.6	%											43.9	%			41.6	%			43.2	%
Gross profit		$	465,954			$	346,325			$	322,668				34.5	%			7.3	%		$	1,021,119			$	1,048,552			$	685,459
Gross margin			55.2	%			55.2	%			55.4	%											56.1	%			58.4	%			56.8	%

 

Cost of revenue was $378.5$800.0 million, or 44.8%43.9% of revenue, for the year ended December 31, 2020,2023, and $281.6$745.6 million, or 44.8%41.6% of revenue, for the year ended December 31, 2019.2022. The $96.9$54.4 million increase in cost of revenue was primarily due to a 7% increase in overall unit shipments and a 22% increase in the average direct cost of units shipped. The increase in cost of revenue was also driven by an increase in warranty expenses,product mix, partially offset by lower inventory write-downs and manufacturing overhead costs.warranty expenses.

 

Gross margin was 55.2%56.1% for the year ended December 31, 2020,2023, compared with 55.2%58.4% for the year ended December 31, 2019. For the year ended December 31, 2020, the impact of a more favorable2022. The decrease in gross margin was mainly driven by product mix, was primarilypartially offset by higherlower inventory write-downs and warranty expenses and inventory write-downs as a percentage of revenue compared to the same period in 2019.revenue.

 

Research and Development (“(“R&D”&D”)

 

R&D expenses primarily consist of salarycash compensation and benefit expenses, bonuses,benefits, stock-based compensation and deferred compensation for design and product engineers, expenses related to new product development and supplies, and facility costs.   

 

		Year Ended December 31,												Change
		2020				2019				2018				From 2019 to 2020				From 2018 to 2019
		(in thousands, except percentages)
R&D expenses		$	137,598			$	107,757			$	93,455				27.7	%			15.3	%
As a percentage of revenue			16.3	%			17.2	%			16.0	%

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		Year Ended December 31,
		2023				2022				2021
		(in thousands, except percentages)
R&D expenses		$	263,643			$	240,171			$	190,627
As a percentage of revenue			14.5	%			13.4	%			15.8	%

 

R&D expenses were $137.6$263.6 million, or 16.3%14.5% of revenue, for the year ended December 31, 2020,2023, and $107.8$240.2 million, or 17.2%13.4% of revenue, for the year ended December 31, 2019.2022. The $29.8$23.5 million increase in R&D expenses was primarily due to ana $20.9 million increase of $22.3 million in compensation expenses, which include salary, benefits and bonuses, an increase of $3.0 million in new product development expenses, a $5.6 million increase in expenses related to changes in the value of deferred compensation plan liabilities and ana $1.8 million increase of $1.7 million in depreciation. Our R&D headcountThis increase was 930 employees as of December 31, 2020, compared with 839 employees as of December 31, 2019.partially offset by an $8.1 million decrease in cash compensation expenses, which was driven by decreased bonuses.

 

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Selling, General and Administrative (“(“SG&A”&A”)

SG&A expenses primarily include salarycash compensation and benefit expenses, bonuses,benefits, stock-based compensation and deferred compensation for sales, marketing and administrative personnel, sales commissions, travel expenses, facilities costs, third party service fees and professional service fees.litigation expenses. 

 

		Year Ended December 31,												Change								Year Ended December 31,
		2020				2019				2018				From 2019 to 2020				From 2018 to 2019				2023				2022				2021
		(in thousands, except percentages)																				(in thousands, except percentages)
SG&A expenses		$	161,670			$	133,542			$	113,803				21.1	%			17.3	%		$	275,740			$	281,596			$	232,415
As a percentage of revenue			19.1	%			21.3	%			19.5	%											15.1	%			15.6	%			19.3	%

 

SG&A expenses were $161.7$275.7 million, or 19.1%15.1% of revenue, for the year ended December 31, 2020,2023, and $133.5$281.6 million, or 21.3%15.6% of revenue, for the year ended December 31, 2019.2022. The $28.2$5.9 million increasedecrease in SG&A expenses was primarily due to an increase of $15.4driven by a $12.4 million in compensation expenses, which include salary, benefits and bonuses, an increase of $6.2 milliondecrease in stock-based compensation expenses, which were mainly associated with performance-based equity awards, and an increase of $4.2$8.8 million decrease in commissioncash compensation expenses driven by higher revenue. Our SG&A headcount was 564 employees as of December 31, 2020, compared with 503 employees as of December 31, 2019. 

Litigation Expense

Litigation expense was $7.8decreased bonuses, and a $3.1 million for the year ended December 31, 2020, compared with $2.5 million for the year ended December 31, 2019. The increase was due to increaseddecrease in litigation activity related to ongoing patent infringement and other matters.

Other Income, Net

Other income, net, was $10.5 million for the year ended December 31, 2020, compared with other income, net, of $10.6 million for the year ended December 31, 2019. Theexpenses. This decrease was primarily due to an increase of $2.3 million in amortization of the premium on available-for-sale securities and an increase of $1.1 million in foreign currency exchange losses. These unfavorable changes were partially offset by ana $10.1 million increase of $2.0 million in interest income primarily as a result of higher investment balances, and an increase of $0.8 million in incomeexpenses related to changes in the value of the deferred compensation plan investments.liabilities, and an $8.2 million increase consisting mostly of travel related expenses, third party service expenses and software licensing fees.

 

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Other Income (Expense), Net

 

Other income, net, was $24.1 million for the year ended December 31, 2023, compared with other expense, net, of $1.8 million for the year ended December 31, 2022. The increase in other income was primarily due to an increase of $18.6 million in net interest income as a result of higher interest rates, and an increase of $15.1 million in income related to changes in the value of deferred compensation plan investments, partially offset by an increase of $9.0 million in charitable contributions.

Income Tax Expense

 

The income tax expense for the year ended December 31, 20202023 was $5.0$78.5 million, or 2.9%15.5% of pre-tax income. The effective tax rate differed fromwas lower than the federal statutory rate of 21% primarily due to foreign income from our subsidiaries in Bermuda and China being taxed at lower statutory tax rates and a return to provision true-up adjustment which primarily resulted from a calculation refinement of our capitalization of research and experimental expenditures under Section 174 of the Internal Revenue Code (the “IRC”). The decrease in the effective tax rate relative to the federal statutory rate was partially offset by the inclusion of the global intangible low-taxed income (“GILTI”) tax, the addition of a valuation allowance against China deferred tax assets arising from the indefinite extension of the R&D super deduction policy in China, and excess tax benefits from stock-based compensation.

The income tax expense for the year ended December 31, 2022 was $87.3 million, or 16.6% of pre-tax income. The effective tax rate was lower than the federal statutory rate of 21% primarily due to foreign income from our subsidiaries in Bermuda and China being taxed at lower statutory tax rates, and excess tax benefits from stock-based compensation. The decrease in the effective tax rate relative to the federal statutory rate was partially offset by the inclusion of the global intangible low-taxed income (“GILTI”)GILTI tax.

 

In December 2023, the Bermuda Corporate Income Tax Act of 2023 (the “Bermuda CIT Act”) was enacted and signed into law. The Bermuda CIT Act includes a 15% corporate income tax (“CIT”) applicable to Bermuda businesses that are multinational enterprise (“MNE”) groups with annual revenue of €750M or more beginning in 2025. The Bermuda CIT Act also includes an Economic Transition Adjustment (“ETA”) that requires MNE’s to revalue their assets and liabilities, excluding goodwill, at their fair value as of September 30, 2023. There is an election to opt out of the ETA. As the Bermuda CIT Act is not effective until January 1, 2025, we are evaluating whether or not to adopt this ETA. Based on information available, we have not recorded any changes to income tax expense related to the Bermuda CIT Act as of December 31, 2023.

In August 2022, the CHIPS Act and the Inflation Reduction Act of 2022 (the “IRA”) were enacted and signed into law, which did not have a material impact on our income tax provisions, results of operations or financial condition for the yearyears ended December 31, 2019 was $4.3 million,2023 or 3.8% of pre-tax income. The effective tax rate differed from the federal statutory rate primarily due2022. We will continue to foreign income from our subsidiaries in Bermuda and China being taxed at lower statutory tax rates, the impact of certain tax credits and excess tax benefits from stock-based compensation. The decrease in the effective tax rate relativemonitor any new developments related to the federal statutory rate was partially offset byCHIPS Act and the inclusion of the GILTI tax.IRA and evaluate their impact on our financial statements.

 

See Note 1211 of the Notes to Consolidated Financial Statements for further discussion.

 

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Liquidity and Capital Resources

 

		December 31,								December 31,
		2020				2019				2023				2022
		(in thousands, except percentages)								(in thousands, except percentages)
Cash and cash equivalents		$	334,944			$	172,960			$	527,843			$	288,607
Short-term investments			260,169				282,437				580,633				449,266
Total cash, cash equivalents and short-term investments		$	595,113			$	455,397			$	1,108,476			$	737,873
Percentage of total assets			49.2	%			47.6	%			45.5	%			35.8	%
Total current assets		$	841,998			$	655,206			$	1,819,499			$	1,410,619
Total current liabilities			(146,969	)			(98,225	)			(235,035	)			(263,400	)
Working capital		$	695,029			$	556,981			$	1,584,464			$	1,147,219

 

As of December 31, 2020,2023, we had cash and cash equivalents of $334.9$527.8 million and short-term investments of $260.2$580.6 million, compared with cash and cash equivalents of $173.0$288.6 million and short-term investments of $282.4$449.3 million as of December 31, 2019.2022. As of December 31, 2020, $252.12023, $369.9 million of cash and cash equivalents and $130.8$528.0 million of short-term investments were held by our international subsidiaries. For the year ended December 31, 2020,2023, we repatriated $30$140 million of cash from our Bermuda subsidiary to the U.S. with minimal tax impact. The proceeds willare primarily be used to fund our ongoing business operations. We may repatriate additional cash from our Bermuda subsidiary to fund our expenditures in future periods. We anticipate that earnings from other foreign subsidiaries will continue to be indefinitely reinvested.

 

The significant components of our working capital are cash and cash equivalents, short-term investments, accounts receivable, inventories and other current assets, reduced by accounts payable, accrued compensation and related benefits, and other accrued liabilities. As of December 31, 2020, we had working capital of $695.0 million, compared with working capital of $557.0 million as of December 31, 2019. The $138.0 million increase in working capital was due to a $186.8 million increase in current assets, which was partially offset by a $48.8 million increase in current liabilities. The increase in current assets was primarily due to an increase in cash and cash equivalents, accounts receivable and inventories, which was partially offset by a decrease in short-term investments. The increase in current liabilities was due to an increase in accounts payable, accrued compensation and related benefits and other accrued liabilities.

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Summary of Cash Flows

 

The following table summarizes our cash flow activities:

 

		Year Ended December 31,												Year Ended December 31,
		2020				2019				2018				2023				2022				2021
		(in thousands)												(in thousands)
Net cash provided by operating activities		$	267,803			$	216,303			$	141,451			$	638,213			$	246,674			$	320,010
Net cash used in investing activities			(39,177	)			(167,112	)			(14,740	)			(178,726	)			(12,510	)			(378,886	)
Net cash used in financing activities			(71,557	)			(48,050	)			(34,559	)			(183,725	)			(128,785	)			(90,206	)
Effect of change in exchange rates			4,926				(883	)			(2,208	)			(3,310	)			(6,039	)			3,400
Net increase in cash, cash equivalents and restricted cash		$	161,995			$	258			$	89,944
Net increase (decrease) in cash, cash equivalents and restricted cash														$	272,452			$	99,340			$	(145,682	)

 

For the year ended December 31, 2020, net2023, the $391.5 million increase in cash provided by operating activities was $267.8 million, primarily duecompared to our net income adjusted for certain non-cash items, including depreciation and amortization and stock-based compensation, and a net increase of $3.0 million from the changes in our operating assets and liabilities. The increase in accounts receivable was driven by increased sales during the three months ended December 31, 2020. The increase in inventories was primarily driven by an increase in wafer and die inventories to meet current demand and future growth. The increase in accounts payable was primarily driven by increased inventory purchases to meet future demand. The increase in accrued compensationprior period was primarily due to an increasedecreased inventory purchases, decreased prepaid wafer expenses, increased accounts receivable collections and other changes in accrued bonuses. The increase in other accrued liabilities was primarily driven by an increase in the deferred compensation plan liabilities and an increase in warranty expenses.  working capital.

 

For the year ended December 31, 2019, net cash provided by operating activities was $216.32023, the $166.2 million primarily due to our net income adjusted for certain non-cash items, including depreciation and amortization and stock-based compensation, and a net increase of $17.8 million from the changes in our operating assets and liabilities. The increase in other assetscash used in investing activities compared to the prior period was primarily due to an increase of $518.9 million in prepaid income taxes and an increase in certain tax withholding proceeds receivable related to RSUs that vested at the endpurchases of the year. The increase in other accrued liabilities was primarily driveninvestments, partially offset by an increase of $340.4 million in employee contributions to the deferred compensation plan. The decrease in inventories was primarily driven by a decrease in wafer and die purchases. sales of investments.

 

For the year ended December 31, 2020, net cash used2023, the $54.9 million increase in investing activities was $39.2 million, primarily due to purchases of property and equipment of $55.6 million, partially offset by net sales and maturities of short-term investments of $22.1 million. For the year ended December 31, 2019, net cash used in investing activities was $167.1 million, primarily due to purchases of property and equipment of $95.8 million, net purchases of short-term investments of $76.8 million and net contributions to the deferred compensation plan of $3.1 million. These cash outflows were partially offset by proceeds from sales of property and equipment of $9.3 million.

For the year ended December 31, 2019, we funded the purchases of properties in Kirkland, Washington and Livonia, Michigan for $57.4 million.

For the year ended December 31, 2020, net cash used in financing activities compared to the prior period was $71.6primarily due to a $47.9 million primarily reflecting $88.8 million used to pay dividends to our stockholders and dividend equivalents to our employees who hold RSUs, which was partially offset by $22.6 million of cash proceeds from the vesting of RSUs and the issuance of shares through our ESPP. For the year ended December 31, 2019, net cash used in financing activities was $48.1 million, primarily reflecting $67.3 million used to pay dividends to our stockholders and dividend equivalents to our employees who hold RSUs, which was partially offset by $19.9 million of cash proceeds from the vesting of RSUs and the issuance of shares through our ESPP. 

In February 2021, our Board of Directors approved an increase in our quarterly cash dividends from $0.50 per share to $0.60 per share.

We anticipate that cash used for future dividendsdividend and dividend equivalent payments, as well as payments for the one-time deemed repatriation transition tax and other expenditures, will come from our domestic cash, cash generated from ongoing U.S. operations, and cash repatriated from our Bermuda subsidiary. We also anticipate that earnings from other foreign subsidiaries will continue to be indefinitely reinvested.payments.

 

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Cash Requirements

 

Although consequences of the COVID-19 pandemiceconomic uncertainty and resulting economic uncertaintymacroeconomic conditions and other factors could adversely affect our liquidity and capital resources in the future, and cash requirements may fluctuate based on the timing and extent of many factors such as those discussed above, we currently believe that our balances of cash, generated from operations, together with the liquidity provided by existing cash balancesequivalents and short-term investments of $1,108.5 million as of December 31, 2023, along with cash generated by ongoing operations, will be sufficient to satisfy our liquidity requirements for the next 12 months. months and beyond.

Our material cash requirements include the following contractual and other obligations:

Purchase Obligations

Purchase obligations represent commitments to our suppliers and other parties requiring the purchases of goods or services. Our purchase obligations primarily consist of wafer and other inventory purchases, assembly and other manufacturing services, construction of manufacturing and R&D facilities, purchases of production and other equipment, and license arrangements.

 

In the future,May 2022, we entered into a long-term supply agreement in order to strengthen our financial position, respond to adverse developments such as the COVID-19 pandemic, changes in our circumstance or unforeseen events or conditions, or fund our growth, we may need to discontinue paying dividends and dividend equivalents, and may need to raise additional funds by any one orsecure manufacturing production capacity for silicon wafers over a combinationfour-year period. As of the following: issuing equity securities, issuing debt or convertible debt securities, incurring indebtedness secured by our assets, or selling certain product lines and/or portions of our business. Accordingly, we cannot ensure that we will continue to pay dividends and dividend equivalents in the future, and there can be no guarantee that we will be able to raise additional funds on terms acceptable to us, or at all.

From time to time, we have engaged in discussions with third parties concerning capital investments and potential acquisitions of product lines, technologies, businesses and companies, and we continue to consider potential investments and acquisition candidates. Any such transactions could involve the issuance of a significant number of new equity securities, assumptions of debt, and/or payment of cash consideration. We may also be required to raise additional funds to complete any such investments or acquisitions, through either the issuance of equity and debt securities or incurring indebtedness secured by our assets. If we raise additional funds or acquire businesses or technologies through the issuance of equity securities or convertible debt securities, our existing stockholders may experience significant dilution. 

Contractual Obligations 

The following table summarizes our contractual obligations at December 31, 2020:

						Payment Due by Period
		Total				Less Than 1 Year				1 - 3 Years				3 - 5 Years				More Than 5 years
		(in thousands)
Operating lease obligations (1)		$	7,848			$	2,407			$	3,321			$	2,120			$	-
Outstanding purchase commitments (2)			211,499				189,184				21,615				300				400
Transition tax liability (3)			18,732				1,972				5,669				11,091				-
Other long-term obligations (4)			56,151				-				10,776				21,457				23,918
Total		$	294,230			$	193,563			$	41,381			$	34,968			$	24,318

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(1)

Operating lease obligations represent2023, we had remaining prepayments under this agreement of $120.0 million reported in other long-term assets on the undiscounted remaining lease payments. The amount also includes commitments for additional leases that have not yet commenced as of December 31, 2020. See Note 7 of the Notes to Consolidated Financial Statements for further discussion.

(2)

Outstanding purchase commitments represent our obligations with our suppliers and other parties that require the future purchases of goods or services, which primarily consist of wafer and other inventory purchases, assembly and other manufacturing services, construction or purchases of property and equipment, and license arrangements.

(3)	The transition tax liability represents the one-time, mandatory deemed repatriation tax imposed on previously deferred foreign earnings under the 2017 Tax Act. As permitted by the 2017 Tax Act, we have elected to pay the tax liability in installments on an interest-free basis through 2025.

(4)

Other long-term obligations include long-term liabilities reflected on our Consolidated Balance Sheets, which primarily consist of the deferred compensation plan liabilities and accrued dividend equivalents. Because of the uncertainty as to the timing of payments related to our liabilities for unrecognized tax benefits, we have excluded estimated obligations of $20.3 million from the table above.

Off Balance Sheet ArrangementsSheet.

 

As of December 31, 2020, we had no off-balance sheet arrangements as defined in Item 303(a)(4)2023, total estimated future unconditional purchase commitments to all suppliers and other parties, net of the Securities and Exchange Commission’s Regulation S-K.$120.0 million prepayment, were $699.7 million, of which $367.8 million was classified as short-term.

 

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Transition Tax Liability

The transition tax liability represents the one-time, mandatory deemed repatriation tax imposed on previously deferred foreign earnings under the U.S. Tax Cuts and Jobs Act enacted in December 2017 (the “2017 Tax Act”). As permitted by the 2017 Tax Act, we have elected to pay the tax liability in installments on an interest-free basis through 2025. As of December 31, 2023, the remaining liability totaled $11.1 million, of which $4.9 million was short-term.

Operating Leases

Operating lease obligations represent the undiscounted remaining lease payments primarily for our leased facilities and equipment. As of December 31, 2023, these obligations totaled $7.9 million, of which $2.3 million was short-term.

Capital Return to Stockholders

In October 2023, our Board of Directors approved a new stock repurchase program authorizing us to repurchase up to $640.0 million in the aggregate of our common stock through October 29, 2026. Shares are retired upon repurchase. We repurchased approximately 7,000 shares of our common stock for an aggregate purchase price of $3.7 million during the year ended December 31, 2023. As of December 31, 2023, $636.3 million remained available for future repurchases under the program.

We currently have a dividend program approved by our Board of Directors, pursuant to which we intend to pay quarterly cash dividends on our common stock. Based on our historical practice, stockholders of record as of the last business day of the quarter are entitled to receive the quarterly cash dividends when and if declared by the Board of Directors, which are payable to the stockholders in the following month. As of December 31, 2023, accrued dividends totaled $47.9 million. 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.

In February 2024, our Board of Directors approved an increase in the quarterly cash dividend from $1.00 per share to $1.25 per share, which amount will be paid on April 15, 2024 to all stockholders of record as of the close of business on March 29, 2024.

Other Long-Term Obligations

Other long-term obligations primarily include payments for deferred compensation plan liabilities and accrued dividend equivalents. As of December 31, 2023, these obligations totaled $83.1 million.

Acquisition

On January 3, 2024, we acquired Axign, a Dutch company for $33.8 million in cash. See Note 17 of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K for additional information.

ITEMItem 7A.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKQuantitative and Qualitative Disclosures about Market Risk

 

Interest Rate Risk

 

Our cash equivalents and short-term investments are subject to market risk, primarily interest rate and credit risk. Our investments are managed by outside professional managers within investment guidelines set by management and approved by the Audit Committee of the Board of Directors. Such guidelines include security type, credit quality and maturity and are intended to limit market risk by restricting our investments to high quality debt instruments with relatively short-term maturities. Based on our investment positions as of December 31, 2020, a hypothetical 10% decline2023, the impact of changes in interest rates would impacton our results of operations by approximately $0.9 million in interest income.income was immaterial.

