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What changed in LATTICE SEMICONDUCTOR CORP's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of LATTICE SEMICONDUCTOR CORP's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+253 added−238 removedSource: 10-K (2023-02-17) vs 10-K (2022-02-23)

Top changes in LATTICE SEMICONDUCTOR CORP's 2023 10-K

253 paragraphs added · 238 removed · 189 edited across 8 sections

Item 1. Business

Business — how the company describes what it does

38 edited+4 added−4 removed39 unchanged
Biggest changeFour product families anchor our FPGA offerings: ● The Certus™ and ECP™ device families are our “General Purpose FPGAs” and address a broad range of applications across multiple markets. They offer customers the optimal cost per gate, Digital Signal Processing ("DSP") capability, and Serialize-Deserialize ("SERDES") connectivity.
Biggest changeThis programmability allows our customers flexibility and reduced time to market while allowing us to offer the chips to many different customers in many different markets. Lattice FPGA product families include: ● The Lattice Avant™, Certus™ and LatticeECP™ device families are our “General Purpose FPGAs” and address a broad range of applications across multiple markets.
Historically, our backlog has not been a predictor of future sales or customer demand for the following reasons: ● Purchase orders, consistent with common industry practices, generally can be revised or canceled up to 60 days before the scheduled delivery date without significant penalty. ● A sizable portion of our revenue comes from our "turns business," where the product is ordered and delivered within the same quarter.
Historically, our backlog has not been a predictor of future sales or customer demand for the following reasons: ● Purchase orders, consistent with common industry practices, generally can be revised or canceled up to 60 days before the scheduled delivery date without significant penalty. ● A portion of our revenue comes from our "turns business," where the product is ordered and delivered within the same quarter.
The revenue from these sales generally consists of upfront payments and potential future royalties. ● IP Services - projects and design services for customers who wish to develop specific solutions that harness our proven technology and expertise. Research and Development We place a substantial emphasis on new product development, where return on investment is the key driver.
The revenue from these sales generally consists of upfront payments and potential future royalties. ● IP Services - we undergo projects and design services for customers who wish to develop specific solutions that harness our proven technology and expertise. Research and Development We place a substantial emphasis on new product development, where return on investment is the key driver.
In the Consumer Market , you can find our solutions making products smarter and thinner, including smart home devices, prosumer devices, sound bars, high end projectors, Augmented Reality ("AR") / Virtual Reality ("VR"), and wearables. Our Consumer customers are driven by the need to deliver richer and more responsive experiences. They typically require: ● More intelligence and computing power.
In the Consumer Market , you can find our solutions making products smarter and smaller, including smart home devices, prosumer devices, sound bars, high end projectors, Augmented Reality ("AR") / Virtual Reality ("VR"), and wearables. Our Consumer customers are driven by the need to deliver richer and more responsive experiences. They typically require: ● More intelligence and computing power.
CrossLink combines the power and speed benefits of hardened video camera and display bridging cores with the flexibility of FPGA fabric. Lattice CrossLinkPlus™ devices provide users with instant-on capabilities for video display. Lattice CrossLink-NX™ FPGAs, built on the new Lattice Nexus platform, provides the lowest power in the smallest packages in its class, higher performance, and high reliability.
CrossLink combines the power and speed benefits of hardened video camera and display bridging cores with the flexibility of FPGA fabric. Lattice CrossLinkPlus™ devices provide users with instant-on capabilities for video display. Lattice CrossLink-NX™ FPGAs, built on the Lattice Nexus platform, provide the lowest power in the smallest packages in its class, higher performance, and high reliability.
Human Capital Management We provide a safe and positive work environment for our employees that emphasizes respect for individuals and ethical conduct, learning and development, facilitated by a direct employee engagement model. The health and safety of our employees is of utmost important to us.
Human Capital Management We provide a safe and positive work environment that emphasizes respect for individuals, ethical conduct, and learning and development that is facilitated by a direct employee engagement model. The health and safety of our employees is of utmost importance to us.
We combine all of these elements to solve specific customer problems such as the need to quickly implement low power AI inferencing in Edge applications. Further, we have application software such as Glance by Mirametrix™ that allows users to control the AI experience of their end systems.
We combine all of these elements to solve specific customer problems such as the need to quickly implement low power AI inferencing in Edge applications. Further, we have application software such as Glance by Mirametrix™ that allows users to control the AI and computer vision experience of their end systems.
These research and development activities occur primarily at our sites in Hillsboro, Oregon; San Jose, California; Montreal, Canada; Shanghai, China; and Muntinlupa City, Philippines.
These research and development activities occur primarily at our sites in Hillsboro, Oregon; San Jose, California; Montreal, Canada; Shanghai, China; Muntinlupa City, Philippines; and Penang, Malaysia.
Our sales team attempts to drive multi-generational design wins within these OEMs and leverages our distribution partners to grow our broad customer base. 6 Table of Contents We provide global technical support to our end customers with engineering staff based at our headquarters, product development centers, and selected field sales offices.
Our sales team attempts to drive multi-generational design wins within these OEMs and leverages our distribution partners to grow our broad customer base. We provide global technical support to our end customers with engineering staff based at our headquarters, product development centers, and selected field sales offices.
In contrast to the use of consortia, these licensing activities are generally performed internally. ● Patent Monetization - we sell certain patents from our portfolio generally for technology that we are no longer actively developing.
In contrast to the use of consortia, these licensing activities are generally performed internally. ● Patent Monetization - we consider sales of certain patents from our portfolio generally for technology that we are no longer actively developing.
To serve these emerging needs, customer solutions require power efficiency, memory bandwidth, processing power, and the ability to integrate complex functionality into a highly compact footprint. These requirements align to the capabilities of our FPGA devices. Our flexible, low power, small form factor, easy to use FPGAs put us in a unique position to meet these growing market needs.
To serve these emerging needs, customer solutions require power efficiency, memory bandwidth, processing power, and the ability to integrate complex functionality into a highly compact footprint. These requirements align with the capabilities of our FPGA devices. Our flexible, low power, small form factor, performance optimized FPGAs put us in a unique position to meet these growing market needs.
Our Industrial and Automotive customers face numerous challenges: ● As factories automate to improve efficiency and employee safety, sensors, machine vision, and robotics are proliferating, in turn requiring increasing amounts of data to be gathered, connected, and processed. ● Cars, trucks, and trains are also becoming smarter and more connected.
Our Industrial and Automotive customers face numerous challenges: ● As factories automate to improve efficiency and employee safety, sensors, machine vision, and robotics are proliferating, in turn requiring increasing amounts of data to be gathered, connected, and processed. ● Automobiles and other forms of transportation are also becoming smarter and more connected.
Our Communications and Computing customers need to address a variety of challenges. ● As client compute devices become smaller and smarter, there is a need for small form factor devices with power efficiency to interface with a variety of sensors and add intelligence. ● As server architectures become increasingly complex, customers need simplified control logic, enhanced hardware platform security, system status monitoring, and rigorous power and thermal management. ● Networks typically require progressively higher bandwidth and increased reliability as more data is demanded by consumer and other connected devices.
Our Communications and Computing customers need to address a variety of challenges. ● As client compute devices become smaller and smarter, there is a need for small form factor devices with power efficiency to interface with a variety of sensors and add intelligence. ● As server architectures become increasingly complex, customers need simplified control logic, enhanced hardware platform security, system status monitoring, and rigorous power and thermal management. ● Networks typically require progressively higher bandwidth and increased reliability as more data is demanded by connected devices. ● As wireless cellular sites become more compact, there is a growing requirement for smaller form factors optimized for low power consumption and thermal management.
In addition to protecting innovations designed into our products, our ownership and maintenance of patents is an important factor in the determination of our share of the royalties from the implementation of the HDMI standard. Our current patents will expire at various times between 2022 and 2040 , subject to our payment of periodic maintenance fees.
In addition to protecting innovations designed into our products, our ownership and maintenance of patents is an important factor in the determination of our share of the royalties from the implementation of the HDMI standard. Our current patents will expire at various times over the next 20 years, subject to our payment of periodic maintenance fees.
Wafer Fabrication Lattice partners with Samsung Semiconductor ("Samsung") to develop and manufacture the first low-power FPGA on 28nm fully depleted silicon-on-insulator ("FD-SOI") technology, which is used in our Nexus platform of FPGA products.
We partner with Samsung Semiconductor ("Samsung") to develop and manufacture the first low-power FPGA on 28nm fully depleted silicon-on-insulator ("FD-SOI") technology, which is used in our Nexus platform of FPGA products.
Seiko Epson ("Epson") manufactures our 500nm, 350nm, 250nm and 180nm products. We source silicon wafers from our foundry partners, Samsung, UMC, USJC, TSMC, and Epson, pursuant to agreements with each company and their respective affiliates. We negotiate wafer volumes, prices, and other terms with our foundry partners and their respective affiliates on a periodic basis.
We source silicon wafers from our foundry partners, TSMC, Samsung, UMC, USJC, and Epson, pursuant to agreements with each company and their respective affiliates. We negotiate wafer volumes, prices, and other terms with our foundry partners and their respective affiliates on a periodic basis.
Our Investor Relations website also provides notifications of news or announcements regarding our financial performance and other items that may be material or of interest to our investors, including SEC filings, press releases, earnings releases, and webcasts of our earnings calls.
Our Investor Relations website also provides notifications of news or announcements regarding our financial performance and other items that may be material or of interest to our investors and for complying with our disclosure obligations under Regulation FD, including SEC filings, press releases, earnings releases, and webcasts of our earnings calls.
We maintain strategic relationships with large, established semiconductor foundries to source our finished silicon wafers. This strategy allows us to focus our internal resources on product and market development and eliminate the fixed cost of owning and operating manufacturing facilities.
Operations We operate primarily as a fabless semiconductor provider and, therefore, we maintain strategic relationships with large, established semiconductor foundries to source our finished silicon wafers and manufacture our silicon products. This strategy allows us to focus our internal resources on product and market development and eliminate the fixed cost of owning and operating manufacturing facilities.
We partner with United Microelectronics Corporation ("UMC") and its subsidiary United Semiconductor Japan Corporation ("USJC") to manufacture our products on its 130nm, 90nm, 65nm, and 40nm CMOS process technologies, as well as embedded flash memory in these process nodes. Taiwan Semiconductor Manufacturing Company Ltd. (“TSMC”) manufactures our 350nm, 130nm, 55nm and 40nm products.
We partner with United Microelectronics Corporation ("UMC") and its subsidiary United Semiconductor Japan Corporation ("USJC") to manufacture our products on its 130nm, 90nm, 65nm, and 40nm CMOS process technologies, as well as embedded flash memory in these process nodes. We partner with Seiko Epson ("Epson") to manufacture our 500nm, 350nm, 250nm and 180nm products.
Our FPGAs are among the most power efficient in the industry, enabling the application processor and other high-power components to remain dormant longer, resulting in longer battery life. Finally, with some of the industry’s smallest packages, we enable thinner end products. Our proprietary solutions help our customers get their products to market faster than typical development cycles.
Our FPGAs are among the most power efficient in the industry, enabling the application processor and other high-power components to remain dormant longer, resulting in longer battery life. Finally, with some of the industry’s smallest packages, we enable thinner and more compact end products.
In particular, we believe there are several emerging trends in servers, infrastructure, and smart devices that are opportunities for Lattice: ● With the growth of hyperscale datacenters, our “processor agnostic” solutions are ideal for control and connect functions in enterprise and datacenter server applications. ● With the expected continued Communications infrastructure build-out from 5G deployment and beyond, Lattice solutions are being adopted to control and connect a variety of functions in critical systems. ● With the increase in electrification and the proliferation of sensors in smart factories, smart homes, and automobiles, our low power, small form factor solutions are ideal for everything from battery powered systems and sensor applications to embedded vision. ● With the increase in artificial intelligence ("AI"), machine learning, and a multitude of applications at the network edge, Lattice devices support applications that often act independently and need to make instantaneous decisions.
In particular, we believe there are several emerging trends in servers, infrastructure, and smart devices that are opportunities for Lattice: ● With the growth of hyperscale datacenters, our “processor agnostic” solutions are ideal for control and connect functions in enterprise and datacenter server applications. ● With the expected continued Communications infrastructure build-out from 5G deployment and beyond, as well as continued datacenter network expansion, Lattice solutions are being adopted to control and connect a variety of functions in critical systems. ● With the increase in electrification and the proliferation of sensors in smart factories, smart homes, and automobiles, our low power, small form factor solutions are ideal for everything from battery powered systems and sensor applications to embedded vision. ● With the increase in artificial intelligence ("AI") and a multitude of applications at the network edge, Lattice devices support applications like face detection, image recognition, and video analytics. ● With the demand for more hardware security in the Communications, Computing, Industrial, Automotive, and Consumer markets, our devices provide enhanced platform security.
We believe that a continued commitment to research and development is essential to maintaining product leadership and providing a strong cadence of innovative new product offerings and, therefore, we expect to continue to make significant future investments in research and development. Operations We operate as a fabless semiconductor provider and, therefore, we do not manufacture our own silicon products.
We believe that a continued commitment to research and development is essential to maintaining product leadership and providing a strong cadence of innovative new product offerings and, therefore, we expect to continue to make significant future investments in research and development.
We have developed integrated system-level solution stacks, such as Lattice sensAI™ for Edge AI applications, as well as Lattice mVision™ for low power embedded vision, Lattice Sentry™ for implementing hardware security, and Lattice Automate™ for industrial automation and robotics.
We have developed integrated system-level solution stacks, such as Lattice ORAN™ for robust control data security, flexible fronthaul synchronization, and low power hardware acceleration for secure, adaptable, Open Radio Access Network (ORAN) deployment, as well as Lattice sensAI™ for Edge AI applications, Lattice mVision™ for low power embedded vision, Lattice Sentry™ for implementing hardware security, and Lattice Automate™ for industrial automation and robotics.
With re-programmability and flexibility, our FPGAs inherently allow our customers to have quicker product development. The time-to-market advantages of Lattice's solutions are critical given the shorter product life cycles and higher competition in our customers’ end markets. Our Products, Services, and Competition We are focused on delivering FPGAs and related solutions to help solve our customers' problems.
Our proprietary solutions help our customers get their products to market faster than typical development cycles of custom ASICs. With re-programmability and flexibility, our FPGAs inherently allow our customers to have quicker product development. The time-to-market advantages of Lattice's solutions are critical given the shorter product life cycles in our customers’ end markets.
