Semtech (SMTC)

Risks

• The COVID-19 pandemic has adversely affected and may in the future adversely affect, our operations, and those of our customers, distributors, suppliers, third-party foundries and subcontractors thereby adversely affecting our business, financial condition and results of operations.
• Our future results may fluctuate, fail to match past performance or fail to meet expectations as a result of conditions beyond our control, such as general economic conditions in the markets we compete, cyclical and other conditions unique to our industry and the financial health and viability of our suppliers and customers.
• The average selling prices of products in our markets have historically decreased rapidly and will likely do so in the future, which could harm our revenue and gross margins.
• We rely on a limited number of suppliers and subcontractors, many of which are foreign-based entities, for many essential components and materials and certain critical manufacturing services and any interruption or loss of supplies or services from these entities could significantly interrupt our business operations and the production of our products.
• Our ability to increase product sales and revenue may be constrained by the manufacturing capacity of our suppliers.
• Our products may be found to be defective, product liability claims may be asserted against us and we may not have sufficient liability insurance.
• Obsolete inventories as a result of changes in demand for our products and changes in the life cycles of our products could adversely affect our business, operating results and financial condition.
• We may be unsuccessful in developing and selling new products, which is central to our objective of maintaining and expanding our business.
• Our customers require our products to undergo a lengthy and expensive qualification process without any assurance of product sales.
• Unfavorable or uncertain conditions in the 5G infrastructure market may cause fluctuations in our rate of revenue growth or financial results.
• We may be unable to adequately protect our intellectual property rights.
• We may suffer losses and business interruption if our products infringe the intellectual property rights of others.
• We must commit resources to product production prior to receipt of purchase commitments and could lose some or all of the associated investment.
• While we intend to continue to invest in research and development, we may be unable to make the substantial investments that are required to remain competitive in our business.
• 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 may need to transition to smaller geometry process technologies and achieve higher levels of design integration to remain competitive and may experience delays in this transition or fail to efficiently implement this transition.
• We are subject to export restrictions and laws affecting trade and investments, which may limit our ability to sell to certain customers.
• We sell and trade with foreign customers, which subjects our business to increased risks.
• A substantial portion of our sales is derived from China and adverse changes to general economic conditions in China could have a material and adverse impact on our sales and financial results.
• 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.
• Our foreign currency exposures may change over time as the level of activity in foreign markets grows and could have an adverse impact upon financial results.
• We may be subject to increased tax liabilities and an increased effective tax rate if we need to remit funds held by our foreign subsidiaries.
• We receive a significant portion of our revenues from a small number of customers and the loss of any one of these customers or failure to collect a receivable from them could adversely affect our business.
• The volatility of customer demand limits our ability to predict future levels of sales and profitability.
• Most of our authorized distributors, which collectively represent more than half of our net sales, can terminate their contract with us with little or no notice. The termination of a distributor could negatively impact our business, including net sales and accounts receivable.
• Our inability to effectively control the sales of our products on the gray market could have a material adverse effect on us.
• Changes in government trade policies could have an adverse impact on our business or the business of our customers, which may materially adversely affect our business operations, sales or gross margins.
• Our failure to comply with any applicable environmental regulations could result in a range of consequences, including fines, suspension of production, excess inventory, sales limitations, and criminal and civil liabilities.
• Our operating results could be adversely affected as a result of changes in our effective tax rates, the adoption of new U.S. or foreign tax legislation or exposure to additional tax liabilities, or by material differences between our forecasted annual effective tax rates and actual tax rates.
• We may be subject to taxation and review of our compliance with income, value-added and other sales-type tax regulations in other jurisdictions which could negatively affect our operations.
• We have limited experience with government contracting, which entails differentiated business risks.
• Corporate responsibility, specifically related to environmental, social and governance (“ESG”) matters, may impose additional costs and expose us to new risks.
• The loss of any of our key personnel or the failure to attract or retain specialized technical and management personnel could impair our ability to grow our business.
• We face risks associated with companies we have acquired in the past and may acquire in the future.
• We may be required to recognize additional impairment charges in the future which could have an adverse effect on our financial condition and operating results.
• Restrictive covenants in the Credit Agreement governing the Credit Facility may restrict our ability to pursue our business strategies.
• We rely on certain critical information systems for the operation of our business and a disruption in our information systems, including those related to cybersecurity, could adversely affect our business operations.
• The costs associated with our indemnification of certain customers, distributors, and other parties could be higher in future periods.