 

Investments in debt securities are classified as available-for-sale, which are reported at fair value with the unrealized gains or losses being included in accumulated other comprehensive income (loss)loss on the Consolidated Balance Sheets. When the fair value of an investment is below its amortized cost basis, unrealized losses due to changes in interest rates (i.e., non-credit loss factors) are not recognized in our results of operations unless we have the intent to sell the securities or it is more likely than not that we will be required to sell the securities before recovery of the entire amortized cost basis. Based on our investment positions as of December 31, 2020,2023, a hypothetical 100 basis point increase in interest rates would result in a $2.6$4.5 million decline in the fair value of our investments. Any losses resulting from such interest rate changes would only be realized if we sold the investments prior to maturity.

 

We do not use derivative financial instruments in our investment portfolio.

 

Foreign Currency Exchange Risk

 

Our sales outside the United States are primarily transacted in U.S. dollars through our subsidiary in Bermuda. Accordingly, our sales are not generally impacted by foreign currency rate changes. The functional currency of our offshore operations is generally the local currency, primarily including the Renminbi, the New Taiwan Dollar and the Euro. In addition, weWe 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 a currency other than the functional currency. Gains or losses from the settlementremeasurement and remeasurementsettlement of the balances are reported in other income (expense), net, on the Consolidated Statements of Operations. Fluctuations in foreign currency exchange rates have not had a material impact on our results of operations in any offor the periods presented.

 

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ITEMItem 8.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATAFinancial Statements and Supplementary Data

 

MONOLITHIC POWER SYSTEMS, INC.

CONSOLIDATED FINANCIAL STATEMENTS

 

Contents

 

	Page
Reports of Independent Registered Public Accounting Firm (Ernst & Young LLP)(PCAOB ID: 42)	42
Report of Independent Registered Public Accounting Firm (Deloitte & Touche LLP)	44
Consolidated Balance Sheets	4544
Consolidated Statements of Operations	4645
Consolidated Statements of Comprehensive Income	4746
Consolidated Statements of Stockholders’ Equity	4847
Consolidated Statements of Cash Flows	4948
Notes to Consolidated Financial Statements	5049

 

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMReport of Independent Registered Public Accounting Firm

 

To the Stockholders and the Board of Directors of Monolithic Power Systems, Inc.

 

Opinion on the Financial Statements

 

We have audited the accompanying consolidated balance sheets of Monolithic Power Systems, Inc. (the Company) as of December 31, 20202023 and 2019,2022, the related consolidated statements of operations, comprehensive income, stockholders’ equity and cash flows for each of the twothree years in the period ended December 31, 2020,2023, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 20202023 and 2019,2022, and the results of its operations and its cash flows for each of the twothree years in the period ended December 31, 2020,2023, in conformity with U.S. generally accepted accounting principles.

 

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2020,2023, based on criteria established in Internal Control -– Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated March 1, 2021February 29, 2024 expressed an unqualifiedadverse opinion thereon.

 

Basis for Opinion

 

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit.audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our auditaudits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our auditaudits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our auditaudits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit providesaudits provide a reasonable basis for our opinion.

 

Critical Audit Matter

 

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accountaccounts or disclosuredisclosures to which it relates.

 

		Inventory Valuation
Description of the Matter		The Company’s inventories totaled $157.1$383.7 million as of December 31, 2020,2023, representing 13%15.8% of total assets. As explained in Note 1 to the consolidated financial statements, the Company values inventories at the lower of standard cost (which approximates actual cost determined on a first-in first-out basis) and estimated net realizable value in each reporting period. Excess and obsolete inventory is written down to its estimated net realizable value if less than cost.
		Auditing management’s estimates for excess and obsolete inventory involved subjective auditor judgment because management’s assessment of whether a write down is required and the measurement of any excess of cost over net realizable value is judgmental and considers a number of qualitative factors that are affected by market and economic conditions outside the Company’s control. In particular, thedetermination of excess and obsolete inventory calculations are sensitive to significantutilizes assumptions, including estimated demand for the Company’s products, which considers adjustments to sales forecasts for specific product considerations, including but not limited to new product launches, and expected industry sales growth.  growth, and product lifecycle.
How We Addressed the Matter in Our Audit		We obtained an understanding, evaluated the design, and tested the operating effectiveness of internal controls over the Company's excess and obsolete inventory reserve process. This included controls over management’s assessment of inventory valuation, including the determination of forecasted usage of inventories and how factors outside of the Company’s control might affect management’s judgment related to the valuation of excess and obsolete inventory.��
		Our substantive audit procedures included, among others, evaluating the significant assumptions stated above and testing the completeness and accuracy of the underlying data used in management’s excess and obsolete inventory valuation assessment. We evaluated inventory levels compared to forecasted product demand, historical sales and specific product considerations. We also assessed the historical accuracy of management’s estimates and performed sensitivity analyses over the significant assumptions to evaluate the changes in the excess and obsolete inventory estimates that would result from changes in the underlying assumptions.

 

/s/ Ernst & Young LLP

 

We have served as the Company'sCompany’s auditor since 2019.

 

San Jose, California  

March 1, 2021February 29, 2024

 

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMReport of Independent Registered Public Accounting Firm

 

To the Stockholders and the Board of Directors of Monolithic Power Systems, Inc.

 

Opinion on Internal Control Over Financial Reporting

 

We have audited Monolithic Power Systems, Inc.’s internal control over financial reporting as of December 31, 2020,2023, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, because of the effect of the material weakness described below on the achievement of the objectives of the control criteria, Monolithic Power Systems, Inc. (the Company) has not maintained in all material respects, effective internal control over financial reporting as of December 31, 2020,2023, based on the COSO criteria.

A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis. The following material weakness has been identified and included in management’s assessment. A material weakness was identified in controls related to the company’s inventory demand forecasting process.

 

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 20202023 and 2019,2022, the related consolidated statements of operations, comprehensive income, stockholders’ equity and cash flows for each of the twothree years in the period ended December 31, 2020,2023, and the related notesnotes. This material weakness was considered in determining the nature, timing and extent of audit tests applied in our audit of the 2023 consolidated financial statements, and this report does not affect our report dated March 1, 2021February 29, 2024, which expressed an unqualified opinion thereon.

 

Basis for Opinion

 

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

 

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

 

Definition and Limitations of Internal Control Over Financial Reporting

 

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

 

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

 

/s/ Ernst & Young LLP

 

San Jose, California

March 1, 2021February 29, 2024

 

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and the Board of Directors of Monolithic Power Systems, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated statements of operations, comprehensive income, stockholders’ equity, and cash flows of Monolithic Power Systems, Inc. and subsidiaries (the “Company”) for the year ended December 31, 2018, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the results of the Company’s operations and its cash flows for the year ended December 31, 2018, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.

/s/ Deloitte & Touche LLP

San Jose, California  

March 1, 2019  

We began serving as the Company’s auditor in 1999.  In 2019, we became the predecessor auditor.

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MONOLITHIC POWER SYSTEMS, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except par value)

 

		December 31,								December 31,
		2020				2019				2023				2022
ASSETS
Current assets:
Cash and cash equivalents		$	334,944			$	172,960			$	527,843			$	288,607
Short-term investments			260,169				282,437				580,633				449,266
Accounts receivable, net			66,843				52,704				179,858				182,714
Inventories			157,062				127,500				383,702				447,290
Other current assets			22,980				19,605				147,463				42,742
Total current assets			841,998				655,206				1,819,499				1,410,619
Property and equipment, net			281,528				228,315				368,952				357,157
Goodwill			6,571				6,571				6,571				6,571
Deferred tax assets, net			18,556				17,193				28,054				35,252
Other long-term assets			59,838				49,090				211,277				249,286
Total assets		$	1,208,491			$	956,375			$	2,434,353			$	2,058,885
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	38,169			$	27,271			$	62,958			$	61,461
Accrued compensation and related benefits			45,840				26,164				56,286				88,260
Other accrued liabilities			62,960				44,790				115,791				113,679
Total current liabilities			146,969				98,225				235,035				263,400
Income tax liabilities			37,062				37,596				60,724				53,509
Other long-term liabilities			57,873				47,063				88,655				73,374
Total liabilities			241,904				182,884				384,414				390,283
Commitments and contingencies
Stockholders’ equity:
Common stock and additional paid-in capital: $0.001 par value; shares authorized: 150,000; shares issued and outstanding: 45,267 and 43,616, respectively			657,701				549,517
Common stock and additional paid-in capital: $0.001 par value; shares authorized: 150,000; shares issued and outstanding: 48,028 and 47,107, respectively											1,129,937				975,276
Retained earnings			298,746				229,450				947,064				716,403
Accumulated other comprehensive income (loss)			10,140				(5,476	)
Accumulated other comprehensive loss											(27,062	)			(23,077	)
Total stockholders’ equity			966,587				773,491				2,049,939				1,668,602
Total liabilities and stockholders’ equity		$	1,208,491			$	956,375			$	2,434,353			$	2,058,885

 

See accompanying notes to consolidated financial statements.

 

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MONOLITHIC POWER SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share amounts)

 

		Year Ended December 31,												Year Ended December 31,
		2020				2019				2018				2023				2022				2021
Revenue		$	844,452			$	627,921			$	582,382			$	1,821,072			$	1,794,148			$	1,207,798
Cost of revenue			378,498				281,596				259,714				799,953				745,596				522,339
Gross profit			465,954				346,325				322,668				1,021,119				1,048,552				685,459
Operating expenses:
Research and development			137,598				107,757				93,455				263,643				240,171				190,627
Selling, general and administrative			161,670				133,542				113,803				275,740				281,596				232,415
Litigation expense			7,804				2,464				1,922
Total operating expenses			307,072				243,763				209,180				539,383				521,767				423,042
Income from operations			158,882				102,562				113,488
Other income, net			10,460				10,558				4,994
Operating income															481,736				526,785				262,417
Other income (expense), net															24,105				(1,848	)			9,802
Income before income taxes			169,342				113,120				118,482				505,841				524,937				272,219
Income tax expense			4,967				4,281				13,214				78,467				87,265				30,196
Net income		$	164,375			$	108,839			$	105,268			$	427,374			$	437,672			$	242,023
Net income per share:
Basic		$	3.67			$	2.52			$	2.49			$	8.98			$	9.37			$	5.28
Diluted		$	3.50			$	2.38			$	2.36			$	8.76			$	9.05			$	5.05
Weighted-average shares outstanding:
Basic			44,840				43,165				42,247				47,610				46,727				45,851
Diluted			47,014				45,763				44,602				48,771				48,358				47,889

 

See accompanying notes to consolidated financial statements.

 

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MONOLITHIC POWER SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands) 

 

		Year Ended December 31,												Year Ended December 31,
		2020				2019				2018				2023				2022				2021
Net income		$	164,375			$	108,839			$	105,268			$	427,374			$	437,672			$	242,023
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments			14,150				(1,706	)			(7,082	)			(9,528	)			(32,293	)			8,404
Change in unrealized gain (loss) on available-for-sale securities, net of tax of $(325), $(203) and $209, respectively			1,466				1,773				(274	)
Change in unrealized gains and losses on available-for-sale securities, net of tax of $(1,352), $184 and $613, respectively															5,543				(6,664	)			(2,664	)
Other comprehensive income (loss), net of tax			15,616				67				(7,356	)			(3,985	)			(38,957	)			5,740
Comprehensive income		$	179,991			$	108,906			$	97,912			$	423,389			$	398,715			$	247,763

 

See accompanying notes to consolidated financial statements.

 

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MONOLITHIC POWER SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’STOCKHOLDERS’ EQUITY

(in thousands, except per share amounts) 

 

														Accumulated																				Accumulated
		Common Stock and												Other				Total				Common Stock and												Other				Total
		Additional Paid-in Capital								Retained				Comprehensive				Stockholders’				Additional Paid-in Capital								Retained				Comprehensive				Stockholders’
		Shares				Amount				Earnings				Income (Loss)				Equity				Shares				Amount				Earnings				Income (Loss)				Equity
Balance as of January 1, 2018			41,614			$	376,586			$	143,608			$	1,813			$	522,007
Balance as of January 1, 2021																							45,267			$	657,701			$	298,746			$	10,140			$	966,587
Net income			-				0				105,268				0				105,268				-				-				242,023				-				242,023
Other comprehensive loss			-				0				0				(7,356	)			(7,356	)
Dividends and dividend equivalents declared ($1.20 per share)			-				0				(54,527	)			0				(54,527	)
Other comprehensive income																							-				-				-				5,740				5,740
Dividends and dividend equivalents declared ($2.40 per share)																							-				-				(115,890	)			-				(115,890	)
Common stock issued under the employee equity incentive plan			858				10,637				0				0				10,637				972				17,322				-				-				17,322
Common stock issued under the employee stock purchase plan			33				3,028				0				0				3,028				17				4,670				-				-				4,670
Stock-based compensation expense			-				60,657				0				0				60,657				-				123,533				-				-				123,533
Cumulative effect of a change in accounting principles			-				0				379				0				379
Balance as of December 31, 2018			42,505				450,908				194,728				(5,543	)			640,093
Balance as of December 31, 2021																							46,256				803,226				424,879				15,880				1,243,985
Net income			-				0				108,839				0				108,839				-				-				437,672				-				437,672
Other comprehensive income			-				0				0				67				67
Dividends and dividend equivalents declared ($1.60 per share)			-				0				(74,117	)			0				(74,117	)
Other comprehensive loss																							-				-				-				(38,957	)			(38,957	)
Dividends and dividend equivalents declared ($3.00 per share)																							-				-				(146,148	)			-				(146,148	)
Common stock issued under the employee equity incentive plan			1,083				16,650				0				0				16,650				837				5,358				-				-				5,358
Common stock issued under the employee stock purchase plan			28				3,277				0				0				3,277				14				5,877				-				-				5,877
Stock-based compensation expense			-				78,682				0				0				78,682				-				160,815				-				-				160,815
Balance as of December 31, 2019			43,616				549,517				229,450				(5,476	)			773,491
Balance as of December 31, 2022																							47,107				975,276				716,403				(23,077	)			1,668,602
Net income			-				0				164,375				0				164,375				-				-				427,374				-				427,374
Other comprehensive income			-				0				0				15,616				15,616
Dividends and dividend equivalents declared ($2.00 per share)			-				0				(95,079	)			0				(95,079	)
Other comprehensive loss																							-				-				-				(3,985	)			(3,985	)
Dividends and dividend equivalents declared ($4.00 per share)																							-				-				(196,713	)			-				(196,713	)
Common stock issued under the employee equity incentive plan			1,623				18,767				0				0				18,767				911				1,118				-				-				1,118
Common stock issued under the employee stock purchase plan			28				3,819				0				0				3,819				17				7,568				-				-				7,568
Repurchase of common stock																							(7	)			(3,741	)			-				-				(3,741	)
Stock-based compensation expense			-				85,598				0				0				85,598				-				149,716				-				-				149,716
Balance as of December 31, 2020			45,267			$	657,701			$	298,746			$	10,140			$	966,587
Balance as of December 31, 2023																							48,028			$	1,129,937			$	947,064			$	(27,062	)		$	2,049,939

 

See accompanying notes to consolidated financial statements.

 

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MONOLITHIC POWER SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

 

		Year Ended December 31,												Year Ended December 31,
		2020				2019				2018				2023				2022				2021
Cash flows from operating activities:
Net income		$	164,375			$	108,839			$	105,268			$	427,374			$	437,672			$	242,023
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			19,186				14,867				12,311				40,168				37,114				28,699
Amortization of premium on available-for-sale securities			2,979				729				1,353
(Gain) loss on deferred compensation plan investments			(4,592	)			(3,806	)			255
Amortization of premium (discount) on available-for-sale securities															(5,277	)			4,375				4,674
Loss (gain) on deferred compensation plan investments															(8,505	)			6,600				(4,563	)
Deferred taxes, net			(1,627	)			(577	)			(843	)			5,865				(13,220	)			(2,772	)
Gain on sale of equity investment															(1,424	)			-				-
Stock-based compensation expense			85,551				78,699				60,607				149,711				160,992				123,479
Other			(1,072	)			(259	)			22				(23	)			97				110
Changes in operating assets and liabilities:
Accounts receivable			(14,123	)			2,512				(18,079	)			2,884				(77,903	)			(37,976	)
Inventories			(29,503	)			8,865				(37,060	)			63,583				(188,073	)			(102,323	)
Other assets			(3,003	)			(10,204	)			(1,075	)			(24,310	)			(177,284	)			(15,311	)
Accounts payable			10,410				3,048				871				4,797				(11,240	)			32,926
Accrued compensation and related benefits			18,524				7,496				3,806				(31,187	)			28,514				16,536
Income tax liabilities			747				(1,355	)			6,923				(308	)			16,559				11,771
Other accrued liabilities			19,951				7,449				7,092				14,865				22,471				22,737
Net cash provided by operating activities			267,803				216,303				141,451				638,213				246,674				320,010
Cash flows from investing activities:
Purchases of property and equipment			(55,639	)			(95,806	)			(22,526	)			(57,578	)			(58,843	)			(94,420	)
Proceeds from sales of property and equipment			29				9,268				0
Acquisition of in-place leases			0				(981	)			0
Purchases of short-term investments			(334,947	)			(212,562	)			(99,199	)
Proceeds from maturities and sales of short-term investments			357,092				135,801				109,131
Purchases of long-term investments			(3,316	)			0				0
Proceeds from sales of long-term investments			300				250				2,000
Purchases of investments															(582,603	)			(65,785	)			(394,886	)
Maturities and sales of investments															468,308				128,610				113,755
Contributions to deferred compensation plan, net			(2,696	)			(3,082	)			(4,146	)			(6,853	)			(16,492	)			(2,542	)
Purchases of intangible assets															-				-				(793	)
Net cash used in investing activities			(39,177	)			(167,112	)			(14,740	)			(178,726	)			(12,510	)			(378,886	)
Cash flows from financing activities:
Property and equipment purchased on extended payment terms			(5,357	)			(683	)			(749	)			(2,826	)			(2,055	)			(2,834	)
Proceeds from common stock issued under the employee equity incentive plan			18,767				16,650				10,637				1,118				5,358				17,322
Proceeds from common stock issued under the employee stock purchase plan			3,819				3,277				3,028				7,568				5,877				4,670
Repurchase of common stock															(3,741	)			-				-
Dividends and dividend equivalents paid			(88,786	)			(67,294	)			(47,475	)			(185,844	)			(137,965	)			(109,364	)
Net cash used in financing activities			(71,557	)			(48,050	)			(34,559	)			(183,725	)			(128,785	)			(90,206	)
Effect of change in exchange rates			4,926				(883	)			(2,208	)			(3,310	)			(6,039	)			3,400
Net increase in cash, cash equivalents and restricted cash			161,995				258				89,944
Net increase (decrease) in cash, cash equivalents and restricted cash															272,452				99,340				(145,682	)
Cash, cash equivalents and restricted cash, beginning of period			173,076				172,818				82,874				288,729				189,389				335,071
Cash, cash equivalents and restricted cash, end of period		$	335,071			$	173,076			$	172,818			$	561,181			$	288,729			$	189,389
Supplemental disclosures for cash flow information:
Cash paid for taxes		$	1,405			$	10,700			$	7,134
Cash paid for income taxes, net														$	85,128			$	85,031			$	21,148
Non-cash investing and financing activities:
Liability accrued for property and equipment purchases		$	7,839			$	7,803			$	1,737			$	1,784			$	5,743			$	17,877
Liability accrued for dividends and dividend equivalents		$	27,507			$	21,955			$	16,319			$	53,213			$	40,939			$	33,059

 

See accompanying notes to consolidated financial statements.

 

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MONOLITHIC POWER SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

 

1.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Business

 

Monolithic Power Systems, Inc. (the “Company”) was incorporated in the State of California on August 22, 1997. On November 17, 2004, the Company was reincorporated in the State of Delaware. MPS designs, develops and markets integratedhigh-performance, semiconductor-based power semiconductor solutions and power delivery architectures.electronic solutions. MPS’s mission is to provide innovative power solutions in the storage and computing, and storage,enterprise data, automotive, industrial, communications and consumer markets.

 

Basis of Presentation

 

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. Intercompany accounts and transactions have been eliminated in consolidation.

 

Use of Estimates

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”)GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and reported amounts of revenue and expenses during the reporting period. Significant estimates and assumptions used in these consolidated financial statements primarily include those related to revenue recognition, inventory valuation, valuation of share-based awards, contingencies and income tax valuation allowances. Actual results could differ from these estimates and assumptions, and any such differences maybe material to the Company’s consolidated financial statements. 

 

The COVID-19 outbreak has significantly affected the global economy and is disrupting business operations worldwide for an unknown period of time until the disease is contained. Although these events did notadversely affect the Company’s overall operating results and financial condition for the year ended December 31, 2020, they could have a negative impact on the Company’s business operations in future periods. However, the Company is currently unable to predict the size and duration of such impact.

As of the date of issuance of these consolidated financial statements, the Company is notaware of any specific event or circumstance related to the pandemic that would require management to update the significant estimates and assumptions used in the preparation of the consolidated financial statements. As new events continue to evolve and additional information becomes available, any changes to these estimates and assumptions will be recognized in the consolidated financial statements as soon as they become known.