We maintain numerous domestic and international field sales offices in major metropolitan areas. In fiscal years 2021, 2020, and 2019, sales to distributors accounted for approximately 87%, 83%, and 82%, respectively, of our net revenue. We depend on our distributors to sell our products to end customers, complete order fulfillment, and maintain sufficient inventory of our products.
We maintain numerous domestic and international field sales offices in major metropolitan areas. 6 Table of Contents In fiscal years 2022, 2021, and 2020, sales to distributors accounted for approximately 89%, 87%, and 83%, respectively, of our net revenue.
We strive to attract and retain talented employees by offering competitive compensation and benefits that support their health, financial, and emotional well-being. Our compensation philosophy is based on rewarding each employee’s individual contributions and striving to achieve equal pay for equal work. We use a combination of fixed and variable pay including base salary, bonuses, performance awards, and stock-based compensation.
Our human capital management objectives include identifying, recruiting, incentivizing, and integrating our existing and future employees. We strive to attract and retain talented employees by offering competitive compensation and benefits that support their health, financial, and emotional well-being. Our compensation philosophy is based on rewarding each employee’s individual and team contributions and striving to achieve equal pay for equal work.
In order for us to attract the best talent, we provide a collaborative, diverse, inclusive, and innovative work environment, competitive compensation, and recognition to give our employees the opportunity to grow.
In order for us to attract the best talent, we provide a collaborative, diverse, inclusive, and innovative work environment, competitive compensation, and recognition to give our employees the opportunity to grow. We are focused on developing diverse teams and continuing to build an inclusive culture that inspires leadership, encourages innovative thinking, and supports the development and advancement of all.
As of January 1, 2022, we had 856 employees worldwide. We believe our employees are the foundation of our success and that our future growth depends, in part, on our ability to continue to attract and retain key technical, sales, and management personnel, particularly highly-skilled engineers involved in the design, development, and support of new and existing products and processes.
We believe our employees are the foundation of our success and that our future growth depends, in part, on our ability to continue to attract and retain key executive, technical, sales, and management personnel.
ECP devices are optimized for the Communications and Computing market but also find significant use in the Industrial, Automotive, and Consumer markets.
They offer customers the optimal cost per gate, Digital Signal Processing ("DSP") capability, and Serialize-Deserialize ("SERDES") connectivity. ECP devices are optimized for the Communications and Computing market but also find significant use in the Industrial, Automotive, and Consumer markets.
We also serve our customers with IP licensing and various other services. Field Programmable Gate Arrays (“FPGAs”) FPGAs are regular arrays of logic that can be custom-configured by the user through software. This programmability allows our customers flexibility and reduced time to market while allowing us to offer the chips to many different customers in many different markets.
Our Products, Services, and Competition We are focused on delivering FPGAs and related solutions to help solve our customers' problems. We also serve our customers with IP licensing and various other services. Field Programmable Gate Arrays (“FPGAs”) FPGAs are regular arrays of logic that can be custom-configured by the user through software.
Our distributors also provide technical support and other value-added services to our end customers. We have two global distributors. We also have regional distribution in Asia, Japan, and Israel, and we sell through three major on-line distributors. Revenue from foreign sales as a percentage of total revenue was 88%, 89%, and 89% for fiscal 2021, 2020, and 2019, respectively.
We depend on our distributors to sell our products to end customers, complete order fulfillment, and maintain sufficient inventory of our products. Our distributors also provide technical support and other value-added services to our end customers. We have multiple global distributors. We also have regional distribution in Asia, Japan, Europe, and Israel, and we sell through three major on-line distributors.
Our FPGAs consume power at very low rates, which reduces operating costs and supports the continued miniaturization of consumer devices. Their small form factor enables higher functional density in less space.
Lattice FPGAs solve these customer problems. Our FPGAs are optimized for input/output ("I/O") expansion, hardware acceleration, and hardware management. Our FPGAs consume power at very low rates, which reduces operating costs. Their small form factor enables higher functional density in less space.
We assign revenue to geographies based on ship-to location of our customers. Both foreign and domestic sales are denominated in U.S. dollars. Backlog Our backlog consists of orders from distributors and certain OEMs that generally require delivery within the next year.
Backlog Our backlog consists of orders from distributors and certain OEMs that generally require delivery within the next year.
Corporate Information and Public Information Availability Our corporate headquarters are located at 5555 NE Moore Court, Hillsboro, Oregon 97124, and our website is www.latticesemi.com . Information contained or referenced on our website is not incorporated by reference into, and does not form a part of, this Annual Report on Form 10-K.
Information contained or referenced on our website is not incorporated by reference into, and does not form a part of, this Annual Report on Form 10-K. Our common stock trades on the NASDAQ Global Select Market under the symbol LSCC.
During the COVID-19 pandemic, we have taken actions to safeguard the health and well-being of our employees and our business. We implemented social distancing policies at our locations around the world as appropriate, including working from home and eliminating substantially all travel. Recognizing and respecting our global presence, we strive to maintain a diverse and inclusive workforce everywhere we operate.
We have aligned to local COVID-19 guidance to return to normal operations while maintaining actions to safeguard the health and well-being of our employees and our business. Recognizing and respecting our global presence, we strive to maintain a diverse and inclusive workforce everywhere we operate. As of December 31, 2022, we had 949 employees worldwide.
The principal purposes of our equity incentive plans are to attract, retain, and motivate employees through the granting of stock-based compensation awards. We offer employees benefits that vary by country and are designed to address local laws and cultures and to be competitive in the marketplace.
We use a combination of fixed and variable pay including base salary, bonuses, performance awards, and stock-based compensation. The principal purposes of our equity incentive plans are to attract, retain, and motivate employees through the granting of stock-based compensation awards.
Our latest generation MachXO3D™ and Mach-NX™ FPGAs come with pre-verified cryptographic functions to enable Hardware Root-of-Trust functionality, which is needed for systems to have platform firmware resiliency, i.e. the ability to protect, detect, and recover from unauthorized firmware attacks. 4 Table of Contents ● The iCE™ device family are our “Ultra Low Power FPGAs.” Their small size and ultra-low power make them the optimal products for each of our core segments where small form factor and customizing is required.
Lattice MachXO5™-NX family, the fifth device built on the award-winning Lattice Nexus™ platform are our latest addition to the Mach™ FPGA family, enabling the latest generation of secure control through increased logic and memory resources, robust 3.3 V I/O support, and a differentiated security feature set. 4 Table of Contents ● The Lattice iCE™ device family are our “Ultra Low Power FPGAs.” Their small size and ultra-low power make them the optimal products for each of our core segments where small form factor and customizing is required.
The latest introduction in our general purpose family, CertusPro™, is the CertusPro-NX™ FPGA, which offers the highest logic density of any Lattice Nexus™ platform device and delivers advanced system bandwidth and memory capabilities to Edge applications. ● The Mach™ device family are our “Control & Security FPGAs” and are designed for platform management and security applications.
The latest introduction in our general purpose family, Lattice Avant-E™ FPGAs, are designed to solve key customer challenges at the Edge by combining class-leading power efficiency, size and performance with an optimized feature set tailored to the needs of mid-range FPGA Edge applications like data processing and AI. ● The Lattice Mach™ device family are our “Control & Security FPGAs” and are designed for platform management and security applications.
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Our solutions provide the computing and machine learning capabilities to perform functions like face detection, image recognition, and video analytics. ● With the demand for more hardware security in the Communications, Computing, Industrial, Automotive, and Consumer markets, our hardware root of trust devices provide platform firmware resilience. This provides a secure boot for systems that are dependent on processors.
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Wafer Fabrication Lattice partners with Taiwan Semiconductor Manufacturing Company ("TSMC") to develop and manufacture on 16nm technology, which is used in our Avant platform of FPGA products, and to manufacture our 350nm, 130nm, 55nm and 40nm products.
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Bandwidth demands are also driven by the rapid transition to cloud-based infrastructure. ● As wireless cellular sites become more compact without fans, there is a growing requirement for smaller form factors optimized for low power consumption. Lattice FPGAs solve these customer problems. Our FPGAs are optimized for input/output ("I/O") expansion, hardware acceleration, and hardware management.
Added
Revenue from foreign sales as a percentage of total revenue was 86%, 88%, and 89% for fiscal 2022, 2021, and 2020, respectively. We assign revenue to geographies based on ship-to location of our customers. Both foreign and domestic sales are denominated in U.S. dollars.
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We are focused on developing diverse teams and continuing to build an inclusive culture that inspires leadership, encourages innovative thinking, and supports the development and advancement of all. 7 Table of Contents Our human capital management objectives include identifying, recruiting, incentivizing, and integrating our existing and future employees.
Added
Due to our growth and cadence of new product introductions we are particularly focused on highly skilled engineers involved in the design, development, and support of new and existing products and processes.
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Our common stock trades on the NASDAQ Global Select Market under the symbol LSCC.
Added
We offer employees benefits that vary by country and are designed to address local laws and cultures and to be competitive in the marketplace. 7 Table of Contents Corporate Information and Public Information Availability Our corporate headquarters are located at 5555 NE Moore Court, Hillsboro, Oregon 97124, and our website is www.latticesemi.com .

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

78 edited+51 added−26 removed102 unchanged
Biggest changeFactors Related to Strategic Transactions ● Disruption in and impacts of acquisitions, divestitures, strategic investments and strategic partnerships on our business. 9 Table of Contents Factors Related to Economic, Legal, Regulatory & Political Business Conditions The ongoing COVID-19 pandemic could adversely affect our business, results of operations, and financial condition in a material way.
Biggest changeGeneral Risk Factors ● Our operations are subject to the effects of rising inflation and recessionary concerns. ● Disruptions to our worldwide operations and supply chain due to natural or human-induced disasters. ● The trading price of our common stock has been and may continue to be subject to volatility. ● Disruption in and impacts of acquisitions, divestitures, strategic investments and strategic partnerships on our business. 9 Table of Contents Factors Related to Economic, Legal, Regulatory & Political Business Conditions Our global business operations expose us to various economic, legal, regulatory, political, and business risks, which could impact our business, operating results and financial condition.
Inability to detect a defect could result in a diversion of our engineering resources from product development efforts, increased engineering expenses to remediate the defect, and increased costs due to customer accommodation or inventory impairment charges.
Our inability to detect a defect could result in a diversion of our engineering resources from product development efforts, increased engineering expenses to remediate the defect, and increased costs due to customer accommodation or inventory impairment charges.
GAAP that may impact our business. ● Changes to financial accounting standards applicable to us and any related changes to our business practices. ● Exposure to unanticipated tax consequences as a result of changes in effective tax rates, tax laws and our global organizational structure and operations. ● Weakness in our internal control over financial reporting. ● Our ability to compete with others to attract and retain key personnel, and any loss of, or inability to attract, such personnel. ● Our failure to adequately foresee and insure against risks related to our business. ● Limitations to our flexibility caused by our outstanding indebtedness.
GAAP that may impact our business. ● Changes to financial accounting standards applicable to us and any related changes to our business practices. ● Exposure to unanticipated tax consequences as a result of changes in effective tax rates, tax laws and our global organizational structure and operations. ● Weakness in our internal control over financial reporting and business processes. ● Our ability to compete with others to attract and retain key personnel, and any loss of, or inability to attract, such personnel. ● Our failure to adequately foresee and insure against risks related to our business. ● Limitations to our flexibility caused by our outstanding indebtedness.
If our third-party supply chain providers were to reduce or discontinue services for us or their operations are disrupted as a result of a fire, earthquake, act of terrorism, political unrest, governmental uncertainty, war, disease, or other natural disaster or catastrophic event, weak economic conditions, inflation, labor market disruptions, or any other reason, our financial condition and results of operations could be adversely affected.
If our third-party supply chain providers were to reduce or discontinue services for us or their operations are disrupted as a result of a fire, earthquake, act of terrorism, political unrest, governmental uncertainty, war, disease, or other natural disaster or catastrophic event, weak economic conditions, inflation, recession, labor market disruptions, or any other reason, our financial condition and results of operations could be adversely affected.
If we fail to maintain our foundry and OSAT relationships, if these partners do not provide facilities and support for our development efforts, if they are insolvent or experience financial difficulty, if their operations are interrupted by the COVID-19 pandemic, or if we elect or are required to change foundries or OSATs, we may incur significant costs and delays.
If we fail to maintain our foundry and OSAT relationships, if these partners do not provide facilities and support for our development efforts, if they are insolvent or experience financial difficulty, if their operations are interrupted by the ongoing COVID-19 pandemic, or if we elect or are required to change foundries or OSATs, we may incur significant costs and delays.
If we are unable to adequately protect our new and existing intellectual property rights, our financial results and our ability to compete effectively may suffer. Our success depends in part on our proprietary technology and we rely upon patent, copyright, trade secret, mask work, and trademark laws to protect our intellectual property.
If we are unable to adequately protect our new and existing intellectual property rights globally, our financial results and our ability to compete effectively may suffer. Our success depends in part on our proprietary technology and we rely upon patent, copyright, trade secret, mask work, and trademark laws to protect our intellectual property globally.
On occasion, we have also repaired or replaced certain components, made software fixes, or refunded the purchase price or license fee paid by our customers due to product or software defects. Our insurance may be unavailable or inadequate to protect against these issues.
On occasion, we have also repaired or replaced certain components, made software fixes, or refunded the purchase price or license fee paid by our customers due to product or software defects. Our insurance may be inadequate to protect against these issues.
Our domestic and international business activities are subject to economic, political and regulatory risks, including volatility in the financial markets; fluctuations in consumer liquidity; changes in interest rates; price increases for materials and components; trade barriers or changes in trade policies; political instability; acts of war or terrorism; natural disasters; economic sanctions; weak economic conditions; environmental regulations; labor regulations; labor markets; import and export regulations; tax or freight rates; duties; trade restrictions; interruptions in transportation or infrastructure; anti-corruption laws; domestic and foreign governmental regulations; potential vulnerability of and reduced protection for intellectual property; disruptions or delays in production or shipments; and instability or fluctuations in currency exchange rates, any of which could lead to decreased demand for our products or a change in our results of operation.
Our domestic and international business activities are subject to economic, political and regulatory risks, including: increased inflation; volatility in financial markets; fluctuations in consumer liquidity; changes in interest rates; price increases for materials and components; trade barriers or changes in trade policies; political instability; acts of war or terrorism; natural disasters; economic sanctions; weak economic conditions; environmental regulations; labor regulations; disruptions to labor markets; import and export regulations; tax or freight rates; duties; trade restrictions; interruptions in transportation or infrastructure; anti-corruption laws; domestic and foreign governmental regulations; potential vulnerability of and reduced protection for intellectual property; disruptions or delays in production or shipments; and instability or fluctuations in currency exchange rates, any of which could lead to decreased demand for our products or a change in our results of operation.