Certain Significant Risks and Uncertainties

 

Financial instruments which potentially subject the Company to concentrations of credit risk consist primarily of cash equivalents, short-term and long-term investments and accounts receivable. The Company’s cash equivalents include short-term, highly liquid investments purchased with remaining maturities at the date of purchase of three months or less. The Company’s short-term investments may consist of corporate debt securities, certificates of deposit, commercial paper and government agency bonds and treasuries, and the long-term investments consist of government-backed student loan auction-rate securities and non-marketable equity investments.securities.

 

The Company does notrequire its customers to provide collateral to support accounts receivable. The Company assesses the collectability by reviewing accounts receivable on a customer-by-customer basis. To manage credit risk, management performs ongoing credit evaluations of the customers’ financial condition, monitors payment performance, and assesses current economic conditions, as well as reasonable and supportable forecasts of future economic conditions, that mayaffect collectability of the outstanding receivables. For certain high riskhigh-risk customers, the Company requires standby letters of credit or advance payment prior to shipments of goods.

 

The Company participates in the dynamic high technology industry and believes that changes in any of the following areas could have a material adverse effect on its future financial position, results of operations or cash flows: advances and trends in new technologies and industry standards; competitive pressures in the form of new products or price reductions on current products; changes in product mix; changes in the overall demand for products offered by the Company;Company or in specific markets; changes in third-party manufacturers;manufacturers or the terms of such arrangements; changes in key suppliers; changes in certain strategic relationships or customer relationships; litigation or claims against the Company based on intellectual property, patent, product, regulatory or other factors; fluctuations in foreign currency exchange rates; risk associated with changes in government policies and regulations on trade restrictions and corporate taxes; availability of necessary components or sub-assemblies; availability of foundry capacity; ability to integrate acquired companies; and the Company’s ability to attract and retain employees necessary to support its growth.

 

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Foreign Currency

In general, the functional currency of the Company’s international subsidiaries is the local currency. The primary subsidiaries are located in China, Taiwan and Europe, which utilize the Renminbi, the New Taiwan Dollar and the Euro as their currencies, respectively. Accordingly, assets and liabilities of the foreign subsidiaries are translated using exchange rates in effect at the end of the period. Revenue and costs are translated using average exchange rates for the period. The resulting translation adjustments are recorded in accumulated other comprehensive income (loss)loss on the Consolidated Balance Sheets.

 

In addition, the Company incurs foreign currency exchange gaingains or losslosses related to certain transactions, including intercompany transactions, between the U.S. and its foreign subsidiaries that are denominated in a currency other than the functional currency. In connection with the settlementremeasurement and remeasurementsettlement of the balances, the Company recorded foreign currency exchange gain (loss) of $(1.4)$(0.2) million, $(0.3)$0.5 million and $1.0$(0.7) million for the years ended December 31, 2020,2023, 20192022 and 2018,2021, respectively, which were reported in other income (expense), net, on the Consolidated Statements of Operations.

For intercompany transactions that are of a long-term investment nature, the Company records the foreign currency exchange gains and losses in accumulated other comprehensive loss on the Consolidated Balance Sheets.

 

Cash Equivalents and Debt InvestmentsInvestments 

 

The Company classifies all highly liquid investments with stated maturities of three months or less from date of purchase as cash equivalents. The Company may classify investments with maturities beyond one year as short-term based on the nature of the investments and their availability for use in current operations.

 

Cash equivalents are stated at cost, which approximates fair market value. The Company’s short-term and long-term debt investments are classified as available-for-sale securities and are stated at their fair market value, with unrealized gains and losses recorded in accumulated other comprehensive income (loss)loss on the Consolidated Balance Sheets. Premiums and discounts on debt investments are generally amortized or accreted over the life of the related available-for-sale securities. Interest income is recognized when earned. The cost of investments sold is determined on athe basis of the specific identification method.

 

Available-for-sale investments are subject to impairment reviews when the fair value is below the amortized cost basis. If the Company determines that the decline in fair value below the amortized cost basis is due to credit-related factors, the impairment is recognized as an allowance on the Consolidated Balance Sheets with a corresponding adjustment to earnings. An impairment that is not credit-related is recognized in accumulated other comprehensive income (loss)loss on the Consolidated Balance Sheets. If the Company intends to sell the impaired investments, or more likely than not will be required to sell such investments before recovering the amortized cost basis, the entire impairment amount is recognized in earnings with a corresponding adjustment to the amortized cost basis.

Equity Investments

 

Equity investments in privately held companies without readily determinable fair values are accounted for under the measurement alternative method, provided that the Company does not have the ability to exercise significant influence or control over the investees. TheUnder this method, the Company measures the investments at cost, less any impairment, and adjusts the carrying value of the investments to fair value resulting from observable transactions for identical or similar investments of the same issuer. The Company records the investments in other long-term assets on the Consolidated Balance Sheets, and gains and losses on the investments are recognized in other income (expense), net, on the Consolidated Statements of Operations.

 

The Company monitors its non-marketable equity investments for impairment indicators, such as negative changes in industry and market conditions, financial performance, business prospects, and other relevant events and factors. If indicators exist for a security and the fair value is below the carrying amount, the Company writes down the security to fair value.

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Fair Value of Financial Instruments

Fair value is defined as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value, the Company considers the principal or most advantageous market in which the Company would transact, as well as assumptions that market participants would use when pricing the assets or liabilities. Fair value is estimated by applying the followingfair value hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement:measurement. See Note 4 for additional information on the fair value of the Company’s financial instruments.

 

●

Level 1 - Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.

●

Level 2 - Inputs that are based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant inputs are observable in the market or can be derived from observable market data.

●

Level 3 - Significant unobservable inputs to the valuation methodology and typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability.

Inventories

 

Inventories are stated at the lower of standard cost (which approximates actual cost determined on a first-in first-out basis) and estimated net realizable value. The Company writes down excess and obsolete inventoryinventories based on itstheir age and forecasted demand, which includes estimates taking into consideration the Company’s revenue forecast, outlook on market and economic conditions, technology changes, new product introductions and changes in strategic direction. Actual demand may differ from forecasted demand, and such differencesa difference may have a material effect on recorded inventory values. When the Company records a write-down on inventory, it establishes a new, lower cost basis for that inventory, and subsequent changes in facts and circumstances will not result in the restoration or increase in that newly established cost basis.

Property and Equipment

 

Property and equipment are stated at cost. Depreciation commences when an asset is placed in service and available for its intended use. Depreciation is computed using the straight-line method over the estimated useful lives of the assets. Buildings and building improvements have estimated useful lives of 20 to 40 years. Leasehold improvements are amortized over the shorter of the estimated useful lives or the lease period. Production equipment, lab equipment and software have estimated useful lives of three to eight years. Transportation equipment has estimated useful lives of 5 to 20 years. Furniture and fixtures have estimated useful lives of three to five years. Land is not depreciated.

Impairment of Long-Lived Assets

 

The Company evaluates its long-lived assets other than goodwill for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An impairment loss would be recognized when the sum of the undiscounted future net cash flows expected to result from the use of the asset and its eventual disposition is less than its carrying amount. Such impairment loss would be measured as the difference between the carrying amount of the asset and its fair value based on the present value of estimated future cash flows. The Company did not record material impairments in any of the periods presented.

Goodwill

 

Goodwill

Goodwill represents the excess of the fair value of purchase consideration over the fair value of net tangible and identified intangible assets as of the date of acquisition. Goodwill is not amortized.

 

The Company tests goodwill for impairment at least annually in the fourth quarter of each year, or whenever events or changes in circumstances indicate that goodwill may be impaired. The Company has elected to first assess the qualitative factors to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying amount. If the Company determines that it is more likely than not that itsthe fair value of the reporting unit is less than the carrying amount, then a quantitative goodwill impairment test is performed to measure the impairment loss. No impairment of goodwill has been identified in any of the periods presented.  

Deferred Compensation Plan 

The Company has a non-qualified, unfunded deferred compensation plan, which provides certain key employees, including executive officers, with the ability to defer the receipt of compensation in order to accumulate funds for retirement on a tax deferred basis. The Company does not make contributions to the plan or guarantee returns on the investments. The Company is responsible for the plan’s administrative expenses. Participants’ deferrals and investment gains and losses remain as the Company’s liabilities and the underlying assets are subject to claims of general creditors.

 

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The liabilities for compensation deferred under the plan are recorded at fair value inas of the end of each reporting period. Changes in the fair value of the liabilities are included in operating expenseexpenses on the Consolidated Statements of Operations. The Company manages the risk of changes in the fair value of the liabilities by electing to match the liabilities with investments in corporate-owned life insurance policies, mutual funds and money market funds that offset a substantial portion of the exposure. The investments are recorded at the cash surrender value of the corporate-owned life insurance policies, and at the fair value of the mutual funds and money market funds, which are classified as trading securities. Changes in the cash surrender value of the corporate-owned life insurance policies and the fair value of mutual fund and money market fund investments are included in other income (expense), net, on the Consolidated Statements of Operations. The following table summarizes the deferred compensation plan balances on the Consolidated Balance Sheets (in thousands):

 

		December 31,								December 31,
		2020				2019				2023				2022
Deferred compensation plan asset components:
Cash surrender value of corporate-owned life insurance policies		$	19,222			$	16,883			$	23,545			$	19,089
Fair value of mutual funds and money market funds			26,924				21,975				54,836				43,933
Total		$	46,146			$	38,858			$	78,381			$	63,022
Deferred compensation plan assets reported in:
Other long-term assets		$	46,146			$	38,858			$	78,381			$	63,022
Deferred compensation plan liabilities reported in:
Accrued compensation and related benefits (short-term)		$	155			$	425			$	384			$	118
Other long-term liabilities			48,280				39,665				80,903				64,863
Total		$	48,435			$	40,090			$	81,287			$	64,981

 

Revenue Recognition

 

The Company recognizes revenue when it transfers control of promised goods or services to its customers in an amount that reflects the consideration to which it expects to be entitled to in exchange for those goods or services. See Note 2 for further discussion.

 

Research and DevelopmentR&D

 

Costs incurred in research and developmentR&D are expensed as incurred.

Warranty Reserve

 

The Company generally provides either a one to- or two-year warrantieswarranty against defects in materials and workmanship and will either repair the products, provide replacements at nocharge to customers or issue a refund. As they are considered assurance-type warranties, the Company does not account for them as separate performance obligations. Warranty reserve requirements are generally based on a specific assessment of the products sold with warranties when a customer asserts a claim for warranty or a product defect. 

Leases

 

The Company determines if an arrangement is a lease at inception. Lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Operating lease right-of-use (“ROU”) assets represent the Company’s right to use an underlying asset for the lease term, and operating lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at the commencement date based on the present value of remaining lease payments over the lease term. ROU assets also include any initial direct costs incurred and prepaid lease payments, less lease incentives received. Because the implicit rate in each lease is not readily determinable, the Company uses its estimated incremental borrowing rate to determine the present value of the remaining lease payment. The Company recognizes operating lease costs on a straight-line basis over the lease term.

 

The Company does not record short-term leases with a term of 12 months or less at the commencement date on the Consolidated Balance Sheets. For lease arrangements that contain lease and non-lease components, the Company accounts for them as single lease components.

 

For lease arrangements where the Company is the lessor, the Company recognizes lease income from operating leases on a straight-line basis over the lease term.

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Stock-Based Compensation

 

The Company measures the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. The fair value of RSUs with only service conditions is determined based on the grant date stock price. The fair value of all other awards is determined based on the following valuation methods:

 

Type of Awards		Valuation Method
RSUs with performance conditions (“PSUs”) that have a purchase price adjustment		Black-ScholesMonte Carlo simulation model
RSUs with market conditions (“MSUs”)		Monte Carlo simulation model
RSUs with both performance and market conditions (“MPSUs”)		Monte Carlo simulation model
Shares issued under the ESPPemployee stock purchase plan (“ESPP”)		Black-Scholes model

The valuation models consider inputs including stock price, expected volatility, expected term of awards, risk-free interest rate, and expected dividend yield. Expected volatility used in the models is determined based on historical volatility of the Company’s stock price for the period, which corresponds to the expected term of the awards, immediately preceding the granting of the awards.

 

Compensation expense related to awards with service conditions is recorded on a straight-line basis over the requisite service period. Compensation expense related to awards subject to performance or market conditions is recognized over the requisite service period for each separately vesting tranche. For awards with only market conditions, compensation expense is not reversed if the market conditions are not satisfied. For awards with only performance conditions, as well as awards containing both market and performance conditions, the Company recognizes compensation expense when the performance goals are achieved, or when it becomes probable that the performance goals will be achieved. Management performs the probability assessment on a quarterly basis by reviewing external factors, such as macroeconomic conditions and the analog industry revenue forecasts, and internal factors, such as the Company’s business and operational objectives and revenue forecasts. Changes in the probability assessment of achievement of the performance conditions are accounted for in the period of change by recording a cumulative catch-up adjustment as if the new estimate had been applied since the service inception date. Any previously recognized compensation expense is reversed if the performance conditions are not expected to be satisfied as a result of management’s assessment.

 

The Company accounts for forfeitures of equity awards when they occur.

Accounting for Income Taxes 

 

The Company recognizes federal, state and foreign current tax liabilities or assets based on its estimate of taxes payable or refundable in the current fiscal year by tax jurisdiction. The Company also recognizes federal, state and foreign deferred tax assets or liabilities for its estimate of future tax effects attributable to temporary differences and carryforwards. The Company records a valuation allowance to reduce any deferred tax assets by the amount of any tax benefits that, based on available evidence and judgment, are not expected to be realized.

 

The Company’s calculation of current and deferred tax assets and liabilities is based on certain estimates and judgments and involves dealing with uncertainties in the application of complex tax laws. The Company’s estimates of current and deferred tax assets and liabilities may change based on, in part, on added certainty, finality or uncertainty to an anticipated outcome, changes in accounting or tax laws in the U.S. or foreign jurisdictions where the Company operates, or changes in other facts or circumstances. In addition, the Company recognizes liabilities for potential U.S. and foreign income tax for uncertain income tax positions taken on its tax returns if it has less than a 50% likelihood of being sustained. If the Company determines that payment of these amounts is unnecessary or if the recorded tax liability is less than its current assessment, the Company may be required to recognize an income tax benefit or additional income tax expense in its financial statements in the period such determination is made. The Company has calculated its uncertain tax positions which were attributable to certain estimates and judgments.

Litigation and Contingencies

 

The Company is a party to actions and proceedings in the ordinary course of business, including potential litigation regarding its stockholders and its intellectual property, challenges to the enforceability or validity of its intellectual property, claims that the Company’s products infringe on the intellectual property rights of others, and employment matters. The Company may also be subject to litigation initiated by its stockholders. The pending proceedings involve complex questions of fact and law and will require the expenditure of significant funds and the diversion of other resources to prosecute and defend. In addition, from time to time, the Company becomes aware that it is subject to other contingent liabilities. When this occurs, the Company will evaluate the appropriate accounting for the potential contingent liabilities to determine whether a contingent liability should be recorded. In making this determination, management may, depending on the nature of the matter, consult with internal and external legal counsel and technical experts. Based on the facts and circumstances in each matter, the Company uses its judgment to determine whether it is probable that a contingent loss has occurred and whether the amount of such loss can be estimated. If the Company determines a loss is probable and estimable, the Company records a contingent loss. In determining the amount of a contingent loss, the Company takes into account advice received from experts for each specific matter regarding the status of legal proceedings, settlement negotiations, prior case history and other factors. Should the judgments and estimates made by management need to be adjusted as additional information becomes available, the Company may need to record additional contingent losses. Alternatively, if the judgments and estimates made by management are adjusted, for example, if a particular contingent loss does not occur, the contingent loss recorded would be reversed.

 

Litigation expense recorded on the Consolidated Statements of Operations includes primarily patent infringement litigation and other business matters. The Company records litigation costs in the period in which they are incurred. Proceeds resulting from settlement of litigation or favorable judgments are recorded as a reduction against litigation expense.

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Net Income per Share

Basic net income per share is computed by dividing net income by the weighted-average number of shares of common sharesstock outstanding for the period. Diluted net income per share reflects the potential dilution that would occur if outstanding securities or other contracts to issue common stock were exercised or converted into shares of common shares,stock, and calculated using the treasury stock method. Contingently issuable shares, including equity awards with performance conditions or market conditions, are considered outstanding shares of common sharesstock and included in the basic net income per share as of the date that all necessary conditions to earn the awards have been satisfied. Prior to the end of the contingency period, the number of contingently issuable shares included in the diluted net income per share is based on the number of shares, if any, that would be issuable under the terms of the arrangement at the end of the reporting period.

 

The Company’s RSUs contain forfeitable rights to receive cash dividend equivalents, which are accumulated and paid to the employees when the underlying RSUs vest. Dividend equivalents accumulated on the underlying RSUs are forfeited if the employees do not fulfill the requisite service requirement and, as a result, the awards do notvest. Accordingly, these awards are nottreated as participating securities in the net income per share calculation. 

Comprehensive Income

Comprehensive income represents the change in the Company’s net assets during the period from non-owner sources. Accumulated other comprehensive income (loss)loss presented on the Consolidated Balance Sheets primarily consists of unrealized gains or losses related to available-for-sale investments and foreign currency translation adjustments.

Recently Adopted Accounting PronouncementsPronouncement

 

In August 2018October 2021, , the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No.2021-2018-13,08, Fair Value MeasurementBusiness Combinations (Topic 820805): Disclosure Framework — ChangesAccounting for Contract Assets and Contract Liabilities from Contracts with Customers. The guidance requires an acquirer to recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Accounting Standards Codification 606,Revenue from Contracts with Customers, as if it had originated the Disclosure Requirements for Fair Value Measurement, which changes certain disclosure requirements, including those related to Level 3 fair value measurements.contracts. The Company adopted this guidance at the standard in thebeginning of fiscal year firstquarter of 20202023 prospectively and the adoptionit did nothave impact the consolidated financial statements for the year ended December 31, 2023. The Company is evaluating the impact of this guidance on its recent acquisition but does not expect a material impact on its disclosures.consolidated financial statements. See Note 17 for additional information regarding this acquisition.

New Accounting Pronouncements Not Yet Adopted as of December 31, 2023

 

In January 2017November 2023, , the FASB issued ASU No.2023-07,2017-04,Intangibles – Goodwill and OtherSegment Reporting (Topic 350280): Simplifying the Test for Goodwill Impairment,Improvements to Reportable Segment Disclosures, which simplifies the accounting for goodwill impairment.aims to improve disclosures regarding a public entity’s reportable segments, primarily through more comprehensive disclosures around significant segment expenses. The guidance removes stepwill be effective for the annual reporting for fiscal year two2024of and interim reporting for the goodwill impairment test, which requires a hypothetical purchase price allocation. A goodwill impairment is the amount by which a reporting unit’s carrying value exceeds its fair value, notfirst quarter in 2025, and should be applied retroactively to exceed the carrying amount of goodwill. Entities continue to have the option to perform a qualitative assessment to determine if a quantitative impairment test is necessary.all prior periods presented. The Company adoptedis evaluating the standard in the firstquarterimpact of 2020 and the adoption did not have a material impact on its annual goodwill impairment test.consolidated financial statements.

 

In June 2016December 2023, , the FASB issued ASU No.2023-09,2016-13,Financial Instruments – Credit LossesIncome Taxes (Topic 326740): MeasurementImprovements to Income Tax Disclosures, which aims to improve an entity’s income tax disclosures around its effective rate reconciliation, income taxes paid, disaggregation of Credit Losses on Financial Instruments, which introduces a model based on expected losses to estimate credit lossesincome before income taxes and income tax expense. The guidance will be effective for most financial assetsannual reporting for fiscal year 2025. The standard should be applied prospectively and certain other instruments. In addition, for available-for-sale debt securities, the standard eliminates the concept of other-than-temporary impairment and entities are required to recognize an allowance for credit losses rather than reductions in the amortized cost of the securities. Entities are required to apply the standard by recording a cumulative-effect adjustment to retained earnings.retrospective application is permitted. The Company adopteddoes not expect the adoption of this standard in the firstquarter of 2020, which did notto have a material impact on its consolidated financial statements.

Recent Accounting Pronouncement Not Yet Adopted as of December 31,2020

In December 2019,the FASB issued ASU No.2019-12,Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which eliminates certain exceptions related to the approach for intra-period tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The standard also clarifies and simplifies other aspects of the accounting for income taxes. The standard will be effective for annual reporting periods beginning after December 15, 2020. Early adoption is permitted. The standard will generally be applied prospectively, with certain exceptions. The Company does not expect the adoption will have a material impact on its consolidated financial statements.

Prior Period Reclassifications

Certain amounts in prior periods have been reclassified to conform with current period presentation:

●

Long-term investments, which were previously presented separately on the Consolidated Balance Sheets, are now reported within other long-term assets.

●

Gains and losses on the disposal and sale of property and equipment, which were previously presented separately under operating activities on the Consolidated Statements of Cash Flows, are now reported within the “other” line item under operating activities.

●

Accrued purchases of property and equipment, which were previously reported within the "other" line item under other accrued liabilities in Note 5, are now reported separately under other accrued liabilities.

 

 

2.  REVENUE RECOGNITION

Revenue from Product Sales

 

The Company generates revenue primarily from product sales, which include assembled and tested ICs, as well as dies in wafer form. These product sales accounted for 97%99%, 99%98% and 98%97% of the Company’s total revenue for the years ended December 31, 2020,2023, 20192022 and 20182021, respectively. The remaining revenue primarily includes royalty revenue from licensing arrangements and revenue from wafer testing services performed for thirdparties, which have notbeen significant in allfor the periods presented. See Note 1615 for the disaggregation of the Company’s revenue by geographic regionsregion and by product families.family.

 

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The Company sells its products primarily through third-party distributors, value-added resellers, OEMs, ODMs and EMS providers. For the years ended December 31, 2020,2023, 20192022 and 20182021, 81%80%, 83% and 87%88%, respectively, of the Company’s product sales were made through distribution arrangements. These distribution arrangements contain enforceable rights and obligations specific to those distributors and notthe end customers. Purchase orders, which are generally governed by sales agreements or the Company'sCompany’s standard terms of sale, set the final terms for unit price, quantity, shipping and payment agreed by both parties.between the Company and the customer. The Company considers purchase orders to be the contracts with customers. The unit price as stated on the purchase orders is considered the observable, stand-alone selling price for the arrangements.

 

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The Company recognizes revenue when it satisfies a performance obligation by transferring control of the promised goods or services to its customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. The Company excludes taxes assessed by government authorities, such as sales taxes, from revenue.

 

Product sales consist of a single performance obligation that the Company satisfies at a point in time. The Company recognizes product revenue from distributors and direct end customers when the following events have occurred: (a) the Company has transferred physical possession of the products, (b) the Company has a present right to payment, (c) the customer has legal title to the products, and (d) the customer bears significant risks and rewards of ownership of the products. In accordance with the shipping terms specified in the contracts, these criteria are generally met when the products are shipped from the Company’s facilities (such as the “Ex Works” shipping term) or delivered to the customers’ locations (such as the “Delivered Duty Paid” shipping term).

 

Under certain consignment agreements, revenue is notrecognized when the products are shipped and delivered to be held at customers’ designated locations because the Company continues to control the products and retain ownership, and the customers do nothave an unconditional obligation to pay. The Company recognizes revenue when the customers consume the products from the consigned inventory locations or in some cases, after a 60-day period from the delivery date has passed, at which time control transfers to the customers and the Company invoices them for payment.

 

Variable Consideration

 

The Company accounts for price adjustmentadjustments and stock rotation rights as variable consideration that reduces the transaction price and recognizes that reduction in the same period the associated revenue is recognized. FourCertain U.S.-based distributors have price adjustment rights when they sell the Company’s products to their end customers at a price that is lower than the distribution price invoiced by the Company. When the Company receives claims from the distributors that products have been sold to the end customers at the lower price,prices, the Company issues the distributors credit memos for the price adjustments. The Company estimates the price adjustments using the expected value method based on an analysis of historical claims, at both the distributor and product level, as well as an assessment of any known trends of product sales mix. Other U.S. distributors and non-U.S. distributors which make up the majority of the Company’s total sales to distributors, do nothave price adjustment rights. The Company records a credit against accounts receivable for the estimated price adjustments, with a corresponding reduction to revenue.

 

Certain distributors have limited stock rotation rights that permit the return of a small percentage of the previous six months’ purchases in accordance with the contract terms. The Company estimates the stock rotation returns using the expected value method based on an analysis of historical returns, and the current level of inventory in the distribution channel. The Company records a liability for the stock rotation reserve, with a corresponding reduction to revenue. In addition, the Company recognizes an asset for product returns which represents the right to recover products from the customers related to stock rotations, with a corresponding reduction to cost of revenue.

 

Contract Balances

 

Accounts Receivable:

 

The Company records a receivable when it has an unconditional right to receive consideration after the performance obligations are satisfied. As of December 31, 20202023 and 20192022,accounts receivable totaled $66.8$179.9 million and $52.7$182.7 million, respectively. The Company'sCompany’s accounts receivable are short-term, with standard payment terms generally ranging from 30 to 90 days. The Company did not recognize any write-offs of accounts receivable in any of the periods presented. As of December 31, 2020, the Company did notor record any allowance for credit losses and as of December 31, 2019, for the Company did not record any allowance for doubtful accounts.periods presented. 

 

Contract Liabilities:

 

For certain customers located in Asia, the Company requires cash payments two weeks before the products are scheduled to be shipped to the customers. The Company records these payments received in advance of performance as customer prepayments within current accrued liabilities. As ofDecember 31, 20202023 and 20192022, customer prepayments totaled $7.2$2.8 million and $3.4$3.6 million, respectively. The increasedecrease in the customer prepayment balance for the year ended December 31, 2020 2023resulted from an increasea decrease in unfulfilled customer orders for which the Company hashad received payments. For the year ended December 31, 20202023, the Company recognized $3.4 millionsubstantially all of the revenue that was included in the customer prepayment balance as of December 31, 20192022.

 

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Practical Expedients

 

The Company has elected the practical expedient to expense sales commissions as incurred because the amortization period would have been oneyear or less. 

 

The Company’s standard payment terms generally require customers to pay 30 to 90 days after the Company satisfies the performance obligations. For those customers who are required to pay in advance, the Company satisfies the performance obligations generally within a quarter. TheFor these reasons, the Company has elected not to determine whether contracts with customers contain significant financing components.

 

The Company’s unsatisfied performance obligations primarily include products held in consignment arrangements and customer purchase orders for products that the Company has notyet shipped. Because the Company expects to fulfill these performance obligations within oneyear, the Company has elected notto disclose the amount of these remaining performance obligations.

 

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3.CASH, CASH EQUIVALENTS, INVESTMENTS AND RESTRICTED CASH

 

The following is a summary of the Company’s cash, cash equivalents and debt investments (in thousands): 

 

		December 31,								December 31,
		2020				2019				2023				2022
Cash		$	300,609			$	144,860			$	392,329			$	273,145
Money market funds			34,335				28,100				135,514				15,462
Certificates of deposit											127,123				130,467
Corporate debt securities			249,671				260,950				95,101				292,586
Commercial paper			2,999				1,994				-				17,928
U.S. treasuries and government agency bonds			7,499				19,493				358,409				8,285
Auction-rate securities backed by student-loan notes			2,861				3,138				567				1,711
Total		$	597,974			$	458,535			$	1,109,043			$	739,584

 

		December 31,
		2020				2019
Reported as:
Cash and cash equivalents		$	334,944			$	172,960
Short-term investments			260,169				282,437
Investment within other long-term assets			2,861				3,138
Total		$	597,974			$	458,535

		December 31,
		2023				2022
Reported as:
Cash and cash equivalents		$	527,843			$	288,607
Short-term investments			580,633				449,266
Investment within other long-term assets			567				1,711
Total		$	1,109,043			$	739,584

 

The following table summarizes the contractual maturities of the short-term and long-term available-for-sale investments as of December 31, 2020 (2023in (in thousands): 

 

		Amortized Cost				Fair Value				Amortized Cost				Fair Value
Due in less than 1 year		$	97,773			$	98,036			$	398,670			$	397,884
Due in 1 - 5 years			160,316				162,133				183,266				182,749
Due in greater than 5 years			3,020				2,861				574				567
Total		$	261,109			$	263,030			$	582,510			$	581,200

For the year ended December 31, 2020, the Company recognized gross

Gross realized gains of $1.1 million on the sale of investments. Gross realized gainsand losses were not material for the years ended December 31, 2019 and 2018. Gross realized losses were not material for any periodperiods presented.

 

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The following tables summarize the unrealized gain and loss positions related to the available-for sale investments (in thousands): 

 

		December 31, 2020																December 31, 2023
		Amortized Cost				Unrealized Gains				Unrealized Losses				Fair Value				Amortized Cost				Unrealized Gains				Unrealized Losses				Fair Value
Money market funds		$	34,335			$	0			$	0			$	34,335			$	135,514			$	-			$	-			$	135,514
Certificates of deposit																			127,123				-				-				127,123
Corporate debt securities			247,591				2,177				(97	)			249,671				96,636				4				(1,539	)			95,101
Commercial paper			2,999				0				0				2,999
U.S. treasuries and government agency bonds			7,499				2				(2	)			7,499				358,177				327				(95	)			358,409
Auction-rate securities backed by student-loan notes			3,020				0				(159	)			2,861				574				-				(7	)			567
Total		$	295,444			$	2,179			$	(258	)		$	297,365			$	718,024			$	331			$	(1,641	)		$	716,714

 

		December 31, 2019																December 31, 2022
		Amortized Cost				Unrealized Gains				Unrealized Losses				Fair Value				Amortized Cost				Unrealized Gains				Unrealized Losses				Fair Value
Money market funds		$	28,100			$	0			$	0			$	28,100			$	15,462			$	-			$	-			$	15,462
Certificates of deposit																			130,467				-				-				130,467
Corporate debt securities			260,645				383				(78	)			260,950				300,529				18				(7,961	)			292,586
Commercial paper			1,994				0				0				1,994				17,928				-				-				17,928
U.S. treasuries and government agency bonds			19,487				7				(1	)			19,493				8,487				-				(202	)			8,285
Auction-rate securities backed by student-loan notes			3,320				0				(182	)			3,138				1,770				-				(59	)			1,711
Total		$	313,546			$	390			$	(261	)		$	313,675			$	474,643			$	18			$	(8,222	)		$	466,439

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The following tables present information about the available-for-sale investments that had been in a continuous unrealized loss position for less than 12 months and for greater than 12months (in thousands):

 

		December 31, 2020																								December 31, 2023
		Less than 12 Months								Greater than 12 Months								Total								Less than 12 Months								Greater than 12 Months								Total
		Fair Value				Unrealized Losses				Fair Value				Unrealized Losses				Fair Value				Unrealized Losses				Fair Value				Unrealized Losses				Fair Value				Unrealized Losses				Fair Value				Unrealized Losses
Corporate debt securities		$	59,144			$	(97	)		$	0			$	0			$	59,144			$	(97	)		$	20,792			$	(19	)		$	70,806			$	(1,520	)		$	91,598			$	(1,539	)
U.S. treasuries and government agency bonds			5,998				(2	)			0				0				5,998				(2	)			97,599				(95	)			-				-				97,599				(95	)
Auction-rate securities backed by student-loan notes			0				0				2,861				(159	)			2,861				(159	)			-				-				567				(7	)			567				(7	)
Total		$	65,142			$	(99	)		$	2,861			$	(159	)		$	68,003			$	(258	)		$	118,391			$	(114	)		$	71,373			$	(1,527	)		$	189,764			$	(1,641	)

 

		December 31, 2019																								December 31, 2022
		Less than 12 Months								Greater than 12 Months								Total								Less than 12 Months								Greater than 12 Months								Total
		Fair Value				Unrealized Losses				Fair Value				Unrealized Losses				Fair Value				Unrealized Losses				Fair Value				Unrealized Losses				Fair Value				Unrealized Losses				Fair Value				Unrealized Losses
Corporate debt securities		$	82,126			$	(63	)		$	11,136			$	(15	)		$	93,262			$	(78	)		$	72,943			$	(973	)		$	202,074			$	(6,988	)		$	275,017			$	(7,961	)
U.S. treasuries and government agency bonds			993				(1	)			0				0				993				(1	)			987				(2	)			7,298				(200	)			8,285				(202	)
Auction-rate securities backed by student-loan notes			0				0				3,138				(182	)			3,138				(182	)			-				-				1,711				(59	)			1,711				(59	)
Total		$	83,119			$	(64	)		$	14,274			$	(197	)		$	97,393			$	(261	)		$	73,930			$	(975	)		$	211,083			$	(7,247	)		$	285,013			$	(8,222	)

 

An impairment exists when the fair value of an investment is less than its amortized cost basis. As of December 31, 20202023 and 2022,, the Company did not consider the impairment of its investments to be a result of credit losses. As of December 31, 2019, the Company did not consider the impairment of its investments to be other-than-temporary. The Company typically invests in highly rated securities, with the primary objective of minimizing the potential risk of principal loss. The Company’s investment policy generally requires securities to be investment grade and limits the amount of credit exposure to any one issuer. When evaluating a debt security for impairment, management reviews factors such as the Company’s intent to sell, or whether it will more likely than notbe required to sell, the security before recovery of its amortized cost basis, the extent to which the fair value of the security is less than its cost, the financial condition of the issuer and the credit quality of the investment.

 

The Company’s auction-rate securities are backed by pools of student loans supported by guarantees by the U.S. Department of Education. The underlying maturities of these securities are up to 25 years.  The Company has received all scheduled interest payments on a timely basis pursuant to the terms and conditions of the securities. The Company does notintend to sell these securities, and it is more likely than notthat the Company will notbe required to sell these securities, before recovery of its amortized cost basis. To date, the Company has redeemed $40.3 million, or 93% of the original portfolio in these auction-rate securities, at par without any realized losses.

Non-Marketable Equity Investment

 

In November 2020, the Company made an equity investment in a privately held Swiss company (the “Investee”) that is accounted for under the measurement alternative. In April 2022, the Company made an additional investment in the form of a convertible loan. One member of the Company’s Board of Directors iswas an executive officer of a company that has a commercial relationship with the Investee. In addition, the Company’s Chief Executive Officer hashad a personal investment in the Investee.Investee and was on the Investee’s Board of Directors. As of December 31, 2020,2022, the Company’s investment in the Investee, which is denominated in Swiss Franc, had a carrying value of $3.4$5.4 million. The

In May 2023, the Company did not record any impairment or adjustments resulting from observable price changessold all its investments in the Investee for $7.4 million and recorded a gain of $1.4 million, which was included as a component of other income (expense), net, in the Consolidated Statements of Operations for the year ended December 31, 2020.2023.

Restricted Cash

 

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Restricted Cash

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported on the Consolidated Balance Sheets to the amounts reported on the Consolidated Statements of Cash Flows (in thousands):   

 

		December 31,								December 31,
		2020				2019				2023				2022
Cash and cash equivalents		$	334,944			$	172,960			$	527,843			$	288,607
Restricted cash included in other current assets											33,204				-
Restricted cash included in other long-term assets			127				116				134				122
Total cash, cash equivalents and restricted cash reported on the Consolidated Statements of Cash Flows		$	335,071			$	173,076			$	561,181			$	288,729

 

As of December 31, 20202023, restricted cash included in other current assets was related to preliminary purchase consideration held in a trust account in connection with the Company’s recent acquisition. See Note 17 for additional information. As of December 31, 2023 and 2019,2022, restricted cash included in other long-term assets was related to a security deposit that is set aside in a bank account and cannot be withdrawn by the Company under the terms of a lease agreement. The restriction will end upon the expiration of the lease.

 

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4. FAIR VALUE MEASUREMENTS

 

Fair Value Hierarchy

The following table detailsCompany has estimated the fair value of theits financial assets measured on a recurring basis (in thousands):by applying the following hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement:

 

		December 31, 2020
		Total				Level 1				Level 2				Level 3
Money market funds		$	34,335			$	34,335			$	0			$	0
Corporate debt securities			249,671				0				249,671				0
Commercial paper			2,999				0				2,999				0
U.S. treasuries and government agency bonds			7,499				0				7,499				0
Auction-rate securities backed by student-loan notes			2,861				0				0				2,861
Mutual funds and money market funds under deferred compensation plan			26,924				26,924				0				0
Total		$	324,289			$	61,259			$	260,169			$	2,861

		December 31, 2019
		Total				Level 1				Level 2				Level 3
Money market funds		$	28,100			$	28,100			$	0			$	0
Corporate debt securities			260,950				0				260,950				0
Commercial paper			1,994				0				1,994				0
U.S. treasuries and government agency bonds			19,493				0				19,493				0
Auction-rate securities backed by student-loan notes			3,138				0				0				3,138
Mutual funds and money market funds under deferred compensation plan			21,975				21,975				0				0
Total		$	335,650			$	50,075			$	282,437			$	3,138

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●	Level 1 —includes—includes instruments with quoted prices in active markets for identical assets.

●

Level 2 —includes—includes instruments for which the valuations are based upon quoted market prices in active markets involving similar assets or inputs other than quoted prices that are observable for the assets. The market inputs used to value these instruments generally consist of market yields, recently executed transactions, broker/dealer quotes or alternative pricing sources with reasonable levels of price transparency. Pricing sources may include industry standard data providers, security master files from large financial institutions, and other third-party sources used to determine a daily market value.

●	Level 3 —includes—includes instruments for which the valuations are based on inputs that are unobservable and significant to the overall fair value measurement.

 

The Company’s level 3 assets consist of government-backed student loan auction-rate securities. Financial Assets Measured at Fair Value on a Recurring Basis

The following table providesdetails the fair value of the financial assets measured on a rollforward ofrecurring basis (in thousands):

		December 31, 2023
		Total				Level 1				Level 2				Level 3
Money market funds		$	135,514			$	135,514			$	-			$	-
Certificates of deposit			127,123				-				127,123				-
Corporate debt securities			95,101				-				95,101				-
U.S. treasuries and government agency bonds			358,409				-				358,409				-
Auction-rate securities backed by student-loan notes			567				-				-				567
Mutual funds and money market funds under deferred compensation plan			54,836				54,836				-				-
Total		$	771,550			$	190,350			$	580,633			$	567

		December 31, 2022
		Total				Level 1				Level 2				Level 3
Money market funds		$	15,462			$	15,462			$	-			$	-
Certificates of deposit			130,467				-				130,467				-
Corporate debt securities			292,586				-				292,586				-
Commercial paper			17,928				-				17,928				-
U.S. treasuries and government agency bonds			8,285				-				8,285				-
Auction-rate securities backed by student-loan notes			1,711				-				-				1,711
Mutual funds and money market funds under deferred compensation plan			43,933				43,933				-				-
Total		$	510,372			$	59,395			$	449,266			$	1,711

Redemptions and changes in the fair value of the auction-rate securities (in thousands): 

Balance at January 1, 2019		$	3,241
Change in unrealized gain included in other comprehensive income			147
Sale and settlement at par			(250	)
Balance at December 31, 2019			3,138
Change in unrealized gain included in other comprehensive income			23
Sale and settlement at par			(300	)
Balance at December 31, 2020		$	2,861

classified as Level 3 assets were not material for the periods presented.

 

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The Company determined the fair value of the auction-rate securities using a discounted cash flow model with the following assumptions:

	December 31,
	2020 (1)						2019
Time-to-liquidity (in years)	2	-	3	(2.5)			2	-	3
Discount rate	3.5%	-	7.9%	(5.6%)			4.0%	-	8.3%

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(1)	The parenthetical value represents the weighted average assumption, which was calculated based on the relative fair value of the securities.

The fair value measurement involves the analysis of valuation techniques and evaluation of unobservable inputs commonly used by market participants to price similar instruments. Outputs from the valuation process are assessed against various market sources when they are available, including marketplace quotes, recent trades of similar illiquid securities and independent pricing services. The valuation of the auction-rate securities is subject to significant management judgment regarding projected future cash flows, which will depend on many factors, including the quality of the underlying collateral, estimated time to liquidity including potential to be called or restructured, underlying final maturity, and market conditions, among others. Changes in any of the unobservable inputs used in the fair value measurement of auction-rate securities in isolation would result in a lower or higher fair value measurement. For example, an increase in the time-to-liquidity assumption or estimated discount rate would result in a lower fair value measurement. 

 

5. BALANCE SHEET COMPONENTS

Inventories

 

Inventories consist of the following (in thousands):

 

		December 31,								December 31,
		2020				2019				2023				2022
Raw materials		$	25,503			$	22,872			$	118,917			$	126,760
Work in process			77,100				42,681				112,750				134,071
Finished goods			54,459				61,947				152,035				186,459
Total		$	157,062			$	127,500			$	383,702			$	447,290

 

Other Current Assets

Other current assets consist of the following (in thousands):

 

		December 31,								December 31,
		2020				2019				2023				2022
Other receivables										$	50,000			$	-
RSU tax withholding proceeds receivable		$	12,504			$	6,106				20,141				14,480
Prepaid expense			5,032				7,991
Accrued interest receivable			1,914				2,490
Assets for product returns			1,684				1,585
Prepaid expenses											28,964				11,045
Restricted cash											33,204				-
Other			1,846				1,433				15,154				17,217
Total		$	22,980			$	19,605			$	147,463			$	42,742

 

Other receivables relate to a deposit made to a supplier under a long-term wafer supply agreement. See Note 6012 for further details. 

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Property and Equipment, Net

 

Property and equipment, net, consist of the following (in thousands):

 

		December 31,								December 31,
		2020				2019				2023				2022
Land		$	35,432			$	35,040			$	48,490			$	41,924
Production equipment and software			163,317				134,292				270,390				254,882
Buildings and improvements			142,869				131,057				205,132				195,205
Transportation equipment			18,396				16,510				28,641				28,612
Leasehold improvements			8,705				6,583				17,052				17,389
Furniture and fixtures			6,383				4,660				11,711				11,378
Construction in progress			49,575				19,104				16,980				1,908
Property and equipment, gross			424,677				347,246				598,396				551,298
Less: accumulated depreciation and amortization			(143,149	)			(118,931	)			(229,444	)			(194,141	)
Total		$	281,528			$	228,315			$	368,952			$	357,157

 

Depreciation and amortization expense on property and equipment was $18.9$40.0 million, $14.5$36.8 million and $11.4$28.4 million for the years ended December 31, 2020,2023, 20192022 and 2018,2021, respectively.