These problems may include: delays in software or hardware development timelines; prolonged inability to obtain wafers or packaging materials with competitive performance and cost attributes; inability to achieve adequate yields or timely delivery; inability to meet customer timelines or demands; disruption or defects in assembly, test, or shipping services; or delays in stabilizing manufacturing processes or ramping up volume for new products.
These problems may include: schedule delays or defects in software or hardware development deliverables; prolonged inability to obtain wafers or packaging materials with competitive performance and cost attributes; inability to achieve adequate yields or timely delivery; inability to meet customer timelines or demands; disruption or defects in assembly, test, or shipping services; or delays in stabilizing manufacturing processes or ramping up volume for new products.
The nature of our business and length of our sales cycle makes our revenue, gross margin and net income subject to fluctuation and difficult to accurately predict.
The nature of our business and length of our sales cycle makes our revenue, gross margin, net income, and inventory subject to fluctuation and difficult to accurately predict.
Our success is dependent upon our ability to successfully partner with our foundry and OSAT partners and their ability to produce wafers and finished semiconductor products with competitive prices and performance attributes, including smaller process geometries, which ability may be impacted by labor market disruptions and rising inflation.
Our success is dependent upon our ability to successfully partner with our foundry and OSAT suppliers and their ability to produce wafers and finished semiconductor products with competitive prices and performance attributes, including smaller process geometries, which ability may be impacted by labor market disruptions and rising inflation.
Because our products, including hardware, software, and intellectual property cores, are highly complex and increasingly incorporate advanced technology, our quality assurance programs may not detect all defects, whether these are specific manufacturing defects affecting individual products or these are systematic defects that could affect numerous shipments.
Because our products, including hardware, software, and intellectual property cores, are highly complex and increasingly incorporate advanced technology, our quality assurance programs may not detect all defects, whether these are specific manufacturing defects affecting individual products or these are systemic defects that could affect numerous shipments.
If our relationships with any material customers were to diminish, if these customers were to develop their own solutions or adopt alternative solutions or competitors' solutions, if any one or more of our concentrated groups of customers were to experience significantly adverse financial conditions, including as a result of inflation or labor market disruptions, or if as a result of trade disputes or sanctions these customers were restricted from purchasing our products, our results could be adversely affected.
If our relationships with any material customers were to diminish, if these customers were to develop their own solutions or adopt alternative solutions or competitors' solutions, if any one or more of our concentrated groups of customers were to experience significantly adverse financial conditions, including as a result of inflation, economic slowdown or recession, or labor market disruptions, or if as a result of trade disputes or sanctions these customers were restricted from purchasing our products, our results could be adversely affected.
Our intellectual property licensing agreements are complex and may depend upon many factors that require significant judgments, including completion of milestones, allocation of values to delivered items and customer acceptance. Our sale of patents and intermittent significant licensing transactions can cause material fluctuations in our revenue and gross margins.
Our intellectual property licensing agreements are complex and may depend upon many factors that require significant judgments, including completion of milestones, allocation of values to delivered items and customer acceptance. 12 Table of Contents Our sale of patents and intermittent significant licensing transactions can cause material fluctuations in our revenue and gross margins.
Factors Related to Intellectual Property and Litigation ● Fluctuations in our revenue and margins caused by the intellectual property licensing component of our business strategy. ● Material fluctuations in our revenue and gross margins caused by our sale of patents and intermittent significant licensing transactions. ● The impact of actual and potential litigation and unfavorable results of legal proceedings on our business. ● Variability in our share of adopter fees and royalties for the HDMI standard as a result of our evolving participation in the HDMI standard. ● Our ability to protect our new and existing intellectual property rights.
Factors Related to Intellectual Property and Litigation ● Fluctuations in our revenue and margins caused by the intellectual property licensing component of our business strategy. ● Material fluctuations in our revenue and gross margins caused by intermittent sales of patents and significant licensing transactions. ● The impact of actual and potential litigation and unfavorable results of legal proceedings on our business. ● Variability in our share of royalties for the HDMI standard as a result of our evolving participation in the HDMI standard. ● Our ability to protect our new and existing intellectual property rights.
The failure of any of these factors, among others, could adversely affect our product innovation, development and introduction efforts and our financial condition and results of operations. We compete against companies that have significantly greater resources than us and numerous other product solutions.
The failure of any of these factors, among others, could adversely affect our product innovation, development and introduction efforts and our financial condition and results of operations. 18 Table of Contents We compete against companies that have significantly greater resources than us and numerous other product solutions.
The Current Credit Agreement contains customary affirmative and negative covenants, including covenants limiting the ability of the Company to, among other things, incur debt, grant liens, undergo certain fundamental changes, make investments, make certain restricted payments, dispose of assets, enter into transactions with affiliates, and enter into burdensome agreements, in each case, subject to limitations and exceptions set forth in the Current Credit Agreement.
The 2022 Credit Agreement contains customary affirmative and negative covenants, including covenants limiting the ability of the Company and our subsidiaries to, among other things, incur debt, grant liens, undergo certain fundamental changes, make investments, make certain restricted payments, dispose of assets, enter into transactions with affiliates, and enter into burdensome agreements, in each case, subject to limitations and exceptions set forth in the 2022 Credit Agreement.
To the extent that such cost reductions and new product introductions do not occur in a timely manner, because of inflation, increases in personnel costs, employee turnover, or other factors, or that our products do not achieve market acceptance or market acceptance at acceptable pricing, our forecasts of future revenue, financial condition, and operating results could be materially adversely affected.
To the extent that such cost reductions and new product introductions do not occur in a timely manner, because of inflation, increases in personnel costs, employee turnover, or other factors, or that our products do not achieve market acceptance or market acceptance at acceptable pricing, our margins, operating results, and financial condition could be materially adversely affected.
The dynamics of the markets in which we operate make prediction of and timely reaction to such events difficult. 17 Table of Contents Due to these and other factors, our past results may not be reliable predictors of our future results.
The dynamics of the markets in which we operate make prediction of and timely reaction to such events difficult. Due to these and other factors, our past results may not be reliable predictors of our future results.
Any adverse change to our relationships or agreements with our distributors or a failure by one or more of our distributors to perform its obligations to us could have a material impact on our business, including a reduction in our access to certain end customers or our ability to sell our products.
Any adverse change to our relationships or agreements with our distributors, a failure by one or more of our distributors to perform its obligations to us, or consolidation in the distribution industry could have a material impact on our business, including a reduction in our access to certain end customers, or our ability to sell our products.
We are also required to maintain compliance with a total leverage ratio and an interest coverage ratio, in each case, determined in accordance with the terms of the Current Credit Agreement.
We are also required to maintain compliance with a total net leverage ratio and an interest coverage ratio, in each case, determined in accordance with the terms of the 2022 Credit Agreement.
While our sales cycles are typically long, our average product life cycles tend to be short as a result of the rapidly changing technology environment in which we operate.
While our sales cycles are typically long, our average product life cycles can be short as a result of the rapidly changing technology environment in which we operate.
Disruptions to manufacturing and shipping could also constrain our supplies, leading to operational delays, disruptions and, potentially, inflation. Our customers may also experience closures of their manufacturing facilities or inability to obtain other components, either of which could negatively impact demand for our solutions.
Disruptions to manufacturing and shipping could also constrain our supplies, leading to operational delays, disruptions and inflationary pressures. Our customers may also experience closures of their manufacturing facilities or inability to obtain other components, either of which could negatively impact demand for our solutions.
Our international operations include foreign sales offices to support our international customers and distributors, which account for the majority of our revenue, and operational and research and development sites in China, the Philippines, and other Asian locations.
We have significant domestic and international operations. Our international operations include foreign sales offices to support our international customers and distributors, which account for the majority of our revenue, and operational and research and development sites in China, the Philippines, and other Asian locations.
We depend on a concentrated group of distributors to sell our products to end customers, complete order fulfillment, maintain sufficient inventory of our products and provide services to our end customers. In fiscal 2021, revenue attributable to sales to distributors accounted for 87% of our total revenue, with two distributors accounting for 64% of total revenue.
We depend on a concentrated group of distributors to sell our products to end customers, complete order fulfillment, maintain sufficient inventory of our products and provide services to our end customers. In fiscal 2022, revenue attributable to sales to distributors accounted for 89% of our total revenue, with two distributors accounting for 59% of total revenue.
GAAP and may not achieve the anticipated benefits of any strategic transaction. We may incur unexpected costs, claims or liabilities that we incur during the strategic transaction or that we assume from the acquired company, or we may discover adverse conditions post acquisition for which we have limited or no recourse. Item 1B. Unresolved Staff Comments None.
GAAP and may not achieve the anticipated benefits of any strategic transaction. We may incur unexpected costs, claims or liabilities that we incur during the strategic transaction or that we assume from the acquired company, or we may discover adverse conditions post acquisition for which we have limited or no recourse. 21 Table of Contents Item 1B.
Any failure to maintain an effective system of internal controls over financial reporting could limit our ability to report our financial results accurately and timely, which could adversely affect our business, financial results, and stock price.
Any failure to maintain an effective system of internal controls over financial reporting could limit our ability to report our financial results accurately and timely, which could adversely affect our business, financial results, and stock price. We must also maintain high quality business processes.
If, for example, the COVID-19 pandemic continues to progress in ways that significantly disrupt the manufacture, shipment, and buying patterns of our products or the products of our customers, this may materially negatively impact our operating results, including revenue, gross margins, operating margins, cash flows and other operating results, and our overall business.
If, for example, pandemics were to occur in ways that significantly disrupt the manufacture, shipment, and buying patterns of our products or the products of our customers, this may materially negatively impact our operating results, including revenue, gross margins, operating margins, cash flows and other operating results, and our overall business.
Should we fail to prevail in certain matters or enter into a material settlement, we may be faced with significant monetary damages or injunctive relief against us that could materially and adversely affect our financial condition and operating results and certain portions of our business. 13 Table of Contents Our participation in the HDMI standard is evolving.
Should we fail to prevail in certain matters or enter into a material settlement, we may be faced with significant monetary damages or injunctive relief against us that could materially and adversely affect our financial condition and operating results and certain portions of our business.
Any inability or perceived inability to adequately comply with applicable laws or regulations could result in claims, demands, and litigation by private actors or governmental authorities, investigations and other proceedings by governmental authorities, injunctive relief, fines, penalties, and other liabilities, any of which may harm our reputation and market position and could adversely affect our business, financial condition, and results of operations.
Any inability or perceived inability to adequately comply with applicable laws or regulations could result in claims, demands, and litigation by private actors or governmental authorities, investigations and other proceedings by governmental authorities, injunctive relief, fines, penalties, and other liabilities, any of which may harm our reputation and market position and could adversely affect our business, financial condition, and results of operations. 10 Table of Contents Our business could suffer as a result of tariffs and trade sanctions or similar actions.
The ultimate impact of the COVID-19 pandemic on our operations and financial performance depends on many factors that are not within our control, including, but not limited, to: governmental, business, and individuals’ actions that have been and continue to be taken in response to the pandemic; general economic uncertainty in key global markets; volatility in financial markets, labor markets, and supply chains; global economic conditions and levels of economic growth; and the pace of recovery when the COVID-19 pandemic subsides.
The ultimate impact of a pandemic on our operations and financial performance depends on many factors that are not within our control, including, but not limited, to: governmental, business, and individuals’ responses; general economic uncertainty in key global markets; volatility in financial markets, labor markets, and supply chains; global economic conditions and levels of economic growth; and the pace of recovery when the pandemic subsides.
Certain claims may not yet be resolved, including but not limited to any that are discussed under " Note 15 - Contingencies " contained in the Notes to Consolidated Financial Statements, and additional claims may arise in the future. Results of legal proceedings cannot be predicted with certainty.
Certain claims may not yet be resolved, including but not limited to any that are discussed under Note 15 - Contingencies to our Consolidated Financial Statements in Part II, Item 8 of this report, and additional claims may arise in the future. Results of legal proceedings cannot be predicted with certainty.
Additional risks and uncertainties not presently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition, and operating results. Continuing effects from the COVID-19 pandemic and containment measures, and related impacts to economic and operating conditions, may further affect the volatility or degree of known and unknown risks.
Additional risks and uncertainties not presently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition, and operating results. Effects from global health, business, or political events, and the related impacts to economic and operating conditions, may further affect the volatility or degree of known and unknown risks.
Our margins are dependent on our achieving continued yield improvement. We rely on obtaining yield improvements and corresponding cost reductions in the manufacture of existing products and on introducing new products that incorporate advanced features and other price/performance factors that enable us to increase revenues while maintaining acceptable margins.
We rely on obtaining yield, quality, productivity, and logistic improvements and corresponding cost reductions in the manufacture of existing products and on introducing new products that incorporate advanced features and other price/performance factors that enable us to increase revenues while maintaining acceptable margins.
Weakness in our internal control over financial reporting could adversely affect our business and financial results. We are required to maintain internal controls over financial reporting. We review these controls regularly and deficiencies may be identified from time t o time.
Weakness in our internal control over financial reporting and business processes could adversely affect our business and financial results. We are required to maintain internal controls over financial reporting. We review these controls regularly and deficiencies may be identified from time t o time. I n the future, we may identify material weaknesses in our internal controls over financial reporting.
For example, in 2019 the U.S. Justice Department filed criminal charges against one of our customers in China and imposed a licensing requirement on this customer with a policy of denial for some items, which has limited our ability to do business with this customer.
Our customers or suppliers could also become subject to U.S. regulatory scrutiny or export restrictions. For example, in 2019 the U.S. Justice Department filed criminal charges against one of our customers in China and imposed a licensing requirement on this customer with a policy of denial for some items, which has limited our ability to do business with this customer.
Factors Related to Overall General Business & Operations ● Proper functioning of our internal processes and information technology systems, including in response to data breaches, cyber-attacks, or cyber-fraud. ● Goodwill impairments and other impairments under U.S.
Factors Related to Overall Business & Operations ● Proper functioning of our information technology systems, including in response to data breaches, cyber-attacks, or cyber-fraud. ● The impact of climate change on our business. ● Goodwill impairments and other impairments under U.S.