 

Other Long-Term Assets

 

Other long-term assets consist of the following (in thousands):

 

		December 31,
		2020				2019
Deferred compensation plan assets		$	46,146			$	38,858
Operating lease ROU assets			3,719				2,863
Prepaid expense			2,340				2,687
Debt investment			2,861				3,138
Equity investment in a privately held company			3,400				0
Other			1,372				1,544
Total		$	59,838			$	49,090

		December 31,
		2023				2022
Deferred compensation plan assets		$	78,381			$	63,022
Prepaid wafer purchases			120,000				170,000
Other			12,896				16,264
Total		$	211,277			$	249,286

 

Prepaid wafer purchases relate to a deposit made to a supplier under a long-term wafer supply agreement. See Note 12 for further details.

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Other Accrued Liabilities

 

Other accrued liabilities consist of the following (in thousands):

 

		December 31,								December 31,
		2020				2019				2023				2022
Dividends and dividend equivalents		$	26,435			$	21,747			$	57,697			$	42,170
Warranty											16,906				24,082
Stock rotation and sales returns			6,005				5,530				18,843				14,931
Accrued purchases of property and equipment			5,841				4,678
Income tax payable			3,755				2,435				8,063				15,595
Customer prepayments			7,238				3,412
Commissions			1,107				1,425
Operating lease liabilities			1,406				1,254
Warranty			6,895				1,139
Other			4,278				3,170				14,282				16,901
Total		$	62,960			$	44,790			$	115,791			$	113,679

 

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Other Long-Term Liabilities

 

Other long-term liabilities consist of the following (in thousands):

 

		December 31,								December 31,
		2020				2019				2023				2022
Deferred compensation plan liabilities		$	48,280			$	39,665			$	80,903			$	64,863
Dividend equivalents			7,871				6,265				2,187				6,847
Operating lease liabilities			1,693				1,103				5,565				1,664
Other			29				30
Total		$	57,873			$	47,063			$	88,655			$	73,374

 

 

6. REAL ESTATE TRANSACTION

In March 2019, the Company completed the purchase of an office building and land located in Kirkland, Washington for $52.9 million in cash. The property also had in-place leases for a portion of the building which were assumed by the Company. The Company accounted for the purchase as an asset acquisition and capitalized $0.4 million of transaction costs.

The purchase price allocation was as follows (in thousands):

Building		$	30,078
Land			22,254
In-place leases			981
Total		$	53,313

The fair value of the building was determined based on the income approach, which considered the discounted cash flows and direct capitalization analysis, and the sales comparison approach. The fair value of land was determined based on the sales comparison approach. The fair value of the in-place leases was determined primarily based on the analysis of the economic benefits of certain cost savings attributable to the leases.

The building is depreciated over a useful life of 40 years and the in-place leases are amortized over the average remaining lease terms of 3.5 years.

7.LEASES

 

Lessee

 

The Company has operating leases primarily for administrative, and sales and marketing offices, manufacturing operations and research and developmentR&D facilities, employee housing units and certain equipment. These leases have remaining lease terms from less than aone year to fiveseven years. Some of these leases include options to renew the lease term for up to twofive years or on a month-to-month basis. The Company does not have finance lease arrangements.

 

AsThe following table summarizes the balances of December 31, 2020 and 2019, operating lease ROU assets totaled $3.7 million and $2.9 million, respectively. As of December 31, 2020 and 2019, operating lease liabilities totaled $3.1 million and $2.4 million, respectively. (in thousands):

				December 31,
		Financial Statement Line Item		2023				2022
Operating lease ROU assets		Other long-term assets		$	8,355			$	4,288
Operating lease liabilities		Other accrued liabilities		$	2,303			$	2,133
		Other long-term liabilities		$	5,565			$	1,664

The following tables summarize certain information related to the leases (in thousands, except percentages)percentages and years):

 

		Year Ended December 31,
		2020				2019
Lease costs:
Operating lease costs		$	1,488			$	1,509
Other			300				465
Total lease costs		$	1,788			$	1,974

		Year Ended December 31,
		2020				2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases		$	1,526			$	1,364
ROU assets obtained in exchange for new operating lease liabilities (1)		$	2,181			$	3,667

		December 31,
		2020				2019
Weighted-average remaining lease term (in years)			2.7				2.1
Weighted-average discount rate			2.7	%			3.7	%

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(1)	For the year ended December 31, 2019, the amount includes $2.3 million for operating leases existing on January 1, 2019, the adoption date of ASU No.2016-02,Leases (Topic 842).

		Year Ended December 31,
		2023				2022				2021
Lease costs:
Operating lease costs		$	3,113			$	2,704			$	2,454
Other			2,120				1,769				740
Total lease costs		$	5,233			$	4,473			$	3,194

 

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		Year Ended December 31,
		2023				2022				2021
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for operating leases		$	2,954			$	2,762			$	2,315
ROU assets obtained in exchange for new operating lease liabilities		$	7,081			$	1,175			$	5,195

		December 31,
		2023				2022
Weighted-average remaining lease term (in years)			4.7				2.1
Weighted-average discount rate			4.3	%			2.1	%

As of December 31, 2020, 2023, the maturities of the lease liabilities were as follows (in thousands):

 

2021		$	1,491
2022			993
2023			405
2024			199
2025			139
Total remaining lease payments			3,227
Less: imputed interest			(128	)
Total lease liabilities		$	3,099
Reported as:
Current liabilities		$	1,406
Long-term liabilities		$	1,693

2024		$	2,583
2025			1,909
2026			1,230
2027			1,238
Thereafter			1,653
Total remaining lease payments			8,613
Less: imputed interest			(745	)
Total lease liabilities		$	7,868

 

As of December 31, 2020, 2023, the Company had additional operating leaseslease that havehas not yet commenced with future lease obligations of $4.6 million. The leases will commence in various periods in 2021 with lease terms ranging from less thanis onenot year to four years.material.

 

Lessor

 

The Company owns certain office buildings and leases a portion of these properties to thirdparties under arrangements that are classified as operating leases. These leases have remaining lease terms ranging from less than twoone yearsyear to fourthree years. Some of these leases include options to renew the lease term for up to five years.

 

ForIncome related to lease payments was $1.5 million, $2.4 million and $2.2 million for the years ended December 31, 20202023, 2022and 20192021, income related to lease payments was $1.9 million and $1.8 million, respectively. As of December 31, 20202023,future income related to lease payments was as follows (in thousands):

 

2021		$	2,153
2022			2,073
2023			1,400
2024			553			$	760
2025			59				235
2026							41
Total		$	6,238			$	1,036

 

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8.7.STOCK-BASED COMPENSATION

2014Equity Incentive Plan 

 

In April 2013,the Board of Directors adopted the 2014 Equity Incentive Plan (the “2014 Plan”), which the Company'sCompany’s stockholders approved in June 2013.In October 2014,the Board of Directors approved certain amendments to the 2014 Plan. The amended 2014 Plan became effective on November 13, 2014and provided for the issuance of up to 5.5 million shares. In April 2020,the Board of Directors further amended and restated the amended 2014 Plan (the “Amended and Restated 2014Plan”), which the Company'sCompany’s stockholders approved in June 2020.The Amended and Restated 2014 Plan became effective on June 11, 2020and provides for the issuance of up to 10.5 million shares. The Amended and Restated 2014 Plan will expire on June 11, 2030.As of December 31, 20202023, 6.04.2 million shares remained available for future issuance under the Amended and Restated 2014 Plan.  

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Stock-Based Compensation Expense

 

The Company recognized stock-based compensation expense as follows (in thousands):

 

		Year Ended December 31,
		2020				2019				2018
Cost of revenue		$	2,592			$	2,409			$	1,888
Research and development			20,033				19,584				15,990
Selling, general and administrative			62,926				56,706				42,729
Total stock-based compensation expense		$	85,551			$	78,699			$	60,607
Tax benefit related to stock-based compensation (1)		$	1,855			$	2,754			$	4,383

______________

		Year Ended December 31,
		2023				2022				2021
Cost of revenue		$	4,545			$	4,721			$	3,543
Research and development			36,611				35,355				26,030
Selling, general and administrative			108,555				120,916				93,906
Total stock-based compensation expense		$	149,711			$	160,992			$	123,479
Tax benefit related to stock-based compensation (1)		$	2,519			$	2,498			$	1,760

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(1) Amount reflects the tax benefit related to stock-based compensation recorded for equity awards that are expected to generate tax deductions when they vest in future periods.

Equity awards granted to the Company’s executive officers are subject to the tax deduction limitations set by Section 162(m) of the IRC.

RSUs

 

The Company’s RSUs include time-based RSUs, RSUs with performance conditions (“PSUs”), RSUs with market conditions (“MSUs”),PSUs, MSUs, and RSUs with both market and performance conditions (“MPSUs”).MPSUs. Vesting of awards with performance conditions or market conditions is subject to the achievement of pre-determined performance or market goals and the approval of such achievement by the Compensation Committee of the Board of Directors (the “Compensation Committee”). All awards include service conditions which require continued employment with the Company.

 

A summary of RSU activity is presented in the table below (in thousands, except per-shareper share amounts):

 

		Time-Based RSUs								PSUs and MPSUs								MSUs								Total								Time-Based RSUs								PSUs and MPSUs									MSUs								Total
		Number of Shares				Weighted- Average Grant Date Fair Value Per Share				Number of Shares				Weighted- Average Grant Date Fair Value Per Share				Number of Shares				Weighted- Average Grant Date Fair Value Per Share				Number of Shares				Weighted- Average Grant Date Fair Value Per Share				Number of Shares				Weighted-Average Grant Date Fair Value Per Share				Number of Shares					Weighted-Average Grant Date Fair Value Per Share				Number of Shares				Weighted-Average Grant Date Fair Value Per Share				Number of Shares				Weighted-Average Grant Date Fair Value Per Share
Outstanding at January 1, 2018			258			$	66.30				2,266			$	48.59				1,620			$	23.57				4,144			$	39.91
Outstanding at January 1, 2021																																			161			$	151.62				1,390				$	132.60				1,554			$	40.40				3,105			$	87.42
Granted			133			$	114.36				630	(1)		$	85.06				600			$	68.48				1,363			$	80.62				46			$	384.33				365		(1)		$	354.12				-			$	-				411			$	357.49
Vested			(136	)		$	60.23				(717	)		$	41.08				0			$	0				(853	)		$	44.13				(71	)		$	144.46				(577	)			$	91.50				(324	)		$	23.57				(972	)		$	72.69
Forfeited			(15	)		$	82.20				(5	)		$	63.16				(1	)		$	68.48				(21	)		$	76.92				(11	)		$	207.04				(12	)			$	103.84				(12	)		$	68.48				(35	)		$	124.50
Outstanding at December 31, 2018			240			$	95.38				2,174			$	61.61				2,219			$	35.69				4,633			$	50.94
Outstanding at December 31, 2021																																			125			$	235.82				1,166				$	222.78				1,218			$	44.59				2,509			$	136.87
Granted			52			$	141.32				512	(1)		$	99.88				0			$	0				564			$	103.68				49			$	390.89				35		(1)(2)		$	385.80				917			$	199.63				1,001			$	215.63
Vested			(103	)		$	81.53				(656	)		$	53.72				(324	)		$	23.57				(1,083	)		$	47.34				(61	)		$	193.18				(452	)			$	147.78				(324	)		$	23.57				(837	)		$	103.02
Forfeited			(9	)		$	117.31				(43	)		$	42.72				(9	)		$	68.48				(61	)		$	57.01				(7	)		$	316.00				(1	)			$	377.86				(6	)		$	216.37				(14	)		$	275.47
Outstanding at December 31, 2019			180			$	115.45				1,987			$	74.50				1,886			$	37.63				4,053			$	59.16
Outstanding at December 31, 2022																																			106			$	327.13				748				$	275.70				1,805			$	126.57				2,659			$	176.50
Granted			76			$	189.28				627	(1)		$	173.40				0			$	0				703			$	175.12				51			$	472.38				281		(1)		$	449.38				31			$	330.95				363			$	444.86
Vested			(86	)		$	110.67				(1,213	)		$	59.03				(324	)		$	23.57				(1,623	)		$	54.70				(49	)		$	296.65				(543	)			$	257.24				(319	)		$	23.57				(911	)		$	177.54
Forfeited			(9	)		$	138.34				(11	)		$	84.48				(8	)		$	68.48				(28	)		$	96.35				(6	)		$	387.61				(4	)			$	315.19				(15	)		$	110.65				(25	)		$	209.23
Outstanding at December 31, 2020			161			$	151.62				1,390			$	132.60				1,554			$	40.40				3,105			$	87.42
Outstanding at December 31, 2023																																			102			$	411.11				482				$	397.77				1,502			$	152.89				2,086			$	222.04

 

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(1)	Amount reflects the number of awards that may ultimately be earned based on management’s probability assessment of the achievement of performance conditions at each reporting period.

(2)	Amount included grants and cancellations of the 2022 Executive PSUs as defined under the “2022 PSUs” section.

 

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The intrinsic value related to vested RSUs was $326.2$461.3 million, $138.3$336.8 million and $90.0$381.2 million for the years ended December 31, 2020,2023, 20192022 and 2018,2021, respectively. As of December 31, 2020, 2023, the total intrinsic value of all outstanding RSUs was $1.1$1.3 billion, based on the closing stock price of $366.23.$630.78. As of December 31, 2020, 2023, unamortized compensation expense related to all outstanding RSUs was $136.3$232.6 million with a weighted-average remaining recognition period of approximately 2.2two years. 

 

Cash proceeds from vested PSUs with a purchase price totaled $18.8$1.1 million, $16.6$5.4 million and $10.6$17.3 million for the years ended December 31, 2020,2023, 20192022 and 2018,2021, respectively.

Time-Based RSUs

 

For the years ended December 31, 2020,2023, 20192022 and 2018,2021, the Compensation Committee granted 76,000, 52,00051,000, 49,000 and 133,00046,000 RSUs, respectively, with service conditions to non-executive employees and non-employee directors. The RSUs generally vest over four years for employees and one year for directors, subject to continued service with the Company.

 

PSUs and MPSUs

2023 PSUs:

In February 2023, the Compensation Committee granted 69,000 PSUs to the executive officers, which represent a target number of shares that can be earned based on the degree of achievement of two sets of performance goals (“2023 Executive PSUs”). For the first goal, the executive officers can earn up to 300% of the target number of the 2023 Executive PSUs based on the achievement of the Company’s average three-year (2023 through 2025) revenue growth rate in excess of the analog industry’s average three-year revenue growth rate as published by the Semiconductor Industry Association (the “SIA”). For the second goal, the executive officers can earn up to an additional 200% of the target number of the 2023 Executive PSUs if the Company secures additional manufacturing capacity outside China during a three-year performance period. For both goals, a percentage of the 2023 Executive PSUs will fully vest on December 31, 2025, depending on the degree to which the pre-determined goals are met during the performance periods. Assuming the achievement of the highest level of the performance goals, the total stock-based compensation cost for the 2023 Executive PSUs is $156.2 million.

In February 2023, the Compensation Committee granted 13,000 PSUs to certain non-executive employees, which represent a target number of shares that can be earned based on the degree of achievement of the Company’s 2024 revenue goals for certain regions or product line divisions, or based on the degree of achievement of the Company’s average two-year (2023 and 2024) revenue growth rate compared against the analog industry’s average two-year revenue growth rate as published by the SIA (“2023 Non-Executive PSUs”). The maximum number of shares that an employee can earn is either 200% or 300% of the target number of the 2023 Non-Executive PSUs, depending on the job classification of the employee. 50% of the 2023 Non-Executive PSUs will vest in the first quarter of 2025 depending on the degree to which the pre-determined goals are met during the performance period. The remaining 2023 Non-Executive PSUs will vest over the following two years on a quarterly basis. Assuming the achievement of the highest level of performance goals, the total stock-based compensation cost for the 2023 Non-Executive PSUs is $13.8 million.

The 2023 Executive PSUs and the 2023 Non-Executive PSUs contain a purchase price feature, which requires the employees to pay the Company $30 per share upon vesting of the shares. The $30 purchase price requirement is deemed satisfied and waived if the Company’s stock price on the last trading day of the performance period is $30 higher than the grant date stock price of $467.62. The Company determined the grant date fair value of the 2023 Executive PSUs and the 2023 Non-Executive PSUs using a Monte Carlo simulation model with the following assumptions: stock price of $467.62, simulation term of four years, expected volatility of 51.0%, risk-free interest rate of 3.9%, and expected dividend yield of 0.9%. There is no illiquidity discount because the awards do not contain any post-vesting sales restrictions.

2022 PSUs:

In February 2022, the Compensation Committee granted 81,000 PSUs to the executive officers, which represented a target number of shares that could be earned subject to the achievement of two sets of performance goals (“2022 Executive PSUs”). For the first goal, the executive officers could earn up to 300% of the target number of the 2022 Executive PSUs based on the achievement of the Company’s average two-year (2022 and 2023) revenue growth rate compared against the analog industry’s average two-year revenue growth rate as published by the SIA. 50% of the 2022 Executive PSUs would vest in the first quarter of 2024 if the pre-determined revenue goal was met during the performance period. The remaining 2022 Executive PSUs would vest over the following two years on a quarterly basis. For the second goal, the executive officers could earn up to an additional 200% of the target number of the 2022 Executive PSUs if the Company secured additional wafer capacity during a three-year performance period. The 2022 Executive PSUs related to the second goal would fully vest in the first quarter of 2025 if the pre-determined goal was met during the performance period. In addition, all vested shares related to the second goal would be subject to a post-vesting sales restriction period of one year. Assuming the achievement of the highest level of the performance goals, the total stock-based compensation cost for the 2022 Executive PSUs would be $142.7 million. The 2022 Executive PSUs were subsequently cancelled by the Board of Directors in October 2022. See the “2022 MSUs” section for further details.

In February 2022, the Compensation Committee granted 14,000 PSUs to certain non-executive employees, which represented a target number of shares that could be earned subject to the achievement of the Company’s 2023 revenue goals for certain regions or product line divisions, or based on the achievement of the Company’s average two-year (2022 and 2023) revenue growth rate compared against the analog industry’s average two-year revenue growth rate as published by the SIA (“2022 Non-Executive PSUs”). The maximum number of shares that an employee could earn was either 200% or 300% of the target number of the 2022 Non-Executive PSUs, depending on the job classification of the employee. Based on the actual revenue achievement at the end of the performance period, a total of 29,000 shares were awarded to the non-executive employees. 50% of the 2022 Non-Executive PSUs will vest in the first quarter of 2024. The remaining 2022 Non-Executive PSUs will vest over the following two years on an annual or quarterly basis. Based on the actual achievement of the performance goals, the total stock-based compensation cost for the 2022 Non-Executive PSUs is $11.1 million.

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The 2022 Executive PSUs and the 2022 Non-Executive PSUs contained a purchase price feature, which required the employees to pay the Company $30 per share upon vesting of the shares. The $30 purchase price requirement was deemed satisfied and waived if the average stock price for 20 consecutive trading days at any time during 2022 and 2023 was $30 higher than the grant date stock price of $393.16. This market condition was achieved in the first quarter of 2022. The Company determined the grant date fair value of the 2022 Executive PSUs for the first goal and the 2022 Non-Executive PSUs using a Monte Carlo simulation model with the following assumptions: stock price of $393.16, simulation term of four years, expected volatility of 44.6%, risk-free interest rate of 1.5%, and expected dividend yield of 0.8%. In addition, for the 2022 Executive PSUs related to the second goal, the fair value was determined based on the closing stock price at the end of each reporting period, adjusted for accrued dividends and an illiquidity discount of 10.3% to account for the post-vesting sales restrictions.

2021 PSUs:

In February 2021, the Compensation Committee granted 80,000 PSUs to the executive officers, which represented a target number of shares that could be earned subject to the achievement of two sets of performance goals (“2021 Executive PSUs”). For the first goal, the executive officers could earn up to 300% of the target number of the 2021 Executive PSUs based on the achievement of the Company’s average two-year (2021 and 2022) revenue growth rate compared against the analog industry’s average two-year revenue growth rate as published by the SIA. Based on the actual revenue achievement at the end of the performance period, a total of 240,000 shares were awarded to the executive officers. 50% of the 2021 Executive PSUs vested in the first quarter of 2023. The remaining 2021 Executive PSUs vest over the following two years on a quarterly basis. For the second goal, the executive officers could earn an additional 100% of the target number of the 2021 Executive PSUs subject to the achievement of three environmental objectives under the Company’s ESG initiatives with a performance period through December 31, 2023. As of December 31, 2023, all three environmental objectives were achieved and a total of 80,000 shares were awarded to the executive officers. The 2021 Executive PSUs related to the ESG goal fully vested upon achievement of the objectives. All vested shares related to the ESG goal are subject to a post-vesting sales restriction period of one year. Based on the actual achievement of the performance goals, the total stock-based compensation cost for the 2021 Executive PSUs is $114.4 million. 

In February 2021, the Compensation Committee granted 14,000 PSUs to certain non-executive employees, which represented a target number of shares that could be earned subject to the achievement of the Company’s 2022 revenue goals for certain regions or product line divisions, or based on the achievement of the Company’s average two-year (2021 and 2022) revenue growth rate compared against the analog industry’s average two-year revenue growth rate as published by the SIA (“2021 Non-Executive PSUs”). The maximum number of shares that an employee could earn was either 200% or 300% of the target number of the 2021 Non-Executive PSUs, depending on the job classification of the employee. Based on the actual revenue achievement at the end of the performance period, a total of 33,000 shares were awarded to the non-executive employees. 50% of the 2021 Non-Executive PSUs vested in the first quarter of 2023. The remaining 2021 Non-Executive PSUs vest over the following two years on an annual or quarterly basis. Based on the actual achievement of the performance goals, the total stock-based compensation cost for the 2021 Non-Executive PSUs is $11.9 million.

The 2021 Executive PSUs and the 2021 Non-Executive PSUs contained a purchase price feature, which required the employees to pay the Company $30 per share upon vesting of the shares. The $30 purchase price requirement was deemed satisfied and waived if the average stock price for 20 consecutive trading days at any time between the grant date and December 31, 2022 was $30 higher than the grant date stock price of $374.57. This market condition was achieved in the third quarter of 2021. The Company determined the grant date fair value of the 2021 Executive PSUs and the 2021 Non-Executive PSUs using a Monte Carlo simulation model with the following assumptions: stock price of $374.57, simulation term of 4.0 years, expected volatility of 41.4%, risk-free interest rate of 0.3%, and expected dividend yield of 0.6%. In addition, the grant date fair value for the 2021 Executive PSUs subject to the ESG goal included an illiquidity discount of 9.8% to account for the post-vesting sales restrictions.

 

2020 PSUs:

 

In February 2020,the Compensation Committee granted 100,000 PSUs to the executive officers, which representrepresented a target number of shares tothat could be earned based on the Company’s average two-year (2020 and 2021) revenue growth rate compared against the analog industry’s average two-year revenue growth rate as published by the Semiconductor Industry AssociationSIA (“2020 Executive PSUs”). The maximum number of shares that an executive officer cancould earn iswas 300% of the target number of the 2020 Executive PSUs. Based on the actual revenue achievement at the end of the performance period, a total of 300,000 shares were awarded to the executive officers. 50% of the 2020 Executive PSUs will vestvested in the first quarter of 20222022. if the pre-determined performance goals are met during the performance period. The remaining 2020 Executive PSUs will vest over the following two years on a quarterly basis. AssumingBased on the actual achievement of the highest level of performance goals, the total stock-based compensation cost for the 2020 Executive PSUs is $51.1 million.

 

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In February 2020,the Compensation Committee granted 30,000 PSUs to certain non-executive employees, which representrepresented a target number of shares tothat could be earned based on the Company’s 2021revenue goals for certain regions or product line divisions, or based on the Company’s average two-year (2020 and 2021) revenue growth rate compared against the analog industry’s average two-year revenue growth rate as published by the Semiconductor Industry AssociationSIA (“2020 Non-Executive PSUs”). The maximum number of shares that an employee cancould earn iswas either 200% or 300% of the target number of the 2020Non-Executive PSUs, depending on the job classification of the employee. Based on the actual revenue achievement at the end of the performance period, a total of 71,000 shares were awarded to the non-executive employees. 50% of the 2020 Non-Executive PSUs will vestvested in the firstquarter of 20222022. if the pre-determined performance goals are met during the performance period. The remaining 2020 Non-Executive PSUs will vest over the following two years on an annual or quarterly basis. AssumingBased on the actual achievement of the highest level of performance goals, the total stock-based compensation cost for the 2020Non-Executive PSUs is $12.8$11.8 million.

 

The 2020 Executive PSUs and the 2020Non-Executive PSUs containcontained a purchase price feature, which requiresrequired the employees to pay the Company $30 per share upon vesting of the shares. The $30 purchase price requirement iswas deemed satisfied and waived if the average stock price for 20 consecutive trading days at any time during the performance period iswas $30 higher than the grant date stock price of $182.62. This market condition was achieved in the secondquarter of 2020. The Company determined the grant date fair value of the 2020 Executive PSUs and the 2020Non-Executive PSUs using a Monte Carlo simulation model with the following assumptions: stock price of $182.62, simulation term of 2.0 years, expected volatility of 33.6%, risk-free interest rate of 1.4%, and expected dividend yield of 1.1%. 

 

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2020 MPSUs:

In July 2020,the Compensation Committee granted 43,000 MPSUs to the executive officers and 2,000 MPSUs to certain key employees, which represented a target number of shares that could be earned based on the achievement of both market and performance conditions (“2020 MPSUs”). The maximum number of shares that an employee could earn was 500% of the target number of the 2020MPSUs. The market conditions consisted of five stock price targets ranging from $260 to $300 with a performance period through July 20, 2023,and the performance condition consisted of onebusiness operating goal related to a revenue target for certain customers with a performance period through December 31, 2021.As of December 31, 2020, the Company hashad achieved all five price targets and the operating goal, and a total of 221,000 shares were awarded to the employees. 75% of the 2020MPSUs will vestvested on July 20, 2023,and 25% of the 2020MPSUs will vest on July 20, 2024.All vested shares will beare subject to a post-vesting sales restriction period of oneyear. Based on the actual achievement of the market and performance goals, the total stock-based compensation cost for the 2020MPSUs is $42.1 million.

The Company determined the grant date fair value of the 2020MPSUs using a Monte Carlo simulation model with the following assumptions: stock price of $248.71, simulation term of 4.0 years, expected volatility of 38.8%, risk-free interest rate of 0.2%, and expected dividend yield of 0.8%. In addition, the grant date fair value included an illiquidity discount of 8.9% to account for the post-vesting sales restrictions.

 

MSUs

20192022 PSUs:MSUs:

 

In February 2019,October 2022, the Compensation Committee cancelled the 2022 Executive PSUs and granted 151,000 PSUs159,000 MSUs to the executive officers as replacement awards, which represented a target number of shares that could be earned based onsubject to the Company’s averageachievement of both stock price targets and stock performance compared to the companies comprising the Philadelphia Semiconductor Sector Index (“Peer Group”) over a twothree-year performance period from October 25, 2022 to October 25, 2025 (2019 and 2020) revenue growth rate compared against the analog industry’s average two-year revenue growth rate as published by the Semiconductor Industry Association (“20192022 Executive PSUs”MSUs”). The maximum number of shares that an executive officer could earn was 300%500% of the target number of the 20192022 Executive PSUs. Based onMSUs if: (1) the actual revenue achievementCompany achieved five stock price targets ranging from $455 to $591 at any time during the performance period, and (2) the Company’s total stockholder return ranked in the 50^th percentile or above relative to the Peer Group at the end of the performance period, a totalperiod. As of 454,000 shares were awarded to the executive officers. 50%December 31, 2023, price targets one and two have been achieved. Upon achievement of the performance conditions, the 20192022 Executive PSUsMSUs will fully vest in theon firstOctober 25, 2025.  quarter of 2021. The remaining 2019 Executive PSUs will vest over the following two years on a quarterly basis. Based on the actual achievement of performance goals,Under modification accounting, the total stock-based compensation cost forwas $119.2 million, which was subsequently updated to $124.3 million due to a change of application of accounting methodology. The total stock-based compensation cost of $124.3 million included the unamortized expense of $102.8 million related to 20192022 Executive PSUs is $46.6 million.on the modification date and the incremental cost of $21.5 million related to the 2022 Executive MSUs as a result of the modification. 

 

The 2019 Executive PSUs contain a purchase price feature, which requires the employees to pay the Company $30 per share upon vesting of the shares. Shares that do not vest will not be subject to the purchase price payment. The Company determined the grant date fair value of the 20192022 Executive PSUsMSUs using the Black-Scholesa Monte Carlo simulation model with the following assumptions: stock price of $130.67, expected$342.16, simulation term of 2.6three years, expected volatility of 29.0% and54.0%, risk-free interest rate of 2.5%4.4%, and an expected dividend yield of 0.9%.

In There was October 2018, no illiquidity discount because the Compensation Committee granted 53,000 PSUs to certain non-executive employees, which represented a target number of shares that could be earned based on the Company’s 2020 revenue goals for certain regions or product line divisions, or based on the Company’s average two-year (2019 and 2020) revenue growth rate compared against the analog industry’s average two-year revenue growth rate as published by the Semiconductor Industry Association (“2019 Non-Executive PSUs”). The maximum number of shares that an employee could earn was either 200% or 300% of the target number of the 2019 Non-Executive PSUs, depending on the job classification of the employee. Based on the actual revenue achievement at the end of the performance period, a total of 100,000 shares were awarded to the employees. 50% of the 2019 Non-Executive PSUs will vest in the first quarter of 2021. The remaining 2019 Non-Executive PSUs will vest over the following two years on an annual or quarterly basis. Based on the actual achievement of performance goals, the total stock-based compensation cost for the 2019 Non-Executive PSUs is $8.1 million.

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��

The 2019 Non-Executive PSUs contain a purchase price feature, which requires the employees to pay the Company $30 per share upon vesting of the shares. Shares that doawards did not vest will not be subject to the purchase price payment. The Company determined the grant date fair value of the 2019 Non-Executive PSUs using the Black-Scholes model with the following assumptions: stock price of $108.43, expected term of 2.9 years, expected volatility of 28.7% and risk-free interest rate of 2.9%. 

2018 PSUs:contain any post-vesting sales restrictions.

 

In February 2018,2022, the Compensation Committee granted 188,000 PSUs to the executive officers, which represented a target number of shares that could be earned based on the Company’s average two-year (2018 and 2019) revenue growth rate compared against the analog industry’s average two-year revenue growth rate as published by the Semiconductor Industry Association (“2018 Executive PSUs”). The maximum number of shares that an executive officer could earn was 300% of the target number of the 2018 Executive PSUs.  Based on the actual revenue achievement at the end of the performance period, a total of 558,000 shares were awarded to the executive officers. 50% of the 2018 Executive PSUs vested in the first quarter of 2020. The remaining 2018 Executive PSUs vest over the following two years on a quarterly basis. Based on the actual achievement of the performance goals, the total stock-based compensation cost for the 2018 Executive PSUs is $45.6 million.

In February 2018, the Compensation Committee granted 44,000 PSUs to certain non-executive employees, which represented a target number of shares that could be earned based on the Company’s 2019 revenue goals for certain regions or product line divisions, or based on the Company’s average two-year (2018 and 2019) revenue growth rate compared against the analog industry’s average two-year revenue growth rate as published by the Semiconductor Industry Association (“2018 Non-Executive PSUs”). The maximum number of shares that an employee could earn was either 200% or 300% of the target number of the 2018 Non-Executive PSUs, depending on the job classification of the employee. Based on the actual achievement at the end of the performance period, a total of 75,000 shares were awarded to the employees. 50% of the 2018 Non-Executive PSUs vested in the first quarter of 2020. The remaining 2018 Non-Executive PSUs vest over the following two years on an annual or quarterly basis. Based on the actual achievement of performance goals, the total stock-based compensation cost for the 2018 Non-Executive PSUs is $6.0 million.

The 2018 Executive PSUs and the 2018 Non-Executive PSUs contain a purchase price feature, which requires the employees to pay the Company $30 per share upon vesting of the shares. Shares that do not vest will not be subject to the purchase price payment. The Company determined the grant date fair value of the 2018 Executive PSUs and the 2018 Non-Executive PSUs using the Black-Scholes model with the following assumptions: stock price of $110.00, expected term of 2.6 years, expected volatility of 27.5% and risk-free interest rate of 2.3%. 

2015 MPSUs:

In December 2015, the Compensation Committee granted 86,000 MPSUs to the executive officers and 41,000 MPSUs24,000 MSUs to certain non-executive employees, which represented a target number of shares that could be earned upon achievement of both market conditions and performance conditionsstock price targets (“20152022 MPSUs”Non-Executive MSUs”). The maximum number of shares that an employee could earn was 500% of the target number of the 20152022 MPSUs. The 2015 MPSUs consisted of four separate tranches with various performance periods all ended on December 31, 2019. The first tranche contained market conditions only, which requiredNon-Executive MSUs if the achievement ofCompany achieved five stock price targets ranging from $71.36$472 to $95.57 with$590 during a performance period from January 1, 2016February 3, 2022 to December 31, 2019.February 3, 2025.

The second, third and fourth tranches contained both market and performance conditions. The five stock price targets for the second tranche ranged from $89.56 to $106.81 with a performance period from January 1, 2017 toAs of December 31, 2019.2023, The fivethe Company has achieved all stock price targets for the third tranche ranged from $120.80 to $135.48 with a performance period from January 1, 2018 to December 31, 2019. targets. The five2022 stock price targets for the fourth tranche ranged from $126.08 to $136.79 with a performance period from January 1, 2019 to December 31, 2019.

In addition,Non-Executive MSUs will vest in equal amounts on each of the first, second and third and fourth tranches required the achievementanniversaries of oneFebruary 3, 2025. The total stock-based compensation cost for the 2022 of following six operating metrics:

	1.	Successful implementation of full digital solutions for certain power products.
	2.	Successful implementation, and adoption by a key customer, of an integrated, software-based field-oriented control with sensors to motor drivers.
	3.	Successful implementation of certain advanced power analog processes.
	4.	Successful design wins and achievement of a specific level of revenue with a global networking customer.
	5.	Achievement of a specific level of revenue with a global electronics manufacturer.
	6.	Achievement of a specific level of market share with certain core power products.

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The following table summarizes the achievement of the market and performance conditions:

Tranche		Market Conditions		Performance Conditions
One		All stock price targets were achieved as of September 30, 2017.		Not required.
Two		All stock price targets were achieved as of December 31, 2017.		Operating metric #1 was achieved as of December 31, 2018.
Three		All stock price targets were achieved as of September 30, 2018.		Operating metric #2 was achieved as of December 31, 2018.
Four		All stock price targets were achieved as of March 31, 2019.		Operating metric #3 was achieved as of September 30, 2019.

A total of 0.6 million shares were awarded to the employees. The 2015 MPSUs vested on January 1, 2020, with post-vesting sales restrictions on the vested shares for up to an additional two years.Non-Executive MSUs is $30.1 million.

 

The Company determined the grant date fair value of the 20152022 MPSUsNon-Executive MSUs using a Monte Carlo simulation model with the following weighted-average assumptions: stock price of $61.35,$393.16, simulation term of six years, expected volatility of 33.2%39.0%, risk-free interest rate of 1.3%1.7%, and an illiquidity discountexpected dividend yield of 7.8% to account for the post-vesting sales restrictions. Based on the actual achievement of all of the market and performance goals, the total stock-based compensation cost for the 2015 MPSUs, excluding cancelled shares for the terminated employees, is $24.6 million ($8.3 million for the first tranche, $4.5 million for the second tranche, $5.2 million for the third tranche, and $6.6 million for the fourth tranche)0.8%.

MSUs

 

2018 MSUs:

 

In October 2018, the Compensation Committee granted 60,000 MSUs to the executive officers and 60,000 MSUs to certain non-executive employees, which represented a target number of shares that could be earned upon achievement of stock price targets (“2018 MSUs”). The maximum number of shares that an employee could earn was 500% of the target number of the 2018 MSUs if the Company achieved five stock price targets ranging from $140 to $172 during a performance period from October 26, 2018 to December 31, 2023. As of December 31, 2019, all stock price targets havehad been achieved and the employees were awarded a total of 0.6 million600,000 shares. The 2018 MSUs will vestvested on January 1, 2024, with post-vesting sales restrictions on the vested shares for up to an additional two years. The total stock-based compensation cost for the 2018 MSUs excluding cancelled shares for the terminated employees, is $39.9$38.5 million.

 

The Company determined the grant date fair value of the 2018 MSUs using a Monte Carlo simulation model with the following assumptions: stock price of $108.43, expected volatility of 31.6%, a risk-free interest rate of 3.0%, and an illiquidity discount of 8.7% to account for the post-vesting sales restrictions. 

 

2013 MSUs:

 

In December 2013, the Compensation Committee granted 276,000 MSUs to the executive officers and 84,000 MSUs to certain non-executive employees, which represented a target number of shares that could be earned upon achievement of stock price targets (“2013 MSUs”). The maximum number of shares that an employee could earn was 500% of the target number of the 2013 MSUs if the Company achieved five price targets ranging from $40 to $56 during a performance period from January 1, 2014 to December 31, 2018. As of December 31, 2015, all stock price targets havehad been achieved and the employees were awarded a total of 1.8 million shares. The 2013 MSUs vestvested quarterly from January 1, 2019 to December 31, 2023. The total stock-based compensation cost for the 2013 MSUs excluding cancelled shares for the terminated employees, is $38.2$38.1 million.

 

The Company determined the grant date fair value of the 2013 MSUs using a Monte Carlo simulation model with the following assumptions: stock price of $31.73, expected volatility of 38.7% and a risk-free interest rate of 1.6%. There was 0no illiquidity discount because the awards dodid not contain any post-vesting sales restrictions.

 

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ESPP

In April 2023, the Board of Directors approved, subject to stockholder approval, the amendment and restatement of the Monolithic Power Systems, Inc. 2004 Employee Stock Purchase Plan (the “Amended 2004 ESPP”). The Amended 2004 ESPP, which was subsequently approved by the Company’s stockholders on June 15, 2023, became effective on August 16, 2023, after the final purchase period of the Monolithic Power Systems, Inc. 2004 Employee Stock Purchase Plan (the “2004 ESPP”). The 2004 ESPP provided for an annual increase by an amount equal to the least of one million shares, 2% of the outstanding shares of common stock on the first day of the year, or a number of shares as determined by the Board of Directors. This evergreen provision was removed in the Amended 2004 ESPP. The Amended 2004 ESPP further provides for the issuance of up to 4.4 million shares of the Company’s common stock and will expire on August 16, 2038.

 

Under the ESPP,both ESPPs, eligible employees may purchase common stock through payroll deductions. Participants may not purchase more than 2,000 shares in a six-month offering period, or purchase shares having a value greater than $25,000 in any calendar year as measured at the beginning of the offering period in accordance with the Internal Revenue CodeIRC and applicable treasury regulations. The ESPP provides for an annual increase by an amount equal to the least of one million shares, 2% of the outstanding shares of common stock on the first day of the year, or a number of shares as determined by the Board of Directors. As of December 31, 2020,2023, 4.54.4 million shares were available for future issuance. The ESPP will expire inissuance under the Amended November 2024.2004 ESPP.

 

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For the years ended December 31, 2020,2023, 20192022 and 2018,2021 28,000, 28,000, 17,000, 14,000 and 33,00017,000 shares, respectively, were issued.issued under the 2004 ESPP and the Amended 2004 ESPP. The intrinsic value of the shares issued was $2.5$1.4 million, $0.7$1.6 million and $1.1$2.4 million for the years ended December 31, 2020,2023, 20192022 and 2018,2021, respectively. TheAs of December 31, 2023, the unamortized expense was $0.2$0.4 million, as of December 31, 2020, which will be recognized through the first quarter of 2021.2024. The Black-Scholes model was used to value the employee stock purchase rights with the following weighted-average assumptions: 

 

		Year Ended December 31,												Year Ended December 31,
		2020				2019				2018				2023				2022				2021
Expected term (in years)			0.5				0.5				0.5				0.5				0.5				0.5
Expected volatility			48.9	%			37.0	%			29.5	%			53.3	%			50.6	%			43.2	%
Risk-free interest rate			0.8	%			2.2	%			2.0	%			5.3	%			1.9	%			0.1	%
Dividend yield			0.9	%			1.1	%			1.0	%			0.8	%			0.6	%			0.6	%

 

Cash proceeds from the shares issued under the 2004 ESPP and the Amended 2004ESPP were $3.8$7.6 million, $3.3$5.9 million and $3.0$4.7 million for the years ended December 31, 2020,2023, 20192022 and 2018,2021, respectively.

 

9.8. DIVIDENDS AND DIVIDEND EQUIVALENTSSTOCKHOLDER’ EQUITY

 

Cash Dividend Program

 

The Company has a dividend program approved by the Board of Directors, pursuant to which the Company intends to pay quarterly cash dividends on its common stock. Based on the Company’s historical practice, stockholders of record as of the last business day of the quarter are entitled to receive the quarterly cash dividends when and if declared by the Board of Directors, which are payable to the stockholders in the following month. The Board of Directors declared the following cash dividends (in thousands, except per-shareper share amounts): 

 

		Year Ended December 31,												Year Ended December 31,
		2020				2019				2018				2023				2022				2021
Dividend declared per share		$	2.00			$	1.60			$	1.20			$	4.00			$	3.00			$	2.40
Total amount		$	89,832			$	69,196			$	50,803			$	190,642			$	140,337			$	110,206

 

As of December 31, 2023 31,2020and 2019,2022, accrued dividends totaled $22.6$47.9 million and $17.4$35.3 million, respectively.

 

The declaration of any future cash dividends is at the discretion of the Board of Directors and will depend on, among other things, the Company’s financial condition, results of operations, capital requirements, business conditions, and other factors that the Board of Directors maydeem relevant, as well as a determination that cash dividends are in the best interests of the Company’s stockholders.

 

The Company anticipates that cash used for future dividend payments will come from its domestic cash, cash generated from ongoing U.S. operations, and cash repatriated from its Bermuda subsidiary. The Company also anticipates that earnings from other foreign subsidiaries will continue to be indefinitely reinvested.