Risk Factor Summary Factors Related to Economic, Legal, Regulatory & Political Business Conditions ● The impact of the COVID-19 pandemic on our business. ● Economic, legal, regulatory, political, and business conditions related to our global business. ● The impact of tariffs, trade sanctions or similar actions on our business.
Risk Factor Summary Factors Related to Economic, Legal, Regulatory & Political Business Conditions ● Economic, legal, regulatory, political, and business conditions related to our global business. ● The impact of tariffs, trade sanctions or similar actions on our business. ● The impact of pandemics or widespread global health problems on our business.
The COVID-19 pandemic has negatively impacted the overall economy and, as a result of the foregoing, could negatively impact our operating results and may do so in a material way.
Pandemics may negatively impact the overall economy and, as a result of the foregoing, could negatively impact our operating results and may do so in a material way.
Our inventory levels may be higher than historical norms, from time to time, due to inventory build decisions aimed at meeting expected demand from a single large customer, reducing direct material cost or enabling responsiveness to expected demand.
From time to time, our inventory levels may be higher than historical norms due to inventory build decisions aimed at meeting expected demand, ramping for new products, reducing direct material cost, or enabling responsiveness to expected demand.
California also recently adopted the California Consumer Privacy Act (“CCPA”), which imposes significant fines and penalties for violations. In November 2020, California voters approved the California Privacy Rights Act, which extends and expands the CCPA. Other states in the United States have proposed, and in certain cases enacted, legislation similar to the CCPA.
Effective January 2020, California adopted the California Consumer Privacy Act (“CCPA”), which imposes significant fines and penalties for violations. Additionally, the California Privacy Rights Act, which extends and expands the CCPA, became effective January 2023. Other states in the United States have proposed, and in certain cases enacted, legislation similar to the CCPA.
In addition, we purchase our wafers from foreign foundries; have our commercial products assembled, packaged, and tested by subcontractors located outside of the United States; and rely on international service providers for inventory management, order fulfillment, and direct sales logistics.
In addition, we purchase our wafers from foreign foundries; have our commercial products assembled, packaged, and tested by subcontractors located outside of the United States; and rely on international service providers for inventory management, order fulfillment, and direct sales logistics. Worldwide political and economic conditions may create uncertainties that could adversely affect our business.
In general, we warrant our products for varying lengths of time against non-conformance to our specifications and certain other defects.
We may be subject to warranty claims and other costs related to our products. In general, we warrant our products for varying lengths of time against non-conformance to our specifications and certain other defects.
In addition, we have insurance contracts that provide director and officer liability coverage for our directors and officers. Other than the specific areas mentioned above, we are self-insured with respect to most other risks and exposures, and the insurance we carry in many cases is subject to a significant policy deductible or other limitation before coverage applies.
Other than the specific areas mentioned above, we are self-insured with respect to most other risks and exposures, and the insurance we carry in many cases is subject to a significant policy deductible or other limitation before coverage applies.
The imposition of further tariffs by the United States on a broader range of imports, or further retaliatory trade measures taken in response to additional tariffs, could increase costs in our supply chain or reduce demand of our customers’ products, either of which could adversely affect our results of operations. 11 Table of Contents Our customers or suppliers could also become subject to U.S. regulatory scrutiny or export restrictions.
The imposition of further tariffs by the United States on a broader range of imports, or further retaliatory trade measures taken in response to additional tariffs, could increase costs in our supply chain or reduce demand of our customers’ products, either of which could adversely affect our results of operations.
A number of factors, including how products are manufactured to support end markets, yield, wafer pricing, cost of packaging raw materials, product mix, market acceptance of our new products, competitive pricing dynamics, product quality, geographic and/or end market mix, and pricing strategies, can cause our revenue, gross margins and net income to fluctuate significantly either positively or negatively from period to period.
A number of factors, including how products are manufactured to support end markets, yield, wafer pricing, cost of packaging raw materials, product mix, market acceptance of our new products, competitive pricing dynamics, product quality, geographic and/or end market mix, and pricing strategies, can cause our revenue, gross margins, net income, and inventory to fluctuate significantly either positively or negatively from period to period. 19 Table of Contents We have limited visibility into the demand for our products, particularly new products, because demand for our products depends upon our products being designed into our end customers' products and those products achieving market acceptance.
For purposes of testing goodwill for impairment, the Company currently operates as one reporting unit: the core Lattice ("Core") business, which includes intellectual property and semiconductor devices. We had no impairment charges in fiscal years 2021, 2020, or 2019. Impairment charges related to amortizable intangible assets from the Silicon Image acquisition totaled approximately $12.5 million in fiscal 2018.
For purposes of testing goodwill for impairment, the Company currently operates as one reporting unit: the core Lattice business, which includes intellectual property and semiconductor devices. There were no impairment charges to goodwill or amortizable intangible assets in fiscal years 2022, 2021, or 2020.
If we are unable to repay or refinance the indebtedness upon acceleration or at maturity, the lenders could initiate a bankruptcy proceeding against us or collection proceedings with respect to our assets and subsidiaries securing the facility, which could materially decrease the value of our common stock.
If we are unable to repay or refinance the indebtedness upon acceleration or at maturity, the lenders could initiate a bankruptcy proceeding against us or collection proceedings with respect to our assets and subsidiaries securing the facility, which could materially decrease the value of our common stock. 17 Table of Contents Factors Related to Our Markets and Product Development The semiconductor industry routinely experiences cyclical market patterns and our products are used across different end markets.
Should there be a catastrophic loss due to an uninsured event (such as an earthquake) or a loss due to adverse occurrences in any area in which we are self-insured, our financial condition or operating results could be adversely affected. 16 Table of Contents Our outstanding indebtedness could reduce our strategic flexibility and liquidity and may have other adverse effects on our results of operations.
Should there be a catastrophic loss due to an uninsured event (such as an earthquake) or a loss due to adverse occurrences in any area in which we are self-insured, our financial condition or operating results could be adversely affected.
We may need to expend significant financial and development resources to analyze, correct, eliminate, or work around errors or defects or to eliminate or otherwise address security vulnerabilities, and we and our third-party service providers may face difficulties or delays in identifying or otherwise responding to any potential security breach or incident.
We may need to expend significant financial and development resources to analyze, correct, eliminate, or work around errors or defects or to eliminate or otherwise address security vulnerabilities, and we and our third-party service providers may face difficulties or delays in identifying or otherwise responding to any potential security breach or incident. 14 Table of Contents Further, the increase in cyber-attacks has resulted in an increased focus on cybersecurity by certain government agencies.
We depend on subcontractors to provide cost effective and efficient services in our product development and supply chain functions, including test and assembly services, software and hardware development, support of intellectual property cores, inventory management, order fulfillment and direct sales logistics. 18 Table of Contents Our operations and operating results may be adversely affected if we experience problems with our subcontractors that impact the delivery of product to our customers.
We depend on subcontractors to provide cost effective and efficient services in our product development and supply chain functions, including test and assembly services, software and hardware development, support of intellectual property cores, inventory management, order fulfillment and direct sales logistics.
In the fourth quarter of fiscal 2019, the HDMI Founders adopted a new agreement covering the five-year period beginning January 1, 2018. The amount of our portion of the royalty allocation is dependent on the royalties generated by adopter sales of royalty-bearing HDMI technology, which are subject to variability in economic trends particularly in the market for consumer electronics.
The amount of our portion of the royalty allocation is dependent on the royalties generated by adopter sales of royalty-bearing HDMI technology, which are subject to variability in economic trends particularly in the market for consumer electronics.
Factors Related to Manufacturing our Products We rely on a concentrated number of subcontractors to supply and fabricate silicon wafers and to perform assembly and test operations for our semiconductor products. If they are unable to do so on a timely and cost-effective basis in sufficient quantities and using competitive technologies, we may incur significant costs or delays.
If they are unable to do so on a timely and cost-effective basis in sufficient quantities and using competitive technologies, we may incur significant costs or delays. We rely on foundries in Japan, Korea and Taiwan to supply and fabricate silicon wafers for our semiconductor products, including Taiwan Semiconductor Manufacturing, Samsung Semiconductor, United Microelectronics Corporation, and Seiko Epson.
Factors Related to Manufacturing our Products ● The concentration of subcontractors that we rely on to supply and fabricate silicon wafers for our semiconductor products. ● Our achievement of continued yield improvement. ● The impacts of shortages in, or increased costs of, wafers and other materials. ● Potential warranty claims and other costs related to our products.
Factors Related to Manufacturing our Products ● Geopolitical exposure of our subcontractors that we rely on to supply silicon wafers, packaging, and testing to manufacture our semiconductor products. ● Our achievement of continued yield and quality improvements to meet our internal cost and customer quality goals, and the potential impact of shortages in, or increased costs of, wafers and other materials. ● Potential warranty claims and other costs related to our products.
This could result in the loss of our ability to import and sell our products or require us to pay costly royalties to third parties in connection with sales of our products. Any infringement claim, indemnification claim, or impairment or loss of use of our intellectual property could materially adversely affect our financial condition and results of operations.
This could result in the loss of our ability to import and sell our products or require us to pay costly royalties to third parties in connection with sales of our products.
Factors Related to Overall General Business & Operations Our business depends on the proper functioning of internal processes and information technology systems. A failure of these processes and systems, data breaches, cyber-attacks, or cyber-fraud may cause business disruptions, compromise our intellectual property or other sensitive information, or result in losses.
A failure of these systems, data breaches, cyber-attacks, or cyber-fraud may cause business disruptions, compromise our intellectual property or other sensitive information, or result in losses.
Future changes to these rules, or in the guidance relating to interpretation and adoption of the rules, could have a significant effect on our financial results and could affect portions of our business differently. Changes in effective tax rates, tax laws and our global organizational structure and operations could expose us to unanticipated tax consequences.
Changes in these rules have occurred in the past and future changes to these rules, or in the guidance relating to interpretation and adoption of the rules, could have a material effect on our financial results and could affect portions of our business differently.
The U.S. government may add additional Chinese companies to its restricted entity list or impose additional licensing requirements that we may be unable to meet in a timely manner or at all. Where license requirements are imposed, there can be no assurance that the U.S. government will grant licenses to permit the continuation of business with these customers.
The U.S. government may add additional Chinese companies to its restricted entity list or impose additional licensing requirements that we may be unable to meet in a timely manner or at all.
Competition for qualified employees has generally increased across the economy in the United States, which, if we experience employee turnover, could lead to disruptions in our processes, inadequate end user training or difficulty updating our IT systems and networks. 14 Table of Contents We maintain sensitive data on our networks and the networks of our business partners and third-party providers, including proprietary and confidential information relating to our intellectual property, personnel, and business, and that of our customers and third-party providers.
Competition for qualified employees has generally increased across the economy in the United States, which, if we experience employee turnover, could lead to disruptions in our processes, inadequate end user training or difficulty updating our IT systems and networks.
Although our business has not been materially impacted by supply chain constraints, inflation, or labor market disruptions due to the COVID-19 pandemic, the pandemic may still lead to events outside of our control which could have a material adverse impact on our business, operating results, and financial condition.
Although our business has not been materially impacted by supply chain constraints, inflation, or labor market disruptions, events outside of our control could have a material adverse impact on our business, operating results, and financial condition in the future. Uncertainty about future political and economic conditions makes forecasting demand and providing guidance difficult.
The identification of suitable acquisition, strategic investment or strategic partnership candidates can be costly and time consuming and can distract our management team from our current operations.
We may pursue growth opportunities by acquiring complementary businesses, solutions or technologies through strategic transactions, investments or partnerships. The identification of suitable acquisition, strategic investment or strategic partnership candidates can be costly and time consuming and can distract our management team from our current operations.
Competition for such personnel is intense and has been increasing generally throughout the economy, and we may not be successful in hiring or retaining new or existing qualified personnel. If we lose existing qualified personnel or are unable to hire new qualified personnel, as needed, we could have difficulty competing in our highly competitive and innovative environment.
Competition for such personnel is intense and has been increasing generally throughout the economy, and we may not be successful in hiring or retaining new or existing qualified personnel.
Factors Related to Our Markets and Product Development The semiconductor industry routinely experiences cyclical market patterns and our products are used across different end markets. A significant downturn in the industry or in any of these end markets could cause a meaningful reduction in demand for our products and adversely affect our operating results.
A significant downturn in the industry or in any of these end markets could cause a meaningful reduction in demand for our products and adversely affect our operating results. Our revenue and gross margin can fluctuate significantly due to downturns in the highly cyclical semiconductor industry.
Our revenue and gross margin can fluctuate significantly due to downturns in the highly cyclical semiconductor industry. These downturns can be severe and prolonged and can result in price erosion and weak demand for our products.
These downturns can be severe and prolonged and can result in price erosion and weak demand for our products.
Pandemics and epidemics such as the current COVID-19 outbreak or other widespread public health problems could negatively impact our business.
Pandemics or other widespread public health problems could adversely affect our business, results of operations, and financial condition in a material way. Pandemics, epidemics or other widespread public health problems, such as the ongoing COVID-19 pandemic, could negatively impact our business.
As a result of the amended model for sharing adopter fee revenue, we are entitled to a share of the adopter fees paid by parties adopting the HDMI standard. We share HDMI royalties with the other HDMI Founders based on an allocation formula, which is reviewed generally every three years.
Our participation in the HDMI standard is evolving, and our share of adopter fees and royalties for the HDMI standard is subject to variability. We share HDMI royalties with the other HDMI Founders based on an allocation formula, which is reviewed generally every three years.
While we may give guidance, the difficulty in forecasting revenues as well as the relative customer and product mix of those revenues limits our ability to provide accurate forward-looking revenue and gross margin guidance. 19 Table of Contents Accounting requirements related to sales through our distribution channel could result in our reporting revenue in excess of demand.
While we may issue guidance, difficulty in forecasting financial performance, relative customer and product mix, and the unpredictability of unknown variables and their impact on our financial performance may impair the accuracy of our forward-looking financial measures. Accounting requirements related to sales through our distribution channel could result in our reporting revenue in excess of demand.
We may have failed to adequately insure against certain risks and, as a result, our financial condition and results may be adversely affected. We carry insurance customary for companies in our industry, including, but not limited to, liability, property, and casualty; workers' compensation; and business interruption insurance. We also insure our employees for basic medical expenses.
We carry insurance customary for companies in our industry, including, but not limited to, liability, property, and casualty; workers' compensation; cyber liability; and business interruption insurance. We also insure our employees for basic medical expenses. In addition, we have insurance contracts that provide director and officer liability coverage for our directors and officers.