Cash Dividend Equivalent Rights

 

The Company'sCompany’s RSUs contain rights to receive cash dividend equivalents, which entitle employees who hold RSUs to the same dividend value per share as holders of common stock. The dividend equivalents are accumulated and paid to the employees when the underlying RSUs vest. Dividend equivalents accumulated on the underlying RSUs are forfeited if the employees do notfulfill the requisite service requirement and, as a result, the awards do notvest. As of December 31, 20202023 and 20192022,accrued dividend equivalents totaled $11.7$11.9 million and $10.6$13.8 million, respectively.

 

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Stock Repurchase Program

 

In October 2023, the Board of Directors approved a new stock repurchase program authorizing the Company to repurchase up to $640.0 million in the aggregate of its common stock through October 29, 2026. Shares are retired upon repurchase. The Company repurchased approximately 7,000 shares of its common stock for an aggregate purchase price of $3.7 million during the year ended December 31, 2023. 

Stock repurchased under the program may be made through open market repurchases, privately negotiated transactions or other structures in accordance with applicable state and federal securities laws, at times and in amounts as management deems appropriate. The timing and the number of any repurchased common stock will be determined by the Company’s management based on its evaluation of market conditions, legal requirements, share price, and other factors. The repurchase program does not obligate the Company to purchase any particular number of shares and may be suspended, modified, or discontinued at any time without prior notice.

The U.S. IRA requires a 1% excise tax of the value of certain stock repurchases in excess of stock issued for employee compensation made after December 31, 2022. This provision did not have an impact on the Company’s consolidated financial statements.

 

10.9. OTHER INCOME (EXPENSE), NET

 

The components of other income (expense), net, are as follows (in thousands):

 

		Year Ended December 31,												Year Ended December 31,
		2020				2019				2018				2023				2022				2021
Interest income		$	9,327			$	7,305			$	6,321			$	23,363			$	14,369			$	11,637
Amortization of premium on available-for-sale securities			(2,979	)			(729	)			(1,353	)
Amortization of discount (premium) on available-for-sale securities, net															5,277				(4,375	)			(4,674	)
Gain (loss) on deferred compensation plan investments			4,592				3,806				(1,022	)			8,505				(6,600	)			4,563
Foreign currency exchange gain (loss)			(1,364	)			(310	)			953
Charitable contributions															(14,850	)			(5,900	)			(1,500	)
Gain on sale of equity investment															1,424				-				-
Other			884				486				95				386				658				(224	)
Total		$	10,460			$	10,558			$	4,994			$	24,105			$	(1,848	)		$	9,802

 

 

11.10.NET INCOME PER SHARE

 

The following table sets forth the computation of basic and diluted net income per share (in thousands, except per share amounts):

 

		Year Ended December 31,												Year Ended December 31,
		2020				2019				2018				2023				2022				2021
Numerator:
Net income		$	164,375			$	108,839			$	105,268			$	427,374			$	437,672			$	242,023
Denominator:
Weighted-average outstanding shares - basic			44,840				43,165				42,247				47,610				46,727				45,851
Effect of dilutive securities			2,174				2,598				2,355				1,161				1,631				2,038
Weighted-average outstanding shares - diluted			47,014				45,763				44,602				48,771				48,358				47,889
Net income per share:
Basic		$	3.67			$	2.52			$	2.49			$	8.98			$	9.37			$	5.28
Diluted		$	3.50			$	2.38			$	2.36			$	8.76			$	9.05			$	5.05

 

Anti-dilutive common stock equivalents were not material in any offor the periods presented.

 

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12.11.INCOME TAXES

 

The components of income before income taxes are as follows (in thousands):

 

		Year Ended December 31,												Year Ended December 31,
		2020				2019				2018				2023				2022				2021
United States		$	39,286			$	(4,134	)		$	(13,151	)		$	(15,066	)		$	(30,190	)		$	(15,542	)
Foreign			130,056				117,254				131,633				520,907				555,127				287,761
Income before income taxes		$	169,342			$	113,120			$	118,482			$	505,841			$	524,937			$	272,219

 

The components of the income tax expense are as follows (in thousands):

 

		Year Ended December 31,												Year Ended December 31,
		2020				2019				2018				2023				2022				2021
Current:
Federal		$	2,842			$	1,682			$	11,023			$	61,064			$	95,176			$	24,955
State			(1	)			8				4				4,257				12				35
Foreign			3,814				3,105				2,992				5,702				5,019				3,801
Deferred:
Federal			(1,221	)			(213	)			(797	)			(1,705	)			(8,523	)			4,929
State															(744	)			-				-
Foreign			(467	)			(301	)			(8	)			9,893				(4,419	)			(3,524	)
Income tax expense		$	4,967			$	4,281			$	13,214			$	78,467			$	87,265			$	30,196

 

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The effective tax rate differs from the applicable U.S. statutory federal income tax rate as follows:

 

		Year Ended December 31,												Year Ended December 31,
		2020				2019				2018				2023				2022				2021
U.S. statutory federal tax rate			21.0	%			21.0	%			21.0	%			21.0	%			21.0	%			21.0	%
Foreign income at lower rates			(15.2	)			(20.7	)			(22.0	)			(21.9	)			(22.8	)			(23.2	)
Impact of the 2017 Tax Act:
One-time deemed repatriation transition tax			0				0				0.6
GILTI			11.1				11.0				14.4				13.5				16.0				11.4
Changes in valuation allowance			1.6				2.1				0				2.9				0.2				0.5
Stock-based compensation			(11.2	)			(1.5	)			(1.1	)			2.2				2.8				1.6
Return to provision true-up adjustment															(2.0	)			-				(1.1	)
Tax credits, net of reserves			(3.8	)			(6.2	)			(1.9	)			(1.1	)			(1.2	)			(0.5	)
State income taxes			(1.6	)			(0.7	)			0				-				(0.2	)			1.6
Other adjustments			1.0				(1.2	)			0.2				0.9				0.8				(0.2	)
Effective tax rate			2.9	%			3.8	%			11.2	%			15.5	%			16.6	%			11.1	%

The prior years’ return to provision true-up adjustment has been disaggregated to conform with the current-year presentation.

 

The components of net deferred tax assets consist of the following (in thousands):

 

		December 31,								December 31,
		2020				2019				2023				2022
Deferred tax assets:
Tax credits		$	23,501			$	18,080			$	37,518			$	32,037
Stock-based compensation			2,392				6,237				3,404				2,900
Deferred compensation			7,895				7,110				11,126				9,844
Net operating losses			1,150				615				12,115				9,000
Other expenses not currently deductible			4,617				2,323				7,755				8,891
Deferred tax assets, gross			39,555				34,365				71,918				62,672
Valuation allowance			(18,190	)			(15,411	)			(35,008	)			(20,321	)
Deferred tax assets, net of valuation allowance			21,365				18,954				36,910				42,351
Deferred tax liabilities:
Depreciation and amortization			(1,600	)			(1,259	)			(6,420	)			(5,927	)
Undistributed foreign earnings			(77	)			(77	)			(817	)			(358	)
Other expenses currently deductible			(1,132	)			(425	)			(1,619	)			(814	)
Deferred tax liabilities			(2,809	)			(1,761	)			(8,856	)			(7,099	)
Net deferred tax assets		$	18,556			$	17,193			$	28,054			$	35,252

 

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GILTI:

 

The Company accounts for GILTI as a period cost. 

 

Valuation Allowance:

 

The Company periodically evaluates its deferred tax assets, including a determination of whether a valuation allowance is necessary, based upon its ability to utilize the assets using a more likely than not analysis. The realizability of the Company’s net deferred tax assets is dependent on its ability to generate sufficient future taxable income during periods prior to the expiration of tax attributes to fully utilize these assets. As of December 31, 20202023 and 2019,2022, the Company has evaluated the realization of its deferred tax assets and recorded a valuation allowance for assets that do not meet the more-likely-than-not recognition threshold.

 

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A reconciliation of Contents

the beginning and ending balance of valuation allowances is as follows (in thousands):

Period		Balance at Beginning of Period				Additions				Reductions				Balance at End of Period
Year ended December 31, 2021		$	18,190			$	1,560			$	(230	)		$	19,520
Year ended December 31, 2022		$	19,520			$	1,743			$	(942	)		$	20,321
Year ended December 31, 2023		$	20,321			$	15,405			$	(718	)		$	35,008

The additions in 2023 were primarily the result of a change in foreign tax law in 2023 that negatively impacted the realizability of foreign deferred tax assets.

Undistributed Earnings of Subsidiaries:

 

The Company has analyzed its global working capital and cash requirements, and has determined that it plans to repatriate cash from its Bermuda subsidiary on an ongoing basis to fund its future U.S.-based expenditures and dividends. For the years ended December 31, 20202023 and 2019,2021, the Company repatriated $30$140.0 million and $75$70.0 million from its Bermuda subsidiary, respectively. No cash was repatriated from the subsidiary during the year ended December 31, 2022.

 

For all other foreign subsidiaries, the Company expects to indefinitely reinvest undistributed earnings to fund their operations and research and development.R&D. As of December 31, 20202023 and 2019,2022, the undistributed earnings were approximately $27.7$85.0 million and $32.9$67.4 million, respectively. An actual repatriation of the undistributed earnings could be subject to additional foreign withholding taxes and U.S. state taxes. The Company expects to be able to take a 100% dividend received deduction to offset any U.S. federal income tax liability on the undistributed earnings. Determination of the unrecognized state and withholding deferred tax liability is not practicable at this time due to the complexities associated with the hypothetical calculation.

 

Other Income Tax Provision Matters

 

As of December 31, 2020, 2023, the Company did not have federal net operating loss carryforwards. As of December 31, 2020, 2023, the state net operating loss carryforwards for income tax purposes were $20.2$3.6 million, which will expire beginning in 2024.2029. As of December 31, 2023, the Company has foreign net operating loss carryforwards for income tax purposes of $92.7 million, which will expire beginning in 2029.

 

As of December 31, 2020, 2023, the Company had $7.1 millionno R&D tax credit carryforwards for federal income tax purposes, which will begin to expire in 2040,and $30.5$40.6 million for state income tax purposes, which can be carried forward indefinitely.

 

In the event of a change in ownership, as defined under federal and state tax laws, the Company'sCompany’s net operating loss and tax credit carryforwards could be subject to annual limitations. The annual limitations could result in the expiration of the net operating loss and tax credit carryforwards prior to utilization.

  

AtAs of December 31, 2020, 2023, the Company had $33.5$62.7 million of unrecognized tax benefits, $24.3$48.9 million of which would affect its effective tax rate if recognized after considering the valuation allowance. AtAs of December 31, 2019, 2022, the Company had $25.4$49.3 million of unrecognized tax benefits, $17.3$38.3 million of which would affect its effective tax rate if recognized after considering the valuation allowance. 

 

A reconciliation of the gross unrecognized tax benefits is as follows (in thousands): 

 

Balance as of January 1, 2018		$	16,272
Increase for tax position of prior year			1,474
Increase for tax position of current year			2,957
Decrease due to lapse of statute of limitation			(212	)
Balance as of December 31, 2018			20,491
Increase for tax position of prior year			1,589
Increase for tax position of current year			4,663
Decrease due to settlement with tax authorities			(560	)
Decrease due to lapse of statute of limitation			(776	)
Balance as of December 31, 2019			25,407
Balance as of January 1, 2021						$	33,499
Increase for tax position of current year			9,782				9,191
Decrease for tax position of prior year			(907	)			(657	)
Decrease due to settlement with tax authorities			(560	)			(54	)
Decrease due to lapse of statute of limitation			(223	)			(458	)
Balance as of December 31, 2020		$	33,499
Balance as of December 31, 2021							41,521
Increase for tax position of current year							10,965
Increase for tax position of prior year							247
Decrease due to settlement with tax authorities							(970	)
Decrease due to lapse of statute of limitation							(2,486	)
Balance as of December 31, 2022							49,277
Increase for tax position of current year							14,108
Increase for tax position of prior year							2,209
Decrease due to lapse of statute of limitation							(1,926	)
Decrease for tax positions of prior year							(1,008	)
Balance as of December 31, 2023						$	62,660

 

The Company recognizes interest and penalties, if any, related to uncertain tax positions in its income tax provision. As of December 31, 20202023 and 2019,2022, the Company has $2.4$5.7 million and $1.6$4.3 million, respectively, of accrued interest related to uncertain tax positions, which were recorded in long-term income tax liabilities on the Consolidated Balance Sheets.

  

Uncertain tax positions relate to the allocation of income and deductions among the Company’s global entities and to the determination of the research and developmentR&D tax credit. Various events, someIt is reasonably possible that the balance of which cannot be predicted, such as clarification ofgross unrecognized tax law by administrative or judicial means, may occur and would require the Company to increase or decrease its reserves and effective income tax rate overbenefits could significantly change in the next twelve12 months. However, it is not possible to determine either the magnitude or the range of increases or decreases at this time.

  

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The Company currently has reduced tax rates in its subsidiaries in Chengdu and Hangzhou, China through 20302026 and 2023,2024, respectively, for performing research and developmentR&D activities.

 

InOn July 2015December 27, 2023, , the U.S. Tax Court issued an opinion in Altera Corp. v. Commissioner, invalidating the Treasury regulationsBermuda CIT Act was enacted and signed into law. It includes a 15% CIT applicable to Bermuda businesses that require participants in qualified intercompany cost-sharing arrangements to share stock-based compensation costs. A final decision was issued by the Tax Courtare MNE with annual revenue of €750M or more beginning in December 20152025.,  The Bermuda CIT Act also includes an ETA that requires MNE’s to revalue their assets and the IRS appealed the decision inliabilities, excluding goodwill, at their fair value as of June 2016September 30, 2023. . In June 2019, the Ninth Circuit Court of Appeals upheld the cost-sharing regulations. In July 2019, Altera filed a petition for rehearing en banc in the Ninth Circuit Court of Appeals. In November 2019, the Ninth Circuit Court of Appeals declinedThere is an election to rehear the case. In February 2020, Altera filed a petition with the U.S. Supreme Court to review the case. In June 2020,the Supreme Court denied Altera's petition for writ of certiorari, declining to review the decisionopt out of the Ninth Circuit Court of Appeals.ETA. As the Bermuda CIT Act is not effective until January 1, 2025, the Company is evaluating whether or not to adopt this ETA. Based on the Supreme Court’s denial to hear the Altera case, until and unless there is further litigation on this matter in the future,information available, the Company considershas not recorded any changes to income tax expense related to the matter resolvedBermuda CIT Act as of December 31, 2023.

On August 9, 2022, the U.S. government enacted the CHIPS Act to provide certain financial and theretax incentives to the semiconductor industry, primarily for manufacturing activities within the United States. On August 16, 2022, the IRA was enacted and signed into law. The IRA, among other things, introduces a new 15% corporate minimum tax, based on adjusted financial statement income of certain large corporations, and imposes a 1% excise tax on certain stock repurchases. This excise tax is effective January 1, 2023. The CHIPS Act and the IRA had no material impact on the Company’s current treatmentincome tax provisions, results of stock-based compensation costs.  operations or financial condition of the Company for the year ended December 31, 2023 and 2022.

Income Tax Examination

 

The Company is subject to examination of its income tax returns by the IRS and other tax authorities. In general, the tax years for 2007 and forward are open for examination for U.S. federal and state income tax purposes.

 

13.12.COMMITMENTS AND CONTINGENCIES

 

Warranty and Indemnification Provisions

 

The changes in warranty reserves are as follows (in thousands):

 

		Year Ended December 31,
		2020				2019				2018
Balance at beginning of period		$	1,139			$	4,564			$	2,416
Warranty provision for product sales			7,584				891				6,586
Settlements made			(843	)			(2,768	)			(1,402	)
Unused warranty provision			(985	)			(1,548	)			(3,036	)
Balance at end of period		$	6,895			$	1,139			$	4,564

		Year Ended December 31,
		2023				2022				2021
Balance at beginning of period		$	24,082			$	20,989			$	6,895
Warranties issued			2,929				3,092				10,558
Repairs, replacement and refund			(2,708	)			(2,357	)			(1,770	)
Changes in liability for pre-existing warranties			(7,397	)			2,358				5,306
Balance at end of period		$	16,906			$	24,082			$	20,989

Changes in liability for pre-existing warranties result from changes in estimates for warranties issued in prior periods.

 

The Company provides indemnification agreements to certain direct or indirect customers. The Company agrees to reimburse these parties for any damages, costs and expenses incurred by them as a result of legal actions taken against them by third parties for infringing upon their intellectual property rights as a result of using the Company’s products and technologies. These indemnification provisions are varied in their scope and are subject to certain terms, conditions, limitations and exclusions. In addition, the Company has entered into indemnification agreements with its directors and officers.

 

It is not possible to predict the maximum potential amount of future payments under these agreements due to the limited history of indemnification claims and the unique facts and circumstances involved in each particular agreement. There were no indemnification liabilities incurred in any offor the periods presented. However, there can be no assurances that the Company will not incur any financial liabilities in the future as a result of these obligations.

 

Purchase Commitments

 

The Company has outstanding purchase commitmentsobligations with its suppliers and other parties that require the future purchases of goods or services, whichservices. The purchase obligations primarily consist of wafer and other inventory purchases, assembly and other manufacturing services, construction orof manufacturing and R&D facilities, purchases of propertyproduction and other equipment, and license arrangements.

In May 2022, the Company entered into a long-term supply agreement in order to secure manufacturing production capacity for silicon wafers over a four-year period. As of December 31, 20202023, the Company’s outstanding purchase obligations totaled approximately $211.5 million.Company had remaining prepayments under this agreement of $120.0 million reported in other long-term assets on the Consolidated Balance Sheet.

 

Total estimated future unconditional purchase commitments to all suppliers and other parties, net of the $120.0 million prepayment, as of December 31, 2023 were as follows (in thousands):

2024		$	367,842
2025			298,958
2026			1,668
2027			31,266
Total		$	699,734

Litigation

 

The Company is a party to actions and proceedings in the ordinary course of business, including potential litigation initiated by its stockholders, challenges to the enforceability or validity of its intellectual property, claims that the Company’s products infringe on the intellectual property rights of others, and employment matters. The Company may also be subject to litigation initiated by its stockholders. These proceedings often involve complex questions of fact and law and mayrequire the expenditure of significant funds and the diversion of other resources to prosecute and defend. The Company defends itself vigorously against any such claims. As of December 31, 20202023,there were no material pending legal proceedings to which the Company was a party.

 

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14.13.EMPLOYEE 401(k) PLAN

 

The Company sponsors a 401(k) retirement savings plan for all employees in the U.S. who meet certain eligibility requirements. Participants may contribute up to the amount allowable as a deduction for federal income tax purposes. The Company is not required to contribute and did not contribute to the plan for the years ended December 31, 2020,2023, 20192022 and 2018.2021. 

 

 

15.14.SIGNIFICANT CUSTOMERS

 

The Company sells its products primarily through third-party distributors and value-added resellers, and directly to OEMs, ODMs and EMS providers. The following table summarizes those customers with sales equal to 10% or more of the Company'sCompany’s total revenue: 

 

		Year Ended December 31,
Customer		2020				2019				2018
Distributor A			24	%			23	%			22	%
Distributor B			11	%			*				10	%

		Year Ended December 31,
Customer		2023				2022				2021
Distributor A			26	%			24	%			26	%
Distributor B			19	%			19	%			15	%
Distributor C			10	%			*				10	%

---

* Represents less than 10%.

 

The Company’s agreements with these third-party customers were made in the ordinary course of business and maybe terminated with or without cause by these customers with advance notice. Although the Company mayexperience a short-term disruption in the distribution of its products and a short-term decline in revenue if its agreement with eitherany of the distributors waswere terminated, the Company believes that such termination would not have a material adverse effect on its financial statements because it would be able to engage alternative distributors, resellers and other distribution channels to deliver its products to end customers within a short period following theany termination of the agreement with the customer.a distributor.

 

The following table summarizes those customers with accounts receivable equal to 10% or more of the Company’s total accounts receivable:  

 

		December 31,
		2020				2019
Distributor A			24	%			24	%
Distributor B			21	%			11	%
Value-added reseller A			13	%			13	%
Direct customer A			10	%			*

		December 31,
Customer			2023				2022
Distributor A			42	%			29	%
Distributor B			13	%			23	%
Distributor C			10	%			*

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* Represents less than 10%.

 

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16.15.SEGMENT AND GEOGRAPHIC INFORMATION

 

The Company operates in 1one reportable segment that includes the design, development, marketing and sale of high-performance, analogsemiconductor-based power electronic solutions for the storage and computing, and storage,enterprise data, automotive, industrial, communications and consumer markets. The Company’s chief operating decision maker is its Chief Executive Officer, who reviews financial information presented on a consolidated basis for the purposes of allocating resources and evaluating financial performance. The Company derives a majority of its revenue from sales to customers located outside North America, with geographic revenue based on the customers’ ship-to locations.  