Further changes in the tax laws of foreign jurisdictions could arise as a result of the base erosion and profit shifting project undertaken by the Organisation for Economic Co-operation and Development, which represents a coalition of member countries and recommended changes to numerous long-standing tax principles.
The Organisation for Economic Co-operation and Development, which represents a coalition of member countries, recommended changes to numerous long-standing tax principles, including a 15% global minimum tax.
Further, the Chinese government has developed an unreliable entity list, which limits the ability of companies on the list to engage in business with Chinese customers. We cannot predict what impact these and future actions, sanctions or criminal charges could have on our customers or suppliers, and therefore our business.
We cannot predict what impact these and future actions, sanctions or criminal charges could have on our customers or suppliers, and therefore our business.
If the technical solution or end user training are inadequate, it could limit our ability to manufacture and ship products as planned. We have various systems that remain that may be nearing the end of their useful life or vendor support, which will ultimately need to be replaced.
If the technical solution or end user training are inadequate, it could limit our ability to manufacture and ship products as planned. Moreover, the proper functioning of the internal processes that the IT systems and networks support relies on qualified employees.
If the demand for silicon wafers or assembly material exceeds market supply, or if suppliers increase prices to cover the cost of rising inflation, our supply of silicon wafers or assembly material could quickly become limited or prohibitively expensive. We typically have short-term wafer supply agreements that do not ensure long-term supply or allocation commitments.
Furthermore, worldwide manufacturing capacity for our products may be impacted by many factors which may impact availability and cost. If the demand for silicon wafers or assembly material exceeds market supply, or if suppliers increase prices to cover the cost of rising inflation, our supply of silicon wafers or assembly material could quickly become limited or prohibitively expensive.
A shortage in manufacturing capacity could hinder our ability to meet product demand and therefore reduce our revenue. In addition, silicon wafers constitute a material portion of our product cost.
A shortage in manufacturing capacity could hinder our ability to meet product demand and therefore reduce our revenue. Silicon wafers constitute a material portion of our product cost, and if we are unable to purchase wafers at favorable prices, due to supply constraints, inflation, or other factors, our margins, results of operations, and financial condition may be adversely affected.
Future sanctions similar to those imposed in the past and to those recently imposed could adversely affect our ability to earn revenue from these and similar customers. In addition, the imposition of sanctions on customers in China may cause those customers to seek domestic alternatives to our products and those of other United States semiconductor companies.
In addition, the imposition of sanctions or other restrictions on customers in China may cause those customers to seek domestic alternatives to our products and those of other United States semiconductor companies. Further, the Chinese government has developed an unreliable entity list, which limits the ability of companies on the list to engage in business with Chinese customers.
The majority of our products are manufactured, assembled, and tested by third parties in Asia. We also have other operations in China, the Philippines, and the United States. In addition, we rely on third party vendors for certain logistics and shipping operations throughout the world, including in Malaysia, Singapore, South Korea, Japan, and Taiwan.
For example, the spread and impact of the COVID-19 pandemic throughout Asia and other jurisdictions in which we operate continues to fluctuate and its impacts remain uncertain. The majority of our products are manufactured, assembled, and tested by third parties in Asia. In addition, we also have other operations in China, the Philippines, and the United States.
Accordingly, our expectations are subject to change without warning and investors are cautioned not to place undue reliance on them. 10 Table of Contents Our global business operations expose us to various economic, legal, regulatory, political, and business risks, which could impact our business, operating results and financial condition. We have significant domestic and international operations.
Accordingly, our expectations are subject to change without warning and investors are cautioned not to place undue reliance on them.
Furthermore, various levels of government are focused on tax reform and other legislative actions to increase tax revenue. The current U.S. administration has various proposals that, if enacted, would increase U.S. federal income taxes on corporations.
Furthermore, various levels of government are focused on tax reform and other legislative actions to increase tax revenue. We also may be impacted by changes in the tax laws of the United States and foreign jurisdictions.
The outbreak has resulted in significant governmental measures to control the spread of the COVID-19 variants, including, among others, restrictions on travel, manufacturing and the movement of employees in many regions of the world, and the imposition of remote or work-from-home mandates in many of the countries in which we operate, including the United States and the Philippines.
Outbreaks have, and could again, result in significant government measures to control the spread of disease, including, among others, restrictions on travel, manufacturing, and the movement of employees.
Removed
The COVID-19 pandemic continues to mutate and affect the populations of the United States as well as many countries around the world.
Added
For example, the continuing military conflict between Ukraine and Russia, as well as the financial and trade-related restrictions associated with Russia and Belarus and economic sanctions on certain individuals and entities in Russia and Belarus, may further disrupt global supply chains and could result in shortages of key materials that our suppliers and foundry partners require to satisfy our needs.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeItem 2. Properties We lease a 47,800 square foot of space in Hillsboro, Oregon as our corporate headquarters and a research and development facility through October 2028.
Biggest changeItem 2. Properties We lease a 47,800 square foot space in Hillsboro, Oregon as our corporate headquarters and a research and development facility through October 2028. In San Jose, California, we have 98,874 square feet under lease through September 2026, of which we use 49,579 square feet as a research and development facility.
During 2019, we vacated a 23,680 square foot office space in Portland, Oregon, which we have subleased through the end of the lease in March 2025. In Muntinlupa City, Philippines, we lease a total of 50,503 square feet through May 2025 for research and development and operations facilities.
We vacated 49,295 square feet during the fourth quarter of 2018. During 2019, we vacated a 23,680 square foot office space in Portland, Oregon, which we have subleased through the end of the lease in March 2025. In Muntinlupa City, Philippines, we lease a total of 50,503 square feet through May 2025 for research and development and operations facilities.
Removed
In San Jose, California, we have 98,874 square feet under lease through September 2026, of which we use 49,579 square feet as a research and development facility, while we vacated 49,295 square feet during the fourth quarter of 2018 and intend to sublease the vacated space.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeItem 3. Legal Proceedings The information contained under the heading "Legal Matters" in Note 15 - Contingencies to our Consolidated Financial Statements in Part II, Item 8 is incorporated by reference into this Part I, Item 3.
Biggest changeItem 3. Legal Proceedings The information contained under the heading "Legal Matters" in Note 15 - Contingencies to our Consolidated Financial Statements in Part II, Item 8 of this report is incorporated by reference into this Part I, Item 3.
Also, see “Litigation and unfavorable results of legal proceedings could adversely affect our financial condition and operating results” in “Risk Factors” in Item 1A of Part I of this Annual Report on Form 10-K. Item 4. Mine Safety Disclosures Not applicable. 20 Table of Contents PART II
Also, see “Litigation and unfavorable results of legal proceedings could adversely affect our financial condition and operating results” in “Risk Factors” in Item 1A of Part I of this Annual Report on Form 10-K. Item 4. Mine Safety Disclosures Not applicable. 22 Table of Contents PART II

Item 4. Mine Safety Disclosures

Mine Safety Disclosures — required of mining issuers

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Biggest changeItem 4. Mine Safety Disclosures 20 PART II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities 21 Item 6. Reserved 22 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 23 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 31 Item 8.
Biggest changeItem 4. Mine Safety Disclosures 22 PART II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities 23 Item 6. Reserved 24 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 25 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 33 Item 8.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeThe following table contains information regarding our repurchases of our common stock that is registered pursuant to Section 12 of the Securities Exchange Act of 1934 during the fourth quarter of fiscal 2021: Period Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (a) Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs ($M) (b) October 3, 2021 through October 30, 2021 — $ — — $ 4.9 October 31, 2021 through November 27, 2021 186,200 $ 80.55 186,200 $ 89.9 November 28, 2021 through January 1, 2022 — $ — — $ 89.9 Total 186,200 $ 80.55 186,200 $ 89.9 (a) All repurchases during the quarter were open-market transactions funded from available working capital made under the authorization from our board of directors to purchase up to $60.0 million of LSCC common stock announced February 19, 2021 and under the authorization from our board of directors to purchase up to $100.0 million of LSCC common stock announced November 8, 2021.
Biggest changeThe following table contains information regarding our repurchases of our common stock that is registered pursuant to Section 12 of the Securities Exchange Act of 1934 during the fourth quarter of fiscal 2022: Period Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (a) Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs ($M) (b) October 2, 2022 through October 29, 2022 — $ — — $ 149.7 October 30, 2022 through November 26, 2022 — $ — — $ 149.7 November 27, 2022 through December 31, 2022 288,652 $ 69.27 288,652 $ 129.7 Total 288,652 $ 69.27 288,652 $ 129.7 (a) All repurchases during the quarter were open-market transactions funded from available working capital made under the authorization from our Board of Directors to purchase up to $150.0 million of our common stock announced August 8, 2022 (b) As of December 31, 2022 this amount consisted of the remaining portion of the $150.0 million program authorized through the end of December 2023 that was announced August 8, 2022 . 23 Table of Contents Comparison of Total Cumulative Stockholder Return The following graph shows the five-year comparison of cumulative stockholder return on our common stock, the Standard and Poor's (“S&P”) 500 Index and the Philadelphia Semiconductor Index (“PHLX”) from December 2017 through December 2022.
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities Market Information Our common stock is traded on the NASDAQ Global Select Market under the symbol "LSCC". Holders As of February 17, 2022, we had approximately 182 stockholders of record.
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities Market Information Our common stock is traded on the NASDAQ Global Select Market under the symbol "LSCC". Holders As of February 13, 2023, we had approximately 177 stockholders of record.
On November 8, 2021, we announced that our Board of Directors had approved a stock repurchase program pursuant to which up to an additional $100.0 million of outstanding common stock could be repurchased from time to time (the "2022 Repurchase Program"). The duration of the 2022 Repurchase Program is through the end of December 2022.
Issuer Purchases of Equity Securities On August 8, 2022, we announced that our Board of Directors had approved a stock repurchase program pursuant to which up to $150 million of outstanding common stock could be repurchased from time to time (the "2023 Repurchase Program"). The duration of the 2023 Repurchase Program is through the end of December 2023.
Under the 2022 Repurchase Program during the fourth quarter of fiscal 2021, we repurchased approximately 125,400 shares for $10.1 million, or an average price paid per share of $80.55. All shares repurchased pursuant to the 2022 Repurchase Program were retired by the end of the 2021 fiscal year.
Under the 2023 Repurchase Program during the fourth quarter of fiscal 2022, we repurchased 288,652 shares for $20.0 million, or an average price paid per share of $69.27. All repurchases were open market transactions funded from available working capital. All shares repurchased pursuant to the 2023 Repurchase Programs were retired by the end of the fourth quarter of fiscal 2022.
Removed
Issuer Purchases of Equity Securities On February 19, 2021, our Board of Directors approved a stock repurchase program pursuant to which up to $60.0 million of outstanding common stock could be repurchased from time to time (the "2021 Repurchase Program"). The duration of the 2021 Repurchase Program is twelve months.
Added
We have repurchased a total of 1,951,934 shares for $110.1 million, or an average price paid per share of $56.42, during fiscal year 2022.
Removed
Under the 2021 Repurchase Program during the fourth quarter of fiscal 2021, we repurchased approximately 60,800 shares for approximately $4.9 million, or an average price paid per share of $80.55. All shares repurchased pursuant to the 2021 Repurchase Program were retired by the end of the 2021 fiscal year.
Removed
(b) As of January 1, 2022 this amount consisted of the remaining portion of the $100.0 million program authorized through the end of December 2022 that was announced November 8, 2021.
Removed
We do not plan to make further repurchases pursuant to the 2021 Repurchase Program, which was due to expire in February 2022, because as of November 27, 2021 we had repurchased the maximum dollar value of shares authorized under the 2021 Repurchase Program. 21 Table of Contents Comparison of Total Cumulative Stockholder Return The following graph shows the five-year comparison of cumulative stockholder return on our common stock, the Standard and Poor's (“S&P”) 500 Index and the Philadelphia Semiconductor Index (“PHLX”) from December 2016 through December 2021.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeThe following are examples of end market applications for the fiscal years presented: Communications and Computing Industrial and Automotive Consumer Licensing and Services Wireless Security and Surveillance Cameras IP Royalties Wireline Machine Vision Displays Adopter Fees Data Backhaul Industrial Automation Wearables IP Licenses Server Computing Robotics Televisions Patent Sales Client Computing Automotive Home Theater Data Storage Drones The composition of our revenue by end market is presented in the following table: Year Ended January 1, January 2, December 28, % Change in (In thousands) 2022 2021 2019 2021 2020 Communications and Computing $ 217,960 42.3 % $ 174,656 42.8 % $ 155,821 38.6 % 24.8 % 12.1 % Industrial and Automotive 226,240 43.9 168,323 41.2 151,607 37.5 34.4 11.0 Consumer 50,652 9.8 45,523 11.2 75,120 18.6 11.3 (39.4 ) Licensing and Services 20,475 4.0 19,618 4.8 21,545 5.3 4.4 (8.9 ) Total revenue $ 515,327 100.0 % $ 408,120 100.0 % $ 404,093 100.0 % 26.3 % 1.0 % Revenue from the Communications and Computing end market increased by 25% in fiscal 2021 compared to fiscal 2020 primarily due to increased demand for applications in data center servers, client computing platforms, and 5G infrastructure.
Biggest changeWe assign this revenue first to a specific end market using historical and anticipated usage of the specific products, if possible, and allocate the remainder to the end markets based on either historical usage for each product family or industry application data for certain product types. 27 Table of Contents The following are examples of end market applications for the fiscal years presented: Communications and Computing Industrial and Automotive Consumer Licensing and Services Wireless Security and Surveillance Cameras IP Royalties Wireline Machine Vision Displays Adopter Fees Data Backhaul Industrial Automation Wearables IP Licenses Server Computing Robotics Televisions Patent Sales Client Computing Automotive Home Theater Data Storage Drones The composition of our revenue by end market is presented in the following table: Year Ended December 31, January 1, January 2, % Change in (In thousands) 2022 2022 2021 2022 2021 Communications and Computing $ 274,754 41.6 % $ 217,960 42.3 % $ 174,656 42.8 % 26.1 % 24.8 % Industrial and Automotive 319,399 48.4 226,240 43.9 168,323 41.2 41.2 34.4 Consumer 49,064 7.4 50,652 9.8 45,523 11.2 (3.1 ) 11.3 Licensing and Services 17,139 2.6 20,475 4.0 19,618 4.8 (16.3 ) 4.4 Total revenue $ 660,356 100.0 % $ 515,327 100.0 % $ 408,120 100.0 % 28.1 % 26.3 % Revenue from the Communications and Computing end market increased by 26% in fiscal 2022 compared to fiscal 2021 primarily due to content expansion in datacenter servers, new greenfield client computing opportunities, 5G infrastructure, and datacenter networking.
New Accounting Pronouncements The information contained under the heading "New Accounting Pronouncements" in Note 1 - Nature of Operations and Significant Accounting Policies to our Consolidated Financial Statements in Part II, Item 8 is incorporated by reference into this Part II, Item 7.
New Accounting Pronouncements The information contained under the heading "New Accounting Pronouncements" in Note 1 - Nature of Operations and Significant Accounting Policies to our Consolidated Financial Statements in Part II, Item 8 of this report is incorporated by reference into this Part II, Item 7.
For fiscal 2021, Acquisition related charges were entirely attributable to our acquisition of Mirametrix in November 2021 and were comprised primarily of professional services including legal and accounting fees, as well as closing costs.
For fiscal 2022 and 2021, Acquisition related charges were entirely attributable to our acquisition of Mirametrix in November 2021 and were comprised primarily of professional services including legal and accounting fees, as well as closing costs.
Improved margins were driven by benefits from our pricing optimization and gross margin expansion strategy. Because of its higher margin, the licensing and services portion of our overall revenue can have a disproportionate impact on Gross margin.
Improved margins were driven by benefits from our gross margin expansion strategy. Because of its higher margin, the licensing and services portion of our overall revenue can have a disproportionate impact on Gross margin.
This discussion and analysis of financial condition and results of operations should be read in conjunction with our consolidated financial statements and accompanying notes included in Item 8. "Financial Statements and Supplementary Data" of this report.
This discussion and analysis of financial condition and results of operations should be read in conjunction with our consolidated financial statements and accompanying notes included in Part II, Item 8. "Financial Statements and Supplementary Data" of this report.
Financing activities — Financing cash flows consist primarily of activity on our long-term debt, proceeds from the exercise of options to acquire common stock, tax payments related to the net share settlement of restricted stock units, and repurchases of common stock. Net cash used by financing activities in fiscal 2021 was $128.6 million compared to $8.1 million in fiscal 2020.
Financing activities — Financing cash flows consist primarily of repurchases of common stock, tax payments related to the net share settlement of restricted stock units, proceeds from the exercise of options to acquire common stock, and activity on our long-term debt. Net cash used by financing activities in fiscal 2022 was $188.1 million compared to $128.6 million in fiscal 2021.
Revenue by End Market We sell our products globally to a broad base of customers in three primary end markets groups: Communications and Computing, Industrial and Automotive, and Consumer. We also provide Intellectual Property licensing and services to these end markets.
Revenue by End Market We sell our products globally to a broad base of customers in three primary end markets groups: Communications and Computing, Industrial and Automotive, and Consumer. We also provide IP licensing and services to these end markets.
The increase in expense in fiscal 2021 as compared to fiscal 2020 is primarily due to changes in uncertain tax positions and increased worldwide income .
The increase in expense in fiscal 2022 as compared to fiscal 2021 is primarily due to increased worldwide income and changes in uncertain tax positions .
See " Note 1 - Nature of Operations and Significant Accounting Policies " under Part II, Item 8 of this report for further information on the significant accounting policies and methods used in the preparation of the consolidated financial statements.
See Note 1 - Nature of Operations and Significant Accounting Policies to our Consolidated Financial Statements in Part II, Item 8 of this report for further information on the significant accounting policies and methods used in the preparation of the consolidated financial statements.
Investing activities — Investing cash flows consist primarily of transactions related to capital expenditures and payments for software and intellectual property licenses, and a business acquisition in fiscal 2021. Net cash used by investing activities in fiscal 2021 was $89.8 million compared to $20.9 million in fiscal 2020.
Investing activities — Investing cash flows consist primarily of transactions related to capital expenditures and payments for software and intellectual property licenses, and a business acquisition in fiscal 2021. Net cash used by investing activities in fiscal 2022 was $34.9 million compared to $89.8 million in fiscal 2021.
This should not result in our recording significant additional tax expense as we have accrued expense based on current withholding rates. As of January 1, 2022, we could access all cash held by our foreign subsidiaries without incurring significant additional expense.
This should not result in our recording significant additional tax expense as we have accrued expense based on current withholding rates. As of December 31, 2022, we could access all cash held by our foreign subsidiaries without incurring significant additional expense.
This resulted primarily from increased shipments in the fourth quarter of fiscal 2021 compared to the fourth quarter of fiscal 2020. We calculate Days sales outstanding on the basis of a 365-day year as Accounts receivable, net at the end of the quarter divided by sales during the quarter annualized and then multiplied by 365.
This resulted primarily from higher revenue shipments in the fourth quarter of fiscal 2022 compared to the fourth quarter of fiscal 2021. We calculate Days sales outstanding on the basis of a 365-day year as Accounts receivable, net at the end of the quarter divided by sales during the quarter annualized and then multiplied by 365.
We updated our evaluation of the valuation allowance position in the United States through January 1, 2022 and concluded that we should continue to maintain a full valuation allowance against the net federal and state deferred tax assets.
We updated our evaluation of the valuation allowance position in the United States through December 31, 2022 and concluded that we should continue to maintain a full valuation allowance against the net federal and state deferred tax assets.
GAAP requires management to make estimates and judgments affecting the amounts reported in our consolidated financial statements and the accompanying notes. We base our estimates and judgments on historical experience, knowledge of current conditions, and our beliefs of what could occur in the future considering available information.
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and judgments affecting the amounts reported in our consolidated financial statements and the accompanying notes. We base our estimates and judgments on historical experience, knowledge of current conditions, and our beliefs of what could occur in the future considering available information.
Discussions of results for prior periods (fiscal 2020 compared to fiscal 2019) are incorporated by reference from our Annual Report on Form 10-K for the year ended January 2, 2021 .
Discussions of results for prior periods (fiscal 2021 compared to fiscal 2020) are incorporated by reference from our Annual Report on Form 10-K for the year ended January 1, 2022 .
Restructuring Charges The composition of our Restructuring charges, including as a percentage of revenue, is presented in the following table: Year Ended January 1, January 2, December 28, % Change in (In thousands) 2022 2021 2019 2021 2020 Restructuring charges $ 940 $ 3,937 $ 4,664 (76.1 )% (15.6 )% Percentage of revenue 0.2 % 1.0 % 1.2 % Restructuring charges are comprised of expenses resulting from reductions in our worldwide workforce, consolidation of our facilities, removal of fixed assets from service, and cancellation of software contracts and engineering tools.
Restructuring Charges The composition of our Restructuring charges, including as a percentage of revenue, is presented in the following table: Year Ended December 31, January 1, January 2, % Change in (In thousands) 2022 2022 2021 2022 2021 Restructuring charges $ 2,551 $ 940 $ 3,937 171.4 % (76.1 )% Percentage of revenue 0.4 % 0.2 % 1.0 % Restructuring charges are comprised of expenses resulting from reductions in our worldwide workforce, consolidation of our facilities, removal of fixed assets from service, and cancellation of software contracts and engineering tools.
Income Taxes The composition of our Income tax expense is presented in the following table: Year Ended January 1, January 2, December 28, % Change in (In thousands) 2022 2021 2019 2021 2020 Income tax expense $ 1,704 $ 1,064 $ 1,572 60.2 % (32.3 )% Our Income tax expense is composed primarily of foreign income and withholding taxes, partially offset by benefits resulting from the release of uncertain tax positions ("UTP") due to statute of limitation expirations that occurred in the respective periods.
Income Taxes The composition of our Income tax expense is presented in the following table: Year Ended December 31, January 1, January 2, % Change in (In thousands) 2022 2022 2021 2022 2021 Income tax expense (benefit) $ 3,230 $ 1,704 $ 1,064 89.6 % 60.2 % Our Income tax expense (benefit) is composed primarily of foreign income and withholding taxes, partially offset by benefits resulting from the release of uncertain tax positions ("UTP") due to statute of limitation expirations that occurred in the respective periods.
Acquisition Related Charges The composition of our Acquisition related charges, including as a percentage of revenue, is presented in the following table: Year Ended January 1, January 2, December 28, % Change in (In thousands) 2022 2021 2019 2021 2020 Acquisition related charges $ 1,171 $ — $ — 100+% — % Percentage of revenue 0.2 % — % — % 28 Table of Contents Acquisition related charges include legal and professional fees directly related to acquisitions.
Acquisition Related Charges The composition of our Acquisition related charges, including as a percentage of revenue, is presented in the following table: Year Ended December 31, January 1, January 2, % Change in (In thousands) 2022 2022 2021 2022 2021 Acquisition related charges $ 511 $ 1,171 $ — (56.4 )% 100+% Percentage of revenue 0.1 % 0.2 % — % 30 Table of Contents Acquisition related charges include legal and professional fees directly related to acquisitions.
The net decrease in Cash and cash equivalents of $50.8 million between January 2, 2021 and January 1, 2022 was primarily driven by cash flows from the following activities: Operating activities — Cash provided by operating activities results from net income adjusted for certain non-cash items and changes in assets and liabilities.
The net increase in Cash and cash equivalents of $14.2 million between January 1, 2022 and December 31, 2022 was primarily driven by cash flows from the following activities: Operating activities — Cash provided by operating activities results from net income adjusted for certain non-cash items and changes in assets and liabilities.
The composition of our revenue by customer is presented in the following table: % of Total Revenue Year Ended January 1, January 2, December 28, 2022 2021 2019 Weikeng Group 37.2 % 34.8 % 29.8 % Arrow Electronics Inc. 27.1 25.1 25.4 Other distributors 23.0 23.2 26.9 All distributors 87.3 83.1 82.1 % Direct customers 8.7 12.1 12.6 Licensing and services revenue 4.0 4.8 5.3 Total revenue 100.0 % 100.0 % 100.0 % Gross margin The composition of our gross margin, including as a percentage of revenue, is presented in the following table: Year Ended January 1, January 2, December 28, (In thousands) 2022 2021 2019 Gross margin $ 321,675 $ 245,306 $ 238,422 Gross margin percentage 62.4 % 60.1 % 59.0 % Product gross margin % 60.9 % 58.1 % 56.7 % Licensing and services gross margin % 100.0 % 100.0 % 100.0 % Gross margin percentage increased 230 basis points from fiscal 2020 to fiscal 2021.
The composition of our revenue by customer is presented in the following table: % of Total Revenue Year Ended December 31, January 1, January 2, 2022 2022 2021 Weikeng Group 30.3 % 37.2 % 34.8 % Arrow Electronics Inc. 28.5 27.1 25.1 Other distributors 30.7 23.0 23.2 All distributors 89.5 87.3 83.1 % Direct customers 7.9 8.7 12.1 Licensing and services revenue 2.6 4.0 4.8 Total revenue 100.0 % 100.0 % 100.0 % Gross margin The composition of our gross margin, including as a percentage of revenue, is presented in the following table: Year Ended December 31, January 1, January 2, (In thousands) 2022 2022 2021 Gross margin $ 452,050 $ 321,675 $ 245,306 Gross margin percentage 68.5 % 62.4 % 60.1 % Product gross margin % 67.6 % 60.9 % 58.1 % Licensing and services gross margin % 100.0 % 100.0 % 100.0 % Gross margin percentage increased 610 basis points from fiscal 2021 to fiscal 2022.
These expenditures are for the design of new products, IP cores, processes, packaging, and software solutions. The increase in Research and development expense for fiscal 2021 compared to fiscal 2020 was due primari ly to increased headcount-related costs as we continue to invest in the expansion of our product portfolio and the acceleration of our new product introduction cadence.
These expenditures are for the design of new products, IP cores, processes, packaging, and software solutions. The increase in Research and development expense for fiscal 2022 compared to fiscal 2021 was due primari ly to increased headcount-related costs as we continue to invest in our long-term product roadmap.
Critical Accounting Policies and Use of Estimates Critical accounting policies are those that are both most important to the portrayal of a company's financial condition and results of operations, and that require management's most difficult, subjective, and complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. 23 Table of Contents The preparation of financial statements in conformity with U.S.
Critical Accounting Policies and Use of Estimates Critical accounting policies are those that are both most important to the portrayal of a company's financial condition and results of operations, and that require management's most difficult, subjective, and complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.
The determination of a valuation allowance and when it should be released requires complex judgment. In assessing the ability to realize deferred tax assets, we regularly evaluate both positive and negative evidence that may exist and consider whether it is more-likely-than-not that some portion or all of the deferred tax assets will be realized.
In assessing the ability to realize deferred tax assets, we regularly evaluate both positive and negative evidence that may exist and consider whether it is more-likely-than-not that some portion or all of the deferred tax assets will be realized.
Amortization of Acquired Intangible Assets The composition of our Amortization of acquired intangible assets, including as a percentage of revenue, is presented in the following table: Year Ended January 1, January 2, December 28, % Change in (In thousands) 2022 2021 2019 2021 2020 Amortization of acquired intangible assets $ 2,613 $ 4,449 $ 13,558 (41.3 )% (67.2 )% Percentage of revenue 0.5 % 1.1 % 3.4 % The decrease in Amortization of acquired intangible assets for fiscal 2021 compared to fiscal 2020 was due to the end of the amortization period for the majority of our legacy acquired intangible assets during the first quarter of fiscal 2020, partially offset by amortization expense for new intangible assets added in the fourth quarter of fiscal 2021 through the acquisition of Mirametrix, Inc.
Amortization of Acquired Intangible Assets The composition of our Amortization of acquired intangible assets, including as a percentage of revenue, is presented in the following table: Year Ended December 31, January 1, January 2, % Change in (In thousands) 2022 2022 2021 2022 2021 Amortization of acquired intangible assets $ 3,778 $ 2,613 $ 4,449 44.6 % (41.3 )% Percentage of revenue 0.6 % 0.5 % 1.1 % The increase in Amortization of acquired intangible assets for fiscal 2022 compared to fiscal 2021 was due to the amortization expense for new intangible assets added in the fourth quarter of fiscal 2021 through the acquisition of Mirametrix, Inc., partially offset by end of the amortization period during the first quarter of fiscal 2022 for acquired intangible assets from previous acquisitions.
Operating Expenses Research and Development Expense The composition of our Research and development expense, including as a percentage of revenue, is presented in the following table: Year Ended January 1, January 2, December 28, % Change in (In thousands) 2022 2021 2019 2021 2020 Research and development $ 110,518 $ 89,223 $ 78,617 23.9 % 13.5 % Percentage of revenue 21.4 % 21.9 % 19.5 % Research and development expense includes costs for compensation and benefits, stock compensation, engineering wafers, depreciation, licenses, and outside engineering services.