 

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The following is a summary of revenue by geographic regionsregion (in thousands):

 

		Year Ended December 31,												Year Ended December 31,
Country or Region		2020				2019				2018				2023				2022				2021
China		$	516,519			$	382,740			$	334,726			$	934,768			$	938,946			$	700,985
Taiwan			109,256				73,801				75,307				307,499				233,040				169,130
South Korea															169,867				189,478				93,027
Europe			56,329				49,467				49,484				132,620				145,584				85,201
South Korea			64,093				43,900				41,238
United States															97,294				99,804				35,770
Japan															93,340				91,048				68,720
Southeast Asia			42,403				32,031				36,495				85,150				95,739				54,611
Japan			35,461				27,812				26,853
United States			20,098				17,836				17,621
Other			293				334				658				534				509				354
Total		$	844,452			$	627,921			$	582,382			$	1,821,072			$	1,794,148			$	1,207,798

 

The following is a summary of revenue by major product familiesfamily (in thousands):

 

		Year Ended December 31,												Year Ended December 31,
Product Family		2020				2019				2018				2023				2022				2021
DC to DC		$	800,478			$	589,651			$	537,512			$	1,718,623			$	1,696,594			$	1,147,329
Lighting Control			43,974				38,270				44,870				102,449				97,554				60,469
Total		$	844,452			$	627,921			$	582,382			$	1,821,072			$	1,794,148			$	1,207,798

 

The following is a summary of long-lived assets by geographic regionsregion (in thousands): 

 

		December 31,												December 31,
Country		2020				2019				2018				2023				2022				2021
China		$	151,752			$	113,888			$	93,096			$	184,685			$	200,508			$	211,973
United States			101,768				94,671				39,054				119,430				113,996				113,805
Taiwan			18,797				17,652				16,972				39,419				20,074				19,607
Other			9,211				2,104				879				25,418				22,579				17,577
Total		$	281,528			$	228,315			$	150,001			$	368,952			$	357,157			$	362,962

 

 

17.16. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)(LOSS)

 

The following table summarizes the changes in accumulated other comprehensive income (loss) (in thousands):

 

		Unrealized Gains (Losses) on Available-for-Sale Securities				Foreign Currency Translation Adjustments				Total
Balance as of January 1, 2019		$	(1,638	)		$	(3,905	)		$	(5,543	)
Other comprehensive income (loss) before reclassifications			1,977				(1,706	)			271
Amounts reclassified from accumulated other comprehensive loss			(1	)			0				(1	)
Tax effect			(203	)			0				(203	)
Net current period other comprehensive income (loss)			1,773				(1,706	)			67
Balance as of December 31, 2019			135				(5,611	)			(5,476	)
Other comprehensive income before reclassifications			2,878				14,150				17,028
Amounts reclassified from accumulated other comprehensive income (loss)			(1,087	)			0				(1,087	)
Tax effect			(325	)			0				(325	)
Net current period other comprehensive income			1,466				14,150				15,616
Balance as of December 31, 2020		$	1,601			$	8,539			$	10,140

		Unrealized Losses on Available-for-Sale Securities				Foreign Currency Translation Adjustments				Total
Balance as of January 1, 2022		$	(1,063	)		$	16,943			$	15,880
Other comprehensive loss before reclassifications			(6,944	)			(32,293	)			(39,237	)
Amounts reclassified from accumulated other comprehensive loss			96				-				96
Tax effect			184				-				184
Net current period other comprehensive loss			(6,664	)			(32,293	)			(38,957	)
Balance as of December 31, 2022			(7,727	)			(15,350	)			(23,077	)
Other comprehensive income (loss) before reclassifications			6,896				(9,528	)			(2,632	)
Amounts reclassified from accumulated other comprehensive income			(1	)			-				(1	)
Tax effect			(1,352	)			-				(1,352	)
Net current period other comprehensive income (loss)			5,543				(9,528	)			(3,985	)
Balance as of December 31, 2023		$	(2,184	)		$	(24,878	)		$	(27,062	)

 

The amounts reclassified from accumulated other comprehensive income (loss) were recorded in other income (expense), net, on the Consolidated Statements of Operations.  

 

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18.17. SUBSEQUENT EVENTEVENTS

 

Cash Dividend IncreaseAcquisition 

 

In February 2021,January 2024, the Company’sCompany completed the acquisition of Axign in a cash transaction in exchange for all outstanding Axign shares. Axign is a Dutch company that designs and develops class-D audio ICs, targeting applications ranging from portable consumer speakers to automotive and professional-grade multi-speaker systems. The preliminary total purchase consideration was approximately $33.8 million. The initial accounting for the acquisition, including the valuation of assets acquired and liabilities assumed, is still ongoing as of the date this Annual Report on Form 10-K is issued.

Cash Dividend Increase

In February 2024, the Board of Directors approved an increase in quarterly cash dividends from $0.50$1.00 per share to $0.60$1.25 per share.

 

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ITEM

Item 9.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

 

None.

 

ITEM

Item 9A. CONTROLS AND PROCEDURES

Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

 

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15(e) and Rule 15d-15(e) under the Securities Exchange Act of 1934 as of the end of the period covered by this Annual Report on Form 10-K. 

 

Based on this evaluation, and due to the finding of the material weakness described below, our Chief Executive Officer and Chief Financial Officer concluded that, as of December 31, 2020,2023, our disclosure controls and procedures are designed at a reasonable assurance level and arewere not effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms,forms.

Notwithstanding the material weakness in internal control over financial reporting described below, management believes and has concluded that such information is accumulatedthe consolidated financial statements included in this Annual Report on Form 10-K fairly present, in all material respects, our financial position, results of operations and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.cash flows for the periods presented in conformity with GAAP.

Management’sManagement’s Report on Internal Control over Financial Reporting

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Our management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control—Integrated Framework (2013) (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management concluded that our

During the year-end financial reporting process of fiscal 2023, a material weakness was identified in internal control over financial reporting was effective aswithin the Company’s demand forecast process regarding excess and obsolete inventory. The material weakness resulted from ineffective design of December 31, 2020. Management reviewed the resultscontrols related to management’s review and documentation of its assessment with our Audit Committee.the Company’s inventory demand information and other assumptions used to determine the inventory carrying value adjustments necessary to record such quantities at the lower of their cost or net realizable value.

 

Our independent registered public accounting firm, A material weakness is a deficiency, or a combination of deficiencies in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim consolidated financial statements will not be prevented or detected on a timely basis. We do not believe that this material weakness resulted in any material errors. 

Ernst & Young LLP independently assessed the effectiveness of our internal control over financial reporting, as stated in the firm’s attestation report, which appears in Part II, Item 8 of this Annual Report on Form 10-K.

 

Remediation

Management has been implementing and continues to implement measures designed to ensure that control deficiencies contributing to the material weakness are remediated, such that these controls are designed, implemented, and operating effectively. These remediation actions are ongoing and include or are expected to include:

•

Increased frequency of inventory reserve calculations and reconcile data between the inventory demand forecast system and our financial system at the same frequency;

•

Amend inventory provision spreadsheet formats to include additional columns and color coding to delineate specific parts and products before and after review, setting dollar thresholds for reserve requirements, and adding a tab for management review comments; and

•

Document discussions and proposed actions and follow-up at inventory demand forecast meetings.

As we continue to evaluate and work to improve our internal control over financial reporting, we may decide to take additional measures to address this identified deficiency or modify the remediation plans described above. We believe that these actions will remediate the material weakness, however, the weakness will not be considered remediated until the applicable controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively. Management believes the foregoing plans will effectively remediate the deficiency constituting the material weakness and believes that the remediation of this material weakness (including necessary testing) will be completed during 2024. However, there is no assurance as to when such remediation will be completed. As the remediation plans are implemented, management may take additional measures or modify the remediation plan elements described above.

Changes in Internal Control over Financial Reporting

 

There were no changes in our internal control over financial reporting that occurred during the quarter ended December 31, 2020,2023, that would have materially affected, or arewere reasonably likely to materially affect, our internal control over financial reporting.

As a result of However, the COVID-19 pandemic, we have implemented work-from-home arrangements in accordance with local shelter-in-place orders and other governmental restrictions inCompany has initiated enhancements to its internal control over financial reporting to remediate the United States and certain international locationsmaterial weakness described above identified during the year ended December 31, 2020. We have reviewed ouryear-end financial reporting process and business continuity plans in order to mitigate the impact to our control environment, operating procedures, and data. We believe that our internal controls over financial reporting continue to be effective. of fiscal 2023.

 

Limitations on Effectiveness of Controls and Procedures

 

In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints, and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.

Item 9B.

Other Information

10b5-1 Trading Plans

 

Certain of our executive officers have entered into trading plans pursuant to Rule 10b5-1(c) of the Securities Exchange Act of 1934, as amended. A trading plan is a written document that pre-establishes the amounts, prices and dates (or formula for determining the amounts, prices and dates) of future purchases or sales of our common stock, including the sale of shares acquired pursuant to the 2004 ESPP and the Amended 2004 ESPP, and upon vesting of RSUs.ITEM 9B.   OTHER INFORMATIONDuring the three months ended December 31, 2023, no director or officer of the Company adopted, modified or terminated trading plans intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) as defined in Item 408(a) of Regulation S-K. During the three months ended December 31, 2023, no pre-existing trading plans intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) were modified or terminated, and no other written trading arrangements that are not intended to qualify for the Rule 10b5-1(c) affirmative defense were adopted, modified, or terminated.

 

Item 9C.

Disclosure Regarding Foreign Jurisdictions that Prevent Inspections

None.

Not applicable.

 

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PART III

 

ITEM

Item 10.    DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Directors, Executive Officers and Corporate Governance

 

Reference is made to the information regarding directors and nominees, code of ethics, corporate governance matters and disclosure relating to compliance with Section 16(a) of the Securities Exchange Act of 1934 appearing under the captions “Election of Directors” and “Delinquent Section 16(a) Reports” in the Company’s Proxy Statement for its 20212024 Annual Meeting of Stockholders (the “2021“2024 Annual Meeting”), which information is incorporated in this Annual Report on Form 10-K by reference. Information regarding executive officers is set forth under the caption “Information about Executive Officers” in Part I of this Annual Report on Form 10-K.

 

ITEM

Item 11.    EXECUTIVE COMPENSATION

Executive Compensation

 

The information required by this item will be set forth under the caption “Executive Officer Compensation” in the Company’s Proxy Statement for the 20212024 Annual Meeting, and is incorporated herein by reference.

 

ITEM

Item 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

 

The information required by this item will be set forth under the captions “Security Ownership of Certain Beneficial Owners and Management” and “Equity Compensation Plan Information” in the Company’s Proxy Statement for the 20212024 Annual Meeting, and is incorporated herein by reference.

 

ITEM

Item 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

Certain Relationships and Related Transactions, and Director Independence

 

The information required by this item will be set forth under the captions “Certain Relationships and Related Transactions” and “Election of Directors” in the Company’s Proxy Statement for the 20212024 Annual Meeting, and is incorporated herein by reference.

 

ITEM

Item 14.PRINCIPAL ACCOUNTANT FEES AND SERVICES

Principal AccountantFees and Services

 

The information required by this item will be set forth under the caption “Audit and Other Fees” in the Company’s Proxy Statement for the 20212024 Annual Meeting, and is incorporated herein by reference.

 

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PART IV

 

ITEM

Item 15.EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

Exhibits and Financial Statement Schedules

 

(a) Documents filed as part of this report

 

(1) All financial statements

	Page
Reports of Independent Registered Public Accounting Firm (Ernst & Young LLP)(PCAOB ID: 42)	42
Report of Independent Registered Public Accounting Firm (Deloitte & Touche LLP)	44
Consolidated Balance Sheets	4544
Consolidated Statements of Operations	4645
Consolidated Statements of Comprehensive Income	4746
Consolidated Statements of Stockholders’ Equity	4847
Consolidated Statements of Cash Flows	4948
Notes to Consolidated Financial Statements	5049

 

(2) Financial Statement Schedules

 

All schedules have been omitted because thethey are not required, information is not presentapplicable, or not present in amounts sufficient to require submission of the schedules, or because the information required is otherwise included in the consolidated financial statements or notes thereto.

 

(3) Exhibits

 

Exhibit Number		Description
3.1 (1)		Amended and Restated Certificate of Incorporation.
3.2 (2)		Amended and Restated Bylaws.Bylaws of Monolithic Power Systems, Inc., effective April 26, 2022.
4.1 (3)		Description of the Registrant'sRegistrant’s Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934.
10.1+ (4)		Registrant’s 2004 Employee Stock Purchase Plan and form of subscription agreement.
10.2+ (5)		Form of Directors’ and Officers’ Indemnification Agreement.
10.3+ (6)		Employment Agreement with Michael Hsing, and Amendment thereof..
10.4+ (7)		Employment Agreement with Maurice Sciammas, and Amendment thereof..
10.5+ (8)		Employment Agreement with Jim Moyer.
10.6+(9)		Employment Agreement with Deming Xiao, and Amendment thereof..
10.7+(10)		Letter Agreement with Victor Lee.
10.8+(11)		Letter Agreement with Jeff Zhou.
10.9+(12)		Monolithic Power Systems, Inc. Master Cash Performance Bonus Plan.
10.10+(13)		Letter Agreement with Eugen Elmiger.
10.11+(14)		Monolithic Power Systems, Inc. 2004 Equity Incentive Plan, as Amended, and Form of Grant Agreement.
10.12+(15)		Monolithic Power Systems, Inc. 2014 Equity Incentive Plan, as Amended, and Form of Grant Agreement.

 

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10.13+(16)		Employment Agreement with Bernie Blegen.
10.14+(17)		Employment Agreement with Saria Tseng and Amendment thereof.
10.15+(18)		Monolithic Power Systems, Inc. Amended and Restated 2014 Equity Incentive PlanPlan..
10.16+(19)		FormsForm of Grant AgreementsAgreement for grants of Performance Stock Units under the Monolithic Power Systems, Inc. Amended and Restated 2014 Equity Incentive Plan.
10.17+(20)		Letter Agreement with Carintia Martinez.
10.18+(21)		Indemnification Agreement with Carintia Martinez.
10.19+(22)		Letter Agreement with Eileen Wynne.
10.20+(23)		Indemnification Agreement with Eileen Wynne.
10.21+(24)		Monolithic Power Systems, Inc. 2004 Employee Stock Purchase Plan, Amended and Restated as of August 16, 2023.
21.1		Subsidiaries of Monolithic Power Systems, Inc.
23.1		Consent of Independent Registered Public Accounting Firm (Ernst & Young LLP).Firm.
23.2		Consent of Independent Registered Public Accounting Firm (Deloitte & Touche LLP).
24.1		Power of Attorney (included on Signature page to this Form 10-K).
31.1		Certification of Chief Executive Officer pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2		Certification of Chief Financial Officer pursuant to Securities Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*		Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
97.1		Monolithic Power Systems, Inc. Compensation Clawback Policy
101.INS		Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
101.SCH		Inline XBRL Taxonomy Extension Schema Document
101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document
104		Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

 

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+	Management contract or compensatory plan or arrangement.
*	This exhibit shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liabilities of that Section, nor shall it be deemed incorporated by reference in any filings under the Securities Act of 1933 or the Securities Exchange Act of 1934, whether made before or after the date hereof and irrespective of any general incorporation language in any filings.
(1)	Incorporated by reference to Exhibit 3.2 of the Registrant’s Registration Statement on Form S-1/A (Registration No. 333-117327), filed with the Securities and Exchange Commission on November 15, 2004.
(2)	Incorporated by reference to Exhibit 3.43.1 of the Registrant’s Registration Statementcurrent report on Form S-1/A (Registration8-K (File No. 333-117327)000-51026), filed with the Securities and Exchange Commission on November 15, 2004.April 27, 2022.
(3)	Incorporated by reference to Exhibit 4.1 of the Registrant’s annual report on Form 10-K (File No. 000-51026), filed with the Securities and Exchange Commission on February 28, 2020.
(4)	Incorporated by reference to Exhibit 10.3 of the Registrant’s Registration Statement on Form S-1/A (Registration No. 333-117327), filed with the Securities and Exchange Commission on November 15, 2004.

 

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(5)	Incorporated by reference to Exhibit 10.4 of the Registrant’s Registration Statement on Form S-1/A (Registration No. 333-117327), filed with the Securities and Exchange Commission on November 15, 2004.
(6)	Incorporated by reference to Exhibit 10.7 of the Registrant’s annual report on Form 10-K (File No. 000-51026), filed with the Securities and Exchange Commission on March 11, 2008 and Exhibit 10.1 of the Registrant’s current report on Form 8-K (File No. 000-51026), filed with the Securities and Exchange Commission on December 19, 2008.
(7)	Incorporated by reference to Exhibit 10.8 of the Registrant’s annual report on Form 10-K (File No. 000-51026), filed with the Securities and Exchange Commission on March 11, 2008 and Exhibit 10.3 of the Registrant’s current report on Form 8-K (File No. 000-51026), filed with the Securities and Exchange Commission on December 19, 2008.
(8)	Incorporated by reference to Exhibit 10.9 of the Registrant’s Registration Statement on Form S-1 (Registration No. 333-117327), filed with the Securities and Exchange Commission on July 13, 2004.
(9)	Incorporated by reference to Exhibit 10.10 of the Registrant’s annual report on Form 10-K (File No. 000-51026), filed with the Securities and Exchange Commission on March 11, 2008 and Exhibit 10.4 of the Registrant’s current report on Form 8-K (File No. 000-51026), filed with the Securities and Exchange Commission on December 19, 2008.
(10)	Incorporated by reference to Exhibit 10.1 of the Registrant’s current report on Form 8-K (File No. 000-51026), filed with the Securities and Exchange Commission on September 14, 2006.
(11)	Incorporated by reference to Exhibit 10.1 of the Registrant’s current report on Form 8-K (File No. 000-51026), filed with the Securities and Exchange Commission on February 3, 2010.
(12)	Incorporated by reference to Annexure C of the Registrant’s Proxy Statement on Schedule 14A (File No. 000-51026), filed with the Securities and Exchange Commission on April 30, 2013.
(13)	Incorporated by reference to Exhibit 10.36 of the Registrant’s annual report on Form 10-K (File No. 000-51026), filed with the Securities and Exchange Commission on March 10, 2014.
(14)	Incorporated by reference to Exhibit 4.4 of the Registrant’s Registration Statement on Form S-8 (Registration No. 333-199782), filed with the Securities and Exchange Commission on November 3, 2014.
(15)	Incorporated by reference to Exhibit 4.6 of the Registrant’s Registration Statement on Form S-8 (Registration No. 333-199782), filed with the Securities and Exchange Commission on November 3, 2014.
(16)	Incorporated by reference to Exhibit 10.1 of the Registrant’s current report on Form 8-K (File No. 000-51026), filed with the Securities and Exchange Commission on July 22, 2016.
(17)	Incorporated by reference to Exhibit 10.14 of the Registrant’s annual report on Form 10-K (File No. 000-51026), filed with the Securities and Exchange Commission on February 28, 2020.
(18)	Incorporated by reference to Annexure B of the Registrant’s Proxy Statement on Schedule 14A (File No. 000-51026), filed with the Securities and Exchange Commission on April 29, 2020.
(19)	Incorporated by reference to Exhibit 10.3 of the Registrant’s quarterly report on Form 10-Q (File No. 000-51026), filed with the Securities and Exchange Commission on May 5, 2023.
(20)	Incorporated by reference to Exhibit 10.1 of the Registrant’s current report on Form 8-K (File No. 000-51026), filed with the Securities and Exchange Commission on May 28, 2021.
(21)	Incorporated by reference to Exhibit 10.2 of the Registrant’s current report on Form 8-K (File No. 000-51026), filed with the Securities and Exchange Commission on May 28, 2021.
(22)	Incorporated by reference to Exhibit 10.1 of the Registrant’s current report on Form 8-K (File No. 000-51026), filed with the Securities and Exchange Commission on February 8, 2023.
(23)	Incorporated by reference to Exhibit 10.2 of the Registrant’s current report on Form 8-K (File No. 000-51026), filed with the Securities and Exchange Commission on February 8, 2023.
(24)	Incorporated by reference to Exhibit 10.1 of the Registrant’s quarterly report on Form 10-Q (File No. 000-51026), filed with the Securities and Exchange Commission on November 6, 2020.August 4, 2023.

 

ITEM

Item 16.    FORM 10-K SUMMARY.

Form 10-K Summary

 

None.

 

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SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

	MONOLITHIC POWER SYSTEMS, INC.
Date: March 1, 2021February 29, 2024	By:	/s/ Michael Hsing
		Michael Hsing
		President and Chief Executive Officer

 

POWER OF ATTORNEY

 

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Michael Hsing and T. Bernie Blegen, jointly and severally, his or her attorneys-in-fact, each with the power of substitution, for him or her in any and all capacities, to sign any amendments to this report, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact, or his or her substitute or substitutes, may do or cause to be done by virtue hereof.

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on March 1, 2021February 29, 2024 by the following persons on behalf of the registrant and in the capacities indicated:

 

/s/ Michael Hsing		President, Chief Executive Officer, and Director (Principal Executive Officer)
Michael HsingMICHAEL HSING
/s/ T. Bernie Blegen		Chief Financial Officer (Principal Financial and Accounting Officer)
T. Bernie BlegenBERNIE BLEGEN
/s/ Herbert Chang		Director
Herbert ChangHERBERT CHANG
/s/ Eugen Elmiger		Director
Eugen ElmigerEUGEN ELMIGER
/s/ Victor K. Lee		Director
VictorVICTOR K. LeeLEE
/s/ Carintia Martinez
/s/ James C. Moyer		Director
CARINTIA MARTINEZ
/s/ James C. Moyer		Director
JAMES C. MOYER
/s/ Eileen Wynne		Director
EILEEN WYNNE
/s/ Jeff Zhou		Director
Jeff Zhou JEFF ZHOU

 

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