Operating Expenses Research and Development Expense The composition of our Research and development expense, including as a percentage of revenue, is presented in the following table: Year Ended December 31, January 1, January 2, % Change in (In thousands) 2022 2022 2021 2022 2021 Research and development $ 135,767 $ 110,518 $ 89,223 22.8 % 23.9 % Percentage of revenue 20.6 % 21.4 % 21.9 % Research and development expense includes costs for compensation and benefits, stock compensation, engineering wafers, depreciation, licenses, and outside engineering services.
Payments for tax withholdings on vesting of RSUs partially offset by employee exercises of stock options used net cash flows of $45.4 million in fiscal 2021, an increase of approximately $28.5 million from the net $16.9 million used in fiscal 2020.
Payments for tax withholdings on vesting of RSUs partially offset by employee exercises of stock options used net cash flows of $47.8 million in fiscal 2022, an increase of approximately $2.4 million from the net $45.4 million used in fiscal 2021.
We calculate Days of inventory on hand on the basis of a 365-day year as Inventories at the end of the quarter divided by Cost of sales during the quarter annualized and then multiplied by 365 .
We calculate Days of inventory on hand on the basis of a 365-day year as Inventories at the end of the quarter divided by Cost of sales during the quarter annualized and then multiplied by 365 . Credit Arrangements On September 1, 2022, we entered into our 2022 Credit Agreement.
The composition of our revenue by geography is presented in the following table: Year Ended January 1, January 2, December 28, % Change in (In thousands) 2022 2021 2019 2021 2020 Asia $ 384,568 74.6 % $ 305,183 74.8 % $ 298,765 73.9 % 26.0 % 2.1 % Americas 80,870 15.7 62,137 15.2 57,936 14.4 30.1 7.3 Europe 49,889 9.7 40,800 10.0 47,392 11.7 22.3 (13.9 ) Total revenue $ 515,327 100.0 % $ 408,120 100.0 % $ 404,093 100.0 % 26.3 % 1.0 % 26 Table of Contents Revenue from Customers We sell our products to independent distributors and directly to customers.
The composition of our revenue by geography is presented in the following table: Year Ended December 31, January 1, January 2, % Change in (In thousands) 2022 2022 2021 2022 2021 Asia $ 464,904 70.5 % $ 384,568 74.6 % $ 305,183 74.8 % 20.9 % 26.0 % Americas 100,260 15.2 80,870 15.7 62,137 15.2 24.0 30.1 Europe 95,192 14.3 49,889 9.7 40,800 10.0 90.8 22.3 Total revenue $ 660,356 100.0 % $ 515,327 100.0 % $ 408,120 100.0 % 28.1 % 26.3 % 28 Table of Contents Revenue from Customers We sell our products to independent distributors and directly to customers.
We believe that our financial resources, including current cash and cash equivalents, cash flow from operating activities, and our credit facilities, will be sufficient to meet our liquidity and working capital needs through at least the next 12 months. As of January 1, 2022, we did not have significant long-term commitments for capital expenditures.
We believe that our financial resources, including current cash and cash equivalents, cash flow from operating activities, and our credit facilities, will be sufficient to meet our liquidity and working capital needs through at least the next 12 months.
Results of Operations Key elements of our Consolidated Statements of Operations, including as a percentage of revenue, are presented in the following table: Year Ended * January 1, January 2, December 28, (In thousands) 2022 2021 2019 Revenue $ 515,327 100.0 % $ 408,120 100.0 % $ 404,093 100.0 % Gross margin 321,675 62.4 245,306 60.1 238,422 59.0 Research and development 110,518 21.4 89,223 21.9 78,617 19.5 Selling, general and, administrative 105,617 20.5 95,331 23.4 82,542 20.4 Amortization of acquired intangible assets 2,613 0.5 4,449 1.1 13,558 3.4 Restructuring charges 940 0.2 3,937 1.0 4,664 1.2 Acquisition related charges 1,171 0.2 — — — — Income from operations $ 100,816 19.6 % $ 52,366 12.8 % $ 59,041 14.6 % * The year ended January 2, 2021 was a 53-week year as compared to the other years presented, which were based on our standard 52-week year.
We recognize the tax impact of including certain foreign earnings in U.S. taxable income as a period cost. 26 Table of Contents Results of Operations Key elements of our Consolidated Statements of Operations, including as a percentage of revenue, are presented in the following table: Year Ended * December 31, January 1, January 2, (In thousands) 2022 2022 2021 Revenue $ 660,356 100.0 % $ 515,327 100.0 % $ 408,120 100.0 % Gross margin 452,050 68.5 321,675 62.4 245,306 60.1 Research and development 135,767 20.6 110,518 21.4 89,223 21.9 Selling, general and, administrative 122,076 18.5 105,617 20.5 95,331 23.4 Amortization of acquired intangible assets 3,778 0.6 2,613 0.5 4,449 1.1 Restructuring charges 2,551 0.4 940 0.2 3,937 1.0 Acquisition related charges 511 0.1 1,171 0.2 — — Income from operations $ 187,367 28.4 % $ 100,816 19.6 % $ 52,366 12.8 % * The year ended January 2, 2021 was a 53-week year as compared to the other years presented, which were based on our standard 52-week year.
We believe that a continued commitment to Research and development is essential to maintaining product leadership and providing innovative new product offerings and, therefore, we expect to continue to increase our investment in Research and development, particularly with expanded investment in the development of software solutions. 27 Table of Contents Selling, General, and Administrative Expense The composition of our Selling, general, and administrative expense, including as a percentage of revenue, is presented in the following table: Year Ended January 1, January 2, December 28, % Change in (In thousands) 2022 2021 2019 2021 2020 Selling, general, and administrative $ 105,617 $ 95,331 $ 82,542 10.8 % 15.5 % Percentage of revenue 20.5 % 23.4 % 20.4 % Selling, general, and administrative expense includes costs for compensation and benefits related to selling, general, and administrative employees, commissions, depreciation, professional and outside services, trade show, and travel expenses.
We believe that investing in research and development is important to delivering innovative products to our customers and, therefore, we expect to continue to increase our investment in research and development. 29 Table of Contents Selling, General, and Administrative Expense The composition of our Selling, general, and administrative expense, including as a percentage of revenue, is presented in the following table: Year Ended December 31, January 1, January 2, % Change in (In thousands) 2022 2022 2021 2022 2021 Selling, general, and administrative $ 122,076 $ 105,617 $ 95,331 15.6 % 10.8 % Percentage of revenue 18.5 % 20.5 % 23.4 % Selling, general, and administrative expense includes costs for compensation and benefits related to selling, general, and administrative employees, commissions, depreciation, professional and outside services, trade show, and travel expenses.
This $68.9 million increase was primarily due to the acquisition of Mirametrix in the current year, which used cash, net of cash acquired, of $68.1 million. Total cash used for capital expenditures and payments for software and intellectual property licenses increased $0.8 million to $21.7 million in fiscal 2021 from $20.9 million in fiscal 2020.
This $54.9 million decrease was primarily a result of the acquisition of Mirametrix in the prior year, which used cash, net of cash acquired, of $68.1 million. Total cash used for capital expenditures and payments for software and intellectual property licenses increased $13.2 million to $34.9 million in fiscal 2022 from $21.7 million in fiscal 2021.
Revenue Year Ended January 1, January 2, December 28, % Change in (In thousands) 2022 2021 2019 2021 2020 Revenue $ 515,327 $ 408,120 $ 404,093 26.3 % 1.0 % Revenue increased $107.2 million, or 26.3%, in fiscal 2021 compared to fiscal 2020, primarily driven by increased demand for products used in client computing solutions, 5G wireless infrastructure, and industrial and robotics applications.
Revenue Year Ended December 31, January 1, January 2, % Change in (In thousands) 2022 2022 2021 2022 2021 Revenue $ 660,356 $ 515,327 $ 408,120 28.1 % 26.3 % Revenue increased $145.0 million, or 28.1%, in fiscal 2022 compared to fiscal 2021, primarily from our products used in data center servers, client computing solutions, 5G wireless infrastructure, industrial automation, and robotics applications.
In the future, we may continue to consider acquisition opportunities to further extend our product or technology portfolios and further expand our product offerings. In connection with funding capital expenditures, acquisitions, securing additional wafer supply, increasing our working capital, or other operations, we may seek to obtain equity or additional debt financing.
In connection with funding capital expenditures, acquisitions, securing additional wafer supply, increasing our working capital, or other operations, we may seek to obtain equity or additional debt financing.
Deferred tax assets and liabilities are recognized for the expected tax consequences of temporary differences between the tax bases of assets and liabilities and their reported amounts in the financial statements using enacted tax rates and laws that will be in effect when the difference is expected to reverse. 24 Table of Contents Valuation allowances are provided to reduce deferred tax assets to an amount that in management’s judgment is more-likely-than-not to be recoverable against future taxable income.
Deferred tax assets and liabilities are recognized for the expected tax consequences of temporary differences between the tax bases of assets and liabilities and their reported amounts in the financial statements using enacted tax rates and laws that will be in effect when the difference is expected to reverse.
Interest Expense The composition of our Interest expense, including as a percentage of revenue, is presented in the following table: Year Ended January 1, January 2, December 28, % Change in (In thousands) 2022 2021 2019 2021 2020 Interest expense $ (2,738 ) $ (3,702 ) $ (11,731 ) (26.0 )% (68.4 )% Percentage of revenue (0.5 )% (0.9 )% (2.9 )% Interest expense is primarily related to our long-term debt, which is further discussed under the "Credit Arrangements" heading in the Liquidity and Capital Resources section, below.
Interest Expense The composition of our Interest expense, including as a percentage of revenue, is presented in the following table: Year Ended December 31, January 1, January 2, % Change in (In thousands) 2022 2022 2021 2022 2021 Interest expense $ (4,146 ) $ (2,738 ) $ (3,702 ) 51.4 % (26.0 )% Percentage of revenue (0.6 )% (0.5 )% (0.9 )% Interest expense is primarily related to our long-term debt.
Cash provided by or used in operating activities will fluctuate from period to period due to fluctuations in operating results, the timing and collection of accounts receivable, and required inventory levels, among other things.
We have historically financed our operating and capital resource requirements through cash flows from operations, and from the issuance of long-term debt to fund acquisitions. Cash provided by or used in operating activities will fluctuate from period to period due to fluctuations in operating results, the timing and collection of accounts receivable, and required inventory levels, among other things.
Details of our restructuring plans and expenses incurred under them are discussed in " Note 9 - Restructuring " to our Consolidated Financial Statements in Part II, Item 8 of this report. Restructuring charges decreased in fiscal 2021 compared to fiscal 2020, as we had no significant restructuring activity in the current year.
Details of our restructuring plans and expenses incurred under them are discussed in Note 9 - Restructuring to our Consolidated Financial Statements in Part II, Item 8 of this report.
The revenue recognized based on estimated price adjustments and stock rotation reserves may be materially different from the actual consideration received if the actual distributor price adjustments and stock rotation returns differ significantly from the historical trends used in the estimates.
The revenue recognized based on estimated price adjustments and stock rotation reserves may be materially different from the actual consideration received if the actual distributor price adjustments and stock rotation returns differ significantly from the historical trends used in the estimates. 25 Table of Contents Inventories and Cost of Revenue Inventories are stated at the lower of actual cost (determined using the first-in, first-out method) or net realizable value.
Other (Expense) Income, net The composition of our Other (expense) income, net, including as a percentage of revenue, is presented in the following table: Year Ended January 1, January 2, December 28, % Change in (In thousands) 2022 2021 2019 2021 2020 Other (expense) income, net $ (452 ) $ (208 ) $ (2,245 ) 117.3 % (90.7 )% Percentage of revenue (0.1 )% (0.1 )% (0.6 )% For fiscal 2021 compared to fiscal 2020, the increase in Other (expense) income, net was largely driven by higher foreign currency exchange losses.
Other (Expense) Income, net The composition of our Other (expense) income, net, including as a percentage of revenue, is presented in the following table: Year Ended December 31, January 1, January 2, % Change in (In thousands) 2022 2022 2021 2022 2021 Other (expense) income, net $ (1,109 ) $ (452 ) $ (208 ) 145.4 % 117.3 % Percentage of revenue (0.2 )% (0.1 )% (0.1 )% For fiscal 2022 compared to fiscal 2021, the increase in Other (expense) income, net was primarily due to the $0.7 million loss on refinancing of our long-term debt during the current year .
Liquidity Cash and cash equivalents (In thousands) January 1, 2022 January 2, 2021 $ Change % Change Cash and cash equivalents $ 131,570 $ 182,332 $ (50,762 ) (27.8 )% As of January 1, 2022, we had Cash and cash equivalents of $131.6 million, of which approximately $59.1 million in Cash and cash equivalents was held by our foreign subsidiaries.
Liquidity Cash and cash equivalents (In thousands) December 31, 2022 January 1, 2022 $ Change % Change Cash and cash equivalents $ 145,722 $ 131,570 $ 14,152 10.8 % As of December 31, 2022, we had Cash and cash equivalents of $145.7 million, of which approximately $30.9 million in Cash and cash equivalents was held by our foreign subsidiaries.
See " Note 1 - Basis of Presentation and Significant Accounting Policies " under Part II, Item 8 of this report for further information on our recognition of revenue. Sales to most distributors are made under terms allowing certain price adjustments upon sale to their end customers and limited rights of return of our products held in their inventory.
Sales to most distributors are made under terms allowing certain price adjustments upon sale to their end customers and limited rights of return of our products held in their inventory.
As of January 1, 2022, we had no used or unused credit arrangements beyond the secured revolving loan facility described in the Current Credit Agreement. Share Repurchase Program See "Issuer Purchases of Equity Securities" under Part II, Item 5 of this Annual Report on Form 10-K for more information about the share repurchase program.
Share Repurchase Program See "Issuer Purchases of Equity Securities" under Part II, Item 5 of this Annual Report on Form 10-K for more information about the share repurchase program.
Inventories and Cost of Revenue Inventories are stated at the lower of actual cost (determined using the first-in, first-out method) or net realizable value. We review and set standard costs quarterly to approximate current actual manufacturing costs. Our manufacturing overhead standards for product costs are calculated assuming full absorption of actual spending over actual costs.
We review and set standard costs quarterly to approximate current actual manufacturing costs. Our manufacturing overhead standards for product costs are calculated assuming full absorption of actual spending over actual costs. The valuation of inventory requires us to estimate excess or obsolete inventory.
The valuation of inventory requires us to estimate excess or obsolete inventory. Material assumptions we use to estimate necessary inventory carrying value adjustments can be unique to each product and are based on specific facts and circumstances.
Material assumptions we use to estimate necessary inventory carrying value adjustments can be unique to each product and are based on specific facts and circumstances. In determining provisions for excess or obsolete products, we consider assumptions such as changes in business and economic conditions, projected customer demand for our products, and changes in technology or customer requirements.
Liquidity and Capital Resources The following sections discuss material changes in our financial condition from the end of fiscal 2020, including the effects of changes in our Consolidated Balance Sheets, and the effects of our credit arrangements and contractual obligations on our liquidity and capital resources.
Details of our deferred tax assets and valuation allowance are discussed in Note 13 - Income Taxes to our Consolidated Financial Statements in Part II, Item 8 of this report. 31 Table of Contents Liquidity and Capital Resources The following sections discuss material changes in our financial condition from the end of fiscal 2021, including the effects of changes in our Consolidated Balance Sheets, and the effects of our credit arrangements and contractual obligations on our liquidity and capital resources.
Revenue from the Consumer end market increased by 11% in fiscal 2021 compared to fiscal 2020 primarily due to increased demand for our products in Consumer end market applications. Revenue from the Licensing and Services end market increased by 4% in fiscal 2021 compared to fiscal 2020 primarily due to increased licensing and IP royalties.
Revenue from the Consumer end market decreased by 3% in fiscal 2022 compared to fiscal 2021 primarily due to macroeconomic weakness in Consumer in the current year. Revenue from the Licensing and Services end market decreased by 16% in fiscal 2022 compared to fiscal 2021 primarily due to decreased licensing and IP royalties.
Inventories (In thousands) January 1, 2022 January 2, 2021 Change % Change Inventories $ 67,594 $ 64,599 $ 2,995 4.6 % Days of inventory on hand 122 139 (17 ) Inventories as of January 1, 2022 increased $3.0 million, or approximately 5%, compared to January 2, 2021 primarily to meet the increased demands of our customers.
Inventories (In thousands) December 31, 2022 January 1, 2022 $ Change % Change Inventories $ 110,375 $ 67,594 $ 42,781 63.3 % Days of inventory on hand 187 122 65 Inventories as of December 31, 2022 increased $42.8 million, or approximately 63%, compared to January 1, 2022 primarily to meet the increased demands of our customers and for new product ramps.
We continue to evaluate future projected financial performance to determine whether such performance is sufficient evidence to support a reduction in or reversal of the valuation allowance. We will continue to evaluate both positive and negative evidence in future periods to determine if we will realize the deferred tax assets.
We will continue to evaluate both positive and negative evidence in future periods to determine if we will realize the deferred tax assets. The amount of the deferred tax asset considered realizable could be adjusted if sufficient positive evidence exists.
The increase in Selling, general, and administrative expense for fiscal 2021 compared to fiscal 2020 was due primarily to increased stock compensation, salaries, and variable compensation related expenses.
The increase in Selling, general, and administrative expense for fiscal 2022 compared to fiscal 2021 was due primarily to increased headcount-related costs to support the growth of our business, and to increased legal expenses primarily related to the defense of claims outside the ordinary course of business.
In determining provisions for excess or obsolete products, we consider assumptions such as changes in business and economic conditions, projected customer demand for our products, and changes in technology or customer requirements. The creation of such provisions results in a write-down of inventory to net realizable value and a charge to Cost of revenue.
The creation of such provisions results in a write-down of inventory to net realizable value and a charge to Cost of revenue.
Cash provided by operating activities was $167.7 million in fiscal 2021 compared to $91.7 million in fiscal 2020. This increase of $76.0 million was primarily driven by an increase of $54.2 million provided by improved operating performance, coupled with $21.8 million of favorable changes in working capital. We are using cash provided by operating activities to fund our operations.
Cash provided by operating activities was $238.8 million in fiscal 2022 compared to $167.7 million in fiscal 2021. This increase of $71.1 million was primarily driven by an increase of $98.9 million provided by improved operating performance, partially offset by $27.8 million of changes in working capital, primarily from cash used by inventories.
Revenue from the Industrial and Automotive end market increased by 34% in fiscal 2021 compared to fiscal 2020, primarily due to increased demand for our products across multiple applications such as industrial automation and robotics, as well as in Automotive led by adoption in ADAS and infotainment applications .
Revenue from the Industrial and Automotive end market increased by 41% in fiscal 2022 compared to fiscal 2021, primarily due to strong customer adoption in a broad range of applications, including industrial automation and robotics. Growth in Automotive was driven by the adoption of new designs in ADAS and infotainment applications.
Within these end markets, there are multiple segment drivers, including: • Communications and Computing: 5G infrastructure deployments, client computing platforms, and cloud and enterprise servers, • Industrial and Automotive: industrial IoT, factory automation, robotics, and automotive electronics, • Consumer: smart home, and prosumer. 25 Table of Contents We also generate revenue from the licensing of our IP, the collection of certain royalties, patent sales, the revenue related to our participation in consortia and standard-setting activities, and services.
Within these end markets, there are multiple segment drivers, including: • Communications and Computing: datacenter servers and networking equipment, client computing platforms, and 5G communications infrastructure deployments, • Industrial and Automotive: factory automation, robotics, automotive electronics, and industrial IoT, • Consumer: smart home, prosumer, and other applications.
For further information on our cash commitments for operating lease liabilities and required future principal payments on our long-term debt, see Note 10 - Leases and Note 8 - Long-Term Debt , respectively, under Part II, Item 8 of this report.
For further information on our cash commitments for operating lease liabilities, see Note 10 - Leases to our Consolidated Financial Statements in Part II, Item 8 of this report. In the future, we may continue to consider acquisition opportunities to further extend our product or technology portfolios and further expand our product offerings.
During fiscal 2021, we also repurchased approximately 1.3 million shares of common stock for $70.1 million compared to repurchases in fiscal 2020 of approximately 0.4 million shares of common stock for $15.0 million. 30 Table of Contents Accounts receivable, net (In thousands) January 1, 2022 January 2, 2021 Change % Change Accounts receivable, net $ 79,859 $ 64,581 $ 15,278 23.7 % Days sales outstanding - Overall 51 55 (4 ) Accounts receivable, net as of January 1, 2022 increased by approximately $15.3 million, or approximately 24%, compared to January 2, 2021.
During fiscal 2021, we paid required quarterly installments on our long-term debt totaling $13.1 million. 32 Table of Contents Accounts receivable, net (In thousands) December 31, 2022 January 1, 2022 $ Change % Change Accounts receivable, net $ 94,018 $ 79,859 $ 14,159 17.7 % Days sales outstanding - Overall 49 51 (2 ) Accounts receivable, net as of December 31, 2022 increased by approximately $14.2 million, or approximately 18%, compared to January 1, 2022.
There is significant uncertainty around the extent and duration of the disruption to our business from the COVID-19 pandemic, and our liquidity and working capital needs may be impacted in future periods as a result of the effects of the COVID-19 pandemic. 29 Table of Contents We have historically financed our operating and capital resource requirements through cash flows from operations, and from the issuance of long-term debt to fund acquisitions.
There continues to be uncertainty around the extent and duration of the disruption to our business, including from the effects of the ongoing COVID-19 pandemic, market volatility, and inflationary pressures, which may impact our liquidity and working capital needs in future periods.
Impact of the COVID-19 pandemic on our Business The COVID-19 pandemic has caused, and may continue to cause, a global slowdown of economic activity (including the decrease in demand for certain goods and services), and volatility in and disruption to financial markets, labor markets, and supply chains.
Impact of COVID-19 and Global Economic Environment on our Business The COVID-19 pandemic, increased financial market volatility, inflationary pressure, rising interest rates, recessionary concerns, and geopolitical tension continue to impact business globally and may impact our operations by causing disruption to our labor markets and supply chains.
See the section entitled “Risk Factors” in Item 1A of Part I of this report for further information about related risks and uncertainties.
The extent to which the COVID-19 pandemic, increased financial market volatility, inflationary pressures and related uncertainty will impact our business activities will depend on future developments that are highly uncertain and cannot be predicted at this time. See the section entitled “Risk Factors” in Item 1A of Part I of this report for further information about related risks and uncertainties.
Credit Arrangements On May 17, 2019, we entered into our Current Credit Agreement with Wells Fargo Bank, National Association, as administrative agent, and other lenders. The details of this arrangement are described in " Note 8 - Long-Term Debt " in the accompanying Notes to Consolidated Financial Statements.
The details of this arrangement are described in Note 8 - Long-Term Debt to our Consolidated Financial Statements in Part II, Item 8 of this report. As of December 31, 2022, we had no used or unused credit arrangements beyond the secured revolving loan facility described in the 2022 Credit Agreement.
During fiscal 2020, we drew $50.0 million on our revolving loan facility to further strengthen our liquidity position, and we paid quarterly installments totaling $26.3 million on our long-term debt, which fulfilled the required quarterly installments through the first quarter of fiscal 2021.
During fiscal 2022, we made a discretionary payment of $20.0 million on our current revolving loans, and we paid required quarterly installments on our previous long-term debt totaling $8.8 million.
This $120.5 million increase was due to the following mix of activities. During fiscal 2021, we paid required quarterly installments on our long-term debt totaling $13.1 million.
This $59.5 million increase was due to the following mix of activities. During fiscal 2022, we repurchased approximately 2.0 million shares of common stock for $110.1 million compared to repurchases in fiscal 2021 of approximately 1.3 million shares of common stock for $70.1 million.
The decrease in Interest expense for fiscal 2021 compared to fiscal 2020 was driven by the significant reduction in the effective interest rate on our long term debt coupled with the reduction in the principal balance of our long-term debt.
The increase in Interest expense for fiscal 2022 compared to fiscal 2021 was driven by the increase in the applicable base rate for our long-term debt, the adjusted Term Secured Overnight Financing Rate ("SOFR") from September 1, 2022, and the London Interbank Offered Rate ("LIBOR") prior to that date.
Removed
The severity, magnitude and duration of the COVID-19 pandemic and its economic consequences have been and continue to be uncertain, evolving and difficult to predict, and the pandemic’s impact on our operations and financial performance, as well as its impact on our ability to successfully execute our business strategy and initiatives, remains uncertain.
Added
The ongoing COVID-19 pandemic, including the periodic resurgence of cases relating to the spread of new variants, has and continues to impact worldwide economic activity and poses the risk that our employees, contractors, suppliers and other partners may be prevented from conducting business activities.
Removed
We continue to take actions to safeguard the health and well-being of our employees and our business. We implemented social distancing policies at our locations around the world, including working from home and eliminating substantially all travel.
Added
See Note 1 - Basis of Presentation and Significant Accounting Policies to our Consolidated Financial Statements in Part II, Item 8 of this report for further information on our recognition of revenue.
Removed
Furthermore, we continue to manage our cash position and liquidity needs in light of the rapidly changing environment, and we have additional resources available under our Current Credit Agreement, if needed.
Added
Valuation allowances are provided to reduce deferred tax assets to an amount that in management’s judgment is more-likely-than-not to be recoverable against future taxable income. The determination of a valuation allowance and when it should be released requires complex judgment.
Removed
The full extent of the effects of the COVID-19 pandemic and the related governmental, business and travel restrictions in order to contain the virus are continuing to evolve globally, including in response to variants of the virus.
Added
We also generate revenue from the licensing of our IP, the collection of certain royalties, patent sales, the revenue related to our participation in consortia and standard-setting activities, and services.
Removed
We anticipate that these actions and the global health crisis caused by the COVID-19 pandemic will continue to negatively impact business activity across the globe. Demand for our products may be impacted given the global reach and economic impact of the virus.
Added
Restructuring charges increased in fiscal 2022 compared to fiscal 2021 due to additional lease right-of-use asset impairment charges for our partially vacated facility in San Jose, California and contract termination fees in the current year under the internal restructuring plan that our management approved and executed in April 2019, as compared to minimal activity in the prior year.
Removed
For example, governmental actions or policies or other initiatives to contain the virus could lead to reductions in our end customers’ demand for our products, which could have a negative impact on our revenue.
Added
In making this evaluation, we considered the uncertain stability of the current economic and operating environment and estimates about our ability to generate taxable income in future periods within the United States. We continue to evaluate future projected financial performance to determine whether such performance is sufficient evidence to support a reduction in or reversal of the valuation allowance.
Removed
We have previously seen and could again see delays or disruptions in our supply chain due to governmental restrictions or voluntary precautionary measures adopted by our suppliers. If our suppliers experience similar impacts, we may have difficulty sourcing materials necessary to fulfill customer production requirements and transporting completed products to our end customers.
Added
On September 1, 2022, we entered into our 2022 Credit Agreement, as described in Note 8 - Long-Term Debt to our Consolidated Financial Statements in Part II, Item 8 of this report. As of December 31, 2022, we did not have significant long-term commitments for capital expenditures.
Removed
It is difficult for us to predict the scope, magnitude, and length of supply chain disruptions. Supply chain delays and disruptions may also affect the ability of our customers to obtain materials or products from other suppliers which may constrain or delay their demand for our products.
Added
In September 2022, we entered into our 2022 Credit Agreement and drew down an initial $150.0 million revolving loan at closing, which we used to pay off the $150.0 million outstanding balance on our previous term and revolving loans. In connection with the 2022 Credit Agreement, we paid $1.4 million in debt issuance costs.
Removed
We will continue to actively monitor the situation and may take further actions altering our business operations that we determine are in the best interests of our employees, customers, partners, suppliers, and stakeholders, or as required by federal, state, or local authorities.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

1 edited+0 added−0 removed4 unchanged
Biggest changeGAAP. Interest Rate Risk We are exposed to interest rate risk related to our indebtedness. At January 1, 2022, we had $158.8 million outstanding under our Current Credit Agreement. A hypothetical increase in the one-month LIBOR by 1% (100 basis points) would increase our future interest expense by approximately $0.4 million per quarter. 31 Table of Contents
Biggest changeGAAP. Interest Rate Risk We are exposed to interest rate risk related to our indebtedness. At December 31, 2022, we had $130.0 million outstanding under our 2022 Credit Agreement. A hypothetical increase in the one-month SOFR by 1% (100 basis points) would increase our future interest expense by approximately $0.3 million per quarter. 33 Table of Contents

Other LSCC 10-K year-over-year comparisons